Griffith v Gourgey and Others  3 Costs LR 605
 3 Costs LR 605
Breach of warranty of authority; liability of solicitors for costs in a s 994 petition where successive firms had wrongly believed that they had the authority of the directors to go on the court record on behalf of a defendant company.
Gourgey and Others
 3 Costs LR 605
Neutral Citation Number:  EWHC 1484 (Ch)
High Court of Justice, Business and Property Courts of England and Wales Insolvency and Companies List, Chancery Division
15 June 2018
In proceedings under s 994 of the Companies Act 2006 for unfair prejudicial conduct which had been struck out on the grounds that the defendant company had never been notified of them and had no knowledge of the petition, the issue for the court was the liability in costs of three law firms to innocent parties arising from their breach of warranty of authority to act for the company. Improbably, the firms had believed that they had had the authority of the directors to represent the company and had gone onto the court record thereby affecting two innocent parties by their breaches. Whilst a compromise had been reached with all relevant parties by one of the law firms, the two others had resisted orders for costs being made against them.
Held. There was no reason why jurisdiction could not be exercised summarily in a case where the cause of action was breach of duty or negligence rather than breach of warranty of authority, provided it was clear that a liability in damages existed, and would extend to the costs claimed. It was the duty of a solicitor to act in proceedings only with appropriate authority. Where the solicitor was in breach of that duty, a summary remedy for losses clearly caused to the putative client by a summary remedy would be available in just the same way as the remedy for losses caused to a third party by the same misconduct, provided only that it was clear that the costs incurred by the putative client would be recoverable as damages. Here, the negligent mistakes of the three firms had exposed the claimant to substantial expense and it was reasonable for him, in the situation in which he had unwillingly found himself, fully to investigate the allegations of want of authority at the expense of those firms. The negligent mistakes of the solicitors had exposed him to substantial expense and the conduct of the firms had taken the case “out of the norm” of commercial litigation. This was not a situation in which the proportionality of the costs to matters in issue should play a part, but rather one in which the onus should be on the law firms to establish that any costs incurred by the claimant were unreasonably incurred as they had been responsible for putting him in the serious predicament in which he had found himself. Accordingly, the costs would be payable on the indemnity basis.
Al-Sabah v Ali (unreported, 22 January 1999)
Re Beddoe  1 Ch 547
Godwin v Francis (1870) LR 5 CP 295
Penn v Bristol and West Building Society  2 FLR 938
Re The Sherlock Holmes International Society Ltd  4 WLR 17
Skylight Maritime SA v Ascot Underwriting Ltd  EWHC 15 (Comm);  PNLR 25
Warner v Merriman White  EWHC 1129 (Ch)
Zoya Ltd v Ahmed (t/a Property Mart) and Others  2 Costs LO 133;  EWHC 2249 (Ch);  4 WLR 174
1. FANCOURT J: These proceedings are a petition under s 994 of the Companies Act 2006 issued by Mr Griffith for unfairly prejudicial conduct of the first respondent, Mr Maurice Gourgey, and the second respondent, Truchot Trustees Ltd (“TTL”), a Guernsey trustee company. The third respondents are the trustees in bankruptcy of Robert Hodge. In relation to the affairs of a company called Bankside Hotels Ltd. The company is the fourth respondent. The proceedings were issued in March 2013.
2. On 10 November 2017, Mark Anderson QC, sitting as a deputy High Court judge, ordered that service of the petition as against TTL be set aside, the amended points of defence be struck out in so far as they purported to be served on behalf of TTL, and that all orders previously made in the proceedings be rescinded in so far as they related to TTL.
3. The reason for the judge’s order was that he was satisfied that TTL had never been notified of the proceedings prior to 17 March 2016 and that steps taken in the proceedings had been taken purportedly on its behalf by solicitors but without its knowledge or authority.
4. Improbably (though it happened in fact, as the judge held), three successive law firms, Pinsent Masons LLP, Robert Davies Partnership LLP and King Wood Mallesons LLP (“the Law Firms”), wrongly believed that they had the authority of the directors of TTL to represent it in the proceedings. The dealings of each of the Law Firms were with Mr Gourgey. Mr Gourgey was the settlor (but no longer a beneficiary) of the Jersey trust of which TTL was the trustee. He is also a director of Bankside Hotels Ltd.
5. TTL applied for relief on 15 December 2016 (“the Truchot application”), having first set out in correspondence with Mr Griffith’s solicitors the factual basis for its assertions. At the outset, the Law Firms were added as respondents to the petition. There followed a number of interim hearings in relation to the Truchot application, at which applications made by Mr Griffith relating to disclosure and inspection of the Law Firms’ files were determined.
6. Almost a year later TTL’s application was heard. The judge was satisfied on the evidence that TTL 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 Mr Gourgey or anyone else. The judge rejected sustained arguments on behalf of Mr Griffith that Mr Gourgey was to be taken as having had actual or ostensible authority to act on behalf of TTL or alternatively that TTL had ratified the acts of Mr Gourgey.
7. It can be seen that there were therefore two innocent parties in 2016 affected by breaches of warranty of authority by the Law Firms: TTL, which was unaware of the proceedings until March 2016, and Mr Griffith, who had no reason at all to believe that the Law Firms were not actually instructed on behalf of TTL. By the time that TTL realised what had happened and notified Mr Griffith, substantial steps had been taken in the proceedings, including the striking out of the principal respondents’ points of defence for non-compliance with an unless order.
