Dubai Aluminium Co Ltd v Salaam [2002] 3 WLR 1913

Facts

  • The case concerned a fraudulent scheme by a client, facilitated by a senior partner in a solicitor's firm.
  • The senior partner drafted a consultancy agreement and documents to facilitate the fraud.
  • As a result of the scheme, the company was fraudulently induced to pay $50 million.
  • The company sued the solicitor’s firm, alleging vicarious liability for the partner’s dishonest acts.
  • The partner’s actions involved the preparation of legal documentation and client advisement, which were typical duties of a solicitor.

Issues

  1. Whether a partnership can be vicariously liable for the dishonest acts of a partner committed while performing ordinary business activities.
  2. Whether the partner’s actions could be considered within the "ordinary course of business" despite their fraudulent nature.
  3. Whether the "close connection test" could be satisfied when the wrongful act was not specifically authorized by the firm.

Decision

  • The court concluded the solicitor’s firm was vicariously liable for the dishonest acts of its partner.
  • It held that liability is based on whether the acts are closely connected to the ordinary business of the partnership, not whether specific authorization was given.
  • The actions of the partner, including preparing legal documents, were considered within the general scope of his responsibilities.
  • The court emphasized that the "close connection" between the wrongful act and the partner’s duties was sufficient to impose liability.

Legal Principles

  • Vicarious liability applies when the wrongful act is sufficiently connected to the scope of employment or partnership duties.
  • Authorization of the specific wrongful act by the firm or employer is not necessary; the key is whether the act arose from activities generally authorized or expected in the role.
  • The "close connection test" requires examining the relationship between the tortious act and the nature of the responsibilities assigned.
  • The "ordinary course of business" can be interpreted broadly to include activities benefiting the firm that create risk of harm to third parties.
  • Innocence of other partners is immaterial; liability attaches if the wrongdoer acts within the general business of the firm.

Conclusion

Dubai Aluminium Co Ltd v Salaam clarified that a partnership may be held vicariously liable for a partner’s dishonest acts if those acts are closely connected with activities carried out in the ordinary course of business, broadening the interpretation and application of the close connection test in professional contexts.

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