Kerry Underwood

SOLICITOR’S BREACH OF WARRANTY: IMPORTANT CASE FOR INSURERS

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In Zoya Ltd v Ahmed T/A Property Mart & Others [2016] EWHC 2249 (Ch)

 

the Chancery Division of the High Court refused the defendant’s application that the claimant’s solicitors should pay their costs on the basis of breach of warranty or authority to act for the claimant. The court suggested that it will often be more appropriate to order the unauthorised instructor to pay the costs.

 

Here the solicitors issued proceedings in the name of Zoya Ltd on instructions from Mr Haastrup, who claimed to be Zoya’s sole director and shareholder.

 

The defendant disputed his authority to act on Zoya’s behalf and at a preliminary hearing the court found that Mr Haastrup was not validly appointed as a director of Zoya Ltd and had no authority to instruct solicitors on its behalf.

 

The claim was subsequently struck out and a third party costs order made against Mr Haastrup.

 

The defendant sought a wasted costs order against the solicitors, who accepted that by issuing proceedings they were giving a warranty of authority.

 

The court held that until the preliminary hearing the solicitors warranted that they were representing Zoya Ltd, but thereafter they did not.

 

The court held that the defendant was unable to recover from the solicitors the costs of the preliminary issue as the defendant had failed to establish that the warranty had induced him to act to his prejudice as required by Yonge v Toynbee [1910] 1 KB 215.

 

As the defendant had from the outset contended that the solicitors lacked authority to act for Zoya Ltd they had not been induced to do anything.

 

The wasted costs application against the solicitors was rejected. Two categories of conduct were relied upon, one of which was the breach of warranty issue dealt with above.

 

The other was the filing of a witness statement by Mr Haastrup on the eve of trial containing what was described as inflammatory, false and irrelevant allegations.

 

The court had this to say about that:-

 

“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.”

 

This reflects the fact that a party seeking a wasted costs order must prove that the costs were incurred as a result of improper, unreasonable or negligent act or omission on the part of the lawyer – see section 51(7) of the Senior Courts Act 1981.

 

In relation to the breach of warranty, that alone could entitle the party to recover costs, even in the absence of a wasted costs order.

 

The applicant also made an application for a wasted costs order against the solicitors on the ground that they had failed to make proper enquiries as to the authority of John Haastrup to give instructions in the name of Zoya and that conduct alone, apart from being a breach of warranty, constituted 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.

 

The court had this to say about that point:-

 

“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.”

 

The applicant had submitted that it was a matter of strict liability, that is that the solicitors are liable notwithstanding the state of their knowledge as to their authority as set out in Richmond v Branson & Son [1914] 1 Ch 968, 974.  

 

Another example of this jurisdiction being exercised was Warner v. Merriman White [2008] EWHC 1129 (Ch).

 

The remedy for breach of the warranty is damages, which will normally be the costs thrown away in the action, which has been described by the courts as being an obligation “to pay the costs of the party misled.”

 

In Adams v. Ford [2012] 1 WLR 3211 the court 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.”

 

Comment

 

This case shows the difficulties in obtaining wasted costs orders, but is also a reminder that a solicitor can be responsible for costs in circumstances other than having a wasted costs order made against them.

 

This case has significance in relation to personal injury work, where it is common for insurers to ask solicitors to confirm they are acting for the client, or to ask the client if the solicitor is in fact acting for them.

 

This conduct brings howls of protest from claimant solicitors, including me, but insurers say that due to the dodgy arrangements between solicitors and referrers and others it is common for solicitors to purport to represent clients who they have never met or spoken to and in circumstances where they have no authority to act.

 

I must admit that one of my own clients showed me a letter from a firm of personal injury solicitors purporting to act for my client when my client had never heard of them, let alone met them or spoke to them.

 

In such circumstances the defendant, realistically the insurance company, will have a cast iron case for an action against the solicitors for breach of warranty, as well as a wasted costs application.

 

This is of particular significance in personal injury work, where, due to Qualified One-Way Costs Shifting, defendants generally will not recover costs even if successful.

 

Please see my related blog:-

 

INSURERS – BREACH OF WARRANTY BY CLAIMANT SOLICITORS & REQUEST FOR INFORMATION

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Written by kerryunderwood

November 15, 2016 at 7:34 am

Posted in Uncategorized

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