Skylight Maritime SA v Ascot Underwriting Ltd. & Ors

The application now before the court is of a somewhat unusual nature. It does, however, raise matters which are of some importance for those conducting litigation in London on behalf of overseas clients.

The applicants are Houlder Insurance Services (Marine) Ltd (“Houlder”), the long-established London insurance brokers and the respondents are Jackson Parton, (“JP”) the well-known London firm of specialist maritime solicitors. Houlder apply for a summary order that JP should pay their indemnity costs incurred in relation to the defence of a claim by JP’s former client, Skylight Maritime (“Skylight”). The claim was initially against the insurers (the first and second defendants) of the claimants’ yacht, TIGER II, for actual or constructive total loss on 14 July 2002 and the claim form was issued on 5 November 2002. Following service of the insurers’ defence, the claimants by JP, their solicitors, joined Houlder as third defendants, claiming against them breach of duty and/or contract as the claimants’ placing brokers. That was pursuant to an order of Cooke J. obtained by consent on 30 March 2004. It was alleged that, in breach of their duties as the claimants’ brokers, Houlder had failed to remit premium by reason of which the first and second defendant insurers never came on risk, alternatively, if the insurers, having come on risk, were, as they alleged, entitled to avoid for material non-disclosure or misrepresentation, such non-disclosure or misrepresentation was the result of negligent breach of duty by Houlder as Skylight’s placing brokers.

Skylight was a one-yacht Panamanian company. The vessel was kept in Greek waters and, having allegedly been stolen from its anchorage, was wrecked off the island of Poros in the Aegean. The company had a board of three Panamanian directors but it was apparently subject to a large measure of control by one George Sigalas who claimed to be the sole beneficial owner of Skylight. Mr Sigalas died at the end of February 2004. At the time of the loss, apart from its claim for insurance proceeds it appears that Skylight had no or at least no significant assets.

A case management conference took place before Langley J. on 21 May 2004. On that occasion Skylight did not appear. Nor were JP before the court. They had come off the record some three days earlier. The grounds for their application to come off the record have not been disclosed. Langley J. struck out Skylight’s claim against the insurers on the grounds that Skylight had not given JP authority to commence the proceedings.

By the present application Houlder, but not the insurers, ask for an order that JP should pay their entire costs of the proceedings on the grounds that the claim against them was commenced by JP without the authority of Skylight.

It is clear from the authorities that if a solicitor commences or pursues proceedings without the authority of his apparent client, the court has a jurisdiction to make a summary order against that solicitor for costs incurred by the opposite party caused by the solicitor’s unauthorised conduct. In Yonge v. Toynbee [1910] 1 KB 215 the Court of Appeal approved such summary procedure and identified the conceptual basis for such summary orders as breach of an implied contract or warranty given by the solicitor that he was authorised so to act by his client: see Buckley LJ. at p229 and Swinfen Eady LJ. at p231. The nature of the remedy was confirmed to be a claim for damages and the measure of damages the costs thrown away by the opposite party.

The exercise of this summary jurisdiction, without the need for the opposite party to start new proceedings against the solicitor, emanates from the solicitor being an officer of the court with a duty to act in the proceedings before it only with appropriate authority.

In most cases of a solicitor acting without the authority of a client the lack of authority will be clearly established and the consequences of that solicitor acting or continuing to act without such authority will also be very clear. The opposite party will normally have incurred expenditure on legal costs which he cannot recover by means of an order for costs against the apparent client who had never authorised the solicitor to act. In such cases there is likely to be little dispute as to the facts, either as to the lack of authority of the solicitor or loss suffered by the opposite party.

However, there may be cases where the factual position is less clear. Thus, in Yonge v. Toynbee, supra, Vaughan Williams LJ. stated at p235:

The “action” referred to was clearly an action against the solicitors for breach of warranty of authority of the nature identified in Collen v. Wright 8 E&B 647.

In Babury Ltd v. London Industrial plc (1989) NLJ 1596 Steyn J. stated at, 1596:

In the course of his judgment, Steyn J. also pointed out by reference to the judgment of Kekewich J. in In re Margetsons & Jones [1897] 2 Ch 318, the importance for the administration of the courts that, when a solicitor appeared to act with the authority of a party to litigation, that implied representation could be relied upon by the opposite party.

The result of the authorities and the demands of the twin objectives of making solicitors accountable for their unauthorised conduct of litigation and yet of protecting them against untested allegations of want of authority is that, whereas in clear cases of breach of warranty of authority and consequent recoverable loss, the court can summarily determine the solicitors’ liability for damages, in cases where there are real issues as to the facts or law, the courts should not do so but should leave the opposite party to start proceedings by issuing a claim for breach of warranty of authority.

