Watson & Anor v Jones & Anor

LORD JUSTICE KITCHIN: This is an application by the defendants for permission to appeal against the judgment of Mr Recorder Miller given on 22nd August 2014 and his consequential order in which he found and declared that a settlement agreement dated 2nd August 2013 was not binding upon the claimants because it was entered into by a solicitor, Mr Murtagh, without their express, implied or apparent authority. Permission to appeal was refused on the papers by Longmore LJ on 4 February 2015. The defendants have requested that this decision be reconsidered as an oral hearing which has come on before me today. The defendants have been represented at this hearing by Mr William Buck of counsel.

The background may, for the purpose of this application, be summarised as follows. The claimants are all related and are the freehold owners of certain office premises in Doncaster. The defendants are retired solicitors and were former partners in a firm called Atteys. By a lease entered into January 2004 the premises were demised by the claimants to a service company of Atteys. The lease was for a period of 15 years at an initial rate of about £70,000 per annum payable quarterly. The defendants acted as guarantors in respect of the service company’s liabilities and obligations under the lease. In February 2013 the business of Atteys failed and as a result the service company became unable to pay the rent. By April 2013 the defendants had become jointly and severally liable for £25,000 in respect of rent arrears under the terms of their guarantees.

Mr David Watson, the husband of the first claimant, took on responsibility for pursuing the defendants in respect of the rental arrears and approached them with the assistance of a firm of solicitors instructed for that purpose. By mid-April 2013 Mr Watson had become concerned that this firm did not have the necessary expertise and accordingly approached Mr Murtagh who indicated that he could undertake the work on behalf of the claimants. Accordingly, at the end of that month, Mr Murtagh served statutory demands upon the defendants seeking payment of the unpaid rent, following which the defendants instructed Ms Kate Stewart, of Shore Stewart, to act on their behalf. A meeting was arranged for 24th May 2014 at which the claimants were represented by Mr Watson and Mr Murtagh and the defendants were represented by Ms Stewart.

Thereafter negotiations continued, in the course of which, so the Recorder found, Mr Watson gave to Mr Murtagh consistent instructions that any acceptable compromise could only bear upon the current arrears and would not affect the defendants’ obligations under their guarantees to pay the full rent in the longer run and potentially for the full duration of the lease.

During the course of these negotiations Ms Stewart sought confirmation from Mr Murtagh that Mr Watson did have authorisation to act on behalf of each of the claimants. As a result, the claimants, with the assistance of Mr Watson, produced various confirmations. The first was contained in an e-mail sent by the first claimant to Mr Murtagh on 8th July 2013. It said so far as material:

One day later the second and third claimants confirmed:

As the Recorder observed, negotiations continued thereafter and, by the time of a telephone conversation on 25 July 2013, what Mr Murtagh described as an impasse remained, with Ms Stewart reporting that the claimants wanted to hold the defendants to the guarantees and did not "want them to be able to just walk away from their responsibilities".

A rather dramatic change in position took place on 31 July 2013 when Mr Murtagh e-mailed Ms Stewart with a draft agreement providing for a payment by the defendants to the claimants of only £15,000 plus £1,500 per month in respect of outstanding rents and with the claimants agreeing "not to pursue their existing rights against the guarantors if the above conditions are met..." Most importantly, one day later, Ms Stewart e mailed proposed amendments, one of which was that each of the defendants would pay "for the duration of lease" £500 per month in respect of "rents", no longer outstanding rents, and the claimants would agree not to pursue the defendants over the terms of the lease at all. By 1 August 2013 Mr Murtagh and Ms Stewart had agreed all the terms with certain minor changes but retaining at paragraphs 3 and 8 two crucial provisions sought by Miss Stewart relating to (i) the period and purpose of the monthly payments and (ii), the general nature of the claimants’ forbearance in return for such payments. The two solicitors purportedly reached agreement the following day. In the meantime, these terms had been drawn to the attention of Mr Watson who e-mailed Mr Murtagh expressing his concern as to their meaning and effect. But by the time this concern was acted upon, Ms Stewart had executed the agreement.

