England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF THE COMPANIES ACT 1985

		St Dunstan's House 133-137 Fetter Lane London, EC4A 1HD
		22nd May 2008

His Honour Judge Toulmin CMG:

1. I have before me three Applications. The first is dated 20 December 2007 and is brought by the 2^nd Petitioner, SMP Trustees Limited ("SMP") a company incorporated in the Isle of Man. The company has had a number of changes of name, the most recent being on 14 June 2007 when it changed its name from Fortis Intertrust (IOM) Limited ("Fortis") to its present name, SMP Trustees Limited ("SMP").
2. SMP claims that the Petition brought against the Respondents with Fortis/SMP as second named Petitioner was initiated by Merriman White (a firm), solicitors practising from 14 Tooks Court, London EC4A 1LB without the authority of SMP. SMP claims that Merriman White acted in breach of its warranty of authority and that there can be no arguable defence to SMP's claim for relief. SMP asks that (1) the court orders dated 25 October 2007 and 21 and 27 November 2007 against the 2^nd Petitioner and their trustees should be rescinded, (2) the 2^nd Petitioner's name should be struck from the Petition and (3) Merriman White be ordered to pay the trustees' costs occasioned by the wrongful institution of the Petition on the trustees' behalf.
3. In separate Applications, the 1^st, 2^nd, 5^th, 6^th and 7^th Respondents and the 3^rd, 4^th and 8^th Respondents, as two groups separately represented, apply for identical relief save as to the costs of the hearing on 12 February 2008. In the event that the Application of the Trustees of the 2^nd Petitioner is successful, they seek an Order that Merriman White be ordered also to pay their costs of the Action to 27 November 2007 on an indemnity basis, or alternatively make an interim payment on account of such costs together with the costs of this Application. If the 2^nd Petitioner is unsuccessful the Respondents ask for an Order that SMP Trustees make a payment on account of costs pursuant to the Order of Chief Registrar Baister dated 25 October 2007 and in respect of the costs of this Application.
4. In relation to the costs of the hearing on 12 February 2008 the 3^rd, 4^th, and 8^th Respondents ask for an Order that Merriman White pay the costs. The remaining Respondents ask that in the event of their being unsuccessful in their Application, the Trustees of the 2^nd Petitioner be ordered to pay their costs.
5. In this Application Merriman White is not appearing for the 1^st Petitioner, Mr Warner, but solely on its own behalf as a party contesting the Application for costs against it. Mr Warner was not present or represented.
6. Before dealing with these Applications it is necessary to set out some of the relevant history. The proceedings were commenced on 30 March 2007 by a Petition with the following named Petitioners: David Warner (1^st Petitioner) a resident of Spain, and SMP, then called Fortis Intertrust (IOM) Limited. The wording of the Petition is that the Petition of the above-named David Warner "and of the above-named Highland Foundation (the 2^nd Petitioner) of Churches House, Lord Street, Douglas, Isle of Man, shows as follows".
7. At paragraph 9 of the Petition, the 2^nd Petitioner is described as "the Trustee of a discretionary trust (The Highland Foundation) set up for the benefit of the 1^st Petitioner's family … and is a minority shareholder". This is an incorrect characterisation of the 2^nd Petitioner as the Trust Deed makes clear.
8. The claims in the Petition are in essence that the Respondents exercised their powers improperly to provide bonuses and incentives with the purpose of reducing the Petitioners' stake in Microsulis Ltd (paragraph 48 of the Petition); promoted the interests of 3i Group unfairly over the interests of other shareholders including the Petitioners (paragraph 52); conspired to injure the Petitioners (paragraphs 53 and 54) and conducted the affairs of the company in a manner prejudicial to the interests of the Petitioners. The Petition was filed by Merriman White, solicitors for the Petitioners. The pleading is signed by Richard Wilson QC, who appeared before me on this application.
9. SMP contends that these proceedings were brought by the solicitors, Merriman White, purporting to act on its behalf but without the authority of SMP's Trustees and without their knowledge.
10. The company profile of SMP shows that SMP is incorporated in the Isle of Man at an address in Lord Street, Douglas. It has, as its officers, five directors. Mr Watterson, the deponent on behalf of SMP, has been a director since 26 March 2001 and is the longest serving director. The company has an authorised share capital of 248,000 £1 shares.
11. The Trust Deed annexed to Mr Watterson's second witness statement, shows that as a result of a settlement made on 1 December 1998 between Mr Warner and Intertrust Trustees (Isle of Man) Ltd, the 2^nd Petitioner under a previous name, the Trustees will "stand Possessed of the Trust Fund to be known as The Highland Foundation". The powers given by the Trust Deed are wide. Clause 4 of the Trust Deed emphasizes that they are to be exercised as the Trustees think fit.
12. Clause 14 of the Trust Deed provides specifically:

"(a) The Trustees shall exercise the powers and discretions vested in them as they shall think most expedient for the benefit of all or any of the persons actually or prospectively interested under this settlement and may exercise (or refrain from exercising) any power of discretion for the benefit of any one or more of them without being obliged to consider the interests of the others or other.

(b) Subject to the previous sub-clause every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion and the Trustees shall have the same discretion in deciding whether or not to exercise any such power."

13. The Third Schedule provides that the beneficiaries under the settlement are to be charities involved in the field of medical research. Under the terms of the Trust Deed Mr Warner is the settlor. He is not the beneficiary and the Trustees are under an obligation to exercise their powers independently and not under Mr Warner's direction.
14. With this background in mind I come to the current litigation. Messrs Lawrence Graham act as solicitors for the 3^rd, 4^th and 8^th Respondents. Messrs Covington and Burling act as solicitors for the 1^st, 2^nd, 5^th, 6th, & 7^th Respondents.
15. Following the filing of the Petition on 30 March 2007, Messrs Lawrence Graham wrote to Merriman White on 12 April 2007 asking for the most recent accounts of the 2^nd Petitioner and also asking questions in relation to the statement of truth at the end of the Petition.
16. On 27 April 2007, Merriman White responded by saying that they were taking instructions. In relation to the statement of truth at the end of the Petition, Merriman White wrote that the statement of truth was in fact signed by Mr Warner, "who is the 1^st Petitioner and a beneficiary of the 2^nd Petitioner". This assertion is clearly incorrect.
17. In its response dated 9 May 2007, Lawrence Graham noted specifically in relation to the statement of truth that the Petition was not sufficiently particularised to stand as the Points of Claim.
18. On 6 May 2007 Merriman White applied without notice for an injunction to restrain the sale of the company or its assets by the administrator.
19. On 9 May 2007, Lawrence Graham wrote a long letter to Merriman White in the course of which they renewed their earlier request to see the 2^nd Petitioner's accounts.
20. The 25^th May 2007 was the first return date for the hearing of the Petition, which was then adjourned to 6 July 2007.
21. On 29 June 2007 there was an application by the Petitioners for permission to continue proceedings against the 9^th Respondent. The accompanying witness statement was sworn by Mr Raymond Murphy, who was described at various times as consultant and partner of Merriman White. In his witness statement Mr Murphy deposed to the fact that the application was authorised by the Petitioners (including therefore the 2^nd Petitioner).
22. On 3 and 5 July 2007 each group of the Respondents issued applications for security for costs. In each witness statement in response, Mr Murphy signed the witness statement as "authorised on behalf of the Petitioners".
23. Purporting to act on behalf of both the 1^st & 2^nd named Petitioners Mr Murphy negotiated an extension of time for submitting evidence in opposition to the Respondents' application to strike out the Petition to 31 August 2007.
24. Covington and Burling responded to Mr Murphy's third witness statement sworn on behalf of both Petitioners by a letter dated 9 August 2007. They said:

"We are surprised that Mr Murphy's witness statement contains no further information to the assets of Fortis Intertrust Trustees (IOM) Ltd (Fortis) and no explanation as to why such further information is not produced. This fact, together with the position that you and your clients have taken to date with regard to Fortis, leads us to question the extent of the authority that you may have to bring proceedings in the name of Fortis. Please therefore confirm to us by Friday, 17 August that you have specific authority from Fortis to bring the present proceedings in their name and supply evidence of that authority."

