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*680 Danish Mercantile Co. Ld. and Others v Beaumont and

Another.

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Court of Appeal

4 April 1951

[1950 D. 659.]

[1951] Ch. 680Jenkins and Hodson , L.JJ.

1951 Apr. 4.

Practice—Application to strike out name of plaintiff company—Adoption of proceedings by liquidator—Effect.

Where proceedings are started in the name of a plaintiff without proper authority, so long as the matter rests there, the action is not properly constituted. In that sense it is a nullity and can be stayed at any time, provided that the aggrieved defendant does not unduly delay his application. It is, however, open at any time to the purported plaintiff to ratify the act of the solicitor who started the action, and to adopt the proceedings. When that has been done, then, in accordance with the ordinary law of principal and agent, and in accordance with the ordinary doctrine of ratification, the

defect in the proceedings as ordinary constituted is cured, and it is no longer open to the defendant to object that the proceedings then ratified and adopted were in the first instance brought without proper authority.

Reynolds v. Howell (1873) L. R. 8 Q. B. 398 ; London and Blackwall Ry. Co. v. Cross (1885) 31 Ch. D. 354 , and Adams v. London Improved Motor Coach Builders Ld. [1921] 1 K. B. 495 considered. *681

APPEAL from Roxburgh, J.

The first plaintiffs, Danish Mercantile Co. Ld., were incorporated on April 30, 1949, with a share capital of 2,000l. owned and controlled in equal proportions by one Sheridan, a British subject, and one Hoyer, a Danish subject, who were the only directors. The company was formed to import and sell in this country agricultural machinery manufactured in Denmark. The machinery was made by a Danish manufacturing company called Mads Amby, sold to a Danish firm called Daneco, in which Hoyer was interested, and resold by Daneco to the plaintiff company.

By a managing director's agreement dated May 4, 1949, between the company, Hoyer and Sheridan the latter was given wide powers of management. The agreement included a provision that "Mr. Sheridan shall manage and conduct the affairs of the company as he in his sole discretion shall think fit", and a further provision that each of the parties thereto agreed and undertook "to do all acts and things and execute all documents necessary to carry this agreement into effect".

After the business of the company had been carried on for a year, disputes arose, with the result that the supply of machinery from Denmark was discontinued and other arrangements were made by Hoyer or his interests in Denmark for its marketing.

In reliance on his managing director's agreement, Sheridan instructed solicitors to start this action in the name of the plaintiff company. The action was approved neither by the company in general meeting nor by the board of directors before it was started.

The writ was issued on March 31, 1950. Interlocutory proceedings were taken and an interim injunction was granted in the action in April. In the course of the hearing of that motion, counsel for the defendants referred to the possibility of their contending that the proceedings had been brought without the authority of the company. The defendants were alive to that matter at that stage. On June 23, 1950, a petition was presented for the winding up of the company, and the usual compulsory winding-up order was made on November 4, 1950. The liquidator then appointed adopted the action.

On February 19, 1951, the defendants applied by motion to strike out the name of the company as plaintiff. Roxburgh, J., dismissed the motion, on the ground that the liquidator of the company had ratified the bringing of the action. The defendants appealed. *682

Shelley K.C. , and H. E. Francis for the defendants. This is an application to strike out the name of the company as plaintiff on the ground that the company was joined as plaintiff without its consent. The action was accordingly a nullity and it is not open to the liquidator of the company to adopt it. [They referred to Keighley, Maxted & Co. v. Durant 1 ; Adams v. London Improved Motor Coach Builders Ld. 2 ; In re Lord E. Fitzgerald 3 , and London and Blackwall Railway Co. v. Cross 4 .]

Aldous , for the plaintiff company, was not called on to argue.

JENKINS, L.J.

Where an action is brought without the authority of the purported plaintiff it is, of course, well settled that the solicitor on the record for the purported plaintiff becomes personally liable to the defendants for the costs of the action.

[His Lordship stated the facts, and continued:] The grounds on which the present motion, which was launched on February 19, 1951, was opposed before the judge were these: first, reliance was placed on Sheridan's managing director's agreement of May 4, 1949. I will say no more about that agreement, because I am proceeding on the assumption that it was not effective to give Sheridan authority.

Secondly, it was said that a motion of this nature must be launched without delay and that there was such a delay in the present case as put the defendants out of court. The judge was much impressed by the facts adduced in support of that argument; but, for reasons which will appear, speaking for myself I find it unnecessary to decide whether, if the defendants had otherwise been able to make out a case of want of authority, they would have been shut out from pursuing this remedy on account of their delay, though I am far from saying that the judge was wrong in the conclusion at which he arrived on that aspect of the case. I am merely saying that I find it unnecessary to deal with that question one way or the other.

