Zoya Ltd v Sheikh Nasir Ahmed (t/a Property Mart) & Ors

The court struck out the claimant's proceedings as an abuse of process after finding that John Adewale Haastrup was not entitled to the shares in the claimant and had not validly been appointed as its director. The judge made a third-party costs order against Mr Haastrup (to be paid on the indemnity basis) because he had procured and controlled the proceedings without authority. An application for a wasted costs order and for summary liability against Alpha Rocks Solicitors for breach of a warranty of authority was refused.

The refusal turned on established principles governing a solicitor's implied warranty of authority (Yonge v Toynbee and subsequent authorities) and the need, in litigation, to show reliance/inducement and a causal link between the breach and the loss. Although the solicitors gave a warranty of authority when issuing the proceedings, the claimant opposed the solicitors' authority from the outset and thus could not show that he had been misled or induced by that warranty to his prejudice; therefore the required causal link was not made out.

Background and parties:

• The claimant, Zoya Limited, issued proceedings seeking an account of monies said to have been collected by the defendant, Mr Sheikh Nasir Ahmed, as agent. Proceedings were issued by Alpha Rocks Solicitors purportedly on behalf of Zoya, instructed by John Adewale Haastrup.
• Preliminary issues were ordered and tried (the July Judgment): whether Mr Haastrup was legally entitled to the shares in Zoya and whether he had validly been appointed a director. The judge decided both issues against Mr Haastrup.

Procedural posture and relief sought:

• At the hand-down and disposal hearings Mr Ahmed sought strike out of the proceedings as an abuse of process. He also sought costs against Mr Haastrup and against Alpha Rocks Solicitors: (a) under the court's summary jurisdiction for breach of a solicitor's warranty of authority and (b) by way of a wasted costs order under section 51(6)/(7) of the Senior Courts Act 1981.
• The court struck out the claim form and particulars of claim as an abuse of process, made a third-party costs order against Mr Haastrup on the indemnity basis, but refused the applications against Alpha Rocks Solicitors.

Issues framed by the court:

• Whether Mr Haastrup had authority to hold the shares and be a director of Zoya and thereby to instruct solicitors to issue and continue proceedings.
• Whether Alpha Rocks had given an implied warranty of authority when issuing proceedings and, if so, whether breach of that warranty (or other improper conduct) caused recoverable loss to Mr Ahmed.
• Whether a wasted costs order was appropriate against Alpha Rocks under section 51(7) of the Senior Courts Act 1981.

Court's reasoning:

• The judge reviewed the modern law of a solicitor's warranty of authority (Yonge v Toynbee and subsequent authorities such as Nelson, SEB Trygg, Skylight Maritime and cases discussed in the judgment). The warranty is in principle strict but limited in scope and subject to exclusion by the facts.
• A central requirement is that the party seeking to recover must have been induced or misled by the solicitor's representation of authority and must show a causal link between that misrepresentation and the loss complained of.
• The court found Alpha Rocks did warrant authority when issuing the proceedings and continued to hold themselves out as acting for Zoya until the July Judgment; however, Mr Ahmed had from the outset put in issue Mr Haastrup's authority and therefore could not show he had been induced or misled by the solicitors' warranty. On that basis the causal link required for recovery under the warranty principle was not established.
• The wasted costs claim failed for want of proof that the solicitors’ conduct caused additional recoverable costs or was sufficiently improper or negligent in the demonstrable way required by section 51(7).
• The judge also noted the availability of third-party costs orders against someone like Mr Haastrup who procures litigation without authority and concluded it was appropriate in this case to make Mr Haastrup liable for costs on indemnity basis.

Wider observations:

• The court accepted that after the preliminary issues were directed and litigated the proceedings became a discrete phase in which the solicitors were no longer warranting authority in the same way, following the reasoning in Re Sherlock Holmes International Society Ltd, but that did not assist Mr Ahmed because he never relied on the warranty.

First instance: The court struck out the claim as an abuse of process and made a third-party costs order against John Adewale Haastrup to be paid on the indemnity basis because he procured and controlled proceedings without authority. The court refused to make a summary order against Alpha Rocks Solicitors for breach of warranty of authority and dismissed the wasted costs application under section 51(7) of the Senior Courts Act 1981. The primary rationale was that although a warranty of authority had been given when proceedings were issued, the claimant could not show he had been induced by that warranty or that the solicitors’ conduct causally occasioned recoverable loss.