Ffrench v Sestili & Sestili v Triton Underwriting Insurance Agency P/L

[2006] SASC 44

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeals: Civil)

FFRENCH v SESTILI & SESTILI v TRITON UNDERWRITING INSURANCE AGENCY P/L

Judgment of The Honourable Justice Gray

17 February 2006

EMPLOYMENT LAW - RIGHTS AND LIABILITIES AS BETWEEN EMPLOYER AND THIRD PERSONS - LIABILITIES OF EMPLOYER - FOR CRIMES AND OFFENCES OF EMPLOYEE

CRIMINAL LAW - GENERAL MATTERS - ANCILLARY LIABILITY - VICARIOUS LIABILITY

INSURANCE - GENERAL - POLICIES OF INSURANCE - CONSTRUCTION

In the Magistrates Court, Ms Ffrench sued Ms Sestili for damages in respect of financial loss arising from theft committed by Ms Sestili’s employee.  Ms Sestili issued third party proceedings against Triton Underwriting Insurance Agency Pty Ltd seeking indemnity for any order made against her.  The magistrate dismissed both claims.  Ms Ffrench appealed to this Court against the magistrate’s finding that Ms Sestili was not vicariously liable for the theft of her employee and Ms Sestili appealed against the magistrate’s finding that, if Ms Sestili were liable, she would not be entitled to an indemnity from Triton.  Both appeals were heard and determined concurrently.

Analysis of case law in respect of the test for vicarious liability – whether the employee’s conduct was sufficiently connected to her employment so as to render Ms Sestili liable for Ms Ffrench’s loss – Consideration of whether the employee’s theft fell within the terms of the insurance policy contract – whether money in the form of cash constitutes “tangible property”.

Held: Both appeals allowed – order of magistrate entering judgment in favour of Ms Sestili as against Ms Ffrench set aside – Ms Sestili vicariously liable for the total amount misappropriated by her employee – order of magistrate entering judgment in favour of Triton as against Ms Sestili set aside – Triton liable to indemnify Ms Sestili.

Bazley v Curry [1999] 2 SCR 534; Hollis v Vabu Pty Ltd (2001) 207 CLR 21; Scott v Davis (2000) 204 CLR 333; New South Wales v Lepore; Samin v Queensland; Rich v Queensland (2003) 212 CLR 511; Naidu v Group 4 Securitas Pty Ltd [2005] NSWSC 618; Lister v Hesley Hall Ltd [2002] 1 AC 215; EB v Order of the Oblates of Mary Immaculate in the Province of British Columbia [2005] SCC 60; Hewitt v Bonvin [1940] 1 KB 188; Blackwater v Plint [2005] SCC 58; Lloyd v Grace, Smith & Co [1912] AC 716; Morris C W Martin & Sons Ltd [1966] 1 QB 716; Port Swettenham Authority v T W Wu & Co (M) Sdn, Bhd [1979] AC 580; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; Ilkiw v Samuels [1963] 2 All ER 879; Rose v Plenty [1976] 1 All ER 97; Croton v The Queen (1967) 117 CLR 326; Grant v The Queen (1981) 147 CLR 503, considered.

FFRENCH v SESTILI & SESTILI v TRITON UNDERWRITING INSURANCE AGENCY P/L
[2006] SASC 44

Introduction

1. To borrow the words of Dame Beverley McLachlin of the Supreme Court of Canada:[1]

   It is tragic but true that people working with the vulnerable sometimes abuse their positions and commit wrongs against the very people they are engaged to help.  The abused person may later seek to recover damages for the wrong.  But judgment against the wrongdoer may prove a hollow remedy.  This raises the question of whether the organization that employed the offender should be held liable for the wrong.  The law refers to such liability as “vicarious” liability.  It is also known as “strict” or “no-fault” liability, because it is imposed in the absence of fault of the employer.

   The issue in this case is whether such liability arises for an employee’s misappropriation of monies belonging to a person disabled with quadriplegia in the employee’s care.

   [1] Bazley v Curry [1999] 2 SCR 534 at [1] (McLachlin J, as she then was).

2. The law as to the extent and scope of vicarious liability is unclear.  The High Court of Australia has in three recent decisions addressed vicarious liability - Hollis v Vabu Pty Ltd;[2] Scott v Davis;[3] New South Wales v Lepore; Samin v Queensland; Rich v Queensland.[4]  In the leading decision, Lepore, the members of the High Court appear to have adopted a number of different approaches to vicarious liability.  There is no clear majority view.[5]

   [2] Hollis v Vabu Pty Ltd (2001) 207 CLR 21.

   [3] Scott v Davis (2000) 204 CLR 333.

   [4] New South Wales v Lepore;Samin v Queensland; Rich v Queensland (2003) 212 CLR 511.

   [5] The different approaches of the High Court Justices led a trial judge in Naidu v Group 4 Securitas Pty Ltd [2005] NSWSC 618 to reach a conclusion that vicarious liability had been made out by testing the matter against the approaches identified by the members of the High Court.

3. The topic has also been the subject of recent decisions in the United Kingdom – Lister v Hesley Hall Ltd[6] - and the Supreme Court of Canada – Bazley v Curry, EB v Order of the Oblates of Mary Immaculate.[7]

   [6] Lister v Hesley Hall Ltd [2002] 1 AC 215.

   [7] EB v Order of the Oblates of Mary Immaculate in the Province of British Columbia [2005] SCC 60.

4. Gaye Ffrench sued Ada Sestili, trading as Direct Personal Care Services, for damages in respect of financial loss that she suffered arising from theft committed by an employee of Ms Sestili, Deborah Kaye Brown.  Ms Ffrench also sued Ms Brown.

5. Ms Sestili issued third party proceedings against Triton Underwriting Insurance Agency Pty Ltd (“Triton”), seeking indemnity from Triton for any order made against her and, in any event, for an indemnity with respect to the costs incurred by Ms Sestili in defending the action, including this appeal.

6. The magistrate found in favour of Ms Sestili as against Ms Ffrench, and in favour of Triton as against Ms Sestili.  This Court heard appeals against both decisions concurrently.  These are my reasons for judgment in respect of both appeals.

   Background Facts

7. At the time of trial, Ms Ffrench was aged about 40 years.  She lived alone.  In 1978, she suffered severe injuries, which left her with quadriplegia.  She is not intellectually disabled.

8. In the late 1990s, Ms Ffrench looked to develop a business for the provision of lingerie for disabled persons.  To meet her investment, business and day-to-day financial needs, she opened three accounts with a credit union.  One account was a fixed-term investment account in which Ms Ffrench placed the bulk of her funds.  These funds came from a property settlement with her former husband.  A second account was entitled “Dream Saver Account” in which, during the relevant period, she placed about $40,000 with a view to providing working capital for her proposed business.  The third account was entitled “My Account”.  This was to hold smaller amounts available for every-day use.

9. The one credit card with different personal identification numbers (PINs) provided access to both the “Dream Saver Account” and the “My Account”.  The “My Account” could be accessed through an automated teller machine (ATM) by use of the credit card and one PIN.  The “Dream Saver Account” could not be accessed through an ATM.  However, it was possible with the use of the credit card and a discrete PIN to transfer money from the “Dream Saver Account” to the “My Account”.

10. Ms Ffrench was supported by APN Options Coordination, a State government agency responsible for the allocation and administration of resources for the support of the disabled.  APN Options engaged a care provider, and that care provider in turn engaged the employed carers.  Beverly Ann Moyle was the case manager of APN Options, and as such had responsibility for the provision of support to Ms Ffrench.  Ms Moyle described the role of APN Options as follows:

    Our agency provides a number of services to people with a significant level of disability to provide them with the support that they need to be able to stay in their homes or wherever it may be.  But largely to stay at home and be as independent as they possibly can be within their homes.  The sorts of things that I would be doing as a coordinator are things like assessment of need, providing from that assessment of need.

11. As earlier observed, Ms Ffrench suffered severe physical disability.  She personally was unable to operate a credit card at an ATM.  Ms Ffrench, at relevant times, required the assistance of carers for her day-to-day needs.  One activity for which she required assistance was shopping.

12. Ms Moyle gave the following evidence concerning Ms Ffrench:

    Q.Did Ms Ffrench ever request or otherwise was a neurological assessment ever done in relation to Ms Ffrench or were her needs identified and assessed as physical.

    A.Yes, it’s a physical disability that she has.  I’m unaware that there’s any neurological assessments or things done.  There could have been.  [Ms Ffrench] has a significant level of disability so she has to go into hospital every now again [sic] and so things could have happened there.  I’m not privy to any of that sort of information.

    Q.Not that you are aware of or not that was ever part of your management role.

    A.No, not really.

    Q.Can you now explain how your organisation relates to agencies such as one involved in this case, Direct Personal Care Services.

    A.Our agency has funding and pay to support people like [Ms Ffrench] live at home, particular [sic] where [Ms Ffrench] would require things like personal care, home help, shopping, that whole range of activity and we broker those services through that particular agency to provide those services.

