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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> J. J. Coughlan Ltd. v Ruparelia & Ors  EWCA Civ 1057 (21 July 2003)
Cite as:  EWCA Civ 1057,  Lloyd's Rep PN 25
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mr Justice Mackay)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE DYSON
LORD JUSTICE LONGMORE
| J. J. COUGHLAN LIMITED
|- and -
|RUPARELIA and Others
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Michael Pooles QC and Mr Mark Cannon (instructed by Messrs Reynolds Porter Chamberlain) for the Respondent
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Lord Justice Dyson :
Outline of the case
"A The Applicant for himself his agents and principals and all persons for whose benefit he is acting represents and warrants to the Company that:
(1) he and they are familiar with the type of transaction provided for and contemplated by this Agreement and the Escrow Agreement;
(2) he has been involved in transactions of the nature of the transaction provided for and contemplated by this Agreement and the Escrow Agreement; ……
(4) the Applicant has been advised of and is aware of the
need for it to take and has taken independent legal
advice in relation to this Agreement and the Escrow
"The Escrow Agents shall irrevocably pay and release the Arrangement Fee to either the Company or to the Applicant (as the case may be) as follows:
B. In the event that the Bank Advice is not issued within 7 banking days after the date of compliance by the Applicant with the conditions precedent set out in clause 2.1 of the Principal Agreement or that the Escrow Agents are unable to satisfy themselves that the Bank Advice has been duly issued by the Issuing Bank or that it does not in all material respects conform to the text set out in Schedule A of the Principal Agreement, then the Escrow Agents shall release and pay the Arrangement Fee to the Applicant or to its order".
The claimant's contractual claim is that there was a breach of clause 4.1 of the Escrow Agreement.
" Mr Medina [this was a reference to Mr Hinojosa] has assured me that he will send me an amendment to the Principal Agreement to confirm that the Escrow will be released only after you have received copies of the pay orders in our favour and verified their authenticity. We can also accept if you give this undertaking in a separate letter. On receipt of this, we will transfer $500,000 to your co-ordinates immediately".
"…whether, viewed subjectively and objectively, what Ruparelia did was in the ordinary course of business of the firm or was an action carried out in the usual way of the kind carried on by it. It is necessary, in order for this to obtain, for the person dealing with the partner subjectively to have formed the honest belief that this is so. Of course, if he does not, that is the end of the matter".
"(1) The principles of vicarious liability of partners for each other's actions derived from and were developed out of the principles of vicarious liability of principal and agent and employer and employee (see Dubai Aluminium Company v Salaam  QB 113 per Evans LJ 132H-133A).
(2) This liability can extend to fraudulent acts or omissions if those were carried out in the course of the employment or within the scope of the apparent authority, albeit by an employee or a partner conducting the business of a type which he had a right to conduct (see Lloyd v Grace, Smith & Co  AC 716).
(3) It is necessary to show that all the acts or omissions which make the partner liable were committed within the scope of his authority as a partner (see Dubai Aluminium, 133C-D). If the partner deals as part of the dishonest scheme with others, who are party to that dishonesty, his acts will not be in the ordinary course of business of the firm. If, however, those with whom he deals are not parties to his dishonesty but innocent of complicity in it, then his partners may be liable (see Dubai Aluminium, 133E-134E and 142E-143A per Aldous LJ).
Where solicitors are concerned, it will only be in the ordinary course of business of the firm for the solicitor to do an act where there was an underlying transaction of a kind which was part of the usual business of a solicitor. I adopt what was said by Glidewell LJ in United Bank of Kuwait Ltd v Hammoud and Others  1 WLR 1051. "On the facts represented to the [third party] would a reasonably careful and competent person [such as the third party] have concluded that there was an underlying transaction of a kind which was part of the usual business of a solicitor?"
That citation, in my judgment, properly preserves the distinction which Mr Sutcliffe was anxious to preserve between the character of the act, on the one hand, which is important and the manner in which it was carried out, on the other.
The important question is how the facts reasonably appeared to the third party rather than what was in fact going on (United Bank of Kuwait v Hammoud and Others, 1064E-F."
"I am, therefore, unable to find that the relevant representatives of the claimant, Mr McGarry and Mr Mohan, honestly believed that what Mr Ruparelia was doing up to 3rd July, when he gave the written undertaking, was a normal transaction in the course of the business of a solicitor.
I accept Mr Sutcliffe's argument that it is the character of the action, not the manner in which it is carried out; and that in many contexts, for a solicitor to attend a negotiation with a client, is a normal and conventional part of his ordinary course of business as a solicitor. But there was nothing normal about this transaction, really, as everyone accepts, and what Mr Hinojosa was apparently doing was not something which any solicitor had business to be actively assisting in. That was so, as I find, as a matter of probability, to the knowledge of Mr McGarry and Mr Mohan. So far as the objective bystander is concerned, I find, as a matter of certainty, that he would have said the same."
The claimant's challenge
"Perhaps the best general answer is that the wrongful conduct must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm or the employer to third parties, the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm's business or the employee's employment"
"On the facts represented to the plaintiff bank, would a reasonably careful and competent bank have concluded that there was an underlying transaction of a kind which was part of the usual business of a solicitor?"
This question had to be considered objectively. The reference to an "underlying transaction" was dictated by the fact that the relevant act in that case was the giving of an undertaking: it is not part of the ordinary business of solicitors to give undertakings except in relation to underlying transactions of what Lord Donaldson MR called a "solicitorial" nature.
The general approach
"the underlying principle remains that a servant, even while performing acts of the class which he was authorised, or employed, to do, may so clearly depart from the scope of his employment that his master will not be liable for his wrongful acts" (emphasis added).
"That said, Mr Mohan, whose understanding must, I think, be imputed to Mr McGarry, because I have found above they must have discussed this matter in much more detail than either of them now admits, accepted that this was "not a normal transaction, and that the return which was being offered was one which in other contexts he would have found simply incredible. The starting point, therefore, is they are dealing with a solicitor, prepared enthusiastically to "hype" and sell actively an abnormal and incredible scheme".
Lord Justice Longmore:
Lord Justice Peter Gibson: