Zoya Ltd v Sheikh Nasir Ahmed (t/a Property Mart) & Ors [2016] EWHC 2249 (Ch)

[2016] EWHC 2249 (Ch)Claim No HC-2014-001703IN THE HIGH COURT OF JUSTICECH ANCERY DIVISI ONVenue Royal Court of Justice, Strand, London, WC2A 2LLDate 7 October 2016
Before
Mr. William Trower QC(sitting as a Deputy Judge of the High Court)
Between
ZOYA LIMITEDClaimantSHEIKH NASIR AHMEDDefendantJOHN ADEWALE HAASTRUPThird Party
Mr Daniel Burton (instructed by Penningtons Manches LLP) for DefendantMr Alex Cunliffe (instructed by LPC Law Ltd) for Third PartyMs Chantelle Staynings (instructed by Alpha Rocks Solicitors) for Fourth PartyHearing Hearing date: 20 September 2016

JUDGMENT APPROVED

[1]On 28 July 2016, I handed down a written judgment ([2016] EWHC 1981 (Ch) “the July Judgment”) on the trial of two preliminary issues, directed to be tried by order of Master Matthews dated 10 August 2015. Those issues were “whether John Adewale Haastrup is legally entitled to the shares in the Claimant and whether he has validly been appointed as director of the Claimant”, My conclusion on each of these issues was in the negative. In this judgment I shall use the abbreviations that I used in the July Judgment.[2]At the hand down hearing, Mr Ahmed sought an order striking out the proceedings as an abuse of process. I indicated that this was an order I intended to make unless, at a disposal hearing to be listed for the purposes of determining questions of costs, Zoya appeared through the agency of its validly appointed director or directors and applied to ratify the issue of the proceedings and continue the claim.[3]Mr Ahmed also sought orders for costs against John Haastrup and Alpha Rocks Solicitors (the “Solicitors”). The relief was sought against John Haastrup as the controller of the proceedings. It was sought against the Solicitors on two alternative bases. The first was in exercise of the summary jurisdiction against solicitors who are in breach of their warranty of authority. The second was under the jurisdiction to make a wasted costs order under section 51(6) of the Senior Courts Act 1981 (the “1981 Act”). I directed that John Haastrup and the Solicitors be joined to the proceedings as Third Party and Fourth Party respectively, in each case for the purposes of costs only.[4]At the disposal hearing, which was held on 20 September, nobody appeared for Zoya, and I made an order striking out the claim form and the particulars of claim as an abuse of process. I gave a short ex tempore judgment on why I considered that this is a case which justified a strike out, rather than a stay. In short summary, I applied what I understood to be the appropriate principles as explained by Toulson LJ in Adams v. Ford [2012] 1 WLR 3211 (paragraphs 31, 32 and 39) to which my attention had been drawn by Mr Burton at the hearing at which I handed down the July Judgment.[5]I also gave further directions for the payment of monies out of court to Mr Ahmed and made a third party costs order against John Haastrup, such costs to be paid on the indemnity basis. The grounds on which I did so were that John Haastrup was responsible for procuring the proceedings to be issued and continued in Zoya’s name without authority to do so, and thereafter was the individual who controlled the proceedings, which would have been for his own benefit if they had been successful. The interests of justice plainly demanded that the proceedings so procured be struck out as an abuse of process. I was satisfied that the proceedings were “exceptional” in the sense used in the authorities and that it was just for an order that John Haastrup, being the person who procured their commencement and continuation as an abuse of process, should be responsible for the costs of doing so.[6]In making the order against John Haastrup, I dealt with one issue which is relevant also to the claim against the Solicitors. I rejected a submission that costs could not be recovered from him because Mr Ahmed’s defence was being funded by Gloria Haastrup, which meant that there was a breach of the indemnity principle. The submission was founded on an admission as to the source of funding made by Mr Ahmed in his oral evidence at the trial of the preliminary issues.[7]The reason I rejected that submission is because the statements of costs which have been put in by Mr Ahmed’s solicitors, Penningtons Manches, are both certified by a partner of that firm as not exceeding the costs which Mr Ahmed is liable to pay in respect of the work which the statement covers. This certificate was then confirmed in a witness statement made by Mr Ahmed. In my judgment there is no inconsistency between this evidence and the oral evidence which Mr Ahmed gave at the trial. There are no grounds for concluding that Mr Ahmed is not in fact liable to Pennington Manches for the full amount of the costs, even though he has a separate arrangement with Gloria Haastrup that she will fund their payment.[8]I also dealt with Mr Ahmed’s application against the Solicitors for a wasted costs order, but refused that relief. I gave a short judgment at the hearing, but will reiterate those reasons here, as they have some bearing on the issue with which this judgment is primarily concerned.[9]The wasted costs jurisdiction is discretionary, but requires Mr Ahmed to prove that the costs incurred by him were incurred as a result of an improper, unreasonable or negligent act or omission on the part of the Solicitors (section 51(7) of the 1981 Act). Two categories of conduct were relied on.[10]The first was the filing of a witness statement made by John Haastrup on the eve of the trial containing (in paragraph 12) what counsel instructed by Mr Ahmed (Mr Daniel Burton) described as inflammatory, false and irrelevant allegations. The second was what Mr Burton described as the Solicitors’ unreasonable conduct in accepting instructions to act on behalf of Zoya on the basis of wholly inadequate information as to his authority to give those instructions.[11]So far as the witness statement is concerned it is my view that the evidence was wholly irrelevant to the issues before the court, was insufficiently substantiated and was expressed in unnecessarily tendentious terms. I am also satisfied that the Solicitors should not have permitted that evidence to be adduced, because it was obviously irrelevant and was not adduced in a manner which could possibly have assisted the court. However, I am not satisfied that this means that any act or omission of the Solicitors did in fact cause any additional costs to be incurred, and consider that it is most improbable that it did. For that reason I concluded that the first category of conduct did not justify the relief sought.[12]So far as the second category of conduct is concerned, Mr Ahmed relied on the Solicitors’ failure to make proper enquiries as to the authority of John Haastrup to give instructions in the name of Zoya as conduct which could be shown to be improper, unreasonable or negligent such as to satisfy the requirements of section 51(7)(a) of the 1981 Act.[13]I confess that I hesitated on this point, In the end, however, I was not satisfied that the Solicitors’ reliance on the instructions which they received from John Haastrup, combined with the documentation that he produced, including most particularly a copy of the Certificate (as described in paragraph 35 of the July Judgment) and a Letter of Authority dated 21 July 2014, was sufficiently clearly conduct that amounted to an improper, unreasonable or negligent act within the meaning of section 51 (7)(a). I was also concerned by the fact that a partner in the Solicitors, Mrs Isi Inyang, gave evidence that John Haastrup had refused to waive privilege in relation to the instructions he gave them regarding his authority to act for Zoya. This is a fault-based jurisdiction, and in the context of the summary approach that I am invited to take, I do not consider that Mr Ahmed has established with sufficient clarity that the Solicitors were guilty of conduct, which justifies the grant of the relief sought.[14]I now turn to the point on which I reserved judgment at the disposal hearing. It is said by Mr Burton that, because I have concluded that John Haastrup was not a validly appointed director of Zoya (and not entitled to its shares), he lacked locus to authorise the Solicitors to issue proceedings in Zoya’s name, with the result that they were issued without authority. I agree that this is the consequence of the findings that I made, and indeed those findings were also the basis on which I struck out the proceedings as an abuse.[15]Mr Burton then submitted that, by issuing the proceedings in the name of Zoya, the Solicitors warranted to Mr Ahmed that they had authority to act on behalf of Zoya, when, as is now established, they had no such authority. He submitted that their want of authority amounted to a breach of the warranty, which has caused Mr Ahmed loss and damage in the amount of his legal costs of the claim.[16]He also submitted that, because liability is strict, the Solicitors are liable notwithstanding the state of their knowledge as to their authority, and that this is a straightforward case in which I should apply the basic principle explained by Warrington J. in Richmond v Branson & Son [1914] 1 Ch 968, 974 as follows: "If a solicitor is acting without authority in an action brought by a plaintiff who is not alleged to be of unsound mind, either the plaintiff or the defendant is entitled to have that action summarily stayed, and to an order that the solicitor should pay the costs of the action as between solicitor and client. ”[17]Mr Burton also showed me the decision of HHJ Toulmin QC in Warner v. Merriman White [2008] EWHC 1129 (Ch) as an example of a case in which the jurisdiction has been exercised, although I think that it is fair to say that the judgment did not grapple with some of the reasons raised by the Solicitors as to why relief should not be granted against them in this case.[18]Before explaining what I consider to be the applicable principles and the Solicitors’ response to the case made on behalf of Mr Ahmed, I should summarise the nature of the underlying claim, the way in which the issue as to their authority to act developed, and what has been said or implied by them about that authority during the course of the proceedings.[19]On 12 September 2014, the Solicitors issued proceedings in the name of Zoya for an account of monies said to have been collected since March 2010 by Mr Ahmed (acting as its agent) from tenants of properties registered in Zoya’s name. The claim form contained a statement of truth signed by Mrs Inyang in her capacity as a partner in the Solicitors. She certified that Zoya believed that the contents of the Particulars of Claim were true and that “I am authorised to sign the Particulars of Claim on behalf of the Claimant [i.e. Zoya]”. Mrs Inyang had also signed a similar statement of truth on behalf of Zoya in the claim for the County Court proceedings I described in paragraphs 40 and 41 of the July Judgment.[20]The warranty of authority, which the Solicitors made in issuing both sets of proceedings in the name of Zoya, was consistent with correspondence they sent at the same time to Mr Ahmed holding themselves out as solicitors for Zoya. In particular, immediately after the issue of the claim form, they wrote to Mr Ahmed on 17 September 2014, purporting to do so on behalf of Zoya, and purporting to terminate Mr Ahmed’s appointment as agent for Zoya.[21]It is clear that the Solicitors made a deliberate decision to act for Zoya, not least because they had initially held themselves out as acting only for Captain Haastrup’s children, including John Haastrup, who were said to have been entitled to the relief now sought on behalf of Zoya in the circumstances I addressed in paragraphs 29 to 35 of the July Judgment. It is also clear that, at the time that Mrs Inyang signed the statement of truth on the claim form, she knew that the issue of authority was controversial and must have anticipated that it would be an issue in the proceedings.