13. By early 2000, Ms Ffrench was dissatisfied with her then service provider.  However, she was satisfied with at least one of the carers provided by that service provider.  She contacted Ms Moyle and sought a change of service provider.  This led Ms Moyle to contact Ms Sestili, who traded as Direct Personal Care Services.

14. Ms Sestili’s business was designated as a preferred care provider.  A meeting took place between Ms Moyle, Ms Sestili and Ms Ffrench.

15. The outcome of the meeting was that Ms Sestili took over as Ms Ffrench’s service provider and entered into a contract with APN Options to arrange for care providers to attend to the needs of Ms Ffrench to the approved level.  In or about February 2000, pursuant to a pro forma client service contract, APN Options engaged Ms Sestili as care provider for Ms Ffrench.  APN, represented by Ms Moyle, worked with Ms Sestili and Ms Ffrench to establish a regime of care suitable for Ms Ffrench.  To this end, one of the established care providers, Belinda Howland, continued to be a care provider to Ms Ffrench but now through Ms Sestili’s agency.  In addition, Ms Sestili arranged for an additional carer, Ms Brown.

16. The initial service contract covered the period from 7 February to 30 June 2000.  Among the services that Ms Sestili was required to provide to Ms Ffrench were “30 hrs per week for personal care, home help and shopping”.

17. After 30 June 2000, the client service contract was renegotiated.  As from 4 July 2000, the contract between APN Options and Ms Sestili, at Ms Ffrench’s request, no longer provided expressly for hours associated with shopping duties.  However, Ms Ffrench continued to have Ms Brown undertake shopping duties for her from time to time.  Such an arrangement by direct negotiation and instruction from Ms Ffrench to her care provider appears to have been within the contemplation of the arrangement struck between APN Options and Ms Sestili.  This topic will be discussed later in these reasons.

18. Ms Brown came to be employed by Ms Sestili as a result of her submission of an application to Ms Sestili in response to a newspaper advertisement.  It appeared from Ms Brown’s application that she was adequately qualified for a carer’s position.  However, there were a number of unsatisfactory features about the engagement of Ms Brown by Ms Sestili.

19. Ms Brown’s file only contained a note of a comment from one referee.  That referee spoke of Ms Brown’s kind and caring nature but did not address her professional competence or suitability for the role of carer.  A written reference from an alleged neighbour, which reported favourably about Ms Brown, did not disclose an address or telephone number to allow follow up.

20. In evidence, Ms Sestili claimed to have contacted two further referees.  However, she made no note on the file of any such contact or of any information she had received.  Ms Sestili suggested that she made contact with a nurse at Flinders Medical Centre.  That contact was by mobile telephone, but she took no step to verify the identity of the responding person.

21. Ms Brown’s application disclosed that she had not worked between 1984 and 2000.  Her application asserted that at this time she was looking after children, caring for her disabled brother and undertaking courses.  However, the file disclosed no further enquiry about what had occurred during this period.

22. According to Ms Sestili’s evidence, she requested Ms Brown to provide a police clearance.  Ms Sestili could not recall having seen such a clearance.  There was no evidence on file of a clearance having been obtained.  When Ms Sestili was questioned in cross-examination about the suitability of Ms Brown, she spoke of relying on “women’s intuition”.

23. As earlier observed, at the time of hiring, Ms Sestili provided Ms Brown with a copy of the service agreement, together with a copy of Direct Personal Care Services’ “Code of Conduct”, which was designed to address aspects of Ms Brown’s responsibilities, both legal and ethical, as a care provider.  Although Ms Sestili could not produce that document at trial, it was accepted that it contained no reference to the use of a client’s credit cards and bank accounts.  Ms Sestili asserted that these matters were the subject of verbal instruction or direction given to Ms Brown.  However, as the magistrate noted, aside from the testimony of Ms Sestili, there was no evidence led at trial to support this assertion. 

24. Ms Sestili tendered a copy of the new code of conduct at trial.  She had updated the code, largely, she said, in response to the circumstances of these proceedings: to include instruction as to handling access to client credit cards and bank accounts.

25. Ms Brown worked as a carer for Ms Ffrench in the year 2000.  As earlier observed, among the duties that Ms Sestili was required to provide to Ms Ffrench pursuant to the service agreement entered into in February 2000 was “shopping”.  Ms Moyle and Ms Sestili both gave evidence as to what they considered “shopping” as a duty to be performed by a carer to include.

26. On 4 July 2000, Ms Moyle forwarded a facsimile to Ms Sestili in the following terms:

    Dear Ada

    Re: Gaye Ffrench use of weekly hours – 30 hours per week.

    I’ve seen Gaye and discussed use of her hours.  She wants to re-arrange these to give her more bowel care time.

    She will forgo her shopping 2 hours and a dinner (5.30-6.30) shift on Saturday.  This will give her an extra 1 hour on Monday, Wed, and Friday mornings. (3 hours each shift).

    This is to commence tomorrow Wed. 5/7/00 see attached roster.

    …

    Cheers Bev!

    Ms Moyle was asked about the meaning of this facsimile during examination-in-chief:

    Q.Can you explain the reference to foregoing shopping hours; is there as it were some limitation to the hours that you are permitted to fund and that [Ms Ffrench] can use.

    A.Yes, it’s like you said before, it’s not a bottomless pit.  There are a certain number of hours that are there and with discussions with [Ms Ffrench] she’d obviously said that she wanted to rearrange her hours to give herself more time in the mornings and perhaps – I can’t remember – had made perhaps other arrangements to have her shopping done.

    Q.Does it follow from this fax that from 4 July 2000 it was not part of the contract between APN Options Coordination and Direct Personal Care Services that Direct Personal Care Services provide [Ms Ffrench] with help with her shopping – is that the outcome of it.

    A.It may have been, it may not have been.  It may have been – I don’t exactly [know] how may hours she actually had for shopping per week.  She may have had three hours, I don’t know.  I don’t know.

    Q.    You can’t –

    A.I can’t verify that.  It may have been that [Ms Ffrench] had discussed with some of her carers doing the shopping another way rather than separately.  I don’t know – whether they’d pick up stuff on the way to her house.  Those bits and pieces, those day to day things, [Ms Ffrench] knew when the workers were coming and she was in contact with them often, sometimes through the agency but sometimes directly too…

27. Ms Moyle made the following response to a question asking her about what “shopping” as a service was intended, by the contracting parties, to cover:

    It can cover a number of things and some of that are arrangements that the carer also makes directly with [Ms Ffrench] as to how [Ms Ffrench] wants that to happen and so forth, that’s up to her.  It can comprise of a client going in an access cab with a worker and the worker actually helping get things off the shelves and all that sort of stuff and managing to put things in the car, assisting getting money out of a purse, any of those kinds of things that a person with those levels of disability wouldn’t be able to do for themselves.  From people actually picking up something on the way to work, like some milk or something like that on the way to [Ms Ffrench’s] place or whatever.  [Ms Ffrench] was in control of that.

    The magistrate made the following evaluation of the evidence on this topic:

    In respect of the notion of a carer doing shopping for the person the subject of care, Ms Moyle was adamant.  There is no objection to a carer doing shopping if that is the arrangement that a person in the position of Ms Ffrench wants.  Ordinarily, the shopping is done by the provision of cash to the carer who returns with the purchased items and the receipt and the change.  It was clear from Ms Moyle’s response that an intellectually responsible individual had that freedom of choice.  Indeed in this case Ms Moyle made the point that Ms Ffrench does not have an intellectual disability and nor did she at the time she made the decision to part with physical possession of the credit card and the PIN to the ‘My Account’.  However, Ms Moyle indicates that APN – and by inference from the evidence of Ms Sestili, a care provider – counsel the individual regarding the risks.  She is aware that clients like Ms Ffrench do trust carers with money.  However, she could not say whether the giving of credit cards and PINs happens or not, although she did say ‘I’d hope not’.

    What is clear in this case, from the APN client service contract information form in respect of Ms Ffrench is that the scope of the care provider’s and the carer’s employment did not include ‘home support – personal finance’.  That of course on its terms represents advisings [sic] regarding the handling of money and associated investments and so on.  There was absolutely no suggestion on this occasion that that was a facility being provided at source by APN or derivatively by Ms Sestili and her employees.

28. The arrangement, as to how the 30 hours were to be utilised, was finally left to the discretion of Ms Ffrench.   No doubt the duties performed by the carer had to be within the broad parameters identified in the agreement.  However, the evidence of Ms Moyle confirmed that Ms Ffrench could have assistance with shopping after 4 July 2000 if she wished.  This was a matter for private arrangement between Ms Ffrench and her carer, Ms Brown.

