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Raise the Bar: A higher standard set for finding Vicarious Liability in Fraudulent Misrepresentation

In its recent decision in Winter v Hockley Mint, the English Court of Appeal reaffirmed the test to be applied in determining whether a principal could be vicariously liable for the deceit of an agent.

Applying the test established in Armagas Ltd v Mundogas, the Court of Appeal found that there needed to be more than just a close connection between the principal and agent; the agent had to have the actual or ostensible authority to make representations on behalf of the principal.

The Respondents entered into agreements with the Appellant’s agent Mr Ramsden, whereby Hockley Mint was to lease postage equipment and in turn be paid rebates that would exceed the lease cost. This equipment was provided by James Winter, the Appellant. However, no such rebates were payable or paid. The Respondents relied on Mr. Ramden’s dishonest misrepresentations and entered into five consecutive agreements.

At first instance, the High Court found that Mr Winter was vicariously liable for the fraudulent misrepresentations that his agent, Mr Ramsden, made to Hockley Mint. It reached that decision applying a broad principle of fairness and considered that there was a sufficiently close connection to hold the appellant vicariously liable.

The EWCA disagreed with the High Court’s approach. It held that, generally, for a principal to be held vicariously liable for the deceit of an agent, the principal must have represented to the claimant (and the claimant must have acted on this representation) that the agent had the authority (actual or ostensible) to do what he did. The court held that ‘fairness’ and the close connection test were insufficient to establish vicarious liability for reliance based torts. This decision comes as a warning, especially in our financial services sector, to exercise caution in relying on pre-contractual representations made by agents. Similarly, principals will welcome this added protection from liability for representations they have not made themselves, as long as they appropriately and accurately state the authority an agent has to act on their behalf.

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