[22]It is also clear that, prior to the issue of these proceedings, Mr Ahmed also knew that the question of whether John Haastrup (and therefore the Solicitors) were authorised to act for Zoya, was highly controversial. The question was at the root of the underlying dispute between members of the Haastrup family which he described in his witness statement, and there had been correspondence earlier in the summer in which Mr Ahmed had sought to elicit relevant documentation on how John Haastrup had become a director and shareholder of Zoya, being the only basis on which it is suggested that he had authority to give instructions on its behalf. The controversial nature of the question of authority was confirmed when his solicitors received the letter from Irwin Mitchell dated 26 September 2014, which I described in paragraph 42 of the July Judgment.[23]It is against this background that, in his defence dated 13 October 2014, Mr Ahmed put in issue what he knew by then to be the contentious question of John Haastrup’s authority to give instructions on behalf of Zoya. He also pleaded the following substantive defences (the latter two of which are directly related to the question of John Haastrup’s authority): 23.1. that the proceedings were an abuse of process because of the prior County Court proceedings seeking the same relief; 23.2. that he had had nothing to do with one of the properties identified in the Particulars of Claim; 23.3. that he had already accounted to his principals in respect of the period 2010 to 2014;and 23.4. that, in any event, his agency contract was with four joint principals (Captain Haastrup, Gloria Haastrup, Zoya and another Haastrup-related company, Universal Trading and Shipping Limited) and that he was not obliged to account to only one of them.[24]Although the question of John Haastrup’s authority to act as a director of Zoya was clearly in issue from the very beginning, the Solicitors continued to represent to Mr Ahmed that they were nonetheless authorised to act on behalf of Zoya: 24.1. On 17 October the Solicitors served a Response to Mr Ahmed’s Part 18 Request, explicitly on behalf of Zoya, which stated in terms that “The claim is not brought by John Adewale Haastrup”. 24.2. In March 2015, the Solicitors issued an application in the name of Zoya seeking summary judgment against Mr Ahmed. They did so with the support of a witness statement made by John Haastrup which spelt out in terms that the claim was being made by Zoya, not he himself, but that he was authorised to make the witness statement on Zoya’s behalf. Deputy Master Mark dismissed this application on 27 May 2015. 24.3. There were then at least two more procedural hearings at which the Solicitors instructed counsel to appear on behalf of Zoya, culminating in the hearing on 10 August 2015 at which Master Matthews gave directions for the trial of the issues which I resolved in the July Judgment. 24.4. At no stage prior to or during the hearing of the preliminary issues did the Solicitors inform Mr Ahmed (or the court) that they had doubts about their authority to act on behalf of Zoya or that the representations that they made in issuing the proceedings on behalf of Zoya required qualification in any way. Quite the contrary, they continued to hold themselves out as acting for Zoya, and remained on the record as acting for Zoya, at least until the handing down of the July Judgment.[25]As I explained in that part of the July Judgment which dealt with procedure and the burden of proof (paragraphs 56 to 71), the issues of fact ordered to be tried as preliminary points had significance in two different albeit linked contexts. In the absence of any other source of authority (and none has ever been suggested), they would be determinative of the question of whether John Haastrup was authorised by Zoya to give instructions to the Solicitors to issue and conduct these proceedings on its behalf. The second was that they related to the mechanics by which Mr Ahmed was under an obligation to account for the rental monies which he received in respect of the properties (the third and fourth defences described in paragraph 23 above).[26]As to the steps taken by Mr Ahmed to bring to the attention of the Solicitors the costs consequences of any breach by them of their warranty of authority, in a letter from his then solicitors, Ansah & Co dated 26 August 2015, the Solicitors were notified both that Mr Ahmed was proposing to apply to strike out the proceedings and that a wasted costs order would be sought against them. The intimation of an intention to apply to strike out reiterated what had been said in Mr Ahmed’s Defence and earlier correspondence (Ansah’s letter of 20 April 2015).[27]It is fair to say that the wasted costs order was said to be justified on the basis of the Solicitors’ conduct in not carrying out sufficient money laundering checks on Zoya, rather than on the basis that they were strictly liable for breach of their warranty of authority. However, it is plain that it was the conduct of John Haastrup and the Solicitors, in representing that they were authorised to act for Zoya, which was at the root of the application for the trial of the preliminary issues, the resolution of which in the negative was itself a precursor to the strike out. In that context, it was made plain that Mr Ahmed contended that the Solicitors’ ‘‘failure to engage on the issue of locus” justified a costs order against them.[28]I now turn to the applicable principles. They were established in their modern form by the decision of the Court of Appeal in Yonge v Toynbee [1910] 1 KB 215, a case in which the want of authority arose because the defendant was of unsound mind, but the solicitors nonetheless entered an appearance on his behalf. The proceedings were then struck out and an issue arose as to whether the solicitors should pay the plaintiffs costs. Argument revolved around the question of whether there was a difference in principle between the case in which the agent never had authority but believed that he had (which is the situation in the present case), and the case in which the agent originally had authority but it had come to an end without his knowledge. It had been thought that the law was that in the former case there was liability, while in the latter case there was not.[29]The Court of Appeal held that this understanding of the law was incorrect and that, in all cases, the liability was strict and that it was not necessary to prove that the agent knew or should have known of the want of authority. Buckley LJ explained the position as follows:
