Vicarious Liability - The Liability of Corporations in Tort

The Liability of Corporations in Tort

In English law, a corporation can only act through its employees and agents so it is necessary to decide in which circumstances the law of agency or vicarious liability will apply to hold the corporation liable in tort for the frauds of its directors or senior officers.

If liability for the particular tort requires a state of mind, then to be liable, the director or senior officer must have that state of mind and it must be attributed to the company. In Meridian Global Funds Management Asia Limited v. Securities Commission 2 AC 500, two employees of the company, acting within the scope of their authority but unknown to the directors, used company funds to acquire some shares. The question was whether the company knew, or ought to have known that it had acquired those shares.

The Privy Council held that it did. Whether by virtue of their actual or ostensible authority as agents acting within their authority (see Lloyd v Grace, Smith & Co. AC 716) or as employees acting in the course of their employment (see Armagas Limited v Mundogas S.A. 1 AC 717), their acts and omissions and their knowledge could be attributed to the company, and this could give rise to liability as joint tortfeasors where the directors have assumed responsibility on their own behalf and not just on behalf of the company.

So if a director or officer is expressly authorised to make representations of a particular class on behalf of the company, and fraudulently makes a representation of that class to a Third Party causing loss, the company will be liable even though the particular representation was an improper way of doing what he was authorised to do. The extent of authority is a question of fact and is significantly more than the fact of an employment which gave the employee the opportunity to carry out the fraud.

In Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited 2 QB 711, a company secretary fraudulently hired cars for his own use without the knowledge of the managing director. A company secretary routinely enters into contracts in the company's name and has administrative responsibilities that would give apparent authority to hire cars. Hence, the company was liable.