Mis-sold investments

Getting your money back from the employer / principal in cases of fraud

The Supreme Court is expected to publish a decision in the coming weeks on the case of Frederick vs. Positive Solutions (Financial Services) Limited. It is anticipated that the decision will bring clarity on the circumstances in which a principal will be held liable for the fraudulent actions of its agent.

The case involved the Frederick family who were persuaded by an old school friend, Mr Qureshi, to invest in a property development scheme which would provide a fixed return on their investment in 6 months. The scheme was to be run by Qureshi and his business partner, Luke Warren. The Fredericks were told that the funds needed for the investment could be raised by re-mortgaging their existing properties arranged by Warren who was an agent of Positive Solutions. The funds were misappropriated and the scheme failed. The Fredericks’ money was lost.

The re-mortgage application for the scheme was carried out by Warren using an online portal operated by Abbey National to which he only had access because he was an agent of Positive Solutions. It came to light that, in order to obtain the re-mortgage, Warren had dishonestly and fraudulently provided false information in relation to the Frederick’s income and employment.

Warren was made bankrupt as a result of the failed scheme and the Frederick’s sued Positive Solutions on the basis that they were liable for the actions of their agent. In March 2018 the Court of Appeal upheld the lower court’s ruling in favour of Positive Solutions (striking out the claim without even a trial) on the grounds that Warren’s use of Positive Solutions’ online portal was simply the means by which he was able to obtain funds for the Fredericks to invest in the scheme. In order for a principal to be held liable for the acts of its agent the Court held that (i) the wrongful activity must be an integral part of the business activities of the principal; (ii) all the acts which are necessary to make the agent liable must have occurred in the course of his agency and (iii) unless the agent holds himself out as having authority to act on behalf of the principal if all the principal did was provide the agent with the opportunity for the wrongdoing the principal will not be liable. In this case, taking these in turn (i) Warren was essentially engaged on a recognisably independent business of his and Qureshi’s (the scheme); (ii) a necessary ingredient of the Frederick’s case is that they were induced to invest in the scheme (without which they would not have suffered any loss). It was Qureshi not Warren who had induced the Fredericks so that act certainly did not occur in the course of Warren’s agency with Positive Solutions and (iii) Positive Solutions did no more than provide Warren with access to the online portal from which the re-mortgage application was made.

The Fredericks appealed to the Supreme Court who heard the case in February 2019. The decision is expected to be published shortly. The circumstances in which a principal will be held liable for the fraudulent actions of its agent are ultimately founded upon policy considerations. It was central to the present case that the matter involved fraud rather than simply negligence. The Supreme Court’s decision is therefore expected to give more clarity to the law and the scope of liability in cases of fraud.

This blog was written by:  Allan Kornbluth

DISCLAIMER: Please note that this post sets out the general position under the general law. It should not be acted upon in any specific circumstances without taking specific legal advice as to those circumstances. Also, it should not be relied upon, acted upon or treated as a substitute for specific advice relevant to particular circumstances. If you do require specific advice please contact us for assistance.

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