Summary

In a case where law firms had purported to act for a respondent to a petition alleging unfairly prejudicial conduct when they had no authority to do so, they should pay the greater part of the costs incurred by the petitioner and the respondent in relation to an application by the latter to have the petition set aside as against it.

Facts

The court ruled on costs following a decision in favour of the second respondent company (T).

In 2013, the petitioner had presented a petition under the Companies Act 2006 s.994 alleging unfairly prejudicial conduct on the part of the first respondent and T. The first respondent was the settlor of a trust of which T was the trustee. Three successive law firms (the fifth, sixth and seventh respondents) wrongly believed that they had the authority of T's directors to represent T in the proceedings. They each dealt with the first respondent alone; it was he who had instructed each of them to act for himself and for T. T did not become aware of the proceedings until March 2016. It applied for relief in December 2016. There was an initial hearing of the application on 15 May 2017. Other hearings followed before the application was determined in November 2017. The judge was satisfied that T had had no knowledge of the petition, had not authorised any of the law firms to act for it and had not delegated its powers in that regard to the first respondent or to anyone else. The judge rejected the petitioner's arguments that the first respondent was to be taken as having had actual or ostensible authority to act on T's behalf or that T had ratified his acts. The judge ordered that service of the petition as against T be set aside. The law firms had conceded in March 2017 that, in purportedly acting for T, they had been in breach of a warranty of authority. The seventh respondent had reached a settlement of the claims against it.

Held

T's costs - The law firms should pay T's costs up to the hearing on 15 May 2017. T's application was the inevitable consequence of its discovering the law firms' breaches of duty. It had not been suggested by the law firms that T had acted in any way unreasonably in making that application, in the way that it conducted it and in pursuing it to judgment. The law firms should pay T's costs on the indemnity basis. That was right in principle, not because the law firms had acted in any way unreasonably in their conduct of T's application but because their breaches of duty had resulted in T incurring substantial costs up to 15 May 2017. The petitioner should pay T's costs from 15 May 2017. By that time, he had had ample time to consider the evidence and the disclosure to which he was entitled and to make a proper concession. He should have accepted no later than 15 May 2017 that resistance to T's application was futile, Godwin v Francis (1869-70) L.R. 5 C.P. 295 applied. He should pay T's costs on the indemnity basis, having acted unreasonably after 15 May 2017: he was a man in search of any possible argument (see paras 32, 43-46, 50 of judgment).

Petitioner's costs - The law firms should pay the petitioner's costs up to the hearing on 15 May 2017. After that date, the costs that he had incurred were not attributable to the law firms' conduct and he should bear his own costs. The law firms should pay the petitioner's costs on the indemnity basis. The negligent mistakes which they had made in acting for T when they had no authority to do so had exposed the petitioner to substantial expense. Their conduct was such as to take the case "out of the norm" of commercial litigation (paras 53-54).

First respondent's liability for petitioner's costs - Even though the first respondent had instructed the law firms to act for T, his conduct was not the cause of the petitioner incurring expenditure on T's application; it was the law firms which had caused him to incur such expenditure. In those circumstances, it would not be appropriate to order the first respondent to pay any part of the petitioner's costs (paras 55-62).

Costs determined