“I can see no distinction in principle between the case where the agent never had authority and the case where the agent originally had authority, but that authority has ceased without his knowledge or means of knowledge. ... In my opinion he is then liable on an implied contract that he had authority, whether there was fraud or not. ”
(at p.225) … “His liability arises from an implied undertaking or promise made by him that the authority which he professes to have does in point of fact exist. I can see no difference of principle between the case in which the authority never existed at all and the case in which the authority once existed and has ceased to exist. ” (at p.226)[30]One of the consequences of the contractual basis for the jurisdiction is that the implied contract may be excluded by the facts of a particular case. Thus, as Buckley LJ explained in Yonge v. Toynbee (at p.227): "If for instance, the agent proved that at the relevant time he told the party with whom he was contracting that he did not know whether the warrant of attorney under which he was acting was genuine or not, and would not warrant its validity, or that his principal was abroad and he did not know whether he was still living, there will have been no representation upon which the implied contract will arise. ”[31]This statement was made when Buckley LJ was describing the characteristics of a warranty of authority given by a solicitor when acting outside the context of litigation, but it is plain from his description of the application of the principle at p.228 (“They proved no facts addressed to shew that implied contract was excluded’) that he considered it to be equally applicable where the question is whether a solicitor has given a warranty when purporting to act for a client in legal proceedings.[32]Swinfen Eady J (at p.234) seems to have been more doubtful about a solicitor’s ability to exclude or limit the warranty when acting in legal proceedings, but does not conclude that it is not possible:
“It is in my opinion essential to the proper conduct of legal business that a solicitor should be held to warrant the authority which he claims of representing the client; if it were not so, no one would be safe in assuming that his opponent's solicitor was duly authorized in what he said or did, and it would be impossible to conduct legal business upon the footing now existing; and, whatever the legal liability may be, the Court, in exercising the authority which it possesses over its own officers, ought to proceed upon the footing that a solicitor assuming to act, in an action, for one of the parties to the action warrants his authority. ”
[33]There is no doubt that the principle described in Yonge v Toynbee continues to be applicable, although more recently the courts have stressed its limitations. Thus in Nelson v Nelson [1997] 1 WLR 233, 235, when confirming the existence (but limited nature) of the warranty, McCowan LJ said as follows:
“I see nothing in these authorities to contradict the contention of Mr. Mansfield, for the solicitors, that a solicitor who lends his name to the commencement of proceedings is saying (1) that he has a client, (2) that the client bears the name of the party to the proceedings and (3) that client has authorised the proceedings. He does not represent that the client has a good cause of action”
[34]The nature and limitations of the warranty were explained in similar but not identical terms by Buxton LJ in SEB Trygg Liv Holdings AB v. Manches [2006] 1 WLR 2276 at paragraphs 66 and 67, a case concerned with the difference between a warranty of authority and a warranty as to the name of the client, as follows:
"In considering these submissions it is important to bear in mind that generally a solicitor conducting proceedings does not warrant what he says or does on behalf of his client. Thus he does not warrant that his client, the named party to the proceedings, has title to sue, is solvent, has a good cause of action or defence or has any other attribute asserted on his behalf ... There is an obvious distinction between such matters and the solicitor's own authority to act because the solicitor will usually know whether he has such authority or not. The imposition of strict liability on a solicitor for breach of warranty of authority is justified because otherwise the opposing party will be left without remedy against his supposed client. ” … "
The warranty which a solicitor gives is that he has a client who has instructed him to assert or deny the claims made in the proceedings against the opposing party. We do not think he warrants that the client has the name by which he appears in the proceedings.”[35]The liability which arises out of the implied undertaking is for the costs of the opposing party where they have been incurred on what Buckley LJ in Yonge v Toynbee (at p.228) called:
“the faith of [the solicitors’] representation that they had authority to act for the defendant. ”