8. As part of his order, Mr Anderson QC set a timetable for dealing with the costs consequences of his order. The costs to be determined were identified as the costs of Truchot’s application generally, the costs reserved at an initial hearing of that application before Registrar Derrett on 15 May 2017, the costs of Mr Griffith’s application for inspection of documents held by the Law Firms, the costs of reviewing and redacting the documents inspected, the costs of Mr Griffith’s 17 October 2017 application for specific disclosure, and:
“Any costs (or damages for breach of warranty) which any party contends that another party (or any Non-Party) is liable to pay by reason of the fifth respondent having purported to accept service of the Petition on behalf of the second respondent or by reason of the fifth, sixth and seventh respondents having purported to act on behalf of the second respondent, whatever the juridical basis for such contention.”
9. The reason for the last category of costs identified is that the Law Firms all accept that, as a result of their purporting to act for TTL at different times during the proceedings, they were in breach of a warranty of authority. In straightforward cases, where costs have been wasted or the ability to rely on an award of costs has been lost as a result of solicitors acting without authority, the court exercises a summary jurisdiction to order solicitors to pay those costs: see e.g. Skylight Maritime SA v Ascot Underwriting Ltd  EWHC 15 (Comm);  PNLR 25 and Warner v Merriman White  EWHC 1129 (Ch).
10. In that regard, it is right to note the dates at which the respective Law Firms were purporting to act for TTL. Pinsent Masons LLP (Pinsents) purported to act (and did act for Mr Gourgey) from before the issue of the petition until 15 January 2014, when Robert Davies Partnership LLP (“Davies”) served notice of change of solicitors. By that time, Pinsents had accepted service, applied to strike out parts of the petition, served points of defence on behalf of all respondents, and received but not answered a request for further information.
11. Davies purported to act for all respondents until a notice of change was filed by King Wood Malleson LLP (“KWM”) on 28 May 2015. By that date, the respondents had served a response to an unless order to provide further information, applied for relief against sanctions and received an order from Simon J, on Mr Griffith’s application, that no further relief should be granted to the respondents and accordingly that the points of defence stood struck out. KWM were pursuing an appeal against this order when TTL discovered that the proceedings existed. As a result of that, on 30 June 2016, solicitors acting for TTL, McDermott Will & Emery (“McDermotts”), wrote to Mr Griffith’s solicitors, copied to solicitors newly acting for Mr Gourgey (Olephant), indicating that they were now acting for TTL and explaining what TTL proposed to do. A detailed letter before application followed on 5 September 2016.
12. There were therefore three distinct periods of time during which warranties of authority were made on behalf of the three separate Law Firms. Clearly, any warranty of continuing authority ceased as regards a Law Firm upon service of a notice of change, because thereafter the replaced Law Firm no longer purported to act on behalf of TTL. In the case of KWM, the warranty ceased to be made at or about the time when McDermotts notified the Petitioner that they were acting for TTL.
13. The Truchot application was issued on 15 December 2016, with a detailed witness statement and substantial exhibits providing evidence that TTL had not authorised anyone to act for it in connection with the proceedings. There is no suggestion from anyone that TTL acted precipitately or without adequate warning and pre-disclosure of the basis of its application.
14. By March 2017, each of the Law Firms had provided evidence admitting that they had not been properly retained on behalf of TTL, and therefore effectively conceding that, in purportedly acting for TTL in the litigation, they had been in breach of a warranty of authority.
15. KWM has now reached a compromise with all relevant parties and so has played no part in the hearing before me. Pinsents were represented by Mr Allen and RDP Law Ltd (“RDP”), which is the successor firm of Davies, was represented by Mr Troman. RDP has agreed to submit to any order in relation to costs that could properly have been made against Davies. Reference to arguments advanced by “the Law Firms” at this hearing are therefore to be taken as referring only to Pinsents and RDP.
16. I am only concerned with the costs of the Truchot application and the interim applications on the basis of the court’s broad discretion to award costs between the parties, under s 51(1) and (3) of the Senior Courts Act 1981 and in accordance with Part 44.2 of the Civil Procedure Rules. The Law Firms were joined as parties specifically so that the costs matters could be determined between the principal respondents and them too. Although detailed reference was made to the summary jurisdiction to order payment of costs as damages for breach of a warranty of authority, in the event no party invited me to make an order on that basis. However, the liability of the Law Firms in damages to Mr Griffith and TTL was relied on by Mr Griffith and TTL respectively as underpinning the way in which the court should exercise its discretion on costs.
17. The orders sought by the parties may be summarised briefly as follows:
a. TTL seeks an order against Mr Griffith and the Law Firms, jointly and severally, for its costs of the Truchot application (including the costs associated with the interim applications and hearings), to be assessed on an indemnity basis. Mr Griffith and the Law Firms resist that. Mr Griffith contends that TTL’s costs should be paid by the Law Firms and they contend that TTL’s costs should be paid by Mr Griffith.
b. Mr Griffith contends that his costs of the Truchot application should be paid by the Law Firms and Mr Gourgey, jointly and severally. The Law Firms and Mr Gourgey resist that.
c. Mr Gourgey contends that his costs of the hearing before Registrar Derrett and his costs of the inspection application, the review and redaction of the documents and the hearing before Mr Anderson QC should be paid by Mr Griffith.
d. Neither Pinsents nor RDP seek an order for costs in their favour.
