Liability for Assisting in Fraudulent Schemes

Lawyers in a firm ought to be aware of the nature of work being undertaken by other lawyers in the firm lest the whole firm becomes liable for unethical work carried out by one of its lawyers.

Some lawyers think it does not matter how they use their legal skills, so long as they get paid a fee for their services. Others, while they may keep to the ‘straight and narrow’, have little or no idea about how their partners are engaged — what matters is that they are ‘billing’.

If you happen to take either of these approaches, you might take a few lessons from the case of Dubai Aluminium Co Ltd v Salaam & Ors, House of Lords, 5 December 2002.

In this case the claimant was induced to pay US$50m under bogus consultancy agreements and sub-agreements.

The proceeds were shared out among the principal participants S and T. The claimant brought an action against (among others) S, T and the solicitors acting for S.

‘A’, the firm’s senior partner, dealt with S’s affairs. A had not benefited from the fraud except by way of relatively modest amounts paid to his firm by way of fees. His partners were personally innocent of any wrongdoing. However, A had dishonestly assisted in the fraud by drafting the agreements and administering the fraudulent scheme. The claimants claimed that his firm was vicariously liable for his acts.

The decisions in the House of Lords related to the claim for contribution by the firm from S and T, the firm having settled the claimant’s claim for US$10m.

The House of Lords in its judgment held that, although not authorised by his partners, one partner’s wrongful conduct of dishonest participation in a breach of trust could have been carried out in the ordinary course of the business of the firm, if it were so closely connected with acts which he was authorised to do.

Whether it could be so regarded was for the court to evaluate as a question of law based on the primary facts. The drafting of agreements for a proper purpose would be within the ordinary course of the business of a solicitor’s firm. On the assumed factual basis that A was acting in his capacity as a partner, his assistance in the fraudulent scheme by drafting the necessary agreements was so closely connected with the acts which he was authorised to do that for the purpose of the firm’s liability, A could fairly and properly be regarded as having acted in the ordinary course of the firm’s business. That assistance, coupled with dishonesty, was sufficient to give rise to equitable liability on A’s part. Accordingly, the defendant firm was vicariously liable for A’s conduct. Therefore, the firm stood in the shoes of A and the personal innocence of A’s partners was not relevant for the purposes of assessing liability to the claimant.

It is therefore important that solicitors not only ensure that they do not assist in drafting documents that facilitate fraudulent schemes but that they are also reasonably aware of what the other lawyers in the firm are engaged in. Their personal innocence may not absolve them or the firm of liability if lawyers in the firm have assisted in facilitating fraudulent schemes. It also does not matter that the firm did not benefit from the fraud.

Stanley Jeremiah
Goodwins Law Corporation
E-mail: stanley_jeremiah@goodwinslaw.com