Ffrench v Sestili - [2007] SASC 241

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
FFRENCH v SESTILI; SESTILI v TRITON UNDERWRITING INSURANCE AGENCY P/L
[2007] SASC 241
Judgment of The Full Court
(The Honourable Justice Debelle, The Honourable Justice Sulan and The Honourable Justice Layton)
28 June 2007
EMPLOYMENT LAW - RIGHTS AND LIABILITIES AS BETWEEN EMPLOYER AND THIRD PERSONS - LIABILITIES OF EMPLOYER - FOR CRIMES AND OFFENCES OF EMPLOYEE
Vicarious liability – employee a carer for disabled person – employee withdrew money from disabled person’s bank account without consent – whether employer vicariously liable for dishonest conduct of employee – appeal by employer dismissed.

INSURANCE - GENERAL - POLICIES OF INSURANCE - CONSTRUCTION
Whether insurance contract of employer provided coverage for the theft of employee – whether misappropriation of the money was loss of tangible property – whether loss had occurred “in connection with” the business – whether insurer was liable for costs of employer defending the claim – appeal by insurer dismissed.
Barwick v English Joint Stock Bank (1867) LR 2 Ex 259; Bazley v Curry [1999] 2 SCR 534; Beaton v Corporation of Glasgow [1908] SC 1010; Briess v Woolley [1954] AC 333; Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144; Croton v The Queen (1967) 117 CLR 326; Deatons Pty Ltd v Flew (1949) 79 CLR 370; Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366; Drayton v Martin (1996) 67 FCR 1; Jacobi v Griffiths [1999] 2 SCR 570; Kennison v Daire (1986) 160 CLR 129; Kennison v Daire (1985) 38 SASR 404; Limpus v London General Omnibus Co [1862] 1 H & C 526; 158 ER 993; Lister v Hesley Hall Ltd [2002] 1 AC 215; Lloyd v Grace, Smith & Co [1912] AC 716; Morris v C W Martin & Sons Ltd [1966] 1 QB 716; New South Wales v Lepore (2003) 212 CLR 511; Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465; R v Davenport [1954] 1 WLR 569; R v Potisk (1973) 6 SASR 389; Slattery v The King (1905) 2 CLR 546, applied.
Black Range Tin v Shoobert [1973] WAR 131; Breen v Williams (1996) 186 CLR 71; Bugge v Brown (1919) 26 CLR 110; Canadian Pacific Railway Co v Lockhart [1942] AC 591; Clay v Clay (2001) 202 CLR 410; Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41; Grant v The Queen (1981) 147 CLR 503; Hollis v Vabu Pty Ltd (2001) 207 CLR 21; Ilich v The Queen (1987) 162 CLR 110; Ilkiw v Samuels [1963] 2 All ER 879; Leesh River Tea Co Ltd v British India SN Co Ltd [1967] 2 QB 250; Parsons v The Queen (1999) 195 CLR 619; Perrin v Morgan [1943] AC 399; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; Plowright v Lambert (1885) 52 LT 646; Plumb v Cobden Flour Mills Co Ltd [1914] AC 62; Port Swettenham Authority v TW Wu & Co [1979] AC 580; R F Brown & Co Ltd v Harrison (1927) 43 TLR 633; Rose v Plenty [1976] 1 WLR 141; Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248; Williams v A & W Hemphill Ltd [1966] SC (HL) 31, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"in connection with"

FFRENCH v SESTILI; SESTILI v TRITON UNDERWRITING INSURANCE AGENCY P/L
[2007] SASC 241
Full Court: Debelle, Sulan and Layton JJ

DEBELLE J This appeal involves the question whether an employer is vicariously liable for a dishonest employee who stole $33,350 from a disabled person and questions as to the extent of cover provided by a contract of insurance held by the employer. The outcome of the appeal will determine whether the losses caused by the misconduct of the dishonest employee will be borne by the disabled person or the employer and her insurer.
The first respondent, the plaintiff Ms Ffrench is a quadriplegic. In 1978 she suffered severe injuries in a motor vehicle accident. In addition to being unable to walk, she cannot use her hands properly. Her disabilities are so severe that she requires the constant assistance of a carer. Ms Ffrench is physically dependant on her carers. They get her out of bed, shower or bathe her, dress her and get her meals. Ms Ffrench depends on them for day to day needs. Those needs include shopping. Ms Ffrench depends very heavily on her carers. It is almost total physical dependence. At any one time, she usually has four to five carers assisting her during a week. She is provided with carers by means of a care provider. The care provider employs the carer and makes the carer available to Ms Ffrench. Although Ms Ffrench is physically disabled to a serious degree, she has full possession of her mental faculties. She was at one stage running a small business.
Carers to Assist the Plaintiff
In 2000 Ms Ffrench was supported by APN Options Co-ordination (“APN Options”) an agency of the State government. APN is an acronym for Adults with Physical and Neurological Disabilities. APN Options was responsible for the allocation and administration of resources for the support of disabled persons. The role of APN Options in 2000 was to engage a care provider who in turn was responsible for employing the carers to assist Ms Ffrench. APN Options paid the care provider who in turn paid the person or persons employed to provide the actual care. In conjunction with the care provider, APN Options prepared a régime for the care of the disabled person tailored to the needs of each individual. Such a régime was prepared for Ms Ffrench. It included the provision of assistance to Ms Ffrench for shopping.
In February 2000 APN Options engaged a care provider to provide a carer to assist Ms Ffrench. That care provider was the second respondent, Ms Ada Sestili, who traded as Direct Personal Care Services. I will refer to both Ms Sestili and her business as “Ms Sestili”.
Ms Sestili advertised for a qualified carer. She engaged Ms Brown to act as the carer for Ms Ffrench. Ms Brown signed a service agreement with Ms Sestili on 24 March 2000.
The service agreement described the nature of Ms Brown's employment in these terms "providing care to clients of DPCS". It will be recalled that DPCS are the initials of the name of Ms Sestili's business Direct Personal Care Services. That is a very wide job description and the reasons for the width of that description are readily understandable. It would be quite impracticable, if not also unrealistic, to attempt to prescribe the tasks to be performed as carer with any degree of precision. The task was one which by its nature plainly required that the carer be invested with authority to exercise a discretion as to how she discharged her duties generally or any specific duty. When Ms Sestili assigned Ms Brown to be the carer for Ms Ffrench, she therefore authorised her to do whatever was reasonably necessary to discharge the duties of carer.
There is no other description of the nature of the employment in the service agreement. Four clauses spell out duties in relation to the discharge of that general task of providing care to clients of DPCS. They are clauses 9, 10, 11 and 12 which are in these terms:
9.The Carer will at all times carry out their work professionally, diligently, maintaining the highest standard of care and consideration for the clients of DPCS.
10.The Carer shall comply with all rules and standards of conduct set out by DPCS in its "Code of Conduct" which the Carer acknowledges receiving before or at the time of signing this agreement.
11.All information concerning the clients of DPCS is confidential and the Carer hereby agrees to treat all information which they are privy to as a result of their work as Carer pursuant to this Contract as confidential and will comply at all times with the Privacy Act 1988.
12.The Carer will at all time keep proper record and accounts for service provided to clients of DPCS and will upon request provide those records and accounts to DPCS. (Emphasis in original.)
Those clauses do not limit the employee's tasks. They are no more than obligations as to the manner in which the task is to be performed.
Ms Sestili gave Ms Brown a copy of the service agreement and a code of conduct. The code addressed legal and ethical issues of the duties of a carer. The form of the code of conduct handed to Ms Brown was not proved. It was said to be “missing”. Instead, the form of the code of conduct as used in April 2005 (when the trial occurred) was proved. The evidence of Ms Sestili was that the code of conduct was in the same form as it was in 2000 save for the later inclusion of an instruction relating to the bank account of clients. That instruction was to the effect that carers should not have access to bank accounts of clients even if asked by the client to do so. The evidence of Ms Sestili was that she had given a verbal direction to the same effect as the instructions now contained in the code of conduct. Both the magistrate and Gray J discounted that evidence and did not rely on it because there was no independent evidence to support it. There was no appeal from that finding.
Ms Brown was one of several carers for Ms Ffrench. Another was Ms Howland.
Carer’s Tasks Include Shopping
The initial service contract between APN Options and Ms Sestili required the provision of carer services for “30 hours per week for personal care, home help and shopping”. It covered the period 7 February to 30 June 2000. After 30 June 2000, the service contract was renegotiated at the request of Ms Ffrench. As from 4 July 2000, the contract between APN Options and Ms Sestili no longer expressly provided for hours associated with shopping duties so as to enable the carer to assist Ms Ffrench in other ways. However, the contract did not prevent the carer assisting by doing the shopping. In that period, Ms Ffrench continued to have Ms Brown undertake shopping duties for her from time to time. The magistrate and Gray J both found that an arrangement of that kind negotiated directly between Ms Ffrench and her care provider was within the contemplation of the arrangement struck between APN Options and Ms Sestili and there is no appeal against that finding
The Plaintiff's Savings Accounts
Early in 2000 Ms Ffrench received a settlement in the sum of $160,000.00. Ms Ffrench took advice from an officer of the Australian Central Credit Union (“the credit union”). Acting on that advice, Ms Ffrench established three accounts with the credit union in which she deposited the funds she had received. The first was a fixed term investment account and she deposited the bulk of the settlement into that account. Nothing in this action concerns the investment account. The second account was called a “Dream Saver” account. On 24 July 2000 Ms Ffrench deposited $41,865.30 into that account. The third account was called “My Account”. Ms Ffrench deposited a small sum of money into that account sufficient to provide for day-to-day needs such as shopping and the payment of recurring household expenses. Ms Ffrench receives a disability pension. It was paid directly to the My Account.
