Trusts - Solicitors - Partnership - Accessory liability - Dishonesty - Contribution - Solicitors’ firm liable for partner’s accessory liability - Partner’s alleged dishonest assistance in breach of fiduciary duty wrongful act or omission within Partnership Act 1890, s 10 - Drafting agreements used in fraudulent scheme to be regarded as act done in ordinary course of firm’s business - Partnership entitled to claim contribution from other participants in fraud - Judge right to grant partnership full indemnity under Civil Liability (Contribution) Act 1978 - Firm’s innocence of partner’s alleged dishonesty not relevant to contribution issues - Contribution issues to be decided on basis of pleaded case against firm - Judge entitled to have regard to participants’ undisgorged receipts from fraud and to make order against participants jointly
Dubai was fraudulently induced to pay out $50m between September 1987 and March 1993 under a bogus consultancy agreement with Marc Rich. The proceeds of fraud were paid to S, T and Dubai’s chief executive, L. Dubai sued the dishonest participants and S’s solicitors. The proceedings were settled by the defendants agreeing to make substantial payments to Dubai. The solicitors paid $10m on the basis of the assumed dishonesty of the partner dealing with the matter. The solicitors claimed contribution from S and T. Rix J ( 1 Lloyd’s Rep 415) gave judgment in favour of the firm for $7,781,093 against S and T jointly and severally and for $2,651,253 against S. The Court of Appeal ( 1 QB 113) allowed appeals by S and T holding that the firm was not vicariously liable for the alleged wrongful acts of the partner so that there was no basis on which it could obtain contribution from S and T in respect of its payment to Dubai. The firm appealed seeking restoration of the order of Rix J:
(1) Whether the firm was vicariously liable for the partner’s wrongdoing under s 10 of the Partnership Act 1890.
(2) Whether the contribution recoverable should amount to a complete indemnity under s 2 of the Civil Liability (Contribution) Act 1978.
HELD (allowing the firm’s appeal and dismissing the cross-appeals of S and T)
(1) The phrase ‘any wrongful act or omission’ in s 10 of the 1890 Act was not confined to common law torts such as deceit or negligence and extended to the equitable wrong of dishonest participation in breach of trust or fiduciary duty as alleged against the partner in this case. Contrary to the Court of Appeal’s decision, the partner was also ‘acting in the ordinary course of the business of the firm’ within s 10 when he drafted the necessary consultancy agreements and sub-agreements thereby giving dishonest assistance in the fraudulent scheme. Drafting the agreements was to be regarded as an act done in the ordinary course of the firm’s business even though they were drafted for a dishonest purpose. In drafting the agreements the partner was not acting solely on his own behalf. He was seeking to promote the business of the firm. The acts were so closely connected with the acts the partner was authorised to do that they could properly be regarded as done by him while acting in the ordinary course of the firm’s business. Deliberate and dishonest conduct committed by a partner for his own sole benefit was legally capable of being in the ordinary course of the business of the firm. The firm could be vicariously liable in a case of dishonest assistance like the present (dictum of Lord Herschell in Mara v Browne  1 Ch 199 explained and Re Bell’s Indenture  1 WLR 1217 doubted). Once the claims against the partner and firm had been compromised, the firm’s entitlement to pursue contribution claims against S and T had to be determined on the basis only of the facts pleaded against the firm.
(2) The personal innocence of the partners in the firm was not a relevant matter to be taken into account by the judge when deciding the contribution proceedings. Vicarious liability involved the notion that so far as third parties were concerned the employer although personally blameless stood in the shoes of the wrongdoing employee and no distinction was to be drawn between cases of dishonesty and negligence. The judge was entitled to take into account when ordering a full indemnity the fact that S and T had not disgorged their full receipts from the fraud and to split the contribution payments so as to reflect the amount of those undisgorged receipts. A just and equitable distribution of the financial burden required the court to take into account the net contribution each party made to the cost of compensating Dubai and the amounts of Dubai money each still had in hand. The firm should not be out of pocket so long as S and T retained a surplus in hand. Unlike S and T, neither the firm nor the partner received any money from the fraud. The judge was right not to order the partner to make a contribution payment to S. Even after indemnifying the partnership, S and T would not be out of pocket. He was also entitled to direct that S and T should be jointly liable so that they bore the risk of each other’s insolvency to the extent of the undisgorged receipts. Overall the order made by Rix J was the appropriate order.