25. This letter raised directly with Merriman White the question of that firm's authority to bring proceedings on behalf of the 2^nd Petitioner.
26. On 17 August 2007 Merriman White acknowledged receipt of the letter. They did not provide any evidence. They merely said that their client's instructions were confidential and subject to legal professional privilege.
27. Covington & Burling responded on 20 August 2007 by asking Merriman White to confirm that the firm had authority to act on behalf of the 2^nd Petitioner.
28. Lawrence Graham wrote a similar letter to Merriman White on 21 August 2007. Despite reminders from both firms of solicitors, neither received any further response on this issue from Merriman White.
29. On 11 September 2007 Covington & Burling wrote directly to SMP Trustees Ltd to ask them to confirm that Merriman White had authority to act in these proceedings on their behalf and for these proceedings to be pursued. Lawrence Graham wrote a similar letter on behalf of their clients on 17 September 2007.
30. As a result, Mr Watterson, who is a solicitor qualified in England and Wales and head of legal services of SMP, as well as being a director, sent an e-mail to Mr Warner saying that the Trustees had knowledge of a separate negligence action against Merriman White but no knowledge of this action. He said that Merriman White probably did not formally represent the Trustees. He suggested a conference call to "see what may be needed or possible".
31. On 27 September 2007 Mr Watterson tried to telephone Mr Mattick at Covington & Burling. He also sent an e-mail saying that he had written to Mr Warner to clarify the Trustees' action.
32. On 1 October 2007 Merriman White wrote to Mr Watterson. The letter said:

"The Petition was issued on 30 March 2007. While the Petition makes it clear the beneficial ownership of The Highland Foundation, the nominal Petitioner is the Trust. In the days leading up to the issue of the Petition we had been in contact with both Mr Warner and your offices (my underlining) to confirm the legal ownership and the address details of the Trust."

33. No evidence has been provided to support any claim that the Trust authorised the proceedings. There can be no question of Mr Warner maintaining a privilege in respect of direct communications between SMP and Merriman White. It would appear the most that someone at SMP may have done is to give some information. There is no evidence that any responsible officer of SMP authorised these proceedings.
34. On 25 October 2007 SMP was ordered by Chief Registrar Baister to give security for the individual Respondents' costs by paying £95,000 into court by 4.30 p.m. on 15 November 2007. The money was not paid and on 21 and 27^th November 2007 Registrar Derrett entered judgment against SMP in favour of the 3^rd, 4^th and 8^th Respondents and the 1^st, 2^nd, 5^th to 7^th Respondents, respectfully and ordered that SMP should pay the costs of the action.
35. On 29 November 2007 Mr Mattick sent an e-mail notifying Mr Watterson of the Order and noted that paragraph 5 of the Order required an interim payment of £15,000 on account of the 1^st, 2^nd, 5^th to 7^th Respondents' costs within 14 days and that the 2^nd Petitioner was in breach of the Order.
36. On 29 November 2007 one Georgina Kelly on behalf of Mr Watterson sent an e-mail on behalf of SMP saying:

"As you know these proceedings were taken without our knowledge or consent.

We have been advised by Merriman White that Mr Warner is expecting to deal with the payments being demanded and otherwise in default those sums are indemnified by Merriman White."

The e-mail was copied to Merriman White. It was not contradicted.

