RUSHBROOKE UK LTD v 4 DESIGNS CONCEPT LTD

A wasted costs order may be made where a legal representative acts improperly, unreasonably or negligently, causes unnecessary or wasted costs, and it is just to require compensation. A solicitor instructed by one of two directors who are in deadlock must satisfy themselves that the director has authority to bind the company before commencing proceedings. Good faith does not by itself prevent a wasted costs order. Vexatious conduct is unnecessary. The court may deal with the application through written submissions where the case is sufficiently clear and the solicitor has had a reasonable opportunity to respond.

The applicant company had sought an injunction restraining presentation of a winding-up petition. The application was struck out because one of its two directors lacked authority to instruct solicitors on the company’s behalf: [2022] EWHC 1110 (Ch). The company was ordered to pay the respondent’s costs, summarily assessed at £7,920: [2022] EWHC 1416 (Ch).

The respondent then sought a wasted costs order against the applicant’s solicitors. The issue was whether the solicitors’ acceptance of instructions from the single director, without satisfying themselves of his authority, met the statutory and procedural conditions for such an order.

1. The court made a wasted costs order against the applicant’s solicitors in the sum of £7,920, equal to the costs previously awarded to the respondent.

2. Under section 51(6) and (7) of the Senior Courts Act 1981, CPR rule 46.8 and CPR Practice Direction 46, paragraph 5, the court must consider whether the representative acted improperly, unreasonably or negligently, whether that conduct caused unnecessary or wasted costs, and whether it is just to order compensation.

3. The guidance in Ridehalgh v Horsefield was applied. Impropriety includes a significant breach of a substantial professional duty. Unreasonableness is assessed by asking whether the conduct permits a reasonable explanation. Negligence means failing to act with the competence reasonably expected of ordinary members of the profession.

4. There was prima facie impropriety and unreasonableness. Where two directors have fallen out and cannot agree, a solicitor instructed by one director must establish that director’s authority before committing the company to proceedings. Deadlock does not itself confer unilateral authority. The solicitor’s good-faith belief was insufficient, and vexatious or deliberately harassing conduct was not required.

5. Causation was established because, had the solicitors checked the director’s authority, the proceedings would not have been issued and the respondent’s costs would not have been incurred.

6. It was just to order compensation, particularly because the company was or was likely to be insolvent and the respondent might otherwise remain out of pocket. The wasted costs proceedings were also justified despite their cost and complexity.

7. The court noted a separate inherent jurisdiction based on breach of a solicitor’s implied warranty of authority. It did not finally decide whether that jurisdiction would independently have justified an order.

The judgment itself records earlier first-instance decisions in the same proceedings: the injunction application was struck out in [2022] EWHC 1110 (Ch), and the company’s costs were summarily assessed in [2022] EWHC 1416 (Ch). The present judgment determined the consequential wasted costs issue.