Viasystems v Thermal Transfer

Out-Law Guide | 02 Nov 2007 | 8:31 am | 4 min. read

A case which establishes (contrary to accepted opinion since the 1800s) that dual vicarious liability can apply in an employment situation. This decision is potentially significant in outsourcing contracts.

Viasystems (Tyneside) Limited v  (1) Thermal Transfer (Northern) Limited; (2) S & P Darwell Limited and (3) T Hall and C Day t/a CAT Metalwork Services

  • PMCLR February 2006
  • [2005] EWCA Civ 1151
  • (2006) 2 WLR 428
  • (2005) 4 All ER 1181

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Facts

The Claimant contracted with the First Defendant to install air conditioning in the Claimant's factory. The First Defendant subcontracted the work to the Second Defendant, Darwell. Darwell engaged the Third Defendant, CAT, to provide labourers, namely fitters and fitters' mates.

On the day in question CAT provided a fitter, Mr Megson, and a fitter's mate, Mr Strang. The pair were working under the instruction or supervision of Mr Horsley who had been engaged by Darwell. At the relevant time all three men were working in a roof space. Mr Megson needed some fittings and instructed Mr Strang to go and get these. Mr Strang did so. However, instead of returning via the crawling boards, which were being used for access, Mr Strang took a short cut. He crawled through some sections of the ducting which had been installed. This caused the fire protection sprinkler system to activate, causing extensive damage. Mr Strang was found to have been negligent.

The question for the court was whether Darwell or CAT should be held vicariously liable for Mr Strang's negligence.

Judgment

The decision at first instance was based on the assumption that vicarious liability is an entire liability, i.e. two distinct legal entities could not be vicariously liable for the same act. This assumption was based on a case dating back as far as 1826.

The assumption has implicitly been applied in numerous cases in which an employee of a company (Company A) has been hired or seconded to work for another company (Company B). In such cases, although there is no legal transfer of the individual's employment, the law has in some instances been prepared to treat the individual as an employee of Company B such that Company B has been found vicariously liable for the individual's negligence. However, the assumption was that liability had to attach to either Company A or Company B, it could not attach to both. Against this assumption, it is not difficult to see why the question of who should be held vicariously liable was so contentious. Mr Strang was working closely with Mr Megson, and did as he was instructed by Mr Megson (except when it came to taking the fateful shortcut), so there were strong arguments that CAT should be liable. Equally, the pair were working under the overall supervision of Mr Horsley who checked on them from time to time and who gave them general instructions on what they were to do, and who was responsible for health and safety on the site. The judge at first instance found that CAT were liable.

The Court of Appeal approached the question from the standpoint that the long standing assumption that dual vicarious liability could not exist was not binding in the Court of Appeal. Much of the judgment is taken up by an examination of previous authorities, the extent to which they were founded on the assumption and the extent to which any authorities would bind the Court of Appeal. May LJ and Rix LJ concluded that they were entitled to find that dual vicarious liability could indeed exist. The proper approach is to look at the negligent act and to ask who was entitled (and, possibly, theoretically obliged) to give orders about how the work should or should not be done?  The alternative approach of establishing which party was in "entire and absolute control" was inappropriate. In many instances a person will not be in the "entire and absolute control" of one single party. A person may perform his functions at the direction of more than one party.

On this basis the Court of Appeal found that both Mr Megson and Mr Horsley were entitled to give Mr Strang instructions about what he did and how he did it. Weighing their respective "shares" of responsibility, the Court found that each should contribute equally, i.e. 50%.

Commentary

In a classic outsourcing scenario the customer will look to pass all responsibility for a particular function to the supplier. Indeed, the classic model has at its core the principle that the customer will have no involvement in performance of the function in question. In theory these classic outsourcing scenarios should be unaffected by the ruling. But there are plenty of situations – call them outsourcing or subcontracting or whatever - in which responsibility is less clear cut.

SMEs will commonly outsource some elements of their IT functions to different suppliers and retain other elements to be performed in house. In reality the relevant personnel will work together as a team, and often a particular team member may find that he receives instructions and direction from person employed by the organisation in which he is working. Another example is business process outsourcing where routine processes may be carried out by the supplier's employees but the customer may retain responsibility for overseeing some aspects of the process. Any such scenario where a worker may take instructions from two separate "employers" can give rise to the possibility of dual liability.

This case highlights the need to consider what liabilities could arise if an individual supplied pursuant to an outsourcing or other services contract performs negligently. In particular, customers should consider whether they are really passing all responsibility to the supplier. If in practice the customer will retain a degree of operational involvement, it is important to consider how potential liabilities should be provided for, for example by indemnities.