18. The main respondent to the Truchot application was the Petitioner, Mr Griffith. He would be primarily affected by the relief sought. The other respondents were served with the Truchot application, as being interested parties that might be affected by the consequences of the application succeeding. The other principal respondents were therefore entitled to be heard on the application, but there are no additional claims or cross-claims between them. Initially they played no part but Mr Griffith’s applications for disclosure and inspection resulted in Mr Gourgey and the Law Firms becoming involved in the interim applications.
19. Truchot’s application was opposed root and branch by Mr Griffith. Even after the Law Firms’ evidence had been served and Mr Griffith had obtained the inspection of privileged documents held by them, he continued to seek to establish that the Law Firms did in fact have authority of TTL, on the basis that Mr Gourgey had authority to instruct the Law Firms on TTL’s behalf. The Truchot application was not opposed by any other party.
20. TTL succeeded on its application. Mr Griffith is therefore the unsuccessful party and TTL is the successful party, for the purposes of Part 44.2.
21. The general rule therefore has the effect that Mr Griffith should pay TTL’s costs of the Truchot application, though the court may make a different order. There must be a reason to depart from the general rule, though one of the matters to which the court is to have regard is the conduct of the parties, before and during the proceedings.
22. Mr Griffith invites the court to depart from the general rule in this case. He contends that the persons responsible for the costs in question being incurred by TTL and him are the Law Firms, and so an order for costs should be made directly against them and not against Mr Griffith, who is an innocent party. Mr Griffith argues too that TTL’s conduct of the Truchot application was reprehensible, in that it contended in its witness statement in support that at no time had it authorised Mr Gourgey, his son Neil or any member of his family to act on behalf of the trust, but did not disclose documents that showed that it had done so on a limited basis in 2006 and 2007 until after the application for specific disclosure was made by Mr Griffith in October 2017.
23. Mr Griffith contends that, given the nature of the application and the highly unusual circumstances, it was reasonable for him not to consent to it, either at all or at least not until after he was certain that he had been able to see all relevant documents relating to the dealings between TTL, Mr Gourgey and the Law Firms. He also argues that it is clear from TTL’s evidence that very substantial costs have been incurred by TTL, including Beddoe proceedings in Guernsey, which it would be unfair for an innocent party such as Mr Griffith to have to bear. Mr Griffith contends that, for all these reasons, an order of “no order as to costs” as between TTL and Mr Griffith should be made.
24. TTL also seeks its costs of the Truchot application against the Law Firms, jointly and severally. It does so on the basis that they all failed in their professional duty to ensure that they obtained authority to act for TTL, and all purported to act for TTL but without authority to do so. TTL argues that had the Law Firms not been in breach of duty, it would have been notified of the threatened proceedings and been able to deal with them at an early stage, in the way that it did in fact earlier this year, resulting in the striking out of the petition as against TTL. Instead, by reason of the actions of the Law Firms, TTL inevitably had to incur expense in bringing the Truchot application in order to remedy the position that the Law Firms had put it in.
25. TTL contends that it is relevant to the exercise of a costs discretion in its favour that it has a clear claim against the Law Firms for damages in tort, as a result of breach by each of them of a duty owed to TTL to take care only to act in accordance with the SRA Handbook and the SRA Code of Conduct, and therefore only to act on behalf of TTL with its authority. This is not a claim for breach of warranty of authority, since no warranty was made to TTL. It was unaware of the Law Firms’ acting and therefore did not act in reliance on any warranty of authority. However, it is clear that a putative client may bring a claim for damages in tort instead of in contract in such circumstances: Penn v Bristol and West Building Society  2 FLR 938 at 949; Al-Sabah v Ali (22 January 1999, unreported).
26. What was controversial before me between the Law Firms and TTL was whether jurisdiction to award damages in tort could be exercised summarily, without a pleaded claim for damages for negligence having been issued. Mr Troman submitted that there had been no such case and that the summary jurisdiction to award damages for breach of a warranty of authority did not extend beyond that cause of action. Mr Rajah QC for TTL submitted that there had been such a case – Warner v Merriman White – though the basis of the award in that case was mis-labelled as being a claim for breach of warranty of authority. It too was a claim brought by the putative client of the firm for damages from the firm.
27. In my judgment, there is no reason why jurisdiction cannot be exercised summarily in a case where the cause of action is breach of duty or negligence rather than breach of warranty of authority, provided that it is clear that a liability in damages exists and will extend to the costs claimed. The reason that the summary jurisdiction is exercised, without the need to issue new proceedings, is not because there is something special about a claim for contract-based damages for breach of warranty of authority but because awarding costs in such a case is an aspect of the jurisdiction of the court over its officers. It is the duty of a solicitor to act in proceedings only with appropriate authority. If the solicitor is in breach of that duty, a summary remedy for losses clearly caused to the putative client by so acting should be available in just the same way as a remedy for losses caused to a third party by the same misconduct, provided only that it is clear that the costs incurred by the putative client would be recoverable as damages.
