Dubai Aluminium Company Ltd v Salaam [2002] UKHL 48 (5 December 2002)

A law firm was held vicariously liable for a partner’s dishonest assistance in a client's fraud. The House of Lords ruled the partner's wrongful acts, including drafting sham agreements, were 'closely connected' to his role, falling within the ordinary course of business.

Facts

Mr Anthony Amhurst, a partner in the law firm Amhurst & Co, dishonestly assisted a client, Mr Hany Salaam, in a fraudulent scheme against Dubai Aluminium Co Ltd (Dubal). Mr Salaam had entered into a genuine consultancy agreement with Dubal, but this was later supplemented by sham agreements drafted by Mr Amhurst. These agreements were designed to facilitate the fraudulent extraction of approximately US$50 million from Dubal. Dubal sued Mr Salaam, Mr Amhurst, and the firm Amhurst & Co. The proceedings against the firm were based on the claim that it was vicariously liable for the dishonest assistance provided by its partner, Mr Amhurst.

Issues

The central legal issue was whether a partnership could be held vicariously liable for the tort of ‘dishonest assistance’ committed by one of its partners. This required the House of Lords to determine the correct interpretation of section 10 of the Partnership Act 1890, which provides for a firm’s liability for a partner’s wrongful acts or omissions ‘acting in the ordinary course of the business of the firm’. The key question was whether Mr Amhurst’s dishonest drafting of sham legal agreements fell within this scope.

Judgment

The House of Lords unanimously dismissed the appeal by the firm, holding it vicariously liable for Mr Amhurst’s dishonest assistance. Lord Nicholls of Birkenhead delivered the leading judgment, providing a detailed analysis of vicarious liability in the context of partnerships.

Reasoning of Lord Nicholls

Lord Nicholls began by clarifying that the tort of dishonest assistance is a liability in its own right and not dependent on establishing a primary liability in another. He then addressed the application of section 10 of the Partnership Act 1890, stating that it was intended to be an enactment of the common law principle of vicarious liability.

Section 10 is an enactment of the common law. The statutory phrase ‘in the ordinary course of the business of the firm’ is not to be construed as though it were a different expression from the common law ‘in the ordinary course of his employment’. The statutory expression is the partnership equivalent of the common law expression.

He approved and applied the ‘close connection’ test, as established in Lister v Hesley Hall Ltd [2002] 1 AC 215, to interpret the phrase ‘in the ordinary course of the business’.

The wrongful conduct must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm or the employer to third parties, the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm’s business or the employee in the course of his employment.

Applying this test to the facts, Lord Nicholls reasoned that even though the partner acted dishonestly and for his own benefit, his actions were closely connected to his duties as a solicitor. Drafting agreements was a fundamental part of a solicitor’s work. The fact that he used this skill to create fraudulent agreements did not sever the connection with the firm’s business.

Drafting agreements is a normal activity for a solicitor. The draft agreements were drafted by a partner in the firm. They were drafted in the course of the partner’s carrying on the business of the firm. That they were drafted for a fraudulent purpose does not take the drafting outside the course of the firm’s business.

Therefore, the firm was vicariously liable for the loss caused by Mr Amhurst’s wrongful acts. The other Law Lords (Lord Slynn, Lord Steyn, Lord Hutton, and Lord Hobhouse) agreed with this reasoning and conclusion.

Implications

The decision in Dubai Aluminium v Salaam is a landmark case on vicarious liability. It confirmed that the modern ‘close connection’ test for vicarious liability applies equally to partnerships under the Partnership Act 1890 as it does to employment relationships at common law. This means that a firm can be liable for the deliberate and fraudulent wrongdoing of a partner, provided the wrongdoing is closely connected with the acts the partner was authorised to do. The case significantly broadened the potential liability of professional partnerships for the misconduct of their members, reinforcing the importance of internal controls, supervision, and professional indemnity insurance.

Verdict: The appeal by the law firm was dismissed. The House of Lords held the firm vicariously liable for the partner’s dishonest assistance.

Source: Dubai Aluminium Company Ltd v. Salaam [2002] UKHL 48 (5 December 2002)