Frederick & Ors v Positive Solutions (Financial Services) Ltd

The appellants appeal with the permission of Gloster LJ against the order dated 9 February 2017 of His Honour Judge Dight, sitting as Deputy High Court Judge in the Chancery Division allowing the respondent’s appeal against the decision of Master Bowles dated 5 August 2016 and entering judgment for the respondent pursuant to CPR Part 24 and dismissing the appellants’ cross-appeal.

The matter came before Master Bowles as an application by the respondent to strike out the claim under CPR 3.4, alternatively for “reverse” summary judgment under CPR 24 and accordingly, the Master took the facts as being as set out in the Particulars of Claim. There were also witness statements from each of the appellants in response to the application.

The facts as set out in the pleading and evidence can be summarised as follows. The first and second appellants are husband and wife, the third appellant is their daughter and the fourth appellant is the sister of the second appellant. In early 2008, the appellants were approached by a man called Qureshi, who had been a school friend of the third appellant. He persuaded them to make short term loans in a property development scheme that his business partner, Luke Warren, was intending to carry out in Wembley. At the end of six months they would secure a fixed return on their investment and the return of their monies.

Qureshi explained that the monies needed for the investment could be raised by way of re-mortgage of properties of the respective appellants which could be arranged by Warren. It was pleaded that Warren was an Independent Financial Adviser “employed or otherwise authorised” by the respondent and that his “regulated position” gave comfort to the appellants in entering into the re-mortgages. The evidence was that the third appellant had found Warren’s entry in the FSA Register online as a “client facing” investment adviser for the respondent and it is said that she and the other appellants derived comfort from the fact that Warren was FSA regulated. It was not disputed however, that they had no personal dealings with Warren and did not meet him or receive any written communications from him. They also did not receive any communications from the respondent. It follows that there was no semblance of an advice process, such as one would normally have expected to take place.

The respondent is a company providing independent financial advice to the public. It is an “authorised person” regulated by the Financial Conduct Authority and operates through agents. Warren was appointed as an agent of the respondent by an agreement dated 29 November 2005 (the “Agency Agreement”). He was a “Registered Individual” for the purposes of the Agency Agreement, which was defined in clause 1.1 as: “the Registered Individual of the Company, Registered Individuals having the meaning ascribed to Investment Adviser Function, Investment Adviser (Trainee) Function or Pension Transfer Specialist Function by the FSA and in the Financial Services and Markets Act 2000.”

The relevant provisions of the Agency Agreement were as follows:

The re-mortgages were duly arranged by Warren. He submitted the applications for loans on behalf of appellants through an online portal operated by Abbey National plc, to which he only had access because he was an agent of the respondent. Unknown to the appellants, the applications were based upon false information in relation to their income and employment, dishonestly put forward by Warren so as to justify the borrowing which would not otherwise have been advanced. There is no dispute that the applications were dishonest and fraudulent.

The applications for the loans were duly accepted and mortgage offers from Abbey National plc were made, which stated: “Positive Solutions Financial Services Limited recommended that you take out this mortgage.” Some of the monies released were used to pay off the appellants’ existing mortgages. The balance of the monies was advanced by the appellant to Warren or HGQ, a company of which he and Qureshi were directors. Those monies were misappropriated and lost in the property development scheme. Warren was made bankrupt.

Commission was paid to the respondent by Abbey National in respect of the transactions but that commission was paid by the respondent into a suspense account because it could not be matched with any transaction on the respondent’s systems. Thereafter, Warren is said to have created a false paper trail in order to access his percentage of the commissions. In the meantime, the appellants’ properties remain subject to mortgages which they cannot discharge.

The appellants commenced proceedings against the respondent alone on 2 March 2015. The claim as pleaded sets out a number of bases on which the respondent is said to be legally responsible for Warren’s wrongdoing. The primary basis so far as relevant to this appeal, is that by reason of the relationship between the respondent and Warren, it bore vicarious liability for his wrongdoing. The secondary basis is that the respondent is said to have assumed responsibility to the appellants, by reason of Warren only having access to the portal as its agent, such as to give rise to a duty of care owed by the respondent to the appellants.