28. In any event, TTL does not invite me to award costs on that basis, only to award costs pursuant to the court’s statutory discretion to award costs between the parties to the Truchot application. But it says that I should bear in mind that it has an obvious claim for damages against the Law Firms, in relation to costs it incurs in remedying the consequences of their breaches of duty. More simply, and without relying on any underlying cause of action, TTL contends that the wrongful conduct of the Law Firms left it in a position where it had no alternative but to make the Truchot application and prosecute it in the face of Mr Griffith’s opposition, and that accordingly the costs of that application should be paid by the Law Firms.
29. The Law Firms contend that Mr Griffith and not they should bear TTL’s costs for the following reasons. First, Mr Griffith was the unsuccessful party, and the Law Firms did not contest the Truchot application. On the contrary, they provided the evidence that enabled it to succeed. Second, Mr Griffith fought the Truchot application to the bitter end in order to preserve what was in reality an illusory advantage, since TTL succeeded before Sir Nicholas Warren in May 2018 in striking out the petition as against it ( EWHC 1035 (Ch)). He held that there was no arguable claim for relief against TTL, as opposed to against Mr Gourgey. He also held that, even though the points of defence had been struck out in 2014, Mr Griffith could not simply have entered judgment for an order for Mr Gourgey or TTL to buy his shares in the company but would have had to prove unfairly prejudicial conduct by each. The court would therefore in any event have dismissed Mr Griffith’s claim against TTL.
30. The third reason they advance is that none of the costs claimed by Mr Griffith against the Law Firms for breach of a warranty of authority would be recoverable by him in damages. That is because Mr Griffith chose to continue to argue that the Law Firms had acted for TTL with authority even after the Law Firms had made it clear that they had no such authority. Mr Griffith was therefore not relying on any warranty of authority in incurring the costs of the Truchot application, in the relevant sense of being induced or misled by it, but was seeking on the basis of his own legal advice and for his own benefit to seek to establish that Mr Gourgey had implied or ostensible authority to act for TTL in instructing the Law Firms. The Law Firms accept in principle that the costs of investigating what had happened and taking the matter up with other parties to the litigation would properly be within the scope of damages recoverable, up to a point where it is clearly established that no authority to act on behalf of TTL existed, but they point out that no claim for costs on that basis is advanced by Mr Griffith.
31. The fourth reason is that Mr Griffith conducted the Truchot application inappropriately, by failing to make concessions when he should have done, by failing to abandon his opposition when it became clear that it was bound to fail, and by pursuing the dispute in an unnecessarily combative and uncooperative way, thereby increasing the costs.
32. The first three reasons may be cogent arguments as to why the Law Firms should not be ordered to pay Mr Griffith’s costs, at least not all of them, but I do not see them as being reasons why TTL should not be awarded costs against the Law Firms. The Truchot application was the inevitable consequence of TTL discovering the Law Firms’ breaches of duty. It is not suggested by the Law Firms that TTL acted in any way unreasonably in making that application, in the way that it conducted the application (e.g. by responding in the way that it did to the interim applications made by Mr Griffith during its course) and in pursuing it to judgment. TTL had no alternative.
33. The central issue appears to me to be the fourth argument, which raises the question of whether the Law Firms ceased at any stage of the Truchot application to be responsible for the costs that TTL was incurring because the real cause became Mr Griffith’s unreasonable pursuit of his defence. In principle it would not be right to deprive TTL of costs as against the Law Firms simply because it was entitled to costs as against Mr Griffith too; but it would be right to limit recoverability from the Law Firms if Mr Griffith was really alone to blame for TTL’s further costs after a particular time.
34. Mr Rajah QC submits that it is not sufficient for the Law Firms simply to assert that Mr Griffith was acting unreasonably. It was perfectly foreseeable that if (as it turned out) there were breaches of warranty of authority over a prolonged period of litigation, an application by TTL to correct the position would be needed and would be quite likely to be contested vigorously by Mr Griffith, even if as it turned out there was no good basis on which to do so. Having created the problem, the Law Firms were not entitled to assume that Mr Griffith would act reasonably in such circumstances.
35. I consider that Mr Griffith was acting reasonably in wishing to see clear evidence of the dealings between the Law Firms and Mr Gourgey and TTL before he conceded that the Truchot application must succeed. Although the advantageous position that he appeared to have achieved in the proceedings against TTL turned out to be illusory, for the reason previously explained, he had nevertheless incurred very substantial costs in progressing the petition against all parties. As explained by Sir Nicholas Warren in his judgment, the petition could not proceed to be heard on an “undefended” basis as against Mr Gourgey and the trustees in bankruptcy of Mr Hodge if the factual allegations were able to be fully defended by TTL. The Truchot application therefore presented the risk of all the costs and time expended on the petition by Mr Griffith having been wasted.
36. Mr Griffith was therefore justified in not consenting to the Truchot application on the basis of the limited correspondence before it was issued in December 2016. Given the highly unusual and improbable circumstances and the serious implications for him, he was entitled to consider full evidence on the questions of how the Law Firms had come to purport to act for TTL and whether or not Mr Gourgey had been given authority by TTL to instruct lawyers on its behalf. That was a question raised by Mr Griffith’s solicitors in their first response to McDermott’s letter before application.
