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Case No: QBCMF 98/1115/A3, QBCMF 98/1116/A3, PTA 00/5574/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF
JUSTICE QUEEN'S BENCH DIVISION
COMMERCIAL COURT MR JUSTICE RIX
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 7 April 2000
B e f o r e :
LORD JUSTICE EVANS
LORD JUSTICE ALDOUS
and
MR JUSTICE TURNER
- - - - - - - - - - - - - - - - - - - - -
|
DUBAI
ALUMINIUM COMPANY LIMITED
|
Plaintiff
|
|
--and -
|
|
|
(1)
HANY MOHAMED SALAAM
(2) ANTHONY FRANCESCO LORENZO AMHURST
(3) AMHURST BROWN MARTIN & NICHOLSON
(4) AMHURST BROWN COLOMBOTTI
(5) NILLET DEVELOPMENT INCORPORATED
(6) JAPAN METAL SALES CORPORATION
|
Defendants
|
-and-Third Parties
(1) IAN DAVID LIVINGSTONE
(2) GLENCORE INTERNATIONAL A.G.
(3) HIS EXCELLENCY MAHDI MOHAMED AL TAJIR
(4) HANY MOHAMED SALAAM
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
MR ALI MALEK QC/MS SARA COCKERILL(instructed by REID MINTY for the
APPELLANTS)
MR ANTHONY BOSWOOD QC/MR PHILIP BROOK SMITH (instructed by BARLOW LYDE
& GILBERT for the RESPONDENTS)
MR NIGEL DAVIS QC (instructed by BIDDLE & Co.for MR SALAAM
APPELLANT/FIRST DEFENDANT)
MR GEORGE LEGGATT QC (instructed by CMS CAMERON McKENNA) for MR AMHURST
RESPONDENT/SECOND DEFENDANT)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE EVANS:
Background
These facts were found by Mr Justice Rix and they are not contested on this
appeal. Between September 1987 and March 1993 the government-owned Dubai
Aluminium Company Ltd ("Dubal") paid sums in excess of $50m. to Marc Rich Co.
A.G. ("Richco") ostensibly in accordance with a Consultancy Agreement dated
1.9.87 which entitled Richco to a 2.5% commission on all sales of Dubal
products. The agreement was a sham, dishonestly conceived between the managing
director of Dubal, Mr Ian Livingstone, and senior officers of Richco and Mr H.
Salaam. It was a cover for abstracting those sums from Dubal so that they
could find their way into the pockets of Mr Livingstone and Mr Salaam and also
of H.E. Al Tajir who received some 40% of the total. The original distribution
was 20% (one fifth) to Richco, equal to 0.5% of the commission, and the
remaining four-fifths to Mr Al Tajir, Mr Livingstone and Mr Saad Salaam in the
proportions 40 : 30 : 30. Soon afterwards, some time in 1988, a 15% share of
the four-fifths (80%) of the total commission was diverted to Mr Salaam's
brother, Mr Saad Salaam, and it was only the remaining 85% of that amount which
was divided between Mr Al Tajir, Mr Livingstone and Mr Salaam. Mr Al Tajir
continued to receive 40 per cent and so the other two were reduced to 22.5%
each (or 25.5% - see the judgment page 436).
As the result of the detailed examination of accounts and figures at the
trial, and the full and meticulous judgment of Mr Justice Rix, the following
figures were established:-
Claim (paid to Dubal to Richco) $50,117,622
Paid on by Richco $49,780, 944
Receipts
H. Salaam $20,338,348 (40.5%)
Al Tajir $16,466,667 (32.9%)
Livingstone $6,327,918 (12.5%)
Said Salaam $6,001,861 (12%)
Richco passed on four-fifths of the payment it received from Dubal under a
number of Subsidiary Agreements between off-shore companies in which Mr H.
Salaam was taken to have a controlling and beneficial interest. On the face of
these Subsidiary Agreements Richco undertook to pay only half of the 2.5%
commission which it received from Dubal but the judge found that there were
other arrangements; the nature of which is not relevant for present purposes,
as a result of which the on-payments in fact represented 80% of Richco's
receipts.
Like the Consultancy Agreement, the Subsidiary Agreements were a total
fiction. Indeed,. they helped to expose the Consultancy Agreement as the sham
that it was. The Marc Rich organisation was a leading international
commodities trader and its undertaking to provide advice and assistance to
Dubal on its purchases of raw material, namely aluminium, and sales of its
aluminium products might have been said to give the Consultancy Agreement the
semblance of a genuine commercial transaction. But this could not explain why
Richco under the Subsidiary Agreements purported to delegate the whole of its
advisory functions to Mr Salaam or his companies, wide though the range of Mr
Salaam's trading activities undoubtedly was, particularly in the Eastern
Mediterranean and the Middle East.
In these proceedings, none of the parties to any of these Agreements contended
that they were genuine. Mr Livingstone and Mr Salaam, who were defendants,
contended that they were authorised by Mr Al Tajir with at least the apparent
authority of Dubai's Royal family, who were and are the owners of Dubal. Their
defence failed and the judge found that Mr Al Tajir himself was a party to the
dishonest transaction. Mr Al Tajir denied this and this is the only one of the
judge's findings of fact which is challenged on this appeal. Mr Al Tajir's
case is that he introduced Dubal to Richco, in return for which he was promised
a 1% commission by Mr Marc Rich on behalf of Richco, but that he was involved
no further than this. He said that he left the negotiation of the Agreements
and the payments to him or his family company, Al Al Tajir Ltd, which totalled
more than $16 million, to his staff and that he knew nothing of them.
Reverting to the judge's findings which are not challenged, the total figures
set out below do not reflect the retention by Richco which was agreed
ostensibly as one-half but implemented as one-fifth only, as stated above. The
figures found by the judge were -
Paid by Dubal (received by Richco) $50,117,622
Paid by Richco $49,780,944
Retention by Richco $366,678
(A sum which in the context of this case may be regarded as negligible.)
However, the figure for payments made to the other participants included a
so-called capitalisation payment which was agreed and made in 1991. Under that
agreement, Richco paid a capital sum which represented the expected revenue
stream from Dubal for the remaining period of the Consultancy Agreement,
securing itself by obtaining a performance bond from Dubal covering the same
period. The Agreements however came to the knowledge of Dubal (apart from the
dishonest knowledge of Mr Livingstone) in 1993 and the payments to Richco
ceased forthwith. In the result, therefore, Richco paid out more to the other
participants than was due to them in respect of the amounts which it actually
received from Dubal.
One other feature of the total figures of sums received by the participants
(other than Richco) should be noted at this stage. The Consultancy Agreement
stipulated for payments by Dubal to Richco, in addition to the 2.5% commission
in Dubal sales, of a so-called introductory commission of $2m. and monthly
payments of $85,000 ($1.2 million p.a.), and these sums were paid on under the
Subsidiary Agreements for the benefit of Mr Salaam and Mr Livingstone, but not
Mr Al Al Tajir. The judge said that this might mean that Mr Salaam negotiated
those payments for himself and Mr Livingstone and kept Mr Al Tajir in the dark
about them -
"I am left with a feeling of deep scepticism as to whether Mr Al Tajir was
permitted to know all the ins and outs of the scheme as negotiated by Mr Salaam
and Mr Livingstone" (page 444)
Whatever the explanation for this may be, the figures of individual receipts
found by the judge include these payments to Mr Salaam and Mr Livingstone.
The issues
Precise figures do not matter. Dubal's claim in these proceedings was for
repayment of the $50,117,622 which it paid to Richco, after giving credit for
$6,327,918 part of $15,540,000 paid by Mr Livingstone under a settlement
agreement dated 31 January 1996, a net claim of $43,789,703. No claim was made
against Richco or against Mr Al Tajir. The claim was for compensation based on
knowing receipt by the defendants of Dubal's money or for knowing assistance
given by them to the scheme which deprived Dubal of it. "Knowing" in this
context means dishonest: Royal Brunei Airlines v. Tan [1995] 2 AC 378.
The judge found that the defendants, Mr Livingstone and Mr H. Salaam, were
dishonest, and Mr Al Tajir also, who was not made a defendant to Dubal's claim
but was joined as a third party in the contribution proceedings. As stated
above, only Mr Al Tajir challenges this finding, but he like the defendants
agreed a settlement figure with Dubal before final judgment was given.
The history of the proceedings was unusual. The trial began on 6 October
1997. It lasted until 4 November. On 22 October, however, the judge was told
that a settlement was agreed by Dubal with Mr Amhurst, and also with Mr
Amhurst's partners in his two firms who were third and fourth defendants in the
action, Amhurst Brown Martin & Nicholson and Amhurst Brown Colombotti.
Under the settlement agreement, a payment of $10 million was made to Dubal by
or on behalf of the two firms, the third and fourth defendants. No payment was
made by or on behalf of Mr Amhurst, and all the allegations made against him
and the firms were withdrawn by Dubal. After this and before the proceedings
continued with the contribution issues that arose between various defendants,
the judge, with the parties' agreement, made his "Unreasoned Findings", which
he gave to the parties on 6 November (they are incorporated in his judgment
[1999] 1 Lloyd's Rep. at 422-4).
A further hearing then took place on the contribution issues. At this stage,
Mr Amhurst and his partners were separately represented, the partners by Mr
Anthony Boswood Q.C. who previously represented Mr Amhurst also, and Mr Amhurst
by Mr George Leggatt Q.C. who was a newcomer to the case. The judge was told
that the need for separate representation arose from the terms of the
settlement agreement which had been reached in October. The hearing continued
on this basis, as did this appeal. This meant treating the third and fourth
defendants as Mr Amhurst's partners, rather than the firms themselves, but the
title of the proceedings was never formally amended.
After the trial including the contribution proceedings was ended the judge was
told that settlement negotiations were taking place between Dubal and Mr Salaam
and Mr Al Tajir, and at their request he deferred giving final judgment until
July 1998. Mr Salaam settled Dubal's claim against him in April 1998, agreeing
to pay $18 million. Mr Al Tajir meanwhile had agreed to pay the same amount to
Dubal, in January 1998. In the result, Dubal received a total of $61,540,000
in settlement of its claim for $50,117,622 plus interest from 1987/1993. The
sums agreed to be paid were allocated to principal and interest in a
calculation set out by the judge (pages 463-5).
The settlement figures therefore were as follows :-
(Dubal claim $50,117,622 (net $43,789,703) plus interest.