In view of the way in which the argument developed before this Court, it is to be noted that the loss and damage is pleaded by the appellants as follows: “The Claimants will claim the net sums lost in the property schemes or such other sums as the court shall determine as damages for breach of the contractual, tortious and/or fiduciary duties owed by Mr Warren and/or the Defendant to the Claimants”.

By an application dated 5 October 2015, after the close of pleadings, the respondent sought to strike out the claim under CPR Part 3.4, alternatively sought summary judgment under CPR Part 24 on a number of grounds, including, so far as relevant to this appeal, that it was not vicariously liable for Warren’s conduct and that it did not owe the appellants a direct duty of care. Master Bowles granted the respondent summary judgment, save to the extent that the claim was founded on vicarious liability.

The respondent appealed that decision on vicarious liability and the appellants cross-appealed the decision that the respondent did not owe them a duty of care. There was no cross-appeal against the Master’s decision dismissing the various other ways in which the appellants put their case. The appeal was heard by His Honour Judge Dight sitting as a Deputy High Court Judge in the Chancery Division on 7 December 2016 and the Judge delivered his judgment orally on 9 February 2017.

Having set out the facts, the Judge noted that the first two grounds of appeal in relation to the issue of vicarious liability were that the Master had erred in applying the decision of the Supreme Court in Cox v Ministry of Justice [2016] UKSC 10, which it was contended by the respondent had no application to the question of vicarious liability for an agent. At [22] the Judge cited [15] of the judgment of Lord Reed in which the Judge said: “Lord Reed made it plain that the case before the Supreme Court was not an agency case.” At [23] the Judge said that, nevertheless, Cox shows a developing jurisprudence and that the relevant starting point in the modern jurisprudence is the judgment of Lord Phillips PSC in Various Claimants and Catholic Child Welfare Society and Others[2012] UKSC 56 (the Christian Brothers case).

The Judge proceeded to consider that judgment and the judgment of Lord Reed in Cox and concluded at [26] that it was not necessary to go back beyond those two decisions to determine the law of vicarious liability. He referred to what Lord Reed said at [24] in Cox about a “modern theory of vicarious liability” and the result of Lord Phillips’ approach being that:

The Judge therefore rejected the first two grounds of appeal. The third ground was that, if Cox was relevant, the Master had misapplied the law as explained in that case. At [28] the Judge noted the respondent’s argument that the Master had failed to draw the distinction made in [24] to [29] of Cox between the situation where the primary tortfeasor is acting in the course of an integral part of the business activities of the defendant and the situation where the primary tortfeasor’s activities were entirely attributable to the conduct of a recognisably identifiable business of his own or of a third party. Liability would not attach in the latter case. The respondent contended that the Master should have found that Warren had been engaged in a recognisably identifiable business of his own or with Qureshi, so that the respondent was under no liability.

At [30] the Judge identified two elements which have to be established for a finding of vicarious liability derived from [24] of Lord Reed’s judgment in Cox:

The Judge then cited further passages from the judgment of Lord Phillips in the Christian Brothers case before reaching the conclusion at [36]-[37] that the Master had been wrong to find the respondent vicariously liable for Warren’s conduct:

The Judge then considered the fourth and fifth grounds of appeal which contended that the Master had failed to apply what Lord Nicholls said in Dubai Aluminium v Salaam[2002] UKHL 48; [2003] 2 AC 366 at [31]-[32] about the question of an employee or agent acting on a “frolic of his own”. At [41] the Judge said that although this predated the Christian Brothers and Cox cases, it still provided valuable guidance to Judges in deciding the boundary between vicarious liability and no liability. He then cited a passage from [32] of Lord Nicholls’ speech:

The Judge concluded at [42] that although that case was not on all fours with the present agency case, the limits of the doctrine were applicable by analogy and the Master had been wrong to direct himself otherwise.

At [43]-[47] the Judge considered the sixth ground of appeal, which was that the Master had been wrong to distinguish the decision of the Privy Council in Kooragang Investments Pty Ltd v Richardson & Wrench Ltd[1982] AC 462, where the defendant was held not to be vicariously liable for a rogue valuer who had been employed by the defendant and had carried out valuations on behalf of others which he had not been authorised by the defendant to carry out but had done so using the defendant’s own notepaper. The respondent contended that Kooragang was on point and that, as Lord Millett said in Dubai Aluminium at [126],describing the employee in Kooragang, Warren was “moonlighting”.