37. Further evidence came in the shape of Mr Wilkes-Green’s witness statement dated 14 December 2016 in support of the Truchot application, which set out in detail matters relating to the trust and TTL’s own lack of knowledge, and asserted that the trust had never authorised the Gourgeys to act on its behalf. In the context of Mr Griffith’s suggestion that Mr Gourgey had conducted the trust’s affairs, I consider that was intended and should be taken to mean that TTL had not delegated their discretion as trustee to the Gourgeys, or allowed the Gourgeys to perform their role. That evidence was therefore very clear.
38. By 10 March 2017, each of the Law Firms had either (in the case of KWM’s administrators) written or (in the case of Pinsents and Davies) made a witness statement explaining why they accepted that they had erroneously acted in the name of TTL but had not in fact obtained authority to do so and had accepted “instructions” from Mr Gourgey. In the case of Mr Davies’ witness statement, it expressly averred that Mr Gourgey had confirmed that he had authority on behalf of TTL to instruct Davies (an averment that is disputed by Mr Gourgey). Mr Davies states (for obvious reasons) that he was unable to say whether or not Mr Gourgey did obtain TTL’s authority to act on its behalf. The deponents also made clear that dealings between them and Mr Gourgey were subject to legal professional privilege and so they could not refer to the contents of their files in that regard.
39. The result was that, by reading together the witness statements from the Law Firms and the witness statement of Mr Wilkes-Green, the question of whether in fact the Law Firms had authority from TTL to act for them had been addressed fully. On 26 April 2017, TTL voluntarily gave disclosure but this simply confirmed that it had no relevant documents, which was consistent with its case on lack of authority.
40. Mr Griffith nevertheless remained sceptical. He believed (as his own solicitor’s witness statement dated 10 March 2017 states) that Mr Gourgey may in fact have had authority to instruct the Law Firms and that disclosure from the Law Firms was going to be necessary to enable that issue fairly to be resolved.
41. As had been pointed out in the witness statements, the instructions given by Mr Gourgey to the Law Firms were privileged and so prima facie Mr Griffith could not obtain disclosure of them. However, upon service of Mr Griffith’s skeleton argument the working day before the Registrar Derrett directions hearing, it became clear that he would assert that the iniquity exception to privilege applied, such that disclosure and inspection of the Law Firms’ files was appropriate. The iniquity alleged was that if TTL was correct, Mr Gourgey could not have had any honest belief that he was able to instruct the Law Firms on behalf of TTL, and therefore the instructions to and advice from the Law Firms could not be privileged. Since Mr Griffith was contending that TTL was wrong and Mr Gourgey did have authority, and since Mr Gourgey was instructing the Law Firms on his own behalf, it is not clear to me how this allegation could have justified inspection of privileged material.
42. However, Mr Griffith continued to press for inspection of the Law Firms’ files. An application for inspection was issued and a hearing date obtained in July 2017. The inspection application was eventually compromised on the basis that privilege was waived so as to enable the relevant material to be seen. Nothing in those documents helped to advance Mr Griffith’s case. He later issued an application for specific disclosure against TTL and was given (without prejudice to TTL’s case that the documents were not relevant) documents showing the arrangement made between TTL and Mr Gourgey in relation to attendance at the AGM of 2006 and ratifying his attendance purportedly on behalf of TTL at AGMs from 1998 to 2004. The documents also included AGM minutes from 1998 to 2006. Mr Anderson QC rejected the argument that those documents cast any light on the question of whether Mr Gourgey had authority from TTL between 2013 and 2015 to instruct litigation solicitors on TTL’s behalf.
43. In my judgment, the costs incurred by TTL should be treated as being the responsibility of the Law Firms up to but not beyond the hearing before Registrar Derrett on 15 May 2017. By that time, Mr Griffith had had ample time to consider the evidence and disclosure to which he was entitled and to make a proper concession. He continued to pursue inspection of documents that he had no right to inspect (though in the event privilege was voluntarily waived) so that he could try to argue that, in the circumstances revealed in the witness statements, Mr Gourgey was to be treated as having had authority on behalf of TTL to instruct the Law Firms on its behalf. In my judgment, Mr Griffith was a man in search of any possible argument. From 15 May 2017 onwards, the only reason why further costs had to be incurred by TTL was Mr Griffith’s determination to try to construct a case that would enable him to resist the Truchot application. His lawyers tried everything they could on his behalf but there was no sufficient material, and in the event his legal arguments before Mr Anderson QC failed.
44. In my judgment, Mr Griffith should have accepted no later than 15 May 2017 that resistance to the Truchot application was futile. The case of Godwin v Francis (1870) LR 5 CP 295 is instructive. In that case, the issue was whether one of four tenants in common of land had the authority of the others to enter into a contract to sell it. All of them swore evidence, in response to interrogatories, to the effect that no authority had been conferred. The would-be purchaser sued the apparent agent for damages but it was held that, as from the date on which the sworn evidence was provided, the further costs could not be recovered from the agent. The reason was that after the evidence had been sworn the plaintiff’s case was hopeless, and the further costs were therefore not attributable to the misrepresentation of the agent. That decision is concerned with the proper quantum of damages, but the reasoning in my judgment supports a conclusion that, as a matter of discretion, Mr Griffith and not the Law Firms should be held responsible to pay the costs after 15 May 2017.