Date Settlement figure Principal
Livingstone 21.2.96 $15,540.000 $11,409,691 (22.8%)
Amhurst Partners 12.11.97 $10m. $6,761,325 (13.5%)
Salaam 31.12.99 £18m. $11,422,506 (22.8%)
Al Tajir 31.12.97 $18m. $11,394,985 (22.7%)
(Totals) $61,540.000 $40.988,507
Contribution
Not all the defendants claimed contributions from all of the others. The
judge held that the third and fourth defendants (the Amhurst partners) should
recover an indemnity for the whole of the $10 million they agreed to pay Dubai
from Mr Salaam and Mr Al Tajir in the proportions 75 : 25 ($7,500,000 and
$2,500,000) and that those two should be jointly and severally liable to the
partners up to $7.5 million. The judge made no order against Mr Amhurst
personally, nor was he asked to make any in his favour (the $10m. payment made
in respect of the claim against the Amhurst partners was said expressly not to
have been made by him or on his behalf).
Issues on the appeal
Contribution
The appellants are Mr Salaam and Mr Al Tajir. They contend that they should
not be ordered to contribute towards or pay any part of the $10 million
settlement made by the Amhurst partners with Dubal. Alternatively, Mr Salaam
contends that Mr Amhurst should make some contribution also. The partners and
Mr Amhurst say that the judge's order should not be disturbed.
Dishonesty
Mr Al Tajir contends that the judge's finding that he acted dishonestly, made
in the contribution proceedings rather than the trial itself (he was not a
defendant), was unsupported by the evidence and was wrong. The respondents
disputed this.
It is convenient to consider this issue first.
(1) Dishonesty
There was no documentary evidence which implicated Mr Al Tajir in the making
of the Consultancy Agreement between Dubai and Richco. There was, however,
unchallenged accountancy evidence that payments representing almost exactly 1%
of the 2.5 % consultancy fee (40% of the sums paid by Dubal under the
Agreement) was paid on by Richco to Mr Al Tajir's company, Al Tajir Ltd,
totalling $16,466, 667 over the six-year period from 1987 to 1993.
Mr Al Tajir's evidence given in his witness statement was that he was wholly
unaware of the Consultancy Agreement and its terms or that these payments were
being made under it and the Subsidiary Agreements associated with it. He said
that he knew in a general way that large sums were being paid to him or his
companies by Richco throughout the period, but he attributed these to an oral
agreement which he said he made with Mr Marc Rich, then the proprietor of
Richco and a personal friend and neighbour in Switzerland. He said that he
introduced Dubal to Richco having in view a long-term commercial arrangement
under which Richco would arrange for the supply of raw material (alumina) to
Dubal, thus securing its supplies at competitive prices from one of the world's
foremost metal traders, which Richco was. In return, Marc Rich agreed that he
should receive a 1% commission on all supplies, and it was this sum which, he
assumed, was being paid into his or his company's accounts. He arranged a
meeting between Mr Livingstone and Mr Salaam, on behalf of Dubal, and Mr
Strothotte on behalf of Richco. Thereafter he left the whole matter, including
the payments which became due to him, to his managers and staff.
He therefore accepted that the payments in question were made to him, but he
denied that he had any knowledge that their source was Dubal or of the
transaction, including the Consultancy Agreement, which the Judge found was a
sham, a finding which Mr Al Tajir does not dispute. He denied that he was
dishonest in any way.
The judge's finding, is set out at [1999] 1 Lloyd's Reports pages 457-9. The
passage begins -
"Mr Al Tajir did not seek to say that he possessed the authority of Dubal or
the Ruler to give effect to the scheme. His evidence was rather that he played
a purely facilitative role in bringing Dubal and Richco together, for which he
had stipulated a fee by way of commission negotiated directly, and separately
with Marc Rich himself. He sought to distance himself from Mr Livingstone and
Mr Salaam, and indeed from the whole transaction. He said he was unaware until
a late date that any payments had been made into his (family) account at
all."
and concludes :-
"I regret therefore to conclude that Mr Al Tajir was also a dishonest
participant in the scheme."
Also relevant is Unreasoned Finding no. (at p.423 of the judgment) -
"5. H.E. Mr Mohamed Al Tajir (the third party) dishonestly assisted Mr
Livingstone in the latter's breach of fiduciary duty by participating in the
promotion, organisation and operation of the scheme. He dishonestly received
U.S. $15,604,878.04 as a participant."
Background
Mr Tajir is a man of enormous wealth and was distinguished for the part he
played in the creation of modern Dubai during the reign of HH Sheikh Rashid bin
Sa´id al Maktoum ("Sheikh Rashid") between 1958 and 1990. As the judge
put it -
"Sheikh Rashid is credited during his reign, until the stroke which totally
incapacitated him in 1981, with steering his emirate with wisdom and foresight
towards its modern prosperity as one of the trading entrepôts of the
region" (p.428)"
During this period -
"...... his most powerful representative and confidant, outside the immediate
royal family, was Mr Al Tajir. It is said that such a representative answers
only to the Ruler, and his fortunes rise and fall with those of the Ruler : his
authority becomes, for all practical -purposes, equal to that of the Ruler
himself ..... In 1963 Mr Ali Tajir became Director of HH the Ruler's Affairs
and Petroleum Affairs and effectively the most powerful man in Dubai after the
Ruler himself" (p.428).
From 1981, Sheikh Rashid was incapacitated, and although he lived until 1990
the government of Dubai was in the hands of his three sons, HH Sheikh Maktoum
(the Crown Prince, who became Ruler on his father's death in 1990), Sheikh
Hamdan (now deputy Ruler, and chairman of Dubal since its incorporation in
1975) and Sheikh Mohamed, currently the Crown Prince and since 1981, on the
evidence heard by the judge (see p.432), in charge of the country's oil
affairs. On the evidence also, Mr Al Tajir ceased to have any direct
involvement in the country's business affairs on behalf of the Royal family
from 1981, although he became the United Arab Emirates's Ambassador to the
Court of St James and continued in that post until 1987.
Against that background, Mr Livingstone and Mr Salaam contended that the
Consultancy Agreement and its associated arrangements for the payment of a 2.5%
commission on all sales of Dubai's aluminium products to them and to Richco and
Mr Al Tajir (and later to Mr Saad Salaam also) was authorised by Mr Al Tajir
acting, as they said they believed,. on behalf of the Royal family who were
effectively the owners of Dubal. Mr Al Tajir gave no support to this defence.
He denied, as stated above, all knowledge of the Agreement and the arrangement.
The defence was comprehensively rejected by the judge. The sole issue of fact
on this appeal is whether Mr Al Al Tajir was a knowing party to the dishonest
arrangements.
The judge gave three reasons for finding that he was (page 458). First, he
accepted those parts of Mr Livingstone's and Mr Salaam's evidence which gave
details of his complicity. In particular, he found that Mr Al Tajir was
present at lunch with them at the Mirabelle restaurant in London where they
agreed a three-way split of the commission payments becoming due from Dubal in
the proportions 40 : 30 : 30 in Mr Al Tajir's favour (pages 436 and 458). That
was in mid-1987. He found that Mr Al Tajir relied on Mr Salaam and Mr
Livingstone to promote his interests in their negotiations with Richco (p.458).
He found that it was also significant that Mr Saad Salaam came to receive part
(15%) of the proceeds after complaining to Mr Al Tajir who then brought
pressure to bear on Mr Salaam and Mr Livingstone to reduce their proportions of
the receipts from 30% to 22.5% in Mr Saad Salaam's favour, though Mr Al Al
Tajir's proportion remained at 40 per cent. The judge concluded -
"I reject his attempt to distance himself from Mr Salaam and Mr Livingstone,
and I regard that attempt as proceeding from consciousness of guilt" (page
458)."
The judge relied, secondly, on the scale and nature of the payments made to Mr
Al Tajir and to Al Tajir Ltd. He said this -
"It is true that from [August 1988] payments were openly made into that family
account : but Mr Al Tajir is not able to claim the benefit of that openness,
since he insists that he knew nothing about any payments at all" (p.458).
Mr Livingstone gave evidence that Mr Al Tajir gave close attention to his
receipts. Two specific examples were given. First, additional payments of $5
and $10 per ton were negotiated and made at Mr Al Tajir's request, according to
Mr Livingstone (pages 443 and 458). The second was the capitalisation payment
made in 1991 : "the impetus came from Mr Al Tajir" (p.458). Moreover, a
striking piece of evidence emerged at the trial. A payment of $2.6 million was
made to Al Tajir Ltd on Mr Tajir's instructions, in fact to cover the cost of
chartering private aircraft for his diplomatic activities in the Middle East,
when he was engaged in the Lebanese peace process (as Mr Salaam also was), but
disguised as payment for a "bogus option" transaction apparently made in the
course of Dubal's business (pages 437 and 458).
Finally, the judge relied on the fact that, by the time judgment was given, Mr
Al Tajir agreed to pay Dubal no less than $18 million, although he was not sued
by them (pages 419 and 458)/ This,. at first sight surprising, reliance on an
agreement made at a later stage and after the trial was explained as follows
-
"That neutralises an argument previously advanced on Mr Al Tajir's behalf that
it was impossible to infer any dishonesty on Mr Al Tajir's part in
circumstances where no claim had been brought against him by Dubal" (page
458)."
Mr Al Tajir's evidence
Mr Al Tajir was unable to give oral evidence at the trial, because he suffered
from heart trouble and was admitted to hospital in London shortly before the
time came for him to be called as a witness. He could not then be contacted by
his solicitors and his witness statement was admitted as his evidence, though
of course he could not be cross-examined on it. The judge assumed in his
favour that this was a disadvantage for him (pages 457-8). The essential part
of his statement was paragraph 20 which the judge quoted in part -
"...I did not even realise that any separate monies had been paid purportedly
connected with this transaction by Richco, simply because monies had been paid
to Altajir Limited anonymously and distributed without reference to me. As we
were always receiving large sums of money from Richco during this period, and I
did not handle specific or detailed accounts of the companies in which I was
involved, (instead delegating these duties to respective managers, employees
and members of family,. etc.), I saw no reason to "chase" Marc Rich when I knew
from a global point of view of all AlAl Tajir's family businesses that huge
sums were coming in from Richco. This encompassed all business with Richco,
including business ventures other than Dubal, including commodity trading with
Iran .... hundreds of millions of pounds were going thorough numerous companies
connected with the Al Al Tajir family."
Reference should here be made to the Aluminium Supply Agreement ("A.S.A.")
between Dubai and Richco, dated 1 September 1987, the same day as the
Consultancy Agreement. All parties acknowledged that both Agreements resulted
from the same negotiations. Indeed, Mr Salaam, Mr Livingstone and Mr
Strothotte all said that the Consultancy Agreement was the accepted method of
achieving "commission" payments by Dubal at the same time as the ASA was being
entered into (pages 434,436 and 440). The ASA may be regarded as a valid
commercial arrangement, under which Richco undertook to supply Dubal's alumina
requirements at fixed prices (by reference to market levels - pages 423 and
440), and according to the witnesses it worked to Dubal's advantage for two
years. Enormous quantities of alumina were purchased by Dubal, and there was
evidence that from time to time Mr Al Tajir and others claimed the right to be
paid at the rate of U.S. $55 and $10 per tonne (the $55s and $10s - see page
440) on these purchases by Dubal.
