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Lloyd v/s Grace, Smith (1912) AC 716

In this case, Mrs. Lloyd widowed woman who owned two cottages called the Grace Smith & Co firm of solicitors, to consult them on a way to make a good income from her cottages as she was not satisfied with her current income from her cottages. She was attended by one employee of the firm a managing clerk, who advised Mrs. Lloyd to sell her cottages and signed two sale deeds for sale, advising Mrs. Lloyd that that was the best way forward.

The supposed sales deed was gifted deeds in favour of the clerk he then disposed of the property for his profit. Mrs. Lloyd then took action against the firm alleging that the firm should be liable for the actions committed by the managing clerk.

The trial judge ruled in favour of the plaintiff. Because the servant when performing an act for his benefit in the position of authority in place of the master, hold the master liable for any fault that may come from the position as the master would also equally enjoy the benefit. Therefore, the solicitors will be held liable for the acts done by the managing clerk.

The court of appeal reversed the trial judge's decision and ruled in favor of the respondent the case was then brought before the House of Lords.


  1. Whether the solicitors' firm was liable for the fraud committed by their managing clerk?
  2. Was the Appeal court right in overturning the trial court's decision?

  1. Vicarious Liability Master-servant relationship:
    The case looks into vicarious liability more specifically between the master-servant relationship and covers how far is the master liable for the servant's acts in the case the two maxims that were used by the judge to conclude are as follows:
    1. Qui facit per alium facit per se (He who acts through another does the act himself):
      The understanding of this maxim holds that a person who is sad to have made another do an act has done the act himself, therefore, is respons ible for the result of that said act.

      Example: If X gives Y a package to deliver a certain good while delivering the said good, Y causes damage to the package X will be liable for the damage.
    2. Respondent Superior:
      This concept is straightforward and self-explanatory; it holds that the superior should be held liable for an act committed by his subordinate

Judges decision
The house of Lords reversed the Appeal Court's decision and held the judgment made by the trial judge. This was done because the employee who had done the fraud did it, with a lack of supervision from his employers. It held that a principal is liable for the actions of his agent acting within the parameters of his authority. The fact that such an act was done for the agent's benefit or the principal's benefit has no relevance to the principle.

The maxims stated above (maxims stated under rules) are a key development in creating the law of vicarious liability of the master.

These maxims are implemented under essential conditions which are:
  1. The servant has committed a wrongful act amounting to a tort.
  2. Such a tortious act is committed by the servant during the course of employment under the master's control.

Reasons why the master is held liable
The reason such a liability falls on the matter is that firstly the master by appointing the servant to do an act he could have done himself. Putting the servant in a certain position that he would have not been in himself therefore the master must take responsibility for his actions, which means the servant would not be present if the master did not appoint him.

Secondly, the master is in a better position to make decisions about what actions the servant must perform, if the master is aware of the liability of the servant being linked to him the master will be cautious with what the servant does making sure there is no threat in the performance of the task and that the servant is capable to perform the task. Lastly, if the master gets a benefit from acts done by the servant during the course of his employment, the master must accept the risk that may hold him liable too.

In this case, the servant acted as an agent for his masters and had multiple duties to perform beyond representing the employees in agreements. Therefore, the clerk was a servant of the firm, that the solicitors had control over. The control over the servant also establishes the amount of responsibility that the master will bear.

There are two approaches to establishing control over the servant the traditional view, this view looks at the control over a servant by looking at how the master can instruct the servant to perform certain tasks in a certain manner. Then there is the modern approach that acknowledges that certain servants have special skills that could be beyond the master's control, and therefore the master may not be able to instruct the servant on how they should perform the task these types of servants are viewed as independent contractors.

In this case, the solicitors had the same skills and knowledge as the managing clerk and could instruct the clerk to perform his duty and how he could perform this duty. This means the solicitors had the responsibility of making sure that duty was performed appropriately as they would have done so themselves, this control over the managing clerk also establishes the liability arising from the clerk's conduct to be on them.

Test to determine the master-servant relationship

The traditional way to test the master-servant relationship is known as the test of control. This test originated from the case Yewens v Noakes (1881) 6 QBD 530 and according to this test, for the determination of a master and servant relationship, it should be seen whether the master has the power to not only instruct what should be done but also how the act should be done, and if such power exists, then the two have a master and servant relationship.