37. Also on 29 November 2007 Messrs Withers, solicitors, notified the solicitors acting for the Respondents that they had been instructed by SMP. Their letter to Covington & Burling made it clear that their clients did not instruct Merriman White and that they had no knowledge of the Orders against them of 25 October 2007 nor the judgment of 21 November 2007 until they received Lawrence Graham's letter dated 26 October 2007, which was faxed to them on 26 November 2007.
38. On 30 November 2007, Merriman White wrote to Withers to say:

"We were originally instructed by Mr Warner on behalf of The Highland Foundation and SMP Trustees Ltd to institute these proceedings."

Mr Murphy went on to say in the letter that he had understood that Mr Warner was providing an indemnity in these proceedings.

39. In a terse reply dated 7 December 2007, Withers noted:

"Nothing in your letter provides evidence of your instructions by SMP Trustees to institute proceedings on their behalf. It is a basic principle of trust law that a discretionary trust is not a legal entity and that it is not controlled by the settlor or its beneficiaries. The title to any action brought on behalf of the trustees rests in its trustees."

40. The letter went on to note that Rule 2 of the Solicitors Practice Code provided that a solicitor must refuse to act or cease to act when the instructions are given by someone other than the client or where instructions are given by only one client on behalf of others in a joint matter, the solicitors must not proceed without checking that all clients agree with the instructions given.
41. On 4 December 2007 Lawrence Graham had written to Mr Murphy to say that they had received a copy of an e-mail from Mr Watterson to Mr Murphy on 27 November 2007 confirming that SMP were joined in these proceedings as 2^nd Petitioner without that party's consent or knowledge. They required various undertakings that their clients' costs would be paid. They also asked for a statement as to the extent of Mr Warner's knowledge that these proceedings had been undertaken without the knowledge and consent of SMP.
42. On 7 December 2007 Withers wrote to Merriman White to similar effect. They also raised the question of whether Merriman White should be reported to the Solicitors Regulatory Authority for being in breach of Rules 2 and 11 of the Solicitors Professional Conduct Rules. Rule 11 requires that a solicitor must never deceive or knowingly mislead the court. The letter contended that by bringing proceedings without SMP's authority they misrepresented that they had full authority to bring the Petition. The letter also asked for the disclosure of certain documents.
43. On 13 December 2007 Withers wrote on behalf of SMP to the Respondents' solicitors saying that the Petition had been issued without their client's authority. The letter said that in their view their client would succeed in having the 2^nd Petitioner's name struck out of the proceedings and that the court would rescind or set aside the various orders made against the 2^nd Petitioner.
44. On 20 December 2007 Mr Watterson swore his first witness statement in support of SMP's Application. He said that he was a qualified solicitor of the Supreme Court and that SMP had only recently become aware of the proceedings. SMP had never given Merriman White authority to institute them. He noted that the original Petition had been signed by Mr Warner in his own capacity but it had not been signed by or on behalf of SMP. His witness statement sets out the history from SMP's point of view.
45. Paragraph 21 of this witness statement refers to a meeting between Mr Watterson and Mr Murphy on 28 November 2007. It continues:

"I met Mr Murphy and expressed my concerns at what he had apparently done in SMP's name but without its authority. He seemed to have no comment to make but confirmed that Mr Warner, whom he described as a wealthy man and who had given instructions to Merriman White, was aware of the proceedings and that appropriate indemnities would be sought from Mr Warner. I asked what would happen if Mr Warner did not pay and Mr Murphy confirmed that he had spoken to the partners of Merriman White to advise them that the conduct of the proceedings in SMP's name by Merriman White had created a liability for SMP which, if Mr Warner defaulted, would have to be met 'by the firm or by their underwriters'."

