Tonstate Group Limited & Ors v Rosling King LLP

A solicitor’s negligence claim may properly combine concurrent breaches where the pleaded loss results from their cumulative effect. A claim should not be struck out merely because causation or quantum requires assessment in related costs proceedings.

Summary judgment is inappropriate where the issues depend on disputed evidence and would require a mini-trial.

The Duomatic principle cannot ratify conduct which the company itself could not lawfully undertake, including use of a solvent company as a vehicle to defraud HMRC. Sections 39 and 40 of the Companies Act 2006 do not abolish the relevant exception when the issue is the company’s claim against directors for breach of statutory duty.

The claimants brought applications concerning negligence claims against their former solicitors. They alleged that Rosling King LLP had failed to identify that Mr Wojakovski’s pleaded reliance on the Duomatic principle was legally untenable, had failed to provide adequate strategic and costs advice, and had advised on a loan made in breach of court undertakings.

Rosling King sought strike-out and reverse summary judgment. The claimants sought strike-out of those parts of the defence challenging the correctness of Zacaroli J’s decision in [2019] EWHC 3363 (Ch). The central issues were whether the negligence claims were properly pleaded and arguable, and whether that earlier decision was correct.

1. Applications and pleading. The Defendant’s Application was dismissed. The aimlessness and Duomatic claims disclosed reasonable grounds. The pleadings identified alleged duties, breaches, causation and loss, even though the causation and quantum case was general. Concurrent breaches could cause the same loss, and the claimants were entitled to rely on the cumulative effect of the alleged breaches.
2. Summary judgment. Reverse summary judgment was refused. Whether a reasonably competent solicitor should have advised an earlier strike-out application, whether the claimants would have accepted that advice, and what costs would have been saved involved disputed factual issues. Determining them would require disclosure, witness statements and cross-examination. The court should not conduct a mini-trial on an application under CPR Part 24.
3. The Duomatic principle. The principle permits unanimous informal shareholder assent to do what could have been done by formal resolution. It does not permit ratification of an act which is ultra vires the company, including an unlawful payment or an exercise of powers for an improper purpose. It also does not protect the use of a company as a vehicle for fraud or wrongdoing directed against the company, its creditors or HMRC.
4. Companies Act 2006. Sections 39 and 40 abolish the external corporate-capacity doctrine and protect third parties dealing with a company in good faith. They do not prevent the company from pursuing directors for breach of their statutory duty under section 171, nor do they remove the limitation on shareholder ratification of such breaches.
5. Authorities and disposition. The court followed the co-ordinate decisions in Auden McKenzie and the Duomatic Judgment, and held that later decisions concerning equitable compensation, incidental dishonesty, or corporate capacity did not undermine them. Summary judgment was granted for the claimants on the correctness of the Duomatic Judgment. The specified paragraphs of the defence were struck out. Costs and permission to amend were adjourned.

Not an appeal. The judgment concerned interlocutory applications in the High Court proceedings.