The critical question for the Recorder was therefore whether or not this agreement was enforceable against the claimants. This gave rise to three sub-issues. The first was whether Mr Watson and Mr Murtagh had actual express authority to conclude or execute any agreement on behalf of the claimants at the time that Mr Murtagh purported to do so. The Recorder held that they did not. Mr Watson was merely authorised to "provide solicitors... with instructions" and to "present instructions to solicitors". This wording fell short of giving Mr Watson any authority to permit Mr Murtagh to agree terms of settlement on behalf of the claimants.

The second issue was whether Mr Murtagh had actual implied authority to enter into such an agreement on behalf of the claimants. Again, the Recorder concluded that he did not. There had never been any instructions to pursue a claim for relief. Mr Watson had not initiated proceedings and was obviously striving to avoid so doing. Nevertheless, Mr Murtagh deliberately or inadvertently agreed terms which went beyond his express authority and which were unnecessary to achieve the objective for which he was instructed, that is to say taking negotiations as far as he could and then reporting back to the claimants.

The final issue was whether the claimants had made any representation or were responsible for any manifestation to the effect that they had granted Mr Watson or Mr Murtagh authority to act in any way beyond the express terms of the communications to which I have already referred. Again, the Recorder concluded that they had not.

It necessarily followed that Mr Murtagh acted without the actual or ostensible authority of the claimants when he made the agreement with Miss Stewart on 2nd August 2013, and that accordingly it was not binding upon the claimants. They were therefore entitled to the declaration they sought and to consequential relief.

In pursuing the application for permission, Mr Buck submits it is plain that some actual authority was provided by the claimants to Mr Watson and then by Mr Watson to Mr Murtagh. The critical question, continues Mr Buck, is the proper extent of that authority. This, he says, and I agree, must involve an objective assessment of the words used in their context. He continues that in this regard the claimants accept that they initially gave Mr Watson authority to deal with the matter to try to get some money back, and that settlement discussions then took place and the claimants were aware of these discussions. Ms Stewart thereupon sought confirmation that the claimants had indeed authorised Mr Watson to act on their behalf, and in response the claimants duly prepared and provided the statements for authority to which I have referred. It therefore follows, continues Mr Buck, that Mr Watson and Mr Murtagh were properly authorised or, for the purpose of this application, were arguably properly authorised to negotiate and finalise an agreement with the defendants. Further, and in all the circumstances to which I have referred, Ms Stewart believed and reasonably believed that Mr Murtagh had authority to act on behalf of the claimants and that belief was properly traceable to the claimant's manifestations.

Attractively though these submissions have been presented to me by Mr Buck I am satisfied that they would not have a real prospect of success on the appeal. In my judgment, the Recorder properly considered the scope of the authority provided by the various communications to which I have referred in context and he was, as it seems to me, plainly entitled to find that Mr Watson did not have and did not purport to confer upon Mr Murtagh authority to enter into the settlement agreement. As the Recorder held, had Mr Watson expressed a view about the terms of the agreement which Mr Murtagh purportedly entered into, it is inconceivable that it would have been other than a negative one. Seen in context, the wording of the authorities, in saying that Mr Watson was authorised to "provide solicitors ... with instructions" and to "present instructions to solicitors", clearly meant and was intended to mean that Mr Watson could pursue negotiations for the recovery of the rental arrears. I am prepared to accept that Mr Murtagh's authority may have extended to receiving and referring back to Mr Watson for his and the claimant's consideration and approval any suggested terms of settlement but I find myself wholly unable to accept that there is any real prospect of persuading this court that the authority extended to Mr Murtagh entering into an agreement, still less an agreement in embodying what the Recorder rightly described was a radical concession as to the defendants’ liabilities. In my judgment, Longmore LJ was entirely right to say as he did that Mr Murtagh did not have actual authority to conclude any such agreement and there was no ostensible authority either. I would also respectfully concur with the observation made by the Recorder that Mr Murtagh has much to answer for, but I am satisfied the Recorder was entitled to find as he did that Mr Murtagh acted without the actual or ostensible authority of the claimants when he entered into the settlement agreement and that it is not binding upon the claimants.

An appeal against this finding would not have a real prospect of success and accordingly, and despite the able submissions of Mr Buck, I have come to the conclusion that this application must be dismissed.