29. The arrangement between Ms Brown and Ms Ffrench was that Ms Brown would do shopping on Ms Ffrench’s behalf.  Ordinarily, because of her disabilities, Ms Ffrench would not accompany Ms Brown when shopping.  To facilitate the shopping duties, Ms Ffrench gave Ms Brown a credit card and the appropriate PIN to be used to access funds from her “My Account” bank account to pay for the shopping.  As earlier observed, the “My Account” contained limited funds.  These included Ms Ffrench’s Disability Support Pension payments.

1. The arrangement between Ms Ffrench and Ms Brown was that Ms Brown would use the credit card and PIN to withdraw cash from the “My Account” at an ATM.  She would use the cash to purchase shopping items and return to Ms Ffrench with the purchased items, receipts and any change.  This arrangement appeared to Ms Ffrench to work satisfactorily for some time.  However, Ms Brown, unbeknown to Ms Ffrench, had different plans.  As the magistrate observed:

   What occurred, however, descended into the outright sinister.  The ‘Dream Saver’ account was operated by Ms Ffrench using a PIN that was entirely different from that which gave access to her ‘My Account’.  Somehow – and I am not sure how – Ms Brown was able to learn the PIN to the ‘Dream Saver’ account and started accessing that account which, as I have already said, contained considerably larger sums of money from time to time.

   What [Ms Brown] did without Ms Ffrench’s knowledge or consent was to transfer monies over from the ‘Dream Saver’ account to ‘My Account’ and then accessed the monies from ‘My Account’ using the credit card and the known PIN.

2. It is relevant to record that Ms Ffrench had for some time had Ms Howland undertake shopping duties for her.  She had provided Ms Howland with her credit card and PIN with respect to the “My Account”.  In this way, Ms Howland was able to access the “My Account” to withdraw cash from an ATM to meet the shopping expenses.  There is no suggestion that Ms Howland acted other than honestly at all times with respect to this procedure.  As far as Ms Ffrench was concerned, Ms Brown’s dealing with shopping continued an established routine.

3. As earlier observed, the credit card given to Ms Brown could also be used to access Ms Ffrench’s savings account, the “Dream Saver Account”.  However, as also earlier observed, a discrete PIN was required to access the “Dream Saver Account”.  Ms Ffrench did not provide Ms Brown with the discrete PIN for her “Dream Saver Account”.  However, without the knowledge or consent of Ms Ffrench, Ms Brown obtained the PIN to the “Dream Saver Account”.  The magistrate summarised the evidence about how Ms Brown came to learn the PIN for the “Dream Saver Account”:

   There are two bases of conjecture about how Ms Brown learnt of the PIN to the ‘Dream Saver’ account.  Ms Ffrench herself ventured the view that perhaps whilst she was making telephone calls to the Australian Central Credit Union to access monies on that account or to make inquiries on it, [Ms Brown] watched her dialling and entering that PIN, literally over Ms Ffrench’s shoulder.  There is a second possibility.  After Ms Ffrench has completed a transaction in respect of the ‘Dream Saver’ account on a particular day, [Ms Brown] used the redial facility on the telephone and was able to have a read-back of the numbers used by Ms Ffrench on a previous occasion.  The state of the evidence was too that there was a display screen on the telephone that enabled these figure to be read either over Ms Ffrench’s shoulder or as I have said, on a later occasion by use of the redial facility. 

4. Having obtained the PIN, Ms Brown, through a number of transactions and over a period of time, misappropriated a total of $33,350 from Ms Ffrench.  She did this by transferring funds from the “Dream Saver Account” into the “My Account”.  She then withdrew cash from ATMs from the “My Account” on about 45 occasions.  Ms Brown dishonestly used that cash for her own purposes.  An essential feature of Ms Brown’s scheme was the use of the “My Account”, to which she had access in the course of her employment, to obtain the cash.  As the magistrate found:

   Anything to do with the ‘My Account’ was, in my view, in furtherance of the [Ms Sestili’s] enterprise, given that ‘shopping’ was always going to be within the scope of the recognised duties and employment of Ms Brown. 

5. Ms Brown was convicted of 45 counts of larceny and was sentenced to imprisonment for two years and six months with a non-parole period of twelve months.

   The Magistrate’s Approach

6. At trial, Ms Ffrench pursued three causes of action against Ms Sestili - for breach of contract, breach of a duty of care in tort for negligence, and for vicarious liability.  Ms Sestili accepted that Ms Brown was her employee at relevant times.  However, she argued that Ms Brown’s defalcations in respect of Ms Ffrench’s money were not matters that attracted legal liability.  The magistrate dismissed all claims.  On appeal, Ms Ffrench has only pursued the claim of vicarious liability.

7. The magistrate summarised his view of the witnesses:

   [N]othing hangs on the credit or creditability of any of the witnesses.  I am perfectly satisfied that they came to court and did their best to recall events that were, after all is said and done, five years in the past.  Whichever view I take of the evidence lends itself to legal argument as to how I should characterise the conduct in particular of [Ms Sestili].

   However, with respect to Ms Sestili, the magistrate had a note of reservation.  He commented:

   A lot of what [Ms Sestili] said she told [Ms Brown] and otherwise conveyed to her was never the subject of a contemporaneous memo or note.

8. At the time of the hearing before the magistrate, Ms Brown had served her sentence.  Ms Brown failed to attend at trial and consequently the magistrate entered judgment against her.

9. At the hearing of the appeal, with one exception, no challenge was made to the magistrate’s primary findings of fact.  At issue between the parties were the legal inferences drawn from those facts.  The only challenge arose on a Notice of Contention. 

   Liability

10. As earlier observed, the magistrate rejected Ms Ffrench’s claim as against Ms Sestili.  He concluded that Ms Sestili was not negligent in hiring Ms Brown to care for Ms Ffrench.  He rejected the claim in contract.  The magistrate also rejected Ms Ffrench’s claim that Ms Sestili was vicariously liable for Ms Brown’s misappropriations.  He reasoned:

    This conduct – rather misconduct – by [Ms Brown] could not in my view be said to be so closely connected with her real and ostensible duties as to represent conduct in furtherance of her employer’s enterprise.  To put the matter another way, this was a classic ‘frolic of her own’.  Whereas the ‘My Account’ was accessed by [Ms Brown] with full knowledge and consent of [Ms Ffrench], there was no such knowledge and consent in respect of the ‘Dream Saver’ account.  Anything to do with the ‘My Account’ was, in my view, in furtherance of [Ms Brown’s] employer’s enterprise given that ‘shopping’ was always going to be within the scope of the recognised duties and employment of Ms Brown. 

    …

    At the risk of repetition I say that there was an insufficiently close connection between anything that was done by Ms Brown and anything that [Ms Sestili] or indeed Ms Brown was ever engaged to do.

    Then later:

    In my view, the non-liability of [Ms Sestili] on the basis of vicarious liability is established on the balance of probabilities on whichever formulation I choose to adopt of each of the majority Justice of the High Court in NSW v [Lepore]. Leaving aside the minority view of Callinan J and accepting that each of the formulations of the various Justices is applicable in this case, I find that the misdeeds of [Ms Brown] do not qualify to attract vicarious liability as against Ms Sestili. 

    The magistrate made the following findings:

    -that [Ms Brown] was at all material times an employee of [Ms Sestili] and that there was no contractual relationship between [Ms Ffrench] and [Ms Sestili]; the only contractual relationship was as between [Ms Sestili] and APN; 

    -that in or about the hiring of the services of [Ms Brown] [Ms Sestili] did not breach a duty of care that was otherwise owed to a class of potential recipients of [Ms Sestili’s] services, which class included a person in the position of [Ms Ffrench];

    -that, even if I am wrong about the non-existence of a contract as between [Ms Ffrench] and [Ms Sestili], there was an insufficiently close connection between the fraud or misappropriations carried out by [Ms Brown] and the employment and the scope of employment that was, expressly or impliedly, agreed to be carried out by [Ms Sestili] for the care of [Ms Ffrench];

    -that the fraud or misappropriations carried out by [Ms Brown] represented a frolic of her own and was conduct for which [Ms Sestili] was not and could not be held vicariously liable;

    -that the loan of monies of $10,000 was a transaction as between [Ms Ffrench] and [Ms Sestili] in their purely personal capacities and did not and could not attract vicarious liability as against [Ms Sestili];

    -that the accessing by [Ms Brown] of the “Dream Saver” account was facilitated by an unlawful and unauthorised act of [Ms Brown] in obtaining the access code without the knowledge or consent of [Ms Ffrench] and outside or unconnected with the expressed or implied scope of employment by [Ms Sestili] of Ms Brown.

11. The magistrate found that Ms Brown’s misappropriation constituted a “frolic of her own” and was insufficiently connected with the terms of her employment to render Ms Sestili vicariously liable for Ms Brown’s conduct.  The magistrate resolved that whilst anything to do with the “My Account” was done within the course of Ms Brown’s employment, Ms Brown’s dealings with the “Dream Saver Account” went beyond the scope of her duties.