As is apparent from the judgment of Swinfen Eady J (at p.231), the person with a claim is the person “misled to his prejudice” by the misrepresentation of another that he has authority to do a particular act. This description seems to contemplate that some form of inducement is normally required, confirmed by the fact that Swinfen Eady J also cites the decision of Lord Esher in Firbank’s Executors v Humphreys (1887) 18 QBD 54, 60 to the effect that the inducement by the agent does not have to cause the other party to enter into a contract; it is sufficient if he enters into any transaction which he would not have entered into but for that assertion, and thereby suffers loss.[36]As Mr Burton points out in his skeleton argument, there is some controversy on the question of whether or not this means that reliance by, or inducement of, the affected party (in this case Mr Ahmed) is always required: see Tuckey LJ in Donsland Ltd v Van Hoogstraten [2002] EWCA Civ 253 (at paragraph 14), cited as authority for this proposition in Jackson & Powell on Professional Liability (7th edn) at 11-080 and 11-081. This, however, was not part of the reasoning necessary for the decision, and the prevailing view, which in my judgment is consistent with Yonge v Toynbee, seems to be that some form of reliance has to be shown in order to justify the relief sought: Excel Securities plc v Masood [2009] EWHC 3912 (Ch) (at paragraphs 54 and 55), where the warranty was given outside the context of litigation, and Padhiar v Patel [2001] Lloyd’s Rep PN 328 and Re Sherlock Holmes International Society Ltd [2016] EWHC 1392 (Ch) where the warranties were said to have been given when purporting to act for the claimant / petitioner in legal proceedings.[37]The approach to inducement adopted by Hilary Heilbron QC in Padhiar v Patel [2001] Lloyd’s Rep PN 328 is particularly instructive. She approved the following passage in the judgment of Sholl J sitting in the Supreme Court of Victoria in Schlieske v Overseas Construction Co Pty Ltd [1960] VR 195, in which it was held that inducement was required, although it would often be implied: "It is unnecessary to prove that the plaintiff believed the assertion of authority ... But there must be inducement. In the case of solicitors purporting and professing to act for a party to litigation, there is a continuing representation, or series of representations of their authority to do so. Expressed in the language of contract, the position is that solicitors continually say to the opposing party, “if you will deal with us, and otherwise act, on the basis that we are authorized agents of our client, we will in consideration therefore promise you, as a matter of contract, that we have such authority”. Each time the opposite party so deals or acts, because of that promise, and with the intention of accepting it, there is a contract, made upon good consideration. The promise or warranty is enforceable ... The inducement of the plaintiff is prima facie to be implied from the making of the representation and the subsequent entry by the plaintiff into the relevant transaction, ... There is simply a rebuttable presumption or inference of fact. If when all the evidence is in, inducement is not proved on the balance of probabilities, because the force of the presumption is repelled or neutralized by other evidence, the plaintiff should fail. In my opinion, it follows that there may be a failure to prove inducement even in a case where it does not appear that the plaintiff knew the full truth as to the defendant's solicitor's absence of authority. ”[38]The remedy for breach of the warranty is damages, which will normally be the costs thrown away in the action (per Buckley LJ in Yonge v Toynbee at p.229), a liability which Swinfen Eady J characterised as being one “to pay the costs of the party misled” (at p.231). In Adams v. Ford (at paragraph 31), Toulson LJ identified the nature of the recoverable loss as follows:
"a solicitor who acts in litigation without authority to act on behalf of the supposed client is responsible for the costs thereby incurred by the other party."
[39]In my view the way in which the characteristics of the liability are described in Yonge v Toynbee and Adams v Ford, makes clear that there must be both reliance and a causal link between the breach of the warranty and the loss which is claimed from the solicitor who gives the warranty in the first place. This is why Swinfen Eady J talks about the “party misled” and why Toulson LJ uses the phrase “costs thereby incurred”.[40]A similar point is made by Colman J in Skylight Maritime SA v. Ascot Underwriting Ltd [2005] PNLR 25 at paragraph 14, when explaining why the recoverable loss is the difference between the position which the promisee now finds itself in, and the better position which he would have been in if the warranty had been true: "It is important not to lose sight of the fact that the relevant breach of warranty is the non-existence of the authority that was warranted. Therefore, the opposite party or promisee has lost the benefit of the position he would have been in had the warranty been true. In other words, the court is concerned to quantify what benefit has been lost by reason of the fact that the supposed client is not after all a party to the proceedings. In the ordinary case, the promisee will have lost the ability to recover from that client the costs of the proceedings in the event of a costs order in the promisee's favour. This is usually quantified as the amount of costs thrown away by the promisee in relation to the proceedings from the first participant in them of the solicitor until the promisee is apprised of the solicitor's lack of authority. ”[41]In a straightforward case the remedy is exercised under the court’s inherent jurisdiction over its officers (see the procedure adopted in Yonge v Toynbee and see also Nelson v Nelson [1997] 1 WLR 233, 239F/G per Waller LJ), although if there are substantial points of law or fact to be resolved it may be appropriate to leave the issue to be resolved through the commencement of separate proceedings (see the Skylight Maritime case at paragraphs 6 to 14).[42]Against this background, the Solicitors’ response to Mr Ahmed’s application for a costs order against them was advanced in a witness statement made on 13 September 2016 by Mrs Inyang. She contended that Mr Ahmed had taken the position throughout the proceedings that John Haastrup did not have authority. It followed, so she contended, that the proceedings were about the very issue alleged to have been warranted, which means that Mr Ahmed could not succeed because(a) the Solicitors did not warrant the correctness of their client’s case and(b) Mr Ahmed cannot claim to have relied on any warranty when he was in fact litigating to achieve an outcome with the opposite effect.