AIB Group (UK) v Mark Redler & Co Solicitors [2014] UKSC 58

The Supreme Court has dismissed an appeal made by AIB Group (UK) for further equitable compensation following breach of trust in remortgage transaction.

Mr and Mrs Sondhi, (the Borrowers) were looking to expand their business and took out a £3.3million business loan with AIB. The loan was to be secured by on their private property, which was valued at £4.25million and which was subject to an existing first legal charge in favor of Barclays for £1.5million.

There was therefore a condition on the mortgage offer that any this charge needed to be cleared on or before the mortgage advance in order for AIB to take a first legal charge.

Mark Redler & Co (MRC) acted for AIB and the borrowers on the remortgage and were informed of the existing mortgage, and its amount. Following AIB’s remittance funds to MRC prior to completion, MRC phoned Barclays to request a redemption statement that provided a figure representing only one of the accounts held by the borrowers. Rather than clearing the entirety of the charge, MRC paid the sum quoted in the redemption statement, which was around £300,000 short of the required sum.

Following this, and when Barclays refused to release the first charge on the property, MRC were forced to admit their mistake and entered into a deed of postponement enabling AIB to register a second charge over the property.

The property was later repossessed and sold for £1.2million. Barclays were repaid their outstanding £300,000 and therefore AIB received just below £900,000. They brought proceedings against MRC for negligence, breach of contract, and breach of trust.

It was common ground that MRC’s negligence had caused the shortfall and the courts sought to decide how much AIB were entitled to receive. AIB claimed it was entitled to the full amount lost under breach of trust rules rather than £300,000 that would be the limit of damages awarded in negligence or breach of contract.

At first instance, AIB were only entitled to recover £300,000 on the grounds that their breach of trust only extended to this amount.

On appeal, applying the principle from Target Holdings Limited v Redferns [1996] 1 AC 421 that equitable compensation must be based on a causal connection between breach and loss and therefore the amount was confirmed as £300,000.

AIB brought a further appeal to the Supreme Court. Lord Toulson addressed the court and explained the reasoning behind the final decision. He commented the court deemed it unrealistic to look at the trust as separate from the commercial transaction:

"If the solicitor trustees had done their job properly, they would have paid £300,000 more to Barclays, and the bank would have obtained the first charge over the property instead of a security ranking behind the Barclays charge."

Having already been granted the £300,000 losses from the trust, the appeal was dismissed.

 

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