ISSUING WITHOUT AUTHORITY: THE DANGERS OF SOLICITORS SIGNING STATEMENTS OF TRUTH: ACTION STRUCK OUT AS AN ABUSE OF PROCESS

This blog has looked, several times, at the dangers of solicitors signing documents which contain a statement of truth. The risks are clearly set out in the decision of Mrs Justice Rose today in Bao Xiang International Garment Centre -v- British Airways PLC [2015] EWC 3071 (Ch).

THE CASE

The claimants issued a claim form on behalf of Bao Xiang and 64,696 other claimants claiming damages arising from an unlawful price-fixing cartel. A solicitor signed the claim form and particulars of claim.  The court found that the solicitors did not have authority to issue proceedings on behalf of the claimants. The claim was struck out on that basis. The judge also found that, if necessary, she would have struck out the action on the grounds of abuse of process.

KEY POINTS

  • It is not always an abuse of process for solicitors to issue proceedings without full authority. There are circumstances where this can be justified.
  • However a solicitor issuing proceedings in these circumstances must be fully transparent about the way in which proceedings have come to be issued.
  • Proceedings issued without authority are not, in themselves, void but are liable to be struck out.
  • It is prudent for every solicitor, thinking of signing a statement of truth on behalf of their client, to read the terms of the Practice Direction to CPR 22 (which are set out below).

THE RULES RELATING TO THE STATEMENT OF TRUTH WHEN SIGNED BY SOLICITORS

  1. The claim form was signed by Boris Bronfentrinker a former partner in the law firm Hausfeld & Co LLP (‘Hausfeld’). He signed under a statement of truth. The significance of a statement of truth is explained in the Practice Direction supplementing the requirement in CPR r 22 for a statement of truth verifying a statement of case, including a claim form:

“3.7 Where a party is legally represented, the legal representative may sign the statement of truth on his behalf. The statement signed by the legal representative will refer to the client’s belief, not his own. In signing he must state the capacity in which he signs and the name of his firm where appropriate.

3.8 Where a legal representative has signed a statement of truth, his signature will be taken by the court as his statement —

(1) that the client on whose behalf he has signed had authorised him to do so,

(2) that before signing he had explained to the client that in signing the statement of truth he would be confirming the client’s belief that the facts stated in the document were true, and

(3) that before signing he had informed the client of the possible consequences to the client if it should subsequently appear that the client did not have an honest belief in the truth of those facts (see rule 32.14).”

  1. On 8 September 2014 the Claimants served Particulars of Claim running to 81 pages and as many pages again in appendices. The Particulars of Claim in these proceedings were also signed under a statement of truth by Mr Bronfentrinker asserting that the Claimants believe that the facts stated in the Particulars of Claim are true. The Particulars aver in paragraphs 1 and 10 that the Claimants were at various dates between at least 1999 and 2007 purchasers in China of air freight services for cargo. In paragraph 11 it is averred that the Claimants transported items on routes from and to one or more starting or final destinations within the EU or EEA and on routes from and/or to starting and final destinations both of which are outside the EU and EEA. In paragraphs 154 onwards of the pleading, the Claimants set out their case on the loss they have suffered. They state that they do not have full records of their purchases of air cargo services but they are able to provide in Annex L particulars relating to purchases on routes between China and the EU. Annex L comprised a table:

THE CLAIM WAS STRUCK OUT FOR LACK OF AUTHORITY

The judge struck the claim out on the grounds that the action had been issued without authority.
  1. In my judgment, none of the 64,697 claimants on whose behalf this claim was brought by Hausfeld has either authorised the bringing of the claim or ratified Hausfeld’s actions in starting the claim on its behalf. I accept the submission of British Airways and the other airlines that in these circumstances, the only possible course for me to take is to strike the whole of the claim out. In Adams and others v Ford and others [2012] EWCA Civ 544 (‘Adams‘), which I discuss in more detail later, Toulson LJ said (emphasis added):
“32. The legal consequence of proceedings being issued without authority is also well established. The proceedings are defective and liable to be struck out on that account, but they are not devoid of legal effect until they are struck out. Moreover, the court is not bound to strike them out if at the time of the strike out application the client on whose behalf the action was commenced wishes it to continue and to accept responsibility for it.”
  1. The evidence before me does not establish that any of these Claimants on whose behalf the action was commenced by Hausfeld wishes it to continue and accepts responsibility for it. The claims must therefore be struck out on the basis of lack of authority.

ABUSE OF PROCESS

The claim was actually struck out for lack of authority. However the judge considered the abuse of process in the alternative.

“Abuse of process
  1. As the matter was fully argued before me, I will go on to consider the airlines’ alternative submissions about abuse of process arising from Hausfeld’s conduct. CPR r 3.4(2) provides:
“The court may strike out a statement of case if it appears to the court –

(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or

(c) that there has been a failure to comply with a rule, practice direction or court order.”

