Cherney & Ors v Neuman & Ors

A solicitor’s retainer for conveyancing does not generally include advice on commercial value or price. However, information discovered while carrying out the retainer must be disclosed where it is non-confidential and clearly significant to the client, including information about a substantial vendor’s profit on a back-to-back sale. A solicitor holding client money must obtain proper authority before paying it away. Breach of trust gives rise to a duty to restore loss assessed at judgment, using hindsight and common sense. Reliance on counsel does not excuse a breach where instructions were incomplete or misleading, or where the solicitor failed to consider the matter independently. The claimant must still prove actual loss. A settlement which has provided full value for the underlying claim may defeat recovery against the solicitor, particularly where contribution and indemnity arrangements would make the claim circular.

The claimants alleged that their solicitors had acted negligently, in breach of fiduciary duty and in breach of trust in connection with several London property transactions. The principal disputes concerned disclosure of profits on the purchase of Rose Square, the absence of a declaration of trust for Arlington Street, payments from client accounts, and the solicitors’ knowledge of a £4.5 million side payment to Mr Neuman on the sale of Arlington Street.

During the proceedings, the claimants settled their claims against Mr Neuman and related companies. Mr Neuman’s separate claim against the Firm was dismissed by consent. The remaining issues were the claimants’ claims against the Firm and the Firm’s Part 20 contribution claim against Mr Neuman.

1. Rose Square. The Firm’s retainer covered conveyancing and corporate work, not valuation or commercial advice. Nevertheless, once the Firm knew that the immediate vendor was contractually acquiring the property for £7.2 million and would make a substantial profit, it had a duty to disclose that information. The claim failed because Mr Neuman, acting with actual authority on Mr Cherney’s behalf, was found to have been told of the sub-sale and instructed completion at £8 million. He would alternatively have had ostensible authority.
2. Arlington ownership and trust deed. Arlington Street was acquired for Mr Cherney or an associated entity, not beneficially for Mr Neuman. The Firm had prepared a draft declaration of trust and had sought instructions identifying the beneficiary. In the circumstances, its failure to pursue the matter more actively did not fall below the standard of a reasonably competent solicitor.
3. Side payment and earlier payments. Mr and Mrs Cherney and Mr Batkov were found to have known about and authorised the £4.5 million side payment. The claims concerning the £750,000 payment to Rye Park and the £2 million repayment to Rye Park therefore failed for want of proved loss, although the latter payment was made in breach of trust. The £500,000 payment to Mr Singh was also unauthorised in the strict sense, but caused no recoverable loss apart from a £7 bank charge treated as de minimis.
4. £1.5 million payment. The money paid by Mr Neuman was treated as part of the above-board Arlington proceeds and was held on the Paradiso trusts. Its repayment to Mr Neuman without Paradiso’s authority was a breach of trust and of the Firm’s contractual and tortious duties. Section 61 of the Trustee Act 1925 did not excuse the Firm. Counsel had received materially incomplete and misleading instructions, and the Firm had failed to consider independently whether it should interplead or seek directions.
5. The claims nevertheless failed because the settlement with Mr Neuman and the associated indemnity and contribution arrangements meant that the claimants had not proved a recoverable loss. The action against the Firm and the Firm’s Part 20 claim were dismissed.