Ms Ffrench was given a credit card. It was a VISA card which could be used both as a credit card and as a means of withdrawing funds from the account called “My Account”. Ms Ffrench was also provided with a personal identification number (“PIN”) for the My Account. Funds could be withdrawn from the My Account at a branch of the credit union or at an automatic teller machine (“ATM”).
Ms Ffrench was also provided with a PIN for the Dream Saver account. It was not possible to withdraw funds from the Dream Saver account at an ATM. However, funds could be transferred from the Dream Saver account to the My Account. One means of doing so, which Ms Ffrench adopted, was to use the telephone. The transfer would be effected by Ms Ffrench keying in her credit union membership number and the PIN for the Dream Saver account. The membership number was printed on the face of the credit card. It also appeared on statements from the credit union.
Money Misappropriated
Ms Ffrench’s disabilities are such she has lost the capacity for fine finger movement. She is not able to operate an ATM. Ms Brown and another carer, Ms Howland, went shopping for Ms Ffrench as part of their duties as carers. If Ms Ffrench had cash available, she would give it to them to make the purchases. If she did not have cash, Ms Ffrench gave both her credit card and told both of them the PIN by which to gain access to the My Account. Ms Ffrench did not accompany either on the shopping trips. The arrangement as to the shopping with the credit card was that Ms Brown or Ms Howland would take the credit card to an ATM, withdraw money, purchase the shopping items, and return with the items purchased, receipts and any change. Ms Howland was honest in her dealings with Ms Ffrench and no difficulties followed from her use of the My Account. The arrangements with Ms Brown proceeded satisfactorily for a time but after July 2000 Ms Brown misappropriated the sum of $33,350. It happened in this way.
In July 2000, Ms Ffrench gave Ms Brown the credit card and asked her to purchase some items which Ms Ffrench needed for a planned overseas trip. Ms Brown purchased the items but did not return the credit card. Ms Ffrench later asked Ms Brown to return the card. Ms Brown gave some explanation for not being able to do so. Thereafter, Ms Ffrench asked for the return of the card on a number of occasions but Ms Brown always had some excuse for not being able to return it. Between late July and late September 2000, Ms Brown made a number of unauthorised withdrawals from the My Account. She also fraudulently transferred money from the Dream Saver account to the My Account to enable further withdrawals. The total sum wrongfully withdrawn was $33,350. Ms Brown had possession of the card from July until 29 September 2000 when the fraud was discovered.
The balance in the My Account was at first less than $33,350. Ms Brown was able to withdraw as much as $33,350 because she had transferred money from the Dream Saver account. By some means which was never conclusively established, Ms Brown had ascertained the PIN by which access could be gained to the Dream Saver account. She used Ms Ffrench’s membership number and the PIN to transfer money from Ms Ffrench’s Dream Saver account to the My Account. Ms Brown then used the credit card to withdraw money for her own benefit from the My Account by means of an ATM.
Although Ms Ffrench had told Ms Brown and Ms Howland the PIN for the My Account, she did not inform either of the PIN for the Dream Saver account. Her evidence, which was accepted, was that she did not disclose the PIN for the Dream Saver account to any person.
Ms Ffrench believed that there were two possible means by which Ms Brown could have ascertained the PIN for the Dream Saver account. When Ms Ffrench used her telephone for the purpose of transferring money from the Dream Saver account to the My Account, she would respond to voice prompts. Part of the process involved using the telephone to key in her membership number at the credit union followed by the PIN to gain access to the Dream Saver account. The telephone used by Ms Ffrench had a display screen showing all of the numbers which had been dialled. Those numbers included Ms Ffrench’s membership number at the credit union and the PIN for the Dream Saver account. Ms Ffrench believed that one means by which Ms Brown ascertained the PIN for the Dream Saver account was by looking over her shoulder while she was making a call to the credit union to transfer monies from the Dream Saver account to the My Account. Ms Brown could then have seen her dialling and entering the PIN.
Another possible means by which Ms Brown could have ascertained the PIN was by using the re-dial facility on the telephone to re-produce the numbers Ms Ffrench had dialled including the PIN for the Dream Saver account. Ms Brown would then be able to read the numbers used by Ms Ffrench in the course of making the transaction.
The money misappropriated by Ms Brown was dissipated on gambling. In late September 2000 the theft was discovered. Ms Brown was arrested, charged and later convicted of 45 counts of larceny. The misappropriation occurred over a period between 25 July 2000 and 28 September 2000. Ms Brown has not repaid Ms Ffrench the stolen money.
Proceedings Commenced
On 26 February 2004 Ms Ffrench issued proceedings in the Adelaide Magistrates Court against Ms Brown and Ms Sestili claiming, among other things, the sum of $33,350 misappropriated by Ms Brown. Ms Ffrench alleged that Ms Sestili was vicariously liable for the misconduct of Ms Brown, that she was negligent in her selection of Ms Brown as a carer, and that she had acted in breach of contract. Ms Sestili defended the action. Ms Brown did not defend the action nor did she appear at the trial. Judgment was entered against her. Ms Sestili admitted at the trial that Ms Brown was employed by her. The central issue was whether Ms Sestili was vicariously liable for the acts of Ms Brown.
Plaintiff's Claim Dismissed
The magistrate held that Ms Sestili was not liable to Ms Ffrench. He held that Ms Sestili was not vicariously liable for the misconduct of Ms Brown, that she had not acted negligently, and that there was no contractual relationship between Ms Sestili and Ms Ffrench. In holding that Ms Sestili was not vicariously liable, the magistrate found that, when Ms Brown had misappropriated the money, she was acting outside the scope of her employment. He said that she was acting on a “frolic of her own” for which Ms Sestili could not be liable. He found that Ms Brown had gained access to the Dream Saver account by her own unlawful and unauthorised acts in obtaining the PIN for that account without the knowledge of Ms Ffrench.
Ms Sestili had entered into a contract of insurance with Triton Underwriting Insurance Agency Pty Ltd (“Triton”). She joined Triton as a third party to the action. The policy was called a “Community Care Broadform Liability Policy”. It provided cover in the sum of $10 million for each public liability, products liability and professional indemnity. Ms Sestili made a third party claim against Triton seeking indemnity if she were to be found liable to Ms Ffrench and for the costs of the action. Triton defended the claim. Ms Brown also instituted a third party claim against the insurance broker. That claim was compromised. Given the finding that Ms Sestili was not liable to Ms Ffrench, it was not necessary for the magistrate to rule on Ms Sestili’s third party claim against Triton. However, the magistrate held that Triton was not liable because the acts of Ms Brown were not “an occurrence in connection with the business” of Ms Brown within the meaning of the policy of insurance and that the loss was not a loss of tangible property within the meaning of that policy.
Two Appeals
Ms Ffrench appealed against the decision of the magistrate. Her only ground of appeal was that the magistrate had erred in finding that Ms Sestili was not vicariously liable for the acts of Ms Brown.
Ms Sestili also appealed against the magistrate’s decision, no doubt to ensure that, if she was held to be liable to Ms Ffrench, she would be indemnified under the policy of insurance. She had two grounds of appeal. The first was that the magistrate had erred in finding that the acts of Ms Brown were not an occurrence in connection with the business of Ms Sestili. The second was that the magistrate had erred in finding that the loss sustained by Ms Ffrench was not a loss of tangible property.
Appeals Allowed

The appeal was heard by Gray J who allowed both appeals. He held that Ms Sestili was vicariously liable for the total amount misappropriated by her employee Ms Brown. He held that Ms Brown’s dishonest conduct was sufficiently connected with the business of Ms Sestili so as to render Ms Sestili vicariously liable for the loss suffered by Ms Ffrench to give rise to the indemnity. He also held that it was a loss of tangible property within the meaning of the policy.
Two Appeals to This Court
Triton has appealed by leave from the decision of Gray J. It contends that Gray J erred in holding that Ms Sestili was vicariously liable for the criminal conduct of Ms Brown. Triton also contends on a number of grounds that it was not liable to indemnify Ms Sestili. Ms Sestili has also appealed by leave against the order of Gray J on the ground that the judge had erred in finding that she was vicariously liable for the criminal conduct of Ms Brown. The issues on these two appeals are, therefore, the question of vicarious liability and the proper interpretation of the insurance contract. I deal first with the question of vicarious liability.
