AIB Group (UK) Plc v Mark Redler & Co Solicitors

Summary

Michaelmas Term
[2014] UKSC 58
On appeal from: [2013] EWCA Civ 45

JUDGMENT

AIB Group (UK) Plc (Appellant)

Mark Redler & Co Solicitors (Respondent)

before

Lord Neuberger
Lady Hale
Lord Wilson
Lord Reed
Lord Toulson

JUDGMENT GIVEN ON

Heard on 5 June 2014

Appellant
Jeremy Cousins QC
Nicholas Davidson QC
John Brennan
(Instructed by Moran & Co, Tamworth)

Respondent
Graeme McPherson QC
Sian Mirchandani
Nicole Sandells
(Instructed by Mills and Reeve LLP)

LORD TOULSON

Introduction

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 borrowers.

Facts

In June 2006 Mr and Mrs Sondhi applied to borrow £3.3m from the appellant ("the bank"). The loan was to be secured by a first legal charge over the borrowers' home, which had been valued at £4.25m. The property was at that time the subject of a first legal charge in favour of Barclays Bank plc ("Barclays"). The Barclays charge secured borrowings on two accounts amounting to about £1.5m.

The bank agreed to the borrowers' proposal and made a formal offer on terms which included a condition that the existing mortgage was to be redeemed on or before completion of the mortgage advance. The bank retained the respondents ("the solicitors") to act for it by a letter of instruction dated 5 July 2006.

The letter of instruction stated that the solicitors were instructed in accordance with Council of Mortgage Lenders' ("CML") Handbook for England and Wales, 2^nd edition. The handbook stated among other things that on completion the mortgage lender required a fully enforceable first charge over the property by way of legal mortgage, and that all existing charges must be redeemed on or before completion. The handbook also stated:

"You must hold the loan on trust for us until completion. If completion is delayed, you must return it to us when and how we tell you".

The letter of instruction included copies of the bank's offer to the borrowers and its conditions of offer.

The solicitors were told by the borrowers that the property was mortgaged to Barclays. On 31 July Barclays provided them with information about the two accounts, which showed the total balance due as a little over £1.5m, but this was not a redemption statement. Meanwhile the solicitors asked the bank to forward the funds because completion was imminent. The bank did so on 1 August, and the solicitors telephoned Barclays for a redemption figure. Unfortunately there was then a misunderstanding. The solicitors were given a redemption figure for one of the two…