[43]The Solicitors’ defence was further developed in the skeleton argument prepared by their counsel, Ms Chantelle Staynings, and her oral submissions. Whilst she accepted that a warranty of authority was given by the Solicitors at the time the proceedings were commenced, she submitted that, at least from the time that Mr Ahmed filed his Defence on 13 October 2014, it was clear that he knew that there was an issue as to John Haastrup’s authority. She said that the consequence is that the only warranty given by the Solicitors thereafter was simply that they were instructed to advance a case that John Haastrup had been validly appointed as a director of the Claimant. They cannot be taken to have given any warranty as to the correctness of that case.[44]She also submitted that, while not strictly a case of misnomer, it was always clear that the true party on the preliminary issue was John Haastrup, because the issue turned on his entitlement to the shares in Zoya and whether he had been validly appointed. Furthermore it was submitted that Mr Ahmed was equally well-placed as the Solicitors to determine whether they had a right to represent Zoya, and it is not credible to suggest that Mr Ahmed relied on any warranty given by the Solicitors “that the interpretation of Liberian law advanced by John Haastrup during the trial of preliminary issues was correct” (as she put it in her skeleton argument).[45]Finally, Ms Staynings submitted that there is no good policy reason why the principle relied on by Mr Burton should be applied in the present case. The reason for this, so she submitted, was that, unlike cases in which there was no principal against whom a costs order could be enforced, Mr Ahmed could be awarded his costs against John Haastrup personally as the true party to the proceedings. In fact, as I have explained above, I have already made a costs order against John Haastrup, although whether it will generate a return for Mr Ahmed is not immediately obvious, as I understand that there are bankruptcy proceedings extant against him.[46]I turn first to the extent of any warranty. Ms Staynings submitted that, if the Solicitors had been asked to warrant their authority to act on behalf of Zoya, they would have said no. She submits that this demonstrates that they gave no implied warranty of authority. In support of this submission she also relied on what was said by

Judge Hegarty QC in the Masood case at para 103:

“The point can be illustrated, as it seems to me, by considering what the position would have been if Excel or its solicitors had asked BM Solicitors to give some form of express warranty or undertaking. If they had been asked whether they warranted that they had authority to act on behalf of their client in connection with the loan agreement and the execution of the charge, it seems to me to be highly likely that they would have agreed, though they might have asked why it was necessary, given the usual implication of a warranty of authority. But if they had been asked to warrant the identify of the client and to guarantee that he was the same person as the registered proprietor of 17 Richards Place, I think it is almost inconceivable that they would have agreed to do so. The likely response would simply have been that Excel must rely upon their own enquiries. ”
[47]If I have understood her submission, I do not think that Ms Staynings can derive the support that she seeks from this passage. Judge Hegarty QC was explaining the distinction between a wider warranty (which generally is not given) and a warranty of authority (which normally is, even if it and the wider warranty both arise out of the same facts). Nothing that he said indicated that the solicitors in that case ought to be treated as if they would have declined to warrant their authority to act. Indeed, he makes this clear in the next paragraph of his judgment where he distinguishes between a warranty of authority and a warranty as to “identity or other attributes” saying that:
“... it seems to me to be virtually inconceivable that a solicitor would seek to exclude any liability for breach of warranty of authority; ... ”
[48]In any event, it seems to me that different considerations arise in the context of a warranty of authority given by solicitors in legal proceedings. If, in the present case, the Solicitors had been asked whether they warranted their authority to act, they would have been bound to say as a bare minimum that they were satisfied that they were authorised to act for Zoya, but to which they may have added the qualification (anyway after 10 August 2015) that they were not prepared to warrant to Mr Ahmed that this was the case. If they had taken any other course I have real difficulty in seeing how they could have continued to act at all. In any event, it is my view there is a legal issue of some difficulty on the question of the circumstances in which it is possible for a solicitor to continue to act while refusing to warrant his authority. In Yonge v Toynbee, Buckley LJ seems to have contemplated that the warranty could be excluded on the facts, but in most circumstances such an exclusion would undermine the policy behind the jurisdiction, as identified by Swinfen Eady J (at p.234 in the passage cited at paragraph 31 above).[49]On this point, Ms Staynings also relied on the decision of Mark Anderson QC in Re Sherlock Holmes International Society Ltd [2016] EWHC 1392 (Ch). Her submission was that Sherlock Holmes is authority for the proposition that “no warranty of authority arises in circumstances where the litigation is about the very issue alleged to have been warranted”’. She relied in particular on the following passage in paragraph 30 of the judgment:
“A solicitor does not warrant his authority where that issue is known to be controversial and the parties are engaged in litigation to find the answer.”