45. TTL is entitled to an order for its costs of the Truchot application up to and including 15 May 2017 to be paid by the Law Firms, jointly and severally. TTL sought those costs on an indemnity basis. In my judgment that would be right in principle, not because the Law Firms have acted in any way unreasonably in their conduct of the Truchot application, but because the award of costs against them reflects the fact that their breaches of duty have undeniably resulted in TTL incurring substantial costs up to 15 May 2017. It should therefore be for the Law Firms to prove that any of the costs incurred were unreasonable in nature or in amount, not for Truchot to prove that the costs incurred were reasonable and proportionate.
46. Having determined that an order for costs should be made in favour of Truchot against the Law Firms, the next question is whether any order should be made against Mr Griffith. It follows from what I have already said that Mr Griffith must pay the costs of the Truchot application as from 16 May 2017. As regards the remainder of TTL’s costs, applying the general rule Truchot is in principle entitled to such an order, but the court can nevertheless disapply that rule for good reason.
47. One can well understand the consternation that McDermott’s initial letter and the subsequent correspondence from that firm would have caused Mr Griffith. He had no reason to believe that TTL had not authorised each of the Law Firms to act for him. It was wholly implausible, on the face of it, that three substantial law firms would separately have made the mistake of believing that they were instructed to act for TTL when they were not. Mr Griffith was fully entitled to be sceptical and require clear evidence. He was aware of a connection between Mr Gourgey and TTL, namely that Mr Gourgey was the settlor of the trust of which TTL were trustees. The possibility of a tactical manoeuvre must have crossed his mind.
48. On the other hand, TTL, which was blameless, was entitled to bring its application, in the ordinary course of the litigation, and have it dealt with by Mr Griffith in accordance with the rules and principles of the CPR. It gave appropriate pre-issue notice of its application.
49. I consider that, in the exceptional circumstances of this case, Mr Griffith cannot be blamed for failing to concede the Truchot application until he had obtained a fuller picture, and that the real fault in relation to TTL’s costs prior to 16 May 2017 lies with the Law Firms. Both TTL and Mr Griffith were the victims of that conduct. It was not unreasonable of Mr Griffith to wait to see the evidence coming directly from the Law Firms and disclosure from TTL before conceding. As between Mr Griffith and the Law Firms it is right that the Law Firms bear those costs. There is no prejudice to TTL in being limited to recovering costs from the Law Firms for the period up to and including 15 May 2017.
50. In those circumstances, I will order that Mr Griffith pay TTL’s costs of the Truchot application for the period from 16 May 2017. This will include the costs of the inspection and specific disclosure applications and any costs incurred by TTL in the process of reviewing the inspection documents. Those costs should be on the indemnity basis. It was unreasonable in the assessed circumstances for Mr Griffith to continue to try to create an argument by pursuing disclosure of privileged material and hoping that something would turn up. That is not the normal way of conducting commercial litigation.
51. Mr Griffith seeks an order that his costs of the Truchot application be paid by the Law Firms and Mr Gourgey. The basis of that is that the Law Firms and Mr Gourgey were at fault and caused the need for the Truchot application and therefore for Mr Griffith to incur costs in defending it. Mr Parker QC for Mr Griffith contends that I should simply exercise my discretion to award costs by making such an order. He does not invite me to consider a summary award of damages against the Law Firms at this stage. However, like TTL, he relies on the existence of the underlying claim for breach of warranty of authority as showing where the merits as regards costs lie. He also suggests that Mr Gourgey is equally liable in that respect, for having caused or encouraged the Law Firms to act without authority. In the course of his oral submissions, Mr Parker suggested that Mr Gourgey had in effect made his own warranty, through the Law Firms, of his own authority to instruct them on behalf of Truchot.
52. It is undeniable that Mr Griffith has a claim against the Law Firms for damages for breach of warranty of authority. In principle, damages are recoverable for losses caused by reliance on the warranties. So costs wasted in the litigation as a result of all steps taken having been ineffective as against TTL (and therefore possibly as against all the principal respondents), are likely to be recoverable. But it is disputed by the Law Firms that the costs of the Truchot application were caused by reliance on any warranty of authority. They say that the warranties were historic and any authority had been clearly disavowed by them prior to the costs being incurred by Mr Griffith. He incurred those costs for his own reasons, with the benefit of independent legal advice and not in reliance on any warranty of authority. Reliance is placed by them on two recent decisions of this court, Re The Sherlock Holmes International Society Ltd  4 WLR 17 and Zoya v Ahmed (No. 2)  4 WLR 174 in which, in similar but not identical circumstances, it was held that costs were not incurred in reliance on any warranty.
53. I make no decision in that regard since Mr Griffith’s claim for damages will doubtless be brought as a separate action once the implications for these proceedings are fully worked out. Similarly, I make no finding as to whether or not Mr Gourgey made any warranty of his authority. Nevertheless, in my judgment Mr Griffith is fully justified in seeking his costs from the Law Firms to the extent that they were reasonably incurred in contesting the Truchot application. I have already determined that the time at which Mr Griffith ceased to act reasonably was 15 May 2017. Up to that date, it was the Law Firms’ admittedly wrongful conduct that caused TTL to have to bring its application and therefore for Mr Griffith, as an innocent party in relation to those matters, to defend it. There is no proper distinction in this regard between the costs that TTL was forced to incur and the costs that Mr Griffith was forced to incur. After that date, the costs incurred by Mr Griffith were not attributable to the Law Firms’ conduct and he must bear his own costs and the costs that he is liable to pay TTL.