46. It would appear that the firm's notepaper only describes one individual as a partner. I note that in Butterworth's directory for 2006 (a year before these proceedings), Merriman White has two partners named. Mr Raymond Murphy, the deponent, is described as the senior partner.
47. At paragraph 29 of his witness statement Mr Watterson comments that if Merriman White really thought that they had authority to act for the 2^nd Petitioner they would have said so clearly and immediately. Mr Watterson asks that SMP's name be struck out of the proceedings, that the Orders against them be rescinded and that Merriman White be ordered to pay any consequential costs.
48. On 4 and 11 December 2007 Lawrence Graham wrote to Merriman White concerning their alleged breach of warranty of authority to bring proceedings on behalf of SMP. They followed this with a letter dated 21 December 2007 requiring, among other things, an irrevocable undertaking from Merriman White personally to reimburse their clients for all costs arising out of the proceedings against the 2^nd Petitioner.
49. There were further follow-up letters from both of the Respondents' solicitors which received no response. On 10 January 2008 Merriman White enclosed a witness statement from Mr Murphy, described as a consultant to the firm, purporting to be on behalf of both Petitioners in which he denied that Merriman White acted in breach of warranty of authority. It is hard to see how he could have signed the statement of truth at the end of the witness statements as describing himself and his firm as solicitors for SMP at that date.
50. Mr Murphy's first witness statement pleads privilege in relation to communications between his firm and Mr Warner. Insofar as he does make any positive statements he does not set out the basis of his knowledge, information and belief. He denies that the proceedings were pursued on behalf of SMP on an unauthorised basis.
51. Paragraphs 4 and 5 of his witness statement make the following positive statements. Paragraph 4 reads as follows:

"The 1^st Petitioner is the beneficial owner of shares held by the 2^nd Petitioner as trustee for and on behalf of The Highland Foundation Trust. These shares were settled by the 1^st Petitioner on trust, on terms I am advised that require the trustee to deal with, and administer the beneficial interest in the property of the shares in accordance with the instructions given to them by the 1^st Petitioner."

As is clear from the Trust Deed this is not the case.

"5. In administering the Trust the trustee is obliged to perform its duties and exercise its powers in accordance with instructions received from the settlor. I am advised and verily believe that in accordance with the Trust instrument the 1^st Petitioner instructed the 2^nd Petitioner to approve the institution and pursuit of these proceedings. I am advised by the 1^st Petitioner that the 2^nd Petitioner was made aware by him of this claim and approved the proceedings. Following on from this confirmation my firm received an e-mail from the 2^nd Petitioner providing the full details of the 2^nd Petitioner and their address for the purpose of information that had been requested for the purpose of issuing the Petition prior to the institution of these proceedings."

52. No documents have been provided to show that the Trustees of SMP authorised these proceedings.
53. Mr Murphy's witness statement went on in paragraph 5 to say that after Covington & Burling had raised the question of authority to bring the proceedings in August 2007:

"I confirm arrangements were made with the 1^st Petitioner for the 2^nd Petitioner to confirm their authority for us to continue acting in these proceedings."

54. Again I have seen no document to substantiate the claim that the 2^nd Petitioner gave Merriman White any authority to continue to act in these proceedings. The clear evidence of Mr Watterson is to the contrary.
55. The Applications for the Respondents were served on 18 and 31 January 2008 supported by witness statements from their respective solicitors.
56. On 7 February 2008 Mr Watterson filed his second witness statement. He commented on Mr Murphy's earlier witness statement dated 10 January 2008. He said that SMP did not have knowledge of or approve the proceedings. He said that it was not correct to say that the proceedings were pursued on behalf of SMP on an authorised basis.
57. In paragraph 10 of Mr Watterson's witness statement, in relation to Mr Murphy's assertion that the terms of the Trust require SMP to deal with the shares "in accordance with the instructions given to them by the 1^st Petitioner", Mr Watterson said that this assertion was false. He noted that the Trust was "a fairly typical discretionary Trust of which the Petitioner is a settlor, but not a "beneficiary" He noted that SMP held all the Trust assets on the terms of the Trust and would never simply act on the instructions of a stranger to the Trust such as the 1^st Petitioner. That this was the correct position, he said, was borne out by the Trust Deed. In this he was correct.
58. At paragraph 11 of his witness statement Mr Watterson suggested that it was Merriman White's ignorance of basic Trust Law which may have led them to act on behalf of SMP without SMP's authority.
59. At paragraph 13 of the same witness statement Mr Watterson noted the use of Mr Murphy's language in saying that SMP was "made aware" by Mr Warner of the claim. On the evidence before me I accept that there is no evidence from Mr Murphy that he ever had direct communication with his supposed client, SMP, to confirm or deny any assertion of authority which may have been given by Mr Warner.
60. At paragraph 15 of the same witness statement Mr Watterson said that he was not aware of any e-mail being sent by SMP in relation to these proceedings in connection with its address. Mr Watterson also pointed out that, as a firm of English solicitors, Merriman White was subject to a number of "know your client" and other regulations which require solicitors to establish the identity of the person or entity who is giving the instructions. He noted that there was no documentary evidence from Merriman White to show that the firm was instructed by SMP. He appended a copy of the Trust Deed to this witness statement.
61. On 19 February 2008 Mr Murphy made a further witness statement in reply. He denied that he admitted liability when he met Mr Watterson in November 2007. He gave no details of any conversation that did take place. He said that in the absence of a waiver of privilege in relation to the 1^st Petitioner's communications with the firm, "he could not disclose further information". He said:

