on 09-Jul-2016 (Sat)

Under the Employers’ Liability (Compulsory Insurance) Act 1969 all employers have to obtain compulsory insurance for their employees.

O’Kelly v Trusthouse Forte [1984] QB 90 concerned a casual waiter found not to be an employee on the grounds that he had no obligation to work, nor did his employers have any obligation to provide him with work.

In JGE v Trustees of the Portsmouth Roman Catholic Diocesan Trust [2012] EWCA Civ 938 the claimant sought damages for sexual abuse and rape carried out by a parish priest whilst she was living in a children’s home run by nuns. The court accepted that the priest was not an employee of the Roman Catholic diocese, but took the radical step of extending vicarious liability to a relationship ‘akin to employment’. The test was whether the relationship of the diocese and the priest was so close in character to one of employer/employee that it was just and fair to hold the diocese vicariously liable.

In Various Claimants v Institute of the Brothers of the Christian Schools [2012] UKSC 56 the Institute, an unincorporated association of lay brothers of the Catholic Church, was held vicariously liable for the acts of brothers supplied to teach in a residential school who abused pupils. Lord Phillips stated that the policy underlying vicarious liability ‘is to ensure, so far as it is fair, just and reasonable, that liability for a tortious wrong is borne by a defendant with the means to compensate the victim’. These decisions leave uncertainty as to the boundaries of vicarious liability, and they also demonstrate, once again, the extent to which policy pervades tort law.

In Mersey Docks and Harbour Board v Coggins and Griffiths [1947] AC 1 the House of Lords stated that, as a general rule, the employer (E) would remain vicariously liable and that it would be difficult for E to rebut this presumption.

As a general rule the courts have adopted a wide interpretation in establishing what is not in the course of employment. If the employee’s act was not carried out in the course of employment, he will be deemed to have been on a ‘frolic of his own’ (Joel v Morrison (1834) 6 C & P 501) and the employer will not be vicariously liable. This is so if an employee acts outside the scope of his employment, i.e. does something he is not authorised to do or performs an act he is expressly prohibited from carrying out.

An unusual situation arose in Makanjuola v Commissioner of Police for the Metropolis (1992), The Times, 8 August 1989 in which a Nigerian woman unsuccessfully claimed against the Police Commissioner for intimidation and sexual assault. She had consented to sex in return for a police officer refraining from reporting her alien status to the immigration authorities. Although s 48 Police Act 1964 stated that the Commissioner of Police would be vicariously liable for the actions of his police officers, this would only apply if such acts were in the course of the police officer’s employment. The police officer’s actions were not in the course of his employment.

Usually, where an employee does an act which has been expressly prohibited by the employer, then that act, for the purpose of any subsequent vicarious liability claim, will be seen as being outside the course of employment.

In Twine v Bean Express Ltd [1946] 62 TLR 458, despite express instructions not to do so, a lorry driver (an employee) picked up a hitch-hiker, who was subsequently injured as a result of negligent driving. The Court of Appeal found that the hitch-hiker was a trespasser and the employee was not acting within the scope of his employment.

Similarly, in Conway v George Wimpey & Co [1951] 2 KB 266 drivers were expressly prohibited from giving lifts to employees of other companies. The plaintiff was injured as a result of negligent driving by the employer’s driver. The defendants evaded vicarious liability as the driver was doing an expressly forbidden act.

In deviation cases, the issue arises as to how much of a detour from an authorised route a driver can make before it can be said that he is on a frolic of his own. A new and independent journey that has nothing to do with his employment is not covered by vicarious liability.

In Storey v Ashton (1869) LR4 QB 476, a driver returning from delivering wine as instructed by his employers was persuaded to set off on a deviation from the route back to his employer’s premises. The plaintiff, who was injured by his negligent driving, was denied recompense from the employer, on the grounds that the employee was not acting in the course of employment.

Much depends upon the extent of the deviation, whether travelling was in working time and the actual purpose of the journey. The leading authority is Smith v Stages [1989] 2 WLR 529 in which two employees were injured in a car crash. As they had been paid travel expenses and they were within working hours, the House of Lords held that they were in the course of employment.