At [47], the Judge concluded on this point:

He went on to consider the indemnity provision in the Agency Agreement which the Master had concluded demonstrated that the respondent acknowledged the possibility of its own liability for the dishonesty of its agent. The respondent contended that he had been wrong to do so as the appellants were not party to that agreement so it could not affect their relationship with the respondent. The Judge referred to the decision of the Court of Appeal in Gravil v Carroll[2008] EWCA Civ 689; [2008] ICR 1222, upon which the appellants relied but concluded at [50] that the Master had been wrong to rely on the indemnity provision.

The Judge went on to conclude that the receipt of commission by the respondent did not assist the appellants. It had been automatically generated as a consequence of the transactions having been put through the books of Abbey National. Whilst the applications could not have been submitted unless Warren had had access to the portal, the Judge considered that was very far from saying that the transactions were carried out in the course of his agency and that the receipt of commission was somehow a recognition of that. Since the Judge had concluded that Warren was on a frolic of his own and moonlighting, neither the fact that commission was paid on a false basis nor the fact that through the portal he had access to the Abbey National system took the matter further.

The final ground of appeal in relation to vicarious liability was that the Master had been wrong to conclude that Warren had acted without supervision. The Judge concluded that the respondent had not been aware of the fraudulent transaction and that Warren had been able to access the system in a way he was not authorised to do but whilst this might mean there were defects up the chain, that was different from finding that he was unsupervised.

For all those reasons, the Judge concluded that the appeal should be allowed and gave summary judgment against the appellants on vicarious liability.

In relation to the cross-appeal on duty of care, the Judge held that the Master had correctly applied the three stage test in Caparo Industries v Dickman[1990] 2 AC 605. The Judge concluded that the second and third stages were not satisfied: there was not sufficient proximity between the appellants and the respondent and it would not be fair, just and reasonable to impose a duty of care directly on the respondent as principal. Accordingly, he dismissed the cross-appeal.

In summary, the grounds of appeal in relation to vicarious liability are that the Judge was wrong to conclude that vicarious liability could not attach on the assumed facts of this case by making the following errors of law:

He misdirected himself as to the correct test to apply when determining whether vicarious liability should attach as a result of having misunderstood or mis-stated the guidance in Christian Brothers[2012] UKSC 56 as re-stated by Lord Reed in Cox v Ministry of Justice[2016] UKSC 10;

He misdirected himself that he need not have regard to authorities of superior courts which pre-dated the Christian Brothers case, in particular, to Dubai Aluminium Co Limited v Salaam and Ors[2003] 2 AC 366;

He was wrong to hold that the following matters were of no assistance to him in determining the vicarious liability issue, namely: that Positive Solutions received a commission on the impugned transactions; Positive Solutions had an indemnity from Warren in respect of the very conduct complained of; and Warren caused the harm by using the electronic portal to which he had access only by reason of his agency;

He was wrong to apply Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462.

In relation to the duty of care, the grounds of appeal are that the Judge was wrong to conclude that such a duty did not exist because:

He correctly identified that a sufficiently close connection for the purposes of vicarious liability ought to translate into sufficient proximity for the purposes of a common law duty but concluded wrongly that there was no sufficiently close connection;

He should either have concluded that it was just and reasonable to impose the limited duty of care contended for or that prior to disclosure it was not possible to decide that there was no reasonable prospect of establishing the duty.

By its Respondents Notice, the respondent seeks to uphold the Judge’s decision on three additional grounds:

that the Judge ought to have found that the decision in Cox vMinistry of Justice[2016] UKSC 10 was not relevant;

when concluding that Warren’s conduct was attributable to a “frolic of his own” the Judge ought also to have relied upon the fact that the true cause of the Claimants’ loss was the recommendation to make an alleged investment in property development and that the means by which the monies were raised was only incidental to that recommendation;

that the Judge ought to have found that receipt of commission was irrelevant not only for the reasons given but also because its receipt could only fix Positive Solutions with liability in respect of the transaction if it amounted to a ratification of the tort.

