Frederick & Ors v Positive Solutions (Financial Services) Ltd

Vicarious liability may arise for an agent where the agent’s activities form an integral part of the defendant’s business and the defendant created the risk of wrongdoing by assigning those activities. Risk creation alone is insufficient. The relationship and the wrongful acts must be examined together. Access to a business portal, receipt of commission and a contractual indemnity do not establish liability where the agent was pursuing a recognisably independent business for personal purposes. All acts necessary to make the agent personally liable must fall within the course of the agency. A direct duty of care for economic loss requires proximity or an assumption of responsibility; an opportunity to cause loss without contact or relationship is insufficient.

The appellants, members of one family, claimed losses arising from dishonest mortgage applications made by Warren, an agent of the respondent financial-services company. The applications raised funds for a property investment scheme operated by Warren and Qureshi. The claim relied principally on vicarious liability and, alternatively, on a direct duty of care.

Master Bowles entered summary judgment for the respondent except on vicarious liability. The High Court allowed the respondent’s appeal and dismissed the appellants’ cross-appeal, entering judgment for the respondent: [2017] EWHC 643 (Ch). The central issues were whether Warren’s wrongdoing was sufficiently connected with his agency and whether the respondent owed a direct duty of care.

The Court of Appeal unanimously dismissed the appeal. Flaux LJ gave the leading judgment, with Asplin LJ and Rafferty LJ agreeing.

1. Vicarious liability. Even assuming that the modern unitary approach applied to agency, the relevant inquiry had two elements. Warren’s activities had to be an integral part of the respondent’s business and for its benefit, rather than entirely attributable to a recognisably independent business. The respondent also had to have created the risk of the wrongful act by assigning the activities. The relationship and the wrongful acts had to be considered together. Risk creation was important but not sufficient.
2. On the pleaded facts, Warren was pursuing the independent property investment business conducted with Qureshi. The mortgage applications were merely the means of obtaining funds for that enterprise. They were not an integral part of the respondent’s business. Describing Warren as on a frolic of his own or moonlighting accurately captured the position.
3. Alternatively, all acts necessary to make Warren personally liable in tort had to occur within the course of his agency. Qureshi induced the appellants to invest, and Warren later received and misappropriated the money. The appellants’ loss occurred only when the money was handed over. Those acts formed part of the independent investment business and fell outside Warren’s agency. This was not merely a causation issue.
4. Access to the Abbey National portal was no more than an opportunity to commit the wrongdoing. Without a holding out of Warren as authorised to act for the respondent, that opportunity was insufficient. The Court did not need to decide whether reliance-based torts formed a distinct category requiring actual or ostensible authority. Commission generated automatically by the lender’s systems, an indemnity in the Agency Agreement and the wording of the mortgage offers did not establish the necessary connection. Gravil v Carroll was distinguishable.
5. Direct duty of care. Applying the Caparo test, there was no proximity. The respondent had no contact or relationship with the appellants, was unaware of Warren’s conduct and had not assumed responsibility. The requirement that imposition of a duty be fair, just and reasonable also failed.

• Court of Appeal (Civil Division) dismissed the appeal and upheld the result below.
• High Court, Chancery Division allowed the respondent’s appeal against the Master’s decision, entered summary judgment for the respondent on vicarious liability and dismissed the appellants’ cross-appeal on duty of care: [2017] EWHC 643 (Ch).
• Master Bowles granted summary judgment for the respondent except in relation to the claim based on vicarious liability.