It is well established that employees are generally outside the scope of their employment whilst travelling to and from work unless on their employer’s business.

The courts have traditionally applied a stricter approach to cases involving an employee’s criminal activities when determining if they are within the course of employment. As a general rule, there is a presumption that such activity is outside the course of employment. This, however, is not an inflexible rule and the courts appear to have taken a more liberal approach when considering this issue in recent years.

In Warren v Henleys Ltd [1948] 2 All ER 935, an employee petrol attendant gave the plaintiff customer ‘one on the nose to get on with’ after an altercation over payment. It was held that this was an act of personal vengeance which was outside the course of employment

In Heasmans v Clarity Cleaning [1987] ICR 949 an office cleaner was held to be acting outside the course of employment in making long-distance telephone calls from the office she was supposed to be cleaning.

Similarly, in Irving v The Post Office [1987] IRLR 289, a postal worker was held to be on a ‘frolic of his own’ in writing racial abuse on letters addressed to the plaintiff. Although authorised to write on the mail, the abuse was not an authorised act.

However, a different conclusion was reached in Fennelly v Connex South Eastern Ltd [2001] I.R.L.R. 390 in which the claimant was assaulted by the defendant’s employee following a dispute about ticket verification. The Court of Appeal held that it was artificial to say that the assault was separate from what the claimant’s assailant was employed to do, which was to verify payment for the journey, and that the series of events comprised a single incident.

A similar conclusion to Fennelly was reached in Mattis v Pollock (t/a Flamingo’s Nightclub) [2004] 4 All ER 85. A bouncer was chased out of the defendant’s nightclub where he was an employee. The bouncer ran to his home and returned with a knife. A short distance away from the nightclub he came across a group of people, including the claimant, some of whom had been involved in the earlier incident. The bouncer grabbed the claimant and stabbed him in the back, causing him severe injuries. The Court of Appeal held that since the stabbing represented the culmination of the incident that had started within the club, the nightclub was liable for the bouncer’s assault on the claimant. Approaching the matter broadly, at the moment when the claimant was stabbed, the defendant’s responsibility for the bouncer’s actions was not extinguished.

In Wallbank v Wallbank Fox Designs [2012] EWCA Civ 25 an employee reacted violently to an instruction properly given at work by a senior colleague and assaulted that colleague. This was held to be within the course of his employment because working in a factory environment is apt to lead to frustrations which may result in violence.

Similarly in Lister v Hesley Hall Ltd [2002] 1 AC 215 the defendant company, who ran a local authority childrens’ home, was held vicariously liable for sexual abuse committed by one of its employees, a house father. Lord Steyn stated that the correct approach when determining this issue ‘is to concentrate on the relative closeness of the connection between the nature of the employment and the particular tort.’ In this case, the warden’s torts were so closely connected with his employment that it was held to be fair and just to hold the employer vicariously liable.

This principle was also applied in Gravil v Carroll and Another [2008] EWCA Civ 689 in which the claimant was injured by a punch from the first defendant during a rugby match. The claimant sought damages vicariously from the defendant’s rugby club, who employed the defendant. On appeal the claimant was successful, given that the player’s contract required him not to engage in such behaviour, and therefore there was a close connection between what was done and the defendant’s employment.

The issue of whether an employer is vicariously liable for a breach of statutory duty by an employee was considered in Majrowski v Guy’s and St Thomas’s NHS Trust [2005] EWCA Civ 251. The claimant alleged that he had been harassed by his manager within the meaning of s 1 of the Protection from Harassment Act 1997 and that their mutual employer was vicariously liable for the manager’s behaviour. It was held that vicarious liability could be imposed for breach of statutory duty as well as for common law claims, provided the test in Lister v Hesley Hall was made out.

Following Lister v Hesley Hall [2002] 1AC 215, and MAGA (both above) it appears that this line of authority relating to vicarious liability for intentional torts will now be deemed to be of general application.

