Aib Group (UK) Plc v Mark Redler & Company (A Firm)
| Jurisdiction | England & Wales |
| Judge | HHJ David Cooke |
| Judgment Date | 23 January 2012 |
| Neutral Citation | [2012] EWHC 35 (Ch) |
| Docket Number | Case No: 1BM30094 |
| Court | Chancery Division |
| Date | 23 January 2012 |
[2012] EWHC 35 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS
HHJ David Cooke
Case No: 1BM30094
Jeremy Cousins QC and John Brennan (instructed by Moran & Co) for the Claimant
Graeme McPherson QC and Sian Mirchandani (instructed by Mills & Reeve LLP) for the Defendant
Hearing dates: 1–2 November 2011
This is the trial of certain preliminary issues in a claim by the claimant bank ("the Bank" or "AIB") against the defendant solicitors in respect of losses arising from a remortgage transaction. In the barest of outline, the solicitors acted in 2006 for the bank and its borrowers, Drs Sondhi, in connection with a remortgage advance of £3.3m on their home, a substantial property in Surrey valued at the time at £4.25m. Their instructions from the bank included a requirement that the existing mortgage in favour of Barclays Bank be discharged out of the advance. The Barclays charge secured borrowings of about £1.5m on two accounts. On the day of completion, the solicitors telephoned Barclays and were given a redemption figure (approximately £1.23m). They paid that amount to Barclays, and the remainder of the advance to the borrowers order. The solicitors failed to notice that the figure given related to only one of the two accounts and so was insufficient to redeem the Barclays mortgage. It is admitted that they were negligent in this respect. The bank's charge was not registered until almost two years later in April 2008, when it reached agreement with Barclays that it should be registered as a second charge.
The borrowers defaulted on the loan and in July 2010 the bank obtained judgment against them for the then balance of some £3.5m, and an order for possession. The property was sold in March 2011 for £1.2m, from which the bank as second chargee has received £867,697. The borrowers are now bankrupt.
The bank's claim includes a claim that the solicitors acted in breach of trust by paying away the advance, which it is admitted was held as trust money, without obtaining a first charge, and that in consequence they are liable to reconstitute the trust fund of £3.3m with interest, credit being given only for the £867,697 actually recovered, ie a liability of about £2.4m before interest. The solicitors argue that payment was not a breach of trust, or that if it was, their liability is limited to the loss in the value of the bank's security caused by their failure to pay off the whole of Barclays' secured debt, being the amount of about £300,000 paid to Barclays from the sale proceeds.
The preliminary issues that I ordered to be tried, at the invitation of the parties, are:
i) Did the defendant act in breach of trust in releasing the Advance Monies in the circumstances pleaded in paragraph 22 of the Amended Particulars of Claim?
ii) If so, to what remedy, if any, is the Claimant entitled?
Para 22 of the Amended Particulars of Claim is in these terms:
" The release of the Advance Monies in August 2006 was unauthorised. The Defendant was authorised to release the Advance Monies only upon completion of the remortgage which in turn required that there be a first legal charge in favour of the Claimant. The Defendant knew that a charge free from prior mortgages was required. This was provided for in the Certificate."
The Certificate referred to is the certificate of title given by the defendant to the claimant on 31 July 2006, the day before completion (2/674). It is in a standard form reciting particulars of the transaction and concludes by giving "the Certificate of Title set out in the Appendix to Rule 6(3) of the Solicitors Practice Rules 1990 as if the same were set out in full, subject to the limitations contained in it". That in turn reads as follows:
"Except as otherwise disclosed to you in writing…we have investigated title to the property, we are not aware of any other financial charges secured on the property which will affect the property after completion of mortgage and, upon completion of the mortgage, but you and the mortgagor … will have a good and marketable title to the property … free from prior mortgages or charges …which title will be registered with absolute title."
The facts are largely agreed, and I set them out here mainly from the schedule of facts agreed between the parties:
i) The borrowers, Dr Ravindra Sondhi and his wife Dr Salma Sondhi were medical practitioners who also owned, through limited companies, three residential care homes. In 2006 they approached the corporate banking division of the claimant bank for the provision of finance of approximately £20 million to one of their companies with a view to refinancing the existing care homes and funding the acquisition of a further four care homes.
ii) In conjunction with that, they applied to the bank's Solihull branch, which dealt with residential mortgages, for a remortgage of their home with a view to raising funds which they would contribute to the financing of their business.
iii) The borrowers completed an application form dated 28 June 2006, seeking an advance of £3.3 million (bundle reference: 2/563) and stating that the value of the property was £4.5 million with outstanding mortgage of £1.5 million. They named the defendant as the solicitors acting for them in the transaction.
iv) The bank sent a formal letter of offer dated 4 July 2006 (2/607) which set out that the bank required by way of security a "First Legal Mortgage in the Bank's standard form over the Property" and amongst other conditions required that "the Applicant's existing home mortgages (if any) must be redeemed on or before the completion of this… facility".
v) The following day the bank sent a letter to the defendant firm (2/614) instructing it to act for the bank in connection with the facility, enclosing a copy of its facility letter. There is thus no doubt that the defendant was aware that the bank required to obtain a first legal mortgage.
