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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> AIB Group (UK) Plc v Mark Redler & Co Solicitors [2013] EWCA Civ 45 (08 February 2013) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/45.html Cite as: [2013] EWCA Civ 45

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IN THE COURT OF APPEAL (CIVIL DIVISION)
IN THE CONSOLIDATED APPEALS FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, BIRMINGHAM DISTRICT REGISTRY
His Honour Judge Cooke
1BM30094

		Royal Courts of Justice Strand, London, WC2A 2LL
		8th February 2013

Lord Justice Patten :

Introduction

1. These are consolidated appeals by the Claimant and the Defendant against two orders of HH Judge David Cooke, sitting as judge of the Chancery Division, made on the hearing of various preliminary issues. The appeals are brought with the leave of the judge.
2. In 2006 the Claimant, AIB Group (UK) plc ("AIB") received an application from Dr Ravindra Sondhi and his wife Dr Salma Sondhi for a loan of £3.3m in order to provide finance for their business. The Sondhis were medical practitioners who ran a number of care homes. The loan was to be secured on their private home. The application form stated that this property was worth £4.5m but was subject to an existing mortgage in favour of Barclays Bank to secure an outstanding loan of £1.5m. AIB agreed to provide the re-finance but required security over the Sondhis' home in the form of a first legal charge.
3. AIB instructed the defendant firm of solicitors, Mark Redler and Co ("MRC"), to act for it in connection with the remortgage. It supplied the firm with a copy of the facility letter of 4^th July 2006 in which it stipulated the requirement of a "First Legal Mortgage in the Bank's standard form over the Property" and which made it a condition of the loan that "the Applicants' existing home mortgages (if any) must be redeemed on or before the completion of this . . . facility". The judge therefore found that MRC was aware that AIB required it to obtain a first legal mortgage over the property.
4. The subsequent history of the transaction is set out in paragraph 7 of Judge Cooke's judgment, based on a schedule of facts which was agreed for the purpose of the trial of the preliminary issues. Because the Defendant's appeal raises issues as to precisely when and in what circumstances the remortgage was completed I propose to set out the relevant parts of the judgment in full and to return later to certain aspects of the transaction in more detail:-

"7. (vi) On 22 July 2006, Mr Mark Redler, the defendant's senior partner, met the borrowers. He was told by them at that meeting that the property was charged to Barclays and that their debt to Barclays was approximately £1.5 million. They told him that they wished to complete the remortgage by 31 July, and expressed a great deal of urgency about doing so. Mr Redler obtained from his clients a signed mortgage document in the form provided by the bank, to be held pending completion.

(vii) On 28 July, a Friday, Mr Redler sent a letter by fax (2/668) to Barclays asking for a redemption statement as at Monday 31 July, stating that it was hoped to complete the remortgage on that day. Barclays' initial response (2/682) sent on the Monday was to return the letter saying that it could not be acted upon unless a correct mortgage account number was quoted. This may have crossed with a further fax from the defendant on the same date (2/683) repeating the request.

(viii) Also on Monday 31 July, the defendant sent the certificate of title in the bank's required form by fax to its securities Department, requesting that the amount of the advance be sent by funds transfer to their client account. The funds were received by the defendant at 13.03 on 1 August.

(ix) The second letter to Barclays did produce a response, in the form of a faxed letter dated 31 July but apparently received on Tuesday, 1 August 2006 (1/407). That letter referred to two account numbers, and attached two documents entitled "Mortgage Valuation Statement", one for each account. The letter made clear that these were not redemption statements, saying:

"Thank you for your request for a balance in respect of the above accounts. The amount quoted is an indication of the current balance outstanding at the date you have requested. This may not be the figure required to effect full redemption.

IMPORTANT INFORMATION

THIS IS NOT A REDEMPTION STATEMENT

For a redemption figure to be issued, you must make a request for a Redemption Statement at least three working days before the intended redemption date. Due to the flexible nature of the mortgage and linked accounts, the amount required to redeem is likely to differ from this quotation.

Should your clients wish to redeem the mortgage, please contact us on 0845 607 6603 to request a Redemption Statement. You will need to provide your client's mortgage account number when you call."

(Emphasis and capitalisation in the original). The significance of making clear that the documents were not "redemption statements" would be that the bank would not be bound to release its charge on receipt of the sum stated, for example if some error should be found, or further liability incurred to it by additional borrowing on a flexible account.

(x) Mr Redler's evidence was that he asked an employee, Miss Brown, to telephone Barclays and obtain a redemption figure. Miss Brown gave evidence, exhibiting a telephone note she made (1/485) recording that she had spoken to someone called Vicky at Barclays and noting "figure to redeem is £1,235,785.07" with the details of the bank account to which it should be sent. She was unable to say whether she had given any mortgage account numbers to Vicky in this conversation. If she had seen the fax referring to the two accounts, she obviously did not notice that the figure given could only have related to one of them.

(xi) In his oral evidence, Mr Redler said that he could only recall seeing one of the pages from the Barclays fax, being the statement relating to the larger of the two accounts. He said that he had telephoned Dr Ravindra Sondhi because the amount was lower than the £1.5 million he had been expecting, and Dr Sondhi had confirmed that it was correct, or at least not told him that it was too low. He could not say why he would only have seen one page of the fax (which had five pages in all) and accepted that if he had seen the whole fax, or read the covering letter, he could not have failed to notice that the figure quoted was insufficient to discharge both accounts.

(xii) In accordance with her instructions from Mr Redler, Miss Brown gave instructions for the amount she had been quoted by Vicky to be sent by telegraphic transfer to Barclays, and for the balance, deducting the firm's costs, to be sent to the borrower, all of which happened on the afternoon of 1 August 2006. The form of mortgage deed was completed with the date 1 August 2006.