Under s 1(1) Civil Liability (Contribution) Act 1978 an employer may be entitled to seek an indemnity from his employee should he be forced to pay damages in respect of the employee’s tort. The court will allow such a claim if it is ‘just and equitable’ to do so.

A person who engages an independent contractor is not generally liable for torts committed by them in the course of their work. This is known as the ‘Personal Duty Theory’. As such they are responsible for their own actions and should take appropriate precautions, including obtaining professional indemnity insurance, (Rowe v Herman [1997] 1 WLR 1390) although the courts have not always been consistent in their approach to this issue.

The words in each document are interpreted in their context, rather than according to previous cases – so the same words may not have the same effect. In Re Hamilton [1895] 2 Ch 370, Lindley LJ said:

You must take the will which you have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one you have to construe.

There may be a problem where words are used which had been held to create a trust in decisions before the change in attitude. Identical words from an older case may be interpreted in the same way if the whole gift is identically worded, because they may have been used as a precedent. Re Steele’s Will Trust [1948] Ch 603 suggests that, in such a situation, the earlier decision should be followed unless it is clearly wrong. (The court followed the interpretation given to words in Shelley v Shelley (1868) LR 6 Eq. The will had been prepared with professional help and the case of Shelley had then stood for 80 years.)

Where there is no ‘document’ creating a trust, the court must look at the words and/or conduct of the parties to see if there was an intention to create a trust

In Paul v Constance [1977] 1 WLR 527 the county court judge found an intention to create a trust where a man had told his cohabitant that the money in his bank account was as much hers as his and ordered half the money to be paid to her after his death, rather than pass to his wife. The Court of Appeal upheld this, Bridge LJ saying that the question was whether in the circumstances, Mr Constance had done something which was equivalent to declaring himself a trustee of the moneys in the account for himself and Mrs Paul in equal shares. Scarman LJ said that this was a borderline case because one could not pinpoint a specific moment of declaration but in all the circumstances the discussions on numerous occasions between Mr Constance and Mrs Paul constituted an express declaration of trust.

A trust cannot arise if the relevant language reveals that the payer of money to a payee only intended a debtor-creditor relationship to arise, the payee being free to mix the money with his own and deal with it as he pleases, as in Azam v Iqbal [2007 EWHC 2025 Admin, rather than retain the money as a separate fund. However, T being free to mingle received moneys with moneys of others is consistent with a trust of the mixed fund where the segregated mixed fund is held as a pooled investment on trust for the payers in proportionate co-owned shares (Re Lewis’s of Leicester Ltd [1995] 1 BCLC 428) or where the amount in the mixed fund is not to fall below the amount of the money paid in for a temporary period, e.g. before being paid into a separate account

Re Kayford [1975] 1 All ER 604 A mail-order company fearful that it might go into liquidation may pay customers’ moneys into a separate bank account opened for the purpose of protecting them from merely being debtors of the company if not receiving their ordered goods. This will amount to a trust of the moneys for the customers. Of course, a customer on sending his cheque to such a company to buy goods could himself by covering letter require the company to hold the cheque money (as soon as cleared) on trust for himself.

If, however, the cheque was paid into an overdrawn account of the company, the money then disappears in discharging the company’s debts so that no trust fund is ever constituted: Moriarty v Various customers of BA Peters plc [2008] EWCA Civ 1604.

Certainty of subject-matter comprises two separate, though related, aspects, namely certainty of:

1. Property – it must be certain what property is subject to the trusts;
2. Beneficial entitlements – it must be certain what part or share of the property each beneficiary is entitled to where there is a fixed trust as opposed to a discretionary trust.

Sprange v Barnard (1789) 2 Bro CC 585 A testatrix provided in her will: ‘... for my husband Thomas Sprange, to bewill him the sum of £300 ... for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use, to be divided between...’ her brothers and sisters. The court granted a declaration that Thomas Sprange was entitled absolutely. There was no certainty as to property. It was not certain that any property would be left at the widower’s death, let alone what it would be. One could not say what property the trust was to ‘bite’ on, so the subject-matter was uncertain; there was no trust, so he took absolutely.