No Non-Delegable Duty
One matter which was not argued but which requires consideration, if only to put it to one side, is whether there is a non-delegable duty of care in the case of an employer of persons who act as carers. Persons who depend on carers are in such a vulnerable position that it is likely to give rise to a non-delegable duty of care: New South Wales vLepore (2003) 212 CLR 511 per Gleeson CJ at [36]. The High Court has held in Lepore that the non-delegable duty of care should not be extended to intentional conduct of the employee when the employer is not at fault: see Gleeson CJ at [36]–[39], Gummow and Hayne JJ at [264]–[270], Kirby J at [295]–[296]; Callinan J at [339]-[340]. If Ms Sestili had a non-delegable duty of care to Ms Ffrench, she would not be liable for the criminal conduct of Ms Brown.
Vicarious Liability – The Relevant Principles
Since the decision in Lloyd v Grace, Smith & Co [1912] AC 716, it has been settled principle that an employer is liable for the dishonesty and fraud of his employee if that dishonesty or fraud has occurred within the course of the employment of that employee. That principle applies no matter whether the dishonesty or fraud was for the benefit of the employer or of the employee. The principle was recently re-affirmed in Lepore. The principle is clear. The difficulty lies in determining whether the dishonest conduct of the employee occurred in the course of his employment. The expression “in the course of the employment” is sometimes expressed as “the scope of the employment” or “the sphere of the employment”. Those alternatives do not throw any further light on the question whether an act is within the course of the employment. As Gleeson CJ noted in Lepore at [40]:
Not everything that an employee does at work, or during working hours, is sufficiently connected with the duties and responsibilities of the employee to be regarded as within the scope of the employment. And the fact that wrongdoing occurs away from the workplace, or outside normal working hours, is not conclusive against liability.
In this case, it is common ground that Ms Brown was employed by Ms Sestili. The question is whether Ms Brown’s unlawful conduct occurred in the scope of her employment by Ms Sestili as a carer for Ms Ffrench.
The question whether dishonesty by an employer for his own benefit is within the course of his employment has been described by Lord Denning MR as “baffling”: Morris v C W Martin & Sons Ltd [1966] 1 QB 716 at 724. More recently, the High Court has said that a “a fully satisfactory rationale for the imposition of vicarious liability in the employment relationship has been slow to appear in the case law”: Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [35]. While expressions of this kind might comfort a judge in knowing that he or she is not alone in grappling with the difficulties of this question, they are no substitute for principle to guide a determination of the question. Later, in Hollis v Vabu Pty Ltd at [37], the majority of the High Court said:
The modern doctrine respecting the liability of an employer for the torts of an employee was adopted not by way of an exercise in analytical jurisprudence but as a matter of policy.
While policy might explain the principles which have evolved, it is no substitute for principle: Lepore at [128] per Gaudron J.
The search for principle reveals a tension between a policy of seeking to compensate those who have suffered loss at the hands of a dishonest employee and a concern not to make employers the insurers for the criminal acts of their employees. As Lord Nicholls observed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at [27], the courts historically have been less ready to find vicarious liability in cases of employee dishonesty than in cases of negligence.
At the same time it must be acknowledged that the question whether an employee's intentional act of dishonesty committed for his benefit, is within the scope of his employment may involve difficult questions of fact and law. That act might be said to be entirely unconnected with the employment. As Gummow and Hayne JJ noted in Lepore [226]:
The notion of an unauthorised mode of doing an authorised act has evident difficulties in application. Especially is that so when the conduct at which complaint is made is, as in these cases, the commission of a criminal offence.
Gleeson CJ expressed the same view in Lepore at [47] but noted that criminal conduct has been held to have occurred in the course of employment.
The test as formulated by Professor Salmond in his text Law of Torts (1^st Edition) at 83 and in later editions (9^th Edition pp 94-95) is attractive. It reads:
It is clear that the master is responsible for acts actually authorised by him; for liability would exist in this case, even if the relation between the parties was merely one of agency, and not one of service at all. But a master, as opposed to the employer of an independent contractor, is liable even for acts which he has not authorised, provided they are so connected with acts which he has authorised, that they may rightly be regarded as modes – although improper modes – of doing them…
On the other hand, if the unauthorised and wrongful act of the servant is not so connected with the authorised act as to be a mode of doing it, but is an independent act, the master is not responsible. For in such a case the servant is not acting in the course of his employment, but has gone outside of it. (Citations omitted)
As Professor Atiyah notes in his text Vicarious Liability in the Law of Torts (Butterworths, 1967) at 175, that statement of principle has been approved by the Court of Appeal on several occasions and also by the Privy Council. It has been frequently applied by courts at first instance in England. It was referred to in Lepore by Gleeson CJ at [42] and by Kirby J at [304]. However, as Kirby J noted at [310] Professor Salmond's test does not sit well with intentional wrongdoing. The test is whether the unauthorised acts are so connected with the authorised acts as to fall within the scope of the employment.
The decisions of the Supreme Court of Canada in Bazley v Curry [1999] 2 SCR 534 and Jacobi v Griffiths [1999] 2 SCR 570 and of the House of Lords in Lister v Hesley Hall Ltd [2002] 1 AC 215 and in Dubai Aluminium all effectively apply Professor Salmond's close connection test. In Bazley v Curry, McLachlin J expressed her views on the concept of the sufficiency of the connection in these terms at 559:
The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability. Vicarious liability is generally appropriate where there is a significant connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires. (Emphasis in original).
In Lister four of their Lordships adopted a like approach stating that the question turned on whether the unlawful conduct was so closely connected with the employment that it would be fair and just to hold the employer vicariously liable: see Lord Steyn at [28], Lord Clyde at [50], Lord Hutton at [52] and Lord Millett at [70]. In Dubai Aluminium, Lord Nicholls at [36] applied the close connection test. However, at [25] and [26] he noted that the test provides no guidance on the type or degree of connection which would normally be regarded as sufficiently close. He said:
This "close connection" test focuses attention in the right direction. But it affords no guidance on the type or degree of connection which will normally be regarded as sufficiently close to prompt the legal conclusion that the risk of the wrongful act occurring, and any loss flowing from the wrongful act, should fall on the firm or employer rather than the third party who was wronged. It provides no clear assistance on when, to use Professor Fleming's phraseology, an incident is to be regarded as sufficiently work-related, as distinct from personal: see Fleming, The Law of Torts, 9^th ed (1998), p 427. Again, the well known dictum of Lord Dunedin in Plumb v Cobden Flour Mills Co Ltd [1914] AC 62, 67, draws a distinction between prohibitions which limit the sphere of employment and those which only deal with conduct within the sphere of employment. This leaves open how to recognise the one from the other.
This lack of precision is inevitable, given the infinite range of circumstances where the issue arises. The crucial feature or features, either producing or negativing vicarious liability, vary widely from one case or type of case to the next. Essentially the court makes an evaluative judgment in each case, having regard to all the circumstances and, importantly, having regard also to the assistance provided by previous court decisions. In this field the latter form of assistance is particularly valuable.
Lord Steyn and Lord Hutton agreed with Lord Nicholls. Lord Millett at [129] applied the close connection test, noting at [128] that it is only a test, not a conclusive definition of the circumstances in which vicarious liability arises.
In their separate reasons in Lepore, Gleeson CJ and Kirby J held that the criterion for liability was that formulated by Professor Salmond interpreted in the light of the “close connection” test. Gaudron J expressed the view at [130] that the only principled basis upon which vicarious liability can be imposed for the deliberate criminal acts of another is that the person against whom liability is asserted is estopped from asserting that the person whose acts are in question was not acting as his or her servant, agent or representative when the acts occurred. Her Honour then added at [131] that, while it may not of itself be the test of estoppel, a person will not be estopped from denying that a person was acting as his or her servant, agent or representative unless there is a close connection between what was done and what that person was engaged to do. While she did not adopt the close connection test, it was nevertheless relevant.
Gummow and Hayne JJ adopted a different approach. Their Honours took the view at [217] that the closeness of the connection between the employee's authorised conduct and the wrongful act did no more than restate the problem presented by the concept of "course of employment". After referring to Lloyd v Grace, Smith & Co, Deatons Pty Ltd v Flew (1949) 79 CLR 370 and Morris v C W Martin and Sons Ltd, they said that the circumstance that the employee who practises a fraud upon a third party does so for the benefit of the employee not the employer is no answer to the liability of the employer if the employer, whilst not authorising the particular act, has placed the employee in a position to do that class of acts. The employer then must be answerable for the manner in which the employee has conducted himself. As their Honours pointed out, this proposition is based on the remarks of Lord Macnaghten in Lloyd v Grace, Smith & Co at 733 adopting the statement of Willes J in Barwick v English JointStock Bank (1867) LR 2 Ex 259 at 266. They then referred to the reasoning of Dixon J in Deatons Pty Ltd v at 381 and concluded (at [231]) that two elements that are important for the purpose of establishing vicarious liability:
First, vicarious liability may exist if the wrongful act is done in intended pursuit of the employer’s interest or in intended performance of the contract of employment. Secondly, vicarious liability may be imposed where the wrongful act is done in ostensible pursuit of the employer’s business or in the apparent execution of authority which the employer holds out the employee as having. (Original emphasis)
Their Honours acknowledged the difficulty in applying the principle in the case of fraud saying at [235]:
That kind of analysis is not available in cases of fraud. The commission of a fraud can seldom be said to have been in the intended performance of the employee’s duties. In those cases, however, it will often be the case that what was done by the employee was done in the apparent execution of authority actually, or ostensibly, given to the employee by the employer. Dubai Aluminium may be understood as being a case of this kind. Very often, however, such cases will yield to simpler analysis. The employer may be in direct breach of an obligation owed to the person who has been defrauded. That obligation may arise from a contract between the employer and the person who has been defrauded: a contract which can be seen as having been made by the fraudster on behalf of the employer. Or the obligation may be proprietary in nature as will often be the case where money or other property is to be held in trust for the person defrauded. (Citation omitted).