[50]In my view, some qualification is required to what might otherwise be read as a general statement of principle. If a solicitor remains on the record in the litigation without making clear his position, it will normally only be where it is obvious that somebody other than the disputed principal is the real party engaged in the litigation (being a person therefore susceptible to an adverse order for costs), that it is possible to infer that no warranty is given. Even then I doubt that it would be proper for the solicitors to continue to remain on the record for their supposed principal unless they had formed a bona fide view that they did in fact have authority to take such steps in the action as they purported to take on its behalf.[51]In the Sherlock Holmes case the petitioner sought an order against solicitors purporting to be authorised to represent a company against which he had presented a winding up petition in his capacity as a creditor. One of the unusual features of the case was that the petitioner was also the company’s sole member. In substance the petition was part of a wider dispute between members of a family in relation to control of a family company. The basis on which the company, through the instruction of its sole director, had sought to resist the petition was that it had a counterclaim that exceeded the petition debt. During the course of January 2015 there was a hearing at which the court rejected this defence and made a winding up order. Shortly before that hearing, the director’s appointment as such had expired, with the consequence that there was in fact no director in office to give instructions to the solicitors to continue to resist the petition.[52]The solicitors then proceeded with an appeal against the making of the winding up order. However, before the appeal came on for hearing, the petitioner raised an issue as to the director’s status and in October 2015 issued an application for a declaration as to the invalidity of his appointment. The appeal did not then proceed, but directions were given for the trial of the issue raised by the application. The court concluded that the director’s appointment had indeed expired by the time of the hearing at which the winding up order was made.[53]The basis on which costs were sought was that the solicitors continued to act for the company after the date on which the instructing director was no longer authorised to act. The solicitors pleaded ostensible authority, s.161 of the Companies Act 2006 and a defence that any breach caused no loss because, even if the warranty had been true, any order for costs against the company would have been worthless in any event, because the company was insolvent. It was also said that the litigation initiated by the October 2015 application notice was about the very issue alleged to have been warranted, with the consequence that the solicitors could not be liable because(a) solicitors do not warrant the correctness of their client’s case and(b) the petitioner could not have relied on the warranty when litigating to achieve a declaration to the opposite effect.[54]They succeeded on all points, but it is important to understand why they succeeded on the last one, which is said to support the principle relied on by Ms Staynings. The reason was that it was accepted by all parties that, up until the October application, the solicitors were warranting their authority to act for the company (see paragraph 27). At that stage, the application then took on a life of its own as free-standing litigation (what the judge described as a new issue and a new phase in the litigation) in which the real party represented by the solicitors was no longer the company (see [2016] EWHC 1392 (Ch) at paragraph 28, and also apparent from the substantive judgment at [2016] EWHC 1076 (Ch)).[55]It followed from this that the nature and circumstances were such that the solicitors in that case were in substance acting for the director on a separate application for the determination of the issue as to whether or not his appointment had expired, and a reasonable person in the position of the petitioner would not have concluded that the solicitors were warranting that the director was still in office. As the judge put it, it was “merely incidental” to the director’s position to assert that the company shared it. The judge was therefore able to treat the application for determination of the director’s authority both as separate from the appeal against the winding up order (which was in any event stayed), and as a matter in respect of which no warranty of authority was given by the solicitors.[56]In the present case, Ms Staynings accepted that the warranty of authority was given at the time of issue of the proceedings. In my judgment, the factors identified in paragraph 24 above indicate that, at all times prior to the ordering of the preliminary issues, the Solicitors continued both to hold themselves out as representing Zoya in the proceedings generally, and to warrant that that was what they were doing. It cannot be said that the question of authority was the only issue about which the litigation was proceeding, so anyway prior to the hearing at which the preliminary issues were directed to be heard, it cannot be said that (per the Sherlock Holmes case) the very issue in the proceedings had became one of authority. Accordingly, for the period prior to 10 August 2015, I am unable to draw the inference which was drawn in the Sherlock Holmes case for the period from October onwards, and it does not seem to me that the mere fact that the question of authority was known to be contentious affects that question. The warranty of authority, which a solicitor continues to give if he continues to act for a party in litigation, is quite separate from any warranty relating to the merits of the case, even if the actual factual issues become inextricably interlinked.[57]In the present case, there was always a risk that there would be an inextricable interlinking of those questions, because the issue of whether John Haastrup had authority to give instructions to the Solicitors had some bearing on the merits of the claim. It follows that, even though the question of want of authority was not of itself a defence to the action, very similar questions were going to arise in the separate context of whether the way in which Mr Ahmed had accounted for rental monies in the past did itself gave rise to a defence to the action.[58]However, consistently with what occurred in Sherlock Holmes, I think that the position changed when Master Matthews directed the trial of the preliminary issues. Nothing further happened in the litigation apart from the preparation for the April 2016 hearing and the hearing itself. In substance the trial of the preliminary issues involved the Solicitors advancing John Haastrup’s claim to be a director and the answer to the preliminary issues necessarily resolved the issue of authority. I am unable to identify any difference between the present case and what occurred in Sherlock Holmes. I must follow Sherlock Holmes unless I am convinced that it is wrong (which I am not), and it follows that the proper inference to be drawn is that, while the Solicitors may have satisfied themselves that they were still entitled to act for Zoya (as well as John Haastrup), they were no longer warranting to Mr Ahmed that they were authorised to do so.