Note; that it was not sufficient to argue that on the widower’s death the remaining part of the money that was left would be certain. A trust creates rights and duties at the moment of its creation, and must be certain at the moment of its creation, so at the date the testatrix’s will took effect it needed to be certain how much was to be divided by her husband after his death. That was not certain at that stage. Note; that a testator who leaves his residuary estate on trust for A for life, remainder to B creates a valid trust of the residuary estate as it is ascertainable after payment of all proper taxes, expenses, debts and legacies.

Palmer v Simmonds (1854) 2 Drew 221 The testatrix gave her residuary estate to Thomas Harrison ‘for his own use and benefit, as I have full confidence in him, that if I die without lawful issue he will . . . leave the bulk of my said residuary estate’ to specified persons. The use of the words ‘full confidence’ at that time would have been sufficient to create a trust. The court held the phrase ‘the bulk of my estate’ was not sufficiently certain for a trust, so Thomas Harrison took the property absolutely. A trust of an unidentified section of chattels (tangible property) will fail, whereas a trust of an unidentified section of intangible property, such as shares, is valid.

Re London Wine Co (Shippers) Ltd [1986] PCC 121 Buyers of wine stored in various warehouses could not establish a trust of particular bottles in their favour as the bottles had not been segregated or identified in any way. So when the wine supplier went into liquidation, the customers could not claim priority over other creditors by saying that particular bottles of wine were held on trust for them.

Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 (CA). A building contract provided that part of the contract price would be retained and held by the employer as trustee for the builder. The employer became insolvent. The builder claimed the retention money in priority to other creditors. It was held that there was no trust because no retention fund had been set up, so no identifiable assets had been impressed with a trust.

Re Goldcorp Exchange Ltd [1995] AC 74 Purchasers of bullion, who had paid for it but had not taken delivery, claimed rights to it on the insolvency of the company. Their claims were rejected, apart from a group whose bullion had been segregated. There was no trust for the others as there was no identifiable property on which any trust could attach. No particular bullion had been segregated for them.

In contrast, a trust of an unidentified section of intangible property is valid: In Hunter v Moss, who owned 950 of the 1000 issued shares of a private company, orally declared himself a trustee of 5 per cent of the issued shares. This 5 per cent amounted to 50 shares. This was held to be sufficiently certain even though no particular 50 shares had been identified as subject to the trust, so it was unclear which 900 were retained by Moss. Colin Rimer QC, the judge at first instance, thought it significant that the subject-matter of the trust was intangible, since tangible assets, although apparently similar, may have distinguishing characteristics, for example some bottles of wine might have deteriorated. Intangible property, however, is all the same, provided the shares are of the same class, so there is no need to identify which 50 shares are being held on trust. Whilst Dillon LJ in the Court of Appeal stated that all the shares were identical, he held that the inter vivos trust was valid because there would have been a valid testamentary trust if Moss had died, by will leaving 50 shares for X and the remaining 900 for Y. This analogy is, however, erroneous because such a testator has clearly divested themself of all beneficial ownership in the 950 shares in favour of X and Y between them absolutely entitled to the 950 shares, but Moss was claiming he had not yet divested himself of any identifiable beneficial interest in the shares, To do this he would have had to send his certificate for 950 shares to the company secretary to issue two certificates to Moss, one for 900 and one for 50 so that the latter could then be held on trust for Hunter.

After all, paid-up shares are issued without any distinguishing numbers, so that the issue is an indivisible bulk of intangible fungibles, all share owners being co-owners of the bulk. If one of them purports to transfer 50 or declare a trust of 50, they are not dealing with 50 identifiable units of the bulk but with a fraction of the bulk corresponding to the proportion between the 50 and the total number of shares. It is convenient and natural to refer to numbers of shares rather than to fractions of share capital. The conversion of numbers into fractions creates the necessary certainty.

Boyce v Boyce (1849) 16 Sim 476 In this case, a testator devised his houses in Southwold to trustees on trust for his widow for life and after her death in trust to convey to his daughter Maria one of the houses, whichever she [i.e. Maria] should choose, and to convey ‘all my other houses’ to his daughter Charlotte. Maria died in the testator’s lifetime and so could not choose any particular house. Consequently the trust in favour of Charlotte was void as it was uncertain what property the trust applied to.