54. As to the basis on which costs payable by the Law Firms to Mr Griffith should be assessed, I must nevertheless consider whether the conduct of the Law Firms was such as to take the case “out of the norm” of commercial litigation. I consider that it was. The negligent mistakes of the Law Firms exposed Mr Griffiths to substantial expense. It was reasonable for Mr Griffith, in the situation in which he unwillingly found himself, fully to investigate the allegations of want of authority at the expense of the Law Firms. In my judgment, that is not a situation in which proportionality of costs to the matters in issue should play a part, but rather the onus should be on the Law Firms to establish that any costs incurred by Mr Griffith were unreasonably incurred, as they were responsible for putting him in the serious predicament in which he found himself.
55. The next issue is whether or not Mr Gourgey is similarly to be held liable to pay some or all of Mr Griffith’s costs. This raises the difficult issue of the extent to which Mr Gourgey is to blame for the actions of the Law Firms. It was he, in all three cases, who instructed each of the Law Firms to act for all respondents to the petition. As he now admits, through the fourth witness statement of his current solicitor, Mr Mugerwa, he did not believe that he had authority from TTL to do so. It is suggested on his behalf (though he has made no witness statement to explain himself) that he expected the Law Firms to proceed to take appropriate steps to obtain formal confirmation of authority from TTL and believed that they had done so.
56. So far as Pinsents are concerned, it is apparent from the internal communications within Pinsents that have been disclosed by agreement of Mr Gourgey that they did not rely on what Mr Gourgey had said in his email of 9 May 2014 about their being instructed on behalf of all respondents. They realised that they needed to obtain formal authority – and in certain cases confirmation of the identity of their clients – and set about doing so after 9 May 2014. Unfortunately, in error which they now frankly admit, Pinsents overlooked the need to obtain express authority from TTL. So in Pinsents’ case Mr Gourgey’s conduct did not cause them to act without authority.
57. When the files passed to Davies, Mr Davies says that he saw the email from Mr Gourgey dated 9 May 2014, but he does not say anything about the following documents on the file that show why Pinsents fell into error. In any event, Davies could not properly rely on anything Pinsents had done to establish their own authority to act for TTL.
58. It is common ground that a meeting took place on 6 January 2014 between Mr Davies and Mr Gourgey and his two sons. There is a difference between Mr Davies’ recollection and what Mr Mugerwa says that Mr Gourgey and his sons recall. Mr Davies says that Mr Gourgey expressly assured him, in response to his question, that Mr Gourgey had authority to instruct Davies on behalf of TTL. That witness statement of Mr Davies was made on 10 March 2017, so more than three years after the event. Mr Mugerwa asserts, after a similar interval, that none of Mr Gourgey and his sons recalls Mr Davies asking about authority to instruct on behalf of TTL or recalls any such confirmation being given.
59. There is no attendance note made by Mr Davies of the meeting, nor does any subsequent document in his files record anything about authority from TTL. In the absence of an attendance note recording the specific matters now alleged by Mr Davies, I am unable to accept that a specific enquiry was made as to authority to instruct Davies on behalf of TTL, as opposed to an inquiry about whether Davies would be acting for TTL. In any event, Davies could not properly rely on Mr Gourgey’s own statement of what he could do on behalf of TTL, a professional Guernsey trustee company, as Mr Davies would have known. It is in my view telling that two days after the meeting Mr Davies sent an engagement letter to Mr Gourgey (alone), stating that Davies were acting for Mr Gourgey and no other person. This is reflected in the terms of the file records that were opened at that time by Davies. At a later stage, in 2016, Mr Hill of Davies, who had been present at the meeting, confirmed that Davies were acting only for Mr Gourgey. So it does not appear that Mr Gourgey misled Davies.
60. At a later stage of Davies’ retainer, eleven months after it served notice of acting, Mr Gourgey personally signed a statement of truth on Further Information that was provided. This was purportedly on behalf of all the respondents for whom Davies was acting. Davies itself had signed off statements of case in a similar fashion previously. In my judgment, Mr Gourgey’s incorrect statement of truth had no relevant effect: it did not cause Davies to act without authority or cause Mr Griffith to deal with Davies on behalf of TTL. The position therefore appears to be that Davies simply did not advert to the need to obtain authority from TTL, apparently believing that in acting for Mr Gourgey it was able to represent the other respondents. That was self-evidently wrong and the mistake was entirely that of Davies.
61. KWM served notice of change in May 2015. It effectively made the same mistake as Pinsents did, realising the need to obtain formal authority from TTL but failing to do anything about it. KWM have not suggested that they were misled by Mr Gourgey.
62. Accordingly, in my judgment, Mr Gourgey’s conduct was not the cause of Mr Griffith incurring expenditure on the Truchot application. In those circumstances, it would not be appropriate to order that Mr Gourgey pay any part of Mr Griffith’s costs of the Truchot application.
