AIB Group (UK) Plc v Mark Redler And Co Solicitors PDF

Preview

Summary

Download AIB Group (UK) Plc v Mark Redler And Co Solicitors PDF

Description

AIB Group (UK) Plc v Mark Redler & Co Solicitors, [2015] A.C. 1503 (2014)

For educational use only

*1503 AIB Group (UK) plc v Mark Redler & Co Solicitors Positive/Neutral Judicial Consideration

Court Supreme Court Judgment Date 5 November 2014 Report Citation [2014] UKSC 58 [2015] A.C. 1503

Supreme Court Lord Neuberger of Abbotsbury PSC , Baroness Hale of Richmond DPSC , Lord Wilson , Lord Reed , Lord Toulson JJSC 2014 June 5; Nov 5 Trusts—Trustee—Breach of trust—Re-mortgage of property—Solicitors holding funds on trust for transfer to borrowers and charge to lender on redemption of existing mortgage debt—Solicitors in breach of trust discharging part of existing mortgage debt and releasing remainder of fund to borrowers—Lender suffering loss—Whether obligation to restore trust fund—Whether loss to be compensated by money payment—Measure of equitable compensation—Princip applicable The claimant bank agreed to advance the sum of £3·3m to the borrowers for the re-mortgage of their property, then valued at £4·25m. At that time the property was the subject of a first legal charge in favour of a different bank, (“B”) by which borrowings of approximately £1·5m were secured by a first legal charge on two accounts. It was a condition of the loan that the existing mortgage be redeemed on or before completion. The claimant retained the defendant firm of solicitors and by a letter of instruction, in accordance with the Council of Mortgage Lenders' Handbook, required them on completion, or by an undertaking, to obtain a fully enforceable first legal charge over the property and to secure the redemption of all existing charges in respect of the property. The defendants obtained information from B as to the two accounts but, by a misunderstanding, received a redemption figure in respect of one account only which they took to be the total figure. They discharged that sum, leaving an outstanding indebtedness of £309, 000, and paid out the balance to the borrowers. B refused to release its first charge unless the outstanding debt were paid in full. Initially the defendants failed to inform the claimant of their mistake but when the borrowers failed to pay the debt, B, in negotiations with the claimant, agreed to enter into a deed of postponement enabling the claimant to register a second charge and limiting B's priority to the outstanding amount. Subsequently the borrowers defaulted and B repossessed and sold the property for £1·2m of which the claimant received a sum of approximately £867,697. The claimant, alleging that the defendants had acted in breach of trust and of fiduciary duty, and in breach of contract and with negligence, brought proceedings to recover from the defendants the full amount of the loan, less the amount recovered by the sale, claiming relief by way of reconstitution of the fund paid away in breach of trust and of fiduciary duty, equitable compensation for such breaches and damages for breach of contract and negligence. The defendants accepted that they had acted negligently and in breach of contract but denied the other allegations. The judge concluded that the defendants had acted in breach of trust to the extent that they had released to the borrowers the amount of their outstanding indebtedness to B, leaving a balance of approximately £300,000 due on that account and he awarded the claimant the sum £273,777 by way of equitable compensation. On appeal by both parties, the Court of Appeal concluded that the judge had been wrong to treat the defendants' breach of trust as so limited, that they had had no authority to release any part of the funds advanced by the claimant unless and until they had a redemption statement from B and were sure that

© 2021 Thomson Reuters.

1

AIB Group (UK) Plc v Mark Redler & Co Solicitors, [2015] A.C. 1503 (2014)

they were able, on completion, to register the claimant's first charge as required by their instructions. However, the Court of Appeal upheld the judge's award and, accordingly, allowed the claimant's appeal in part and dismissed that of the defendants. *1504

On the claimant's appeal—

Held , dismissing the appeal, that, where trust property had been misapplied, the principles of equitable compensation required the trustee to restore the trust fund, if still in existence, to the position in which it would have been but for the trustee's breach and, if the trust were no longer subsisting, to pay monetary compensation to the beneficiary on the same basis; that the measure of compensation was to be assessed at the date of the trial, with the benefit of hindsight and on a common sense view of causation so as to establish that the losses had in fact been caused by the breach, but foreseeability of loss was irrelevant; that, although the principles of equity did not differ according to the nature of the trust, the detailed rules relating to equitable compensation developed in respect of traditional trusts were not necessarily applicable to a bare trust arising in the context of a commercial contract; that such a contract defined the parameters of the trust, which was part of the machinery for its performance, and the contractual terms were relevant to the question whether, applying the “but for” test, the loss had in fact been suffered by reason of the breach; that, on the facts of the case, it was artificial and unrealistic to hold that the defendants' conduct had caused a loss to the claimant in respect of their release of advance moneys which they had in any event been instructed to make; that the commercial effect of the ; that, accordingly, the claimant was not entitled to a full restoration of the trust fund; but that, since the loss to the trust estate as a result of the defendants' breach was the monetary value of the difference between the first ranking security and the security postponed to B, the measure of compensation due to the claimant was the sum awarded by the judge, which represented the extent of the equitable compensation to which the claimant was entitled (post, paras 29, 30-32, 36, 63-70, 72-74, 76-77, 78, 86-94, 98-100, 102, 105-108, 110-111, 113, 116, 134-135, 138-142, 143).

