Fraudulent valuation of property for mortgage purposes by unqualified employee — Loss suffered by lenders relying on valuations — Whether firm vicariously liable for actions of employee — High Court holding that both employer and employee liable — Employer’s conduct representing that employee having ostensible authority
This litigation concerned whether a firm of estate agents, valuers, surveyors and auctioneers (“Hamptons”) was vicariously liable in deceit for the acts of an unqualified employee (“L”). In 1988 and 1989 he provided fraudulent valuations of eight hotels for mortgage purposes, six to Alliance & Leicester Building Society (“the society”) and two to a lending institution (“Mercantile Credit”). The mortgage frauds were on a massive scale; the society claiming over £25m against individual and corporate borrowers, a broker, a solicitors’ firm, a land buyer, and the chartered surveyors and estate agents who employed the land buyer. Mercantile Credit’s claim was over £4m. The principal defendants to the claims were the land buyer, L, who admitted nothing, and his former employers, Hamptons, who admitted L’s fraud, but denied vicarious liability. A claim in contributory negligence failed: see [1993] EGCS 93.
Held L was personally liable in deceit and Hamptons were vicariously liable for his actions.
1. An employer was not vicariously liable for an employee’s fraud merely by having provided him with employment which gave him the opportunity to behave dishonestly.
2. An innocent employer was however liable, to the same extent as if it were his own fraud, to a third party who suffered damage as a result of fraud committed by an employee “in the course of his employment” or “within the scope of his actual or ostensible authority”.
3. The fraudulent acts of an employee were within the scope of his authority if they were acts of a class or kind authorized by the employer, even though performed by the employee in a dishonest manner: eg by forging documents.
4. The employer was liable even if the third party defrauded by the employee was not a client or customer of the employer.
5. On the evidence in the present case L was not acting within the scope of his actual authority, express or implied, in relation to the valuation of the hotels for mortgage purposes. He was not expressly or impliedly authorized to represent to a lender that a qualified person had carried out the valuation or so to represent in respect of persons who were not employed by Hamptons. Even if he were authorized to express his own opinion to a lender as to the value of the property, he was not thereby authorized to represent that another person had valued the property at the same figure.
6. However, Hamptons by its conduct had represented to the society and Mercantile Credit that L had ostensible authority to produce in its name valuations and reports for mortgage purposes. Thus, Hamptons was estopped from denying that L had authority and from denying that there had been reliance by those lenders on the representation of Hamptons as to his authority. Reliance on that representation led the lenders to act on the valuations and reports produced by L, causing them to lend the money and suffer the loss.
7. Moreover, the society and Mercantile Credit had no notice of any lack of authority on the part of L to provide valuations jointly with a qualified surveyor or valuer.
Charles Purle QC and Christopher Russell (instructed by Mackenzie Mills) appeared for Alliance & Leicester Building Society and Mercantile Credit Co; Simon Berry QC and James Behrens (instructed by Broughton Ross) appeared for Kenneth Robson; John Slater QC and Dominic Dowley (instructed by Davies Arnold Cooper) appeared for Hamptons; John Cherryman QC (instructed by Wright Son & Pepper) appeared for William Duckney and Kulvinder Dhaliwhal; other defendants appeared in person.