(xiii) Mr Redler did not seek to excuse his firm's omissions, which are accepted to have been negligent. At the conclusion of the witness evidence Mr Cousins confirmed that he did not seek to pursue any argument that Mr Redler or the defendant had acted otherwise than in good faith.

(xiv) The result was that the amount sent to Barclays was insufficient to discharge its secured debt and it subsequently refused to do so. It has not been contended before me that Barclays had given any binding assurance that it would release its security. The defendant was not able to procure the registration of AIB's charge until it was in a position to submit a discharge of Barclays' charge. For some time, Mr Redler did not alert AIB to the difficulty that had arisen. He contacted Dr Sondhi who promised that he would return sufficient funds to enable the outstanding amount due to Barclays to be cleared, but failed to comply with this promise over a period of several months. In the meantime, Mr Redler protected the priority of AIB's charge by continuing to renew his priority search at the land registry.

(xv) Eventually, the problem came to light. The evidence before me does not deal in detail with what then happened, though it appears that AIB entered into direct discussions with Barclays. I have no information, for instance, as to whether AIB offered, with or without the assistance of the defendant, to discharge the outstanding sum due to Barclays, or if so why that did not occur. On 28 April 2008, AIB and Barclays entered into a deed of postponement by which Barclays permitted AIB's charge to be registered as a second charge on the property, limiting its priority in respect of its own charge to £273,777.42, plus interest, costs and expenses. That principal amount was somewhat less than the balance outstanding at 1 August 2006 (approximately £309,000) by virtue of repayments that the Sondhis had made in the meantime. AIB's charge was finally registered on 9 May 2008.

(xvi) AIB obtained judgment against the Sondhis for a total exceeding £3.5 million, and an order for possession of the property, on 14 July 2010. It was subsequently sold for £1.2 million, of which just over £300,000 was paid to Barclays in satisfaction of their first charge, and the balance (after costs) of £867,697.78 to AIB on 14 April 2011. Bankruptcy orders were made against the Sondhis on 14 June 2011."

5. MRC accepts that its failure to notice the full amount of the secured debt to Barclays and as a consequence to obtain a first legal charge over the Sondhis' home as security for the AIB loan was negligent. But AIB does not limit its claim to one of damages for breach of the contract of retainer. It accepts that had its instructions been followed it would have made the loan to the Sondhis and would have suffered financial loss as a result of their subsequent default. The only difference between its current position and the one in which it would have found itself had the first charge been obtained is that it would have had an additional £300,000 worth of security for its loan. The contractual measure of damages is therefore limited to this sum, which represents the amount necessary to put AIB in the position it would have been in had MRC secured the redemption of the Barclays' charge in accordance with their contractual duties to the client: see Livingstone v Rawyards Coal Company (1880) 3 App Cas 25 at page 39.
6. AIB's principal claim is for breach of trust. It was and is common ground that the mortgage advance paid into MRC's client account remained trust monies in its hands unless and until disbursed in accordance with the authority of AIB as client. AIB alleges that MRC's release of the mortgage advance without obtaining a first legal charge (or indeed any security) on completion was unauthorised and a breach of trust which renders the solicitors liable to reconstitute the fund in their client account. Although the measure of loss falls to be assessed at the date of judgment the bank's subsequent obtaining of the second charge does not, AIB says, relieve the Defendant of liability because it was not the security for which AIB stipulated. It only comes into account so far as it enabled AIB to recover part of the mortgage advance from a sale of the mortgage property for which it must give credit. Otherwise its loss from the unauthorised distribution of its money extends to the entirety of the original advance, which is the loss which it suffered as a result of entering into the transaction. It is not limited to the loss attributable to the solicitors' failure to obtain the necessary security.
7. MRC denies that it acted in breach of trust. Its pleaded case is that it was authorised to release the advance monies on completion of the remortgage transaction. This, it alleges, occurred on 1^st August 2006 when it paid the sum of £1,235,785.07 to Barclays and the mortgage deed previously executed by the Sondhis was dated. The balance of the advance was not disbursed to the borrowers until the following day. MRC's case is, in summary, that it had authority to pay away the advance monies on completion. A failure to comply with each one of the clients' instructions does not make that payment a breach of trust unless compliance with that condition is clearly intended to govern the solicitors' authority to release the monies. In most cases (and in this case) the solicitors were authorised to release the funds on completion, which took place when they were satisfied that the borrowers had good title to the intended security and had executed a legal charge in the form necessary to give AIB the security which it required. All this was done by close of business on 1^st August. The obtaining of a first legal charge was not, and in practice never can be, a condition precedent to the solicitors' authority to release the mortgage advance because in a remortgage transaction it will depend upon the prior redemption of the existing lender's charge, which necessitates the earlier release of the new advance.
8. MRC therefore denied any liability for breach of trust. In the alternative it sought relief from such liability under s.61 of the Trustee Act 1925.
9. On 9^th September 2011 Judge Cooke ordered the trial of the following preliminary issues:

i) did the Defendant act in breach of trust in releasing the Advance Monies in the circumstances pleaded in paragraph 22 of the amended particulars of claim? and

ii) if so, to what remedy, if any, is the Claimant entitled?

