Dubai Aluminium Company Ltd v Salaam

JurisdictionUK Non-devolved
JudgeLORD NICHOLLS OF BIRKENHEAD,LORD SLYNN OF HADLEY,LORD HUTTON,LORD HOBHOUSE OF WOODBOROUGH,LORD MILLETT
Judgment Date05 December 2002
Neutral Citation[2002] UKHL 48
Date05 December 2002
CourtHouse of Lords
Dubai Aluminium Company Limited
and
Salaam

(Original Respondent and 2nd Cross-appellant)

And Others

And Others And Another

(Original Respondent and 1st Cross-Appellant)

[2002] UKHL 48

Lord Nicholls of Birkenhead

Lord Slynn of Hadley

Lord Hutton

Lord Hobhouse of Woodborough

Lord Millett

HOUSE OF LORDS

LORD NICHOLLS OF BIRKENHEAD

My Lords,

1

These proceedings arise out of an elaborate fraud by which the plaintiff, Dubai Aluminium Co Ltd, was induced to pay out US$50 million between September 1987 and March 1993 under a bogus consultancy agreement with Marc Rich & Co AG. The proceeds were shared out among the principal participants in the fraud under several equally bogus sub-agreements. Mr Hany Mohamed Salaam and His Excellency Mahdi Mohamed Al Tajir were found by the trial judge, Rix J, to have been dishonest participants in the scheme, together with Dubai Aluminium's chief executive, Mr Ian Livingstone. They benefited either directly or through companies controlled by them: to the extent of about $20.3 million in the case of Mr Salaam, $16.5 million in the case of Mr Al Tajir and $6.3 million in the case of Mr Livingstone.

2

Mr Salaam was a client of two successive firms of solicitors, Amhurst Brown Martin & Nicholson and Amhurst Brown Colombotti. Nothing turns on the distinction between these two firms, and it will be convenient to refer to them simply as 'the Amhurst firm'. Mr Salaam's affairs were dealt with mainly by Mr Amhurst, the senior partner in the Amhurst firm. Dubai Aluminium claimed that Mr Amhurst dishonestly assisted in the fraud. He did not benefit from the fraud, apart from comparatively modest amounts paid to his firm by way of fees. In addition to suing Mr Amhurst Dubai Aluminium sued the Amhurst firm, on the basis that the firm was vicariously liable in respect of some of Mr Amhurst's activities.

3

It has always been common ground that Mr Amhurst's partners were personally innocent of any dishonesty. It is also right to note at the outset that, for a reason which will appear, the case has proceeded on the assumption that Mr Amhurst was guilty of dishonesty as alleged. He has always denied this allegation. This issue has never been tried, and there has never been any finding by a court that he acted dishonestly in any respect.

4

At various stages in the course of the trial all the defendants settled with Dubai Aluminium on agreeing to make substantial payments. The claims against Mr Amhurst and the Amhurst firm were settled on payment by the Amhurst firm of $10 million. These settlements left outstanding and unresolved contribution claims brought by some of the defendants against each other and against third parties. So the contribution claims had to be decided by the judge, Rix J. The effect of the judge's decision was that the Amhurst firm, in respect of its payment of $10 million, received contribution amounting to a full indemnity from Mr Salaam and Mr Al Tajir. More precisely, Rix J gave judgment in favour of the Amhurst firm for $7,781,093 jointly and severally against Mr Salaam and Mr Al Tajir, and in the further amount of $2,651,253 against Mr Salaam.

5

Mr Salaam and Mr Al Tajir appealed to the Court of Appeal. The Court of Appeal, comprising Evans and Aldous LJJ and Turner J, allowed the appeal. The court held that the Amhurst firm was not vicariously liable for Mr Amhurst's allegedly wrongful acts. So there was no basis on which it could obtain contribution from Mr Salaam or Mr Al Tajir in respect of its payment to Dubai Aluminium. The Amhurst firm then brought this further appeal to your Lordships' House, seeking restoration of the order of Rix J.

6

These bare essentials will suffice as an introduction to the points of law of general importance raised by the contribution claims. The factual history of this matter, which is not without a degree of complexity, is more fully summarised by my noble and learned friend Lord Millett. The judge's findings are reported at [1999] 1 Lloyd's Rep 415 and the conclusions of the Court of Appeal at [2001] 1 QB 113.