    Indemnity

12. Triton was, at relevant times, Ms Sestili’s insurer pursuant to a Community Care Board Form Liability Policy (“the policy”).  Triton argued that the circumstances of this matter were not within the scope of the policy and that accordingly it was not liable to indemnify Ms Sestili.

13. In respect of Ms Sestili’s claim for indemnity against Triton, the magistrate observed:

    [Counsel for Triton] pointed out, … under the heading ‘Coverage’ that the compensation for which Triton Underwriting Insurance Agency is responsible had to be in respect of ‘property damage’ that was ‘caused by an occurrence in connection with the business’.  It is this last phrase that is of obvious concern because as I have just found, [Ms Sestili] is not vicariously liable for the acts of [Ms Brown].  It is difficult to see how this was an occurrence in connection with the business.  No less significantly he pointed to the definition of property damage …as, among other things, ‘loss of tangible (my emphasis) property.’  [Counsel] cited a number of relevant authorities including New Hampshire Insurance Company v Phillips Electronics North America Corporation (No 2) [1999] 1 QBD 66 at 71. I think that the authority which clinches [Counsel for Triton’s] submission is also that of the High Court in Croton v The Queen (1967) 117 CLR 326 at pp.330-331 per Barwick CJ. It seems to me that what was the subject of any unlawful act on this occasion, involving Ms Brown, was, to use a neutral term, unlawful interference with a chose in action. From the earlier English authority that I have cited and the discussion of the (then) Chief Justice of the High Court, it seems to me that I have to conclude a chose in action, such as the credit union account that was the subject of interference by Ms Brown, was not capable of reduction into physical possession such as tangibles but was instead ‘intangible’ property.

    The magistrate then concluded:

    For both reasons, i.e. the lack of connection of the occurrence with [Ms Sestili’s] business and the fact that the loss sustained by Ms Ffrench was not in respect of tangible property, it therefore follows that I find that [Triton] is not liable to make indemnity as to costs on these third party proceedings to [Ms Sestili].

    Notice of Contention

14. It is convenient to address first Ms Sestili’s notice of contention.

15. Initially, counsel for Ms Sestili had accepted that all findings made by the magistrate were open on the evidence.  Counsel further contended that the magistrate made no error in law, and that the magistrate was correct in concluding that Ms Ffrench could not succeed on the application of the principles laid down by the High Court in Lepore.

16. However, during the hearing of the appeal, counsel for Ms Sestili “changed tack”.  Counsel suggested that there was an error of fact on the face of the magistrate’s reasons.  Counsel said that the magistrate’s finding that:

    Anything to do with the ‘My Account’ was, in my view, in furtherance of [Ms Sestili’s] enterprise, given that ‘shopping’ was always going to be within the scope of the recognised duties and employment of Ms Brown. 

    was contrary to the evidence.

17. Counsel for Ms Sestili accepted that the above finding suggested a clear connection between the use of the “My Account”, Ms Brown’s employment, and the misappropriations.  Counsel submitted that the evidence did not support a finding that the duties of shopping did involve the use of client credit cards by carers and the accessing of client bank accounts.  Counsel contended that it was contrary to the evidence that Ms Brown had been orally instructed and directed by her employer against using client credit cards and accessing client bank accounts.  Counsel claimed that as of 4 July 2000, at Ms Ffrench’s request, shopping ceased to be a service provided by Ms Sestili and her employee.

18. Counsel for Ms Sestili further sought to confine the scope of employment in relation to shopping to a situation where either a carer would physically go with a client to the shops and assist or else a situation where a client would give the carer cash with instructions to purchase specific goods and to bring back the goods with the receipt and the change.

19. These submissions should be rejected.  The situation can generally be summarised in the following way.  The government, through APN Options, contracted with Ms Sestili, a care provider, to provide services to Ms Ffrench.  One of those services was to provide shopping assistance.  Nowhere in the contract for service, or in the evidence of what passed orally between both APN Options and Ms Sestili to Ms Ffrench, was there anything to suggest that “shopping assistance” would only include the situations outlined by counsel for Ms Sestili.  Ms Brown was to assist Ms Ffrench with shopping.  As such, the issue of payment for the selected items necessarily arose.  There was no evidence that Ms Ffrench had been told only to use cash when providing her carer with funds for the shopping.  Nor was there any evidence that Ms Ffrench had been counselled against the risk of breach of trust by a carer and the need for her to be careful in regard to such financial matters.

20. In order to maximise the amount of time that Ms Ffrench had access to a carer, Ms Ffrench determined that it was more beneficial for Ms Brown to do the shopping alone on behalf of Ms Ffrench than for Ms Ffrench to go with her, thereby slowing down the process.  It can be expected that, in such circumstances, a credit card may be used.

21. Due to the severe nature of Ms Ffrench’s disabilities, including her loss of fine finger control, it was reasonably foreseeable that Ms Ffrench would prefer not to handle cash.  It was reasonably foreseeable that she would seek to make use of modern, everyday facilities including the use of credit cards and ATMs to ease the problems that she encountered in day-to-day living.

22. Ms Ffrench gave Ms Brown her credit card to facilitate the duties of shopping.  As such, Ms Brown obtained the credit card in the course of her employment.

23. Finally, although the allocation of hours of work changed, it does not follow that Ms Brown would necessarily cease to undertake shopping duties for Ms Ffrench.

24. The magistrate’s findings that Ms Brown obtained Ms Ffrench’s credit card and PIN to the “My Account” as part of and within the scope of her duties, and his findings that anything to do with the “My Account” was in furtherance of Ms Sestili’s business were not only findings open on the evidence, they were also correct findings.  The notice of contention challenging this finding should be rejected.

25. Once access to the credit card is found to be within the scope of employment, it follows that misuse of the credit card may be within the scope also.  This is consistent with the case law outlined below.

26. As earlier observed, the only ground pursued by Ms Ffrench on appeal to this Court involved a challenge to the magistrate’s rejection of vicarious liability.  In the circumstances, it may be thought surprising that the appellant did not pursue any challenge with respect to the other causes of action.  However, as earlier observed, the appeal was confined to the complaint concerning the rejection of the claim of vicarious liability.

27. Ms Sestili challenged the magistrate’s dismissal of the claim against Triton.  Counsel submitted that if Ms Ffrench succeeded on appeal, Ms Sestili was entitled to an indemnity.  In the event that Ms Ffrench’s appeal was dismissed, Ms Sestili sought an order for indemnity in respect of her costs both at trial and on appeal.

    Vicarious liability

28. Vicarious liability involves the attribution of liability to one party for the acts of another.  The underlying principle is that if a claimant suffers damage by the wrongful act of another and seeks to hold a third party liable for that damage, the claimant must establish that in doing the wrongful act the perpetrator acted as an employee or agent of the third party.[8]  A common instance where vicarious liability arises is where an employer is, by reason of the relationship of employer and employee, deemed liable for conduct of its employee.

    [8] Hewitt v Bonvin [1940] 1 KB 188 at 191 (MacKinnon LJ).

29. In Lepore, Gleeson CJ described the doctrine of vicarious liability in the following terms:[9]

    An employer is vicariously liable for a tort committed by an employee in the course of his or her employment.  The limiting or controlling concept, course of employment, is sometimes referred to as scope of employment.  Its aspects are functional, as well as geographical and temporal.  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.

    [9] Lepore (2003) 212 CLR 511 at [40].

    Policy Considerations

30. Before coming to discuss the test to be imposed in determining whether vicarious liability has been established, it is first convenient to discuss policy considerations that underlie the approach that has been taken.  All courts have recognised a degree of pragmatism in those considerations.  Steyn LJ observed in Lister:[10]

    Vicarious liability is legal responsibility imposed on an employer, although he is himself free from blame, for a tort committed by his employee in the course of his employment.  Fleming observed that this formula represented “a compromise between two conflicting policies: on the one end, the social interest in furnishing an innocent tort victim with recourse against a financially responsible defendant; on the other, a hesitation to foist any undue burden on business enterprise”.

    [10] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [14].

31. The fact that an employee in the course of employment may commit wrongful acts has been described as a cost of business:[11]

    The imposition of vicarious liability in such circumstances serves the policy ends of providing an adequate remedy to people harmed by an employee and of promoting deterrence.

    [11] Blackwater v Plint [2005] SCC 58 at [20] (footnotes omitted).

32. Gummow and Hayne JJ discussed the relevant policy considerations in Lepore:[12]

    First, there is “the cynical conclusion of the late Dr Baty … that the real reason [for finding vicarious liability] is that the damages are taken from a deep pocket.”  That is a consideration that finds other, less pejorative, expression as a “principle of loss-distribution” or as the need to provide a “just and practical remedy” for harm suffered as a result of wrongs committed in the course of the conduct of the defendant’s enterprise.  Secondly, there is the sense that it is right and just to attribute responsibility to those who not only placed in the community an enterprise from which risk and damage has emerged, but also stood to gain in some way from its pursuit….

