Case Alert -  EWCA Civ 431
Court of Appeal holds that company was not vicariously liable for agent who was acting "on a frolic of his own"
The appellants were persuaded by an acquaintance to invest in a property development scheme. The money needed for the investment was raised by way of re-mortgaging of the appellants' properties. This was arranged by the acquaintance's business partner ("W"), who was an IFA who had been appointed as the respondent's agent. W submitted the applications for loans through an online portal with a bank, to which he only had access because he was an agent of the respondent.
The appellants argued that the respondent was vicariously liable for W's actions. The Court of Appeal has now held that it was not.
The judge at first instance had correctly identified that the appropriate test is: "(1) was the harm wrongfully done by an individual who carried on activities as an integral part of the business activities of the defendant and for its i.e. the defendant's benefits, rather than his activities being entirely attributable to the conduct of a recognisably independent business of his own or that of a third party; and (2)… whether the commission of the wrongful act is a risk created by the defendant by assigning those activities to the individual in question, in which case liability will be imposed."
Here, W was essentially engaged on a "recognisably independent business" of his own (namely, the property investment scheme): W's "use of the portal was simply the means by which he was able to obtain funds from the appellants to invest in the scheme. To describe that activity as in any sense an integral part of the business activities of the respondent would be a complete distortion of the true position on the facts". Accordingly, W had been acting on a frolic of his own and the receipt of commission by the respondent did not alter that position because that commission had been generated automatically by the bank and had been held by the respondent in a suspense account (because the transaction to which it related did not appear on the respondent's books). Furthermore, it is well-established that merely providing the opportunity for wrongdoing is not sufficient, without more, to give rise to vicarious liability.