The modern way to test the master-servant relationship covers a more modern environment of work where individuals often sign contracts before performing a specific task. Under the multiple tests, it is stated that Employees are those who have a service contract, whereas independent contractors are those who have a service contract. Ready Mixed Concrete v Minister of Pensions and National Insurance (1968) 2 QB 497 established three conditions for a service contract.

In exchange for wages or some other consideration, the servant agrees to provide his skill and work to the master in exchange for some service. He agrees to be subjected to such levels of control that the person becomes his master in the performance of his duties. The contract's other provisions are consistent with this provision of being a service contract.

Servant v/s contractor

As the relationship between the master and servant changes so will the way the law is used to determine such a relationship, as time has passed by the master-servant relationship has seen a decline due to the skills servants use. This skill often makes normal servants be deemed beyond the scope of being a servant but a contractor.

This type of employed skill is simply directed to the desired outcome, the individual who has employed such a skill will not be legally bound to the contractor's actions unless, or otherwise, the employer has failed to direct the contractor of a crucial fact that was important to the execution of his duty. From a legal perspective, this is often beneficial for the employer who would have been deemed a master and take less responsibility off the master.

In other cases, where the liability of the master arises.

Wrong done as a natural consequence of an act by Servant for Master with due care

If the employee acts by the master's instructions, the master will be held liable for any wrong that results from such an act, even if the employee takes all reasonable care in carrying out his duties. In Gregory v. Piper (1829) 9 B & C 591, the defendant and plaintiff had some disagreements, so the defendant directed his servant to place rubbish across a pathway to prevent the plaintiff from proceeding in that way, and the servant took great care to ensure that no part of it touched any part of the plaintiff's property, but only after some time had passed. The rubbish slid down and touched the plaintiff's walls, prompting him to sue for trespass. Despite his servant's best efforts, the defendant was held liable.

Wrong due to Negligence of the Worker

A master is also liable for a servant's act that he performs negligently or without due care. In Pushpabai Purshottam Udeshi & Ors. v. Ranjit Ginning & Pressing Co. (P), the deceased was traveling in a car driven by the respondent company's manager when it was involved in an accident, in which he died. The deceased's dependents filed a claim, and the tribunal awarded damages; however, on appeal to the High Court, the award was reversed because the accident did not render the respondent company liable.

However, in its decision, the Supreme Court overruled the High Court's decision, holding that the accident occurred due to the negligence of the manager who was driving the vehicle in the course of his employment, and thus the respondent company was liable for his negligent act.

Wrong by excess or mistaken execution of a lawful authority

To hold the master liable in such a case, it must be demonstrated that. The servant intended to perform an act on behalf of his master for which he was authorized. The act would have been lawful if it had been done in the circumstances that the servant mistakenly believed were true, or if it had been done properly.

Anita Bhandari and Others v. Union of India, the petitioner's husband went to a bank, and while entering, the cash box of the bank was also carried inside, and as a result, the security guard shot him and killed him. The petitioner claimed that the bank was vicariously liable in the case because the security guard committed such an act while on the job, but the bank claimed that it had not authorized the guard to shoot. The bank was held liable because giving him the gun amounted to authorizing him to shoot when he deemed it necessary, and while the guard had acted excessively in his duties, it was still done in the course of employment.

A wrong committed wilfully by a servant to serve the purpose of the master

If a servant acts wilfully, recklessly, or improperly in the course of employment, the master will be held liable for any wrong resulting from such action. In Peterson v. Royal Oak Hotel Ltd. (1948) N.Z.I.R. 136, the plaintiff was a drunken customer who was refused more drinks by the bartender, who worked for the respondent and thus threw a glass at him. The bartender threw a piece of glass at him, which struck his eye. The respondent hotel was held responsible for the actions of the bartender, who had a master-servant relationship with them.

A person can be held liable for the torts committed by another person under Vicarious Liability if that person has a Master-Servant relationship with him. Since the servant acts on behalf of his master, tort law states that any wrongful act committed during the course of employment by the servant binds the master to liability.

There have been several tests for determining the relationship between master and servant, and the Court also uses its discretion to determine such a relationship based on the facts of the case. In this case law, the liability of the master had risen due to the fraudulent conduct of the servant, which is reasonable grounds to raise such a liability.

Award Winning Article Is Written By: Mr.Ngcebo Mamba
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