Re Golay’s Will Trusts [1965] 2 All ER 660 The testator directed his executors to allow the beneficiary to ‘enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.’ It was held that the trustees could select a flat (it is arguable that there was uncertainty as to which flat it should be, but this was not raised as an issue in the case) but the question arose as to whether the direction for ‘a reasonable income’ was void for uncertainty. Ungoed-Thomas J held the gift valid.

Where a trust fails for lack of certainty of subject-matter, the position is as follows:

• If the property itself is uncertain, no trust is created;
• If a purported ‘trust’ is grafted onto a gift, the donee takes the gift absolutely, as in Sprange v Barnard and Palmer v Simmonds, (above);
• If the beneficial interests are uncertain, there will be a resulting trust, as in Boyce v Boyce (above).

There is no uncertainty of subject-matter if the means for determining it are laid down, e.g.:

• Trustees are given a discretion to determine the beneficial interests; or
• It is possible to apply the maxim ‘equality is equity’; or
• Settlor lays down an effective determinant as in Re Golay.

Note that ‘the residue’ of an estate is ascertainable, and therefore certain.

The test of certainty of objects (or beneficiaries) depends on the type of trust in question. A greater degree of certainty is required for a fixed interest trust than for a discretionary trust.

In McPhail v Doulton [1971] AC 424, the House of Lords relaxed the test for discretionary trusts, adopting the less strict test which applies to mere powers of appointment. Lord Wilberforce deliberately characterised the powers of trustees of a discretionary trust as ‘trust powers’ because the trustees were under a duty to exercise those powers, while the trustees were under no such duty in respect of mere powers of appointment. Trust powers and powers of appointment were both powers and so should be subject to the same test for certainty. Note; that in a discretionary trust deed the trustees often have a discretionary mere power of appointment (e.g. in favour of charity or another branch of the settlor’s family) that they may or may not exercise as they see fit from time to time, as well as their basic discretionary trust power that they must exercise to distribute income or capital to such beneficiaries as they choose, if they do not choose to exercise their mere power of appointment

The test for certainty of objects of powers of appointment was laid down by the House of Lords in Re Gulbenkian’s Settlement Trusts [1970] AC 508. Lord Upjohn said: The power is valid if it can be said with certainty whether any given individual is or is not a member of the class and does not fail because it is impossible to ascertain every member of the class.

In Public Trustee v Butler [2012] EWHC 858 (Ch) Morritt C held that a power to appoint income to help ‘the deserving material hardship cases amongst my relatives’ was void due to uncertainties flowing from the use of the word ‘deserving’, though use of the word ‘promising’ in a power to use income to provide scholarships for promising relatives did not create uncertainties.

It is in the nature of a fixed interest trust that each beneficiary has a definable interest in the trust fund. If the trustees are to distribute it equally or in fixed proportions, they must be able to say who all the beneficiaries are.

The test for a fixed interest trust is the ‘list test’, i.e. it must be possible to draw up a complete list of all the beneficiaries – IRC v Broadway Cottages Trust [1955] Ch 20.

In the case of a class gift, this test is sometimes referred to as the ‘class ascertainability test’ because it must be possible to ascertain who all the members of the class are. For example, ‘to all my grandchildren living at my death’ – it is possible to list all the grandchildren; (if the existence or whereabouts of a particular grandchild cannot be ascertained, the trust is still valid as the court may make an appropriate order as to the distribution of the trust fund).

