Breach, Remedies, and Defences Cases

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AIB Group (UK) v Mark Redler & Co Solicitors [2014] UKSC 58

Facts: There were 2 existing mortgages on a property totalling £1.5m (£1.2m and £300,000). A 3rd mortgage of £3.3m was granted. The solicitors asked the 1st and 2nd mortgagees for a redemption figure to release that charge. The redemption figure was sent, but the solicitor did not realise this only covered the first mortgage. So, when the solicitor received the £3.3m they paid off one mortgage and sent the balance of the money to the house owners; this meant the second mortgage (£300,000) was still secured on the property

The mortgagor defaulted, so the house was repossessed and sold for £1.2. Of that £1.2m, £300,000 was paid to the first mortgagee (Barclays), leaving about £900,000 to AIB out of a £3.3m loan (so were £2.5m out of pocket). AIB sued the solicitors for breach of trust

At the Court of Appeal a remedy of £300,000 was granted to AIB, applying a negligence style ‘but for test’, as this is what they would have got extra if the 2nd charge had been released when the property was sold for £1.2m

AIB appealed to the Supreme wishing them to overturn Target Holding v Redferns negligence approach → In Target Holding the breach was made good before the loss occurred so the notional remedy (i.e. idea trustees are obliged to reconstitute any money paid out in breach of trust) didn't apply

  • However, here, because the breach of trust was never made good, AIB argued that the notional remedy still applied

Held: The Supreme Court disagreed: they applied Target Holding and applied the ‘but for’ test. So £300,000 was what AIB got, and not the £3.3m that AIB would have got had there been an obligation on solicitors to reconstitute the trust fund

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Armitage v Nurse [1998] Ch 241

Facts: The Plaintiff (i.e. claimant) claimed that the trustees’ mismanagement of the trust caused loss. The trustees claimed protection of an exemption clause in the trust instrument, which said trustees will not be liable, unless they acted fraudulently. It was argued that it was contrary to public policy to uphold the clause

Held: The Court of Appeal disagreed

  • Millett said trustees do have an irreducible core of obligation from which they cannot be exempted from, but competence is not required → you can be incompetent without being in breach, because you will not be in breach of the fiduciary duty of good faith
  • Although the court was slightly reluctant in upholding the clause

Nestle v National Westminster Bank [1994] 1 All ER 118

Facts: Nestle (a man, NOT the company Nestlé) left money under his will for his granddaughter. She was expecting a lot more money to be left for her as he was a rich man. She subsequently found out that the bank did not use the full scope of its investment powers → it had left the money in safe trustee stock when in fact the trust instrument had given them the power to invest in potentially more profitable investment

Held: The trustee (bank) should have familiarised itself with the trust instrument; if they did they would have known scope of its investment power. However, as she was unable to prove loss - because she was unable to say that if the bank had invested less conservatively she would have made more money or come up with a reasonable figure of what the property should be worth - her claim failed

Target Holdings v Redferns [1996] AC 421

Facts: This case involved a sale from Mirage to Crowngate with Target Holding acting as mortgagee. Target Holding provided a loan of £1.7m believing that to be the sale price of the property when in fact it had been originally sold for £775,000 to Panther, then it went to Kohli, then finally on to Crowngate for £2m (so the price was artificially increased). Target Holding gave the money to a solicitor (Redferns) subject to an undertaking they would not release money to the seller until the property belonged to the buyer

Before the property was with the buyer Redferns handed over the money to the fraudulent company; enabling the company to make a fraudulent £1m profit on the loan

As the fraudsters had disappeared, Target Holding decided to sue Redferns for releasing the money before they were meant to and before registering title, in breach of trust

Held: The House of Lords held the breach did not cause a loss because despite releasing the money early that would not have prevent the fraud going ahead; so the claim failed on this ground

  • Lord Browne-Wilkinson said if there is no loss caused by the breach there is no liability → he says if you make a ‘judicious’ breach you should not be liable

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