AIB awaits Supreme Court ruling in £3m claim against solicitors

AIB Group will learn next week the outcome of its Supreme Court appeal against a ruling rejecting its bid to recoup an entire £3.3m mortgage loan from solicitors who failed to obtain a first legal charge over the property concerned. Lord Neuberger, Lady Hale, Lord Wilson, Lord Reed and Lord Toulson will give judgment on Wednesday 5 November in the case, in which AIB is appealing against a ruling that, though solicitors Mark Redler & Co were in breach of trust for releasing the mortgage advance without obtaining a first legal charge, it was only entitled to recover £323,501, including interest. The Court will decide whether AIB is entitled to equitable compensation for the whole loan funds following breach of trust by the solicitors, or whether the Court of Appeal was correct to limit AIB’s remedy to the amount of its actual loss. In February, Patten LJ at the Court of Appeal backed a March 2012 High Court ruling that AIB’s loss was restricted to that sum as, had the solicitors obtained the first legal charge, it would only have been £300,000 better off. Dr Ravindra Sondhi and Dr Salma Sondhi applied for the loan in 2006, to be secured against their home, which they claimed was worth £4.5m but subject to an existing mortgage in favour of Barclays Bank securing an outstanding loan of £1.5m. The Sondhis, who ran a number of care homes, sought the loan to provide finance for their business. AIB instructed the solicitors to act for it, but stipulated a requirement that it obtain a first legal mortgage and that existing home mortgages must be redeemed on or before completion. However, the solicitors failed to obtain a proper redemption statement from Barclays and the amount sent to Barclays on completion was not enough to discharge its secured debt. As a result, the solicitors were unable to procure the registration of AIB’s charge because Barclays’ was not discharged. AIB ultimately obtained a second charge in May 2008, but when the Sondhis defaulted on the loan, AIB obtained judgment against them for more than £3.5m and an order for possession of the property. It sold for £1.2m, of which just over £300,000 went to Barclays, and the balance of £867,697 went to AIB. The solicitors accepted they were negligent in failing to secure a first legal charge, but successfully argued that AIB’s loss was limited to the £300,000 in additional security that a first charge would have provided. AIB had argued that the release of the mortgage advance was unauthorised as a result of breach of trust, and that the solicitors were liable to reconstitute the whole sum in its client account. However, Patten LJ ruled that, while the solicitors were in breach of trust in respect of the whole £3.3m mortgage advance, AIB’s loss was limited to the £300,000, plus interest. He said: “If one asks as at the date of trial and with the benefit of hindsight what loss AIB has suffered then the answer is that it has enjoyed less security for its loan than would have been the case had there been no breach of trust.” AIB Group (UK) plc v Mark Redler & Co Solicitors Supreme Court (Lord Neuberger, Lady Hale, Lord Wilson, Lord Reed and Lord Toulson)