Thirdly, it is said that, even if it is conceded for the purposes of argument that the proceedings were in the first instance brought without authority, the liquidator in fact adopted the proceedings on behalf of the company and thus cured the original defect, on the ground that such a ratification relates back and cures the want of authority in the original act of the purported agent, just as in any other case of ratification. The judge *683decided that point in favour of the plaintiffs and in my judgment he was clearly right in doing so. Mr. Shelley, while not disputing the purported adoption of the proceedings by the liquidator, has addressed to us a careful argument designed to show that, where an action is brought without the authority of the purported plaintiff, the action is an utter and complete nullity, so that no amount of subsequent ratification can cure the defect; and he has referred us to a number of authorities which in his submission support the conclusion.

Of the cases on which he relied, the first was Adams v. London Improved Motor Coach Builders Ld. 5 , which he cited for some observations of Atkin, L.J., who said: "I should like to point out that it seems to follow that, if the defendants had been successful in their contention that there was no employment by the plaintiff of the solicitors, the result would be that the action would be a nullity; it would be brought in the name of a plaintiff who had given no authority to bring an action for him; and the defendants would have the right to have the proceedings stayed, and I presume to have the usual order that the solicitors pay the costs of both parties. That is an application that can be made equally by the defendant or by the plaintiff: see Geilinger v. Gibbs 6 ; Cape Breton Company v. Fenn 7 . I do not stop to discuss those cases, but it seems to me to follow from

the fact of the action being brought without the authority of the plaintiff that it is, so far as the defendants are concerned, a nullity".

Next is In re Fitzgerald (Lord) 8 , in bankruptcy, where the proceedings were brought in the name of the Official Receiver without his authority. A trustee in bankruptcy was subsequently appointed and he instructed the solicitors who had launched the proceedings to continue them in his name. The Official Receiver later pointed out that he had never authorized the proceedings, and the person against whom the proceedings were brought thereupon applied for a stay of all proceedings under the motion and asked that it might be dismissed as having been launched and maintained without the consent of the Official Receiver. Horridge, J., decided that the motion must be dismissed and that the solicitors must pay the opposite party's costs of the motion and of the application to stay the proceedings as between party and party, and also the solicitor-and-client costs of the Official Receiver. *684 Mr. Shelley placed some reliance on that case, because it is to be observed that the proceedings were stayed, even although the trustee wanted to carry them on; but that affords no true parallel to the present case, because the Official Receiver had never at any time authorized the proceedings. The question in the present case is a question between the company and the defendants, and the question is whether the company has effectively adopted the proceedings brought in its name. It is not a case where some successor of the original plaintiff, the original plaintiff never having authorized the proceedings, seeks to adopt and carry them on. There is no change of party in the present case. Therefore, I cannot regard that case as supporting Mr. Shelley's contention that the institution of the action without authority is a matter which admits of no subsequent ratification by the party made plaintiff.

The headnote to the report of Reynolds v. Howell 9states: "Where an attorney brings an action without the authority of the plaintiff, the plaintiff is entitled to have the proceedings stayed without payment of costs". The question was whether the proceedings could be stayed unconditionally or stayed only on terms as to the costs. I think that the passage upon which Mr. Shelley principally relied was that where Blackburn, J., said 10 : "How can we say that we ought to impose terms on staying these proceedings, which, if the action went on further, would be a nullity?". It is to be observed that there,

again, appears the expression "a nullity", which was used by Atkin, L.J., in Adams' case 11 . Mr. Shelley seeks to support his argument by stretching the word "nullity" to its fullest extent, so as to mean absolutely void ab initio without any possibility of subsequent validation; but I think that the most significant part of the judgment of Blackburn, J., in this case of Reynolds v. Howell 12 is to be found at the end of his judgment, in the passage to which Hodson, L.J., called attention in the course of the argument, where his Lordship said 13 : "In this case, as the action was brought without authority, on the authority of Robson v. Eaton 14 , the plaintiffs are entitled to have the action stayed, and without payment of costs. I may add that, in my opinion, if a plaintiff after action brought in his name by an attorney without authority hears of it, and does not repudiate it, he will be supposed to have ratified the*685 attorney's act". That passage seems to me to show clearly that, in the view of Blackburn, J., it was possible for a plaintiff to ratify the act of an attorney or solicitor in bringing an action in the name of that plaintiff without previously obtaining that plaintiff's authority so to do.

