The claimant bank sought damages from the defendant solicitors, saying that they had paid on mortgage advance moneys but failed to deliver as promised and required, a first mortgage over the property purchased. The solicitors had failed to discharge an existing first charge (to Barclays). The parties now disputed whether the sum due to the bank was the entire sum loaned, or only the net sum lost after the sale.
Held: The solicitors had acted in good faith, but in breach of trust.
Prima facie the bank was entitled to reconstitution of the trust fund by repayment of the amount wrongly paid away. As to the bank’s alternative claim for equitable compensation or damages, he said that where the breach consisted of failure to discharge a prior mortgage, with the result that the bank’s interest had been postponed to the Barclays charge, the bank was entitled to equitable compensation for the additional amounts due to Barclays for which Barclays had security in priority to the bank. The solicitors were therefore liable to the bank for the additional amount ultimately obtained by Barclays by reason of its prior security.
The court analysed the breach of trust: ‘ In the present case, . . . what the defendant’s instructions authorised them to do with the funds paid to them was to pay to Barclays (or to its account) such sum as was required to procure a release of its charge, and pay the balance to the borrowers or to their order. Had they complied with their instructions they would have paid (taking all the figures in round terms) andpound;1.5m to Barclays and andpound;1.8m to the borrowers. In the event they paid andpound;1.2m to Barclays and andpound;2.1m to the borrowers. In my judgment, in so doing they committed a breach of trust in so far as payment was made contrary to the authority they had been given.
It does not however in my judgment necessarily follow that the whole of the payment of andpound;3.3m was made in breach of trust. The difference between what the defendant did and what it ought to have done if it had complied with its instructions was the andpound;300,000 that should have been paid to Barclays but was instead paid to the borrowers. That in my judgment was the extent of the breach of trust committed. It was not a breach of trust to pay andpound;1.2m to Barclays; that payment was made as partial performance of the authority and obligation to discharge Barclays’ secured debt. It was not a breach of trust to pay andpound;1.8m to the borrowers, as that was the sum to which they were entitled. The breach consisted of the failure to retain an additional andpound;300,000 and apply that to the discharge of the Barclays debt.’
Judges:
David Cooke HHJ
Citations:
[2012] EWHC 35 (Ch)
Links:
Jurisdiction:
England and Wales
Cited by:
Cited – Cook v The Mortgage Business Plc CA 24-Jan-2012
The land owners sought relief from possession orders made under mortgages given in equity release schemes: ‘If the purchaser raises all or part of the purchase price on mortgage, and then defaults, the issue arises whether the mortgagee’s right to . .
Appeal from – AIB Group (UK) Plc v Mark Redler and Co Solicitors CA 8-Feb-2013
The defendant firm of solicitors had acted for the claimants under instructions to secure a first charge over the secured property. They failed to secure the discharge of the existing first charge, causing losses. AIB asserted breach of trust.
At ChD – AIB Group (UK) Plc v Mark Redler and Co Solicitors SC 5-Nov-2014
Bank not to recover more than its losses
The court was asked as to the remedy available to the appellant bank against the respondent, a firm of solicitors, for breach of the solicitors’ custodial duties in respect of money entrusted to them for the purpose of completing a loan which was to . .
Lists of cited by and citing cases may be incomplete.
Professional Negligence, Torts – Other, Equity, Damages
Updated: 04 October 2022; Ref: scu.450453