They concluded by stating at [239] that it was sufficient for the purposes of the decision in Lepore to propose the following test:
For present purposes, it is enough to conclude that when an employer is alleged to be vicariously liable for the intentional tort of an employee, recovery against the employer on that basis should not be extended beyond the two kinds of case identified by Dixon J in Deatons: first, where the conduct of which complaint is made was done in the intended pursuit of the employer's interest or in the intended performance of the contract of employment or, secondly, where the conduct of which complaint is made was done in the ostensible pursuit of the employer's business or the apparent execution of the authority which the employer held out the employee as having.
McHugh J decided the issues in Lepore without reference to the question of vicarious liability. Callinan J held at [342] that an employer could not be liable for the intentional criminal conduct of the employee.
Notwithstanding this difference of opinion, two propositions relevant to the issues in this case can be extracted from Lepore. The first is that the fact that the employee had intentionally engaged in criminal conduct or other breach of the law may not suffice to deny vicarious liability: Gummow and Hayne JJ at [228]. Gleeson CJ expressed the same view in these terms at [47]:
An act of intentional, criminal wrongdoing, solely for the benefit of the employee, may be easy to characterise as an independent act; but it is not necessarily so, and there are many examples of cases where such conduct has been found to be in the course of employment.
After referring to the decisions in Lloyd v Grace, Smith & Co and Morris v C W Martin & Sons Ltd, Gleeson CJ observed at [73]:
Larceny, fraud and physical violence, even when they are plainly in breach of the express or implied terms of employment, and inimical to the purpose of that employment may amount to conduct in the course of employment.
Gaudron J at 114 and Kirby J at [309] and [314] expressed a like view. The preponderance of judicial opinion negates Callinan J’s view that an employer cannot be liable for the intentional criminal conduct of the employee.
The second proposition is that the fact that the conduct in which the employee has engaged was contrary to instructions given by the employer may not be sufficient to deny vicarious liability: Gleeson CJ at [43] and Kirby J at [311]. Gleeson CJ expressed the position in these terms at [43]:
[E]mployers may be vicariously liable for such wrongdoing, even in cases where the wrongdoing constitutes a flagrant breach of the employment obligations.
Gleeson CJ and Kirby J were the only two justices who expressly affirmed this proposition. It was not necessary for the other justices to do so. There can be little doubt, however, that this proposition is part of the law of Australia. In Limpus v London General Omnibus Co [1862] 1 H & C 526; 158 ER 993, the defendant was held to be liable for an accident caused when one of its drivers drove across the road to obstruct a rival omnibus. It was no defence that specific instructions had been given by drivers not to race with rivals. Nor, by inference, was it an answer that to race and drive the omnibus in that fashion would constitute a breach of road traffic or even of criminal laws: Lepore per Kirby J at [311]. See also Lloyd v Grace, Smith & Co at 737; Canadian Pacific Railway Co v Lockhart [1942] AC 591. The principle has been consistently applied in this country: Bugge v Brown (1919) 26 CLR 110 at 117 and at 131; Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 47 per Gavan Duffy CJ and Starke J and at 50 per Dixon CJ; Black Range Tin v Shoobert [1973] WAR 131 at132, 134. It is necessary to distinguish between those prohibitions which limit the sphere of employment and those which merely regulate the employee's conduct within that sphere: Plumb v Cobden Flour Mills Co Ltd [1914] AC 62 per Lord Dunedin at 67. Diplock LJ expressed the question in Ilkiw v Samuels [1963] 2 All ER 879 at 889 as being what task was the employee engaged to do.
Applying these propositions, it can be stated at the outset that two aspects of Ms Brown’s conduct are not a bar to Ms Sestili being vicariously liable for that conduct. They are the fact that Ms Brown deliberately engaged in criminal conduct and the fact, assuming it to be the case, that Ms Sestili instructed Ms Brown not to misuse confidential information or to use a client’s credit card. Carers for Ms Ffrench were expected to do shopping for her. The sphere of employment, therefore, included shopping. If Ms Sestili gave an instruction not to use a client's credit card, it was an instruction which did not limit the sphere of employment but only as to how her employment as a carer was to be performed. The instruction, even if given, did not limit the extent of the authority reposed in Ms Brown as a carer.
The only issue, therefore, is whether Ms Brown’s fraudulent conduct was either sufficiently connected to the conduct authorised by Ms Sestili to justify making her vicariously liable for that conduct or whether it fell within the test identified by Gummow and Hayne JJ in Lepore.
Some understanding of difference between that which is within the scope of the employee’s authority and that which is not is provided by a comparison of the following cases. In Leesh River Tea Co Ltd v British India SN Co Ltd [1967] 2 QB 250 the question was whether ship owners were liable for damage to the cargo of tea. The tea had been properly loaded in Calcutta for shipment to London via Colombo and Port Sudan. In Port Sudan the ship discharged other cargo and took on a cargo of cotton seed. The ship owners employed a local firm of stevedores at Port Sudan to discharge and load that cargo. In the course of these operations, one of the stevedores removed and stole a cover plate of a storm valve. The removal of the cover plate enabled sea water to enter the hole through the storm valve. On the voyage to London, the ship encountered heavy weather and water entered through the storm valve and damaged the tea. The Court of Appeal held that the ship owners were not liable for the acts of the stevedores as their employees because the theft of the cover plate in Port Sudan was outside the work involved in discharging and loading the cargo of cotton seed and was not in any respect incidental to that work. In R F Brown & Co Ltd v Harrison (1927) 43 TLR 633 stevedores stole cargo which they were employed to handle. The ship owners were held to be liable to the owners of the cargo because the stevedores were doing that which they were employed to do but were doing it dishonestly. By contrast the dishonesty of the stevedores in Leesh River Tea Co Ltd was not connected with the discharge and loading of cargo. This same distinction was drawn in Morris v C W Martin & Sons Ltd. In that case, a fur had been left with a firm of the defendant, a firm of cleaners, for cleaning. The fur was stolen by one of the defendant’s employees who had been charged with the duty of cleaning it. The fur was never recovered. The defendant was held to be liable for the theft because the fur had been stolen in the course of the employment of the dishonest worker. Had it been stolen by a different employee, the defendant would not have been liable. Salmon LJ dealt with the issue in these terms (at 741):
A bailee for reward is not answerable for a theft by any of his servants but only for a theft by such of them as are deputed by him to discharge some part of his duty of taking reasonable care. A theft by any servant who is not employed to do anything in relation to the goods bailed is entirely outside the scope of his employment and cannot make the master liable. So in this case, if someone employed by the defendants in another depot had broken in and stolen the fur, the defendants would not have been liable. Similarly in my view if a clerk employed in the same depot had seized the opportunity of entering the room where the fur was kept and had stolen it, the defendants would not have been liable.
The decision in Morris v C W Martin & Sons Ltd was approved by the Privy Council in Port Swettenham Authority v TW Wu & Co [1979] AC 580 and has been consistently applied since. Later decisions in the United Kingdom are reviewed in Lister v Hesley Hall Ltd. As Diplock LJ said in Morris v CW Martin & Sons Ltd at 735, the employer will be vicariously liable if the wrongful act had been committed in the course of doing that class of acts which the employer has put the servant in his place to do. The employer is not liable if the employment simply presented the employee with an opportunity to act wrongfully: ibid at 737

In Rose v Plenty [1976] 1 WLR 141 a milkman had deliberately disobeyed his employer's instruction not to allow children to help him on his rounds. The milkman paid a boy to help him. The boy fell off the float as a result of the milkman's negligent driving. It was held that the employer was vicariously liable for the milkman's negligent driving. Scarman LJ applied the test of Lord Diplock in Ilkiw v Samuels [1963] 1 WLR 991 at 1004. Scarman LJ said at 147-148:
The servant was, of course, employed at the time of the accident to do a whole number of operations. He was certainly not employed to give the boy a lift, and if one confines one's analysis of the facts to the incident of injury to the plaintiff, then no doubt one would say that carrying the boy on the float – giving him a lift – was not in the course of the servant's employment. But in Ilkiw v Samuels [1963] 1 W.L.R. 991 Diplock L.J. indicated that the proper approach to the nature of the servant's employment is a broad one. He says, at p.1004:
"As each of these nouns implies" – he is referring to the nouns used to describe course of employment, sphere, scope and so forth – "the matter must be looked at broadly, not dissecting the servant's task into its component activities – such as driving, loading, sheeting and the like – by asking: what was the job on which he was engaged for his employer? And answering that question as a jury would."