Given the complexity of the argument before the Court on both sides I propose to set out in this section of the judgment, in more detail than might otherwise be the case the passages from the various judgments on which reliance was placed, which will avoid further citation in the later section dealing with the Analysis and Conclusion.

In his submissions on behalf of the appellants, Mr Thomas Grant QC, who did not appear below, emphasised the importance of the fact that this was an application to strike out or for summary judgment and that the evidence put forward by the respondent was limited to a short witness statement from its solicitor. There had been no disclosure of documentation explaining the relationship between the respondent and Warren.

Whilst it was accepted that the appellants could not establish that Warren had acted with actual or apparent authority, it did not follow that the respondent could not be vicariously liable for his conduct. Mr Grant QC advanced four fundamental propositions of law in relation to vicarious liability.

First, that the label of employment or agency or partnership is irrelevant to the question whether to impose vicarious liability on a defendant. Here the respondent conducted its business through a number of Registered Individuals such as Warren and it was simply not known whether his day to day working life was analogous to that of an employee. Ascribing the label of agency did not determine the actual position. The suggestion that designating him as an agent rather than an employee could avoid vicarious liability was inimical to the unified modern law of vicarious liability as set out by Lord Phillips in the Christian Brothers case and Lord Reed in Cox. Those cases made clear that the application of the doctrine was not limited to cases of employment.

Mr Grant QC submitted that it was clear that a principal could be vicariously liable for an agent even when that agent acted without authority, citing what was said in Dubai Aluminium by Lord Nicholls at [21]-[22]:

Mr Grant QC also relied upon what Lord Millett said in that case at [122]:

Second, he submitted that the law of vicarious liability was ultimately founded upon policy considerations, as was made clear in a number of appellate decisions. For present purposes it is only necessary to refer to what Lord Millett said in Lister v Hesley Hall Limited[2001] UKHL 22; [2002] 1 AC 215 at [65]:

Third, the absence of contact between the respondent and the appellants was not a relevant consideration. Mr Grant QC relied upon what Lord Millett said in Dubai Aluminium at [124] citing the decision of the Court of Appeal in Hamlyn v John Houston & Co [1903] 1 KB 81:

Fourth, the fact that the primary wrongdoer was acting intentionally or criminally and solely for his own benefit is no answer to a defendant being held vicariously liable. Mr Grant QC relied upon various passages from the speeches of Lord Steyn and Lord Millett in Lister citing Lloyd v Grace, Smith & Co[1912] AC 716 and the decisions which have followed it including the decision of the Court of Appeal in Morris v CW Martin & Sons Ltd 1966] 1 QB 716. Lord Millett concluded at [79]:

Mr Grant QC submitted that as that passage made clear and as was clear from Lloyd v Grace, Smith itself, vicarious liability for the wrongdoing of another would extend to fraudulent acts of that other. He referred to the historical exegesis of the origins and development of the law of vicarious liability in the judgment of Lord Toulson JSC in Mohamud v Wm Morrison Supermarkets plc[2016] UKSC 11; [2016] AC 677 (heard at the same time as Cox) and pointed out that there was no suggestion there that fraud cases were on a different footing, so any suggestion by the respondent that they were was incorrect.

Mr Grant QC submitted that reliance by the respondent on the decision of the House of Lords in Credit Lyonnais v Export Credits Guarantee Department[2000] 1 AC 486 was misplaced. The wrongdoing by Warren was (i) dishonestly filling out the application forms for the re-mortgages; (ii) failing to give the appellants advice as to whether it was a good idea for them to take out the re-mortgages and (iii) failing to inform the appellants that he had a conflict of interest and that they should take independent advice. As a consequence of the wrongdoing, the re-mortgages were executed, the monies were released and then lost. This was not simply a case of Warren having assisted the main tortfeasor, Qureshi, so it was nowhere near the situation being considered in Credit Lyonnais.

In answer to questions from the Court to the effect that the reason for Qureshi having induced the appellants to take out the re-mortgages was so that they would make the loans to the property investment scheme and it was the property investment scheme which had led to the loss of the monies, Mr Grant QC submitted that that was a question of causation for any trial. The respondent’s application in relation to vicarious liability had been on the specified grounds of lack of actual or apparent authority, not on absence of causation. That was the case which the appellants had come to meet. This submission that any issue as to the loss was a matter of causation for trial was reiterated by the appellants’ counsel in a Note to the Court after the hearing of the appeal.