  1. In Hunter v Chief Constable of the West Midlands Police and others [1982] AC 529, 536 Lord Diplock referred to the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.
  2. The most pertinent case to which I was referred is the Adams case referred to earlier. In Adams a claim form was issued in the names of 273 claimants against 19 defendants. The claimants were members of the public who had subscribed to three technology-based investment schemes. The essence of the claim was that these were fraudulent schemes in their creation and in the way that the money paid over by the claimants was disbursed. A partner of the firm of solicitors which had issued the claim had signed a statement of truth that the claimants believed that the facts set out were true and that he was duly authorised by them to sign the statement. Prior to service, the claim form was amended to reduce the number of claimants to 170 and the claim form was served shortly after. Two days before amending the claim form, the solicitors wrote to the solicitors for the defendants explaining the basis for the claim and indicating that the claim had been issued before they had heard back from all the subscribers to the schemes as to whether they wished to pursue a claim. In further correspondence it emerged that some of the original claimants wished to discontinue their claim and that seven of the original claimants had been approached by the solicitors but had not given the firm any clear instructions to act on their behalf. By the time of the hearing of the strike out application at first instance, David Steel J found that the firm had instructions to prosecute the action from 158 complainants.
  3. Although David Steel J accepted that the statement of truth made by the solicitor on the claim form had been untrue in important respects, he declined to strike the claim out, holding that it would be wholly disproportionate to strike out the entire claim on the basis that some of the original claimants had not given the firm instructions. The Court of Appeal upheld the trial judge’s decision. Toulson LJ, with whom Black and Arden LJJ agreed, rejected the submission that the claim was a nullity either entirely or in relation to the claimants who had only authorised the proceedings after the claim form had been issued. He applied the decision in Secunda, holding that the introduction of the procedural rule requiring a statement of truth since the Secunda decision did not distinguish that authority from the case before him. He went on to consider the defendants’ submission that if the solicitors had acted with propriety, the original claim form would have been limited to those who had given authority to the firm to issue the proceedings in their name. He said:
It is unquestionably a sound general proposition that it is a misuse of the process of the court for a law firm to issue proceedings in the name of a person who has not given it authority to do so. There are public interest considerations. It is not in the public interest that a law firm should use the justice system to initiate litigation in a way which amounts to meddling in matters which are not its proper professional concern.”
  1. There were circumstances, Toulson LJ continued, where it would not be abusive to issue proceedings without formal instructions, for example where a limitation deadline loomed and the chairman of a company asked the solicitor to issue proceedings before the company’s constitutional formalities had been completed. There was therefore no categorical rule that the issue of proceedings without valid authority from the claimant must necessarily amount to an abuse of process. Although those facts were far from the facts in Adams, it was necessary to look closely at the relevant facts in their context when considering a question of abuse of process. On the facts of Adams the Court of Appeal held that it would not be right to stigmatise the conduct of the solicitors as ‘officious speculative intermeddlers in a matter in which they had no proper professional interest’.
  2. An important element of the judgments in Adams concerns the emphasis that the Court placed on the need for transparency on the part of the solicitors issuing the proceedings disclosing to the defendants the problems existing with authorisation by the purported claimants. The Court found that in the light of the letter sent by the claimants’ solicitors before service of the claim form, there had been no attempt by the statement of truth to deceive the defendants into thinking that all the claimants had authorised the issue of proceedings. The Court stressed that the question of which clients had or had not instructed the solicitor to bring proceedings was not confidential – the defendants were entitled to know who had authorised the issue of the claim form and who had not. Toulson LJ set out the steps that the solicitors should have taken, making phased statements of truth in respect of claimants as and when they signed up. Arden LJ in Adams also stressed the need for transparency, summing up the judgments given in the case as holding that ‘there are cases where it will be acceptable to start proceedings without authority provided that it is openly done’. There may be justification for issuing proceedings without authority and that must be judged in the light of the circumstances prevailing at the time of the issue of the proceedings.
  3. If I were considering whether to exercise a discretion to strike out the present claim I would undoubtedly consider it was appropriate to strike it out as an abuse of process for the following reasons.
  4. First, the evidence of Hausfeld’s partners as to how the 64,697 claimants were chosen shows that they had no grounds for believing at the time they issued proceedings that any particular claimant had shipped air freight over the relevant period. They were given a list of 64,697 names by CCOIC. The most that Mr Maton is prepared to say in opposition to the strike out application is that the 64,697 names were those that CCOIC had identified on the information available to it at the time ‘as having been potentially affected by the cartel’. This is a very different situation from that in Adamswhere all the claimants bringing proceedings had a valid claim but not all of them wished to pursue it. Hausfeld had been working with CCOIC to identify claimants for several years before proceedings were issued in March 2014. Yet when in January 2015 Slaughter and May queried whether the claimants had shipped any goods by air, CCOIC was able within four months to interrogate its database to discover that only 5,277 of the claimants had shipped freight by air. It was wholly irresponsible of Hausfeld to launch proceedings in the name of tens of thousands of additional claimants when there was no basis for signing a statement of truth in the claim form and in the Particulars of Claim asserting that those claimants had shipped goods by air. Further, this discovery leaves a substantial question mark over Annex L to the Particulars of Claim. The table set out there asserts that the total value of commerce has been estimated from ‘available air freight spend records’ as £7,958,526,473. That figure is not the figure for the loss claimed but purports to be part of the expenditure by the claimants on air freight – that part relating to shipment between China and the EU/EEA. But the figure is intended to send a clear message that the value of the claim is several billions of pounds, even if only a modest overcharge is eventually proven. It is difficult to imagine on what basis Hausfeld could have signed the statement of truth as regards this figure if in fact only 5,277 of the claimants shipped freight by air.
  5. Secondly, Mr Maton’s evidence as to the basis of Hausfeld’s belief that CCOIC was able, as a matter of Chinese law, to authorise them to issue proceedings in the names of the CCOIC members was, in my judgment, wholly inadequate. He says: (emphasis added)
“Following our initial meetings with CCOIC, we sought independent legal advice as to the authority of CCOIC to act on behalf of the Claimants as a matter of Chinese law. We were also provided with numerous documents including the Articles of Association of both CCOIC and CCPIT and a statement from the Fair Trade Division of the Ministry of Commerce of the PRC (‘MOFCOM’) dated 7 April 2013, all confirming CCOIC’s authority to represent its members in legal matters.
  1. Following the service of that evidence, Shearman & Sterling (solicitors for Cargolux) wrote to Hausfeld asking for a copy of the ‘independent legal advice’ as to CCOIC’s authority to act for its members. Hausfeld responded in a letter dated 5 June 2015 that the advice ‘was provided orally and no such written advice was received at the time’.
  2. The evidence relied on by Hausfeld before they abandoned their contention that CCOIC was actually authorised to instruct Hausfeld on behalf of its members was an expert opinion of Professor Donald Clarke of George Washington University Law School. The most pertinent parts of his evidence are that:
i) A ‘genuine although contestable argument exists’ that CCOIC is authorised by statute to act on behalf of the claimants in the litigation by virtue of the Foreign Trade Law of the PRC;

