Professional Liability, Property, Chancery & Commercial, Other Areas of Law
Breach of Trust: AIB Group (UK) plc v Mark Redler & Co

See my earlier post, 13.12.12, on Nationwide v Davisons [2012] EWCA Civ 1626.

The Court of Appeal judgment  in AIB Group (UK) Plc v Mark Redler & Co [2013] EWCA Civ 45 was handed down on 8 February 2013. The court has again taken the opportunity to place a brake on breach of trust arguments in professional negligence claims.

In AIB v Redler the Court of Appeal grappled with two main issues: (1) when does a solicitor’s failure to carry out some part of his retainer expose him to liability for breach of trust; and (2) how should equitable compensation by calculated.

FACTS: H and W applied to AIB for a loan of £3.3m to finances their business. It was to be secured on their marital home which was worth £4.5m and was subject to a mortgage in favour of Barclays of £1.5m. AIB instructed MRC to act on the remortgage and they required that any existing mortgage be redeemed in order for AIB to obtain a first legal mortgage.

Barclays sent a mortgage valuation statement, not a redemption statement. An employee at MRC rang Barclays and was told the redemption figure was £1,235.785.05. MRC queried this with H but he confirmed it was correct. In fact there was another account and the redemption figure was c. £1.5m. MRC received £3.3m from AIB at 12.44 on 1.8.06 and at 2.49 there was a CHAPS transfer to Barclays of £1,235,785.07.

Barclays refused to release its charge because the amount sent was insufficient to discharge the debt. The balance had been paid to H and W. Barclays and AIB entered into a deed of postponement and AIB was permitted to register its charge as a second charge.

AIB’s main claim was for breach of trust and it argued that the fund should be reconstituted, the entirety of the original advance.

MRC accepted its conduct was negligent and unreasonable. For the purposes of the appeal it did not seek to rely on section 61 Trustee Act 1925.

JUDGMENT: (1) MRC argued that it had done everything necessary to achieve completion of the remortgage – searches had been done, priority obtained for AIB, the mortgage deed was executed by H and W and MRC was in receipt of sufficient funds to redeem the Barclays charge. Its failure to send sufficient monies whilst negligent was a post completion event and therefore not a breach of trust. However MRC did not have the redemption statement or a solicitor’s undertaking or unconditional confirmation from Barclays that the advance would be applied to redeem its charge. LJ Patten considered that the trust argument turned on whether there had been completion within the meaning of s. 10.3 of the CML Handbook. He accepted that the construction of s 10.3 in Markandan and Davisons, both cases involved fraud, applied equally to a case of a non-fraudulent remortgage. At paragraph 43 “… the completion of the remortgage transaction required MRC to be in receipt of a solicitors’ undertaking, or unconditional confirmation from Barclays that the advance monies would be applied by it in redemption of its charge, before releasing the advance.”  As completion did not take place MRC parted with trust monies without authority and acted in breach of trust.

It had been argued by AIB that the breach of trust was the release of the funds without obtaining a first legal charge. LJ Patten considered that this was simply a term of the retainer. Curiously had AIB succeeded on its argument it would have been in a better position as a result of the breach of trust than it would have been in had the retainer been discharged properly.

(2) AIB claimed equitable compensation for the entire advance less recoveries on the basis that it was entitled to have the fund reconstituted. As LJ Patten remarked had the remortgage been properly completed and the Barclays charge redeemed AIB would still have been exposed to losses caused by H and W’s default. Whilst the common law rules on causation and foreseeability do not strictly apply the court has “the capacity to recognise what loss the beneficiary had actually suffered from the breach of trust and to base the compensation recoverable on a proper causal connection between the breach and the eventual loss”, paragraph 47.  The court could therefore take a common sense approach and use the benefit of hindsight to calculate the loss. Had MRC complied with its instructions Barclays and not H and W would have been paid an extra £300,000. The sum payable was as calculated by the Judge at first instance, £323,501.38 being £300,000 plus interest.





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