Appeal submissions
Mr Ali Malek Q.C.'s admirable submissions on behalf of Mr Al Tajir may be
summarised as follows. The judge made no reference to Mr Al Tajir's
distinguished career and the "good character" which he is entitled to claim
from his long period of public service both in Dubai and as the UAE Ambassador
in London. He failed to have sufficient regard to the fact that Mr Al Tajir
was unable to give evidence at the trial and therefore could not rebut Mr
Salaam's and Mr Livingstone's evidence against him. Rather, the judge accepted
their evidence in this respect, although he rejected it on virtually all other
matters. He did so without reminding himself, expressly at least, that they
were, as he found, parties to a dishonest scheme, whose evidence against an
alleged co-conspirator should not be relied upon unless there was independent
confirmation or corroboration of it. Of such independent evidence, Mr Malek
submitted, there was none.
Moreover, Mr Salaam and Mr Livingstone were by no means consistent with each
other in the evidence they gave of Mr Al Tajir's alleged involvement in the
scheme. One example was their different accounts of what the judge found was
the Mirabelle lunch attended by all three.
As for the judge's second and third reasons, Mr Al Tajir's lack of knowledge
of the payments made to his family company was explained by his witness
statement, quoted above, and it was wrong and illogical for the judge to rely
on the post-trial settlement agreement with Dubal as an admission of liability,
particularly when it could not have influenced the judge's preliminary
unreasoned finding, made before the agreement was entered into.
Mr Boswood Q.C for the respondents submitted that the judge was entitled to
accept Mr Salaam's and Mr Livingstone's evidence against Mr Al Tajir to the
extent that he did, more particularly because of the detailed account they gave
of his involvement, for example with regard to the introduction of Mr Saad
Salaam and his insistence on being paid additional sums (the $55s $10s $5s and
$2s) from time to time. Their evidence of the "bogus option" payment was not
disputed and it could scarcely have been invented or untruthful. Although Mr
Al Tajir was prevented from giving oral evidence, he was able to give
instructions to his solicitors and counsel until the day he was taken ill, and
he was sometimes present in Court during the trial. If he was able to answer
the evidence given against him, leave could have been sought to introduce a
supplemental statement from him, but no application was made.
As regards Mr Al Tajir's explanation that he agreed a 1% "introductory
commission" with Mr Rich, this was manifestly untrue, it was submitted, not
least because Dubal and Richco already had a trading relationship with each
other.
Conclusion
I am prepared to accept Mr Malek's submissions that the judge's finding, that
Mr Al Tajir was aware of and involved in the sham transaction and was
dishonest, rests largely on his acceptance of Mr Salaam's and Mr Livingstone's
evidence in these respects, and that findings of this kind cannot properly be
made without anxious consideration of such independent evidence as there may be
which supports their allegations against him. I accept also that there are
cases where the Court of Appeal finds itself able to reach a different
conclusion from the trial judge on a question of this sort (The Ocean
Frost [1985] Lloyd's Rep. 1, where the finding of fraud was reversed
(p.56)), just as there are others where the Court of Appeal may be compelled to
make a finding of dishonesty which the trial judge did not make (The Ikarian
Reefer [1985] 1 Lloyd's Rep.455). In the present case, where Mr Al Tajir
did not appear as a witness, the trial judge had no advantage in this respect
over the Court of Appeal.
Nevertheless, in my judgment, there is a substantial weight of evidence which
supports the judge's finding. This lies not in specific parts of the evidence
which invite or require rejection of what Mr Salaam and Mr Livingstone said
about Mr Al Tajir's participation, but rather in the fact that two inferences
which Mr Al Tajir invites the Court to draw in his favour are to my mind wholly
unrealistic and unacceptable. First, he asserts that, having agreed a 1%
introductory commission with Mr Rich he took no further part in negotiating the
agreements under which the commission was to be paid. The inference, he
suggests, is that Mr Salaam and Mr Livingstone, who negotiated on behalf of
Dubal, and Mr Strothotte on behalf of Richco, reached a form of agreement which
was not just inconsistent with but contradictory of what he had authorised and
was expecting them to negotiate, in part on his behalf. A one per cent
introductory commission would have been paid by Richco to Mr Al Tajir and
without an additional charge to Dubal (assuming that the ASA was on commercial
terms) and it would have been calculated by reference to Dubal's purchases from
Richco. What was agreed in fact was a 2.5 per cent commission, paid as to 40
per cent to Mr Al Tajir, on Dubal's sales of its products to third parties, who
may or may not have included Richco. The additional payments by Dubal under
the Consultancy Agreement from their inception were no more and no less than a
means of abstracting money from Dubal, as the judge found, and they could not
be lawful. If Mr Al Tajir had any knowledge of what was agreed, he must have
realised this. If he did not, then the question arises whether he could have
taken no interest over such a long period in an arrangement which was designed
to produce and did produce a source of revenue which cannot have been
insignificant, even for him.
This leads to the second inference that Mr Al Tajir invites the Court to draw,
which is that he was wholly unaware, throughout the whole six-year period, of
the state of accounts between himself and his family, on the one hand, and
Richco and Dubal on the other hand. When there is direct evidence that he was
personally involved in these matters, even though it comes from what must be
regarded in the light of the judge's uncontested findings as a tainted source,
namely, Mr Livingstone and Mr Salaam, then in my judgment there is a strong
likelihood that their evidence in these respects is true.
I would hold, therefore, that in the circumstances of this case the judge was
entitled to accept their evidence, to the extent that he did, and that his
finding of Mr Al Tajir's involvement can be supported on this ground alone.
The support is reinforced by his findings as to the receipt of the moneys by or
on behalf of Mr Al Tajir, which factually I do not think are challenged. The
judge's reliance on the fact of Mr Al Tajir's settlement with Dubal was limited
for the reason he gave. It does serve to reject any suggestion that Dubal did
not regard Mr Al Al Tajir as being under any obligation to make restitution or
pay compensation to it.
It is important, when a finding such as this is challenged on appeal, to stand
back and seek to evaluate the whole of the relevant evidence, uninfluenced as
far as possible by the finding which the trial judge made and which is the
subject of the appeal. Doing this to the best of my ability, I find that the
evidence of Mr Al Al Tajir's knowing complicity in the transaction and the
payments is overwhelming, and that with such knowledge he cannot have been
unaware that the source of the money was Dubal, that Mr Livingstone was acting
in breach of his fiduciary duty towards Dubal and that the agreements were
unlawful. I therefore would agree with the judge that the allegation of
dishonesty was proved against Mr Al Al Tajir, and I would dismiss this part of
his appeal.
(2) Contribution
It will be recalled that Dubal's claims against Mr Amhurst (second defendant)
and against his firms (third and fourth defendants) were settled by agreement
between them on 20 October 1997, during the course of the trial. The
settlement involved a payment of $10 million to Dubal, of which the judge
attributed $6,761,325 to principal, representing 13.5 per cent of the claim for
$50 million (approx.), and the balance to interest. His orders in the third
party proceedings were that the third and fourth defendants, on whose behalf he
was told the payment of $10 million was made, should recover the whole of this
payment, from Mr Salaam as to $7.5 million and Mr Al Tajir as to the remaining
$2.5 million (with a contingent liability on Mr Al Tajir to pay a further $5
million if Mr Salaam was unable to do so).
The judge made no order for or against Mr Amhurst personally, as the second
defendant (pages 476-7).
Strictly, the third and fourth defendants, namely, the firms in which Mr
Amhurst was a partner (he retired in 1999, we were told, although he remains a
consultant), include Mr Amhurst, whom the judge held on the alleged facts gave
knowing assistance to the dishonest scheme for abstracting money from Dubal, as
well as his innocent partners. For practical purposes, however, once Mr
Amhurst and the firms were separately represented, the third and fourth
defendants, now the respondents to this appeal, became Mr Amhurst's innocent
partners, although the title of the proceedings has not been changed. I shall
refer to them, as the judge did, as the "Amhurst partners", in this sense.
Their liability, if any, was vicarious, as the judge noted (page 471) and as
Mr Boswood confirmed to us. It arose if section 10 of the Partnership Act 1890
applied -
"Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the firm, or with the authority of his co-partners,
loss or injury is caused to any person not being a partner in the firm, or any
penalty is incurred, the firm is liable therefor to the same extent as the
partner so acting or omitting to act."
Two issues under section 10 are raised by the appeal. The first is whether
the section applies at all, in a case where the wrongful act or omission
committed by one partner gives rise, not to a liability in tort, but to the
liability in equity for "wrongful assistance" which is alleged against Mr
Amhurst here. The second is whether his alleged wrongful activities were "in
the ordinary course of the business the firm" as required by section 10.
Thirdly, an issue is raised as to the operation of the contribution provisions
of the Civil Liability (Contribution) Act 1978 ("the 1978 Act") where the claim
for contribution is made by or against a person who is vicariously liable for a
wrongful act committed by another.
It is important to stress at the outset that Mr Amhurst has never admitted
liability towards Dubal or that he gave `knowing assistance' to the unlawful
transaction or that he was dishonest. As a term of the tri-partite settlement
agreement, Dubal withdrew the allegations which it had made against him. The
payment of $10 million was made to Dubal under the settlement agreement, the
judge was told, expressly on the basis that it was made on behalf of the third
and fourth defendants, meaning the Amhurst partners, and not on behalf of Mr
Amhurst, and that the allegations against Mr Amhurst were withdrawn.
The settlement agreement was recorded in writing on 12 November 1997. We were
shown copies of it, although the judge was not. Glencore (second third party)
the successor to Richco was also a party. There is of course an insurance
background. Mr Boswood told us that the payment was made by the firms'
liability insurers (and excess insurers) on behalf of the partners other than
Mr Amhurst, and that the insurers regard themselves as free to begin separate
contribution proceedings in the name of those partners, in their exercise of
subrogation rights against Mr Amhurst, if they fail to obtain a full indemnity
from Mr Salaam and Mr Al Tajir in these proceedings. Such claims, they assert,
might be made in contract or under the 1978 Act. They would be resisted, Mr
Leggatt told us, on the ground inter alia that they could and should
have been raised in these proceedings and that it would be an abuse of process
to pursue them in a separate action, with the attendant risk of inconsistent
findings in that action and this. If the action is able to be pursued, then Mr
Leggatt made it clear that the allegations of knowing assistance and dishonesty
will be denied. It follows that there could be a finding that he was innocent
of any wrongful act, and the basis for a contribution finding in his or their
favour in the present case would be removed.
We can only make it clear that the third and fourth defendants have had a full
opportunity to make their claim for contribution against Mr Amhurst in these
proceedings. We indicated that they might consider whether or not they should
do so, but our offer was not taken up.