Mr Grant QC next submitted that Armagas Ltd v Mundogas SA (“The Ocean Frost”)[1986] 1 AC 717, which the respondent’s counsel said in their Skeleton Argument was of “critical importance”, was of no relevance. It had not been cited by the respondent before either the Master or the Judge. That was a case of deceit and fraudulent misrepresentation, reliance based torts, and the analysis of Lord Keith of Kinkel at 781-2 was limited to such torts and, indeed, to deceit as to the scope of an agent’s authority to bind his principal. It had no application to the law of vicarious liability generally.

In relation to the ratio of the Judge’s decision on vicarious liability at [36]-[37] (which I set out at [18] above), Mr Grant QC submitted that the Judge had wrongly looked at the acts said to give rise to liability and asked if those acts themselves were an integral part of the business activities of the respondent and for its benefit. That was a fundamental misunderstanding of the relevant test and would put the law back to where it was before Lloyd v Grace, Smith. The correct question was whether the field of activity in which the wrongdoer was engaging was one which was an integral part of the respondent’s operation, to which the answer was yes, as Warren was engaged in finding clients and making applications on their behalf which generated income for the respondent. He submitted that the only difference between this case and Lloyd v Grace, Smith was that there had been no holding out.

Mr Grant QC submitted that the Judge had wrongly downplayed the significance of the indemnity provision in the Agency Agreement. He relied on what Sir Anthony Clarke MR said in Gravil v Carroll at [24] as to the significance of the contract between the defendant and the wrongdoer in establishing the closeness of connection between the wrongdoer’s employment by the defendant and the wrongful act.

In relation to the appeal as to a direct duty of care, Mr Grant QC submitted that the Judge had erroneously approached this issue on the basis that his decision that there was no vicarious liability was determinative. He submitted that the necessary proximity to satisfy the Caparo v Dickman test was made out by the fact that the respondent puts out into the world agents who deal with clients like the appellants where there is a risk that they are going to suffer loss.

Mr Roger ter Haar QC submitted, on behalf of the respondent, that the line of cases on which the appellants founded their case of vicarious liability was essentially one where the courts were grappling with how to rationalise a just solution in the case of sex abuse or physical or psychological injury, where the abuser or wrongdoer could not afford to pay the victims damages for the losses they had suffered and the courts had found that solution through making the relevant defendant (the schools in the sex abuse cases or the Ministry of Justice in Cox) vicariously liable for the wrongdoing. However, the courts had not gone that far in cases of financial loss arising out of commercial relationships. One reason for that was that normally such relationships were governed by contract.

In the present case, the appellants were seeking to fix the respondent with vicarious liability for the wrongdoing of Warren, when not only was there no contractual relationship between them but, as the Judge had found, there could be no direct tortious liability. Mr ter Haar QC submitted that since this was a case of fraud, the issue of vicarious liability was treated differently and it was clear from [15] of Cox that the Supreme Court was not intending to address cases of fraud.

The correct approach to the issue of vicarious liability in cases of fraud or dishonesty was that set out by Lord Keith in The Ocean Frost at 779H-780C:

Mr ter Haar QC submitted that not only had Lord Reed made it clear in Cox at [15] that that case was not concerned with fraud, but there was no hint in Cox or the Christian Brothers case that the previous authorities on cases of fraud where the wrongdoer was acting solely for his own benefit did not remain good law.

Mr ter Haar QC submitted that the appellants’ case both of a direct duty of care and of vicarious liability of the respondent for Warren’s wrongdoing was based upon the respondent having placed Warren in the position, having given him access to the portal, where he could carry out the fraud. However, this demonstrated no more than that the respondent had provided the opportunity for Warren to commit the fraud. It was well-established that merely providing the wrongdoer with the opportunity to commit fraud was not sufficient to fix the defendant with vicarious liability, absent some holding out of the wrongdoer as having had authority.

