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Vicarious liability and independent contractors

Vicarious liability has regularly been under the spotlight recently. Sheryl Bignell and Paul Donnelly look at the Court of Appeal's decision which clarifies that following repeated extensions to the doctrine of vicarious liability, such claims can no longer be defeated on the basis that the tortfeasor is an independent contractor. 

Introduction

126 claimants who were employees or prospective employees of Barclays Bank brought a claim seeking damages against Barclays for sexual assaults they were subjected to by an independent doctor conducting health examinations on the bank's behalf. The issue of whether Barclays was capable in law of being held vicariously liable was listed for a preliminary issue hearing.

Vicarious Liability

Vicarious liability is of course the legal concept through which a defendant is held liable to a claimant for acts committed by a third party, rather than by the defendant. The court at first instance considered the two stage test required to apply the doctrine of vicarious liability which requires:

  1. Examination of the relationship between the tortfeasor and the defendant; and
  2. Examination of the connection between the act/omission complained of and the relationship set out in stage 1.

These stages were looked at by the Supreme Court in the cases of Cox v Ministry of Justice (2016) and Mohamud v WM Morrison Supermarkets Plc (2016) which were discussed in our article 'Vicarious liability is on the move…'

Since Lister v Hesley Hall Ltd (2001) HL a criminal act (including sexual assault) has been accepted as being capable of being an "unauthorised mode of doing an authorised act" (largely seeing an end to the ability for defendants to defeat such claims on the basis that the tortfeasor was on a "frolic of his own" type defence) and in recent years the English courts have made clear that an employment relationship is not necessary to satisfy stage 1 of the test (see JGE v The Portsmouth Roman Catholic Diocesan Trust (2012) CA; The Catholic Child Welfare Society & Ors v Various Claimants & The Institute of the Brothers of the Christian Schools & Ors (2012) SC; Cox v Ministry of Justice (2016) SC; Armes v Nottinghamshire County Council (2017) SC).

In relation to the first stage, the court at first instance concluded that the five criteria (identified by Lord Phillips in The Catholic Child Welfare Society and Lord Reed in Cox) were satisfied as follows:

  • Barclays was more likely to have the means to compensate the claimants. Barclays was in fact the only legal recourse available to the claimants owing to Dr Bates dying 8 years previously. Barclays would be likely to have insurance.
  • It was clear that the offer of employment was contingent on the medical examination which was purely for the benefit of Barclays, was arranged and paid for by Barclays and Dr Bates was the only doctor conducting the examinations.
  • The medical assessment provided by Dr Bates was an integral part of the bank's business because it was to ensure that the future employee was physically suitable for the work they were to be employed to do.
  • The examinations were carried out in a room at Dr Bates' house without a chaperone and Barclays directed him to perform a physical examination. Along with this and the proforma being headed with the bank's logo, it was concluded that in delegating these tasks/duties to Dr Bates, Barclays created the risk of the tort.
  • Barclays decided what physical examination was to be carried out and chose Dr Bates to carry these out, so Dr Bates was to some extent under the control of the bank.

The trial judge concluded that stage 1 of the test was satisfied. In terms of stage 2, the court found that the conduct fell within the remit of what he was instructed to undertake and that the sexual assaults took place during the medical examination. There was therefore a sufficiently close connection so that stage 2 was satisfied. The bank was therefore liable for any proven sexual assaults by Dr Bates.

The Appeal

Barclays appealed arguing that the judge had erred in the approach adopted at stage 1 of the test because Dr Bates was an independent contractor – the relationship was therefore not "akin to employment". Dr Bates had his own diary, did similar work for other organisations and submitted invoices which were subsequently paid. The relationship was likened to when a litigant went to be examined by a medical expert and it was therefore suggested that Barclays did not have the requisite control over Dr Bates' work for it to be held vicariously liable.

The Court of Appeal acknowledged that the law of vicarious liability had been "on the move" in recent times and not withstanding the long list of recent cases considering the scope of vicarious liability as referenced above, there has not (until now) been a decision that related to an obvious independent contractor.

In dismissing the appeal the Court of Appeal agreed that the judge's conclusions were fair and just. The situation is not analogous to when a party to litigation instructs a medico-legal expert - it would be rare for a medico-legal expert to do a general health examination, especially against a standard formula set by the instructing party. It was also emphasised that when considering stage 2 of the test, without Barclays' involvement the relationship between the claimants and Dr Bates would not have existed.

Comment

The Court of Appeal acknowledged that a "bright line" test in respect of the status of an independent contractor would make it easier for businesses and insurers but that establishing the status of an employee or contractor can be a complex issue and that the answer will depend on the facts in each case.

It is interesting to consider the Court of Appeal's view of what constitutes being part of the business activity of the bank. The bank's core business activity is arguably banking but the court held that recruitment of employees is sufficiently linked to that business activity. If recruiting employees is integral to carrying out the business activity, it must follow that other independent service providers would fall under this category as well.  This decision could therefore be seen to widen the potential application of the doctrine from situations such as in Cox v MOJ (2016) where the Supreme Court appeared to keep the extension of the doctrine reined in by finding that liability attached to the MOJ because the feeding of the prisoners was such an integral part of the running of the prison.

The case follows a trend of identifying those who can pay and providing recourse for injured claimants. It remains a legitimate bone of contention in the insurance market that a party's prudence in taking out insurance is considered a valid part of the test for determining whether that party has a liability. One takes out insurance to indemnify a potential future liability – a party should surely not be liable because they insure.

There is also a certain level of irony in the fact that where an insured has committed an intentional wrongdoing any policy covering that liability would likely refuse indemnity by reason of the presence of a deliberate act exclusion, yet save in exceptional circumstances (see KR & others v Royal & Sun Alliance Plc (2006) CA that deliberate act exclusion would not apply to an insured which did not itself conduct the wrongdoing but is held vicariously liable for the same.

The breadth of vicarious liability is becoming increasingly wide. With a growing trend towards outsourcing, which carries with it less ability to supervise and control the carrying out of a particular business function, this case will be of concern to insurers and businesses alike. The business issues that this decision creates are similar to those facing local authorities who since Armes v Nottinghamshire County Council (2017) are capable of being vicariously liable for the actions of foster carers.

Businesses need to tighten procurement processes with respect to the selecting and supervising of those they outsource functions of the business to and the terms on which they do so, with contractual indemnities and evidence of adequate insurance coverage being of crucial importance. It is equally important that insurers are fully aware of what functions are outsourced and on what terms so as to be in as informed a position as possible of the extent of the risk that they are underwriting.

Contact

For further information please contact: Paul Donnelly, Partner D +44 121 200 0439 M +44 7798 700459,  Paul.donnelly@dwf.law or Sheryl Bignell, Associate, D +44 161 604 1750 sheryl.bignell@dwf.law

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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