However, McPhail held that the test for certainty of objects in a discretionary trust is the ‘is/is not test’, not the ‘list test’. Lord Wilberforce set out his reasons for adopting the ‘is/is not test’ rather than the ‘complete list test’. He said that in executing the trust, the court should try to give effect to the settlor’s intentions; equal division would often not be the most appropriate method for this type of trust (although it might be for a ‘family’ trust in favour of a limited class). Although the trustees have a duty to consider the range of possible beneficiaries and select from the class, this does not mean that ‘they must have before them, or be able to get, a complete list of all possible objects’. Generally, a settlor intends to benefit an inner (or core) category of beneficiaries and not the outer category. In executing the trust according to the settlor’s intentions, distribution may be made unequally and it may exclude some (or most) of the class. Lord Wilberforce regarded discretionary trusts as, in essence, trust powers (powers that must be exercised) which should be subject to the same certainty test as mere powers of appointment (that may or may not be exercised), both types of powers being capable of being exercised unequally.

‘Conceptual certainty’ refers to the precision of language used by the settlor to define the class of persons whom he intends to benefit.

‘Evidential certainty’ refers to the extent to which the evidence in a particular case enables specific persons to be identified as members of the class (i.e. as coming within the definition). The question therefore is whether you can come up with some evidence to categorically prove that the particular individual comes within the class, for example, a birth certificate to prove that X is Y’s son and therefore within the class of Y’s ‘children’.

It seems that a fixed trust requires both conceptual and evidential certainty in order to draw up a complete list of all beneficiaries, but that the ‘is/is not test’ for discretionary trusts is concerned only with conceptual certainty and not with evidential certainty (see inter alia Sachs LJ in Re Baden’s Deed Trusts (No 2) [1973]).

After referring to the distinction between conceptual certainty and evidential difficulties, Lord Wilberforce said that even if the class is conceptually certain, making the discretionary trust valid, it may be void for administrative unworkability.

administrative unworkability, was mentioned by Lord Wilberforce in McPhail v Doulton and came up in R v District Auditor ex p West Yorkshire Metropolitan County Council [1986] 26 RVR 24. Without deciding whether the class of potential beneficiaries, ‘the inhabitants of West Yorkshire’ – being some two and a half million people – was conceptually certain, Lloyd LJ considered that the trust was ‘quite simply unworkable’.

This does not seem to apply to powers on the basis that while the court cannot positively compel trustees to exercise powers of appointment, it can positively compel trustees to exercise their discretionary trust powers, so the court must be in a position to carry out its positive function – see Templeman J in Re Manisty’s Settlement [1974] Ch 17 who concluded ‘that a power cannot be uncertain merely because it is wide in ambit.’

Thus a discretionary trust for everyone in the world except the settlor and his spouse and also the trustees and persons related to them by blood or marriage (the Excepted Class) is void, but the trustees’ power of appointment in favour of everyone in the world but the Excepted Class is valid.

It is important to decide whether a particular gift is a discretionary trust or a gift subject to a condition precedent, as shown by Re Barlow’s WT [1979] 1 All ER 296 . Here the testatrix died owning a large collection of valuable pictures. Some of these were given to her executor to hold on trust for sale subject to a direction that ‘all or any member of my family and any friends of mine who wish to do so [may] purchase any of such pictures’ at the lower of probate value or 1970 catalogue price. This was held to be a gift subject to a condition precedent, not a discretionary trust.

The case for validity rested on Re Allen [1953] Ch 810, a case concerning the validity of a gift subject to a condition precedent, which decided such a gift is valid if it is possible to say of one or more persons that he or they qualify although it may be difficult to say of others whether they qualify or not. As the case had not been overruled by McPhail v Doulton Browne- Wilkinson J was happy to follow it in Re Barlow’s WT. He decided that the direction conferred a series of options to purchase, each conditional on the claimant being a ‘friend’. The direction was valid, as anyone who could prove that ‘by any reasonable test he or she must have been a friend of the testatrix’ was entitled to exercise the option (and he indicated certain minimum requirements for friendship, which you may or may not agree with!) He noted that if it had been a discretionary trust, the word ‘friends’ would have been too uncertain, citing Re Lloyds Trust Instruments (1970), unreported

A discretionary trust or power for ‘friends’ is void for uncertainty as indicated by Lord Upjohn in Re Gulbenkian’s ST because one cannot lay down precise requirements for a ‘friend’, yet Browne-Wilkinson J did so in Re Barlow’s WT.