"… I am not in a position to disclose such information which establishes that this firm acted in good faith throughout and further that the instructions given by the First Petitioner in relation to his beneficial interest and control of the Trust operated by the Second Petitioner were believed to be true."

This last sentence would appear to establish the basis on which Merriman White say they purported to act.

62. Mr Watterson made a third witness statement on 26 February 2008 in response to Mr Murphy's second witness statement. He reiterated that Mr Murphy had given no evidence establishing any authority of Merriman White or Mr Murphy to act in these proceedings on behalf of SMP. He pointed out that the "know your client" procedures and the anti-money laundering legislation are strict in this regard and had not been complied with. He noted again that to rely on instructions given by the 1^st Petitioner in relation to the Trust demonstrated a fundamental misunderstanding of the relationship between a settlor and the trustee of a discretionary trust.
63. The applications to strike out the Petition came before His Honour Judge Waksman, sitting as a Judge of the High Court, on 13 March 2008. He ordered that the Petition should be struck out but that the Order should be stayed pending a final decision of the Applications against Merriman White by SMP Trustees dated 20 December 2007 and by the Respondents dated 18 and 31 January 2008.
64. For completeness, I should refer to the witness statement of Mr O'Sullivan sworn on 15 April 2008 in the course of the hearing. Mr O'Sullivan recently qualified as a solicitor. Previously he had assisted Mr Murphy when he was a trainee solicitor. His e-mail on 15 April 2008 attempts to establish that Merriman White had authority to proceed on behalf of the 2^nd Petitioner. He does not exhibit a copy of the e-mail which he said he received from the 2^nd Petitioner on or about 29 March 2007.
65. In his witness statement he says:

"The e-mail contained information from the Trustees which was necessary for the purpose of issuing a joint Petition for both Mr Warner and the Trustees. Taking that e-mail together with my earlier discussions with Mr Warner, it appeared to me that the Trustees by sending that e-mail were consenting to the proceedings being brought jointly with Mr Warner."

66. This, no doubt, carefully drafted evidence falls far short of saying that the 2^nd Petitioner authorised the bringing of the Petition (let alone its continuation). Indeed, in his skeleton argument dated (after correction) 12 February 2008, Richard Wilson QC for Merriman White conceded that "Merriman White joined the Trustees as a Petitioner on the instructions of their client Mr Warner, together with the information and materials provided by Mr Warner" (paragraph 12).
67. In his supplemental skeleton argument dated (after correction) 14 April 2008 (paragraph 7) Richard Wilson QC made it clear that the privilege being claimed was that of Mr Warner. Mr Wilson QC contends (paragraph 10 of the same skeleton) that Merriman White are unable to meet the Trustees' case because "their client refuses to waive privilege".

