Reminder: you need very clear instructions before commencing proceedings on a person’s behalf

Updated, 23 June 2015: See Doulman v ACT Electronic Solutions Pty Limited (No 2) [2015] FCCA 1664

Updated, 16 July 2014: Brereton J summarised the authorities on this question in In the matter of HIH Insurance Limited (in liquidation); Smith v McGrath [2014] NSWSC 922 at [17], as follows:

‘Fundamentally, the extent of a lawyer’s authority depends on the construction of the retainer, in which terms can be implied as well as express [Hawkins Hill Gold Mining Co v Briscoe]. However, generally speaking, clear and specific words are required to authorise the institution of court proceedings Atkinson v Abbott; Wray v Kemp; Hawkins Hill Gold Mining Co v Briscoe]. This is because of the serious consequences, including in particular exposure to the possibility of adverse costs orders [City of Glenorchy v Addison]; and also because a solicitor ought not readily be implied to be authorised to decide whether or not to institute proceedings [Hawkins Hill Gold Mining Co v Briscoe; Atkinson v Abbott]. Where words to the effect of authorising “such further steps as may be necessary” follow the main object of the retainer, those words are not sufficient to authorise institution of proceedings where the specific words would not do so, the general words being restricted to what is necessary for the proper performance of the particular acts [Kemp v Wray; Knox Street Apartments v Flexman]. While authority to institute proceedings once given extends to final judgment and execution, it does not authorise institution of an appeal without further express instructions [James v Ricknell; In re Joseph Woolf; City of Glenorchy v Addison].’

Original post: Bray v Dye (No 2) [2010] VSC 152, a decision of Justice Judd, is a salutary reminder of the importance of solicitors getting very clear instructions from anyone on whose behalf they intend to commence or defend legal proceedings, and checking that they have capacity to engage in litigation (i.e. that they are of sound mind, and are not minors). In relation to this fundamental instruction in a retainer, it is more dangerous to rely on instructions through agents than it is to take instructions from agents in relation to steps in the litigation.  Get it wrong, and the lawyer will be ordered personally to pay adverse costs ordered against the phantom litigant, once the truth is ascertained, generally following an attempt at execution. That is what happened in this case: the solicitor and the barrister were substituted for the person on whose behalf they instituted proceedings, unbeknown to her, which failed and resulted in adverse costs orders.  According to the lawyers’ version of events, they did so on the basis of the second plaintiff’s oral instructions that he was authorised by the first plaintiff to instruct them to commence proceedings.

A man and a woman lent money to two companies. The woman left business matters to the man. The businesses of the companies failed and the companies defaulted on the loans.  They went into voluntary administration.  A proceeding in the name of the lenders was commenced against the administrators.  The solicitors took the instructions to commence the proceeding from the man, having been asked to act as solicitors on the record by a barrister who was already retained, previous solicitors having ceased to act by virtue of a conflict of duties.  The defendant administrators won the case, and got costs orders in their favour.  The orders were not satisfied, so they sent the Sheriff around to the woman.  The woman said that was the first she knew that she was a plaintiff in a proceeding let alone a judgment debtor.  And she wasn’t trying a new one on.  Victorian solicitors and a Victorian barrister had run an entire case for two people without realising — according to their version of events — that one of them was unaware of the proceeding.  What is all the more amazing is that a central issue in the case was that the administrators had never received from the woman a release which they argued was a precondition to their obligation to pay the monies to the lenders which it was argued they had wrongfully failed to pay.  The reason why the woman had not signed the release must have been thought about.  What had in fact happened, it turned out, was that the man had paid the woman out and taken an assignment of any entitlement she might have against the administrators.

Anyway, the woman issued a summons in the proceeding to which she was purportedly a party, seeking a stay of the costs order against her, alternatively an order requiring the man or the solicitor to indemnify her against her liability to the administrators under the orders.  She succeeded in her application, but obtained different orders with a similar effect.

The man gave evidence that he assumed it was necessary for the woman to be a party as a technicality.  He swore that when an employee of the solicitor rang him to ask why the woman had not co-signed the costs agreement, he told the employee that the woman had nothing to do with the case, and he did not want to expose her to any liability.  The solicitor’s evidence was different, but he did not cross-examine the man.  The barrister swore that the man had instructed him that the woman was overseas and uncontactable, but that he had her authority to bring the proceedings and provide instructions.