In that context, Mr ter Haar QC relied in particular on what was said by Diplock LJ in Morris v Martin at 737D-E:

The same principle that, absent a holding out of authority, merely providing the agent with the opportunity to commit fraud is insufficient to establish vicarious liability of the principal also emerged from the decision of the Privy Council in Kooragang. At 474G-475C, Lord Wilberforce, giving the judgment of the Board said:

Mr ter Haar QC submitted that this requirement of a holding out (so that the agent had ostensible or apparent authority) in the case of reliance based torts such as fraudulent misrepresentation or deceit also emerges clearly from the judgment of Lord Keith in The Ocean Frost. In addition to the passage at 779-780 which I have already set out above, he referred to the argument of counsel. Mr Richard Mawrey QC for the appellants had argued (at 771H) for a wider test of liability than actual or ostensible authority based on employment, whereas Mr Gordon Pollock QC for the respondents had urged on their Lordships (at 772H) a narrower test based on actual or ostensible authority.

It was the narrower test which had found favour with the House of Lords. At 780G, Lord Keith said, citing the passage from the judgment of Diplock LJ in Morris v Martin which I set out above:

Lord Keith then referred to the dictum of Denning LJ in Navarro v Moregrand Ltd [1951] 2 TLR 674 to the effect that absence of actual or ostensible authority was not decisive as to whether a servant or agent was acting within the course of his employment, before saying at 782E:

Mr ter Haar QC submitted that, contrary to Mr Grant QC’s submissions, the case against the respondent as pleaded was a reliance case, specifically the case about the duty to give advice in [8] of the Particulars of Claim. The advice which should have been given was only relevant if it was going to be relied upon and the plea at [8.1] of a duty to give full disclosure had inherent in it an assertion that if there had been full disclosure, the appellants would have acted in a particular way and were thus relying on the respondent. Furthermore, he submitted that underlying the whole claim was the allegation that Warren was involved in a fraud. If fraud had been pleaded, it would have been on the basis that he was liable because he had represented that he was acting honestly in an honest transaction, but that representation was fraudulent.

Mr ter Haar QC submitted that it should make no difference as a matter of analysis that the claim was pleaded in negligence which was effectively part and parcel of a fraud (as I put it in argument effectively in a sandwich between the fraud of Qureshi in inducing the appellants to lend monies to the property investment scheme and the fraud in misappropriating the monies supposedly towards that scheme once they became available from the re-mortgaging). The claim was still one of a reliance based tort. In those circumstances, the fundamental reasoning of The Ocean Frost should be applicable here and, in the absence of Warren having had actual or ostensible authority, the respondent was not vicariously liable.

It was also submitted on behalf of the respondent that, even if the argument that there was a separate line of authority applicable in the case of deceit and other reliance based torts was wrong, and this case fell to be considered on the basis of a unified modern law of vicarious liability set out in the Christian Brothers case and Cox, the Judge had still been right to enter summary judgment against the appellants. Mr ter Haar QC put his case as follows.

He submitted that it is well-established that before the principal can be vicariously liable all the acts or omissions which are necessary to make the servant or agent personally liable must have taken place within the scope of his employment or agency. He relied on the decision of the House of Lords in Credit Lyonnais. The issue in that case was formulated by Stuart-Smith LJ in the Court of Appeal adopted by Lord Woolf MR in his speech in the House of Lords at 490F-G as:

That issue was decided by their Lordships in the negative. At 494D-F Lord Woolf cited the statement of principle of Lord Macnaghten in Lloyd v Grace Smith in turn citing from the approval by Blackburn J in an earlier case of a passage in Story on Agency. Lord Woolf then continued at 494G-495A:

He answered that question as follows at 495B-F:

This issue also arose in Dubai Aluminium where, at [39] Lord Nicholls said:

Mr ter Haar QC also relied upon a similar passage in the judgment of Lord Millett at [114] who said of Credit Lyonnais:

He submitted that, applying that principle to the present case, the acts or omissions necessary to make Warren liable in tort included his own and Qureshi’s fraud in misappropriating the monies the appellants invested in the property development scheme. Qureshi’s acts necessarily could not be those of Warren in the course of his agency. Warren’s acts in relation to the property investment scheme were carried out in the course of a recognisably independent business of his and Qureshi’s. Contrary to Mr Grant QC’s argument, this was not merely an issue of causation. The appellants only suffered loss because they handed over monies to Warren who then misappropriated them. That was thus a necessary ingredient of the appellants’ cause of action in tort whether against Warren or against the respondent on the basis of vicarious liability. Accordingly, applying Credit Lyonnais and Dubai Aluminium the respondent was not vicariously liable for Warren’s wrongdoing.