We emphasise, therefore, that the contribution proceedings in this action take
place on the basis that Dubal's allegations against Mr Amhurst were withdrawn
as a term of the settlement agreement. It becomes necessary, therefore, to
consider them on the basis of the allegations made by Dubal. The allegations
made against him, especially the allegation of dishonesty, have not been found
to be proved.
The relevant provisions of the 1978 Act are these-
"1(1) Subject to the following provisions of this section, any person liable in
respect of any damage suffered by another person may recover contribution from
any other person liable in respect of the same damage (whether jointly with him
or otherwise).
............
(4) A person who has made or agreed to make any payment in bona fide settlement
or compromise of any claim made against him in respect of any damage (including
a payment into court which has been accepted) shall be entitled to recover
contribution in accordance with this section without regard to whether or not
he himself is or ever was liable in respect of the damage, provided, however,
that he would have been liable assuming that the factual basis of the claim
against him could be established."
and as regards the assessment of contribution -
"2(1) Subject to subsection (3) below, in any proceedings for contribution
under section 1 above the amount of the contribution recoverable from any
person shall be such as may be found by the court to be just and equitable
having regard to the extent of that person's responsibility for the damage in
question.
(2) Subject to subsection (3) below, the court shall have power in any such
proceedings to exempt any person from liability to make contribution, or to
direct that the contribution to be recovered from any person shall amount to a
complete indemnity."
The pleaded allegations
Section 1(4) of the 1978 Act thus makes it necessary to consider whether Mr
Amhurst and the Amhurst partners "would have been held liable [to Dubal]
assuming that the factual basis of the claim against him [them] could be
established." It is not contested that the $10m. payment was made to Dubal "in
bona fide settlement or compromise" of the claims made by Dubal against the
third and fourth defendants, or that the claims made against Mr Amhurst were
withdrawn as part of the same settlement agreement. The common law rule that a
settlement payment may be recoverable when it is made reasonably to compromise
the claims in the action (Biggin v. Permanite [1951] 2K.B.314)
presumably means that the relevant allegations for the purposes of section 1(4)
are limited to those which gave rise to the liability asserted by the person
claiming contribution, but no difficulty arises in identifying the relevant
allegations in the present case, and it was not suggested that the common law
rule might be relevant in any other way.
Before the settlement agreement was reached, Mr Boswood, appearing for Mr
Amhurst as well as the third and fourth defendants, naturally disputed that
they were vicariously liable to Dubal on the facts alleged against them and Mr
Amhurst. When the claims were settled and the third and fourth defendants
became claimants in the contribution proceedings, Mr Boswood inevitably
asserted that they were liable to Dubal. This superficial volte face,
although acknowledged as a "forensic issue", was referred to at some length
both by Mr Davis Q.C. for Mr Salaam and by Mr Boswood himself. I do not think
that it adds anything to the arguments, either way.
I can now refer to the three issues in turn.
(1) Section 10 - construction
I agree with the judgment of Aldous L.J. (and with Millett J.'s views in
Agip (Africa) Ltd v. Jackson [1991] 1 Ch.265 that the reference to "any
wrongful act or omission" in section 10 is not limited to torts or even to
wrongs which were actionable at common law. For historical reasons, the
accessory liability of a person for giving knowing (dishonest) assistance to a
breach of trust or fiduciary duty was described as that of a constructive
trustee : see per Lord Selborne L.C. in Barnes v. Addy (1874) L.R.9 Ch.
App 244 and Lord Nicholls in Royal Brunei Airlines v. Tan [1995] 2 AC 378 (J.C.P.C.).
Section 13 expressly refers to the receipt or employment of trust property and
it is argued that section 10, by contrast, is concerned with common law
liabilities alone. But the phrase used is "wrongful", not tortious, and "tort"
was already an established part of the Parliamentary vocabulary, at latest
from 1867 (County Courts Act 1867 sections 5 and 10). "Tort" was defined in
common law terms, for example in Pollock on Torts (1887) -
"an action or omission giving rise, in the virtue of the common law
jurisdiction of the Court, to a civil remedy which is not an action for
contract."
By 1890, it was already time, as Lord Denning said later, to regard the
principles of law and equity "in the light of their combined effect" (Nelson
v. Larholt [1948] 1 K.B. 339 at 343). In these circumstances, the general
words "wrongful act or omission" in section 10 cannot have been intended, in my
judgment, to refer only to tortious acts which gave rise to liability at common
law.
(2) Section 10 - "ordinary course of business of the firm"
The principles of vicarious liability underlying section 10 were those
developed in connection with the vicarious liability of a principal for
wrongdoing by his agent, and they are comparable with those governing the
liability of an employer for wrongs committed by his employee in the course of
his employment. The principal is liable "not only for the authorised acts of
his agent but also for such unauthorised acts as fall within the scope of the
authority apparently conferred upon him" (Lindley on Partnerships per
Lord Lindley, see 17th ed. para. 12-88 p.332. Vicarious liability extends to
fraudulent acts and omissions provided they were committed in the course of
employment or within the scope of apparent authority, even if they were against
the interest of the employer or principal : Lloyd v. Grace Smith &
Co. [1912] A.C.716 Hamlyn v. Houston & Co. [1903] 1 KB 81 and
cf. The Ocean Frost (Armagas v. Mundogas Ltd) [1986] AC 717).
Vicarious liability is not imposed unless all of the acts or omissions which
make the servant personally liable as a tortfeasor took place within the course
of his employment : see Generale Bank Nederland NV v. ECGD [1999] 1LI
Rep.19, 1999 2 WLR 540. The same rule applies, in my judgment, to the
vicarious liability of a principal for torts committed by his agent within the
scope of the agency. The servant or agent may be held responsible for acts of
his co-conspirators or other third parties, but vicarious liability for these
acts is not imposed on the employer or principal unless they were in the course
of the employment or agency.
The starting point for the present enquiry, therefore, has to be the
allegations made against Mr Amhurst as the basis of the knowing assistance
claim against him. These are summarised in the passage from the judgment of
Rix J. quoted by Aldous L.J. They include, but are far from being limited to,
the drafting of documents and other regular parts of a solicitor's business
which he conducted for Mr Salaam, who was his client. They appear to have
included giving direct advice and assistance to other wrongdoers, specifically
Mr Livingstone and Richco, who were not his (or the firm's) clients. His work
for Mr Salaam and for them was done in the context of the dishonest scheme to
which they all parties. This was not, therefore, a case like Hamlyn v.
Houston where the person dealing with the dishonest agent could believe
that he was acting with the apparent authority of his principal. There was,
and is, no suggestion that any of Mr Amhurst's partners authorised him or held
him out as being authorised to act as he did, dishonestly, on their behalf.
For this short reason, I would hold that Mr Amhurst was not acting in the
ordinary course of business of the firm when he took part in the dishonest
scheme which caused loss to Dubal. I should add that it is not suggested that
his partners held him out to Dubal as having authority to do what he did, or
that Dubal relied upon any such holding out by them.
The situation could be different if the accessory liability for knowing
assistance was incurred by a partner notwithstanding that the trustee or other
person committing the breach of trust or fiduciary duty was not himself
dishonest, being either innocent or merely negligent. In such a case, the
accessory liability may nevertheless arise (this was the primary decision in
Royal Brunei Airlines v. Tan (above)). Then, the client or other person
dealing with the dishonest partner would not be disqualified, by his own
participation in the dishonest scheme, from alleging that the advice or
assistance was given in the ordinary course of the firm's business. It would
become necessary to decide whether the law can be stated as broadly as Lord
Herschell did in Mara v. Browne [1896] 1 Cl.199 -
"....it is not within the scope of the implied authority of a partner in such
a business that he should so act as to make himself a constructive trustee, and
thereby subject his partner to the same liability"(p.208).
(Rigby L.J. expressly agreed (p.214), and A.L. Smith L.J. indicated the same
view (p.212)). The same view was adopted by Vinelott J. in In re Bells
Indenture [1980] 1. W.L.R. 121). On the other hand, the firm was
held liable (for the receipt of money and under section 11 of the Partnership
Act 1890) in Bass Brewers Ltd v. Appleby [1997] 2 BCCL 700, and in
Agip (Africa) Ltd v. Jackson [1990] 1 Ch.265 ; C.A. [1991] Ch 547,
Millett J. held that a defendant was vicariously liable for the acts of his
partner and employee, even though he could not be held directly liable himself
("Mr Bowers" page 296). In neither of these cases, however, was the contrary
proposition argued.
If vicarious liability is imposed in the absence of notice on the partners of
a person who incurs the accessory liability of a constructive trustee for
giving knowing assistance to a breach of trust or fiduciary duty, then it is
anomalous that there can be no vicarious liability under section 13 for the
receipt or employment of trust property unless notice is established.
In my judgment, however, that result could be acceptable in cases analogous to
Lloyd v. Grace Smith & Co. and Hamlyn v. Houston where the
firm's client is innocent of any complicity in the wrongdoing. That is not the
present case. Mr Amhurst dealt only with other parties to the dishonest scheme
(referring as always to the allegations made against him), and his allegedly
wrongful acts went outside the ordinary course of business between the firm and
its client, Mr Salaam.
I therefore agree with Aldous L.J. that section 10 does not impose vicarious
liability on the Amhurst partners in the circumstances of this case, and I
would allow the appeal on this ground.
(3) The 1978 Act - contribution and vicarious liability
The issue of principle is raised whether a defendant who is liable vicariously
for the wrongful act or omission of another person, whether his servant or
partner or by reason of any other relationship between them, but who is not
liable for any personal wrongdoing, can be treated as free from fault and
responsibility for the loss caused to the claimant in contribution proceedings
between himself and co-defendants or other persons who share the responsibility
for it.
We are told that there is no reported authority on this issue. Both parties
submit that this is because the answer is obvious and no decision has been
necessary. But each submits that the answer is obvious in their own favour,
and so the submission does not advance either argument further.
The nearest authority, perhaps, is Fisher v. C.H.T. Ltd [1966] 2 Q.B.
475. Three defendants were each found liable to the plaintiff in a personal
injuries case. Liability between them was apportioned 60 : 20 : 20. Each
defendant of course was liable to the plaintiff for the full amount. The
defendants found liable to contribute 60 per cent were insolvent and
contributed nothing. As Lord Denning M.R. said -
"But they have got no money. So they pass out of the picture. The other two,
Crockfords and the plasterers, have got to bear the whole damages between them.
The question is how they should bear them as between themselves. If the
judge's decision was right, it meant that they would have to bear them
half-and-half." (p.481).
The Court of Appeal held that the judge's 20 : 20 apportionment should be
varied to 10 : 30 so that "in respect of the whole damages" the defendants
would pay one quarter and three quarters respectively (page 483).