    Thirdly, there are several considerations identified by Pollock in his Essays in Jurisprudence and Ethics, published in 1882.  The rule making an employer liable for acts and omissions of servants was, he said, “supposed to make employers more careful in their choice of servants, and in looking to the state of the plant and instruments of their business.”  That aim was “thought worth securing at the cost of some individual hardship” whereas “the use of care in choosing a contractor who is likely to be careful is too remote a benefit to the community to be enforced by indiscriminate penalties.”

    [12] Lepore (2003) 212 CLR 511 at [197]-[198].

1. In Lepore,[13] Gleeson CJ referred to Bazley, a decision of the Supreme Court of Canada, where McLachlin J, who delivered the judgment of the Court, examined considerations of policy underlying the concept of vicarious liability:[14]

   Underlying the cases holding employers vicariously liable for the unauthorised acts of employees is the idea that employers may justly be held liable where the act falls within the ambit of the risk that the employer’s enterprise creates or exacerbates.  Similarly, the policy purposes underlying the imposition of vicarious liability on employers are served only where the wrong is so connected with the employment that it can be said that the employer has introduced the risk of the wrong (and is thereby fairly and usefully charged with its management and minimisation).  The question in each case is whether there is a connection or nexus between the employment enterprise and that wrong that justifies the imposition of vicarious liability on the employer for the wrong, in terms of fair allocation of the consequences of the risk and/or deterrence.

   [13] Lepore (2003) 212 CLR 511 at [56]-[57]; see also judgment of Gaudron J at [119].

   [14] Bazley v Curry [1999] 2 SCR 534 at [37].

   “International Jurisprudence”

2. Before coming to discuss the modern enunciations of the High Court of Australia of the test for determining vicarious liability, it is helpful to discuss the position in the United Kingdom and Canada.

3. In the present appeal, considerable assistance can be gained from the decisions of Lloyd v Grace, Smith & Co[15] and Morris v C W Martin & Sons Ltd. [16]

   [15] Lloyd v Grace, Smith & Co [1912] AC 716.

   [16] Morris C W Martin & Sons Ltd [1966] 1 QB 716.

4. Lloyd v Grace, Smith has been treated as providing a breakthrough in the development of the law with respect of vicarious liability.  That decision established that vicarious liability was not necessarily defeated if an employee acted for his own benefit.  A firm of solicitors was held liable for the dishonesty of their managing clerk, who persuaded a client to transfer property to him and then disposed of it for his own advantage.  This breakthrough, as Lord Steyn has observed, has led to the need for an intense focus on the connection between the nature of the employment and the conduct of the employee.  In Lister, members of the House of Lords traced the development of these principles.

5. Of particular relevance to the present case is the decision in Morris.  The plaintiff wanted her mink cleaned.  She approached her furrier, who with her permission delivered the fur to the defendants for cleaning.  An employee of the defendant cleaner took charge of the fur for cleaning but then stole it.  The Court of Appeal held the cleaning firm to be liable.  Diplock LJ observed:[17]

   If the principle laid down in Lloyd v Grace, Smith ... is applied to the facts of the present case, the defendants cannot in my view escape liability for the conversion of the plaintiff’s fur by their servant Morrissey.  They accepted the fur as bailees for reward in order to clean it.  They put Morrissey as their agent in their place to clean the fur and to take charge of it while doing so.  The manner in which he conducted himself in doing that work was to convert it.  What he was doing, albeit dishonestly, he was doing in the scope or course of his employment in the technical sense of that infelicitous but time-honoured phrase.  The defendants as his masters are responsible for his tortious act.

   Salmon LJ held that the defendant was liable for what amounted to the conversion by the servant in the course of his employment.  Lord Denning considered that the case was one of non-delegable duty.

   [17] Morris C W Martin & Sons Ltd [1966] 1 QB 716 at 736-737.

6. Some debate has arisen as to whether Morris’ case can be restricted to cases of bailment.  In Lister, Lord Steyn explained why such a narrow view of Morris is mistaken:[18]

   Morris’s case has consistently been regarded as high authority on the principles of vicarious liability.  Atiyah, Vicarious Liability in the Law of Torts (1967), p 271 described it as “a striking and valuable extension of the law of vicarious liability”.  Palmer on Bailment, 2nd ed (1991), pp 424-425 treats Morris’s case as an authority on vicarious liability beyond bailment.  He states that “if a television repairman steals a television he is called in to repair, his employers would be liable, for the loss occurred whilst he was performing one of the class of acts in respect of which their duty lay”.  And that does not involve bailment.  Moreover, in Port Swettenham Authority v T W Wu & Co (M) Sdn, Bhd [1979] AC 580 the Privy Council expressly approved Morris’s case in respect of vicarious liability as explained by Diplock and Salmon LLJ.

   [18] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [19].

7. Millett LJ took a similar view.  His Lordship discussed the authorities of Morris, Port Swettenham Authority v T W Wu & Co (M) Sdn, Bhd,[19] Photo Production Ltd v Securicor Transport Ltd,[20] Ilkiw v Samuels[21] and Rose v Plenty,[22] and then concluded:[23]

   So it is no answer to say that the employee was guilty of intentional wrongdoing, or that his act was not merely tortious but criminal, or that he was acting exclusively for his own benefit, or that he was acting contrary to express instructions, or that his conduct was the very negation of his employer’s duty.  The cases show that where an employer undertakes the care of a client’s property and entrusts the task to an employee who steals the property, the employer is vicariously liable.  This is in accordance not only with principle but with the underlying rationale if Atiyah has correctly identified it.  Experience shows that the risk of theft by an employee is inherent in a business which involves entrusting the custody of a customer’s property to employees.  But the theft must be committed by the very employee to whom the custody of the property is entrusted.  He does more than make the most of an opportunity presented by the fact of his employment.  He takes advantage of the position in which the employer has placed him to enable the purposes of the employer’s business to be achieved.  If the boys in the present case had been sacks of potatoes and the defendant, having been engaged to take care of them, had entrusted their care to one of its employees, it would have been vicariously liable for any criminal damage done to them by the employee in question, though not by any other employee.  Given that the employer’s liability does not arise from the law of bailment, it is not immediately apparent that it should make any difference that the victims were boys, that the wrongdoing took the form of sexual abuse, and that it was committed for the personal gratification of the employee.

   [19] Port Swettenham Authority v T W Wu & Co (M) Sdn, Bhd [1979] AC 580.

   [20] Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.

   [21] Ilkiw v Samuels [1963] 2 All ER 879.

   [22] Rose v Plenty [1976] 1 All ER 97.

   [23] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [79].

8. The matter can be summarised by reference to the further remarks of Steyn LJ in Lister:[24]

   [24] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [22].

   The Court of Appeal treated the Morris ... line of authority as applicable only in bailment cases.  That was the Court of Appeal’s answer to the argument that, in the context of vicarious liability, the law ought not to incur the reproach of showing greater zeal in protecting jewellery than in protecting children.  My Lords, I trust that I have already shown that Morris’s case cannot be so easily dismissed.  It is only necessary to add that in Photo Production Ltd ... the House of Lords took the view that the principles enunciated in Morris’s case by Diplock and Salmon LJ are of general application. The plaintiffs had contracted with the defendants for the provision of a night patrol service for their factory. The perils the parties had in mind were fire and theft. A patrol man deliberately lit a fire which burned down the factory. It was an unresolved issue whether the employee intended to cause only a small fire or burn down the whole factory: ... The question was whether Securicor was protected by an exemption clause. The basis of the prima facie liability of Securicor therefore had to be determined. Lord Wilberforce pointed out that it could be put on more than one basis. He said, at 846:

   “it could be put upon a vicarious responsibility for the wrongful act of Musgrove – viz, starting a fire on the premises: Securicor would be responsible for this upon the principle stated in Morris. ...”

   Lord Keith of Kinkel and Lord Scarman expressed agreement with Lord Wilberforce.  In a separate speech Lord Salmon observed, at p852:

   “There can be no doubt that but for the clause in the contract which I have recited, Securicor would have been liable for the damage which was caused by their servant, Musgrove, whilst indubitably acting in the course of his employment:  Morris. ...”

   It is therefore plain that the Court of Appeal in Trotman v North Yorkshire County Council [1999] LGR 584 erred in treating Morris’s case as reflecting a special rule application in bailment cases only.

9. Hobhouse LJ in Lister observed:[25]

   What these cases and Trotman’s case in truth illustrate is a situation where the employer has assumed a relationship to the plaintiff which imposes specific duties in tort upon the employer and the role of the employee (or servant) is that he is the person to whom the employer has entrusted the performance of those duties.  These cases are examples of that class where the employer, by reason of assuming a relationship to the plaintiff, owes to the plaintiff duties which are more extensive than those owed by the public at large and, accordingly, are to be contrasted with the situation where a defendant is simply in proximity to the plaintiff so that it is foreseeable that his acts may injure the plaintiff or his property and a reasonable person would have taken care to avoid causing such injury.

   [25] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [54].