ii) It is possible for a valid agency relationship to be created by tacit consent under Chinese law; he has been unable to find an authoritative answer to the question as to what evidence is required to establish that tacit consent exists but the standard is likely to depend on the ‘preponderance of the evidence’.

iii) Similarly it is possible for an unauthorised act to be ratified by the principal but again, Prof Clarke is unable to find an authoritative answer as to what information must be communicated to the principal in order for the principal validly to consent to the agent acting on its behalf.

  1. It is not clear by whom the oral advice to Hausfeld before the proceedings were launched was given. Even once the written opinion of Prof Clarke was received in April 2015, there was nothing in it that gave Hausfeld any assurance that the CCOIC was empowered to instruct the firm to lodge proceedings in a foreign jurisdiction in the names of many thousands of members who may only have signed up to membership of the organisation in order to apply on-line for a COO.
  2. Thirdly, there was a complete lack of candour on the part of Hausfeld, despite the very clear guidance of the Court of Appeal in Adams as to the proper way for a solicitor to behave when faced with the dilemma Hausfeld thought they were facing. Far from alerting Slaughter and May when issuing or serving the claim form that there were serious difficulties with identifying claimants, Hausfeld served the claim form with no explanations and the false statement of truth was compounded when the Particulars of Claim, including Annex L, was served a few months later. The assertion in correspondence that it was not obliged to disclose details of who had authorised the proceedings is directly contrary to the decision of the Court of Appeal in Adams.
  3. Fourthly, Hausfeld’s attempt to salvage something from the claim by purporting to rely on the returned forms as express ratification of their unauthorised conduct is in my judgment unsuccessful. They must realise that the terms of the letters sent to the Claimants are highly misleading in their description of the nature of the claim and of what is required of claimants in proceedings in this court.
  4. Mr Hughes submitted that British Airways cannot fairly complain about the large number of claims it is facing. That is a result, he says, of the fact that they were involved in a price fixing cartel covering a large geographic area over many years in respect of a service that is supplied to thousands of customers. Mr Coulson’s recent witness statement for Hausfeld stresses the difficulty of obtaining instructions from Chinese companies who are accustomed to personal contact in relation to their business affairs and may not respond to emails or telephone calls. Mr Hughes refers to paragraph 46 of Adams in which Toulson LJ set out the hurdles facing the solicitors in that case in forming ‘a litigation group’ as the only practical way in which the victims of the alleged fraud could hope to obtain redress. I do not regard the position here as analogous to the position in Adams for the reasons I have already set out. The collection of potential claimants in the present case was an exercise instigated by Hausfeld in late 2011, about a year after the EU Commission’s Press Release announcing its finding of infringement by British Airways. They chose to participate in the very extensive programme that Mr Zhang describes aimed at identifying many thousands of claimants rather than focussing on gathering together a more modest litigation group of companies who Hausfeld could with confidence assert had a valid claim. Instead, after more than two years’ work they have not in fact gathered a litigation group together at all for these proceedings. To allow this claim to proceed would, in my judgment, be manifestly unfair to the airlines and would bring the administration of justice into disrepute among right-thinking people. It is an abuse of the process and should be struck out for that reason.”

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