Applying those words to the employment of this servant, I think it is clear from the evidence that he was employed as a roundsman to drive his float round his round and to deliver milk, to collect empties and to obtain payment. That was his job… He chose to disregard the prohibition and to enlist the assistance of the plaintiff. As a matter of common sense, that does seem to me to be a mode, albeit a prohibited mode, of doing the job with which he was entrusted. Why was the plaintiff being carried on the float when the accident occurred? Because it was necessary to take him from point to point so that he could assist in delivering milk, collecting empties and, on occasions, obtaining payment.
The reasoning was approved in Lister v Hesley Hall Ltd by Lord Steyn at [20], Lord Clyde at [42], Lord Hutton at [52] and Lord Millett at [78]. As has already been noted the reasoning in Deatons Pty Ltd v Flew is to like effect.
In one sense, the question whether an unauthorised act is within the course of employment is ultimately a question of fact and degree. That was the approach of the House of Lords in Williams v A & W Hemphill Ltd [1966] SC (HL) 31. In that case, their Lordships had to consider the difficult question whether an employer was vicariously liable for the negligent driving of its employee who had substantially deviated from his route. The employee was the driver of a lorry who had been instructed by his employers to drive a party of people, from a town in Scotland to Glasgow. The driver was persuaded by some members of the party to make a considerable deviation to drive by another town. In holding the employer liable, Lord Pearce, with whom the other Law Lords agreed, said that it was a question of fact and degree in each case whether a deviation is sufficiently detached from the employer's business to constitute a frolic of the employee unconnected with his employment. He said at 46:
Had the driver in the present case been driving a lorry which was empty or contained nothing of real importance, I think that so substantial a deviation might well have constituted a frolic of his own. The presence of passengers, however, whom the servant is charged qua servant to drive to their ultimate destination makes it impossible (at all events, provided that they are not all parties to the plans for deviation) to say that the deviation is entirely for the servant's purposes. Their presence and transport is a dominant purpose of the authorised journey, and although they are transported deviously, continues to play an essential part. It was said in argument that there must be some limits to that contention and that one could not hold that, if the driver had gone to Inverness, he would still be acting on his master's business. No doubt there are such limits to the argument as common sense may set on the facts of each case. But when there are passengers whom the servants on his master's behalf has taken aboard for transport to Glasgow, their transport and safety does not cease at a certain stage of the journey to be the master's business, or part of his enterprise, merely because the servant has for his own purposes chosen some route which is contrary to his instructions.
The more dominant are the current obligations of the master's business in connection with the lorry, the less weight is to be attached to disobedient navigational extravagances of the servant.
In weighing up, therefore, the question of degree, whether the admittedly substantial deviation of the vehicle with its passengers and baggage was such as to make the lorry's progress a frolic of the servant unconnected with or in substitution for the master's business, the presence of the passengers is a decisive factor against regarding it as a mere frolic of the servant. In the present case the defenders remained liable, in spite of the deviation, for their driver's negligence.
Although Lord Pearce approached the question on the basis of fact and degree, the facts to which he had regard indicated that the employee made the deviation in the course of doing an act which he had been employed to do. The reasoning of Lord Pearce was approved by Lord Steyn in Lister v Hesley Hall Ltd at [18] and by Lord Clive at [39].
In Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827, the plaintiff had contracted with the defendant's security company to provide security services for its factory. The plaintiff claimed damages for the loss occasioned when one of the employees of the defendant's security company had deliberately started a fire in the appellant's factory burning part of it. The employee's conduct was in any sense entirely inconsistent with keeping the plaintiff's premises secure. The decision turned on the effect of an exclusion clause in the contract. Four members of the House of Lords held that, but for the exclusion clause, the defendant would have been vicariously liable for the wrongful act of its employee. Lord Wilberforce at 848 concluded that Securicor would have been vicariously liable because of the principles expressed by Diplock LJ in Morris v C W Martin & Sons Ltd. Lord Keith and Lord Scarman agreed. Lord Salmon at 852 also applied Morris v C W Martin & Sons Ltd and concluded that the damage was caused while the Securicor employee was "indubitably acting in the course of his employment". Lord Diplock at 851 held that Securicor had a primary obligation which, if breached, would have resulted in direct rather than vicarious liability.
In Lepore at [51] Gleeson CJ referred to the observation, frequently made, that the answer to a question whether certain conduct is an improper mode of performing an authorised act may depend upon the level of generality which the authorised act is identified. He added that the level of generality at which it is proper to describe the nature of an employee’s duties ought not to be pitched so high as to pre-empt the issue. He continued at [52]:
When the specific responsibilities of an employer relate in some way to the protection of person or property, and an intentional wrongful act causes harm to person or property, then the specific responsibilities of a particular employee may require close examination.
It is against that background that the issues of vicarious liability must be considered.
Is the Employer Liable?
Ms Sestili had contracted with APN Options to provide a suitable carer for Ms Ffrench. The duties of the carer will vary according to the needs of the person being cared for. As Ms Sestili knew, the care of Ms Ffrench involved a number of duties. They included duties of a highly personal nature such as bathing her and providing meals as well as providing general help about her house. The duties involved day to day contact bordering on intimacy. In a physical sense Ms Ffrench was totally dependent on her carers. She described them as "her arms and legs". Ms Sestili's business was called Direct Personal Care Services, a title which gives some indication of the scope and nature of the duties. Each carer was employed to provide direct personal care for a period of time in each day. The nature of the duties were such that the carer occupied the house in which Ms Ffrench resided for several hours in each day and had complete access to the house.
While carers were directed to do certain tasks, a degree of flexibility was necessary to allow other tasks to be done. As the carer’s duties required her to attend to the day to day personal needs of the client, it would be unrealistic for an employer to attempt to describe specifically each and every task which had to be performed by a carer. The carer, therefore, had a discretion to engage in other tasks as requested by the client. It was acknowledged that the client could ask the carer to undertake a task or tasks so that there would be flexibility in the arrangements to accommodate the needs of the client. Ms Moyle, the case manager from APN Options, was asked about that flexibility.
Q.Do I understand correctly that within certain parameters the client tells the carer what to do – one day she might want to have a bath, one day she might not. There's no absolute requirement that it be precisely what the time allocated is.
A.There is a flexibility within that certainly but there are certain routines that do have to happen. For instance with personal care they have to have bowel care on certain days. But with things like some of the housekeeping or shopping or some of those other sort of arrangements which require – any one of those – our day to day lives vary as to when those sorts of things happen.
Q.So what you seem to be saying is there's some core duties that must be performed for perhaps quasi-medical reasons and then there are some discretionary tasks – she might decide to go shopping she might decide to tidy the lounge room.
A.Sometimes that did occur but she was allocated a certain number of hours for doing certain tasks, okay, and I wouldn’t be as coordinator going down to Gaye’s house and saying “Are you doing this” or “Are you doing this on a certain day” There's a certain amount of give and take there but those hours cannot go over the specified hours in the contract.
The reference to "Gaye" in the last answer is a reference to Ms Ffrench. Thus, while it was necessary for the carer to perform certain prescribed tasks, the client could ask the carer to do other tasks. The very nature of the role and function of the carer required a degree of flexibility and a discretion in the carer as to the tasks to be done. This is a case where the employee has a relatively wide discretion as to the manner in which her duties are to be performed. The greater the discretion vested in an employee, the wider the implied authority is likely to be: Beaton v Corporationof Glasgow [1908] SC 1010 at 1013.
It must be noted also that the duties of a carer were of such a nature that they required that the carer have access to Ms Ffrench's house. The carer was in a position to ascertain information confidential to Ms Ffrench. A person acting as a carer for a quadriplegic with Ms Ffrench's disabilities was, by reason of all these matters, involved in a special relationship with Ms Ffrench. It was a relationship of extreme trust, reliance, and confidence.
Ms Ffrench found it difficult to go shopping because she was confined to a wheelchair. It was also extremely difficult for Ms Ffrench to go shopping even when accompanied by her carer. She therefore preferred not to do so. Her reasons for that decision were not challenged in any respect. They are readily apparent. The duties of Ms Brown and Ms Howland, therefore, included shopping. Ms Brown, like Ms Howland, not only had authority to go shopping for Ms Ffrench but was by her contract of employment for the period ending on 30 June 2000 directed to undertake shopping for Ms Ffrench. Even after 1 July 2000, although shopping was not expressly included in Ms Brown’s duties, it was a task that fell within her duties given the flexibility necessary for the proper discharge of the duties of a carer for a person with such great disabilities as Ms Ffrench.
It was also difficult for Ms Ffrench to have cash ready to hand to her carers for shopping. She could not readily go to a bank to withdraw cash. She had to rely on others to attend to withdraw cash for her. Ms Ffrench could not herself withdraw money from an ATM. She lacked the fine finger movement required for that task. When she had cash available, Ms Ffrench would give it to Ms Brown or Ms Howland to make purchases. If she did not have cash available, she gave them her credit card and her PIN. Ms Ffrench determined that she would trust her carers to use her credit card and so provided them with the PIN to enable them to withdraw money from an ATM for shopping.
To put it shortly, Ms Brown’s duties including shopping and the arrangement that Ms Ffrench made with her to pay for goods by the credit card was an arrangement necessary to discharge the task of shopping. While that course had obvious risks, Ms Ffrench had no other realistic alternative. If she did not give Ms Brown her credit card and the PIN, she would have had to go to a bank to withdraw money but that was very difficult. She could not go shopping with the credit card because her lack of fine finger movement prevented her from being able to sign her name or obtain credit by keying in her PIN.