10. In Canada the Court has spoken of a sufficient relationship test, and in particular of an enquiry whether there is a significant connection between the creation or enhancement of risk and the role that accrues there from.  McLachlin J adopted the following view of what constituted a sufficient connection between the employment and the wrongful act:[26]

    The fundamental question is whether the wrongful act is sufficiently related to conduct authorised 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.  Where this is so, vicarious liability will serve the policy considerations of provision of an adequate and just remedy and deterrence.  Incidental connections to the employment enterprise, like time and place (without more), will not suffice.  Once engaged in a particular business, it is fair that an employer be made to pay the generally foreseeable costs of that business.  In contrast, to impose liability for costs unrelated to the risk would effectively make the employer an involuntary insurer.

    Perhaps even more apposite is McLachlin J’s observation that:[27]

    [W]here the employee’s conduct is closely tied to a risk that the employer’s enterprise has placed in the community, the employer may justly be held vicariously liable for the employee’s wrong.

    McLachlin J then observed that in order to hold an employer vicariously liable for the wrongful actions of an employee:[28]

    [I]t must be possible to say that the employer significantly increased the risk of the harm by putting the employee in his or her position and requiring him to perform the assigned tasks. … What is required is a material increase in the risk as a consequence of the employer’s enterprise and the duties he entrusted to the employee, mindful of the policies behind vicarious liability. 

    [26] Bazley v Curry [1999] 2 SCR 534 at [41] (emphasis original).

    [27] Bazley v Curry [1999] 2 SCR 534 at [22] cited by Gummow and Hayne JJ in Lepore (2003) 212 CLR 511 at [197].

    [28] Bazley v Curry [1999] 2 SCR 534 at [42] cited by Gummow and Hayne JJ in Lepore (2003) 212 CLR 511 at [210] (emphasis original).

11. In Bazley, the Court held that the operator of a residential care facility for the treatment of emotionally troubled children was vicariously liable for sexual assaults committed by an employee engaged “to do everything a parent would do, from general supervision to intimate duties like bathing and tucking in at bedtime”.[29] 

    [29] Bazley v Curry [1999] 2 SCR 534 at [2].

12. The test to be distilled from Bazley for determining whether an employer is vicariously liable for the actions of an employee is whether the actions of the employee are sufficiently linked to the duties of his or her employment so as to justify the imposition of vicarious liability.  To determine the sufficiency of the connection, the court must analyse the factual circumstances according to the factors relevant for consideration such as those set out above.  McLachlin J stipulated that this test is “not to be applied mechanically”, but with a sensitive view to the policy considerations – namely, fair and efficient compensation for wrong, and deterrence - which justify the imposition of vicarious liability.

13. The “Bazley test” was applied by the Supreme Court of Canada in EB v Order of the Oblates of Mary Immaculate.[30]In that decision, the majority held that the Order of Oblates of Mary Immaculate, a residential school for children, was not vicariously liable for the sexual abuse of one of its students, by one of its employees, Martin Saxey.  The majority concluded that what was required for the imposition of vicarious liability was a demonstration that the school had created features of Mr Saxey’s employment that had contributed to his ability to abuse EB sexually.  A “mere opportunity” to commit the wrongful act would not suffice.  The Court adopted the view that the nature of an employee’s duties was a fundamental component in determining whether a particular enterprise increased the risk of a particular wrongdoing.

    [30] See also Blackwater v Plint [2005] SCC 58 where the Supreme Court of Canada again applied the Bazley test.

14. Binnie J, who wrote the majority judgment, emphasised, in particular, the following passage of Bazley, which he said was “quite insistent”[31] that a global inclusion of all employees, regardless of the connection between the duties of their employment and the wrongful act perpetrated, was not the law:[32]

    In summary, the test for vicarious liability for an employee’s sexual abuse of a client should focus on whether the employer’s enterprise and empowerment of the employee materially increased the risk of the sexual assault and hence the harm.  The test must not be applied mechanically, but with a sensitive view to the policy considerations that justify the imposition of vicarious liability – fair and efficient compensation for wrong and deterrence.  This requires trial judges to investigate the employee’s specific duties and determine whether they gave rise to special opportunities for wrongdoing.

    [31] EB v Order of the Oblates of Mary Immaculate in the Province of British Columbia [2005] SCC 60 at [30].

    [32] Bazley v Curry [1999] 2 SCR 534 at [46].

15. The Canadian analysis provides attractive and clear guidance to the determination of the issue of vicarious liability.  However, the High Court has not adopted the Canadian test.

16. As earlier observed, the members of the High Court in Lepore reached different conclusions as to the test to be applied when determining whether or not an employer is vicariously liable for the wrongful act of an employee.  The differing views of the members of the Court provide a challenging task to the intermediate appellate court, as well as courts at first instance.  There is no clear enunciation as to the test to be applied in Australian law.

    The Applicable Test

17. Gleeson CJ’s approach in Lepore is clear: when the special responsibility of an employee is a protective function, and an intentional wrongful act causes harm, it is crucial for the court to scrutinise the specific responsibilities of the employee.  Through such scrutiny, the court can determine whether a sufficient connection exists between the employment and the wrongful act so as to found vicarious liability.

18. The approach of McHugh J with respect to other issues raised in the case made it unnecessary for him to decide the issue of vicarious liability.

19. Gaudron J, like Gleeson CJ, applied the sufficient connection test, but her Honour used it as a criterion for the application of estoppel.  In her Honour’s view, most of the cases allowing vicarious liability for deliberate criminal acts were unsatisfactory.  Gaudron J disapproved of the reasoning in Morris because she did not accept that theft could be part of the course of employment.

20. Gummow and Hayne JJ considered the test for vicarious liability, which founds on the employer bringing about conditions for, or creating the risk of, the wrong occurring.  In their Honours’ view, situations in which vicarious liability could arise should be limited to those where there was an activity in intended pursuit or performance of the contract of employment actively done with ostensible authority.  They rejected McLachlin J’s approach in Bazley, discussed above, because her approach included both risks antithetical to the enterprise as well as those in furtherance of it.

21. Kirby J regarded policy as the decisive factor in determining vicarious liability and stated that, in arriving at his view, he was influenced by both Lister and the Canadian cases.  His Honour favoured a risk analysis similar to that undertaken in Bazley and a close connection test drawing on Lister.  In his view, vicarious liability could exist for an intentional act when there is a sufficiently close connection to the employment, in a situation where the employer materially and significantly enhanced or exacerbated the risk, and where wrongs were done by employees against vulnerable people put at risk by the employer’s enterprise.

22. Callinan J reached the conclusion that the imposition of vicarious liability for an intentional criminal act would be an unreasonable burden to impose on an employer.  On his view, the idea of looking for a connection between the wrongful act and the employment was unsatisfactory because such connection could be found in almost any case.

23. The observations of Gummow and Hayne JJ, together with the reservations of Gleeson CJ and the reasons of Callinan J, in Lepore preclude the application of the creation or enhancement of risk test applied in Bazley.  On the other hand, Gleeson CJ, Gummow and Hayne JJ and Kirby J all refer to Morris’ case with approval or apparent approval.  Gleeson CJ discussed Morris in the following terms:[33]

    Morris v C W Martin & Sons Ltd was a case of bailment. … Applying Lloyd v Grace, Smith & Co, Diplock LJ and Salmon LJ held that, although what the employee did was dishonest, he was dealing with the fur in the scope or course of his employment.

    Salmon LJ pointed out that the result would have been different if some other employee of the cleaner, who had no responsibility connected with the fur, had stolen it. It is useful to consider why this is so. All employees of the cleaner would have been under an obligation not to damage or steal the fur, and would have been personally liable if they had damaged or stolen it. But the employer was vicariously liable only for the conduct of the employee whose employment duties involved physical possession of, and dealing with, the fur.

    ...

    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. … Stealing a fur stole is not an improper method of cleaning it, but as the employer was a bailee, with custodial responsibility, and it put the goods in charge of a particular employee, then it was proper to regard that responsibility as devolving upon the employee. The theft was so connected with the custodial responsibilities of the employee as to be regarded as in the course of employment; not because it was in furtherance of the employee's responsibilities, but because the nature of his responsibilities extended to custody of the fur as well as cleaning it.

    [33] Lepore (2003) 212 CLR 511 at [48], [52] (footnotes original).

1. Gummow and Hayne JJ made reference to Morris in the following context:[34]

   First, Deatons Pty Ltd v Flew establishes that the fact that an intentional tort is committed by an employee while at work and during ordinary working hours will not always suffice to establish vicarious liability.  Secondly, the fact that the conduct of which complaint is made constitutes a breach of the law may not suffice to deny vicarious liability.  Lloyd v Grace, Smith & Co and Morris v C W Martin & Sons Ltd are often cited in this regard.  Lloyd also supports this third proposition.  This is 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 that [employee] has conducted himself”.

   [34] Lepore (2003) 212 CLR 511 at [228] (footnotes omitted).

