High Court: Compensatory damages to be determined
A law firm paid away £2.5m in client monies without instruction and also forged its client’s signature on multiple documents, the High Court has decided.
Master Kaye, sitting as a deputy High Court judge, found that now-defunct Ewan & Co acted in breach of trust and breach of retainer in connection with NRD Property’s acquisition, development and financing of a property in Kent.
It has to account for the £2.5m wrongly dissipated to third parties, including money that was meant to redeem a charge. Nearly half of the money was received before NRD was a client but Ewan & Co was holding it on constructive trust.
Ewan & Co will also have to be pay an as-yet undetermined sum in compensatory damages after the judge held that, but for what the law firm did, NRD would have been able to secure development finance to build out the property for profit.
NRD, owned by a Paul Smith (PS), was a special purpose vehicle for the development of the property.
Ewan & Co operated from offices in Essex and North London, and ceased trading in October 2021. Having been denied an adjournment on the eve of the trial, it did not attend and was not represented, which the judge said “appeared to be a choice”.
The firm did not disclose a single document to support its defence that the payments were authorised by or on behalf of NRD, which Master Kaye rejected.
She also held that various documents had been falsified and Mr Smith’s signature was forged on some.
“At least” two two fee-earners at the firm were involved in the creation and execution of the majority of those documents “to conceal the fact or delay discovery of the fact” that an earlier charge had not been redeemed.
The explanation for the absence of paperwork was that the firm had access only to senior partner Charles Ewan’s laptop, “where electronic items belonging to other staff members were either not accessible or have been discarded since the firm’s closure several years ago”.
Master Kaye said that, if this were true, then it suggested “a significant failure” to comply with Solicitors Regulation Authority rules. In any event, there was evidence that appeared to undermine this explanation.
“Although this claim was not issued until 2024, the dispute had emerged in March 2020. The firm were on notice from at least 5 June 2020. This was before the firm closed for new business in October 2021.
“In those circumstances one might have expected the firm to have taken steps to ensure all the files and documents electronic or hard copy relating to the matters in issue were preserved.
“A further concern about the firm’s very limited disclosure is that the underlying searches appeared to have been undertaken by Mr Ewan himself.”
Master Kaye recorded that in January this year, nearly four years after NRD complained to the SRA, the regulator issued a disciplinary notice to Mr Ewan and that it awaited his response.
In his witness statement, Mr Ewan said he was not the fee-earner on the matter or have any oversight of it – he was not one of the two fee-earners identified by the judge as falsifying documents.
“Mr Ewan’s witness statement was based on a combination of speculation and double, triple or even more remote hearsay,” the judge said.
“When setting out the hearsay evidence, Mr Ewan did not identify the individual who was the source of the hearsay nor the individual from whom that individual had sourced the information. Indeed for the most part he was unable to and did not even set out the information at all.”
Mr Ewan signed as the witness to Mr Smith’s signature on two charges and a personal guarantee but the firm admitted that he did not witness Mr Smith’s signature in person in respect of two of the documents.
“Mr Ewan confirmed in a witness statement dated 1 March 2023 that he had not met PS even though the defence is more equivocal,” said Master Kaye. “PS does not believe he has met Mr Ewan.”
NRD also claimed that Ewan & Co failed to comply with an undertaking to pay £42,000 in stamp duty land tax in relation to the acquisition of the property, and sought that it pay the money and any penalties.
However, as Ewan & Co was an LLP, by law it could not give nor be bound by a solicitor’s undertaking.
The judge said: “That does not affect the firm’s obligation to account and to pay compensatory damages by way of equitable compensation in respect of the sums it received and held on trust for the benefit of NRD whether generally or for a specific purpose.”
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