Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL 6

A lorry driver negligently injured a fellow employee. The employer was held vicariously liable and paid damages. The employer then successfully sued the driver to recover these costs, establishing an employee's implied contractual duty to exercise reasonable care towards their employer.

Facts

The appellant, Mr Lister (the son), was a lorry driver employed by the respondent, Romford Ice and Cold Storage Co Ltd. In the course of his employment, whilst reversing his lorry, he negligently struck and injured his father, who was also an employee of the company. The father sued the company for damages and succeeded, with the company being held vicariously liable for the son’s negligence. The company’s insurers paid the damages to the father. The insurers then initiated a claim in the company’s name against the son (the appellant driver) to recover the amount paid, arguing that the son had breached his contract of employment.

Issues

The central legal questions before the House of Lords were:

1. Is there an implied term in a contract of employment that the employee will perform their duties with reasonable skill and care?

2. If such a term exists, is there a further implied term that the employer will indemnify the employee against liability incurred during the course of their employment, particularly by ensuring them against third-party liability?

Judgment

The House of Lords, by a 3-2 majority, dismissed the appeal from the employee, finding in favour of the employer.

The Majority Opinion

The majority (Viscount Simonds, Lord Morton of Henryton, and Lord Tucker) held that it was a fundamental and implied term of any contract of employment that an employee would perform their work with reasonable care. A failure to do so, resulting in loss to the employer (including damages paid out due to vicarious liability), constituted a breach of contract for which the employer could seek an indemnity.

Viscount Simonds rejected the argument that a term should be implied requiring the employer to take out insurance to cover the employee’s liability. He found no basis for such an implication, stating that the contract was one between an employer and an employee, and the presence or absence of an insurance policy was extraneous to their respective rights and obligations.

It is, in my opinion, the clear law that a master is entitled to be indemnified by his servant against liability which he has incurred to a third party whose injury was caused by the servant’s wrongful act.

Lord Simonds further affirmed the employee’s core duty:

I have no doubt that it is the duty of a servant to serve his master with fidelity and to use reasonable care in the performance of his duties, and if he is a driver, to drive his master’s vehicle with reasonable care.

The Dissenting Opinion

Lord Radcliffe and Lord Somervell dissented. Lord Radcliffe argued that in the modern context of compulsory road traffic insurance, it was unrealistic to ignore its existence. He contended that the real parties to the dispute were the insurers, exercising a right of subrogation. He felt that the commercial reality was that both employer and employee would assume that the employer’s insurance policy would cover any liabilities arising from driving in the course of employment, and it would be unjust to allow insurers to subvert this by suing the employee.

But the master’s ‘right’ in such a case is a right of indemnity, and it is the existence of the insurance and the fact that it is the insurers who are exercising the right that are the novel features of the situation. I do not think that it is at all a simple solution to say that the existence of the insurance is legally irrelevant.

Implications

The decision firmly established that an employee owes a contractual duty of care to their employer, the breach of which can lead to a claim for indemnity. It confirmed that an employer who is vicariously liable for their employee’s negligence can sue that employee to recover their losses. The ruling was highly controversial as it raised the prospect of insurers routinely suing employees after settling vicarious liability claims. This led to a subsequent ‘gentleman’s agreement’ amongst major insurers not to pursue such subrogation claims in most motor insurance cases, although the legal principle established in Lister remains valid.

Verdict: The employee’s appeal was dismissed. The House of Lords held that the employer was entitled to claim damages from the employee for the breach of an implied term in the contract of employment to exercise reasonable care.

Source: Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL 6