Target Holdings Ltd v Redferns [1996] AC 421 , HL(E) applied.

Bristol and West Building Society v Mothew [1998] Ch 1 , CA distinguished.

Per Lord Toulson and Lord Reed JJSC. Equitable compensation and common law damages are remedies based on separate legal obligations. What has to be identified in each case is the content of any relevant obligation and the consequences of the breach (post, paras 76, 136-137).

Decision of the Court of Appeal [2013] EWCA Civ 45; [2013] PNLR 325 affirmed.

The following cases are referred to in the judgments of Lord Toulson and Lord Reed JJSC: Adamson, Ex p; In re Collie (1878) 8 Ch D 807 , CA Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102 Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64; [2011] 1 HKC 357 Amaltal Corpn v Maruha Corpn [2007] NZSC 40; [2007] 3 NZLR 192 Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] Ch 515; [1980] 2 WLR 430; [1980] 1 All ER 139; [1980] 2 All ER 92

© 2021 Thomson Reuters.

2

AIB Group (UK) Plc v Mark Redler & Co Solicitors, [2015] A.C. 1503 (2014)

Breen v Williams (1996) 186 CLR 71 Bristol and West Building Society v Mothew [1998] Ch 1; [1997] 2 WLR 436; [1996] 4 All ER 698 , CA Cadbury Schweppes Inc v FBI Foods Ltd [1999] 1 SCR 142 Caffrey v Darby (1801) 6 Ves 488 Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; 85 DLR (4th) 129 FHR European Ventures LLP v Mankarious [2014] UKSC 45; [2015] AC 250; [2014] 3 WLR 535; [2014] 4 All ER 79; [2014] 2 All ER (Comm) 425; [2014] 2 Lloyd's Rep 471 , SC(E) *1505 Hodgkinson v Simms [1994] 3 SCR 377 Kelly v Cooper [1993] AC 205; [1992] 3 WLR 936 , PC Libertarian Investments Ltd v Hall [2013] HKCFA 93; [2014] 1 HKC 368 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 , HL(Sc) M (K) v M (H) [1992] 3 SCR 6 Magnus v Queensland National Bank (1888) 37 Ch D 466 , CA Maguire v Makaronis (1997) 188 CLR 449 Nocton v Lord Ashburton [1914] AC 932 , HL(E) Pilmer v Duke Group Ltd [2001] HCA 31; 207 CLR 165 Stevens v Premium Real Estate Ltd [2009] NZSC 15; [2009] 2 NZLR 384 Target Holdings Ltd v Redferns [1994] 1 WLR 1089; [1994] 2 All ER 337, CA; [1996] AC 421; [1995] 3 WLR 352; [1995] 3 All ER 785 , HL(E) Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484 The following additional cases were cited in argument: Ata v American Express Bank Ltd The Times, 26 June 1998 , CA Bairstow v Queens Moat Houses plc [2001] EWCA Civ 712; [2001] 2 BCLC 531 , CA Bronson v Hewitt 2013 BCCA 367 Clough v Bond (1838) 3 M & C 490 Collins v Brebner [2000] Lloyd's Rep PN 587 , CA Cross, In re; Harston v Tenison (1882) 20 Ch D 109 , CA Dawson, decd, In re; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 Dunbar Bank plc v Nadeem [1998] 3 All ER 876 , CA Gidman v Barron [2003] EWHC 153 (Ch) Guerin v The Queen [1984] 2 SCR 335; 13 DLR (4th) 321 Holder v Holder [1968] Ch 353; [1968] 2 WLR 237; [1968] 1 All ER 665 , CA Knight v Haynes Duffell, Kentish & Co [2003] EWCA Civ 223 , CA Kubas v Misir 2012 ONSC 4683; 79 ETR (3d) 220 Lloyds TSB Bank plc v Markandan & Uddin [2012] EWCA Civ 65; [2012] 2 All ER 884 , CA Nationwide Building Society v Balmer Radmore [1999] PNLR 606 Nationwide Building Society v Davisons Solicitors [2012] EWCA Civ 1626; [2013] PNLR 188 , CA Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 Potter v Bank of Canada 2007 ONCA 234; 282 DLR (4th) 553 Salmon, In re; Priest v Uppleby (1889) 42 Ch D 351 , CA Santander UK plc v RA Legal Solicitors [2014] EWCA Civ 183; [2014] PNLR 420 , CA Shaw v Applegate [1977] 1 WLR 970; [1978] 1 All ER 123 , CA Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347; [2012] Ch 453; [2011] 3 WLR 1153; [2011] Bus LR 1126; [2011] 4 All ER 335 , CA Solicitor, In re A (unreported) 29 June 1998, DC Strother v 3464920 Canada Inc 2007 SCC 24; [2007] 2 SCR 177 Stuart, In re; Smith v Stuart [1897] 2 Ch 583 Swindle v Harrison [1997] 4 All ER 705 , CA TSB Bank plc v Camfield [1995] 1 WLR 430; [1995] 1 All ER 951 , CA Thompson v Finch (1856) 8 De G M & G 560 APPEAL from the Court of Appeal By a claim form issued on 23 February 2011, and re-amended particulars of claim dated 13 October 2011, the claimant, AIB Group (UK) plc, brought proceedings against the defendants, Mark Redler & Co Solicitors, alleging breach of trust, breach