It is suggested that this judgment supports the respondent's submission that
one defendant's responsibility may be shared between other defendants when it
becomes appropriate to do so. I do not think that it does. The decision was
that 40 per cent of the total liability should be apportioned 10 : 30 between
the two defendants, which had the consequence that their respective liabilities
were for one - and three-quarters of the whole. But that consequence arose
because they were each liable for the total damages to the plaintiff and
because, when the other defendant was unable to make any contribution, it was
equitable for them to bear his share of the damages in the same proportions.
It does not mean that that defendant's responsibility was ignored when the
proper apportionment between all three defendants was assessed.
Mr Boswood Q.C. submitted for the Amhurst partners that section 2(1) required
the judge to assess what was "just and equitable" between the defendants,
having regard to the extent of each defendant's responsibility for the loss
caused to Dubal. It was common ground that the Act makes it necessary to
consider both the culpability or blameworthiness and the `causative potency' of
each defendant's conduct. On both scores, Mr Boswood submitted, the Amhurst
partners could only be regarded as having no responsibility whatsoever. They
were innocent of any wrongdoing, for there was no suggestion that any of them
was personally involved or knew what Mr Amhurst was doing, and they could not
be said in any sense to have caused Dubal's loss.
This submission was accepted by the judge. He held, first, -
"In terms of the promotion, organisation and operation of the scheme, I think
there is little to choose between the five principal parties" (page 474).
These were Mr Livingstone, Mr Al Tajir and Mr Salaam, who were "in effect
three partners", and Richco and Mr Amhurst. The last-named was not a principal
or an originator, but (on the alleged facts) -
"... in his own way he was a necessary part of the setting up of the scheme,
and he lent by his presence a colourable respectability to it .... I regard his
responsibility ... as being a little less than that of the others, but not by
very much" (page 474).
The Amhurst partners, on the other hand, he regarded as being personally
innocent, as indeed they were, even if they were exposed to a finding of
vicarious liability for Mr Amhurst's wrongdoing. He assessed Mr Amhurst's
assumed responsibility as 10 per cent after taking account of the fact that he
received no part of the sums extracted from Dubal except in payment of his
proper professional fees (said to have been in the region of $60,000 only).
But he discharged the Amhurst partners altogether -
"In my judgment they are neither bound by Mr Amhurst's assessed responsibility
at 10 per cent nor automatically entitled to a full indemnity, other than from
Mr Amhurst himself against whom they have made no claim [in these proceedings].
They have, however, contributed approximately 13.5 per cent which is 3.5 per
cent more than my prima facie allocation of Mr Amhurst's responsibility. They
are therefore in any event entitled to recover that additional 3.5 per cent"
(page 476).
He continued -
"More than that, however, it seems to me that a combination of their personal
innocence of any dishonesty coupled with the dishonesty of parties such as Mr
Salaam and Mr Al Tajir who have not yet disgorged their full receipts means
that they should receive a full indemnity from such parties" (page 476).
He then made it clear that he would not have ordered an indemnity in their
favour in excess of "Mr Salaam's and Mr Al Tajir's undisgorged receipts".
Counsel for the appellants submitted to us that the judge appears to give no
reasons for his conclusion which, they contend, cuts across the policy or
principle on which vicarious liability is based. The reason for the rule is
that the claimant should succeed against the master if the servant is unable to
pay compensation and the wrong was committed in the course of his employment.
As Professor Glanville Williams wrote in Joint Torts and Contributory
Negligence -
"The attitude of the common law is that Jack is emphatically not as good as his
master, financially speaking, and that the master must therefore recompense
third parties for torts committed in the course of the employment"
(pp.428-9).
Similarly, where the members of a firm are held vicariously liable for the
wrongful acts of one of their partners, in the ordinary course of the firm's
business, notwithstanding that they are personally innocent of any wrongdoing.
their liability is vicarious, not personal, even if the basis of it is that
they held out or authorised the partner to act on behalf of the firm and,
another factor, that they shared the firm's profits. These are reasons why
vicarious liability is imposed. They do not alter the nature of the liability
which the master, or the partner, incurs.
In my judgment, the appellants' submission is correct. The defendant's
vicarious liability to the claimant provides the basis for his claim for a
contribution towards it from other defendants. I do not see how the defendant
claiming contribution can assert a different liability from that which he was
under towards the claimants, and in the present case, if the Amhurst partners
were liable, they were liable vicariously for Mr Amhurst's dishonesty. If the
rule was otherwise, there would be some remarkable results and the appellants
are correct in saying that the rule could be turned on its head. One example
will suffice. If two defendants are held equally responsible for the
claimant's loss, they will pay one half each. If the master (or partner) of
one of them is vicariously liable to the claimant, and that defendant is or
becomes insolvent, then if the respondents' submission was correct, the other
(solvent) defendant could be held liable to pay the whole of the loss, with no
right to claim contribution from the innocent master or partner. So the risk
of the servant's insolvency would fall upon him rather than rest with the
master where it is placed by the law.
For these reasons, the judge was wrong in my opinion to hold that the Amhurst
partners should recover a full indemnity from Mr Salaam and Mr Al Tajir, if
they were liable to the claimants for Mr Amhurst's alleged wrongdoing.
Conclusion
For these reasons, I would allow the appeals by Mr Salaam and Mr Al Tajir
against the judge's order that they should indemnify the Amhurst partners
against (or bear any part of) the sum of $10 million which was paid to Dubal on
their behalf. There remains a claim by Mr Salaam against Mr Amhurst for a
contribution towards the $18 million which he has paid or agreed to pay in
settlement of the claim by Dubal. I consider that no order should be made.
The judge assessed Mr Salaam's share of responsibility at 36 per cent. and Mr
Amhurst's at 10 per cent (page 474). The 36 per cent. represents a prima
facie contribution in excess of $18 million which is "some U.S. $6.6
million more than the baseline value of his settlement, and his receipts are
still greater" (judgment page 475). His receipts were $20,338.348. Any
payment to him by Mr Amhurst, therefore, would serve only to increase the
profit he has made from the dishonest scheme, and Mr Amhurst's expense for he
received nothing. In these circumstances I do not regard it as just or
equitable that Mr Amhurst should be ordered to make any payment.
In connection with apportionment generally, I am unclear why priority was not
given to requiring actual or notional repayment of all sums received out of
Dubal payments, before apportioning liability for the balance of the sums
accepted by Dubal. This balance represents the liability of the various
defendants and third parties for wrongfully assisting in the breach of trust.
However, this approach was not advocated before us and it is unnecessary to
decide whether this would have been a correct approach.
LORD JUSTICE ALDOUS:
In his judgment ([1999] Lloyd's Reports 415) Rix J set out in detail the
fraudulent scheme which resulted in about $50 million being extracted from
Dubai Aluminium Company Ltd, the claimant. Dubal alleged that its former chief
executive, Mr Livingstone, conspired with Mr Salaam with the assistance of Mr
Amhurst, Mr Salaam's solicitor, to steal the $50 million using sham contracts.
As found by the judge, and now agreed, the $50 million was distributed so that
Mr Al Tajir received about $16.5 million, Mr H. Salaam received about $20.3
million and Mr Livingstone about $6.3 million. Mr Amhurst received nothing in
his personal capacity, but his firm charged Mr Salaam about £66,000 for
the work that he did.
The judge explained how at the twelfth hour the principal proceedings, namely
the claim, was settled by agreement. Mr Livingstone paid to Dubal about $15.5
million, Mr Al Tajir paid $18 million, and Mr Salaam paid $18 million. The
claim against Mr Amhurst and his firm was settled by an agreement between Dubal
and the partners of the firm, excluding Mr Amhurst. I will refer to them as
the Amhurst partners. The agreement provided for payment of $10 million which
was paid in settlement of the claim against the Amhurst partners and release of
the claim against Mr Amhurst.
As Dubal's claim had been settled there remained the contribution proceedings.
In essence Mr Salaam sought contribution from Mr Amhurst and the Amhurst
partners and Mr Al Tajir. The Amhurst partners sought contribution from Mr
Salaam, Mr Livingstone and Mr Al Tajir. Mr Livingstone did not seek any
contribution, but Mr Al Tajir maintained a contingent claim against Mr Amhurst.
Mr Livingstone and Mr Salaam attended the hearing and gave oral evidence. Mr
Al Tajir's witness statement was admitted pursuant to a Civil Evidence Act
Notice as he was too ill to attend the court for cross-examination. Mr Amhurst
elected not to give evidence. The judge held that Mr Livingstone, Mr Salaam
and Mr Al Tajir were dishonest participants in the fraud. The judge did not
make any finding of fact as to whether Mr Amhurst was also a dishonest
participant. Indeed he decided the contribution proceedings upon the basis
that the facts pleaded against Mr Amhurst were true. It is common ground that
that was the correct approach pursuant to section 1(4) of the Civil Liabilities
(Contribution) Act 1978.
Before this Court, Mr Al Tajir submitted that the judge's conclusion that he
was a dishonest participant in the scheme was wrong. Mr Salaam and Mr Al Tajir
challenged the conclusion of the judge that the Amhurst partners could claim
contribution and also the way that the judge had carried out the assessment of
the contribution even if he was right that the Amhurst partners could claim
contribution.
For the reasons given by Evans LJ, I reject the submission that the judge was
wrong to conclude that Mr Al Tajir was a dishonest participant. I therefore
turn to the other challenges to the judgment, starting with the challenge to
the conclusion that the Amhurst partners were entitled to claim a contribution.
Are the Amhurst partners entitled to claim contribution?
Section 1(4) of the 1978 Act enables a person, such as the Amhurst partners,
who has made a payment in bona fide settlement to recover contribution
"provided, however, that he would have been liable assuming the factual basis
of a claim against him could be established." It was accepted that the Amhurst
partners did not have knowledge of the alleged dishonest acts carried out by Mr
Amhurst. It followed that they could only have been liable under section 10 of
the Partnership Act 1890.
Mr Nigel Davis QC, counsel for Mr Salaam, supported by Mr Malek QC, who
appeared for Mr Al Tajir, submitted that, upon the assumed factual basis, no
liability accrued to the Amhurst partners under section 10. That submission
was opposed by Mr Boswood QC, who appeared for the Amhurst partners. Mr
Leggatt QC, who appeared for Mr Amhurst, pointed out that it was in his
client's interest that the submission of Mr Nigel Davis should succeed, but he
did not advance any submission for or against the suggested conclusion.
To understand the rival submissions as to the ambit of section 10 of the
Partnership Act 1890, it is necessary to set out a number of the sections of
that Act.
"1(1) Partnership is the relation which subsists between persons carrying on a
business in common with a view of profit.
...
9. Every partner in a firm is jointly liable with the other partners, and in
Scotland severally also, for all debts and obligations of the firm incurred
while he is a partner; and after his death his estate is also severally liable
in a due course of administration for such debts and obligations, so far as
they remain unsatisfied, but subject in England or Ireland to the prior payment
of his separate debts.
10. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the firm, or with the authority of his
co-partners, loss or injury is caused to any person not being a partner in the
firm, or any penalty is incurred, the firm is liable therefor to the same
extent as the partner so acting or omitting to act.
11. In the following cases; namely -
(a) Where one partner acting within the scope of his apparent authority
receives the money or property of a third person and misapplies it; and
(b) Where a firm in the course of its business receives money or property of a
third person, and the money or property so received is misapplied by one or
more of the partners while it is in the custody of the firm;
the firm is liable to make good the loss.
12. Every partner is jointly liable with his co-partners and also severally
for everything for which the firm while he is a partner therein becomes liable
under either of the two last preceding sections.
13. If a partner, being a trustee, improperly employs trust-property in the
business or on the account of the partnership, no other partner is liable for
the trust property to the persons beneficially interested therein:
Provided as follows:-
(1) This section shall not affect any liability incurred by any partner by
reason of his having notice of a breach of trust; and
(2) Nothing in this section shall prevent trust money from being followed and
recovered from the firm if still in its possession or under its control."
Mr Nigel Davis submitted that the Amhurst partners were not liable under
section 10 of the Act for two reasons. First that the assumed facts did not
establish a "wrongful act or omission". In essence his submission was that
those words were to be construed as being confined to torts and therefore did
not include the pleaded acts of knowing assistance. Second, the pleaded acts
were not done "in the ordinary course of business of the firm". The first
submission involves a question of law requiring construction of the words "any
wrongful act or omission", whereas the second is primarily a question of fact
depending upon what was the business of the firm and whether the assumed facts
were carried out in the ordinary course of that business. I will deal with the
construction issue first, but before doing so will set out the factual
background.
The facts - As section 1(4) of the 1978 Act makes clear, liability has
to be assessed assuming the factual basis of the claim. It was accepted that
Mr Amhurst had not received any of the dishonest proceeds of the fraud. The
judge therefore, rightly in my view, disregarded allegations that he had.
There remained allegations of knowing assistance. The pleaded facts were
accurately and succinctly set out by the judge at page 466.
"Those pleaded facts are to the following effect. Mr Amhurst was a solicitor
and a director of a number of companies in Mr Salaam's group, including Valo;
he represented to Richco that he held powers of attorney for Nillet and JMS; he
drafted or dictated the drafting of the Richco consultancy agreement and the
subsidiary agreements and was involved with Mr Livingstone in their
negotiation, so much so that he "appeared to be part of the Dubal team"; he
informed Richco that it was required to concur in the scheme if it was to do
business in Dubai or with Dubal; he knew and made known to Richco that it was
not expected to supply services pursuant to its consultancy agreement or to be
supplied with services under the subsidiary agreements and the scheme was a
mere vehicle for payment, and thus knew that the Richco consultancy agreement
and the subsidiary agreements were shams; he executed the subsidiary agreements
on behalf of the Salaam companies; thereafter he was "centrally involved in the
administration" of the scheme, e.g. by giving instructions to Richco concerning
the payment of money. In sum, he as well as Mr Salaam "dishonestly procured
and/or assisted Livingstone to act in breach of his said fiduciary duties by
conceiving, planning and assisting in giving effect to the scheme".
So it was that in my Unreasoned Findings I have found that Mr Amhurst must be
treated as having dishonestly assisted the scheme in his role as a solicitor,
and that, like the other participants, he had played (i.e. must be assumed to
have played) an important and substantial and not merely peripheral or
incidental role in the scheme."
The Construction Argument - Mr Nigel Davis submitted that, when read in
the context of the other sections of the Act, the words "wrongful act or
omission" were confined to torts. If he be right knowing assistance does not
come within section 10 as knowing assistance, whether categorised as a breach
of constructive trust or placed in some other category, has never been a tort.
According to Mr Nigel Davis, section 9 deals with obligations in contract,
section 10 with acts or omissions giving rise to a liability in tort and
sections 11 and 13 with obligations for breach of trust. He submitted that
section 13 suffered from otiosity if section 10 covered equitable claims. He
pointed out that section 13 only made a partner liable for breaches of trust by
another partner if he had notice of the breach, whereas, if section 10 is
construed to cover breaches of trust, the other partners would be liable
whether or not they had notice provided that the breach was made in the
ordinary course of the business of the firm. In support of his submission he
drew attention to a statement, unsupported by reasoning, made by Professor
Atiyah to the effect that section 10 related to tortious acts. He also drew
attention to the judgment of Tipping J in Estate Realities v Wignall
[1992] 2 NZLR 615 who made a similar statement at page 635 in relation to the
equivalent New Zealand section to section 10. Of course they are right, but
the question for decision is whether the section is confined to tortious
claims.
Although there may be overlap between sections 9-13 of the Act, I do not
believe there is any otiosity. Sections 11 and 13 are both concerned with
third party money received by a firm. Section 11 deals with money properly
received and afterwards misapplied. Section 13 is concerned with
misappropriated money by a trustee who in breach of trust pays it to his firm.
In that case his partners are only liable if the requirements of knowing
receipt can be satisfied (per Millett LJ in Bass Brewers Ltd v Appleby
[1997] 2 BCLC 707-11). Section 10 is also concerned with acts properly carried
out in the sense that they are carried out in the ordinary course of the
business of the firm and in that respect is like section 11. That is to be
contrasted with section 13 which relates to improper acts by a partner who is a
trustee.
The words "any wrongful act or omission" are in my view wide enough to
encompass all wrongful acts or omissions. I see no reason to confine them to
wrongs which are classified as torts. The word tort, derived from the Latin
tortus meaning twisted or wrung, has become limited to encompass only
certain civil wrongs, but unless there is compelling reason to the contrary, it
would not be right to confine the words "wrongful acts" to such acts as are
regarded as tortious. The general principles of agency underlie the 1890 Act.
In general the principal is liable not only for the authorised acts of his
agent, but also for such unauthorised acts as fall within the scope of the
authority apparently conferred upon him. I can see no reason, providing the
conditions as to authority are complied with, which should prevent the
principal from avoiding liability for the knowing assistance of his agent.
Similarly I can see no reason to restrict the ambit of section 10 in the way
suggested by Mr Nigel Davis. I draw comfort from the conclusion reached by
Millett J in Agip (Africa) Ltd v Jackson [1991] 1 Ch 265 at 296 where he
concluded that Mr Bowers, an innocent partner, was liable for the acts of
knowing assistance of his partner. That could only have been upon the basis
that section 10 applied. In my view the judge was right to conclude at page
470:
"Section 10 itself is in the widest terms: it refers to "any wrongful act or
omission" causing "loss or injury" or the incurring of a penalty. I do not see
why that language cannot extend beyond torts properly so called wrongs such as
accessory liability in equity. To confine it solely to torts is to construe
the section with excessive formalism, and I do not see what there is in the
language of the section to suggest such formalism. Section 11 provides that
the firm is liable to make good loss caused by the misapplication of a third
person's money or property received by either a partner "acting within the
scope of his apparent authority" or by the firm "in the course of its
business". That section only applies therefore in the case of receipt of
property. It does not seem to me to follow that in a case otherwise within s.
10 it matters whether or not a third party's property has been received by a
partner or the firm. Section 11 rather seems to me to be saying that in the
case of the misapplication of property received by a partner or the firm, it is
only where the property is received in the ordinary course of the firm's
business that the firm can be made liable for the misapplication of any
partner. The underlying principle is therefore consistent with s. 10.
Finally, s. 13 deals with the position where a partner accepts the
responsibility of being a trustee ("If a partner, being a trustee ...") and
states that liability will only attach beyond the partner in question for
misuse of trust funds in the partnership business where the funds can be traced
or a partner has notice of the breach of trust. That section, however, appears
to assume that the individual trusteeships which a partner may undertake are
not something undertaken in the ordinary course of business, otherwise it would
be inconsistent with s. 11: see Lindley & Banks at par. 12-136. That seems
to me to leave open the situation where a partner, not being a trustee,
nevertheless so conducts himself as an accessory to a breach of trust, that he
is visited in equity with the remedies available against a constructive
trustee: I do not see why that situation cannot be dealt with under the general
principle enunciated in s. 10. I therefore see nothing in the terms of the
Partnership Act itself to limit the application of the application of the s. 10
to torts alone, even though they may have been the primary focus of the section
in its origin. I do not think that Mr Justice Tipping intended to say that the
New Zealand equivalent of s. 10 was confined exclusively to torts."
The factual argument - Mr Nigel Davis submitted that Mr Amhurst was not
acting in the ordinary course of the business of the firm of solicitors of
which he was a partner when he carried out the pleaded acts which were the
factual basis to be assumed. Mr Boswood submitted to the contrary. Both of
them accepted that the conclusion was essentially one of fact, but referred us
to cases which they submitted supported their submissions.
The words in section 10 "in the ordinary course of business" require
consideration of what was the business actual or apparent. Decisions of judges
as to what was in the ordinary business of a particular partnership may not be
of guidance as to what was in the ordinary business of another partnership.
For example solicitors in 1890 did not provide a full range of financial
services whereas some do today. Thus the buying and selling of shares would
not in 1890 be held to be in the ordinary course of the business of a firm of
solicitors. The contrary could be true today, but the answer would depend upon
the facts. At the start of the last century the question as to whether any act
was within the actual or apparent course of a particular business of a
particular firm would have been left to the jury to decide (see Hamlyn v
John Houston & Co [1903] 1 KB 81). I believe that today the question
should be approached in a similar way.
In the present case, for reasons which I will explain later, I do not believe
that any of the authorities cited by counsel are of assistance in deciding what
is primarily a question of fact. It was not suggested that the firm of
solicitors of which Mr Amhurst was a partner carried on business other than
that of a normal city firm. It follows that such acts as advising on and
drafting legal agreements fell squarely within the ordinary course of their
business and the Amhurst partners would have been liable if that had been the
extent of Mr Amhurst's assumed participation. It was not. As stated by the
judge, in the extract from his judgment quoted above, Mr Amhurst was instructed
by Mr Salaam, but was involved with Mr Livingstone in the negotiations so much
that he "appeared to be part of the Dubal team". He informed Richco that it
was required to concur in the scheme if it was to do business in Dubai or with
Dubal. He made known to Richco that it was not expected to supply services
pursuant to its consultancy agreement and was "centrally involved in the
administration of the scheme" for example by giving instructions to Richco
concerning the payment of money. As the judge held "in sum, he as well as Mr
Salaam 'dishonestly procured and/or assisted Mr Livingstone to act in breach of
his said fiduciary duties by conceiving, planning and assisting in giving
effect to the scheme". As pleaded in the particulars to paragraph 6.2 of the
Amended Points of Claim all the relevant agreements "were sham agreements and
were known to ... Amhurst to be so". It is not and never has been part of the
business of a firm of solicitors to plan, draft and sign sham agreements giving
effect to a scheme known to be dishonest which he had helped to plan. Such
actions could not have been carried out in the ordinary course of the business
carried on by the Amhurst partners. In my view the judge came to the wrong
conclusion. He was right when he said at page 471 that there was no principle
of law which compelled him to hold Mr Amhurst was acting outside the ordinary
course of business of the firm. However he failed to take into account the
full ambit of the factual matters alleged. In particular he failed to take
into account that Mr Amhurst was intimately concerned in the conception,
planning, assisting and giving effect to the scheme.