Lastly, Mr. Shelley referred to London and Blackwall Railway Co. v. Cross 15 , when the case was before the Court of Appeal. The question in that case was whether the injunction could be granted to restrain the unauthorized use of the complainant's name in certain other proceedings and, reversing the judgment of Chitty, J., it was held in this court that that was not a permissible remedy. In the course of the judgments, a distinction was drawn between an application of that kind and an application of the kind which is now before this court; that is to say, an application in an action to stay the proceedings or strike out the plaintiffs on the ground that the proceedings were brought without the plaintiffs' authority. Lindley, L.J., said 16 : "He" - that is, Chitty, J. - "put it on this ground, that Mr. Cross was proceeding without authority, and that therefore there was jurisdiction to restrain him from using the names of his alleged principals, and he referred to the doctrine that if an action is brought by a person without authority it can be stopped. That is no doubt, quite true, but upon what principle is that done? It is upon the principle that the court can control the proceedings before itself, and if a person without authority is bringing an action in the name of another it is an abuse of the process of the court, and the court can stop it".

Then Fry, L.J., said 17 in the same context: "In that class of cases the court stays the proceedings because it finds that there has been an abuse of its own process, and because it has a duty to keep its records truthful and prevent proceedings taken before it from being other than what they are represented to be". Then he contrasted that with the question of granting an injunction, which he said, the court had no general jurisdiction to do in certain cases.

Lopes, L.J., said, to the same effect 18 : "It does not appear to me that the analogy is correct, for there the court would strike out the name of the plaintiff or defendant, or stay the proceedings, as the case might be, on the ground that it had full authority to prevent any abuse of its own proceedings" *686

I find nothing in any of those cases to constrain me to hold that the issue of a writ and the commencing of an action with the authority of the purported plaintiff is a matter which admits of no validation by subsequent ratification of the act of the solicitor concerned. So to hold would be to introduce, as I see it, an entirely novel doctrine into the ordinary law of principal and agent and to make a new exception to the general rule that every ratification relates back and is deemed equivalent to an antecedent authority.

In the absence of any decision compelling me to do so, I, speaking for myself, decline so to hold. I agree with what was said by Roxburgh, J., and I think that he rightly took the view that to accede to Mr. Shelley's contention would be inconsistent with the authorities in which questions of this kind have arisen, particularly in relation to companies. I would refer to the passage in Buckley on the Companies Acts (12th ed.), p. 169, where the relevant law is, in my view, correctly summarized. The passage occurs in the course of a discussion on the circumstances in which a company's name can be used as plaintiff in an action and exceptions to the general rule that a company is the only proper plaintiff in respect of a wrong done to the company, a discussion, in short, of the aspect of company law related to what is commonly called the rule in Foss v. Harbottle 19 .

The relevant passage (in Buckley) for the present purpose is in these terms: "(6) If the case be one in which the company ought to be plaintiff, the fact that the seal is in the possession of the adverse party will not necessarily preclude the intending plaintiffs from using

the company's name. Neither will it be necessary to obtain the resolution of a general meeting in favour of the action before the writ is issued. In many cases the delay might amount to a denial of justice. In a case of urgency, the intending plaintiffs may use the company's name at their peril, and subject to their being able to show that they have the support of the majority. In an action so constituted, the court may give interlocutory relief, taking care that a meeting be called at the earliest possible date to determine whether the action really has the support of the majority or not".

That passage, where it refers to the calling of a meeting, accords with the well-settled practice of the court in case in *687 which, in proceedings brought by a company, a dispute arises as to the authority with which the company's name has been used as plaintiff. It is common practice in such cases to adjourn any motion brought to strike out the company's name, with a view to a meeting being called to see whether the company desires the action to be brought or not. At first sight, that procedure is wholly inconsistent with Mr. Shelley's contention that an action brought without authority is a nullity which cannot be validated by ratification, as it would be entirely idle, if Mr. Shelley is right, to hold such a meeting at all. But Mr. Shelley seeks to extricate himself from that difficulty by an argument on these lines. He admits that it is the practice of the court in such cases to direct a meeting to be held; but the meeting is called, not to find out whether the corporators desire the action to proceed at the date of the meeting, but to find out whether, at the date on which the writ was issued, the corporators, if consulted on the matter, would have agreed to the action being brought.

That seems to me to introduce a wholly impracticable refinement into this branch of the law. If Mr. Shelley's argument is right, then, for example, if shares had changed hands between the date when the writ was issued and the date when the meeting was held to decide whether the action was to proceed or not, such meeting, on the face of it, would be quite idle, because the only people whose views could be relevant in the matter would be those people who held the shares at the date when the action was brought. I can see really no justification at all for so understanding the law as summarized, correctly in my view, in the passage I have quoted from Buckley.

