The Court of Appeal in Group Seven Limited v. Notable Services LLP  EWCA Civ 614 has agreed with the High Court decision to find a bank vicariously liable for the wrongdoing of its employee.
This case demonstrates that a bank is not just at risk of being found liable for its employee's actions when that employee is performing his work for the bank, it is enough if the employee's actions are closely connected with his employment. The point at which a court will conclude an employee is on a "frolic of his own" and his actions are not closely connected with his employment will depend on the facts of the case.
This particular dispute arose as a result of a €100 million fraud where a group of fraudsters persuaded a Swiss oil services company (acting by its subsidiary, Group Seven) to hand over the funds for a purported investment. The money was transferred to a company controlled by one of the fraudsters, which then transferred it to Notable LLC (Notable), a law firm, to be held for the benefit of another company, controlled by another fraudster. The fraudsters were aided by Mr L, an employee who worked for LLB Verwaltung (Switzerland) AG Limited (LLB), which was Notable's bank. Mr L fraudulently vouched to Notable the good standing of one of the fraudsters, allowing them to satisfy Notable's money laundering checks. In this case, Mr L was, importantly, employed as a relationship manager. In this capacity he introduced one of the fraudsters and his company to LLB. A number of Mr L's more senior colleagues had apparently been suspicious and not prepared to accept the fraudster or his company as a client (albeit that an account was opened briefly in the name of the company). The references provided by Mr L to Notable were given after the account was closed and without the knowledge of anyone else at LLB.
Group Seven brought claims against a number of parties including LLB on the basis of vicarious liability for Mr L's actions. The judge at first instance found LLB vicariously liable for Mr L's wrongdoing, recognising that an employer's vicarious liability for the wrongdoing of an employee is not confined to wrongdoing within the actual or apparent authority of the employee. In upholding this decision, the Court of Appeal clarified the law on dishonesty that applied to Mr L. It confirmed that the test was an objective one: "The court has to ask itself what is essentially a jury question, namely whether the defendant's conduct was honest or dishonest according to the standards of ordinary decent people."
The judge at first instance set out the test to determine whether an employer is vicariously liable as being, "to ask whether the conduct in question was sufficiently closely connected with work which the employee was authorised to do so that the conduct should be regarded as within the scope of the employee's employment and so that the employer should be held liable for it". The Court of Appeal did not criticise this "close connection" test but noted the imposition of vicarious liability is "an extremely fact-sensitive exercise".
The fact that Mr L was employed by LLB as a relationship manager was considered particularly relevant by both the Court of Appeal and the High Court. Even though Mr L had given the assurances to Notable without the authority or knowledge of LLB, this did not stop LLB being vicariously liable for those assurances.
The Court of Appeal found that the employee did not need to be seeking to benefit LLB for his conduct to be within the nature of his job "viewed broadly". There was a sufficient connection between his employment and his conduct, for LLB to be held liable on the "principle of social justice". The Court of Appeal agreed that, despite the fact the employee was pursuing his own interests and was not seeking to benefit LLB, Mr L was not on a "frolic of his own".
The decision demonstrates the wide application of vicarious liability and a reminder of the particular status of a "relationship manager" when scrutinising a bank employee's actions.
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