UK: Solicitors PI: Illegality And Vicarious Liability

In a case last month, a claim against solicitors failed on the basis of the illegality defence. The judge found that the payment that the claimants were seeking to recover had been intended by them to be a bribe and that they could not rely upon their own illegal or immoral conduct to recover compensation.

The case also raised a number of other issues:

  • the circumstances in which a firm may be vicariously liable for the actions of its employees in circumstances where – as here – the employee, although a solicitor, was primarily concerned with marketing and business development and acted as a "deal maker";
  • whether, notwithstanding the absence of a solicitor/client relationship, the employee may nevertheless owe a personal duty of care;
  • the inferences that a court is likely to draw if a party fails to give evidence in person at trial without good reason.

To view the article in full, please see below:



Full Article

A recent case considered whether the illegality defence precluded a claim by a purported client against a solicitor for an unreturned payment that had been intended to be a bribe.

A group of travel agents brought a claim against Denton Wilde Sapte ("DWS") and a senior solicitor in its India Group, a Ms Gauri Advani. Ms Advani, whose role in the firm was focused on business development rather than fee earning, had introduced the travel agents to an opportunity to be the exclusive Global Sales Agent ("GSA") of Air India for the UK and Ireland. As part of the deal, payments totalling around £370,000 were made by the travel agents to a third party. The GSA was never awarded and the sums paid over were not returned. DWS and Ms Advani were sued by the disappointed travel agents for the loss of this so-called 'deposit'.

Illegality

The claim against both Defendants failed on the basis of the illegality defence - the principle that a claimant cannot rely upon its own illegal or immoral conduct to recover compensation.

The court found that the 'deposit' was intended to be a bribe in civil law and that it was not necessary to consider whether there had been a breach of criminal law. It did not matter that the bribe was unsuccessful; the moral turpitude of the briber was the same whether the bribe was actual or only attempted. The agents' argument that the illegality related to the underlying GSA transaction rather than any contract being sued on did not defeat the defence. The judge was satisfied that there was a very clear and close connection between the wrongful conduct and the claim made - the wrongful conduct was the payment of the attempted bribe and this payment was the thing being claimed.

Vicarious liability of DWS

DWS were sued on the basis that they were vicariously liable for Ms Advani's actions and/or that these were within her actual or ostensible authority. Although he did not need to, the judge did make findings in this regard.

The essential question for vicarious liability is whether the tort is so closely connected with the employment that it would be fair and just to hold the employer vicariously responsible. Whether Ms Advani's actions fell under her actual and/or ostensible authority depends upon whether her actions could be said to fall within her actual role and/or the usual role and business of a solicitor performing her role.

It was found that Ms Advani's role at DWS was primarily one of marketing and business development, although she was and was held out to be a solicitor and her role did on occasions extend to providing legal advice or assistance. The judge found, however, that Ms Advani's role in this transaction could be best described as a deal broker and that none of these activities were within her marketing role as held out by DWS or within the ordinary course of a solicitor's business. Accordingly, she was not acting within her actual or ostensible authority and DWS were not vicariously liable for her actions.

Of relevance was the fact that Ms Advani had a personal role and financial stake in the deal. The £250,000 fee demanded by her was found to be effectively her commission for broking the deal, rather than a payment for legal services. Out of that sum, she would pay any legal costs involved, but this represented her personal fee, rather than DWS's fee.

These facts and matters were found to be known to the travel agents. Objectively, it would be apparent to reasonable and competent people in their position that Ms Advani was not performing a solicitorial or legal advisory role and that her actions were not so closely connected with her employment that it would be fair and just to hold DWS vicariously responsible.

Ms Advani's personal breach of duty

The court found that although no solicitor / client relationship arose between Ms Advani and the travel agents, she did assume a duty of care to them in her role as negotiator and deal broker. Had the illegality defence not succeeded, the court indicated that it would have found Ms Advani in breach of that duty and liable for 80% of the travel agents' losses.

Ms Advani's failure to give evidence

Ms Advani was not assisted by the fact that, although she had submitted witness statements to support her defence, she did not give evidence at trial.

The fact that a witness is not present at trial, in the absence of some good reason, tends to indicate that the witness does not have confidence in his or her statement. Such evidence will also not have been tested by cross-examination.

In Wisniewski (A Minor) –v- Central Manchester Health Authority (1998), the Court of Appeal had summarised the relevant principles to be applied:

  • in certain circumstances, a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action;
  • if a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness;
  • there must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue;
  • if the reason for the witness's absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his absence or silence may be reduced or nullified.

The main reason Ms Advani gave for not giving evidence was that there was no case to answer because the evidence of the travel agents' witnesses was so unreliable that none of it could be safely relied upon, as it was uncorroborated. This was rejected by the judge. Whilst not all the evidence of these witnesses was accepted, it was found that there was "a core of truth in the allegations underlying the claim" and that there was an evidential case to answer.

An ancillary reason offered by Ms Advani was that, even if their evidence were accepted, the claim would fail for illegality. This was not accepted as a reason for Ms Advani's failure to back up her stark denials of key aspects of the factual case against her.

The judge held that, as there was a positive case to answer, he was entitled to draw adverse inferences from Ms Advani's failure to give evidence at trial.

Comment

Although the illegality related to the underlying transaction, rather than the actual contract sued under , the defence succeeded. This is a logical and unsurprising application of the principle of illegality because compensation for the unreturned bribe was the very thing being claimed. On any view of the matter, experienced businessmen paying bribes can (and should) expect no sympathy or assistance from the courts.

The firm – as Ms Advani's former employer - prevailed on the vicarious liability issue. The travel agents were not, and never had been, clients of the firm and Ms Advani had been acting outside the scope of her actual or ostensible authority. She was acting on her own behalf (rather than on behalf of DWS) and the £250,000 was, in reality, a commission payment to her personally, rather than a payment for legal services.

Although the facts of the case were fairly extreme, it does highlight a wider concern for solicitors doing business in emerging markets where business practices may be different to those in their own jurisdiction. In addition, where solicitors are engaged principally in marketing and development and the introduction of parties in the commercial field with a view to generating fees, they may well seek to "put deals together" between interested parties. Where matters proceed, care needs to be taken to avoid actual or potential conflicts of interest and allegations of breach of fiduciary duty. This is best done by identifying the client at the outset and ensuring that the firm does not, during the course of preliminary discussions, acquire any relevant confidential information about Party A which could disable it from acting for Party B when it is proposed that a solicitor-client relationship be established with the latter.

Although DWS were not liable for Ms Advani's actions in this instance, had her involvement been different and she had been acting within the scope of a solicitor's usual role, DWS could have found itself liable for her breach. It would then have been left relying solely upon the public policy illegality defence. The Law Commission has decided that this is an area to be developed through case law and has suggested that judges should only allow a defence of illegality to succeed where justified by a public policy rationale and where depriving a claimant of his rights is a proportionate response. It is, therefore, possible that less flagrant circumstances could arise in which the defence would not be available to a law firm to defeat the claim against it.

Further reading: Nayyar & Others v Denton Wilde Sapte & Another [2009] EWHC 3218 (QB)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/01/2010.

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