10. The judge held that the Defendant had acted in breach of trust to the extent that it released to the borrowers the amount of £273,774.42 which was the additional sum required to repay the balance outstanding on the second Barclays' loan account. But he rejected the claim that the release of the entire £3.3m advance was made in breach of trust:

"23. In the present case, in my judgment what the defendant's instructions authorised them to do with the funds paid to them was to pay to Barclays (or to its account) such sum as was required to procure a release of its charge, and to pay the balance to the borrowers or to their order. Had they complied with their instructions they would have paid (taking all the figures in round terms) £1.5m to Barclays and £1.8m to the borrowers. In the event they paid £1.2m to Barclays and £2.1m to the borrowers. In my judgment, in so doing they committed a breach of trust insofar as payment was made contrary to the authority they had been given.

24. It does not however in my judgment necessarily follow that the whole of the payment out of £3.3m was made in breach of trust. The difference between what the defendant did and what it ought to have done if it had complied with its instructions was the £300,000 that should have been paid to Barclays but was instead paid to the borrowers. That in my judgment was the extent of the breach of trust committed. It was not a breach of trust to pay £1.2m to Barclays; that payment was made as partial performance of the authority and obligation to discharge Barclays secured debt. It was not a breach of trust to pay £1.8m to the borrowers, as that was the sum to which they were entitled. The breach consisted of the failure to retain an additional £300,000 and apply that to discharge of Barclays debt."

11. He therefore awarded AIB equitable compensation in that sum, which with interest amounted to a total of £323,501.38. AIB challenges his order on the ground that the Defendant had no authority to pay away any of the mortgage advance pending completion, which could only take place once the solicitors had either received all the documents necessary to register the new charge over the Sondhis' property as a first legal mortgage or were in receipt of a solicitor's undertaking (or, failing that, an undertaking from Barclays itself) to release the existing prior charge on payment of a specified sum, coupled with a Form DS1 to enable AIB to secure registration of its own charge as a first legal mortgage. On its case there was therefore never completion of the remortgage transaction in accordance with its instructions and it is entitled to equitable compensation in an amount (after giving credit for recoveries) which will restore it to the position it was in immediately before the breach occurred. The issues therefore to be considered are:

i) Was there a breach of trust and, if so, was it limited to the release of the £273,777.42 as found by the judge;

ii) If the release of the entire £3.3m mortgage advance was in breach of trust, what remedy is AIB entitled to; and

iii) Ought the Defendant to be relieved of liability under s.61 of the Trustee Act 1925?

Breach of Trust

12. Under a conventional private trust the beneficiaries are entitled to have their property administered and (so far as necessary) invested by the trustee in a prudent and business-like manner in accordance with the powers contained in the trust deed. Most cases of breach of trust will involve the unauthorised or imprudent investment or disposal of trust property; transactions involving trust property where the trustee has a conflict of interest or duty; and in some cases straightforward misappropriation of trust property. Client money in a solicitor's account may of course be lost or stolen and in such cases the liability of the solicitors to restore the fund is obvious. But where the loss is sustained in the context of a much wider commercial transaction, of which the payment of the funds into a solicitor's clients' account forms a very small (and almost insignificant) part, it becomes much more difficult but equally important to apply established principles of equitable recovery in a way that is proportionate to the true nature of the loss.
13. One can begin with the issue of liability itself. The solicitor holds his client's money on trust merely because it remains the property of his client until disbursed to a third party in accordance with the client's instructions. But the instructions which he receives and carries out are (as in this case) usually part of his contractual retainer for breach of which a claim in damages will lie. They are not as such the terms of the trust, nor does the solicitor act as a trustee in respect of them. His failure properly to carry out some term of the retainer linked to a property transaction will not therefore ordinarily expose him to any liability as a trustee even though it may affect the value of the property interest which the solicitor acquires or disposes of as part of his instructions.
14. In a mortgage or remortgage transaction of the kind under consideration the solicitor is retained to enable the client to obtain the security for which the lender has stipulated as a term of the loan. His failure to take sufficient care to ensure that the lender obtains a valid charge, or in this case a first legal mortgage, will undoubtedly entitle the lender to compensation for the loss which has subsequently been occasioned by the lack of the appropriate security. But the solicitor does not warrant that the transaction will be loss-free and if the lender would have suffered losses even with the benefit of the intended security he will not be able to recover them from the solicitor for breach of the retainer.
15. The breach of trust claim, if successful, has therefore the potential to transform the measure of recovery available to the lender in such circumstances. By treating the solicitor's failure to put in place a first legal charge as negativing the firm's authority to proceed with the release of the mortgage advance, the lender is able to assert that it is entitled to recover the entirety of this advance and so obtain an immunity from the commercial losses it has suffered on the transaction, even if they would still have been incurred with the benefit of the first legal mortgage and notwithstanding that the alleged vitiation of the solicitor's authority to complete is based solely upon his failure to obtain such a charge. The lender would, therefore, paradoxically be in a better position as a result of the solicitors' breach of duty than he would have been had the retainer been observed to the letter.
16. Trust claims made in a commercial context of this kind are not new and have already been considered both in this court and in the House of Lords. In Target Holding Limited v Redferns [1996] 1 AC 421 the solicitor instructed on behalf of a mortgage lender paid away the mortgage advance before the mortgagor had even purchased the intended security. He did so to enable the mortgagor to finance the earlier stages of a series of simultaneous purchases and sub-purchases which were almost certainly part of a fraud intended to inflate the purchase price paid by the mortgagor. But approximately one month after the monies had been released the mortgagor completed its purchase of the property and executed the intended charge over it in favour of the mortgagee.
17. In subsequent proceedings the mortgage lender sued the solicitor for breach of trust occasioned by his premature and unauthorised release of the mortgage advance and sought the reconstitution of the fund notwithstanding that the lender subsequently obtained the title and security which it had stipulated for. The House of Lords held that although the monies were released in breach of trust the lender had obtained what it would have acquired had no breach of trust occurred and that it had therefore suffered no loss.
18. The decision is therefore principally relevant to the issues of remedy and causation. But on the question of liability Lord Browne-Wilkinson said this at page 436 A-F:

"This case is concerned with a trust which has at all times been a bare trust. Bare trusts arise in a number of different contexts: e.g. by the ultimate vesting of the property under a traditional trust, nominee shareholdings and, as in the present case, as but one incident of a wider commercial transaction involving agency. In the case of moneys paid to a solicitor by a client as part of a conveyancing transaction, the purpose of that transaction is to achieve the commercial objective of the client, be it the acquisition of property or the lending of money on security. The depositing of money with the solicitor is but one aspect of the arrangements between the parties, such arrangements being for the most part contractual. Thus, the circumstances under which the solicitor can part with money from client account are regulated by the instructions given by the client: they are not part of the trusts on which the property is held. I do not intend to cast any doubt on the fact that moneys held by solicitors on client account are trust moneys or that the basic equitable principles apply to any breach of such trust by solicitors. But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away. But to import into such trust an obligation to restore the trust fund once the transaction has been completed would be entirely artificial. The obligation to reconstitute the trust fund applicable in the case of traditional trusts reflects the fact that no one beneficiary is entitled to the trust property and the need to compensate all beneficiaries for the breach. That rationale has no application to a case such as the present. To impose such an obligation in order to enable the beneficiary solely entitled (i.e. the client) to recover from the solicitor more than the client has in fact lost flies in the face of common sense and is in direct conflict with the basic principles of equitable compensation. In my judgment, once a conveyancing transaction has been completed the client has no right to have the solicitor's client account reconstituted as a "trust fund"."

19. It is, I think, common ground in the light of these and other judicial observations that a solicitor who parts with client money before completion without authority commits a breach of trust. But the difficulties mentioned earlier, which can result from treating as a breach of trust the unauthorised release of monies held in a solicitor's account as part of a larger commercial transaction, have led to the courts adopting a conservative approach to the construction of any term of the solicitor's retainer or instructions which is said to operate as a precondition to his authority to disburse the client money under his control. The most quoted example of this can be found in the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1, where a mortgage loan was offered on terms that the borrowers would complete the purchase without any resort to further borrowing. The lender's solicitor was required to report to the society prior to completion any proposal by the purchasers for further borrowing but negligently failed to disclose the existence of a bank debt which was to be secured by a second charge over the property. After the borrowers defaulted and the property was sold the society sought to recover a shortfall on its security from the solicitor by way of compensation for breach of trust on the basis that the solicitor had had no authority to complete without informing the society of the second charge. The claim for breach of trust was rejected by the Court of Appeal. Millett LJ, (at pages 22 and 24) said that:-

"It is not disputed that from the time of its receipt by the defendant the mortgage money was trust money. It was client's money which belonged to the society and was properly paid into a client account. The defendant never claimed any beneficial interest in the money which remained throughout the property of the society in equity. The defendant held it in trust for the society but with the society's authority (and instructions) to apply it in the completion of the transaction of purchase and mortgage of the property. Those instructions were revocable but, unless previously revoked, the defendant was entitled and bound to act in accordance with them.

The society's instructions were not revoked before the defendant acted on them, and in my judgment there was no ground upon which the judge could properly conclude that his authority to apply the money in completing the transaction had determined.

. . .

Before us the society put forward a more sophisticated argument. The defendant's instructions, it pointed out, expressly required him to report the arrangements in question "to the society prior to completion". This, it was submitted, made it a condition of the defendant's authority to complete that he had complied with his obligation. Whether he knew it or not, he had no authority to complete. It was not necessary for the society to revoke his authority or withdraw from the transaction. I do not accept this. The society's standing instructions did not clearly make the defendant's authority to complete conditional on having complied with his instructions. Whether they did so or not is, of course, a question of construction, and it is possible that the society could adopt instructions which would have this effect. But it would in my judgment require very clear wording to produce so inconvenient and impractical a result. No solicitor could safely accept such instructions, for he could never be certain that he was entitled to complete.

In my judgment the defendant's authority to apply the mortgage money in the completion of the purchase was not conditional on his having first complied with his contractual obligations to the society, was not vitiated by the misrepresentations for which he was responsible but of which he was unaware, had not been revoked, and was effective to prevent his payment being a breach of trust. Given his state of knowledge (and, more importantly, that his authority had not been revoked), he had no choice but to complete."

20. The Defendant's argument in this case, that it committed no breach of trust in releasing the £3.3m mortgage advance before obtaining a first legal charge for its lender client, is a difficult one if the obtaining of such security (or the provision of a solicitor's or bank's undertaking to release the Barclays' charge) must take place prior to or simultaneously with the release of the money as part of completion. It would, I think, be difficult for the Defendant to argue that it had any general authority to release the monies prior to completion and this is not how the firm puts its case. The issue of authority therefore largely turns in this case on whether what occurred on 1^st August 2006 constituted completion for the purposes of authorising the release of the mortgage advance to Barclays and subsequently the borrowers, notwithstanding that the mortgage deed executed by the Sondhis was subsequently never registered as a first charge over the security.
21. MRC was instructed by letter of 5^th July 2006 which included a copy of the facility letter. As mentioned earlier this specified the security to be taken as a first legal mortgage over the Sondhis' home and made it a condition of the mortgage account that any existing home mortgages must be redeemed "on or before completion of this CAM [current account mortgage] facility". The letter stated in terms that the firm was instructed in accordance with the Second Edition of the Council of Mortgage Lenders' Handbook ("the CML Handbook").
22. The CML Handbook stated:-

"5.4.1 The title to the property must be good and marketable free of any restrictions, covenants, easements, charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property or its future marketability.