I think that the true position is simply that a solicitor who starts proceedings in the name of a company without verifying whether he has proper authority so to do, or under an erroneous assumption as to the authority, does so at his own peril, and that, so long as the matter rests there, the action is not properly constituted. In that sense, it is a nullity and can be stayed at any time, provided that the aggrieved defendant does not unduly delay his application; but it is open at any time to the purported plaintiff to ratify the act of the solicitor who started the action to adopt the proceedings, to approve all that has been done in the past, and to instruct the solicitor to continue the action. When that has been done, then, in accordance with the ordinary law of principal and agent and in accordance with the ordinary doctrine of ratification, in my view, the defect in the proceedings as originally constituted is cured; and it, is no longer open to the*688 defendant to object on the ground that the proceedings thus ratified and adopted were, in the first instance, brought without proper authority.

For these reasons I am of the opinion that Roxburgh, J., came to a right conclusion, and that this appeal fails and should be dismissed.

HODSON, L.J.

I am prepared to assume, as did my Lord and the judge, that the proceedings were instituted without authority, because no argument has been addressed to this court on the effect of the agreement of May, 1949. Similarly, I do not propose to say anything about the question whether the defendants are disabled by reason of the delay which has taken place, for the simple reason that Mr. Shelley has not been called upon to argue upon that point. I, like my Lord, would rest my judgment on the presence of ratification. If the law is correctly set out in the passage of Buckley on the Companies Acts (12th ed.), p. 169, to which my Lord has referred, this case is not in essence different from the ordinary case in which someone, acting on behalf of the company or purporting to act on behalf of the company, issues a writ at his peril and subsequently obtains the necessary support of the company to that action. In my view, it is impossible to argue that proceedings instituted without authority are, in the technical sense of the word, a nullity; and the cases referred to on that page of Buckley indicate the contrary.

Mr. Shelley, however, has founded an argument particularly on two cases in which the word "nullity" was used. In the first case, Adams v. London Improved Motor Coach Builders 20 the question was whether a plaintiff who had given no written retainer to his solicitors was entitled to judgment in the action against the defendant with costs; and it was in that case that Atkin, L.J., said21 : "if the defendants had been successful in their contention that there was no employment by the plaintiff of the solicitors, the result would be that the action would be a nullity; it would be brought in the name of a plaintiff who had given no authority to bring an action for him; and the defendants would have the right to have the proceedings stayed, and I presume to have the usual order that the solicitors pay the costs of both parties". The Lord Justice was clearly applying himself to the case before him and not considering whether the proceedings would be, in a technical sense, a nullity, *689 because, if there was really a nullity, there would be nothing to stay.

The same observation applies to Reynolds v. Howell 22 , where Blackburn, J., said: "How can we say that we ought to impose terms on staying these proceedings, which, if the action went on further, would be a nullity?". That he did not regard the proceedings as, in the technical sense of the word, a nullity is clear from the final passage in his judgment, in which he expressly adverted to the possibility of ratification of the attorney's act by the plaintiff after action brought. Mr. Shelley sought to confine that observation to the relationship between the plaintiff and his solicitor, as opposed to the relationship between the plaintiff and the defendants. I do not think that the observation can be properly so confined, and I see no difficulty in Roxburgh, J.'s view, which I think is perfectly correct, that the act of the liquidator in this case has been sufficient to ratify such defect, if any, as previously existed.

For these reasons as well as for those given by my Lord, I agree that this appeal fails.

Representation

Solicitors: Payne, Hicks Beach & Co. ; Osmond, Bard & Westbrook .

Appeal dismissed. (B. A. B. )

1. [1901] A. C. 240 .

2. [1921] 1 K. B. 495 .

3. (1914) 112 L. T. 86 .

4. (1885) 31 Ch. D. 352 .

5. [1921] 1 K. B. 495 , 503.

6. [1897] 1 Ch. 479 .

7. (1881) 17 Ch. D. 198 .

8. 112 L. T. 86 .

9. (1873) L. R. 8 Q. B. 398 .

10. Ibid. 399.

11. [1921] 1 K. B. 495 .

12. L. R. 8 Q. B. 398 .

13. Ibid. 400.

14. (1785) 1 T. R. 62 .

15. 31 Ch. D. 354 .

16. Ibid. 370.

17. Ibid. 371.

18. Ibid. 373.

19. (1843) 2 Hare 461

20. [1921] 1 K. B. 495 .

21. Ibid. 503.

22. L. R. 8 Q. B. 398 , 399.

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