Compensation for breach of trust in commercial cases

The Supreme Court has confirmed that in breach of trust cases involving commercial transactions, remedies available to a claimant should reflect actual loss suffered. Claimants will not be compensated for losses they would have suffered had a breach of trust not taken place (AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58).

Facts

Solicitors acted for a borrower and AIB Group (UK) plc (the “bank”) in relation to a mortgage advance. The advance was intended to discharge a subsisting charge to Barclays and the bank’s charge would then be registered as a first legal charge over the borrower’s property. The Barclays charge secured borrowing on two accounts totalling over £1.5 million.

In breach of trust, the solicitors sent funds to Barclays sufficient to discharge only one of the mortgage accounts, leaving a shortfall of around £309,000. Barclays refused to release its charge unless the shortfall was paid in full. The bank’s charge was registered only as a second charge over the property. Subsequently the borrower defaulted and Barclays repossessed then sold the property. The bank received some money from the sale but not enough to repay its loan.

The bank claimed from the solicitors the full amount of its loan less the amount it recovered from the sale of the property.

The Supreme Court said the bank was only entitled to the shortfall that the solicitor omitted to pay to Barclays to remove its charge. It was not entitled to the loss suffered due to the fall in the property’s value.

Comment

The case confirms that in commercial, non-fraudulent breach of trust cases, the level of compensation that a claimant is entitled to recover should reflect the actual loss suffered. The court’s approach in these cases is, therefore, not significantly different from its approach to claims for breach of contract or negligence.