63. Mr Gourgey, in his turn, seeks to blame Mr Griffith for the costs that he (Mr Gourgey) incurred in dealing with the Truchot application. Mr Gourgey was not the principal respondent to the application, but he was potentially affected by it. He initially did not become involved or intend to do so. But on 10 May 2017, a few days before the directions hearing before the Registrar, Mr Griffith’s solicitors wrote seeking an order that the Law Firms should give disclosure and that inspection of relevant documents could not be refused on the grounds of privilege. Mr Gourgey sought clarification, which only arrived in the shape of Mr Griffith’s skeleton argument for the directions hearing, in which he stated that inspection could not be refused because of the fraud/iniquity exception to privilege. Thus, in effect, Mr Griffith was alleging that Mr Gourgey had acted in a fraudulent or iniquitous way. At the hearing of the Truchot application in November 2017, Mr Griffith’s position was that Mr Gourgey had not done anything wrong and that TTL had allowed Mr Gourgey to believe that he did have authority.
64. Accordingly, Mr Gourgey says that Mr Griffith was playing fast and loose with serious allegations against him in an attempt to obtain sight of documents that might enable him to create a case to defeat the Truchot application. As a result of the contention that Mr Gourgey could not rely on privilege, Mr Gourgey was represented at the hearing before the Registrar and was then a respondent to the inspection application. This sought inspection of two categories of documents, including privileged documents, and Mr Gourgey initially opposed the application. Then at a later time, a further witness statement on behalf of Mr Griffith indicated that only one of the categories of document was being pursued. Mr Gourgey sought further clarification but this was not provided. Instead, Mr Griffith provided his case in the form of his skeleton argument before the hearing of the application. At or immediately before the hearing of the application, Mr Gourgey and his son agreed to provide privileged documents on condition that their lawyers should carry out a process of reviewing and redacting the documents. The order for inspection was made in those terms. Mr Gourgey then incurred the costs of reviewing and redacting the Law Firms’ files before providing them to the other parties.
65. Mr Griffith argues that the need for disclosure of relevant documents relating to the instruction of the Law Firms was raised by him at the outset, and that Mr Gourgey opposed disclosure “root and branch” up to and at the hearing before the Registrar. It is contended that Mr Gourgey continued to oppose the inspection application, challenging the relevance of the documents sought, and only conceded that inspection should take place at a late stage.
66. In my judgment, Mr Griffith should pay Mr Gourgey’s costs of the hearing before Registrar Derrett, assessed on the standard basis. I accept that Mr Gourgey’s costs of that hearing were caused only by the last minute allegation of iniquity in Mr Griffith’s skeleton argument and the assertion that Mr Gourgey could not rely on privilege. Although Mr Gourgey then opposed an order for disclosure in principle, it was recognised that it was not disclosure but inspection that was of any real consequence.
67. Thereafter, Mr Gourgey incurred further costs in response to the inspection application. He and his son were entitled to resist the application on the ground of privilege but seem to have fought the application instead (in correspondence) on the basis of the relevance of the documents sought. In the event, privilege was not asserted once Mr Griffith had reduced the scope of the inspection sought. Mr Gourgey wanted to conduct the exercise of reviewing the documents himself. In those circumstances, I consider that there should be no order for the costs of the inspection application as between Mr Griffith and Mr Gourgey. Had Mr Gourgey defended the application on the basis of privilege and succeeded he would inevitably have been awarded his costs of that application. I therefore infer that he considered that disclosing those documents would make it clearer that the Truchot application must succeed and create more difficulties for Mr Griffith. As for the costs of the review exercise, Mr Gourgey chose to incur those costs as a result of agreeing to waive privilege on terms. There should be no order for the costs of that exercise either.
68. Mr Gourgey was not represented before Mr Anderson QC, but he claims against Mr Griffith the costs of reviewing the material that was to be in evidence on that application and of preparing a note for the judge explaining his absence. The purpose of the note was to dissuade the judge from making any finding of dishonesty or iniquity against Mr Gourgey, on the basis that it was not necessary to do so to dispose of the Truchot application, and to explain why the costs consequences of the Truchot application should be reserved to be addressed on another occasion. In fact, Mr Griffith’s skeleton argument for the hearing made it clear that his case was going to be that Mr Gourgey acted properly. It was, perhaps, unlikely that Mr Griffith would persist in any accusation of impropriety against Mr Gourgey while he was seeking to establish that the Law Firms had authority to act on behalf of TTL. In my judgment, in view of the allegation previously made on behalf of Mr Griffith and never expressly withdrawn, it was a reasonable step for Mr Gourgey to take at the time to prepare a note stating his position and not to attend the hearing. Accordingly, Mr Griffith should pay Mr Gourgey’s reasonable costs of preparation of the note, assessed on the standard basis.
69. None of the conclusions that I have reached on the proper exercise of the court’s discretion to award costs of the Truchot application should be taken as deciding any question of whether expenditure incurred by Mr Griffith or TTL was loss caused by breaches of a warranty of authority by the Law Firms or by Mr Gourgey, or by breaches of duty or negligence on the part of the Law Firms. Any such claims must be separately pursued by Mr Griffith and TTL, if so advised.
Christopher Parker QC and Oliver Phillips (instructed by Blake Morgan LLP) appeared for the Petitioner.
Daniel Lightman QC and Adil Mohamedbhai (instructed by Olephant Solicitors) appeared for the first respondent.
Eason Rajah QC and Leon Pickering (instructed by McDermott Will & Emery) appeared for the second respondent.
Scott Allen (instructed by Mills & Reeve LLP) appeared for the fifth respondent.
Carl Troman (instructed by Reynolds Porter Chamberlain) appeared for the eighth respondent.
The third, fourth, sixth and seventh respondents were not represented.