© 2021 Thomson Reuters.

3

AIB Group (UK) Plc v Mark Redler & Co Solicitors, [2015] A.C. 1503 (2014)

of fiduciary duty, breach of retainer and negligence, and claiming relief by way of (1) reconstitution of the fund paid away in *1506 breach of trust and in breach of fiduciary duty, (2) equitable compensation for breach of trust and breach of fiduciary duty and (3) damages for breach of retainer and negligence, in each case with interest. The defendants, by their re-amended defence dated 12 October 2011, admitted negligence and breach of retainer, but denied allegations of breach of trust and breach of fiduciary duty and, if found to have acted in breach of trust, claimed relief under section 61 of the Trustee Act 1925 . On 23 January and 27 March 2012 Judge David Cooke, sitting at Birmingham District Registry as a judge of the Chancery Division, on the trial of preliminary issues, answered in the affirmative the question whether the defendants had acted in breach of trust in releasing the advance moneys to the borrowers in the circumstances of the case. In respect of the question as to the appropriate remedy, if any, to which the claimant was entitled, the judge made an award in favour of the claimant of equitable compensation in the sum of £273,777.42 together with interest. Both parties appealed with permission of the judge. By an order dated 8 February 2013 the Court of Appeal (Arden, Sullivan and Patten LJJ) [2013] EWCA Civ 45; [2013] PNLR 325 allowed in part the claimant's appeal and, upholding the judge's award to the claimant, dismissed the defendants' appeal. The claimant appealed with permission of the Supreme Court (Lord Neuberger of Abbotsbury PSC, Lord Wilson and Lord Toulson JJSC) granted on 26 July 2013. The issues for the Supreme Court agreed between the parties in their statement of facts and issues were whether (1) the Court of Appeal had been wrong not to order the defendant to reconstitute the trust fund on the basis of the claimant's case that that would restore it to the state in which it would have been but for the defendant's breach of trust; alternatively, it had been wrong in law not to award equitable compensation in a sum equivalent to the entirety of the losses suffered by the claimant on the advance; and (2) in particular, the Court of Appeal had erred because (i) it was sufficient for the clamant to satisfy the “but for” test to prove a proper causal link between the defendant's breach of trust and its obligation to reconstitute the trust fund; and (ii) the other matters which had been taken into account to determine the remedy to which the claimant was entitled were irrelevant. On the hearing of the appeal the court gave the claimant permission also to present submissions relevant to the solicitors' obligations with regard to client moneys, in particular, under the Solicitors' Accounts Rules , as from time to time in force. The facts are stated in the judgment of Lord Toulson JSC. Jeremy Cousins QC, Nicholas Davidson QC and John Brennan (instructed by Moran & Co, Tamworth, ) for the claimant. Subject to relief pursuant to section 61 of the Trustee Act 1925 , the only question relates to the nature and extent of the remedy for the defendants' breach of trust. The defendants assumed a personal obligation to restore to the trust fund the property or its value which was wrongfully transferred, subject only to the obligation to give credit in respect of the moneys they have received to date. The remedy should be a sum representing the difference between the amount wrongfully paid away and the sums recovered. That reflects long-established principles relating to breach of trust. *1507 A trustee is liable to restore to the trust estate whatever property he may have misapplied in breach of trust, so long as the beneficiary has not lost the right to require delivery up of the trust property in specie. Thus until restitution has been made, the default continues because it has not been made good: see In re Dawson, dec'd; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 ; Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] Ch 515 , 543; Caffrey v Darby (1801) 6 Ves 488 ; Clough v Bond (1838) 3 M & C 490 ; Nocton v Lord Ashburton [1914] AC 932 and Target Holdings Ltd v Redferns [1996] AC 421 , 434, 436, per Lord Browne-Wilkinson. From his observations in the Target case, it emerges that, consistently with earlier authority, the obligation to restore the fund continues until ion of the transaction concerned. That approach remains applicable: see Knight v Haynes Duffell, Kentish & Co [2003] EWCA Civ 223 ; Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 All ER 884 ; Nationwide Building Society v Davisons Solicitors [2013] PNLR 188 and Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 . The principle flows from the trustee's duty to account and the beneficiary's concomitant right to falsify the account if trust property has been misapplied in breach of trust: see Libertarian Investments Ltd v Hall [2014] 1 HKC 368 , paras 154, 166-172; Sir Peter Millett, “Equity's Place in the Law of Commerce” (1998) 114 LQR 214, 225-227; Underhill and Hayton, Law of Trusts and Trustees , 18th ed (2010), paras 87.8-87.13; Snells' Equity , 32nd ed (2010), para 30-013 and Lewin, On Trusts , 18th ed (2008), paras 39-012-39-014. That approach is consistent with the Youyang case. The decision in the Target case is to be distinguished from that in the Youyang case on its facts, since the underlying commercial contract, although completed in the Target case, was not completed in the Youyang case, nor was it completed in the present case. Here,