The Court found at [49] that the solicitor should have attempted to contact the woman himself to confirm the instructions.  His Honour concluded:

’61 … Orders for costs have already been made. The starting point is to remedy a serious injustice and wrong done to [the woman]. While the primary responsibility for the wrong must lie at the feet of [the man], it does not stop there. [The solicitor] is not excused. He commenced a proceeding in the name of a party without having first obtained her authority. The evidence establishes that he was put on notice that any assumption he might have made about [the woman’s] agreement to be a plaintiff was questionable. In the circumstances, he should have sought specific instructions from [her].

62 As to [the barrister], he was responsible, in a practical sense, for commencing the proceeding on behalf of [the woman]. He referred the matter to [the solicitor] and prepared the pleading. According to [the solicitor], he had the practical carriage of the matter. I see nothing to distinguish between the position of [the solicitor] and [the barrister], so far as their responsibility for the wrongful commencement and prosecution of a case on behalf of [the woman] is concerned. The history of this case, and their duties as legal practitioners, required [the solicitor and the barrister] to satisfy themselves that [the woman] was a willing plaintiff, aware of her exposure to an order for costs. Both were aware that [her] role in the proceeding, including her absence, had become an issue in the trial; both discussed her role with [the man] and should have been on notice that she may not have given instructions; both failed to make adequate enquiries or speak directly to [the woman] (their purported client) to clarify her position.’

Justice Judd held that it is appropriate to substitute for the wrongly joined party the lawyers who failed properly to get their instructions, and to do so in a summary fashion, without entertaining nice arguments about what would have happened had the party been asked for instructions:

’76 … where there is an existing order the court is not called upon to exercise its discretion to make any order for costs on the application of the defendant. That has already been done. Where the discretion is to be exercised afresh the court will, of course, be required to make some assessment of the significance to the defendants costs of the plaintiffs’ wrongful joinder of the solicitors before making an order for costs in the proceeding against a lawyer. But where there is an existing order, justice may very simply be done by substituting for the wrongly joined plaintiff, those who are responsible for the wrong – those who improperly exposed the plaintiff to the risk of a costs order and allowed that risk to materialise into reality. To adopt such a course recognises the existing order for costs, avoids the prejudicial consequence of that order on the wrongly joined plaintiff and avoids any consequential prejudice to the defendants, who would otherwise be denied an additional party from whom they might recover on the existing order.’

The result was that the solicitor and the barrister were ordered to satisfy the costs order in lieu of their phantom client.  And the costs of sorting out the mess by the woman’s application were to be paid by them and the man on an indemnity basis (providing a rare example of where conduct prior to the litigation as opposed to misconduct within litigation justifies an order for solicitor-client costs).

Exactly what the cause of action was which enabled those orders to be made is unclear from the judgment.  No doubt there was a breach of warranty of authority on the part of the lawyers which was relied on by the defendant administrators.  What the woman’s cause of action was is not particularly clearly articulated.

I have actually seen this once before.  A solicitor who was long known as one of Victoria’s worst, who has since been rubbed out, purported to defend in addition to someone who was truly his client, another defendant.  The defendants lost, my old firm sent the Sheriff around, and the defendant denied any knowledge of the proceeding.  Because the solicitor was such a shonk, she did not have to convince us for long, and we soon became her ally.  There began a very interesting story, but it is not one to recount on the pages of this little newspaper.

Solicitors have been held liable to persons who were ignorant of the solicitors’ existence in similar circumstances, where a husband has fraudulently purported to act as his wife’s agent in instructing the solicitors.  See Graham v Hall [2006] NSWCA 208, posted about here.  Such findings pose problems in that there is no contract between the solicitor and the wife, and can be no reliance by the wife on the solicitor which would ordinarily be necessary in tort.

Lawyers have also been disciplined for commencing proceedings on the instructions of purported agents. See for example Legal Ombudsman v DB [1999] VLPT 6.  The issue also arose in SPB v Law Institute of Victoria [2005] VSC 509.


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