Court confirms vicarious liability does not apply to LPA receivers

In an appeal, the High Court considered whether an employer of LPA receivers can be held vicariously liable for the actions of receivers during receivership – the High Court, upholding the lower decision on a strike out application, found that the employer was not liable.

The Facts

A lender exercised its right to appoint LPA receivers over a property in Herne Bay, Kent (the Property) following a default on a financing arrangement. Mark Getliffe and Diane Hill were appointed as joint LPA receivers over the Property.  The Property was subsequently sold for c. £722,000 less than its valuation of £5m, with the purchaser also paying the LPA receivers' fees.  

A claim was brought against the accountancy firm for whom the LPA receivers were employed.  The claim asserted that there were two other offers at the £5m purchase price that were not properly considered and the Property was sold "without exposing it to the market" and sold to a connected person at a price just sufficient to redeem the lending arrangements.  The claimant, being a litigant in person, had a right to bring the claim as assignee of the borrower's cause of action.  Notably the assignment agreement, "claims" were defined as those against Mark Getliffe and Diane Hill.

Procedural History

A strike out application was successfully made by the accountancy firm, with the Master finding that – (1) the assignment assigned causes of action against the LPA receivers personally and not the accountancy firm, (2) the claim was brought against the wrong party, (3) the LPA receivers acted in their personal capacity having been appointed as "principals", (4) no authority was offered for the proposition that an employer of an LPA receiver was vicariously liable for the receivers' breaches and (5) an application to join the LPA Receivers would have failed as the claim was statute barred against the LPA receivers when the claim was issued (with a standstill having been entered with the accountancy firm and so the claim against the firm was in time).

Permission to appeal was granted but only on the issue of vicarious liability – the issue of estoppel (as the fact the claimant had pursued the accountancy firm and not the LPA receivers personally was not pointed out initially) – was not an issue on appeal.

The Decision 

The High Court considered the nature of a receiver's appointment: that a lender has authority to choose anyone they deem suitable to be an LPA receiver and there is no legal requirement for any specific qualifications, experience, or that the individual is a licensed insolvency practitioner, and that the Insolvency Act does not permit corporate bodies to be appointed as receivers – only individuals.  Further, on appointment the receiver is deemed to be the agent of the borrower and that relationship is not a "true" agency but simply a means by which the borrower is made responsible for the receiver's actions.

On the issue of vicarious liability the Court set out a two-stage test – first whether the relationship between the defendant and the person who committed the tort was one of employment or akin to employment and second, whether the wrongful conduct was so closely connected with acts that the wrongdoing party was authorised to do that it can be fairly and properly regarded as having been done by the tortfeasor while acting in the course of their employment or quasi-employment.  However, the Court also pointed out situations where the contractual employer is not vicariously liable – for example – complete transfers of control or independent contractors where the relationship cannot be brought within the "akin to employment" category.  In short, the capacity in which the wrongdoing party is acting and the nature of the activities they are carrying out which give rise to a tort/claim can alter the incidence of vicarious liability by their contracted employer.  

The Court then went on to reject the appeal:

• Vicarious liability - the LPA receivers' role was not one carried out in their capacity as employees nor in so far as claims were brought could it be said that those claims related to activities carried out in the course of employment.  The appointment is a personal one, the legislative framework means that LPA receivers are appointed personally so there is a direct relationship and accountability to the borrower.  As the appointment is a personal one, it does not depend upon maintaining employment with a particular employer.  The law treats the receivers as independent agents, and so once appointed the LPA receiver is acting in the course of their appointment and not in the course of their employment.

• The assignment – the assignment only assigned claims against the individual LPA receivers and not the accountancy firm.

The Implications

Although there was notably no specific case that had previously decided the point that an accountancy firm is not vicariously liable for the acts of its employed LPA receiver, it was widely understood that insolvency practitioners hold personal appointments and so should be pursued in the event of a claim in their personal names.  This case confirms that principle. 

There are notably a number of other personal appointments that exist in the professional services world including that of the scheme actuary for a defined benefit/final salary pension scheme.  For scheme actuaries sometimes the appointment documentation provides that a claim needs to be in the name of the actuarial firm rather than the individual so any public proceedings do not personally name the actuary – with the actuarial firm expressly taking on the liability of the scheme actuary.  The same is difficult to apply in insolvency cases given the nature of appointments under the Insolvency Act and so who is the right party and what the contractual documentation behind the appointment says, should be carefully considered and borne in mind.