© 2021 Thomson Reuters.

4

AIB Group (UK) Plc v Mark Redler & Co Solicitors, [2015] A.C. 1503 (2014)

It is inconsistent for the Court of Appeal in the present case to accept that completion had not occurred and yet not to adopt the remedy described in the Target case that until the underlying transaction is completed, the solicitor can be required to restore client moneys wrongly paid away. Patten LJ's approach at para 50 substituted the common law test for causation which was expressly rejected in the Target case, and led the inquiry away from the correct question as to whether loss would not have occurred but for the breach. But for the breach, the defendants here would have remained in possession of the fund. That oversight explains why the Court of Appeal fell into error in the following respects: first, the focus should have been on the quantification of the sum necessary to restore to the trust estate the assets misapplied by breach of trust; but the Court of Appeal focused instead on the loss suffered by the claimant as a result of the failure to obtain the security required. Secondly, whereas the focus should have been on the defendants' strict liability to restore to the trust estate any assets which would have remained in it but for the breach of trust, the Court of Appeal instead focused on what might have happened if the breach had not occurred, and what would have happened if the required security had been obtained. *1508 The Court of Appeal was wrong to consider as relevant the trial judge's findings as to what would probably have occurred if the breach of trust had not been committed. The Court of Appeal was also wrong to distinguish the present case from Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 All ER 884 and Nationwide Building Society v Davisons Solicitors [2013] PNLR 188 . What would probably have happened if the breach of trust had not occurred is irrelevant: The opposite conclusion reached by the Court of Appeal wrongly assumed that a trustee is subject to a primary obligation to perform the trust and a secondary obligation to pay equitable compensation if he does not. However, the primary obligation of a trustee is to account for his stewardship. The Court of Appeal therefore wrongly conflated the actual loss suffered by the trust estate as a result of the breach with the hypothetical loss a beneficiary would have suffered if the breach had never been committed, and capped the remedy for the former by reference to the latter. In doing so the Court of Appeal wrongly addressed the question of remedy as if the trustee's obligation was to make reparation for its negligent mismanagement of trust property. [Reference was made to Underhill and Hayton, Law of Trusts and Trustees , paras 87.32-87.39, Bristol and West Building Society v Mothew [1998] Ch 1 and Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 .] The reliance on a substitutive performance claim is not opportunistic. Under the terms of their agreement, the defendants assumed an obligation in equity to act selflessly in the best interests of the claimant. The defendants had accepted that they were only authorised to release the loan when they held sufficient funds to complete the purchase of the property and pay all fees and duties to perfect the security, as a first legal mortgage, and to hold the loan on trust until completion: see clause 10.3 of the terms of Part One of the CML Lenders' Handbook (2005). If the defendants had used their own money or, more realistically, the proceeds of a claim on their insurance policy, to discharge the first charge when the mistake came to light, the underlying transaction would have been completed and the defendants or their insurers would have suffered a loss of £273,777 which, by prompt action, it might have recovered from the borrowers. At the time the mi...