Mr Nigel Davis relied on Mara v Browne [1906] 1 Ch 199 for the
proposition that it was not within the scope of a solicitor's business to
constitute himself a constructive trustee. That being so, knowing assistance
was not within the scope of the authority of Mr Amhurst. Any statement to
that effect in that case did not form the basis of the reasoning for the
decision. Even if such a conclusion was correct in 1895, it would not mean
that particular acts, carried out in the 1990's, which rendered a solicitor a
constructive trustee would be outside his ordinary course of business. However
Lord Herschell did say at page 208:
"In my opinion, it is not within the scope of the implied authority of a
partner in such a business that he should so act to make himself a constructive
trustee, and thereby subject his partner to the same liability."
That statement was obiter and as is clear from the argument and from the
judgment of A.L. Smith LJ at page 212, the suggestion was that the partner
became liable as constructive trustee because he intermeddled so as to become a
trustee de son tort. It may be that intermeddling in a way so as to make a
solicitor a trustee de son tort could never be considered to be in the ordinary
course of the business of a solicitor, but it does not follow that every act
which would make a solicitor a constructive trustee would be outside the
ordinary course of his business. It follows that I do not agree with the
statement of the law by Vinelott J in In re: Bell's Indenture[1980] 1
WLR 1217 at page 1230. There is in my view no principle of law that a
solicitor does not have implied or apparent authority to constitute himself a
constructive trustee. The decision as to whether he does will depend upon the
facts and factual background.
Mr Boswood relied on Hamlyn v Houston [1903] 1 KB 81 as establishing
that the court should concentrate on the acts which were alleged, not the end
result. I agree. In the present case it is necessary to concentrate on the
pleaded acts, not the fact that they were dishonest. However I disagree with
the submission of Mr Boswood that the pleaded acts were within the ordinary
course of business of the tortfeasor. It was alleged that Mr Amhurst was
centrally involved in the administration of the scheme and procured and/or
assisted Mr Livingstone to act in breach of his fiduciary duty and also, with
Livingstone, jointly conceived, planned and assisted in giving effect to the
scheme. In so doing Mr Amhurst went outside the ordinary course of the
business of his firm. Certainly there was no evidence to suggest that the firm
did such business or held themselves out as doing so.
Similar to the Hamlyn case was Credit Lyonnais N.V v ECGD [1999] 2 WLR 540. In that case the employee of the bank, Mr Pillai, had issued
guarantees which were supplied to ECGD, but the deceit relied on was the
responsibility of a third party. Mr Pillai's implication in the deceit arose
from his conduct outside his employment. The submission was that the bank was
vicariously liable because an act had been carried out during the course of his
employment. As Lord Woolf pointed out at page 547, that before there can be
vicarious liability, all the features of the wrong which were necessary to make
the employee liable had to be incurred in the course of the employment. Lord
Woolf went on to point out that the acts of facilitating, as opposed to
procuring and inducing, a tort were not actionable. Nothing in that case
throws light upon whether the acts of Mr Amhurst, as pleaded, were in the
ordinary course of his firm's business.
Having regard to the conclusion I have reached that the Amhurst partners are
not liable under section 10 of the 1890 Act for the knowing assistance of Mr
Amhurst their claim for contribution from Mr Salaam and Mr Al Tajir must be
rejected.
For the reasons given by Evans LJ. I agree that it would not be just and
equitable that Mr Amhurst should be ordered to make any payment.
MR JUSTICE TURNER:
I have had the advantage of reading the judgments in draft prepared by Evans
and Aldous LJJ. Save as to what follows, I find myself to be in full agreement
with them. In the result, my dissent makes no difference. Nevertheless, and
since the point is of some importance, I have considered that it would be
appropriate to address one of the major points discussed in the course of this
appeal.
At p 466, column 2 (the stylistic reference j466/2 will hereafter be used) of
the judgment, Rix J identified the legal problem which was central to the
question of the Amhurst partners' ability to claim contribution under the Act
of 1978 from Mr Salaam, Mr Livingstone and Mr Al Tajir. For the partners to be
able successfully to maintain such a claim, despite their pleadings and opening
submissions which were understandably to the contrary effect, they had to show
that on the factual case made against them on the pleadings in the third party
proceedings they would have been held liable to Dubal; see s.1(4). In the
result, Rix J concluded that the partners would have been liable on the basis
that
Section 10 itself is in the widest terms: it refers to "any wrongful act or
omission" causing "loss or injury" or the incurring of a penalty, I do not see
why that language cannot extend beyond torts properly so called to wrongs such
as accessory liability in equity. To confine it solely to torts is to construe
the section with excessive formalism, and I do not see what there is in the
language of the section to suggest such formalism.
In so holding, the judge adopted the submissions made on behalf of the
partners, or at least as they were made to this court. These were made on the
basis that Mr Amhurst has to be taken as having dishonestly assisted Mr
Livingstone to act in breach of his fiduciary duty towards Dubal by conceiving,
planning and assisting jointly to put the dishonest scheme into effect. In the
Amended Points of Claim it was alleged
6.2 Salaam and/or Amhurst dishonestly procured and/or assisted Livingstone
to act in breach of his fiduciary duties by conceiving, planning the scheme
(alleged).
A part of that scheme consisted of the Richco consultancy agreement together
with the agreements which were ancillary to it. Such agreements were
ancillary to the matters which must be assumed to be true as had been alleged
in paragraph 6.2 of the amended Points of Claim, as above. All of these
agreements had been drafted by Mr Amhurst as partner, and others in the firm,
and, as such, carrying out work which, dishonesty apart constituted the
ordinary work of a solicitor. In so far as the Richco agreement was concerned
this also was drafted by Mr Amhurst, and those working under him, and dictated
by him to Richco itself (see Amended Points of Claim paragraph 7.3) which was
not and never had been a client of either the third or the fourth defendant
firms.
The pleaded case against the partners was, thus, one of dishonest assistance
by Mr Amhurst for which they were vicariously liable. As such Dubal were
seeking an equitable remedy from them rather than one which was based in tort.
The submission in the court below, and in the Court of Appeal, was to the
effect that since Mr Amhurst had carried out the work of drafting the various
agreements "in his capacity as a partner" (j467/1) the question then became
whether such was done in the ordinary course of business of the firm.
Whichever answer was correct, it was said, it was a question of fact which made
no difference to the result because neither was capable of falling within the
scope of s.10 of the Partnership Act 1890 which provides:
Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the firm, or with the authority of his co-partners,
loss or injury is caused to any person not being a partner in the firm, or any
penalty is incurred, the firm is liable therefor to the same extent as the
partner so acting or omitting to act.
On this approach, leaving aside for the moment the meaning to be ascribed to
the words "in the ordinary course of the business.....", dishonest assistance
falls fairly within the description of "wrongful act" and so a partnership
would be liable in respect of acts of dishonest assistance which had caused
loss to others. The essence of the submission was that, as identified by the
judge:
s.10 is intended to deal with vicarious liability in general (j467/1)
The contrary argument was encapsulated by the judge also at j467/1 when he
said
The submission, therefore, is in effect that the wrong of dishonest assistance
can never be effected in the ordinary course of a firm's business; or that,
whether it can or whether it cannot, even so on the true construction of ss.10,
11 and 13, equity based remedies (other than tracing) are confined to cases
where third party funds are received by the firm within the ordinary scope of
its business (s.11) or where the other partners have notice of a breach of
trust (s.13(1)), and that s. 10 is confined to liability in tort.
Before considering in greater detail the conclusion reached by the judge as to
the general effect of s. 10, it is necessary, in my judgment to have regard to
some of the other provisions of the Partnership Act. Thus sections 5 and 6
provide for the acts of a partner done for the purposes of the business to
"bind the firm and (the) partners, unless....." and "An act ... relating to
the business of the firm ... is binding on the firm" respectively. As Lindley
and Banks on Partnership (17th Edition) paragraph 12-08 suggests, the scheme of
s.5 is to provide that
1. An act done within the scope of actual authority of a
partner will bind the firm;
2. An act done by a partner in the course of carrying on the
partnership in the usual way will prima facie bind the firm, unless the
third party with whom he dealt knows otherwise or was unaware that he was a
partner;
3. An act done by a partner otherwise than for the purposes of
carrying on the partnership business will prima facie not bind the
firm.
Section 6 is concerned with contracts made in the firm name being binding on
the firm and the partners in it. Section 7 makes savings for the firm when one
of its partners pledges its credit for a purpose not connected with the
ordinary course of its business. Section 8 can for present purposes be
ignored. Section 9 is, by its terms, concerned with the liability of partners
for the debts and obligations of a firm and as to the manner in which these are
to be dealt with after the death of a partner as part of his estate (in other
words matters of contract). Section 11 deals with the cases where either a
partner or the firm receives money or property within the apparent authority
(of that partner) or the ordinary course of business (of the firm) and it is
subsequently misapplied and the firm is made liable to make good the loss.
Section 12 makes partners jointly and severally liable for liability imposed on
the firm under sections 10 and 11. Section 13 saves partners from liability
for the improper employment of trust property in the firm unless any partner
has notice of the breach of trust. Taken as a whole, therefore sections 5, 6,
9, 10, 11 and 13 provide a code of different circumstances in which a firm and
its partners may become liable to third parties for acts done, or apparently
done, by partners (within the scope of their apparent authority) and firms (in
the ordinary course of their business). It is also a factor to be taken into
account that the Act of 1890 was primarily, by its long title, "an Act to
declare and amend the law of partnership" and that by section 46 it was
provided that the rules of common law and equity were to remain in force,
except insofar as they were inconsistent with its express terms.
One of the questions debated in the course of this appeal has, of necessity,
been the extent to which any of these provisions overlap or are mutually
repugnant. If, as Rix J seems to have thought (j467/1 above) section 10 was
intended to impose vicarious liability on partners for acts of a partner done
in the course of business of the partnership, then it can be seen that there is
scope, not only for overlap between various of the sections of the Act, but for
repugnance as well. It was pointed out on behalf of Mr Salaam, and adopted on
behalf of Mr Al Tajir, that while under s.13 partners are not liable (without
notice) for acts committed by one of them as a constructive trustee, under s.10
such partners would be liable, notice or no notice, if the acts were done in
the ordinary course of the business of the firm. It was submitted that this
analysis was consistent with the authorities which had not recognised the
existence of a tort of `knowing assistance'; see Estate Realities v.
