A warning sounded by the House of Lords.
Vicarious liability is something of a fundamental concept in the law of tort - and is inherently linked to the employment relationship. Many of us who studied tort law at University will recall cases such as Williams v A&W Hemphill Limited 1966 SC (HL) 31, which involved a question concerning the liability of the employer of a lorry driver who deviated substantially from a prescribed route causing an accident. That case, which involved a question of vicarious liability in the context of negligence, resulted in a finding for the plaintiffs, enabling a claim to be brought against the driver's employer.
Over more recent years, however, increasingly more difficult questions have arisen in this area as the principle of vicarious liability is considered in the context of new fact situations. The recent decision of the House of Lords in Lister and Others v Hesley Hall Limited  UKHL 22 (3 May 2001) is the most recent decision in the area which, given its nature, may be of particular interest to New Zealand employers.
The case concerned an institution called Axeholme House, a boarding annex of a secondary school in Doncaster. The school and boarding annex were owned and managed by Hesley Hall Limited as a commercial enterprise. In essence, the school was maintained for children with emotional and behavioural difficulties who were generally sent to the school by local authorities. The aim of the institution was to provide an environment for boys to adjust to normal living.
The boarding annex was maintained by a warden and his wife - who were responsible for the day-to-day running of the house and for the maintenance of discipline outside of school hours. On most days the warden and his wife were the only members of staff on the premises of the boarding house.
The respondents to the House of Lords proceeding (the employers of the warden) accepted that, unbeknown to them, the warden had systematically sexually abused boys in Axeholme House over a number of years. The abuse took a variety of different forms, up to and including actual sexual intercourse. None of the boys made any complaint about the behaviour at the time. In the early 1990s, however, complaints were made and a police investigation was initiated. The outcome of that investigation was a criminal proceeding which resulted in the warden being sentenced to seven years' imprisonment for multiple offences involving sexual abuse.
The proceeding before the House of Lords involved claims by the appellants (the boys who were abused) for personal injury. The boys sought to bring their claims for compensation not against the warden, but against the employer. In order to succeed, therefore, the boys had to establish the employer's vicarious liability for the acts of the warden.
A claim specifically of this type would, of course, be prevented in New Zealand by the operation of the accident compensation legislation. In brief, it would not be possible for the boys to seek compensation for personal injury in the same way in which this action was brought in England. The case is, however, still relevant for New Zealand employers for a number of different reasons. First, the decision on the question of vicarious liability has a more general application outside of the realm of personal injury litigation. Secondly, over recent years there has been a significant increase in the number of claims brought in this country seeking exemplary damages in cases involving sexual abuse. Cases of that nature may involve questions of vicarious liability not unlike that considered by the House of Lords in this case.
In the course of his judgment, Lord Steyn recognised what he identified as the inherent difficulty in cases involving claims of vicarious liability. He quoted a passage from Fleming's Law of Torts describing the position as "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". The employers in this case were, of course, unaware of the actual wrongdoing and had not participated in it or condoned in any respect. From the boys' perspective, however, there was no merit in pursuing the actual wrongdoer himself - the only realistic avenue for the actual compensation lay with the claim against the employer.
The difficulty confronting Their Lordships lay in the reconciliation of a line of case law which had developed (essentially in response to sexual abuse claims). The most recent decision in this line (which received particular consideration) was Trotman v North Yorkshire County Council  LGR 584. That case had involved a claim brought by a child against a local body council in respect of abuse which had occurred during a school trip to Spain. In the course of the trip the Deputy Headmaster of the boy's school (an employee of the local body council) had indecently assaulted the child. At the core of the Court of Appeal's reasoning in that case was a conclusion that the sexual assault complained of was "far removed from an unauthorised mode of carrying out a teacher's duties on behalf of his employer". In other words, the Court was reluctant to impose liability on an employer in respect of acts which could hardly be said to have been carried out by an employee as part of his job.
While a conclusion along these lines might be thought to be appropriate in the context of sexual abuse, it might not represent an outcome which would be expected more generally. A claim for vicarious liability will frequently involve an allegation that an employee was guilty of conduct which should not have been undertaken during the course of employment - for example: negligent or irresponsible driving or fraudulent maintenance of customer accounts. In some ways, the conclusion of the Court of Appeal might be thought to be the high water mark for employers - enabling a defence to be brought along the lines of "my employee was not employed to do that, so I cannot be liable for those acts".
Lord Steyn characterised it as a principle amounting to "the greater the fault of the servant, the less the liability of the master".
In the event, Their Lordships concluded the approach of the Court of Appeal in Trotman case was incorrect. They held that the reality was that the County Council had been responsible for the care of vulnerable children and had employed the Deputy Headmaster to carry out that duty on its behalf. There was, therefore, a very close connection between the employment and the commission of the torts. In the same way, on the facts of the case before the House of Lords, Their Lordships concluded that the evidence showed that the employer had entrusted the care of children in Axeholme House to the warden, and that the warden's sexual abuse of the boys was inextricably interwoven with the carrying out of his duties.
The House of Lords ruled in favour of the boys, entering judgment and making a ruling for damages to be assessed.
This is a decision which may be of significance to New Zealand employers in the future. As a matter of principle, it is now established that an employer may be liable for the unauthorised acts of an employee, where those acts are "closely connected" with the nature of the wrongdoer's employment. The decision is of obvious application to employers who are generally entrusted with the care of others (such as boarding schools and hospitals). The general principle may, however, extend further to make an employer answerable for psychological damage effected by an employee's wrongdoing - for example, in certain cases of sexual harassment.
With the unfortunate increase in claims of this nature, and the New Zealand Courts' general tendency to allow such claims to be brought, the issues considered by the House of Lords in the Lister case will inevitably receive some consideration by the Courts in this country in the near future.