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 underlying purpose of that jurisdiction is compensatory and not punitive. It follows that proof of loss is essential before there can be recovery of damages.

The question that then arises is what is the appropriate measure of loss?

It is important not to lose sight of the fact that the relevant breach of warranty is the non-existence of the authority that was warranted. Therefore, the opposite party or promisee has lost the benefit of the position he would have been in had the warranty been true. In other words, the court is concerned to quantify what benefit has been lost by reason of the fact that the supposed client is not after all a party to the proceedings. In the ordinary case, the promisee will have lost the ability to recover from that client the costs of the proceedings in the event of a costs order in the promisee’s favour. This is usually quantified as the amount of costs thrown away by the promisee in relation to the proceedings from the first participant in them of the solicitor until the promisee is apprised of the solicitor’s lack of authority.

In Firbank’s Executors v. Humphreys (1886) 18 QBD 54, Lord Esher MR stated at p60:

In re National Coffee Palace Company (1883) 24 Ch D 367 there are observations by Brett MR at p372 and by Bowen LJ. at p375 to the effect that if the supposed principal is insolvent the promisee will not be entitled to recover substantial damages from the warrantor of authority because he would not have been able to recover from the suppose principal if the warranty had been true.

In Habton Farms v. Nimmo [2004] QB1 Clarke LJ. in the Court of Appeal, with whom Auld LJ. agreed, approved the following passage in McGregor on Damages 16^th Edn in relation to breach of warranty of an agent’s authority to contract on behalf of an apparent party to the contract at page 18:

Accordingly, a claim for breach of warranty of authority cannot be deployed to put the promisee in a better position than if the warranty had been true. Thus, if a supposed client is insolvent, substantial damages for breach of a solicitor’s warranty of authority will not normally be recoverable because the promisee would not have been able to recover costs against the client even if the solicitor had authority to act.

In order to consider the appropriate remedy upon this application it is necessary to consider not only the overall effect of the evidence now before the court but the circumstances in which it has been adduced.

Following the loss of the TIGER II on 14 July 2002, Ince, acting for the insurers wrote to the placing brokers, Houlders on 18 September 2002, asking for copies of documents under 13 specific classes. By that time Ince by their Piraeus office had already conducted certain interviews of those concerned with the vessel and its loss. Amongst those classes were the following:

Houlders forwarded this request to one Evangelos Tsouroulis, an attorney in Piraeus acting for Mr Sigalas. By letter dated 30 December 2002 he replied to Ince as follows:

On 27 February 2003 Ince, on behalf of underwriters, wrote to Houlder stating that underwriters were off risk due to breach of warranty and non-payment of premium and avoiding the policy for non-disclosure and misrepresentation.

In June 2003 Mr George Cavallis of Inship Insurance Brokers in Piraeus, who had been producing brokers for the insurance of TIGER II, invited Mr Skinitis, a solicitor employed by JP, to advise as to the total loss claim against underwriters. He was provided with a copy of the policy showing Skylight as the addressee, care of Houlder, and with copies of the notes of interview of Mr Sigalas, to which I have referred, together with notes of Ince’s interview of Mr Zographos. As to the latter, Mr Sigalas is recorded as stating that he had no formal arrangements with Mr Zographos but gave him money on a regular basis of about GDr 20,000-30,000 per month to look after the vessel. This was confirmed in the interview of Mr Zographos.

Mr Cavallis then sent Mr Skinitis a document dated 23 June 2003, under the heading Skylight Maritime SA Panama, which stated as follows:

That document was apparently stamped with the corporate seal of Skylight and signed by Mr Sigalas expressly on behalf of Skylight. In his first witness statement Mr Skinitis stated at paragraph 9:

On 4 July 2003 Mr Skinitis attended a meeting in Piraeus at the office of the law firm, Deucalion Rediades. There were present Mr Sigalas, Mr Cavallis and Mr Tsouroulis, the attorney. Both Mr Sigalas and Mr Tsouroulis were adamant that Skylight had been transferred to Mr Sigalas whereby he had become owner of TIGER II. There was discussion of the terms on which the claim against the insurers might be settled. Mr Sigalas gave authority to Mr Skinitis to settle at 50 per cent of the amount claimed. The note of the meeting includes the words “suggest we issue a claim form”. He had no suspicion that Mr Sigalas lacked authority to authorise litigation on behalf of the company. He observed that Mr Sigalas was suffering from cancer and in failing health. At paragraph 14 the witness statement continues:

The proceedings by Skylight against the insurer defendants was commenced by JP on 6 November 2003.