2. Kirby J adopted the Lister analysis of Morris:[35]

   In the recent decision in Lister, Lord Millett makes the point that, despite clear law to the contrary, the “heresy”[36] that an employer is not liable for the deliberate and criminal acts of an employee has proved “remarkably resilient” and difficult to excise.  In this regard, the decision to that effect in Cheshire v Bailey[37] has cast a long shadow.  But it can no longer co-exist with a series of cases in England, Scotland and elsewhere holding employers liable for the criminal acts of employees.  The cases in the United Kingdom are collected in the speeches in the House of Lords in Lister.[38]  I will not repeat the analysis of those cases by the House of Lords.  The feeble attempts to distinguish some of the decisions (eg, to show that Morris v C W Martin & Sons Ltd[39] was a case of liability of a bailee, not vicarious liability of an employer) are not supported by the way later courts have regarded them.[40]

   Australian authority has also clearly maintained that intentional wrongdoing of an employee is no necessary bar to vicarious liability.  Isaacs J said so in this Court in Bugge v Brown.[41]  He said that “[t]he master’s responsibility may even exist where the law itself forbids the [employee’s] act as criminal”.  Statements to a similar effect have been expressed in State Supreme Courts, such as “[t]here is no principle of law that an intentional tortious act by a servant can never be within the scope of his employment”.[42]  In decisions of this Court, it has been assumed that intentional wrongs can be the basis of vicarious liability.[43]  So they can.

   [35] Lepore (2003) 212 CLR 511 at [312]-[313] (footnote original).

   [36] Lister v Hesley Hall Ltd [2002] 1 AC 215 at 246 [72]; cf at 224-227 [16]-[20], per Lord Steyn (with whom Lord Hutton agreed at 238 [52]).

   [37] Cheshire v Bailey [1905] 1 KB 237, cited in Lister [2002] 1 AC 2154 at 245-246 [71].

   [38] They include Lloyd v Grace, Smith & Co [1912] AC 716; Central Motors (Glasgow) Ltd v Cessnock Garage and Motor Co [1925] SWC 796; Morris v C W Martin & Sons Ltd [1966] 1 QB 716; A & W Hemphill Ltd v Williams (1966) SC (HL) 31; Rose v Plenty [1976] 1 All ER 97; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; and Racz v Home Office [1944] 2 AC 45.

   [39] Morris v C W Martin & Sons Ltd [1966] 1 QB 716.

   [40] eg, Port Swettenham Authority v T W Wu and Co (M) Sdn Bhd [1970] AC 580 noted in Lister [2002] 1 AC 215 at 226 [19], 247 [76].

   [41] Bugge v Brown (1919) 26 CLR 110 at 117.

   [42] Hayward v Georges Ltd [1966] VR 202 at 211; see also Macdonald v Dickson (1868) 2 SALR 32 at 35, per Hanson CJ, with whom Wearing J concurred.

   [43] See Deatons Pty Ltd v Flew (1949) 79 CLR 370, where each of the reasons assumes that the assault in question could have rendered the employer liable, but that on the facts, it did not occur within the scope of the barmaid’s employment; see also Scott v Davis (2000) 204 CLR 333 at 357 [68], per McHugh J.

3. As earlier observed, the members of the High Court in Lepore enunciated at least four different approaches to the determination of an issue of vicarious liability.

4. Courts considering the issue of vicarious liability frequently begin their analysis with the formulation of the applicable test from Salmond’s Law of Torts.  That test was put in the following terms:[44]

   A master is not responsible for a wrongful act done by his servant unless it is done in the course of his employment.  It is deemed to be so done if it is either (a) a wrongful act authorised by the master, or (b) a wrongful and unauthorised mode of doing some act authorised by the master.

   [44] Salmond, Law of Torts, (1^st ed 1907) at 83.

5. Lord Steyn in Lister considered the test proposed by Salmond as the applicable test for determining whether vicarious liability has been established:[45]

   For nearly a century English judges have adopted Salmond’s statement of the applicable test as correct.  Salmond said that a wrongful act is deemed to be done by a “servant” in the course of his employment if “it is either (a) a wrongful act authorised by the master, or (b) a wrongful and unauthorised mode of doing some act authorised by the master”: …  Situation (a) causes no problems.  The difficulty arises in respect of cases under (b).  Salmond did, however, offer an explanation which has sometimes been overlooked.  He said … that “a master ... 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” (my emphasis): see the citation of Salmond with approval in Canadian Pacific Railway Co v Lockhart [1942] AC 591, 599 (Salmond, Law of Torts, 9^th ed (1936), p 95) and in Racz v Home Office [1994] 2 AC 45, 53 (Salmond & Heuston on the Law of Torts, 19^th ed (1987), pp 521-522; 20^th ed (1992), p 457).  Salmond’s explanation is the germ of the close connection test adumbrated by the Canadian Supreme Court in Bazley v Curry 174 DLR (4^th) 45 and Jacobi v Griffiths 174 DLR (4^th) 71.

   It is not necessary to embark on a detailed examination of the development of the modern principle of vicarious liability.  But it is necessary to face up to the way in which the law of vicarious liability sometimes may embrace intentional wrongdoing by an employee.  If one mechanically applies Salmond’s test, the result might at first glance be thought to be that a bank is not liable to a customer where a bank employee defrauds a customer by giving him only half the foreign exchange which he paid for, the employee pocketing the difference.  A preoccupation with conceptualistic reasoning may lead to the absurd conclusion that there can only be vicarious liability if the bank carries on business in defrauding its customers.  Ideas divorced from reality have never held much attraction for judges steeped in the tradition that their task is to deliver principled but practical justice. 

   [45] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [15]-[16].

6. Lord Millett in Lister also emphasised the test posed by Sir John Salmond, and then added:[46]

   In a passage which is unfortunately less often cited, however, Sir John Salmond (Salmond, Law of Torts, 1^st ed (1907)) continued his exposition as follows, at pp 83-84:

   “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.”

   One of these steps in this analysis could, I think, usefully be elided to impose vicarious liability where the unauthorised acts of the employee are so connected with acts which the employer has authorised that they may properly be regarded as being within the scope of his employment.  Such a formulation would have the advantage of dispensing with the awkward reference to “improper modes” of carrying out the employee’s duties; and by focusing attention on the connection between the employee’s duties and his wrongdoing it would accord with the underlying rationale of the doctrine and be applicable without straining the language to accommodate cases of intentional wrongdoing.

   [46] Lister v Hesley Hall Ltd [2002] 1 AC 215 at [69].

   Consideration of the Appeal

7. Due to her physical disability, Ms Ffrench relied heavily upon carers for most of her daily requirements.  It is to be expected that people in such positions would become dependent on, and develop trust and confidence in, and dependence on their carer.  Ms Ffrench developed such a relationship with Ms Brown.  This relationship rendered Ms Ffrench particularly vulnerable to exploitation by Ms Brown.

8. When the underlying factual circumstances are analysed, it is open to conclude that Ms Sestili was vicariously liable for the dishonest conduct of Ms Brown.  Ms Brown’s engagement in the duty of providing shopping assistance to Ms Ffrench provided Ms Brown with access to Ms Ffrench’s bank accounts.  The success of Ms Brown’s dishonest conduct was inherently linked to Ms Sestili’s business, in that it relied upon and abused the following:

   -the intimacy of the relationship formed between a carer and the cared for;

   -the trust and confidence of Ms Ffrench in Ms Brown engendered by the relationship;

   -the power conferred upon Ms Brown in relation to Ms Ffrench, who, due to her disability, was highly reliant and dependent upon Ms Brown; and

   -the consequent vulnerability of Ms Ffrench. 

9. The application of the sufficient connection test is further delineated by focussing on whether the conduct of Ms Sestili materially increased the risk.  As Gleeson CJ reasoned:[47]

   [T]he sufficiency of the connection between employment and wrongdoing to warrant vicarious responsibility is examined by reference to the course or scope of employment.  In practice, in most cases, the considerations that would justify a conclusion as to whether an enterprise materially increases the risk of an employee’s offending would also bear upon an examination of the nature of the employee’s responsibilities, which are regarded as central in Australia.

   Where an employer has acted in such a way as to increase materially the risk of the occurrence of an employee’s criminal conduct, the sufficient connection test may well be satisfied.

   [47] Lepore (2003) 212 CLR 511 at [65].

10. There are a number of ways in which Ms Sestili can be seen to have materially increased the risk that Ms Brown would defraud Ms Ffrench.  Ms Sestili assigned Ms Brown to provide care services to Ms Ffrench.  These services included shopping duties, without any clear instruction as to the parameters of such duties.  Ms Sestili did not instruct Ms Brown against using a client’s credit card or accessing a client’s bank account.  She did not warn Ms Brown against so doing.  Ms Sestili made no inquiries with either Ms Ffrench or Ms Brown as to how Ms Brown was going about performing the shopping duties.  She was unaware that Ms Ffrench had given Ms Brown her credit card and PIN to the “My Account”.  Ms Sestili failed to maintain a policy of accountability.  She did not require Ms Brown to provide regular reports or updates as to how she was carrying out her duties.