. . .

5.8 First Legal Charge

On completion, we require a fully enforceable first charge by way of legal mortgage over the property executed by all owners of the legal estate. All existing charges must be redeemed on or before completion, unless we agree than an existing charge may be postponed to rank after our mortgage. Our standard deed or form of postponement must be used.

. . .

6.1.1 The loan to the borrower will not be made until all relevant conditions of the mortgage offer which need to be satisfied before completion have been complied with and we have received your certificate of title.

. . .

10.3 You are only authorised to release the loan when you hold sufficient funds to complete the purchase of the property and pay all stamp duties and registration fees to perfect the security as a first legal mortgage or, if you do not have them, you accept responsibility to pay them yourself. 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 (see part 2).

. . .

14. AFTER COMPLETION

14.1 Application to HM Land Registry

14.1.1 You must register our mortgage at H M Land Registry. Before making your H M Land Registry application for registration, you must place a copy of the results of the Official Search on your file together with certified copies of the transfer, mortgage deed and any discharges or releases from a previous mortgage."

23. On 31^st July 2006 the Defendant provided a certificate of title in AIB's standard form which stated:-

"We the Conveyancers named above give the Certificate of Title set out in the Appendix to Rule 6(3) of the Solicitors' Practice Rules 1990 as if the same were set out in full, subject to the limitations contained in it."

24. Clause (2)(i) of that appendix reads as follows:- "Except as otherwise disclosed to you in writing . . . we have investigated title to the property, we are not aware of any other financial charges secured on the property which will affect the property after completion of the mortgage and, upon completion of the mortgage, both you and the mortgagor . . . will have a good and marketable title to the property and to appurtenant rights free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title."
25. By then MRC had carried out the necessary local searches, obtained office copy entries for the registered title to the property and obtained a deed of consent to mortgage from the borrowers' son, who was in occupation of the mortgage property. Mr Redler had also met the borrowers, been through the mortgage offer with them and had obtained from them the executed mortgage deed which was held on file pending completion. MRC then requested a redemption figure from Barclays as described earlier in paragraph 4. On the same day a letter was sent by DX and fax to AIB enclosing the certificate of title and advising them that the Sondhis wished to complete that day (i.e. 31^st July) if possible.
26. The mortgage advance of £3.3m was not sent to MRC until 12.44 on 1^st August. Payment to Barclays of the £1,235,785.07 took place by CHAPS transfer at 2.49 pm, after Ms Brown had spoken to a woman called Vicky at Barclays. MRC's case is that by then everything necessary to achieve completion of the remortgage was in place in that the searches had been done; priority had been obtained for AIB in respect of the registration of the charge; the mortgage deed had been executed by the borrowers; and MRC was in receipt of sufficient funds to enable them to redeem the existing Barclays' charge. Mr McPherson QC submitted that the underlying commercial transaction was therefore complete and that MRC was accordingly authorised to pay away the mortgage advance. Its failure to send to Barclays sufficient monies to enable the prior charge to be redeemed (whilst undoubtedly negligent and a breach of their retainer) was a post-completion event and not therefore a breach of trust.
27. To support this argument we were referred to various cases in which the court has had to consider when completion took place in the context of a claim for breach of trust based upon the allegedly unauthorised disbursement of a mortgage advance. In Lloyds TSB plc v Markandan and Uddin [2012] EWCA Civ 65 some fraudsters posing as a firm of solicitors purported to act for the vendors of a registered freehold property which the purported purchaser wished to buy with the benefit of a mortgage. The property was not in fact for sale and its owners were ignorant of the fraud. The purchaser made an application for a loan to the claimant lender which instructed the defendant's solicitor to act for it in relation to the proposed mortgage. They were instructed, as in this case, in accordance with the CML handbook. This included the provisions of ss.5.8 and 10.3 quoted earlier and also a requirement in s.14.1.1 that the mortgage should be registered after completion as a first legal charge.
28. The solicitors made the relevant searches; provided a certificate of title to the lender; and then received the mortgage advance in their client account. There was to be a simultaneous exchange of contracts and completion and the fraudsters informed the defendant solicitors that on completion they would hand over the transfer, the certificate of discharge of the existing mortgage, the charge certificate and the vendor's part of the contract. They also indicated that they wished to complete by post using the current Law Society Code for Completion by Post. This requires the purchaser's solicitor to send the amount necessary to complete (as shown in the vendor's completion statement) to the vendor's solicitor to be held to the order of the purchaser's solicitor pending completion. The vendor's solicitors must give an undertaking that they have the seller's authority to receive the purchase money on completion and that on completion they will have the authority of the proprietor of each existing charge to receive the sum required to repay the secured loan. On completion the vendor's solicitor is required to redeem any existing charges on the property and then to confirm to the purchaser's solicitors that completion has taken place.
29. When the defendant's solicitors paid the mortgage advance to the account nominated by the vendor's purported solicitors they received none of the documents referred to above in return and the lender had of course no charge or other security over the property. It therefore sued the solicitors for breach of trust in paying away the mortgage advance without authority. Its case was that under the terms of the solicitor's instructions the money was held by them on trust until completion and that completion had never taken place.
30. The Court of Appeal affirmed the decision of the judge that there had been a breach of trust. The lenders had contended that completion (within the meaning of s.10.3.1 of the CML Handbook) did not take place until the transfer of the property and the charge were subsequently registered at HM Land Registry. This submission was rejected both by the judge and by the Court of Appeal. Rimer LJ said this:

"39. The judge rejected that submission for reasons he expressed in two sentences in [19] of his judgment. I agree with him, although I shall deal with the point more extensively. 'Completion' in a typical domestic sale and purchase transaction of a property with a registered title conventionally refers to the ceremony, or the agreed postal equivalent, at which the vendor and purchaser (or their respective agents) perform the prior contract. Putting it generally, the purchaser pays money to the vendor, which the vendor applies in redeeming the prior charges and satisfying the unpaid balance of the purchase money. The vendor, in exchange, gives vacant possession of the property to the purchaser and delivers to him the transfer and certificates of discharge of the prior charges. It is this exchange of money and documents that is normally referred to as completion. When, as is usual, the contract incorporates formal conditions of sale, they will specify the 'completion date' when these events must be performed (see, for example, in the current (fifth) edition of the Standard Conditions of Sale, conditions 1.1.1(c) and 6.1.1).

40. Completion as described is not, however, the end of the story for the purchaser and any chargee. They also need to be registered at HM Land Registry as proprietors of the property and charge respectively since only then will the transfer and charge 'operate at law'. The documents provided to the purchaser on completion and (when subsequently obtained) the SDLT certificate issued by HMRC, will enable the purchaser to apply to HM Land Registry for the registration of the transfer showing him as the proprietor of the property, an application which he will or should make within the priority period of the official search of the title of the property that he should have made just before completion. If he has bought the property with the assistance of a mortgage loan, he will by the time of completion also have executed a legal charge in favour of the lender; and its provision to HM Land Registry will also enable the charge to be registered showing the chargee as its proprietor.

41. There is, therefore, in practice a time gap between completion and the subsequent registration of transfer and charge. Miss Sandells' submission is, however, that it is wrong to regard what I have described as completion as being the sense of 'completion' in clause 10.3.4 of the Handbook. She submitted that completion in the sense there used occurs only upon the subsequent registration of transfer and charge.

42. There is, first, a practical difficulty with that argument. Let it be assumed that the sale and purchase contract in this case had been a genuine one, with genuine solicitors acting for genuine vendors, and that the contract had provided for completion to be on 4 September. There is no doubt what that would have meant, namely what I have described as completion. On Miss Sandells' submission, however, M&U would not on such completion have been entitled to have released a penny piece of the loan money to the vendors' solicitors: they could only release it upon Mr Davies and C&G being respectively registered as proprietor and chargee. Unless, however, the parties agreed some fundamental re-structuring of the contract in order to accommodate C&G in this respect, such registrations would not have happened. Instead, if the purchaser was unable to pay the balance of the purchase price on completion, he would probably find himself faced with a forfeiture of his deposit and a claim for breach of contract.

43. Despite its obvious practical complications, Miss Sandells' point is not, however, completely novel. Whilst its possible origins were not discussed in argument, a like point was the subject of discussion in the middle of the last century in The Contract of Sale of Land as Affected by the Legislation of 1925, 1930, T. Cyprian Williams. The author there engaged, in footnote (s) on page 80, in a discussion as to whether under an open contract for the sale and purchase of registered land, the vendor is entitled to insist on payment of the purchase price at any time before the registration of the purchaser as proprietor. The discussion is interesting but not, I consider, of present relevance. The purported contract in this case was not an open contract (that is, an agreement merely as to parties, property and price). It purported to incorporate the National Conditions of Sale. Contracts that incorporate such standard conditions thereby spell out expressly that the obligation to pay the balance of the purchase money is one that falls to be complied with on completion in the conventional sense (see, for example, condition 6.7 of the current Standard Conditions of Sale). A purchaser signing up to such a contract cannot decline to pay the balance until he is registered as proprietor; and a vendor is entitled to complain if he does.

44. C&G was not of course a party to the contract. It retained M&U on the basis of the instructions in the Handbook. The relevant question is, therefore, what that said about the terms of the trust that C&G thereby imposed upon M&U in respect of the loan money. Clause 10.3.4 told M&U that 'You must hold the loan on trust for us until completion'. So what did 'completion' as there used mean?

45. The Handbook comprises 17 headed sections. The provisions of various of them prior to section 14 refer to 'completion', clause 10.3.4 being one example (see [15] above). It is in my view clear beyond reasonable argument that they are using that word in the sense of the conventional meaning of completion. It is possible to argue, as Miss Sandells did, that they might be read as if they were using the word 'completion' synonymously with 'registration', although I found the argument unconvincing. The argument is, however, given its quietus by section 14, headed 'After completion' (my emphasis), of which clause 14.1 imposes upon M&U the obligation to register the mortgage as a first legal charge at HM Land Registry (and see also clause 14.1.4). Section 14 plainly proceeds on the basis that the prior references to completion are to completion in the conventional sense, not to the subsequent registration of title. In addition, as the judge pointed out, paragraphs (2)(c)(i) and (iii) of M&U's certificate of title (in C&G's prescribed form and so in the form of the certificate referred to in section 10 of the Handbook) draw a distinction between (a) completing the mortgage in the conventional sense and (b) the subsequent delivery to the Land Registry of the documents necessary to register it. A like distinction between completion and registration was made in the first and third bullet points of C&G's instructions to M&U (see [13] above).

46. In my view, therefore, the judge was right to hold that 'completion' in clause 10.3.4 did not refer to the successive moments when the transfer and charge were respectively registered. It referred to the prior date when conventional completion occurred. M&U were authorised by C&G to release the loan money to enable such completion to take place. The trust was only destined to subsist until such time as it did."

