What is the 'close connection test' for vicarious liability?

The close connection test asks whether the employee's wrongful act was so closely connected with acts the employee was authorised to do that it is fair and just to hold the employer vicariously liable, even if the act was unauthorised or criminal.

Can an employer be vicariously liable for an employee's deliberate fraud?

Yes. Under Skandinaviska, an employer can be vicariously liable even for intentional wrongdoing like fraud if there is a sufficiently close connection between the wrongful act and the employee's authorised field of activities.

Why was the bank liable in this case?

The relationship manager's fraud was carried out in the course of soliciting investments and managing customer accounts, activities he was authorised to perform. The close connection between his authorised role and the fraud made it fair to hold the bank vicariously liable.

Court of Appeal· 2011

Skandinaviska Enskilda Banken AB v Asia Pacific Breweries (Singapore) Pte Ltd

[2011] 3 SLR 540

Tort / Banking

Bank vicariously liable when employee fraud closely connected to employment duties.

At a glance

The Court of Appeal considered whether an employer bank was vicariously liable for fraudulent misrepresentations made by its relationship manager who dishonestly induced a corporate customer to transfer funds to accounts he controlled. The court applied the 'close connection' test to determine the scope of vicarious liability for employee fraud in Singapore.

Material facts

A relationship manager employed by the appellant bank dishonestly induced the respondent brewery company to transfer substantial sums by falsely representing that the funds were required for legitimate investment products. The employee misappropriated the funds for his own benefit. The brewery sued the bank in vicarious liability.

Issues

Whether the bank was vicariously liable for the fraudulent misrepresentations and misappropriation committed by its relationship manager in the course of his employment.

Held

The Court of Appeal held that the bank was vicariously liable for the employee's fraud because there was a sufficiently close connection between the wrongful acts and the employee's authorised duties.

Ratio decidendi

An employer may be held vicariously liable for an employee's intentional wrongdoing, including fraud, where there is a sufficient close connection between the employee's tort and the field of activities assigned to him, such that it is fair and just to hold the employer liable.

Reasoning

The court adopted the 'close connection' test from English authorities including Lister v Hesley Hall Ltd and Dubai Aluminium Co Ltd v Salaam. It found that the relationship manager's fraud was so closely connected with his authorised role of soliciting investments and managing customer relationships that it fell within the scope of his employment for vicarious liability purposes, notwithstanding that fraud was unauthorised and for his personal benefit.

Significance

This is the leading Singapore authority on the scope of vicarious liability for employee fraud, endorsing and applying the 'close connection' test. It is essential study for tort law and confirms that banks and employers can be liable even for deliberate criminal conduct by employees where sufficiently connected to their role.