11. Company liability in tort and crime

Contract and tort are different

A company that breaks a contract is liable in contract, not in tort. Tort liability arises where the company, or someone for whom it is responsible, commits a tort such as negligence, deceit or conversion. The same facts can sometimes give rise to both.

Vicarious liability

A company, like any employer, is vicariously liable for torts its employees commit in the course of their employment.

Fraud by an agent: in Lloyd v Grace Smith a solicitors' managing clerk tricked a client into transferring her property to him. The firm was liable, although it did not benefit, because the clerk was doing the kind of work he was employed to do.

Theft by an employee: in Morris v CW Martin an employee stole a fur coat sent to his employers for cleaning. The employers were liable, because they had entrusted the coat to him.

Close connection: in Lister v Hesley Hall the warden of a boarding house abused boys in his care. The House of Lords held the employer liable, because the abuse was so closely connected with his employment that it was fair and just to hold the employer liable.

Direct liability: the directing mind

Some wrongs need a guilty mind or personal fault. Here the courts identify the people whose state of mind counts as the company's.

Lennard's Carrying v Asiatic Petroleum: the fault of the director who actively managed the company's ships was the company's own fault, so it could not rely on a statutory defence available only where the owner was not at fault.

Tesco v Nattrass: a store manager was not part of Tesco's directing mind. Tesco had set up proper systems at board level, so it could use the statutory defence that the offence was due to the act or default of another person.

Liability of officers

Directors and officers are not liable for the company's wrongs just because of their office. But a director who personally commits or directs a tort can be liable with the company, and the Act creates offences that make officers in default personally liable.