31. That left the question of whether completion in the sense referred to in s.10.3.4 of the CML Handbook took place when the solicitors released the mortgage advance to the fraudsters. In that case the answer to the question was obvious. The property was never the subject of a genuine contract for sale and the fraudsters were never in the position to make title to it, nor had any intention of doing so. Such undertakings as were given were not solicitors' undertakings and were worthless. Rimer LJ expressed the view that even if forged documents of title had been provided to the defendants this would not have amounted to completion:-

"The purported contract was a nullity, since the Greens had not agreed to sell their property to Mr Davies, nor had they authorised anyone to sell it to him in their name; and the purported completion of that nullity by way of the exchange of purchase money for forged documents could not in my view have amounted to completion. Nothing, said Lear, will come of nothing, and so it was here. Completion in the present context must mean the completion of a genuine contract by way of an exchange of real money in payment of the balance of the purchase price for real documents that will give the purchaser the means of registering the transfer of title to the property that he has agreed to buy and to charge. An exchange of real money for worthless forgeries in purported performance of a purported contract that was a nullity is not completion at all. Had that happened in this case, the parting with the loan money would have been a breach of trust."

32. But he also affirmed the decision of the judge, who had held that release of the mortgage advance was unauthorised simply because the monies had been paid out without the solicitors receiving either the documents of title they had been promised or a solicitor's undertaking to provide them. There would therefore have been a breach of trust in that case even if the transaction had been a genuine one.
33. Davisons Solicitors v Nationwide Building Society [2012] EWCA Civ 1626 was also a case of fraud. A Mr Patel applied to the claimant building society for a mortgage loan to enable him to purchase a property in Sutton Coldfield for a price of £249,995. He told the society that he would provide the deposit from his own resources. The society approved a loan of £187,000. They and Mr Patel both instructed Davisons to act for them. Instructions from Nationwide were again on the terms of the CML Handbook. Davisons then received a letter from what appeared to be a firm of solicitors called Rothschild at an address in Small Heath, Birmingham. There is a firm called Rothschild but they did not have a branch at this address and the sender of the letter was again a fraudster. The letter stated that they were holding a deposit of £62,995 from Mr Patel and enclosed a draft contract. Eventually, after conducting the necessary searches, Davisons provided Nationwide with a certificate of title incorporating (as in this case) the terms of the Appendix to Rule 6(3) of the Solicitors' Practice Rules 1990.
34. Rothschild Small Heath then informed Davisons that they were providing a Form TR1 transfer deed signed by the vendor and requisitions on title and confirmed that the only charge registered against the property was one in favour of GE Money Home Lending Limited, which would be discharged on completion. Rothschild Small Heath opted to complete by post in accordance with the Law Society's Code and Davisons transferred the mortgage advance to them to be held to Davisons' order pending completion. As in Markandan Davisons asked for the transfer, charge certificate and the deed of discharge in respect of the GE Money mortgage but nothing further was heard from Rothschild Small Heath. Mr Patel executed the mortgage in favour of Nationwide and was subsequently registered as proprietor of the property, but no steps were taken by Rothschild Small Heath to redeem the GE Money mortgage and the vendors apparently remain in occupation paying the mortgage instalments as they fall due.
35. In proceedings against Davisons for breach of trust Nationwide sought equitable compensation for the loss of their mortgage advance on the basis that the monies were released without their authority and prior to completion of the purchase and the grant of the charge. The judge (Ms Catherine Newman QC) held that they had acted in breach of trust because they had released the mortgage advance without the benefit of a solicitor's undertaking in the Law Society's recommended form to the effect that they would use the mortgage advance to redeem the prior charge and would provide a certificate of discharge to that effect. She held that on the true construction of the CML Handbook a lender's solicitor was authorised to release the advance only against such an undertaking. She also refused to grant leave under s.61 of the Trustee Act because the solicitors, by not obtaining that undertaking, had not in her judgment acted reasonably.
36. On appeal counsel for Davisons raised a new argument in relation to the judge's finding that there had been a breach of trust. They contended that on a fair reading the CML Handbook as a whole (and in particular s.3 which deals with the need for the solicitor to follow the Law Society's guidance and regulations on mortgage fraud and money-laundering) the solicitors were authorised to pay the purchase price to Rothschild Small Heath prior to completion, notwithstanding the trust imposed by s.10.3.4 of the CML Handbook. The Court of Appeal rejected this submission on the basis that there is nothing in s.3 which by implication confers any authority on the solicitor to release the funds before completion and the same argument has not been advanced on this appeal. The judgment of Miss Newman QC was therefore affirmed on the issue of whether completion had taken place. Sir Andrew Morritt C said at paragraph 40:-

"In my view it is impossible to give the weight to paragraph A3.2 counsel for Davisons seeks to put on it. The trust imposed on the loan moneys in the hands of Davisons by paragraph 10.3.4 of the CML Handbook could only be discharged by completion of the purchase or the return of the money to Nationwide. As shown by Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 All ER 884 no such completion ever took place and the money was not returned."