On 2 December 2003 Ince the insurers’ solicitors, faxed a message to JP asking from whom JP was taking instructions to act for the insured, “(ie. provide the individual’s name and identity their authority to act for the assured)”. They repeated their request for copies of “all documents relating to the acquisition by the Assured and/or beneficial owner of TIGER II, including copies of the bearer shares held by him and any documents evidencing their transfer and documents relating to the payment of corporate fees of the owning company”. They made the point that, although Mr Tsouroulis had by his 30 December 2002 letter informed them that the competent authorities had been asked to replace the lost bearer shares and that the replacements would be forwarded to Ince as soon as received, nothing had been received.

On 3 December 2003 JP replied that as JP were acting for Skylight Maritime, Ince’s first question was not relevant. They were taking instructions on the rest of the questions. JP nevertheless passed on the request for information to Inship who passed it on to Mr Tsouroulis. He replied that due to Mr Sigalas’s lack of co-operation in the past he could not take the responsibility of responding to Ince’s questions but subject to that:

He went on to say:

On 8 January 2004 Ince pressed for an answer to their questions of 2 December, asserting that they were entitled to have them answered and raising specific issues about the disparity between the value of TIGER II and the much smaller amount of Mr Sigalas’s claim in the Greek courts, about the 10 years gap between the alleged settlement agreement and the withdrawal of the Greek proceedings and as to why George Karageorgis transferred the vessel whereas the Greek proceedings had been against John Karageorgis.

By 4 February 2004 the insurers’ defence had been served and JP informed Ince that a decision had been taken to join Houlder as a defendant. On 24 February 2004 Ince again pressed for answers to their earlier questions and stated that, absent the relevant corporate documentation, no one was in a position to direct the conduct of the company that was bringing the claim and that the matter would have to be raised at the forthcoming case management conference if it were not clarified. Mr Skinitis then asked Mr Cavallis for further information and was sent copies of insurance renewals in respect of cover for the vessel dating back to the period before Mr Sigalas entered into the settlement agreement with Mr Karageorgis, but referring to Skylight Maritime SA “c/o Mr Sigalas”.

Mr Skinitis learned of Mr Sigalas’s death on about 1 March 2004 from Mr Cavallis.

On 30 March 2004 there was a consent order for the joinder of Houlder as third defendant, represented by Clyde & Co, and on 2 April 2004 JP served an amended claim form and amended particulars of claim setting out the claim for breach of duty as brokers. A case management conference was fixed for 21 May 2004. The question of Skylight putting up security for costs having been raised by the defendants, JP wrote to Ince and Clyde’s & Co on 27 April 2004 stating that:

On 4 May 2004 the defendant insurers served the witness statement of Daniel Jones, which was the evidence on which they ultimately relied for their application for security for costs. In paragraph 55 he drew attention to “many aspects of what Mr Sigalas has said which … are inconsistent and/or give rise to concerns over what the Assured/Mr Sigalas has said about the status and ownership of the Assured and the circumstances in which Mr Sigalas represents that he became the beneficial owner of the vessel”. Seven matters were relied upon, all of which had previously been raised by Ince in its correspondence with JP and it was asserted that JP had failed to answer these questions. The statement went on:

The statement went on to state that there was no independent evidence that JP had authority to act for the claimant company. It had not been established that Sigalas was indeed the sole shareholder, although he and the Karageorgis family were the “main candidates”.

By 14 May 2004 JP had formed the view that they were not in possession of sufficient instructions to deal with the insurers’ applications to be heard on 21 May, including their applications to strike out the claim and for security for costs and accordingly they asked for the hearing to be adjourned. The defendants did not agree to this.

On 18 May 2004 JP therefore applied to come off the record.

On the following day Mr Skinitis was then, according to his evidence, able for the first time to make contact by telephone with Mr Sigalas’s widow. In his witness statement of 4 June 2004 prepared pursuant to an order of Langley J. that JP provide the court with further information, he stated at paragraph 20 that she said, in answer to his request for documents relating to Skylight, that she had never had anything to do with her husband’s affairs, but she suspected that, since his death, her sons had disposed of a lot of her husband’s paperwork. In that statement Mr Skinitis further gave answers to Ince’s first two questions by stating that:

he received his instructions “through Mr Cavallis of Inship in accordance with the letter of authority dated 23 June 2003 (to which I have referred at paragraph 26 above) and the meeting of 4 July 2003 (referred to at paragraph 28 above);

as to the basis on which JP considered that those individuals had authority to act on behalf of the assured, this was “If Jackson Parton are instructed by some person purporting to be the sole shareholder of the Assured, that person will have no authority to act on behalf of the Assured if in fact he is not the sole shareholder of the Assured.”

