Bank of Scotland v Qutb

This application was issued on 4 May 2012 by the Bank of Scotland (the Bank) under s. 51 of the Senior Courts Act 1981 and CPR r. 48.2 for an order that Mr Qutb be personally liable for the Bank’s costs of this appeal on the indemnity basis, to be assessed, if not agreed, and that he pays £33,500 (updated at the hearing to £39,000) on account of those costs within 14 days of the order being granted.

The background to the application is fully set out in the judgments handed down on 8 March 2012: [2012] EWCA Civ 264. The court set aside the permission granted by this court to appeal from the judgment of Newey J. The appeal brought by Mr Qutb, purportedly on behalf of his mother, the late Mrs Mona Qutb, was struck out on the grounds that Mr Qutb had deceived the courts and the Bank into believing that he was acting as litigation friend of his mother, who had in fact died on 1 January 2010 before the trial took place.

The court permitted the Bank to add its costs of the appeal to its security over the property referred to in the judgments. As the Bank is unable to recover the totality of the litigation costs out of that security, it now seeks to make Mr Qutb, who was not a party to the litigation in his own right, personally liable for the costs of the proceedings. The court ordered Mr Qutb to be made a party and granted the Bank permission to make the application.

The Bank’s application invokes the statutory discretion of the court, but, as Toulson LJ indicated to counsel and to Mr Qutb at the outset of the hearing, Mr Qutb could be made personally liable for the Bank’s costs on the ground that he had breached an implied representation of authority. The skeleton argument for the Bank touches on that point by seeking to draw an analogy between this case and those cases in which solicitors have been held to be personally liable for the costs of proceedings which they have commenced or defended without authority.

In our judgment, those cases are not confined to the summary jurisdiction that the court exercises over solicitors as officers of the court. They are instances of a wider principle that directly covers this case. The general principle is that stated in Article 105 of Bowstead & Reynolds on Agency (18^th Edition, 2006) :-

“ (1) Where a person, by words or conduct, represents that he has actual authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority.”

Illustration (13) on p. 548 states the following to be the case:-

“(13)

Where a solicitor, without authority, prosecutes or defends an action, the action will in general be dismissed or the defences struck out on the motion of either the plaintiff or the defendant, and the solicitor so acting without authority will be ordered to pay all the costs occasioned thereby.”

As explained in a footnote no formal action is required to proceed in this summary fashion and hence expense is saved. In the leading case of Yonge v. Toynbee [1910] 1 KB 215 the court invoked its summary jurisdiction over solicitors to make an order against a firm of solicitors personally to pay the plaintiff’s costs of proceedings on the ground that they had acted for the defendant without authority, the defendant having been certified as a person of unsound mind. The certification terminated the authority of the solicitors, who, by continuing to act in relation to legal proceedings on behalf of the defendant, thereby impliedly warranted that they had authority to do so and were personally liable to pay the plaintiff’s costs of the action. The same principle applies to the case in which the principal has died. The solicitors are liable in damages for breach of implied warranty of authority to act when they had no such authority because it had ceased, albeit without their knowledge. The measure of damages was the amount of the plaintiff’s costs thrown away in the action. See also AMB Generali Holding AG v. SEB Trygg Liv Holding etc [2006] 1 Lloyd’s Rep 318at 332-334 where it was explained that what the solicitor warrants is that he has a client who has instructed him to assert or deny the claims made in the proceedings against the opposing party, though he does not warrant as to the accuracy of his instructions generally. It was also explained by Buxton LJ, giving the judgment of the court, that the imposition of strict liability on a solicitor for breach of warranty of authority was justified, because otherwise the opposing party will be left without a remedy against his supposed client.

There is no reason in principle why the same considerations should not apply to any person who conducts proceedings on behalf of another so as to represent that he has authority to do so: he is liable to pay damages for a breach of warranty of authority and is, in that way, personally liable to the opposing party for the costs of the proceedings.

As explained in the judgments already handed down Mr Qutb, after the death of his mother, acted without authority in these proceedings. On that basis he has no defence to a claim by the Bank for its costs. He is personally liable to the Bank in damages for breach of warranty of authority. The measure of damages is the amount of costs incurred by the Bank since he ceased to conduct the litigation as the litigation friend of his mother.

As it may be objected that the claim for damages should be made in a separate action by the Bank against Mr Qutb, rather than summarily as in the case of a solicitor, we will therefore deal also with the statutory discretion of the court invoked by the Bank, which seeks an order against Mr Qutb personally to pay the Bank’s costs, as well as in his capacity as administrator of his mother’s estate.

In our judgment, this is clearly a case in which it is just for the court to exercise its discretion under s.51(3) of the Senior Courts Act 1981 and CPR r.48.2 to make an order for costs personally against Mr Qutb.

He has managed and maintained the trial of the action and he has obtained the permission to appeal, which we have set aside; he has done so for his own personal benefit, being a beneficiary of his mother’s estate; he has deceived the Bank into spending significant costs in the belief that he was entitled to conduct the proceedings on his mother’s behalf, as her litigation friend, when he was not entitled to act after her death; and he has, without doubt, been guilty of gross misconduct by making false representations in evidence and in submissions in the proceedings that his mother was still alive when he knew that she had died on 1 January 2010, many months before the trial took place before Newey J.

The Bank seeks an order against Mr Qutb personally that he pays the costs of the appeal, the strike out application and of this application to the extent that those costs cannot be recovered by the Bank from the security. Unless the court makes the orders sought by the Bank, the bulk of the costs will have to be borne by it, as the sum that will be released by the sale of the property will not cover the costs. In respect of those shortfall costs, which were estimated at the hearing to be in the region of £78,600, and which are now estimated to be in the region of £67,500, the Bank also seeks an order for payment of £39,000 on account such sum to be paid within 14 days of the making of the court order.

The Bank seeks a similar costs order on the indemnity basis against Mr Qutb in respect of the appeal and related applications in his capacity as administrator of the estate of his mother, whether personally or from the assets of the estate, such costs to be assessed, if not agreed.

We propose to grant the Bank’s application for the costs claimed on the indemnity basis both against Mr Qutb personally and in his capacity as administrator of the estate of Mona Qutb. Mr Qutb did not put in any evidence resisting the application. He appeared at the hearing and informed the court of his misfortunes and his circumstances, but said nothing to persuade us that the orders sought in the application should not be granted.

The Bank’s legal representatives are requested to draft an order and to submit it to the Civil Appeals Office for approval by the Court.