Litigation and Dispute Resolution – The Incremental Scope and Limit of Vicarious Liability

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Litigation and Dispute Resolution – The Incremental Scope and Limit of Vicarious Liability

Published On: August 24, 20209.7 min read

Vicarious liability is the liability imposed upon one party for another party’s wrongful conduct. Such secondary liability can attach even if the wrongful acts were not committed by the defendant.

This doctrine was traditionally relied on to impose liability over an employer for wrongful acts committed by its employee in the course of the latter’s employment.

In recent years, however, the scope of the doctrine has expanded incrementally to include relationships that are sufficiently ‘akin to employment’—these are relationships which, although not bonded by a formal contract of employment, possess the same fundamental qualities that justify such an extension of the doctrine.

How does the Court then determine whether a defendant ought to be held vicariously liable for the acts of another in each given situation?

A. The Legal Test

The Court determines this question with the help of a two-stage test:

Stage 1. Is there a relationship of employment or one sufficiently ‘akin to employment’ between the defendant and the wrongdoing party?

Stage 2. Is there a ‘close connection’ between that relationship and the wrongdoing, which makes it fair and just to hold the defendant responsible?

If the answer is ‘yes’ to both questions, the defendant will be held vicariously liable for the wrongdoer’s conduct.

Two recent cases before the Apex Court in the UK earlier this year have clarified how courts will apply this 2-stage test to the facts of a case.

  • The case of Barclays Bank plc v Various Cs [2020] UKSC 13 clarifies stage
  • The case of WM Morrison Supermarkets plc v Various Claimants [2020] UKSC 12 is instructive regarding stage

Notably, the position adopted by the UK Supreme Court in these cases mirrors the position of the Singapore courts, as illustrated by the Singapore Court of Appeal decisions of Ng Huat Seng v Munib Mohammad Madni [2017] SGCA 58 and Skandinaviska Enskilda Banken AB (publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd [2011] 3 SLR 540 respectively.

Stage 1: Barclays Bank

Barclays Bank used to regularly send newly accepted employees to one Dr. Bates for their medical check-up, in order to determine if the employee was healthy enough to qualify for the company’s life

insurance policy at the regular rate. A number of these employees sought to hold Barclays Bank vicariously liable for acts of sexual assault by Dr. Bates during his conduct of their medical examinations.

To reiterate, Stage 1 asks: Is there a relationship of employment or one sufficiently ‘akin to employment’ between the defendant and the wrongdoing party?

Since there was no formal employment relationship between Barclays and Dr. Bates (there being no employment contract), the claimants had to establish that the relationship between the bank and the doctor was one sufficiently ‘akin to employment’.

On the facts, the Court found that Dr. Bates had been “carrying out business on his own account” as an independent contractor since:

  • Barclays Bank was not his only client. Dr. Bates was in business on his own account as a medical practitioner with a portfolio of patients and clients, of which the bank was just
  • He was paid for each report on an ad-hoc basis and not paid a retainer. Barclays Bank was not obliged to refer every employee to him, and he had the freedom to refuse to conduct the exam for any
  • He carried his own medical liability insurance and carried out his examinations from his own home office.

The Court held that the doctrine of vicarious liability does not go so far as to include the bank’s relationship with an independent contractor like Dr. Bates.

In the Barclays Bank judgement, Lady Baroness Hale noted that Singapore adopted the same position in Ng Huat Seng v Munib Mohammad Madni [2017] SGCA 58 (“Ng Huat Seng”) that vicarious liability does not and cannot extend to a relationship with an independent contractor.

In Ng Huat Seng, a contractor damaged the neighbouring property while carrying out some demolition works on a residential property. The owners of the damaged property sought to hold the neighbour vicariously liable.

The Singapore Court of Appeal refused to do so, noting that although the vicarious liability could be imposed outside the confines of an employment relationship, this was only appropriate where the relationship possesses the same fundamental qualities as those which inhere in employer-employee relationships.

The UK Supreme Court in Barclays Bank also quoted and approved the following reasoning in [64] of

Ng Huat Seng:

“Indeed, we do not see how vicarious liability, the normative foundation of which rests on the theory that it is fair, just and reasonable to hold a defendant liable for the acts of the tortfeasor on the ground that the tortfeasor is in fact engaged in the defendant’s enterprise, could possibly be extended to tortious acts committed by an independent contractor, who, by definition, is engaged in his own enterprise. There is simply nothing fair, just and reasonable about imposing secondary liability on a defendant in such a situation.”

Conclusion: Stage 1 requires establishing that there is an employment relationship or one that is sufficiently ‘akin to employment’. If the wrongful party is an independent contractor whose relationship with the client does not possess the same fundamental qualities as those which inhere in employer- employee relationships, the doctrine of vicarious liability will not apply.

The nature of the relationship will be determined by a holistic evaluation of the facts of the case. For instance, someone on the employee payroll for purely ‘tax purposes’ may not be regarded as an employee under this test. On the other hand, a volunteer at a charitable organisation may be regarded as being in a relationship sufficiently ‘akin to employment’.

