Law firm must pay £323,000 for remortgage error

Mark Redler & Co, a three partner firm based in Stafford, must pay a bank £323,500 compensation for a breach of trust, appeal judges have ruled.

The court heard that AIB Group (UK) agreed to lend Dr Ravindra Sondhi and his wife £3.3m for their care home business, secured by a remortgage on their private home, worth £4.5m.

The bank argued that it was entitled to recover not only the loss resulting from the solicitor’s failure to properly secure the loan, but the whole of the original loan less the amount actually recovered.

The house was already subject to an existing mortgage to Barclays, with £1.5m outstanding, but the amount Redler & Co actually sent Barclays was not enough to discharge the debt.

In his judgment, the judge at first instance said Mark Redler, the firm’s senior partner “did not seek to excuse his firm’s omissions, which are accepted to have been negligent”.

AIB and Barclays later agreed a deed of postponement, which allowed AIB’s charge to be registered as a second charge, subject to Barclays limiting its first charge to the outstanding amount of £274,000 plus interest and costs.

The court heard that AIB obtained judgment against the Sondhis for over £3.5m and an order for possession of their home in July 2010. It was later sold for £1.2m, of which just over £300,000 was paid to Barclays.

Delivering the leading judgment in AIB Group (UK) v Mark Redler & Co [2013] EWCA Civ 45, Lord Justice Patten said equitable principles of compensation “had 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 causal connection between the breach and the eventual loss”.

He went on: “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.

“If Mark Redler & Co had obtained from Barclays a proper redemption statement, coupled with an undertaking to apply the sum specified in the statement in satisfaction of the existing mortgage, then the transaction would have proceeded to complete and AIB could have obtained a first legal mortgage over the Sondhis’ property.

“But although that did not happen, AIB did obtain a valid mortgage from the Sondhis which they were eventually able to register as a second charge and use to recover part of their loan from the proceeds of the security in priority to the Sondhis’ other creditors.”

Patten LJ affirmed the trial judge’s order of March 2012, which calculated the equitable compensation payable by Redler & Co as £323,500 including interest, and held that the law firm had been in breach of trust by releasing the advance in 2006.

He dismissed AIB’s appeal against the trial judge’s order of March 2012, allowed its appeal against an earlier order and dismissed Redler & Co’s cross-appeal.

Lod Justice Sullivan and Lady Justice Arden agreed.