Section 10 of the Partnership Act: 'any wrongful act'

7

The contribution claim made by the Amhurst firm in respect of its payment of $10 million to Dubai Aluminium is based on the Civil Liability (Contribution) Act 1978. Section 1(1) of this Act ('the Contribution Act') provides that any person 'liable' in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage. On the judge's findings Mr Salaam and Mr Al Tajir were liable in respect of Dubai Aluminium's loss. That is clear. In order to found a contribution claim the Amhurst firm had to show it, too, was 'liable' in respect of the loss suffered by Dubai Aluminium. The Amhurst firm claimed it satisfied this prerequisite because, pursuant to section 10 of the Partnership Act 1890, it was liable for Mr Amhurst's alleged wrongdoing. Thus, so it claimed, the case falls squarely within the scope of section 1(1) of the Contribution Act.

8

This was denied by Mr Al Tajir and Mr Salaam. They contended that the Amhurst firm is not entitled to make any contribution claim against them. Their case is that the Amhurst firm was not vicariously responsible for Mr Amhurst's alleged misconduct, on two grounds. The first ground is that the cause of action asserted by Dubai Aluminium does not fall within the scope of section 10 of the Partnership Act. This raises a question of interpretation of the statute. Section 10 provides:

'Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.'

9

The case advanced by Mr Al Tajir and Mr Salaam runs as follows. The claim made by Dubai Aluminium against Mr Amhurst is not that he committed a common law tort such as deceit or negligence. The claim is that he committed the equitable wrong of dishonest participation in a breach of trust or fiduciary duty. Mr Amhurst dishonestly procured or assisted Mr Livingstone in the breach of the fiduciary duties he owed to Dubai Aluminium. Although fault-based, this species of equitable wrong is not a 'wrongful act or omission' within the meaning of section 10. Section 10 being inapplicable, the Amhurst firm was not liable for the acts of Mr Amhurst of which Dubai Aluminium complained.

10

This argument was rejected by Rix J and the majority of the Court of Appeal. I agree with them. There is nothing in the language of section 10 to suggest that the phrase 'any wrongful act or omission' is intended to be confined to common law torts. On the contrary, the reference to incurring a penalty points away from such a narrow interpretation of the phrase. The liability of co-partners for penalties incurred, for instance, for breach of revenue laws was well established when the 1890 Act was passed: see Lindley, Law of Partnership, 6th ed (1893), p 160, and Attorney General v Stanyforth (1721) Bunb 97.

11

In addition to the language the statutory context points in the same direction. Section 10 applies only to the conduct of a partner acting in the ordinary course of the firm's business or with the authority of his co-partners. It would be remarkable if a firm were liable for fraudulent misrepresentations made by a partner so acting, but not liable for dishonest participation by a partner in conduct directed at the misappropriation of another's property. In both cases the liability of the wrongdoing partner arises from dishonesty. In terms of the firm's liability there can be no rational basis for distinguishing one case from the other. Both fall naturally within the description of a 'wrongful act'.

12

In 1874 Lord Selborne LC's famous statement in Barnes v Addy (1874) LR 9 Ch App 244, 251–252, made plain that a stranger to a trust could be liable in equity for assisting in a breach of trust, even though he received no trust property. On the interpretation of section 10 advanced for Mr Al Tajir and Mr Salaam, a firm could never be vicariously liable for such conduct by one of their partners. I can see nothing to commend this interpretation of the statute.

Section 10 of the Partnership Act: 'acting in the ordinary course of the business of the firm'

13

The second ground on which Mr Al Tajir and Mr Salaam contended that the Amhurst firm was not liable for Mr Amhurst's alleged acts is that these acts were not done by him while acting in the ordinary course of the business of the firm. I say 'alleged acts', because Dubai Aluminium's claims against Mr Amhurst and the firm were settled before the trial judge made his findings of fact. Whether Dubai Aluminium's allegations against Mr Amhurst were well founded was never decided.

14

The Contribution Act makes provision for what should happen in such a case. Where a defendant compromises a plaintiff's claim in good faith, the defendant is entitled to claim contribution under the Act without regard to whether he was liable for the damage in question but on the assumption that the factual basis of the claim alleged against him could be established: section 1(4). Thus the Amhurst firm's ability to seek contribution from others in respect of the payments it made to settle Dubai Aluminium's claims depends upon whether the firm would have been liable to Dubai Aluminium on the assumption that the factual basis of Dubai Aluminium's claim against the firm could have been established.

15

The relevant facts alleged by Dubai Aluminium against the Amhurst firm as the basis of its vicarious liability are that the consultancy agreement between Dubai Aluminium and Marc Rich & Co and the...

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