Wignall (1992) N2LR 615 p634-5 Generale Bank Nederland NV
v. ECGD [1998] I Lloyds Reps (CA) 19 p42/1, and at [1999] 2 WLR 540 (HL) p551 E-F. With the exception of Estate Realities,
this line of authority does not deal or purport to deal with the problem in
relation to the scope of s.10. In the fourth holding in that case it was
reported that Tipping J had held that
Although the breach of fiduciary duty occurred during the
course of the ordinary business of a partnership, a party who, through absence,
did not knowingly assist in that breach and did not receive or deal with the
property concerned with knowledge of that breach of duty did not, by virtue of
his membership of the partnership, become himself a constructive trustee of the
property nor liable to account for his share of any profit the partnership
obtained from it.
In making this finding (at p 635 L18), Tipping J had relied on a line of cases
including the English cases of Mara v. Browne [1896] 1 CL
199, In re Bell's Indenture [1980] 1 WLR 1217 and Vyse v.
Foster (1872) LR 8 Ch Apps 309.
In the first of these cases, which as it so happened, had been decided after,
but on facts which took place before, the commencement of the Act of 1890, it
was held obiter, by all three members of what can be described as a
`strong court', that it was not within the authority of a partner in a firm of
solicitors to act as a constructive trustee and thereby impose a liability on
his partners; see Lord Herschell at p 208, A L Smith LJ at p 212 and Rigby LJ
at p 214. It was submitted that it was significant that all three members of
the court had included these dicta in judgments which had been reserved. In
In re Bell's Indenture, Vinelott J, again in a reserved
judgment, applied the dicta in Mara v. Browne.
Having quoted from the judgment of Lord Herschell (p 208) he said at p
1230
A L Smith LJ and Rigby LJ made observations on the same effect.... . Although
elliptically expressed, as I understand the judgment, what Lord Herschell is
saying is that a solicitor has the implied authority of his partners to receive
trust moneys as agent of the trustees but does not have any implied authority
to constitute himself a constructive trustee. Nor, I would add, does a
solicitor in the ordinary course of his practice have the implied authority of
his co-partners to accept office as a trustee and so make his partners liable
for a misapplication of the trust property... . If that is the correct
principle, it can make no difference to the liability of the partners of a
solicitor who does constitute himself a constructive trustee..... .
It is pertinent to note that, in that case, one of the arguments put forward on
behalf of the unsuccessful plaintiff was that s.10 imposed liability on the
innocent partner for the act of the partner who had constituted himself a
constructive trustee. This was described by Vinelott J as a `somewhat
surprising proposition' and was rejected.
As the judge in the present case recognised, there have been cases which treat
the liability for "act or omission" on a much wider basis. Thus can be seen
the decision in Agip (Africa) Ltd v. Jackson [1990]
Ch 265 in which Millett J held an accountant partner vicariously liable for the
dishonest assistance of his co-partners and employee. Of this case, Rix J
observed at j468/2
On the other side Mr Boswood cites Agip (Africa) Ltd v Jackson, [1990]
Ch 265; [1991] Ch 547 where Mr Justice Millett at first instance and the Court
of Appeal found an accountant, Bowers, vicariously liable for the dishonest
assistance of his partner, Jackson, as well as of his employee, Griffin: at p.
296E; p. 570D. It has to be said that there appears to have been no dispute
that the vicarious liability of Bowers followed automatically upon the
liability of his partner, and there is no citation in the judgments of the
Partnership Act or of Mara v Browne and In re Bell's Indenture.
It may be that the matter was conceded: it is to be remarked that both
partners had the same legal representation. Even so, In re Bell's Indenture
had been cited in argument to Mr. Justice Millett, albeit on a different
point (at p. 270E), and it is difficult to assume that the Courts would not
have been familiar with the principle, if it is as fundamental as before me it
has been suggested to be. Even so, I think I have to accept that the Agip
case, which might otherwise have been binding on me, is of uncertain
authority.
However, having discussed, in some detail the facts and submissions in
Mara v. Browne and In re Bell's
Indenture and Estate Realities, the judge reached the
conclusion (j471/1) that
At the end of the day, the closest case on the facts is the Agip case.
Although its authority is much weakened by the factors I have discussed above,
the very naturalness of its decision carries a certain force. Having given
careful consideration to the submissions and authorities presented to me, I
conclude that there is no general principle of law, or matter of construction
of the relevant sections of the Partnership Act, or authority, which compels me
to hold that Mr. Amhurst was acting outside the ordinary business of his
p[partnerships when, as I must assume, he dishonestly assisted Mr. Livingstone
in the scheme by drafting and negotiation of the scheme contracts.
I respectfully think that at this point the learned judge has conflated the two
limbs of s.10 and treated them as giving rise to only one question which the
court needs to determine, videlicet "the absence of any principle of law
or matter of construction which (compelled) him to hold that Mr Amhurst was
acting outside the ordinary business of the partnership .... ." It may also be
noted that, in linking this question to the role of providing dishonest
assistance to Mr Livingstone in the scheme by drafting and negotiation of the
scheme contracts, the judge has also understated Mr Amhurst's role in this
affair. As has been seen elsewhere, Mr Amhurst has to be assumed to have been
one of the instigators, if not the originator, of the whole scheme. Be
that as it may, the matter of current interest is the proper construction of
the words `wrongful act or omission' where they appear in s.10 and what was the
legislative and historical context in which that section came to be enacted.
Were, or are, those words apt and intended to cover, and only cover, tortious
liability which is not only neither covered nor provided for in other sections
of the Act but is also in conflict with them if the construction for which the
Amhurst partners (but not Mr Amhurst) now contend?
In the current edition of Lindley and Banks section 10 is treated as being
solely concerned with torts and frauds and in paragraph 12-88 the introduction
to the subject by Lord Lindley, in the original edition of his work the book,
is taken "clearly to be reflected" in the wording of s.10. In the 7th Edition
of Lindley, it is stated that
As a rule, however, the wilful tort of one partner is not imputable to the
firm, for example, if one partner maliciously prosecutes a person for stealing
partnership property, the firm is not answerable, unless all members are, in
fact, privy to the malicious prosecution. But a wilful tort committed by a
partner in the course of and for the purpose of transacting the business of the
firm may make the firm responsible.
Such, certainly is the view of Professor Atiyah in his seminal work Vicarious
Liability in the Law of Tort in which, having quoted both sections 10 and 11 of
the Act of 1970, he said at p. 117
It will be seen that s.10 is solely concerned with tort, section 11
deals in a somewhat curious way with a mixture of tortious and contractual
liability. (Emphasis supplied).
There is no doubt that this form of vicarious liability is based on the
principles of agency. The doctrine that each partner is the agent of the firm
and of his co-partners is at the root of partnership law, and although this is
concerned primarily with contractual liability it is equally true of liability
in fact.
The professor provided no rationale for his stated view. Nor yet, except by
inference, does he deal with the instant question whether or not the wrong of
knowing assistance is caught by the section. His view is nevertheless entitled
to some respect as appearing to exclude that possibility.
In Volume 35 Halsbury's Laws of England (4th Edition reissue) under the
sub-heading (iii) Wrongful Acts paragraph 56, the provisions of the section are
set out, but without further comment save to a footnote which refers to
United Bank of Kuwait v. Hammoud & Others [1988] 1 WLR 1051.
That case turned on the issue what constituted the ordinary course of business
of a solicitor rather than, as here, the question whether or not the proper
construction of section 10 requires that it only applies to liability in tort.
In Agip v. Jackson (above) it is plain from the common
representation of all the partners that this point cannot have been argued and
the judgments of Millett J and the Court of Appeal gave no reasons for their
conclusions on this point. I respectfully think that when the point was argued
and expressly decided by Vinelott J and Tipping J those decisions are entitled
to be accorded greater weight than those cases in which the point has not been
fully argued.
On behalf of the Amhurst firms it was argued that section 10 makes provision
for a rule of vicarious liability and that it is as capable of operating so as
to confer liability in cases of equity based remedies such as `knowing
assistance' as it is where the cause of action is tort based; see skeleton
argument paragraph's 2.3 to 2.10. I respectfully think that these submissions
did not address the contextual difficulties identified in the submissions made
or adopted on behalf of Mr Salaam, Mr Al Tajir and Mr Amhurst respectively.
It was a part of Mr Boswood Q.C.'s submissions that Vinelott J had
misunderstood the obiter dicta of Lord Herschell, in particular, in
Mara v. Browne (above). In reply on this topic, it was submitted
that at the date when the Act was passed, a "wrong" would not have been equated
with a breach of trust which was a cause of action expressly contemplated by
sections 11 and 13. The concept of a breach of trust was wide enough to
embrace conduct of the description `knowing assistance' by a person who made
himself a constructive trustee by breaching the fiduciary duty which he owed to
another.
In my judgment, it would be a strange result, indeed, if in a case in which,
say, a solicitor intermeddled in a trust, with consequent loss to the
beneficiaries, the partners were not liable under s.13 unless they had notice
of the breach of trust. But in a case where a solicitor who constituted
himself a constructive trustee liability would be imposed on his partners (if
he was acting in the ordinary course of business of the firm) without them
having knowledge of the fact that he had so conducted himself. This was the
essence of the effective submission by Mr Davis Q.C in reply.
For those reasons I would also have allowed the appeal on this point. As it
is, I find myself fully in agreement with the conclusions of Evans and Aldous
LJJ where they have held that Mr Amhurst, in acting as he must be assumed to
have acted, was not acting in the ordinary course of the business of the
partnership. In these circumstances the partnership defendants would not have
been held liable to Dubal and they would not have been liable to the plaintiffs
and are not, therefore, entitled to claim contribution in respect of the sum
which they paid to Dubal them in settlement of the claim made against them on
the basis of their vicarious liability for the acts of Mr Amhurst
I agree, in the result however, that this appeal must be allowed.
Order: Counsel to prepare and lodge a draft minute of order. Mr
Al Tajir's appeal against the findings made against him is dismissed; Mr Al
Tajir's and Mr Salaam's appeals against the contribution orders made in favour
Amhusrt partners are allowed; Mr Salaam's appeal in relation to a contribution
order by Mr Amhurst personally is dismissed. The Amhurst partners to pay Mr
Salaam's costs of the appeal and contribution proceedings. No order form costs
between Mr Salaam the 3rd and 4th Defendants of the
appeal and contribution proceedings. Any further submissions to be raised in
correspondence within 7 days. Permission to appeal to the House of Lords
refused.
(Order does not form part of the approved judgment)
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