Also on 19 May 2004 Mr Skinitis spoke by telephone to the Panamanian directors of Skylight but was told that although Mr Sigalas was known to them, Skylight had been indebted to the law firm (Padilla) in the sum of US$3455 since 2001 and they were reluctant to provide any help.

The claim having been struck out by Langley J. on 21 May 2004, Houlder issued their application for costs against JP on 21 September 2004.

Although the hearing of this application was fixed for 3 December 2004, Mr Skinitis appears to have done little or nothing further to elucidate the position as to his authority to act for Skylight until 23 November 2004 when he travelled to Athens to make further investigations, particularly as to the whereabouts of the corporate documents of Skylight and as to the identity of the Greek attorney who drafted the settlement agreement between Sigalas and Mr Karageorgis.

In his second witness statement, dated one week later (30 November 2004), Mr Skinitis stated that:

I interpose that the reference to Mrs Sigalas having provided instructions relating to the proceedings is apparently inconsistent with the statement made in Mr Skinitis’s earlier statement of 4 June 2004, that his instructions were received through Mr Cavallis.

Mr Skinitis went on to state that he had previously asked her about “missing corporate documentation” but she had not been able to help. That was on 19 May 2004, the day after Jackson came off the record. On this occasion in November 2004 she repeated “as she had previously” that her late husband had always kept her away from his business dealings and that she was therefore unable to help with any of Mr Skinitis's enquiries. In a subsequent telephone conversation Mr Sigalas informed him that her son would not discuss the matter with him. It is clear from the attendance note that he was concentrating on proof of the late Sigalas’s title to the vessel: hence the recorded references to transactions with Karageorgis.

Subsequently Mr Sigalas’s son confirmed in a telephone conversation that he had no knowledge of his father’s business affairs or of transactions with Mr Karageorgis and stated that any documents relating to his father’s business affairs had been destroyed by the end of 2003.

Finally, Mr Tsouroulis stated in an interview in Athens on 29 November 2004 that he understood Sigalas to have been the owner of the vessel, that the corporate documents had been lost during the office move of 2001, that he had asked Sigalas to obtain a new set of corporate documents but this had never been done due to Sigalas’s failing health. Mr Tsouroulis explained the long period of delay between the occurrence of the dispute between Sigalas and the son of George Karageorgis by stating that George had asked Sigalas to be patient until the dispute was resolved amicably by the payment of compensation. In view of their long-standing friendship, Sigalas had agreed and eventually the dispute was resolved by transfer of the vessel.

On the day of the hearing of this application there was exhibited to a third witness statement of Mr Skinitis correspondence in 2002 between the Panamanian firm, Padilla & Associates, and the Pireaus law firm, Evangelos Macris. This consisted of a fax from Macris stating that its clients had lost the original share certificates of Skylight “from June 2001” and asking for advice as to the requirements for the issue of new share certificates. Padilla had replied that in order to proceed with issuance of new share certificates Skylight should satisfy its outstanding obligations to Padilla and to the Government of Panama in respect of fees and annual taxes, totalling US$1,782.00.

I interpose that this evidence is broadly consistent with what Mr Tsouroulis told the insurers in his letter of 30 December 2002.

On the basis of this material Mr Matthew Reeve, on behalf of Houlder, submits that JP have not established that they ever had authority to join Houlder on 30 March 2004. In particular, they have not established that Mr Sigalas was the beneficial owner and that he had authority from the board of directors of Skylight to cause the corporation to commence litigation in this case. As to title to the corporation, it is intrinsically improbable that Sigalas ever acquired title, whether by reason of the so-called settlement agreement, coming such a long time as it did after the dispute, and as to which Sigalas was unable to produce share certificates, or explain where they were or how they came to be mislaid. As to authority to start and pursue proceedings, there was no evidence that, even if Sigalas were beneficial owner, the board of Skylight had ever issued to him or to Mr Cavallis, the broker, any authority to sue Houlder.

On behalf of JP, Miss Jo Cunningham submits that at its lowest such evidence as there is does suggest that Sigalas had become the owner of the corporation at the material time. He had paid the insurance premiums and had also paid Mr Zographos to look after the vessel. Inship had been authorised by Mr Sigalas by the letter of authority of 23 June 2003 to instruct London solicitors on behalf of Skylight.

