Supreme Court decision important in assessment of loss in lenders’ claims for breach of trust

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13 November 2014

Posted by Danielle Best, associate at Weightmans LLP

The decision of the Supreme Court handed down on 5 November 2014 is of great significance to the assessment of loss in lenders’ claims for breach of trust against solicitors and licensed conveyancers and is good news for those defending such claims.

In 2006, AIB Group plc (“the Bank”) agreed to lend £3.3m to Mr and Mrs Sondhi to be secured by way of a first charge over their home (“the Property”).  That sum was subsequently transmitted to Mark Redler & Co Solicitors (“Redler”) for the purpose of discharging a charge held over the Property by Barclays, paying the balance of the money to the Sondhis and obtaining a first charge over the Property.  In error, Redler remitted an amount to Barclays which was around £300,000 less than was required to redeem the first charge and remitted the balance to the Sondhis.  The Bank ultimately secured a second charge in respect of its debt whilst Barclays continued to hold a first charge which it agreed to limit to £273,777.42.  After the Sondhis defaulted on repayments the security was enforced.   The proceeds of sale were insufficient to meet the liability to the Bank which consequently received £273,777.42 less than it would have done had Redler fulfilled its instructions.

The Bank sought to recover the entire £3.3m from Redler, less the amount received on the sale of the Property, claiming breach of trust amongst other things.   Both the court at first instance and the Court of Appeal found that the relief to which the Bank was entitled was £273,777.42.

The Supreme Court has now unanimously agreed that the Bank is only entitled to recover from Redler the amount by which it has suffered loss as a result of the breach of trust, £273,777.42.  In doing so the Supreme Court rejected amongst other things the Bank’s attempt to make Redler “liable for the consequences of the hopeless inadequacy of the security accepted by [the Bank] before Redler’s involvement.”

This case will be of some comfort to solicitors and licensed conveyancers and their insurers when faced with claims of this nature going forward.  The decision makes it clear that they will not be liable to reconstitute an entire trust fund in similar circumstances and instead the courts will look at the losses actually suffered as a result of a breach of trust.

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