It was clearly necessary for Ms Brown and Ms Howland to be provided with the means by which to purchase goods. There was no prescription or instruction as to the means by which carers would be given sufficient funds for shopping. In her evidence, Ms Moyle from APN Options said that one course was for the carer to be given money by the client. The carer would purchase goods and account for the change. If the client went shopping with the carer, money might be given to the carer to purchase goods as and when required. When persons are totally dependant upon another for transactions like shopping, there might be a number of different arrangements for payment of goods with money provided by the client. It is clear from Ms Moyle’s evidence that the arrangements made by Ms Ffrench were neither prohibited by nor inconsistent with the instructions given to carers. There was no specified régime as to arrangements for payment for purchases made for the client. As Ms Moyle said in her evidence, it is up to the person being cared for to decide how payment is to be made. The arrangements for shopping and payment for purchases were, therefore, a matter to be arranged between the carer and Ms Ffrench. It was, therefore, within the scope of the employment of Ms Brown that she would handle money or other means of payment when engaged in the task of shopping which was until 30 June 2000 one of her specified tasks and from 1 July 2000 one of her tasks if circumstances required. The effect of the dealings between Ms Ffrench and Ms Sestili was that Ms Sestili held out Ms Brown as an employee who, in the course of her duties as carer, would act honestly and in relation to the task of shopping would faithfully and honestly account for money or other means of payment used in the course of that shopping.
Ms Brown, therefore, had authority to use the credit card and the PIN and the use of them was necessary for the task of shopping and to discharge her employer’s business of caring for Ms Ffrench. The fact that Ms Brown was employed by Ms Sestili and not by Ms Ffrench is not a material difference as Ms Sestili was aware that some arrangement between Ms Ffrench and Ms Brown was necessary for payment of goods purchased by Ms Brown on behalf on Ms Ffrench. The arrangements as to how payment was to be made for purchases was a matter to be arranged as between Ms Ffrench and Ms Brown.
Any consideration of the question whether the misappropriations by Ms Brown occurred in the course of her employment must, therefore, begin with the fact that, when shopping in the discharge of her duties as Ms Ffrench's carer, Ms Brown was required to use Ms Ffrench's credit card and gain access to an ATM in order to pay for the goods purchased. At the same time, the mere fact that the employment gives the employee an opportunity to commit the acts in question is not enough to establish that the acts were committed in the course of employment: Morris v C W Martin & Sons Ltd at 737 per Diplock LJ.
If the close connection test is applied, the use of the credit card was an integral part of the duties of Ms Brown in shopping for Ms Ffrench. If the question was asked what was Ms Brown employed to do, the answer is that she was employed to act as a carer in Ms Ffrench's home and in the course of that employment to go shopping using Ms Ffrench's credit card. The unauthorised withdrawals were so closely connected to the authorised withdrawals that they were improper modes of discharging the duty to withdraw money for shopping purposes, a task to which she had been entrusted. Ms Brown's duties were of such a nature that she had custody of the card for a specified purpose. Her wrongful acts in making the unauthorised withdrawals were sufficiently related to the conduct authorised by Ms Sestili as to justify the imposition of vicarious liability: see McLachlin J in Bazley at 559. For these reasons, Ms Brown's conduct in using the card to misappropriate money for her own purposes were so closely connected to her duties that the misappropriations must be regarded as occurring in the course of her employment. The card was used for the very purpose for which it was provided, that is to say, to withdraw monies from the ATM. The difference was that Ms Brown also used it to withdraw monies for her own fraudulent purposes. The position is no different from Ms Brown making an unauthorised purchase using the credit card. The fact that another more secure method of arranging for payment of purchases might have been made is immaterial as, Ms Sestili, the employer, had left it to Ms Ffrench and Ms Brown to arrange how payment should be made.
Alternatively, to apply the test of Gummow and Hayne JJ, the unauthorised withdrawals were made in the ostensible pursuit of the employer's business. The principle in Lloyd v Grace, Smith & Co is not confined to the authority actually vested in the employee but extends also to the authority which the employee purports to exercise which is ostensibly within that authority: Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248 at 253 per Lord Greene MR. Assume that, instead of using the ATM, Ms Brown had gone to a branch of the credit union and with the card had sought to withdraw money over the counter in a transaction assisted by a teller. Assume also that the teller had questioned Ms Brown as to her authority to use the card and the PIN and that Ms Brown had explained that she had been authorised by Ms Ffrench to withdraw the money and was going to hand it to her. In those circumstances there could be no doubt that Ms Brown was acting in the scope of her ostensible authority. The withdrawal from the ATM is of course different and that there is no inquiry as to the authority of the person making the withdrawal. However, the position is essentially the same.
In reaching this conclusion, I do not overlook the notorious fact that banks and other financial institutions which issue cards by which money can be withdrawn from an account give very clear directions to the holder of the card not to disclose the PIN to any other person. The evidence of Ms Ffrench shows that she was aware of such an instruction from her credit union. She did not give the PIN for the Dream Saver account to any person. She was entirely unaware that Ms Brown had ascertained it. As far as she knew, Ms Brown only knew the PIN for the My Account. Although she was not examined on this question, Ms Ffrench must have been aware of the risk she was running in giving the PIN for the My Account to Ms Brown. However, that risk extended no further than the credit balance in the My Account. Ms Ffrench had no means of knowing that Ms Brown had ascertained the PIN for the Dream Saver account and was using it to transfer money to that account into the My Account which she then withdrew using the credit card which had been entrusted to her.
A Liability for the Transferred Money?

It was contended that Ms Sestili could not be liable for that part of the misappropriated money which represented withdrawals from the Dream Saver account because Ms Brown's conduct in unlawfully transferring that money did not in any sense form part of her duties as a carer for Ms Ffrench. The withdrawals, it was said, were the result only of her own criminal conduct in surreptitiously ascertaining the PIN for the Dream Saver account. It was submitted that, no matter at what level of generality the authorised acts of Ms Brown are identified to be, they did not relate to the Dream Saver account. That submission was reinforced, it was said, by the fact that, although Ms Ffrench had told Ms Brown the PIN for the My Account, she did not tell her the PIN for the Dream Saver account.
The submission overlooks the critical fact that, unless Ms Brown was in possession of the credit card and PIN for the My Account, she could not have withdrawn the money transferred from the Dream Saver account. In other words, no matter how much money Ms Brown transferred from the Dream Saver account to the My Account, none of it could be withdrawn unless she had possession of the credit card and PIN for the My Account.
More importantly, this contention fails to take sufficient account of the high degree of trust, reliance and confidence which the person cared for reposes in the carer and the nature of the duties of a carer to a person like Ms Ffrench together with the wide discretion vested in the carer. As Gleeson CJ noted in Lepore at [52], when the specific responsibilities of an employer relate in some way to the protection of personal property, and an intentional wrongful act causes harm to personal property, then the specific responsibilities of a particular employee may require close examination. In Morris v C W Martin & Sons Ltd, the theft of the fur was so connected with the custodial responsibilities of the employee to whom the fur had been entrusted for cleaning that the theft was held to be in the course of employment, not because it was in furtherance of the employee's responsibility, but because the nature of his responsibilities extended to custody of the fur as well as cleaning it. Those duties require the carer to have access not only to the home of the person being cared for but also to have access to all kinds of things within the home.
The employer of a carer puts the carer in a position where the employer knows or ought to know that the carer is a person in whom the person cared for will repose a great deal of trust and confidence. The relationship has some similarities to that of a guardian and ward which has been held to be a fiduciary relationship: Plowright v Lambert (1885) 52 LT 646 at 652; Clay v Clay (2001) 202 CLR 410, where it was described by the court at [40] as "a fiduciary relationship with particular characteristics". However, it is not, I think, a fiduciary relationship. Care must be taken not to fling around what has been called "the peripatetic adjective": PD Finn in The Fiduciary Principle in TG Youdan (ed) Equity, Fiduciaries and Trusts (Carswell) (1989). Fiduciary duties should not be superimposed on common law duties simply to improve the nature or extent of the remedy: Breen v Williams (1996) 186 CLR 71 at 110 per Gaudron and McHugh JJ. My purpose is only to emphasise the nature of the relationship between the carer and the person being cared. It is a very special relationship, especially given the reliance placed on the carer by a person like Ms Ffrench who, Ms Sestili knew, was entirely dependent on her carer. The intimacy and the constancy of the relationship serve to generate the trust, reliance and confidence placed in the carer.
In my view, the fact that the performance of the duties of a carer for a person like Ms Ffrench require that the carer has access to the home of the person being cared for has the consequence that intentional wrongdoing in the nature of theft or other fraudulent conduct is within the scope of employment. The employer of the carer is, therefore, vicariously liable if the carer steals goods from the home of the person being cared for. The theft of the goods is so closely connected with the task of caring, that is to say, so closely connected with the conduct authorised by the employer that it justifies the imposition of vicarious liability. To use the test of McLachlan J in Bazley, the employer is vicariously liable in this case because there is a significant connection between the creation or enhancement of the risk and the wrong that accrues therefrom.
