Lord Phillips said,
Stage 1: the essential elements of the relationship
34. Vicarious liability is a longstanding and vitally important part of the common law of tort. A glance at the Table of Cases in Clerk & Lindsell on Torts, 20th ed (2010) shows that in the majority of modern cases the defendant is not an individual but a corporate entity. In most of them vicarious liability is likely to be the basis upon which the defendant was sued.
The policy objective underlying vicarious liability is to ensure, insofar as it is fair, just and reasonable, that liability for tortious wrong is borne by a defendant with the means to compensate the victim. Such defendants can usually be expected to insure against the risk of such liability, so that this risk is more widely spread.
It is for the court to identify the policy reasons why it is fair, just and reasonable to impose vicarious liability and to lay down the criteria that must be shown to be satisfied in order to establish vicarious liability.
Where the criteria are satisfied the policy reasons for imposing the liability should apply. As Lord Hobhouse pointed out in Lister at para 60 the policy reasons are not the same as the criteria. One cannot, however, consider the one without the other and the two sometimes overlap.
35. The relationship that gives rise to vicarious liability is in the vast majority of cases that of employer and employee under a contract of employment. The employer will be vicariously liable when the employee commits a tort in the course of his employment. There is no difficulty in identifying a number of policy reasons that usually make it fair, just and reasonable to impose vicarious liability on the employer when these criteria are satisfied:
i) The employer is more likely to have the means to compensate the victim than the employee and can be expected to have insured against that liability;
ii) The tort will have been committed as a result of activity being taken by the employee on behalf of the employer;
iii) The employee’s activity is likely to be part of the business activity of the employer;
iv) The employer, by employing the employee to carry on the activity will have created the risk of the tort committed by the employee;
v) The employee will, to a greater or lesser degree, have been under the control of the employer.
47. At paragraph 35 above I have identified those incidents of the relationship between employer and employee that make it fair, just and reasonable to impose vicarious liability on a defendant. Where the defendant and the tortfeasor are not bound by a contract of employment, but their relationship has the same incidents, that relationship can properly give rise to vicarious liability on the ground that it is “akin to that between an employer and an employee”. That was the approach adopted by the Court of Appeal in JGE.