NRD Property Limited v Ewan & Co LLP

Money received into a solicitor’s client account for a client’s benefit is held on trust. Where it is received for a specific purpose, it may be used only for that purpose unless the client gives different instructions. A solicitor who pays away client money without authority commits a breach of trust and must account for it.

The usual remedy is to reconstitute the trust fund and compensate financial loss directly caused by the breach. Foreseeability is not generally relevant, although causation remains necessary. An LLP cannot itself give or be bound by a solicitor’s undertaking under the court’s inherent supervisory jurisdiction, but that does not remove its trust or retainer obligations.

NRD Property Limited claimed against its former solicitors, Ewan & Co LLP, concerning monies received into the firm’s client account in connection with the acquisition and proposed development of the Bed Shop.

NRD alleged unauthorised payments, failure to account, breach of retainer, breach of an undertaking to pay Stamp Duty Land Tax, and forgery of documents used in connection with later borrowing. The defendant did not attend or appear at trial, but NRD remained required to prove its case on the balance of probabilities.

The central issues were whether the monies were held on trust, whether the payments were authorised, whether the firm had breached its retainer and undertaking obligations, and what remedies followed.

1. Disposition. NRD succeeded on its claims for breach of trust concerning the £1.2 million advanced by Katrin Properties Limited and the £1.332 million advanced by Together Commercial Finance Limited. The firm also acted in breach of retainer in relation to the latter refinancing. An account and inquiry were ordered. The claim in deceit was dismissed.
2. Money held in a solicitor’s client account for the benefit of a client is held on trust: [2015] AC 1503. The firm held the Katrin and TCF monies on trust for NRD. Money retained for SDLT and Land Registry fees was held for that specific purpose and could not be used otherwise without NRD’s instructions.
3. The firm had no evidence that NRD or PS authorised payments to Investpek Limited, IDSE or Buckles Solicitors LLP. The payments were therefore unauthorised dissipations of trust money. The firm was liable to account for the relevant sums and to pay equitable compensation.
4. The exchange of emails concerning SDLT and registration created an agreement and, on the facts, an undertaking to retain and use £42,455 for the specified payments. However, an LLP is a separate legal entity and cannot, under the existing statutory framework, give or be bound by a solicitor’s undertaking enforceable under the court’s inherent supervisory jurisdiction: [2021] UKSC 32. That conclusion did not affect the firm’s trust and retainer liabilities.
5. The TCF refinancing was intended to redeem the earlier charge. The firm knew that purpose and had given unconditional undertakings to apply the net advance accordingly. Paying the money elsewhere was both a breach of trust and a breach of retainer.
6. Equitable compensation aims to place the beneficiary in the position it would have occupied absent the breach. It may include financial damage and loss of opportunity directly caused by the breach. Foreseeability is generally irrelevant, but causation remains required: [2015] AC 1503.
7. The evidence did not establish the pleaded deceit claim because no relevant individual representation by the firm was sufficiently identified or proved.

The precise amount payable, including any loss of opportunity and the consequences of related Katrin proceedings, was left for consequential hearings and the account and inquiry.

First-instance decision; no appellate history is stated in the judgment.