The Law

68. Historically the court has had a summary jurisdiction to order damages (normally being the costs thrown away) against a solicitor who has commenced proceedings without the authority of his client. The basis of the jurisdiction is that the solicitor has breached his implied authority to act.
69. In Wright v Castle (1817) 3 Mer 12, Eldon LC said as long ago as 1817 that:

"There must be a special authority to institute, although a general authority is sufficient to enable the solicitor to defend a suit."

70. In In re Savage (1880) 15 Ch Div 557, Jessel MR said that:

"As a general rule the solicitor who acts like this without authority should be made to pay the costs …"

71. In In re Gray (1891) 65 LT 743, North J said that there should be a special retainer to defend a suit as well as to institute it.
72. In Yonge v Toynbee [1909] 1 KB 215 at 225, Buckley LJ said of a solicitor:

"The proposition, I think, is true that without any mala fides he has at the moment of acting represented that he had an authority which in fact he had not. In my opinion he is then liable on an implied contract that he had authority whether there was fraud or not."

73. Buckley LJ went on at page 226:

"The fact that the professed agent honestly thinks that he has authority affects the moral character of his act: but his moral innocence, so far as the person he has induced to contract is concerned, in no way aids such person or alleviates the inconvenience and damage that he sustains."

74. Buckley LJ concluded at page 227:

"The result of these judgments in my opinion is that the liability of the person who professes to act as an agent arises (a) if he has been fraudulent, (b) if he has without fraud untruly represented that he had authority when he had not and (c) also where he innocently misrepresents that he has authority where the fact is that either (i) he never had authority …"

75. At page 234 Swinfen Eady J said:

"It is in my opinion essential to the proper conduct of legal business that a solicitor should be held to warrant the authority which he claims of representing his client: if it were not so no-one would be safe in assuming that his opponent's solicitor was duly authorised in what he said or did …"

76. In Skylight Maritime SA v Ascot Underwriting Ltd [2005] PNLR 25, Colman J in reviewing the authorities thought that the rule may not be absolute. He went on to note at page 453 (paragraph 14):

"It is however important to keep in mind that, although the court can exercise a summary jurisdiction by reason of its special supervisory jurisdiction over solicitors, the underling purpose of that jurisdiction is compensatory and not punitive."

77. In the previous paragraph (paragraph 13) of the same judgment, Colman J sounded the following note of caution:

"Whereas in clear cases of breaches of warranty of authority and consequent recoverable loss the court can summarily determine the solicitor's liability for damages, in cases where there are real issues of fact or law, the court should not do so but should leave the opposite party to start proceedings by issuing a claim for breach of warranty of authority."

78. In S E B Trygg Liv AB v Manches [2006] 1 WLR 2276 the Court of Appeal considered the law of ostensible authority relating to solicitors. At page 2298 Buxton LJ, giving the judgment of the court, said that the solicitor was giving a collateral warranty and that:

"As with any warranty, liability is strict. Making the solicitor liable in such circumstances avoids the injustice which would otherwise be caused by the fact that the person for whom the unauthorised solicitor was purporting to act could not himself be made responsible for the opposing party's costs."

79. I note that in order to prevent confusion the Guide to the Professional Conduct of Solicitors is explicit as to the obligations of a solicitor to ensure that he has clear instructions from his client.
80. In particular Rule 2.01(1)(c) provides that:

"Where instructions are given by someone other than the client or where instructions are given by one client on behalf of others in a joint matter, the solicitor must not proceed without checking that all clients agree with the instructions given."

81. Rule 12.05 of the same Guide provides:

"Where instructions are received from a third party a solicitor should obtain written instructions from the client that he or she wishes the solicitor to act. In any case of doubt the solicitor should see the client or take other steps to confirm instructions."

82. In this case counsel for Merriman White has made a number of submissions by reference to authorities on wasted costs orders. For the sake of completeness I set them out now. Counsels submitted that

(a) Mr Warner refused to waive privilege so the solicitors were put in a difficult position.

