Hamlyn v. Houston & Co. ((1903) 1 K.B. 81)

Facts of the Case

The case determines the firm's liability when a partner uses illegal methods to achieve an objective that is within the scope of the firm's business.

• The Firm and Partners: Defendant Houston and Defendant Strong were partners in a trading firm (Houston & Co.). Houston was the managing partner who handled all of the firm's business.

• Firm's Business: Part of the firm's business involved legitimately obtaining information relating to contracts and tenders made by competing firms (like the Plaintiff).

• Wrongful Act: Houston, acting alone, attempted to obtain this competitive information by bribing the Plaintiff's clerk to access confidential documents. He successfully obtained possession of one of the Plaintiff's books for a time.

• The Claim: The Plaintiff sued the firm (Houston & Co.) for damages resulting from the partner's tortious act of bribing and inducing the breach of confidence.

Issue

Whether the defendant firm (Houston & Co.) is liable for the wrongful and illegal actions of its partner, Houston, in bribing a competitor's clerk, considering that the act was done while pursuing an objective that was within the general scope of the firm's business.

Judgment

The Court held that the defendant firm is liable for the actions of Houston.

Legal Analysis

1. The Principle of Agency and Scope of Authority

The Court relied on the foundational principle of agency law, which is applied to partnership (Section 19 equivalent in the UK Partnership Act, 1890): a principal (the firm) is liable for the wrongful acts of its agent (the partner) if the acts are committed within the general scope of the agent's authority or employment.

2. The Test Applied

Justice Matthew articulated the key test:

• Legitimate Objective: It was undeniably within Houston's authority to obtain information about competitors' contracts by legitimate means. This was part of the firm's business.

• Illegitimate Means: The fact that Houston chose an illegal and wrongful method (bribery) to achieve that objective does not absolve the firm of liability.

• Delegated Performance: Since the firm had delegated the performance of a certain class of acts (obtaining competitive intelligence) to Houston, it must bear the risk that the agent may exceed his authority or act improperly in matters incidental to the delegated task.

The act of seeking the information was within the scope of his authority; the method he chose, though illegal, made the firm responsible as long as the act itself was connected to the firm's business.

Commentary: Liability for Implied Agency

Hamlyn v. Houston & Co. is an essential case that clarifies the firm's responsibility for the implied authority granted to its partners. It establishes a strong precedent:

The firm is liable for a partner's wrongful act (tort) if the ultimate purpose of the act was to promote the firm's business, even if the partner achieves that purpose by using unauthorized, wrongful, or criminal means.

The case ensures that third parties harmed by a partner's action (like bribing a clerk) connected to the firm's business have recourse against the collective assets of the partnership, preventing firms from benefiting from the partner's wrongdoing while disclaiming responsibility for the unlawful method used.