AIB Group (UK) plc v Mark Redler & Co
A trustee who misapplies trust money is liable for the loss caused by the breach, assessed with hindsight, and not for the whole sum misapplied.
Facts
AIB lent £3.3 million to borrowers to refinance their home, on the security of a first charge. The loan money was held on trust by the borrowers' solicitors, Mark Redler, who were instructed to pay off the existing mortgage with Barclays, so that AIB would have a first charge. By mistake, they paid off only one of two accounts with Barclays, so AIB obtained only a second charge. When the borrowers defaulted, the property was sold, and AIB recovered much less than it would have done with a first charge. AIB claimed the whole of the loan from the solicitors.
Legal principle
The Supreme Court held that the solicitors were liable only for the loss caused by their breach, which was the amount that AIB would have recovered if it had had a first charge, about £273,000. Lord Toulson and Lord Reed said that equitable compensation for breach of trust is designed to make good the loss caused by the breach, and that, following Target Holdings, the loss is assessed with the benefit of hindsight. AIB was not entitled to recover the whole of the money paid out, because most of its loss was caused by the fall in the value of the property, which would have happened anyway.
Related cases on breach of trust and defences
- Armitage v Nurse [1998] Ch 241
- Bahin v Hughes (1886) 31 Ch D 390
- Re Dawson (deceased) [1966] 2 NSWR 211
- Re Diplock [1948] Ch 465
- Re Evans (deceased) [1999] 2 All ER 777
- Fletcher v Collis [1905] 2 Ch 24
- Head v Gould [1898] 2 Ch 250
- Ministry of Health v Simpson [1951] AC 251
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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