(b) As a result of Mr Warner's maintenance of privilege I would inevitably have limited information.

(c) I must give the solicitors a reasonable opportunity to be heard and give reasons why an Order should not be made.

(d) Where there is an allegation of dishonesty or other allegations which would involve interrogation of the Respondent's solicitor to make a proper finding the test of negligence for a solicitor is set out in Saif Ali v Sidney Mitchell & Co [1980] AC 198:

"No matter what the profession may be, the common law does not impose on those who practice in it any liability for damage resulting from what, in the result, turn out to be errors of judgment unless the error was such as no reasonable well-informed and competent member of that profession could make."

(e) In circumstances akin to the wasted costs jurisdiction mere negligence alone will not suffice – see Persaud v Persaud [2003] PNLR 26 at 27.

(f) A material factor in culpability of a legal representative's conduct is whether the client had waived legal professional privilege.

(g) Causation must be proved.

(h) The proceedings must be justified on grounds of proportionality.

I take these matters into account to the extent which is appropriate.

83. I now reach my conclusions. There is now no dispute that Mr Murphy of Merriman White accepted instructions on behalf of his client, Mr Warner, to join SMP in these proceedings. This is made clear e.g. by Mr Murphy's witness statement dated 10 January 2008. The overwhelming evidence is that neither Mr Murphy nor his firm communicated directly with the Trustees of SMP to obtain firm instructions to start proceedings. There is also overwhelming evidence that neither Mr Murphy nor his firm contacted SMP or their Trustees directly in the course of the litigation to confirm from an authorised officer that SMP agreed with the instructions given by Mr Warner. The Trust Deed annexed to Mr Watterson's second witness statement makes it clear that the Trustees are under an obligation to exercise their powers independently of the settlor (Mr Warner) and not under his direction and that charities in the field of medical research are to be the beneficiaries, not Mr Warner's family. It is clear therefore that Mr Warner had no authority to give instructions on behalf of SMP.
84. I make these findings on the basis of the clear evidence before me. I do not find that there are real issues of fact and law which I am unable to determine. Further I am not prevented in any way from making the findings which I have set out by matters which may not have been disclosed to me as a result of Mr Warner's maintenance of privilege. Merriman White have been given every opportunity to be heard and have made full submissions as to why they say that Orders should not be made. I conclude that in exercising this jurisdiction the correct test is the one which I have set out in the authorities relating to solicitors' breaches of warranty of authority.
85. I find that Merriman White had no authority to act on behalf of SMP.
86. If it had been otherwise and the submissions on wasted costs had been relevant as contended for by Merriman White, I should still have found against Merriman White on the basis that they acted negligently as solicitors in clear breach of the Solicitors Rules to which I have already referred.
87. In these circumstances I find that SMP are entitled to the relief which they seek.
88. As far as the Respondents are concerned, Merriman White warranted that they had authority to act on behalf of SMP when they had no such authority. In these circumstances they too are entitled to the relief for which they are asking.
89. I note that the costs of the Respondents are said to amount to £109,011.68 and £193,252.45 respectively. I am asked to order interim payments on account of £80,000 and £135,000. I will hear detailed submissions on costs including applications for indemnity costs and for payments on account when I hand down this judgment.
90. I therefore order:

(1) The Orders of Chief Registrar Baister dated 25 October 2007 and Registrar Derrett dated 21 and 27 November 2007 be rescinded against the 2^nd Petitioner.

(2) The 2^nd Petitioner's name be struck from the Petition ab initio.

(3) Merriman White are ordered to pay all SMP's costs and expenses occasioned by the wrongful institution of these proceedings and the costs of and occasioned by their application.

(4) Merriman White are ordered to pay all the costs of the 3^rd, 4^th, and 8^th Respondents to 21 November 2007 and all the costs of the 1^st 2^nd, 5^th and 7^th Respondents to 27 November 2007 and all the costs of these applications.