A fitter’s mate who stepped on some ductwork in a Tyneside factory inadvertently overturned 200 years of legal tradition – and greatly increased contractors’ liability
For the first time in 200 years of English legal tradition the Court of Appeal has ruled that more than one employer can be liable for an employee’s liability. In the case of Viasystems (Tyneside) Ltd vs Thermal Transfer (Northern) Ltd, which was heard last month, two parties were held to be vicariously liable for the negligent act of a fitter’s mate that led to the flooding of a construction site in South Tyneside, causing “extensive and expensive damage”.
Two hundred years of tradition
The general rule is that an employer is vicariously liable for negligent acts committed by its employees in the course of their employment regardless of whether the employer has been negligent.
The rationale behind this doctrine was described by Lord Justice May in the Viasystems case as: “A policy device of the law to redistribute the incidence of loss from a supposedly impecunious employee, who is personally at fault, to one or more supposedly solvent and insured employers, who are not personally at fault.”
However, alongside this doctrine is an equally well established principle that an employer is not liable for the negligence of independent contractors.
The method most often used to distinguish between an employee and an independent contractor is that of “control”.
In the case of Donovan vs Laing in 1893 the question of control was explained by Lord Justice Bowen as follows: “We have only to consider in whose employment the man was at the time when the acts complained of were done … by “the employer” is meant the person who has a right at the moment to control the doing of the act.”
It doesn’t matter with whom the negligent individual has his contract of service. This was made clear by Lord Denning 62 years later in the case of Denham vs Midland Employers’ Mutual Assistance Ltd.
He said that no transfer of the service contract was required. “The real basis of the liability is simply this: if a temporary employer has the right to control the manner in which a labourer does his work, so as to be able to tell him the right way to do it, then he should be responsible when he does it in the wrong way. The right of control carries with it the burden of responsibility.”
Ever since the early 19th century it has been assumed that only one entity can have control over the individual at the relevant time and therefore that only one entity can have vicarious liability for their negligent acts.
A worker’s blunder
The Viasystems case involved the installation of air-conditioning in a factory. Viasystems contracted with Thermal Transfer to carry out the work, and Thermal subcontracted the ducting
to S&P Darwell which in turn entered into a labour-only subcontract with CAT Metalwork Services for fitters and fitters’ mates. One of the fitters supplied by CAT was Mr Megson, and his mate was Darren Strang.
Megson and Strang were installing ductwork under the supervision of Mr Horsley of S&P when Strang fractured part of the fire protection sprinkler system and flooded the factory. The court determined that Strang was negligent but that neither his immediate boss, Megson, nor the supervisor, Horsley, were negligent.
It appeared, therefore, a classic case of deciding whether S&P or CAT should be held vicariously liable for Strang’s negligence. The Court of Appeal decided that they both were – equally.
The court concluded that Strang was part of CAT’s “small hired squad” under the supervision of Megson, but was also part of S&P’s “team” under the supervision of Horsley and that both Megson and Horsley were entitled and obliged to control Strang’s work.
If one employer tells him to do one thing and the other tells him to do the opposite, he will not know what to do. In the real world there has to be a chain of control to prevent anarchy on site
Serving two masters
The Court of Appeal seemed to have no problem in concluding that more than one entity could be responsible for exercising control over the negligent individual.
Lord Justice May put it as follows: “If, on the facts of a particular case, the core question is who was entitled, and in theory obliged, to control the employee’s relevant negligent act so as to prevent it, there will be some cases in which the sensible answer would be each of two ‘employers’. The present is such a case.”
Dual vicarious liability meant that both S&P and CAT were severally liable to Viasystems so that Viasystems could seek to recover 100% of its loss from either S&P or from CAT.
However the court also held that there should be equal division of contributory responsibility between S&P and CAT. In other words if Viasystems sought to recover 100% from S&P, then CAT would have to give S&P 50% and vice versa.
Lord Justice May said: “For dual vicarious liability, equal contribution may, depending on the facts, be close to a logical necessity.”
But is it really “logical” and a “sensible answer” to say that two employers have equal control over an individual?
By definition, if one tells him to do one thing and the other tells him to do the opposite he will not know what to do. In the real world there has to be a chain of control to prevent anarchy on site.
That being the case, there will always be one entity with more actual control over the acts of an individual, and in those circumstances, you have to wonder whether there is any sense in, and therefore any need for, a doctrine of dual vicarious liability.
Nevertheless, following Viasystems, we now have a doctrine of dual vicarious liability to contend with. This will undoubtedly result in future claims involving multiple defendants in the hope that dual, triple or even quadruple vicarious liability will be found so that the claimant has more than one set of pockets to pursue.
The circumstances of the Viasystems case were considered by Lord Justice May as “a paradigm example” of a situation where there should be dual vicarious liability. If so then dual vicarious liability is now going to rear its head in hundreds, if not thousands, of situations and will, potentially, be a major issue in subcontracting, particularly in labour-only subcontracts.
How can this be solved? The Court of Appeal’s solution is: “The two employers will generally be able to contract between themselves as to the basis of contribution. In practice, any such contract is likely to place responsibility entirely on the one side or the other, often accompanied by further provisions regarding insurance. In such a case, while both employers will each be fully liable to the claimant, only one will be liable inter-se [between them], for the effect of their contract will be recognised within contribution proceedings.”
So, much more detailed subcontracts and sub-subcontracts are going to be required. But even if such a detailed subcontract has been put in place – and how often does that happen? – if the party to the subcontract shouldering the blame has become insolvent, or hasn’t put in place the necessary insurance, then the doctrine of dual vicarious liability still means that the other party will be liable for 100% in circumstances where, prior this doctrine being developed, they might well have had no liability whatsoever.
At first blush, existing third-party insurance policies should cover this risk as they are normally written to cover a company for its “legal liability” to third parties. However, insurance companies have, presumably, like everyone else, been working on the 200-year-old assumption that a negligent individual could only have one “employer” who could be found to be vicariously liable. By definition, dual vicarious liability must double the risk to insurance companies. The usual response to higher risk is higher premiums.
Peter Rees is a senior partner at Norton Rose