[59]What then are the consequences of the warranty having been given at the outset of the proceedings, but no longer being given after August 2015? This issue was also addressed in the Sherlock Holmes case (at paragraph 50), where the judge accepted that, in principle, the costs of litigation to decide whether or not a warranty of authority was true or false is capable of being recovered as damages for its breach, anyway where the opposing party was litigating to establish its truth rather than its falsehood. This can also be seen in other cases (such e.g. as Warner v. Merriman White), in which the court seems to have treated the costs thrown away as including the costs of determining the issue.[60]However, this does not mean that Mr Ahmed is able to recover his costs of litigating the preliminary issues, as costs flowing from the breach of the continuing warranty, which was given by the Solicitors during the period prior to 10 August 2015. In my judgment it is necessary for Mr Ahmed to establish that he relied on the warranty in the sense that he was induced by it to act to his prejudice. This reflects the approach adopted by both Buckley LJ and Swinfen Eady J in Yonge v Toynbee and seems to me to be a logical consequence of the fact that the jurisdiction results from an implied contract of the form described by Sholl J in the passage in the Schlieske cited with approval by Hilary Heilbron QC in Padhiar v Patel.[61]In my judgment, Mr Ahmed is not able to satisfy this requirement. I agree with Ms Stayning’s submission that the reason for this is that he cannot establish either that he relied on the warranty which was given by the Solicitors, or that the breach of warranty committed by them was causative of any loss.[62]More particularly Mr Ahmed cannot establish that he was misled (the word used by Swinfen Eady J in Yonge v Toynbee) in any way by the Solicitors’ warranty of authority, nor can he say that he incurred any costs on what Buckley LJ called the faith of the Solicitors’ representation that they were authorised by Zoya to commence and proceed with the action. This is because: 62.1. it is clear that, before the proceedings were even issued, Mr Ahmed knew that the identity of the person or persons entitled to act for Zoya and to give instructions on its behalf was at the core of the family dispute, which I have described in greater detail in the July Judgment; and 62.2. Mr Ahmed must have determined by no later than the time at which any material recoverable costs were incurred (i.e. the preparation and service of his defence) that he would challenge the authority of John Haastrup to give instructions on behalf of Zoya and therefore the authority of the Solicitors to act on its behalf.[63]Both of these factors mean that, although the warranty of authority was given at the beginning of the proceedings, and continued for some time thereafter, it had no relevant effect on the position of Mr Ahmed. This can be seen from the result in Sherlock Holmes. It can also be seen from a simple application of the test which Colman J formulated in the Skylight Maritime case for quantifying the loss recoverable from solicitors acting in breach of their warranty of authority, as set out in the last sentence of the passage cited in paragraph 40 above. Mr Ahmed threw no costs away in relation to the proceedings from the time that the Solicitors first participated in them until Mr Ahmed was first apprised of the Solicitors’ lack of authority. This is because he contended from the outset that the Solicitors’ lacked authority - in other words there was never a time when he was not apprised of that fact.[64]It is, of course, the case that Mr Ahmed incurred costs in the trial of the issues which I decided in the July Judgment. Those are costs which he would not have incurred if the proceedings had not been issued by the Solicitors in the first place. In that sense, Mr Ahmed has been put to cost and expense as a result of proceedings which should not have been issued. However, it seems to me that, in the absence of any actual reliance by Mr Ahmed on the warranty of authority itself, the relevant cost and expense was caused in a legal sense by the issue of the process not by the breach of the warranty, a point which was identified, albeit expressed slightly differently in Sherlock Holmes (at paragraph 50).[65]Furthermore, it cannot be said that the costs amounted to a loss of the benefit of the position Mr Ahmed would have been in had the warranty been true. As Colman J explained in the passage from Skylight Maritime cited in paragraph 40 above, the court is concerned to quantify what benefit has been lost by reason of the fact that the supposed client is not after all a party to the proceedings. In my judgment, in the present case, Mr Ahmed has lost no such benefit - indeed on his own case, he has benefitted from the fact that he has established that the warranty was in fact false.[66]Ms Staynings’ final submission (paragraph 45 above) is of relevance to this last point. I agree that some of the policy considerations which originally underpinned the jurisdiction to make solicitors acting in legal proceedings strictly liable for costs incurred as a result of a breach of their warranty of authority no longer have the same force. In large part this is because the modern third party costs jurisdiction enables the court to make a much wider category of persons liable for the costs of litigation in which they were involved than used to be the case. The point cannot be taken too far, however, because the breach of warranty jurisdiction has always been applicable to those individuals responsible for instructing solicitors without authority, as well as to the unauthorised solicitors themselves (see per Greer LJ in John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, 130).[67]Nonetheless, it seems to me that those in the position of John Haastrup in the present case are highly susceptible to the modern third party costs order (see also the cases referred to by Judge Hegarty QC in Excel Securities v Masood [2009] EWHC 3912 (QB) at paragraph 94). Their conduct as an unauthorised instructor, knowing or having the means to know of their lack of authority, is a powerful basis for concluding that they should be liable as if they were the true litigants. It follows that, although it will remain the case that “the opposing party will be left without remedy against his supposed client" (the justification for a solicitor’s strict liability identified by Buxton LJ in the passage from SEB Trygg cited in paragraph 34 above), in a case such as the present he will have a remedy against somebody, and it will often be more appropriate to make that person liable than a solicitor strictly liable for breach of his warranty of authority.[68]In these circumstances, I refuse to exercise the court’s summary jurisdiction against the Solicitors, and will dismiss Mr Ahmed’s application accordingly.

Cited in 3 later judgments