The carer is also in a position to ascertain confidential information by reason of the fact that the carer remains on the premises of the client in order to discharge her duties. The client will be so used to having the carer present in the house that the client will be inclined to share confidences or will not be as careful to ensure that confidential information is not available for inspection. These are natural and ordinary consequences of the intimacy and the constancy of the relationship. The carer might dishonestly seize upon the fact that the client is asleep and ascertain confidential information. That confidential information might be inadvertently left open on a desk or table. Given the constant presence of a carer in the home of the person cared for in the course of performing the duties of a carer, it is not at all unlikely that a disabled person might leave confidential information lying about in a way which enables the carer to read it. In using that confidential information, the carer is effectively stealing it. In the present case, Ms Brown was able by some means to ascertain the PIN for the Dream Saver account. She could only have done so while she was in Ms Ffrench's house in the course of her duties as carer for Ms Ffrench. In other words, the means to effect the fraud was ascertained by Ms Brown in the course of her employment as a carer for Ms Ffrench. If it was not for the fact that she was a carer for Ms Ffrench, Ms Brown would not have been able to ascertain her PIN for the Dream Saver account. It is so closely connected with the duties of caring, that her employer is liable. While this is tantamount to making the employer of the carer an insurer for the conduct of the carer, there is no realistic alternative given the vulnerability of the person being cared for. In the case of Ms Ffrench, she was so dependant on her carer that the employer of the carer is liable for intentional wrongdoing by the carer vis-à-vis Ms Ffrench. To the extent that policy is relevant, this conclusion will not open floodgates as the number of persons as dependent as Ms Ffrench on her carer is not unduly large.
The inescapable fact is that Ms Brown was entrusted with a credit card to go shopping, a task which formed part of her duties as a carer for Ms Ffrench. She acted dishonestly in performing one of the tasks that she was specifically employed to do honestly. It was an act directly associated with the fact that her duties involved the use of the credit card. The fact that Ms Brown's wrongful conduct occurred in the performance of one of her tasks she was employed to do brings it within the second arm of the test propounded by Gummow and Hayne JJ. To adapt the well known formula of Willes J in Barwick v English Joint Stock Bank at 266, while Ms Sestili did not authorise the misappropriation, she put her employee Ms Brown in a place to do that class of acts and must be answerable for the manner in which Ms Brown has conducted herself in doing the task for which Ms Sestili employed her.
For the same reasons, there is also a sufficiently close connection between Ms Brown's unlawful conduct and the task she was engaged to perform. When Ms Brown transferred money from the Dream Saver account into the My Account, she used information that she was able to acquire in the course of her duties in Ms Ffrench's house as her carer. There is such a close connection between her presence in the house in the discharge of her duties as carer and the acquisition of the information concerning the Dream Saver account coupled with possession of the credit card enabling withdrawals from the My Account that Ms Sestili is liable as her employer.
For these reasons, the monies misappropriated by Ms Brown were misappropriated in the course of her employment by Ms Sestili. Ms Sestili is, therefore, liable to reimburse Ms Ffrench for the total sum which had been misappropriated.
Withdrawals After Employment Ceased
Ms Brown made withdrawals totalling $7,150 in the period 9 September until 28 September, the period after her employment had ceased. Although the appellants referred to that fact, they did not submit that Ms Sestili was not liable to reimburse Ms Ffrench for that sum. That might be a consequence of the fact that damages were agreed in the sum of $33,350, the total amount misappropriated from the accounts held by Ms Ffrench. The central issue at the trial was whether Ms Sestili was vicariously liable for that amount.
An Alternative Approach
If I have erred in holding that Ms Sestili is liable for all of the money misappropriated by Ms Brown including the money transferred from the Dream Saver account to the My Account, Ms Brown is on any view liable for all of the money misappropriated which was not transferred from the Dream Saver account.
An examination of the statements Ms Ffrench received from the credit union shows that Ms Brown withdrew a total of $5,400 by eight withdrawals from the My Account made between 27 July and 5 August 2000 before she had made any transfers to that account from the Dream Saver account. Those eight withdrawals comprised three of $1,000 each, four of $500 each and one of $400.
Ms Brown made the first transfer from the Dream Saver account on 8 August. At first, she transferred relatively small amounts. However, on 17 August Ms Brown transferred $10,000 to the My Account and on 25 August and 5 September made two further transfers each of $10,000.
In the period 27 July to 28 September 2000 the only deposits into the My Account apart from the fraudulent transfers were fortnightly payments of $272.30, the pension received by Ms Ffrench (which increased to $293.10 on 28 September 2000), a small amount of interest, and a cheque for $700.00 from a source which now cannot be identified. When the pension payments, interest and the cheque for $700.00 are added together they total $2,082.30. Notwithstanding the wrongful transfers of funds from the Dream Saver account to the My Account, the latter account was overdrawn on 28 September. Thus, the total amount withdrawn from the My Account without any transfer from the Dream Saver account was $7,482.30. That sum comprises the amount of $5,400 which was withdrawn before any transfer from the Dream Saver account and the pension payments, interest and the cheque for $700 which totalled $2,082.30. The sum of $7,482.30 represents the total of the misappropriations which do not consist of money transferred from the Dream Saver account. Thus, even if Ms Sestili is not liable for the misappropriation of the money transferred from the Dream Saver account, she is liable for the sum of $7,482.30.
For these reasons I agree with Gray J, albeit for different reasons, that Ms Sestili is liable for the money misappropriated by Ms Brown. I would dismiss the appeal by Triton and Ms Sestili against the decision of Gray J holding that Ms Sestili is vicariously liable for the unauthorised acts of Ms Brown.
The Insurance Issues
The contract of insurance between Triton and Ms Sestili provided coverage for public liability to a limit of $10 million. The policy was subject to a small excess. Under the heading "Coverage", the contract stated the risk to be covered in these terms:
We will pay to You or on Your behalf all amounts which You shall become legally liable to pay for compensation
·in respect of Personal Injury or Property Damage,
·which happens during the period of Insurance, and
·is caused by an Occurrence in connection with the Business.
We will not pay more than the Limit of Liability stated in the Schedule for Public Liability for all claims or series of claims arising out of any one Occurrence.
We will not pay more than the Limit of Liability stated in the Schedule for Products Liability for all claims arising out of all or any of Your Products during any one Period of Insurance.
In addition to the Limits of Liability stated in the Schedule, We will:
1. Defend any suit against You claiming any amounts for Personal Injury or Property Damage and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; and We may investigate, negotiate and settle any claim or suit as We deem expedient; but We shall not be obligated to pay any claim or judgement or to defend any suit after Our Limit of Liability has been exhausted by payment of judgements or settlements;
2. Pay all expenses incurred by Us, all legal costs recoverable from You in any such suit and all interest accruing after any such judgement until We have paid, tendered, or deposited in court such part of such judgment as does not exceed Our Limit of Liability thereon;
The clause went on to provide in paragraphs 3 and 4 other cover which is not relevant for present purposes. The contract also contained certain exclusions and conditions but none are relevant.
The contract included a section listing a number of definitions. They included a definition of "occurrence" and "property damage" in these terms:
Occurrence
means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury or Property Damage neither expected nor intended from Your standpoint.
Property Damage
means:
·physical injury to or destruction of tangible property including the loss of use thereof at any time resulting therefrom; or
·loss of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an Occurrence.
Mr Nicholson QC, who appeared for Triton, properly acknowledged that there was an element of circularity in these definitions and acknowledged that the definitions had to be construed to give a commercial and practical effect to the contract.
Ms Sestili claimed indemnity under the contract on the ground that she was liable for property damage within the meaning of the contract and that property damage had occurred in connection with her business during the period of the insurance. Triton essentially advanced three arguments in support of its contention that it was not liable under the contract of insurance. I deal with each in turn.
A Loss of Tangible Property ?
The first ground on which Triton denied liability to indemnify was that the misappropriation of money by Ms Brown from Ms Ffrench's account was not a loss of tangible property and so was not property damage as defined. Mr Nicholson submitted that the vicarious liability of Ms Sestili was grounded on the fact that Ms Brown had converted to her own use a chose in action of Ms Ffrench, namely, the debt due to Ms Ffrench by the credit union as represented by the credit balances in the Dream Saver account and My Account. What had been lost, he said, was intangible property, not tangible property. He relied on the following remarks of Barwick CJ in Croton v The Queen (1967) 117 CLR 326 at 330-331:
The subject matter of the instant charges was money, in each case expressed as a number of dollars, that is, paper money, or coin to the stated face value. That can be asported and be the subject of larceny. But, though in a popular sense it may be said that a depositor with a bank has "money in the bank", in law he has but a chose in action, a right to recover from the bank the balance standing to his credit in account with the bank at the date of his demand, or the commencement of action. That recovery will be effected by an action for debt. But the money deposited becomes an asset of the bank which may use it as it pleases: see generally Nussbaum, Money in the Law: s. 8, p. 103. Neither the balance standing to the credit of the joint account in this case nor any part of it, as it constituted no more than a chose in action in contradistinction to a chose in possession, was susceptible of larceny, though it might be the subject of misappropriation: see also on this point the judgment of Lord Goddard in Reg. v Davenport with which I respectfully agree. (Citation omitted)
This reasoning reflected that of Lord Simon LC in Perrin v Morgan [1943] AC 399 at 406. Applying that reasoning, Barwick CJ held that the appellant was not guilty of larceny of money withdrawn from a bank account held jointly by himself and his de facto wife. The reasoning in Croton has been subsequently applied in Grant v The Queen (1981) 147 CLR 503 at 509-510 and in Parsons v The Queen (1999) 195 CLR 619 at [17].
