Court of Appeal—debt collection firm is not vicariously liable for tortious acts of bailiffs (Kafagi v JBW Group Limited)

What are the practical implications of this case?

The case will be of interest to all those involved in the enforcement of debts who may engage third parties to assist in the enforcement process. It is also of relevance more generally for all companies and other entities worried about the possibility of being held vicariously liable even when a third party is engaged other than as an ‘employee’.

The Court of Appeal highlighted the factors pointing to the relationship being ‘akin to that of employer and employee’ such that the engaging party is vicariously liable. These included whether the wrongdoer’s actions were on behalf of the engaging party and an integral part of its business activities and whether, by engaging the wrongdoer, the engaging party may be said to have ‘created the risk of the tort’ committed. In deciding that the respondent was not vicariously liable, the case distinguishes those circumstances falling outside the employer-employee context likely to trigger vicarious liability and those unlikely to do so.

Influential factors in the court’s decision were the fact that the bailiff it had engaged was very much ‘his own boss’, over which the respondent had no real control, was free to conduct the debt collection service in whatever manner he saw fit, was free to work for other firms and maintained his own insurance. In short, he was clearly conducting himself in manner that was independent of the respondent. Although this provides comfort to those engaging third parties, this area of law is not an exact science—it is possible to envisage that where the party engaged is only partially independent and provides a service which is on behalf of and integral to the engaging party’s activities, the balance could tilt back towards a finding of vicarious liability.

What was the background?

The respondent was a judicial services company responsible for the collection of certain council tax debts owed to the London Borough of Wandsworth. It subcontracted this task to a bailiff, Mr Boylan. He and another bailiff, a Mr Fenwick, assaulted and battered the debtor and unlawfully extracted money from him as a result of fraudulent misrepresentation. The District Judge found that Mr Boylan had been engaged by the respondent but was self-employed and that Mr Fenwick was neither employed nor had been engaged under any contract with the respondent. Since neither were employees of the respondent, or in a relationship ‘akin to employment’, the District Judge (and subsequently the Recorder in the Central London County Court on appeal) held that the respondent could not be vicariously liable for their actions.

What did the court decide?

The key question for the Court of Appeal was whether in light of the decision of the Supreme Court in E G Cox v Ministry of Justice [2016] UKSC 10 and Various Claimants v The Catholic Child Welfare Society and others [2012] UKSC 56, the respondents were in fact vicariously liable, since these cases provided key guidance regarding when vicarious liability may be imposed where the wrongdoer (tortfeasor) is not an employee of the defendant. The courts below had not considered these cases.

In Various Claimants v Catholic Child Welfare Society [2013] 2 AC 1, the Supreme Court held that the relationship can give rise to vicarious liability if it is 'akin to that between an employer and employee' and outlined five key factors. In Cox v Ministry of Justice [2016] UKSC 10, the Supreme Court examined the five factors and found that they were not all equal in importance:

The factors of key importance were:

1. whether the tort was committed as a result of activity taken by the tortfeasor on behalf of the defendant
2. whether the activity of the tortfeasor is likely to be part of the business activity of the defendant, carrying on activities assigned to him by the defendant as an integral part of its operation and for its benefit
3. whether the defendant, by engaging the person to carry on the activity, will have created the risk of the tort committed by the tortfeasor

The factors of lesser importance:

1. whether the defendant is more likely to have the means to compensate the victim than the tortfeasor and can be expected to have insured against that liability
2. whether the employee was to a greater or lesser degree, under the control of the employer, since there are many incidences of employer-employee relationships where the degree of control is very little. However, where the defendant does not even have a ‘vestigial degree of control’ this would probably mean that it is not vicariously liable

Lord Reed added that vicarious liability is not imposed where ‘a tortfeasor's activities are entirely attributable to the conduct of a recognisably independent business of his own or of a third party’ and that ‘business’ or ‘enterprise’ did not necessarily mean that the defendant needs to be carrying on activities of a commercial nature.

In light of this guidance, the Court of Appeal decided that the relationship between the respondent and the bailiffs was not ‘akin to that of employment’ and that the respondent firm was not vicariously liable. This was despite the appellants’ arguments that the risk to members of the public that the bailiffs might commit a tort was created by the respondent and that the bailiffs were acting to serve the respondent’s commercial interests and were therefore integral to its business.

The court gave the following reasons for its decision:

1. Mr Boylan ran his own business. He could turn down work that was offered by the respondent and could ‘cherry pick’ the work he wanted to do
2. Mr Boylan was free to conduct the collection of a debt in whatever legal manner he saw fit, without control from the respondent. In particular, he was free not to conduct the collection himself but share that work with another person, which is what he did in taking along Mr Fenwick (of whom the respondent had no knowledge whatsoever, and no contractual relationship)
3. Mr Boylan had to provide a personal bond of £10,000 into court to serve as security against which individuals who feel they have been wronged by Mr Boylan may recover
4. Mr Boylan maintained his own relevant indemnity insurance for his business
5. Mr Boylan worked for other clients. Mr Boylan could have been engaged directly by the London Borough of Wandsworth to enforce the council tax debt in question. He was more a potential competitor to the respondent than someone ‘integrated’ within its business
6. Finally, there was not even ‘that vestigial degree of control’ to which Lord Reed made reference in Cox

Case details

1. Court: Court of Appeal, Civil Division
2. Judge: Underhill, Irwin and Singh LJJ
3. Date of judgment: 22 May 2018

Sapna Garg is a solicitor-advocate (gunnercooke LLP) and consultant PSL (SimplyPSL). She is also a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact caseanalysis@lexisnexis.co.uk.