Aidiniantz v The Sherlock Holmes International Society Ltd

A solicitor’s warranty of authority in litigation is narrow. It ordinarily warrants that the solicitor has a client who authorised the proceedings, not that the client is solvent or that arguments advanced on the client’s behalf are correct. Damages for breach cannot place the claimant in a better position than if the warranty had been true. Ostensible authority and section 161 of the Companies Act 2006 may therefore provide a defence where they preserve that position. The court’s summary jurisdiction should be used only in clear cases suitable for summary determination. Costs may be ordered against non-parties who were the real respondents to litigation, having regard to all the circumstances and the factors in CPR 44.2.

The petitioner had presented a winding-up petition against the respondent company. The company’s solicitors continued to act on instructions from persons who controlled its affairs after the sole director’s appointment had expired. The petitioner successfully obtained a declaration concerning the expiry of that appointment and the appeal was dismissed.

The petitioner then sought his costs from the solicitors for breach of warranty of authority, alternatively from the individuals who had controlled and funded the litigation. The court considered the scope and duration of any warranty, ostensible authority, section 161 of the Companies Act 2006, recoverable loss, summary jurisdiction and non-party costs.

1. Claim against the solicitors. The court declined to exercise its supervisory jurisdiction to order the solicitors to pay costs and dismissed the claim against them. They warranted that the company had authorised the appeal until 16 October 2015, when the petitioner first challenged the director’s status. Thereafter, the solicitors were advancing the director’s case on the disputed issue and did not warrant the correctness of their submissions or the continuation of their authority.
2. A solicitor’s warranty of authority is based on the established contractual analysis but is enforced through the court’s jurisdiction over its officers. It is generally a warranty that the solicitor has a client who exists and authorised the proceedings. It is not a warranty of solvency, title, good cause of action, or the correctness of arguments advanced. Liability is strict, but the jurisdiction is discretionary and ordinarily confined to clear cases suitable for summary disposal.
3. The usual measure of loss in litigation cases is wasted costs, but damages cannot give the claimant a better position than performance of the warranty would have given. Since the company was insolvent and would not have paid a costs order, the claimed costs were not recoverable on that basis. Skylight Maritime v Ascot Underwriting was followed on this point.
4. Ostensible authority can answer a claim for breach of warranty where it puts the claimant in the same position as actual authority. Section 161(1)(c) of the Companies Act 2006 extends validation to acts done after a director has ceased to hold office, subject to the limits arising from notice and the director’s duties. Neither doctrine assisted the petitioner because he chose to challenge the authority and thereby sought a better position than if the warranty had been true.
5. The petitioner’s application against the controlling individuals concerning the October 2015 application succeeded in principle. They were the true respondents and had resisted the application for their own benefit. Applying CPR 44.2, they were jointly and severally liable for 60 per cent of the petitioner’s relevant costs, with £60,000 payable on account. The petitioner was ordered to pay half of the solicitors’ £26,000 costs on account in resisting the unsuccessful application against them. Costs issues relating to the earlier proceedings were left to the Registrar.

• High Court (Chancery Division): On appeal from Registrar Derrett, the court upheld the material conclusion that the director’s appointment had expired on 31 December 2014. The appeal was dismissed and consequential costs orders were made.