The argument fails on two grounds. First, when Ms Brown withdrew money from the ATM, she received bank notes. Bank notes are tangible property capable of physical possession: see the first three lines in the above extract from Croton; see also R v Potisk (1973) 6 SASR 389 at 397 per Bray CJ. Bank notes are a physical thing capable of being stolen. Other issues may arise when the notes change hands as currency: see, for example, Ilich v The Queen (1987) 162 CLR 110 or when paid into a bank account: Croton v The Queen. When taken from the ATM, the bank notes belonged to Ms Ffrench but were misappropriated by Ms Brown. There was, therefore, a loss of tangible property.
The second ground on which Triton's argument fails proceeds on similar reasoning. It will have been noticed that Barwick CJ accepted that money taken from a bank account may be the subject of a misappropriation. He agreed with the judgment of Lord Goddard in R v Davenport [1954] 1 WLR 569. In that case the accused Davenport had fraudulently used his employer's cheques to pay his creditors by drawing cheques in favour of the bank for each creditor. It was held that Davenport could not be guilty of larceny because there was no asportation in that the monies were simply transferred from one bank account to another. If he had been charged with fraudulent conversion, he could have been properly convicted.
Another issue in Davenport concerned cheques drawn in favour of the bank of a man called Samuel. Samuel cashed the cheques at his bank and paid the proceeds to Davenport. The court held that that was an embezzlement of the employer's money so that a conviction on that count was substituted for the conviction of larceny pursuant to the provisions of the Criminal Appeals Act 1907 (UK). Lord Goddard held that the money received by Davenport as a result of the cashing of the cheques by Samuel was in fact the money of Davenport's employer which he applied to his own use instead of handing it over to the employer.
Triton’s contention that the loss was of intangible property focuses on the legal obligations of the credit union before the money is withdrawn. The contention also fails for two reasons. The first is that there is nothing in the contract of insurance that specifies how or at what stage a loss of property must occur. It simply provides cover for a loss of tangible property by an occurrence in the course of a business. The second is that it fails to have any regard to the effect of the withdrawal from the ATM and to the events once the money had been withdrawn from the ATM.
On each occasion when Ms Brown withdrew money from the ATM, she was withdrawing money which belonged to Ms Ffrench. When she received cash from the machine, she was obliged to account to Ms Ffrench for that cash. If a person effecting a withdrawal is an agent of the account holder to receive the money withdrawn, the ownership of the money passes to her and she must account to her principal: Slattery v The King (1905) 2 CLR 546; Croton at 340 per Menzies J. Instead, Ms Brown applied the money to her own purposes and so caused a loss of tangible property. The position is very similar to the cheques drawn in favour of Samuels' bank in Davenport which, as Lord Goddard said, resulted in Davenport receiving cash which belonged to his employer for which he had a duty to account to his employer. It is unnecessary to consider what the position would have been had Ms Brown arranged to transfer the money from the My Account to her own bank account.

This conclusion might be tested this way. Assume that Ms Ffrench had gone with her carer to an ATM and had asked her carer to withdraw money and hand it to her. Assume that the carer withdrew the money and, before she could hand it to Ms Ffrench, a thief forcibly took the money and fled the scene. In that case there is a loss of tangible property. The position is little different from the withdrawals made by Ms Brown. All that is different is that Ms Brown is both the person who made the withdrawal and the thief.
The conclusion is consistent with the reasoning in Kennison v Daire (1986) 160 CLR 129 at 132 where the High Court held that a person who had withdrawn money from an ATM after having closed his account was guilty of larceny. The appellant had argued that the money had been taken with the consent of the bank because payment had been made through the ATM. The court rejected the argument for these reasons:
The fact that the Bank programmed the machine in a way that facilitated the commission of a fraud by a person holding a card did not mean that the Bank consented to the withdrawal of money by a person who had no account with the Bank. It is not suggested that any person, having the authority of the Bank to consent to the particular transaction, did so. The machine could not give the Bank's consent in fact and there is no principle of law that requires it to be treated as though it were a person with authority to decide and consent. The proper inference to be drawn from the facts is that the Bank consented to the withdrawal of up to $200 by a card-holder who presented his card and supplied his personal identification number, only if the card-holder had an account which was current. It would be quite unreal to infer that the Bank consented to the withdrawal by a card-holder whose account had been closed. The conditions of use of the card supplied by the Bank to its customers support the conclusion that no such inference can be drawn.
In the present case, it would be unreal to infer that the credit union consented to a withdrawal by an unauthorised person. The proper inference was that the credit union believed the money was being withdrawn either by Ms Ffrench herself or by a person with the authority of Ms Ffrench who was going to account to Ms Ffrench for the money that was withdrawn. In this respect it is relevant to refer to the remarks of King CJ in Kennison v Daire (1985) 38 SASR 404 at 409, remarks on which the High Court expressly stated that it had relied:
If it is accepted that the bank's intention was to pass property in and possession of the money in the machine only to customers having live accounts containing available funds, what is the legal effect of the ejection by the machine of $200 in response to the appellant's use of the card and P.I.N.? If the source of the money were not a machine but a human agent of the bank and the money were paid out in response to the production of the card and the quoting of the P.I.N., the appellant might be guilty of obtaining money by false pretences but he could not be guilty of larceny. That is so because of the intention of the human agent to pass the property in and possession of the money to him. But a machine can form no such intention. The relevant intention of the bank is necessarily formed antecedently to the transaction.
The intention of the credit union was that any withdrawal would be for the benefit of Ms Ffrench and no other. The fact that the credit union might not be liable to Ms Ffrench because she had disclosed her PIN contrary to the instruction of the credit union does not alter that intention.
For these reasons, the loss was a loss of tangible property within the meaning of the contract of insurance.
"In the Course of Business"
The second ground on which Triton relied was that the occurrence causing the loss had not occurred "in connection with the business" of the insured as required by the terms of the coverage clause. The argument clearly fails. The expression "in connection with" whether used in a statute or a contract must depend on its context: Burswood Management Ltd v Attorney-General(Cth) (1990) 23 FCR 144 at 146; Drayton v Martin (1996) 67 FCR 1 at 32. Nevertheless, the expression has a wide import as Wilcox J noted in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465, at 479-480:
The words "in connection with" have a wide connotation, requiring merely a relationship between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163. They may be used to describe a relationship with a contemplated future even: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364; Johnson v Johnson [1952] P 47 at 50-51. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given "jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act", had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase "in connection with" covered matters leading up to, or which might lead up to, an assessment. He said (at 639):
"One of the very generally accepted meanings of 'connection' is 'relation between things one of which is bound up with or involved in another'; or, again 'having to do with'. The words include matters occurring prior to as we wll as subsequent to or consequent upon so long as they are related to the principal thing. The phrase 'having to do with' perhaps gives as good a suggestion of the meaning as could be had"
This statement was upheld on appeal.
These observations have been consistently applied since: see, for example, Drayton v Martin at 32.
The conclusion that Ms Sestili had been held to be vicariously liable for the misappropriation by Ms Brown in turn inexorably leads to the conclusion that the loss of property occurred in the course of the business of Ms Sestili. The conclusion that Ms Sestili is vicariously liable for the conduct of Ms Brown means that the conduct of Ms Brown occurred within the scope of her employment, that is to say, in the course of performing her duties as an employee in the business of Ms Sestili. Given the wide meaning of the expression "in connection with", there can be no doubt that the liability of Ms Sestili to Ms Ffrench was caused by an occurrence in connection with the business of Ms Sestili within the terms of the contract of insurance.
Payment of Legal Costs
The third ground on which Triton relied was that it was not liable to pay the costs of Ms Sestili in defending the claim by Ms Ffrench pursuant to paragraph 2 of the coverage clause. Mr Nicholson QC acknowledged that the success of this contention depended on whether the loss fell within the definition of "property damage". As it was property damage, the consequence is that Triton is liable to pay all legal costs incurred by Ms Sestili in defending the claim by Ms Ffrench before the magistrate, before Gray J and in this court.
For these reasons the appeal by Triton must be dismissed.
Conclusion
For these reasons, I would dismiss both the appeal by Ms Sestili and the appeal by Triton.
SULAN J: I agree with Debelle J that the appeal by Ms Sestili and the appeal by Triton Underwriting Insurance Agency Pty Ltd should be dismissed.
LAYTON J: I consider that the finding by Gray J of vicarious liability for $33,350 against Ms Sestili should be upheld. I therefore consider the appeal by Ms Sestili and Triton Underwriting Agency Pty Ltd against that finding should be dismissed for the additional reasons given by Debelle J. I also agree that the appeal by Triton Underwriting Agency Pty Ltd against the order for payment of all legal costs of Ms Sestili in defending the action in court should be dismissed for reasons given by Debelle J