Insufficient Authority: Wasted Costs Order Against Solicitors ‘Acting’ for a Company

The recent High Court case of Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1687 (Ch) HHJ (“Rushbrooke”), concerns solicitor negligence resulting in a wasted costs order. The court found that the solicitor who had acted for the limited company, Rushbrooke, had done so without checking to see whether his instructions were backed by the relevant authority.

The Case

In the case of Rushbrooke, one of the two directors at Rushbrooke had ‘instructed’ their solicitors to contest a winding-up petition. The directors, however, had not agreed upon this. Evidence presented by the second director showed that the two had fallen out and that the solicitors were de-instructed to contest the case; the solicitors had knowledge that the directors were not in agreement. The issue before the court was to consider whether instructions from merely the acting director were sufficient to constitute effective authority in contesting the petition and if not, whether the solicitors had acted negligently in proceeding despite having knowledge of the same. In such circumstances, the solicitors would be liable to a wasted costs order.

The Judgement

The court had earlier made an order striking out the application made by Rushbrooke to contest the winding-up petition on the grounds that the ‘instructing’ director of the Company giving instructions to the firm of solicitors involved was found to not have authority to give instructions on the company’s behalf. This, it reasoned, was due to the company’s Articles of Association which did not allow one director to act independently. The company was found liable to pay the respondent’s costs.

Subsequently, however, the respondent made an application for a wasted costs order against the solicitors who had made the application. The High Court held that, in the circumstances, it was appropriate to make a wasted costs order. It stated that the solicitor had not taken appropriate steps to ensure that they had authority to act, and that this was negligent and unreasonable conduct. HHJ Matthews remarked that: “I also consider that this is prima facie evidence of negligence by the solicitors. A reasonably competent solicitor would regard it as fundamental to be clear at the outset on the authority of the person representing the client to instruct the solicitor.”

The Importance of Authority

Rushbrooke is a notable reminder that directors need to act with proper authority. Failing to do so in light of the precedent set by Rushbrooke could now mean that directors could find themselves liable for costs whereas solicitors could be found negligent in acting improperly in the course of their duties. In the case of a two-person Director company when there is a deadlock it would be advisable for the Directors to take professional advice and generally adopt a cautious approach.

In addition to the statutory wasted costs jurisdiction, the court also has an inherent jurisdiction over solicitors (as its officers) to require them summarily to compensate a person who suffers loss as a result of a breach of an implied warranty given by a solicitor that he or she was authorised by the party concerned to act on that party’s behalf: (see ref, Yonge v Toynbee [1910] 1 KB 215; Re Sherlock Holmes International Society Ltd [2016] 4 WLR 173, [22]; Zoya Ltd v Ahmed [2016] 4 WLR 174, [28]-[41].

Download the Judgement

Can you Apply for a Wasted Costs Order or Does the Court Decide When They Are Necessary?

Either of these situations can occur. The Court can decide to order wasted costs, but only when proceedings have been issued.

If you’re a party to the proceedings. you can also apply for a wasted costs order under PD46 para 5.4 at any stage during the proceedings, up to and including the detailed assessment proceedings. It is advisable however, that applications for wasted costs orders are prepared after the trial. When seeking an application, you can apply under Part 23 of the procedure rules. This method usually works in two stages. Firstly, the Court will ensure that they are satisfied that an order may be suitable, and secondly, a hearing would take place to allow the parties to make submissions on the application. An oral application can also be made, and this would usually take place at the end of the Trial once all evidence in the proceedings have been heard.

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