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Equitable Compensation: AIB v Mark Redler in the Supreme Court

On 5 June 2014 the Supreme Court heard the appeal in AIB v Mark Redler. (Lord Neuberger, Lady Hale, Lord Wilson, Lord Reed, Lord Toulson)

AIB v Mark Redler [2013] EWCA Civ 45 is often wrongly categorised as one of the recent spate of section 61 relief cases. It was a breach of trust case and although section 61 was pleaded in the defence it was not pursued. The solicitors accepted that they had been both negligent and unreasonable. No fraud was involved. 

The solicitors acted for the borrowers and the bank in connection with a remortgage transaction of £3.3m. The bank required that the existing mortgage in favour of Barclays be discharged from the advance. The Barclays’ charge secured borrowings on two accounts. The solicitors obtained a figure to discharge the mortgage but failed to notice that it only related to one account. They paid £1.23 million to Barclays and the rest of the advance was paid to the borrowers. A further £300,000 should have been paid to Barclays. They borrowers defaulted. AIB’s charge was only registered two years later and as a second charge behind that of Barclays.

HHJ Cooke determined two preliminary issues at trial: did the solicitors act in breach of trust by releasing the advance monies before obtaining a first charge; and if so, what remedy was the bank entitled to?

He found that there was a breach of trust and that the proper measure of equitable compensation was the amount paid by the bank to discharge the Barclays mortgage when the property was sold, £300,000 and interest.

AIB argued in the Court of Appeal that they were entitled to have the entire trust fund reconstituted less recoveries, i.e. the position it was in immediately before the breach occurred. LJ Patten considered that then equitable principles of compensation “have the capacity to recognise what loss the beneficiary has actually suffered from the breach of trust and to base the compensation recoverable on a proper casual connection between the breach and the eventual loss.” The Judge’s order in relation to the amount of compensation was affirmed.

The Supreme Court has been asked to determine whether AIB is entitled to equitable compensation for the whole loan or whether the Court of Appeal’s analysis limiting the remedy to the amount of the bank’s actual loss was correct.

We await the judgment with interest.

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