Dubai Aluminium Company Ltd v. Salaam

Factual and Procedural Background

Between 1987 and 1993, Company A was induced to pay approximately US$50 million under a sham consultancy agreement. The funds were channelled through intermediary agreements and ultimately retained by several individuals, most notably Defendant A (about US$20.3 million), Defendant B (about US$16.5 million) and Defendant C (about US$6.3 million).

Defendant C was a partner in The Law Firm, which drafted the agreements and handled related paperwork. The Law Firm received only routine fees but was sued on a vicarious-liability basis. All primary claims settled before judgment: The Law Firm paid US$10 million; Defendant A and Defendant B each paid about US$17 million. The trial judge was then required to decide outstanding contribution claims among the defendants and third parties. He ordered that Defendant A and Defendant B indemnify The Law Firm for its US$10 million payment.

The Court of Appeal reversed, holding that The Law Firm was not vicariously liable and therefore had no right to contribution. The Law Firm appealed to the Supreme Court, while Defendant A and Defendant B cross-appealed on apportionment issues.

Legal Issues Presented

1. Whether section 10 of the Partnership Act 1890 extends vicarious liability to equitable wrongs (dishonest assistance in breach of fiduciary duty) as well as to common-law torts.
2. Whether the allegedly dishonest acts of Defendant C were carried out “in the ordinary course of the business” of The Law Firm, thereby engaging section 10.
3. Assuming vicarious liability, whether The Law Firm, having settled in good faith under section 1(4) of the Civil Liability (Contribution) Act 1978, could recover contribution from the primary wrongdoers.
4. How, under section 2 of the 1978 Act, contribution should be apportioned where some defendants still retain undisgorged profits from the fraud.

Arguments of the Parties

The Law Firm’s Arguments

• Section 10 covers “any wrongful act,” including equitable wrongs such as dishonest assistance.
• Defendant C drafted the sham agreements while acting as a partner; therefore his conduct was within the ordinary course of business for vicarious-liability purposes.
• Having settled bona fide, the firm was “liable” within the meaning of section 1(4) of the 1978 Act and entitled to contribution.
• Contribution should equal a full indemnity because Defendant A and Defendant B still possess substantial proceeds from the fraud.

Defendant A and Defendant B’s Arguments

• Section 10 is limited to common-law torts; equitable wrongs fall outside its scope, so the firm could not be vicariously liable.
• Even if equitable wrongs are included, Defendant C was on a personal “frolic” and not acting in the ordinary course of the firm’s business.
• The firm’s personal innocence of dishonesty should bar or reduce any contribution claim.
• Undisgorged profits are irrelevant to “responsibility for the damage” under section 2(1) of the 1978 Act.

Table of Precedents Cited

Court's Reasoning and Analysis

1. Statutory scope. The phrase “any wrongful act or omission” in section 10 of the Partnership Act is not confined to common-law torts; its language and historical context indicate inclusion of equitable wrongs and statutory penalties.

2. Ordinary course of business. A partner’s act need not be authorised or legitimate; liability arises if the wrongful conduct is “so closely connected” with authorised activities that it may fairly be regarded as done in the ordinary course. Drafting agreements is central to a solicitor’s practice; doing so dishonestly for fraud still satisfies the close-connection test.

3. Effect of settlement. Under section 1(4) of the Contribution Act, the court assumes the pleaded facts against The Law Firm could be proved. Those pleadings alleged that the drafting and administrative acts were done as partner-work, satisfying section 10.

4. Vicarious liability and contribution. Because the firm’s liability is substitutional, its partners’ personal innocence cannot reduce its contribution claim; the firm “stands in the shoes” of the wrongdoing partner for both liability and contribution purposes.

5. Apportionment. Section 2 requires a “just and equitable” contribution having regard to responsibility. Responsibility includes both blameworthiness and the financial realities following settlement. Defendant A and Defendant B still held over US$20 million in net receipts, whereas The Law Firm had none; justice required that they indemnify the firm fully.

6. Form of order. The judge’s joint-and-several order (capped for Defendant B) properly protected against potential insolvency and was within the court’s discretionary power.

Holding and Implications

Holding: The Supreme Court allowed the appeal of The Law Firm, restored the trial judge’s order, and dismissed the cross-appeals of Defendant A and Defendant B. Accordingly, Defendant A and Defendant B must indemnify The Law Firm in respect of its US$10 million settlement payment, with liability allocated US$7.5 million (joint and several up to US$5 million) to Defendant A and US$2.5 million to Defendant B.

Implications: The decision confirms that partnerships are vicariously liable under section 10 for equitable wrongs committed by partners and clarifies that the “close connection” test governs the ordinary-course analysis. It also establishes that undisgorged profits and settlement payments are relevant factors when apportioning contribution under section 2 of the 1978 Act. No new cause of action was created, but the ruling significantly widens potential vicarious liability for professional firms engaging in commercial work.