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Solicitors Negligence; AIB Group (UK) Plc –v- Mark Redler & Co 2012

May 24, 2012

The Defendant’s solicitors acted for the bank, AIB Group and the Borrower as to a re-mortgage of £3.3 million.  The solicitors were to use the mortgage advance to discharge an existing mortgage to Barclays Bank. Unfortunately they failed to repay Barclays the full amount of the mortgage and then paid the surplus to the Borrowers.  There was a shortfall of payments to Barclays of £300,000 and naturally they refused to release their own charge against the property.

The Borrowers failed to refund the money incorrectly paid to them. The property was later sold.  From the proceeds of sale, Barclays received their £300,000 and the balance of £867,000 was paid to AIB.  The advance being £3 million.

The Claimant issued a solicitors negligence claim against the Defendant.They alleged that the Defendant acted in breach of trust by paying the £3.3 million advance without obtaining a first charge and were therefore liable to reconstitute the trust fund of £3.3 million with interest.

The Claimant argued that the payment of the advance was not a breach but if it was, liability was limited to £300,000, the amount overpaid to the borrowers from the mortgage advance.

Where a trustee is in breach of trust by failing to comply with the terms of the trust or the trustee’s fiduciary duty, the trustee has a personal liability to reconstitute the trust fund by making specific restitution, or by paying equitable compensation for all losses that would not have occurred but for the breach of trust.

It was the Court’s view that the loss AIB suffered was a result of a fall in the property market or an incorrect valuation of the property.  The Court held that solicitors had been in breach of trust by paying £300,000 to the Borrowers which should have been paid to Barclays. The remainder however being paid out was not being paid out in breach of trust and these fell within the authorities given by the bank to the solicitors to pay out the mortgage advance.

It is clear that the Courts are not going to protect the banks from their lending decisions.  As the Judge said if AIB had successfully recovered the whole of the £3.3 million Trust Fund it would have represented;

“A fortuitous recovery in respect of the bank’s own unfortunate lending decision”.

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