vi) On 22 July 2006, Mr Mark Redler, the defendant's senior partner, met the borrowers. He was told by them at that meeting that the property was charged to Barclays and that their debt to Barclays was approximately £1.5 million. They told him that they wished to complete the remortgage by 31 July, and expressed a great deal of urgency about doing so. Mr Redler obtained from his clients a signed mortgage document in the form provided by the bank, to be held pending completion.
vii) On 28 July, a Friday, Mr Redler sent a letter by fax (2/668) to Barclays asking for a redemption statement as at Monday 31 July, stating that it was hoped to complete the remortgage on that day. Barclays' initial response (2/682) sent on the Monday was to return the letter saying that it could not be acted upon unless a correct mortgage account number was quoted. This may have crossed with a further fax from the defendant on the same date (2/683) repeating the request.
viii) Also on Monday 31 July, the defendant sent the certificate of title in the bank's required form by fax to its securities Department, requesting that the amount of the advance be sent by funds transfer to their client account. The funds were received by the defendant at 13.03 on 1 August.
ix) The second letter to Barclays did produce a response, in the form of a faxed letter dated 31 July but apparently received on Tuesday, 1 August 2006 (1/407). That letter referred to two account numbers, and attached two documents entitled "Mortgage Valuation Statement", one for each account. The letter made clear that these were not redemption statements, saying:
" Thank you for your request for a balance in respect of the above accounts. The amount quoted is an indication of the current balance outstanding at the date you have requested. This may not be the figure required to effect full redemption.
IMPORTANT INFORMATION
THIS IS NOT A REDEMPTION STATEMENT
For a redemption figure to be issued, you must make a request for a Redemption Statement at least three working days before the intended redemption date. Due to the flexible nature of the mortgage and linked accounts, the amount required to redeem is likely to differ from this quotation.
Should your clients wish to redeem the mortgage, please contact us on 0845 607 6603 to request a Redemption Statement. You will need to provide your client's mortgage account number when you call."
(Emphasis and capitalisation in the original). The significance of making clear that the documents were not "redemption statements" would be that the bank would not be bound to release its charge on receipt of the sum stated, for example if some error should be found, or further liability incurred to it by additional borrowing on a flexible account.
x) Mr Redler's evidence was that he asked an employee, Miss Brown, to telephone Barclays and obtain a redemption figure. Miss Brown gave evidence, exhibiting a telephone note she made (1/485) recording that she had spoken to someone called Vicky at Barclays and noting "figure to redeem is £1,235,785.07" with the details of the bank account to which it should be sent. She was unable to say whether she had given any mortgage account numbers to Vicky in this conversation. If she had seen the fax referring to the two accounts, she obviously did not notice that the figure given could only have related to one of them.
xi) In his oral evidence, Mr Redler said that he could only recall seeing one of the pages from the Barclays fax, being the statement relating to the larger of the two accounts. He said that he had telephoned Dr Ravindra Sondhi because the amount was lower than the £1.5 million he had been expecting, and Dr Sondhi had confirmed that it was correct, or at least not told him that it was too low. He could not say why he...
To continue reading
Request your trial
-
AIB Group (UK) Plc v Mark Redler & Company Solicitors
......AIB agreed to provide the re-finance but required security over the Sondhis' home in the form of a first legal charge. . . 3 AIB instructed the defendant firm of solicitors, Mark Redler and Co ("MRC"), to act for it in connection with the remortgage. It supplied the firm with a copy of the facility letter of 4 th July 2006 in which it stipulated the requirement of a "First Legal Mortgage in the Bank's standard form over the Property" and which made it ......
-
AIB Group (UK) Plc v Mark Redler & Company Solicitors
...... 1 140 years after the Judicature Act 1873, the stitching together of equity and the common law continues to cause problems at the seams. The present appeal concerns 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 be secured by a first charge over the borrowers' property. As is customary in such transactions, the solicitors acted for both the bank and the ......
-
Equitable compensation for breach of trust: off Target.
...JSC). (170) Ibid 1515 [5]-[7]. (171) Ibid 1545-6 [140] (Lord Reed JSC). (172) See AIB Group (UK) plc v Mark Redler & Co Solicitors [2012] EWHC 35 (Ch) (23 January 2012). This was summarised in [2013] EWCA Civ 45 (8 February 2013) [10] (Patten (173) AIB Group (UK) plc v Mark Redler &......
-
Concurrent Duties
...by Lord Toulson in AIB.159 On the other hand, it might be that equitable152 This point was made by HHJ David Cooke at first instance ([2012] EWHC 35 (Ch); [2012]PNLR 16 at [30]), and was not discussed on appeal. See, contra, Ho, n 131 above, 216.153 See Lord Toulson’s discussion of the alloc......
-
Remedies for Breach of Trust
...to obtain in this case and the latter is, on [counsel’s] hypothesis, an unauthorisedpurchase’. (AIB Group (UK) Plc vMark Redler & Co [2012] EWHC 35 (Ch); [2012] PNLR 16 at[30]). This argument was not discussed further in the Court of Appeal or Supreme Court.51 See text accompanying n 15 abo......