Stage 2: WM Morrisons Supermarkets

Mr. Skelton, the senior auditor of a supermarket chain was asked to collate the employee payroll data and send it to Morrisons’ external auditors. Mr. Skelton had been harbouring some grievances against his employer at the time.

Unknown to anyone, he uploaded a copy of the data onto a file-sharing website and shared the link with three newspapers. The company found out, and made all efforts to remove the information from the Internet. A group of the company’s current and former employees sought to hold Morrisons vicariously liable for Mr. Skelton’s actions.

Since Mr. Skelton was an employee of Morrisons, stage 1 was easily established. The claimants therefore had to establish stage 2.

To reiterate, stage 2 asks: Is there a ‘close connection’ between the relationship and the wrongdoing, which makes it fair and just to hold the defendant responsible?

To satisfy this test, the claimants had to show that there was a sufficient connection between the “field of activities” that Mr. Skelton was authorised to do and the wrongful disclosure of data, such that he could fairly and properly be regarded as doing so in the course of his employment. The Court held that there was insufficient connection. In this regard:

  • Skelton was not engaged in furthering his employer’s business when he committed the wrongdoing in question. He was clearly pursuing a personal vendetta against his employer when he uploaded the data online.
  • Skelton was only authorised to collate and send the data to the external auditors; his job merely provided him with the opportunity to commit the wrongful and unauthorised act.
  • Although Mr. Skelton was given access to the data at work and was permitted to use it for an authorised purpose only, his wrongful disclosure of the data fell outside the scope of his authorisation.
  • Skelton’s wrongful conduct was therefore not so closely connected with acts which he was authorised to do such that it could not be fairly and properly be regarded as done by him while acting in the ordinary course of his employment.

A similar approach was adopted by the Singapore Courts in the Singapore Court of Appeal decision of Skandinaviska Enskilda Banken AB (publ), Singpore Branch v Asia Pacific Breweries (Singapore) Pte Ltd [2011] 3 SLR 540 (“Skandinaviska”).

In Skandinaviska, the finance manager of the defendant, APBS, fraudulently obtained lines of credit from some banks that the company normally did not deal with. Upon applying the “close connection” test, the Court found that the APBS could not be held vicariously liable since:

  • The finance manager did not have the authority to obtain lines of credit. Hence his actions were outside the scope of his
  • The manager’s fraud did not further APBS’s aims as an
  • It was not fair and just to hold APBS vicariously liable when APBS could not have foreseen such a fraud from a finance manager with limited powers, and when the banks themselves were in a better position to protect themselves from such a fraud than APBS

Conclusion: Stage 2 requires establishing that there is a sufficiently ‘close connection’ between the wrongful act and what the wrongdoer had been authorised to do by the defendant, which makes it fair and just to hold the defendant liable for the wrongdoer’s actions.

A. Illustration: Applying the 2-Stage Test to Certain Hypothetical Scenarios

Scenario 1:

While manning the counter, an employee of a fast food chain hurls racial slurs at a customer and refuses to serve them. Can the fast food chain be held vicariously liable for its employee’s actions?

Yes. The wrongdoer is an employee of the restaurant, and his actions were directly linked to his duties at the counter, i.e. to serve the customer. As this behaviour was at his place of work during his shift, he was a representative of his employer at the material time. Hence, the fast food chain will likely be held vicariously liable for the employee’s conduct.

Scenario 2:

An independent interior designer was hired to re-design the offices of ABC Ltd. During the renovation works, the water pipe connecting to the bathroom was accidentally damaged, which caused significant property damage to the adjoining office. Is ABC Ltd. vicariously liable for the damage caused?

No. The interior designer was not an employee of ABC Ltd, nor was their relationship sufficiently ‘akin to employment’. As the interior designer was just an independent contractor, ABC Ltd. is unlikely to be held vicariously liable.

Scenario 3:

An employee at XYZ Pte Ltd, an investment bank, induced his neighbour to invest in a fake company at a private party. Could XYZ be held vicariously liable?

No. Although the employee probably used their financial knowledge which he may have obtained in the course of his employment with the bank in order to induce the neighbour to invest, he had not been acting in the course of his employment at the time this happened. Hence, it is unlikely that the investment bank would be held vicariously liable in such a situation.

B. Conclusion

A party may be held vicariously liable for the wrongful actions of another.

While this is normally applied in the context of employment relationships only, recent cases have revealed that the doctrine can and do apply to relationships that fall outside the formal employer- employee relationship, if they possess the same fundamental qualities.

Nevertheless, this is not meant to erode the classic distinction between employer-employee relationships (for which vicarious liability can be imposed) and client-independent contractor relationships (for which vicarious liability will not be imposed).

The UK Supreme Court has interestingly queried the extent of this doctrine’s applicability in relation to the rising prevalence of ‘gig economy’ workers, who may straddle the line between employees and contractors/ service providers.

Ultimately, the applicability of the doctrine will depend on the circumstances of each case. For specific advice on how this doctrine applies to you, please feel free to contact us to discuss this.

For further information on this topic or assistance for any dispute resolution matter, please contact Lionel Chan at Oon & Bazul LLP by telephone (+65 6239 5874) or email ([email protected])

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