In relation to the appeal on the direct duty of care, Mr ter Haar QC submitted that the Judge had been right to dismiss the appeal against the Master’s order. In cases of economic loss, where the Caparo v Dickman three stage test is being applied, at the second stage of proximity, the Court is looking for some relationship between the parties, something akin to a contractual relationship. Here there was no relationship whatsoever and no holding out of Warren as having authority. Accordingly the second stage was not satisfied. The same factors would lead to the third stage not being satisfied.

In my judgment, the Judge was right to enter summary judgment against the appellants on the issue of vicarious liability for a number of reasons. First, even assuming in the appellants’ favour that a case of agency such as the present case is to be analysed pursuant to a unitary modern law of vicarious liability applicable in all cases, as set out in the judgment of Lord Phillips PSC in the Christian Brothers case as it was interpreted and summarised by Lord Reed in Cox at [24], the Judge rightly concluded that the appellants could not satisfy the two stage test or the two elements, which he correctly identified at [30] of his judgment. The reality is that, on the appellants’ pleaded case, Warren was essentially engaged on a “recognisably independent business” of his and Qureshi’s, the property investment scheme in which Qureshi induced the appellants to invest. Warren then made the admittedly dishonest applications to Abbey National for re-mortgages in order to generate the funds for such investment. Warren’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.

Mr Grant QC was critical of the Judge for referring to Warren as engaged on a frolic of his own or, to use Lord Millett’s word “moonlighting” but I consider that criticism unwarranted. Those expressions seem to me to be a convenient colloquial summary of what Lord Reed described as the wrongdoer’s “activities being entirely attributable to the conduct of a recognisably independent business of his own or of a third party”.

The suggestion that, in [37] of the judgment there was a fundamental misapprehension by the Judge of the correct legal test derived from the Christian Brothers case and Cox is also an unwarranted criticism and seeks to take an isolated passage in the judgment out of context. It is quite clear from the judgment as a whole that the Judge was well aware of the appropriate legal test and that he applied it correctly.

Furthermore, I agree with the Judge that the fact that commission was received by the respondent does not assist the appellants. It was clearly generated automatically by the Abbey National systems and when received was held by the respondent in a suspense account, because the transaction to which it related did not appear on the respondent’s books. That if anything is support for the Judge’s conclusion that this transaction was not carried out as an integral part of the respondent’s business or for its benefit, but was moonlighting by Warren.

I also agree with the Judge that the indemnity provision in the Agency Agreement does not take matters further. It cannot begin to establish a closeness of connection between Warren’s agency and the specific wrongdoing being carried out for his own purposes and for his and Qureshi’s benefit. Gravil v Carroll is clearly distinguishable.

Likewise, it does not seem to me that the fact that the Abbey National mortgage offers contained the statement: “Positive Solutions recommended that you take out this mortgage” assists the appellants. As Mr ter Haar QC submitted, there was no suggestion by the appellants that they relied upon that representation in making the investment in the scheme, so that the loss they suffered did not come about as a consequence of that representation. Its purpose seems to me to have been to protect Abbey National against any claim from the mortgagor that the mortgage was not suitable, making the point that it was not Abbey National which had given any advice.

I was unimpressed by the suggestion, implicit in Mr Grant QC’s emphasis on the fact that the Court is dealing with an appeal on a summary judgment or strike out application, that the case should be allowed to go to trial because the respondent had not produced evidence of its relationship with Warren beyond the Agency Agreement. The position is that it is accepted on behalf of the appellants, correctly, and as I see it, inevitably, that Warren did not have actual or ostensible authority to act on behalf of the respondent when he engaged in this wrongdoing. The suggestion that the appellants should be given the opportunity, Micawber-like, to go to trial in the hope that something will turn up, cannot alter that position on absence of authority, nor could it alter the conclusion that Warren was engaged on a frolic of his own or moonlighting.

