Key takeaways
Warranty of authority
Liability is strict for breach of warranty of authority.
Breach of warranty of authority
This can lead to a wasted costs order.
Recoverable damages
The Court will usually order damages to reflect the costs thrown away by the other party to the proceedings.
There are important lessons to be learnt from warranty of authority cases. In 2025, the Court dealt with a dispute over a shipbroker’s warranty of authority to bind their client: see Shipbroker Authority and Warranty Breach | Hill Dickinson.
This case highlights the importance of solicitors who receive instructions in a new matter to ensure that they are clear from the outset as to the identity of the party or parties on behalf of whom they are instructed. A failure to do so may lead to a breach of their warranty of authority and potentially a wasted costs order against them.
The background facts
In June 2019, there was an alleged collision in the South China Sea between a fishing vessel and a large oil tanker, the Ocean Unicorn. In July 2019, English solicitors, C, sent a letter of claim purportedly on behalf of the fishing vessel owner to the Ocean Unicorn’s P & I Club. The Club assumed C were instructed on behalf of the fishing vessel’s hull and machinery underwriter and instructed solicitors, CJC.
CJC asked for, and received, written confirmation from C that they were acting for both owners and underwriters. Consequently, in September 2019, CJC agreed to English law and jurisdiction and also agreed to security being provided in the form of a letter of undertaking (LOU) in order to avoid arrest.
In November 2019, C repeated that they were instructed by the owner and insurers of the fishing vessel and sought an admission of liability. That was refused. The claim was issued just within limitation on 21 June 2021 and served on 14 October 2021.
In March 2022, CJC applied for an order for security for costs. The order was granted in April 2022, partly because it was understood that the claimant’s insurers, PVI, would be able to meet the order for security. However, the security for costs was not provided and the claim was stayed. The Club contacted PVI directly and was informed by PVI that they had not authorized C to commence legal proceedings on behalf of hull and machinery interests.
CJC sought an explanation from C, who replied in July 2022 that they had received their instructions from a claims and recovery agent in Singapore and had mistakenly believed that they had been instructed on behalf of both the owner and the underwriters. Having inquired further, it appeared that PVI were taking a “wait and see” approach to the claim under the relevant policy and had in fact not instructed C.
The claim remained stayed and the claimant owner was not indemnified under the hull and machinery policy. Further inquiry by CJC revealed that local surveyors had decided there was insufficient evidence to conclude that any collision had occurred, although the Vietnamese Court had upheld the claimant’s claim against PVI to be indemnified under the policy. Further, in those Vietnamese proceedings, the claimant had denied initiating any legal proceedings against the owner of the Ocean Unicorn in any jurisdiction.
Some 16 months later, CJC invited C to discontinue the proceedings. C replied that they were unable to obtain instructions. C subsequently came off the record and CJC applied for the claim to be struck out and for an order for wasted costs against C on the basis that C had never been instructed by PVI and there was a prima facie case they were never instructed by the claimant either. Alternatively, the defendants sought damages for breach of warranty of authority.
The Court found that C had been validly instructed by the claimant but not by PVI. C contended nonetheless that the breach of warranty of authority in this respect had not caused the defendants any loss.
Causation
The evidence of the Club was that there was a prevalence of fraudulent claims relating to alleged collisions with fishing vessels, particularly off China and Vietnam, where the collision could be deliberate and aimed at obtaining a compensation payment, or where a fishing vessel was deliberately scuttled when a large ocean-going vessel was nearby.
As a result, the Club was circumspect in dealing with these cases and would take a different approach depending on whether the claim was brought by the fishing boat owner alone or whether insurers were involved. If only the owner was involved, the Club would generally appoint a local representative who would explore a commercial settlement. If, after investigation, the Club thought the claim was doubtful, it would reject the claim and monitor further developments before engaging further.
If, however, insurers were involved, the Club would take a different approach. This was because (a) insurers have the financial ability to pursue recovery claims usually with the help of experienced maritime lawyers and (b) because the fact that the claim is backed by underwriters usually means that a surveyor appointed by insurers has investigated and taken the view that there is a prima facie claim under the policy.
In such cases, the Club would tend to appoint an international law firm to represent its own interests and take a litigation-oriented approach based on an assessment of the legal and factual merits of the particular case. In this case, because the Club thought that H & M underwriters stood behind the claim, they assumed that the underwriters had cogent evidence leading them to meet their assured’s claim. On that basis, the Club had instructed CJC, agreed to litigate in London and provided security in the form of a LOU. Otherwise, they would have ignored the claim or sought to deal with it locally in Vietnam and dispose of it on a nuisance value basis.
The law
The applicable principles are as follows:
Solicitors who issue proceedings thereby warrant that they have authority to do so.
It is an abuse of process for solicitors to issue proceedings in the name of a person who has not given them authority to do so. If they do not in fact have such authority, they are in breach of warranty and may be liable for the costs of such proceedings.
The liability for acting in breach of warranty is strict. It is not necessary to prove that the solicitor knew or should have known of the want of authority.
If a solicitor has failed to take proper steps to check the source of his instructions, this is likely to be held to be improper and unreasonable even if he acted in good faith throughout.
The usual damages awarded comprise the sum of costs thrown away by the other party on the proceedings.
The wasted costs jurisdiction and the breach of warranty of authority jurisdiction are separate jurisdictions. However, they will almost always lead to the same result.
The Admiralty Court decision
The Court found that the breach of the warranty of authority had caused the defendants to incur unnecessary or wasted costs. The Court accepted the Club’s evidence as to the different approach they would have taken depending on whether or not underwriters were involved.
This was a collision for which there was no contemporaneous evidence, and the Club would have taken a “wait and see” approach had they not believed that underwriters were supporting the claim.
The Court rejected the argument that the “pay to be paid” principle prevented the defendants from maintaining the claim to wasted costs. It was doubtful that principle applied to legal costs paid by a P & I Club to its member's legal representative in order to defend a claim against that member. Furthermore, where an LOU has been given by the Club (as happened here) this was treated as an exception to the general rule. In any event, the Club had a general, implied right of subrogation to claim those costs under ordinary principles. It was also irrelevant to the Club’s rights of subrogation and its direct rights that the defendants were in liquidation.
The Court found that although C had acted in good faith, they had failed to take proper steps to check the source of their instructions. The breach was serious, their explanation was inadequate and, therefore, they should pay the defendants’ wasted costs.
Comment
Shipping lawyers, who will often receive initial instructions through a third party, such as claims and recovery agents, should be particularly careful to check whether the claim has been subrogated and whether they are acting on behalf of the assured only or also on behalf of underwriters.
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