Moreover, the submission by Houlder that there was no evidence of authority from the directors of Skylight to Mr Sigalas or Inship had not been made until Mr Reeve’s written submissions and JP had therefore had no opportunity to investigate whether under the law of Panama such specific authority was required from nominee directors or in what form or whether it had been given. JP was therefore placed in an unfair position at this hearing, as they had not had an opportunity of adducing evidence on these matters.

Further, Skylight had no assets and, accordingly, Houlder could not prove that it had suffered any loss even if JP lacked authority to start and pursue proceedings. On the basis that the claim against JP was in substance analogous to a claim for breach of warranty of authority, Houlder could be in no better position than if that which was warranted (JP’s authority) was true, that is to say, even if it were true, Houlder could not have recovered any costs from Skylight because, following the loss, Skylight had no assets except its claim on underwriters which was challenged.

Mr Reeve on behalf of Houlders submitted that there was nothing new in their reliance on lack of evidence of authority from the directors of Skylight, a point which had been previously raised in the witness statement of Mr Jones on behalf of the insurer defendants adduced for the purposes of their application for security for costs and other matters at the case management conference before Langley J. on 21 May 2004. Miss Cunningham submits that although Mr Jones relied on the lack of evidence of a resolution of the directors of Skylight, this point was raised only to support the proposition that there was no evidence that Sigalas owned the corporation and not as part of an argument that there was no authority to Mr Sigalas as owner because there was nothing from the directors.

This is by no means a typical case of a non-existent principal. There are substantial issues of fact which cannot be resolved in the course of the usual summary proceedings. In particular, the evidence which I have set out strongly suggests that Mr Sigalas had by the time of the loss of the vessel obtained beneficial ownership of Skylight and that, accordingly, he remained owner up to the time of the meeting of 4 July 2003. It appears that JP probably were then given what appeared to be authority by Mr Sigalas to issue a claim form against the insurers. However, it is unclear whether Mr Sigalas, as sole shareholder of Skylight, could then bind the corporation to give that authority or whether he could only do that if there were a board resolution or some other written authority from the directors to him personally. That is a matter of fact and of Panamanian law upon which there was no evidence. The lack of evidence has been the result of the loss of the corporate documents following Mr Sigalas‘s death and of JP’s inability to persuade Padilla to provide fresh documentation or evidence.

Moreover, there is doubt as to the scope of JP’s authority as well as its source. It is by no means clear that if JP were given authority to start proceedings against the insurers, they were also given authority to start proceedings against Houlder following Mr Sigalas’s death. If, as JP asserts, they derived that authority from Inship (Mr Cavallis), it is unclear whether the corporation ever gave authority to Inship to authorise such proceedings. There would have to be an investigation of the question whether in Panamanian law the scope of the written authority signed by Mr Sigalas on 23 June 2003 was wide enough.

Given these issues, I am not persuaded that there is no realistic prospect of their being determined in favour of JP were they to be determined by means of a full trial at which JP would be able to call evidence of Panamanian law and would also perhaps be able to adduce documentary evidence from Padilla as to what steps the directors of Skylight took to clothe Mr Sigalas and Inship with authority to authorise JP to commence proceedings in the name of the corporation. In relation to this last point, the lack of any explicit reliance by Houlder on their being a lack of authority from the directors of Mr Sigalas, even if the latter were the owner of Skylight, appears to have caused Mr Skinitis to fail to attempt adequately to investigate this part of the chain of authority to JP. Although, as I have already commented, he failed to act with proper expedition in conducting further investigations prior to this hearing, to shut out further investigation of this more specific facet of the chain of authority at this stage would be too stringent a course.

Furthermore, by reason of the fact that Skylight’s claim against the insurers has been struck out, it apparently has no assets. Therefore Houlder is confronted by exceptionally difficult problems in proving that it has suffered any recoverable loss. In particular, this part of the case raises issues as to whether for the purpose of ascertaining whether Houlder has suffered loss, one starts from the assumption that at the time when JP caused Houlder to be joined, Skylight still had an outstanding claim against the insurers and, if so, whether it is to be assumed that such a claim would, if tried, have succeeded, thereby causing the alternative claim eventually advanced by Skylight against Houlder to fail, with an order for costs in Houlder’s favour or that both the claim against insurers and the alternative claim against Houlder would have failed also with an order for costs in Houlder’s favour. I express no concluded view on this part of the case. It has not been fully or sufficiently argued and it raises questions not previously considered by any authority of which I am aware.

Taking all these matters into account, I conclude that Houlder should be left to commence separate proceedings against JP for breach of warranty of authority. The issues to which I have referred need to be pleaded and JP ought in the interests of the fair determination of the claim against them to have the opportunity of obtaining and adducing further evidence.

This application is accordingly refused.