Employer was not vicariously liable

Tuesday Law Report: 23 February 1999 Credit Lyonnais Nederland NV (now known as Generale Bank Nederland NV) v Export Credits Guarantee Department House of Lords (Lord Slynn of Hadley, Lord Woolf, Lord Steyn, Lord Clyde, Lord Millett) 18 February 1999

AN EMPLOYER could not be vicariously liable for the acts of his employee performed in the course of his employment which were not in themselves tortious, but which only constituted a tort when combined with other acts which were not performed in the course of his employment.

The House of Lords dismissed the appeal of Credit Lyonnais Nederland NV ("the bank") against the decision of the Court of Appeal that the Export Credits Guarantee Department ("ECGD") was not vicariously liable for losses it had sustained as a result of fraud.

ECGD issued guarantees to assist UK exporters. It issued a series of guarantees to the bank in relation to puchases by it from a Mr Chong of bills of exchange drawn in respect of fictitious export transactions entered into by companies which he owned or controlled.

Mr Pillai, a senior underwriter of ECGD who dealt with the issue of the guarantees, was corrupted by Chong and assisted him in the fraud practised on the bank. The bank commenced proceedings against ECGD claiming, inter alia, that ECGD was vicariously liable in tort for Pillai's acts in underwriting the guarantees.

The bank's appeal to the Court of Appeal against the judge's decision that ECGD was not liable for the loss it had sustained was dismissed, the court holding that, although by the time Pillai authorised the issue of the guarantees he was a party to a common design with Chong to deceive the bank by a fraud of which the issue of the guarantees was an essential part there was nothing unlawful in the issue of the guarantees, and the other acts he performed to assist Chong were not within the course of his employment or the scope of his authority.

The bank appealed, on the grounds (i) that where an employee assisted in the violation by another of an individual's rights pursuant to a common design to that end, the employee incurred liability as a joint tortfeasor for the violation, and his employer incurred vicarious liability for the violation if the assistance by the employee was in the course of his employment; and (ii) that the bank was entitled to succeed because Pillai's own acts of assistance were themselves tortious because they were carried out with the intention of bringing about a violation of the bank's rights.

Jonathan Sumption QC and Richard Slade (Linklaters & Paines) for the bank; Gordon Pollock QC, Jonathan Hirst QC and Graham Dunning (Clyde & Co) for ECGD.

Lord Woolf said that the principle on which vicarious liability depended was that the wrong of the servant for which the master was liable was one committed in the course of his employment.

The present case raised starkly the question whether, in the case of a joint tort, it was sufficient to make the master liable if the acts of his servant, for which he was responsible, did not in themselves amount to a tort but only did so when linked to other acts which were not performed in the course of the employee's employment.

The short answer to that question was that the actions of Pillai in the course of his employment could not be combined with the actions of Chong, which if done by Pillai would have been outside the course of his employment, to make ECGD vicariously liable for the consequence of Pillai's and Chong's combined conduct.

The submission that acts of assistance in connection with another's wrong became themselves tortious, if carried out with the intention of bringing about the violation of a third party's rights, was novel because it did not require those acts of assistance to be in themselves actionable wrongs. The only purpose for establishing the existence of such a tort was to make ECGD vicariously liable for Pillai's conduct, and that was not a justification for the recognition of a new tort.

Kate O'Hanlon

Barrister