11. Ms Brown’s misuse of Ms Ffrench’s credit card was “sufficiently related” to conduct that was authorised by her employer, Ms Sestili, so as to justify the imposition of vicarious liability.  Ms Sestili’s enterprise was in the business of providing care services to people with disabilities.  Ms Sestili had contracted with the government to provide care services to Ms Ffrench.  Ms Brown was employed by Ms Sestili as a carer.  Ms Brown was assigned by Ms Sestili to care for Ms Ffrench.  Among the duties performed by Ms Brown in the context of her employment and her care for Ms Ffrench was shopping.  To facilitate doing the shopping, Ms Ffrench gave Ms Brown her credit card and PIN to her “My Account”.  Ms Brown used the credit card to pay for the shopping.  Ms Brown used this credit card, obtained in the course of her employment, to access Ms Ffrench’s “Dream Saver Account” and to transfer money to the “My Account” and then to withdraw money from ATMs.

12. Ms Sestili’s conduct materially increased the risk of Ms Ffrench being defrauded at least in the following respects:

    -She did not take adequate care when hiring Ms Brown to ensure that Ms Brown was reliable and trustworthy.

    -She did not warn Ms Ffrench about the risks of providing access to credit cards and bank accounts to carers.

    -She did not adequately monitor how Ms Brown was performing her duties for Ms Ffrench.

    -She did not instruct Ms Brown, as her employee, not to use credit cards or to directly access bank accounts of clients.

13. The relationship between Ms Ffrench and her carer (ie Ms Brown) was characterised by trust, dependence and vulnerability.  Relationships of this nature were considered by both Gleeson CJ in Lepore[48] and by Lord Hobhouse of Woodborough in Lister[49] to give rise more readily to the imposition of vicarious liability for acts committed by an employee than situations where the relationship between employer and client was not so characterised.  In such circumstances, the need for protection against the type of injury ultimately suffered by Ms Ffrench was heightened, as was the obligation on Ms Sestili to take steps to prevent, or at the very least minimise the occurrence of, wrongdoing on the part of her employees.

    [48] Lepore (2003) 212 CLR 511 at [36].

    [49] Lister v Helsey Hall Ltd [2002] 1 AC 215 at [55].

14. An applicable process of reasoning comes directly from the decision in Morris.  The use of the “My Account” was part of the duties of Ms Brown and Ms Howland.  Ms Sestili at the very least implicitly accepted this to be the position.  The magistrate’s conclusion that the use of the “My Account” was in furtherance of Ms Sestili’s enterprise was entirely appropriate.  Ms Sestili put Ms Brown and Ms Howland in their place as carers to use the “My Account” when shopping for Ms Ffrench.  Ms Brown used the “My Account” to effect misappropriations.  Her actions, albeit dishonest, were within the scope or course of her employment.  Ms Sestili was responsible for Ms Brown’s conduct.

    Indemnity

15. In respect of Ms Sestili’s appeal against the magistrate’s finding that Triton was not liable to indemnify Ms Sestili (in the event that Ms Sestili was found liable for the loss suffered by Ms Ffrench), counsel for Ms Sestili submitted that the normal rules of interpretation applied.  This meant that the contract for insurance should be interpreted so as to transfer the liability from Ms Sestili to Triton.  Counsel submitted that Ms Sestili was entitled to be indemnified by Triton because the claim made by Ms Ffrench fell within the terms of the insurance policy.  In other words, it constituted a suit brought against Ms Sestili, claiming damages for personal injury and property damage being loss of tangible property.

16. Counsel for Ms Sestili submitted that the magistrate had misapplied Croton,[50] in that the High Court there affirmed the principle that money in the form of cash is tangible personal property capable of misappropriation and the subject of larceny.  Counsel submitted that Croton supported the conclusion that Ms Ffrench’s claim against Ms Sestili was for loss of tangible property in the form of cash taken by Ms Brown on separate occasions from the ATMs.

    [50] Croton v The Queen (1967) 117 CLR 326.

17. In the alternative, counsel for Ms Sestili submitted that the insurance policy did indemnify Ms Sestili for the claim made by Ms Ffrench, given that Ms Ffrench’s claim had initially included damages for personal injury.  Therefore Ms French’s claim was within the terms of the policy.

18. Finally, counsel for Ms Sestili submitted that the magistrate had erred in finding that the insurance policy did not indemnify Ms Sestili in respect of Ms Ffrench’s claim because there was no occurrence in connection with the business.  Counsel submitted that, within the terms of the policy, “connected with” meant no more than “arising out of”.

19. Counsel for Triton submitted that the policy purchased by Ms Sestili was a broad-form liability policy.  Pursuant to the policy, Ms Sestili was only entitled to the benefit of the policy where a claim was made in respect of personal injury or property damage, which was caused by an occurrence in connection with the business.  Counsel contended that Ms Ffrench’s claim did not arise out of an occurrence in connection with the business conducted by Ms Sestili.  Counsel submitted that an act of fraud or dishonesty would never be covered by the policy because in those circumstances there could be no connection with the business.  Furthermore, counsel submitted that Ms Brown’s dealings with Ms Ffrench’s bank accounts did not amount to “property damage” as defined in the policy because it did not result in the loss of tangible property.  Counsel submitted that the magistrate had correctly applied Croton.

20. To come within the terms of the policy, there must be an event within the meaning of the policy.  The question to be determined in respect of Ms Sestili’s appeal is therefore whether such an event occurred.

21. Under the heading, “Coverage”, in the policy, the following appears:

    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.

    …

    In addition to the Limits of Liability stated in the Schedule, We will:

    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; …

    Under the “Definitions” section of the policy, “property damage” is defined in the following terms:

    -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.

    “Occurrence” is defined as:

    …an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury or Property Damage neither expected or intended from Your standpoint. 

    Connection with the business

22. It is a well-established principle of construction that the terms of an insurance contract are to be given their natural and ordinary meaning.  Counsel for Ms Sestili submitted that the natural and ordinary meaning of “connected with” is no more than “arising out of”.  The definition of “connect” when followed by “with” attributed by the Macquarie Dictionary is “associate or attach”.  The relevant definition attributed to “connection” is “association; relationship”.

23. Counsel for Triton urged the Court to apply the sufficient connection test to determine whether Ms Brown’s dishonest conduct constituted an event within the scope of the policy.  This is incorrect.  The meaning of “connection with the business” in the insurance context is much broader than in the context of vicarious liability.  Accordingly, even if I had reached the conclusion that there was not a sufficient connection between Ms Brown’s conduct and her employment by Ms Sestili, it would not necessarily preclude the finding that it was nonetheless covered by the policy (although obviously the occasion for so finding would never arise).

24. It therefore follows, having concluded above 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, that it was also connected to the business for the purposes of the insurance policy.

    “Loss of tangible property”

1. In Croton, Barwick CJ made the following observations regarding the nature of money:[51]

   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… 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.

   This passage was subsequently affirmed by the High Court in Grant.[52]  It is clear from Barwick CJ’s observations that money in the form of cash is tangible property.  Once the money was withdrawn from Ms Ffrench’s “My Account” via an ATM in the form of cash, that money was the tangible property of Ms Ffrench.  Ms Brown’s misappropriation of that money, in the form of cash, therefore constituted “loss of tangible property” and was an “event” within the scope of the insurance policy.  Different considerations may well apply if there had been a misappropriation by transferring a credit from an account in the name of Ms Ffrench to an account in the name of Ms Brown.  However, this did not occur.

   [51] Croton v The Queen (1967) 117 CLR 326 at 330-331.

   [52] Grant v The Queen (1981) 147 CLR 503 at 509-510 (Gibbs CJ, Mason, Aikin and Wilson JJ).

2. It is unnecessary to consider whether Triton would have been liable to indemnify Ms Sestili for any loss incurred through these proceedings on the basis that the claim was brought on the basis of personal injury.

   Costs of defending the action

3. Having reached the conclusion that Ms Brown’s defalcation was an event within the scope of the policy, being, in effect, property damage, it follows that Triton is also liable for any costs incurred by Ms Sestili through the conduct of these proceedings.  This is to include the costs of both the trial and of this appeal.

   Conclusion

4. The appeal brought by Ms Ffrench is allowed.  The order of the magistrate entering judgment in favour of Ms Sestili as against Ms Ffrench on Ms Ffrench’s claim is set aside.  Ms Sestili is vicariously liable for the total amount misappropriated by her employee, Ms Brown, that amount being $33,350.

5. The appeal brought by Ms Sestili against Triton is also allowed.  The order of the magistrate entering judgment in favour of Triton is set aside.  Triton is liable to indemnify Ms Sestili for the amount of $33,350, being the amount misappropriated by Ms Brown, as well as the reasonable costs incurred by Ms Sestili in the conduct of these proceedings.