Second, I consider that Mr ter Haar QC is correct that this is one of those cases, like Credit Lyonnais, where, on any view, not all the acts and omissions which would be necessary to make Warren personally liable in tort took place within the alleged course of his employment or agency, from which it must follow that the respondent is not vicariously liable for his wrongdoing: see the passages from the speech of Lord Woolf MR in Credit Lyonnais set out at [60] to [62] above and the passages from the speeches in Dubai Aluminium set out at [63] and [64] above. To begin with, a necessary ingredient of the appellants’ case is that they were induced to agree to make loans by way of investment in the property investment scheme, not by Warren but by Qureshi, who was never an employee or agent of the respondent. Equally significantly, Warren clearly received the monies raised by the re-mortgages and misappropriated them pursuant to a “recognisably independent business” of his and Qureshi’s, which could not in any sense be described as an integral part of the respondent’s business activities. Indeed, the appellants did not suggest the contrary. It was the handing over of the monies to Warren or his company which caused the appellants’ loss. On their pleaded case, they did not suffer any loss through the actual re-mortgaging or their receipt of the monies from Abbey National. Rather, they were able to pay off their existing mortgages and were left with substantial funds, which they only lost when they handed the monies over to warren or his company.

Mr Grant QC’s argument that this is an issue of causation which he should not have to meet on the respondent’s summary judgment/strike out application is misconceived. Given that this is a case of alleged vicarious liability for tortious wrongdoing which caused the appellants financial loss, a necessary ingredient of the appellants’ cause of action in tort is that the tort has caused the appellants some loss and damage. Whatever tortious wrongdoing Warren had committed, until the appellants handed over the re-mortgage monies to him, they had not suffered a loss and therefore, his conduct in receiving and misappropriating the monies is a necessary feature or ingredient of the tort, without which he could not be personally liable. That feature or ingredient did not, on any view, occur in the course of his agency for the respondent.

Third, it seems to me that Mr ter Haar QC is also correct that, at most, the respondent provided the opportunity for Warren to commit the fraud or wrongdoing by giving him access to the portal. It is well-established that merely providing the opportunity for wrongdoing is not sufficient without more to give rise to vicarious liability, absent a holding out of someone in Warren’s position as having authority to act for the defendant sought to be made vicariously liable: see the passages from the judgments of Diplock LJ in Morris v Martin cited at [52] above, Lord Wilberforce in Kooragang cited at [53] above and Lord Keith in The Ocean Frost cited at [55] above. There is no suggestion in the decisions of the Supreme Court in the Christian Brothers case, Cox or Mohamud that those statements of principle do not still represent good law.

In the circumstances, it is not necessary to go further and determine whether Mr ter Haar QC’s submission is correct that reliance based torts such as deceit or misrepresentation committed by an agent are in a distinct category from other cases such the Christian Brothers case, Cox or Mohamud, so that the principal cannot be vicariously liable unless the agent had actual or ostensible authority. I would simply repeat that the position of agency was not being considered in Cox, as Lord Reed made clear at [15] of his judgment, and the line of cases on which Mr ter Haar QC relied was not discussed in this context.

In relation to the appeal against the conclusion of both the Master and the Judge that the respondent did not owe the appellants a direct duty of care, it is fair to say that this was not pursued with any particular vigour or enthusiasm by Mr Grant QC in his oral submissions. That is perhaps scarcely surprising as the point is lacking in merit. Given the complete absence of any contact or relationship between the respondent and the appellants and, indeed, the fact that the respondent was unaware of the acts of Warren vis-à-vis the appellants, the conclusion that the second stage of the Caparo v Dickman test could not be satisfied, was inevitable.

There is no question of the mere fact that, in the abstract, the respondent had provided Warren with the opportunity to cause loss to clients through providing access to the portal, giving rise to a duty of care, in the complete absence of any relationship between the respondent and the appellants. In the circumstances of this case, there was no assumption of responsibility by the respondent and no proximity which could found such a direct duty.

In a case of economic loss such as the present that conclusion is fatal to this part of the appeal but, to the extent necessary, I would also conclude that the third stage of the Caparo v Dickman test that the imposition of a duty was “fair, just and reasonable” did not begin to be satisfied.

For all those reasons, I would dismiss this appeal.

I agree.

I also agree.