37. The present case does not involve any kind of fraud but there are other important differences. In a remortgage transaction the borrower does not have to acquire the property in order to provide the lender with security for its loan. The essence of the transaction is the replacement of the existing charge with the new one. The existing chargee is therefore unlikely (as in this case) to be represented by solicitors and can be relied upon to utilise the new mortgage advance for the redemption of the borrower's existing loan. As a consequence the lender's solicitor will not in practice be concerned to deal with another firm of solicitors and his principal concern will be to use the mortgage advance of his client to obtain the redemption of the existing charge and then subsequently to register the new charge in priority to any other encumbrances.
38. It is important to emphasise that the lender's claims for breach of trust in the two authorities I have referred to do not turn on whether these solicitors succeeded in obtaining a first legal charge over the property. Although s.5.8 of the CML Handbook states in mandatory terms that all existing charges must be redeemed on or before completion and AIB in paragraph 22 of the particulars of claim elides the obtaining of a first legal charge with the averment that the Defendant was not authorised to release the advance monies except upon completion, this court in Davisons construed that as going no further than to impose an obligation on the lender's solicitors to exercise reasonable skill and care in seeking to produce that outcome: see Sir Andrew Morritt C at paragraph 57. It is not therefore possible to regard s.5.8 as a condition precedent to the authorised disbursement of a mortgage advance so that any failure to obtain the stipulated security would make the solicitors accountable for the entire advance. The trust argument has to turn simply on whether there has been completion within the meaning of s.10.3 in which event the monies cease to be trust monies in the solicitor's hands.
39. There is no doubt that as of 1^st August 2006 MRC had investigated the borrower's title; had in their possession an effective form of charge over the property executed by the borrowers; and had sufficient funds in the form of a mortgage advance to be able to redeem the entirety of the Barclays' loan then outstanding and secured on the property. What they did not have was a redemption statement from Barclays or any unconditional commitment by Barclays (or any undertaking from their solicitors instructed on their behalf) to use the new mortgage advance to discharge the existing indebtedness and release their own charge. The Law Society's Conveyancing Handbook (13^th Ed) contains no specific guidance on remortgages but does deal with the discharge of a seller's mortgage on the completion of the purchase. Paragraphs 4.2.13 and 4.2.14 state:-

"4.2.13. Arrangements for the discharge of the seller's mortgage(s) over the property will have been agreed between the parties at the requisitions on title stage of the transaction. Where the mortgage is a first mortgage of the property in favour of a building society lender, the parties will frequently have agreed to permit the seller to discharge his mortgage after completion takes place by using part of the proceeds of sale to make payment to the lender. In such a case it will have been agreed that the seller's lender's solicitor should hand to the buyer's solicitor on completion an undertaking in the form of wording recommended by the Law Society to discharge the mortgage (F4.2.15) and to forward the receipted deed or Form DS1 to the buyer's solicitor as soon as this is received from the lender.

4.2.14. An undertaking to discharge the seller's mortgage should only be accepted from a solicitor or licensed conveyancer because of the difficulties of enforcement of undertakings against unqualified persons. The undertaking should also be in the form of wording approved by the Law Society. The current guidance from the Law Society is that it will not normally be advisable to accept an undertaking if the mortgagee is not a member of the CML, and/or where the amount required to redeem the mortgage exceeds the minimum level of solicitors' indemnity insurance (£1 million per claim). In such a case an undertaking should not be accepted and it may be necessary for completion to take place at the lender's solicitors' offices (not the seller's solicitors' offices) or for the lender's solicitor to attend personally at completion in order to discharge the mortgage. If the amount of the mortgage exceeds £2 million consider asking for a warranty from the seller's solicitor that his insurance cover does exceed the amount required to redeem the mortgage. See the Law Society's guidance at Appendix V.15."

40. These are the procedures which were confirmed in Markandan and Davisons as an essential part of the process of completion and they seem to me to have equal application in the case of a remortgage. MRC were not therefore authorised, in my view, to release the monies until they had such documents in their hands. I can see no material difference between the need for the lender's solicitor on a remortgage to ensure that the advance will be used to discharge the existing mortgage and the requirement (accepted in Markandan) that the solicitors should have been in receipt of the relevant documents of title, including a certificate of discharge of the existing mortgage or a solicitor's undertaking to produce such documents once the existing mortgage was redeemed. Where the existing lender has instructed a solicitor to act on its behalf in the remortgage transaction, the obtaining of a redemption statement from the bank, coupled with an undertaking from that solicitor that the advance will be applied by the bank in redemption of its charge, guarantees that the bank will use the monies for that purpose. Alternatively, where the existing lender has not instructed a solicitor to act on its own behalf, the obtaining of a redemption statement from the bank, coupled with unconditional confirmation from the bank that that the advance will be applied by it in redemption of its charge, likewise guarantees that the bank will use the monies for that purpose. Without one or other, the new lender has no assurance that the monies will not be used to discharge other unsecured liabilities of the borrower.
41. It also seems to me to be artificial to regard completion as having already occurred before the lender's solicitor takes any steps to utilise the mortgage advance in the redemption of the existing charge. This is contemplated in s.5.8 of the CML Handbook as occurring either before or on completion, which suggests that the reference to completion in s.10.3 should be construed as including the process of redemption or at least the release of the money to the prior chargee for that purpose. Mr Cousins QC for AIB now accepts that in order for redemption to take place and thereafter for the new lender to obtain a first legal charge the mortgage advance must be released to the existing lender, just as in the case of an ordinary purchase on mortgage it must be released to the vendor's solicitor to be applied in the discharge of the existing mortgage and in the payment of the purchase price. But as in those cases the solicitor's authority to complete and so discharge the trust is, he submits, dependent upon his obtaining an undertaking from the existing lender or its solicitor to use the money to discharge the existing mortgage and to forward in due course the relevant certificate of discharge so as to enable the new charge to be registered. He supports these submissions with a reference to another earlier decision of this court in Knight and Keay v Haynes Duffell Kentish and Co [2003] EWCA Civ 223 where a firm of solicitors paid away their client's money without obtaining in return the assignment of a trade name. But the terms and content of their retainer were very different and I do not regard that decision as of much assistance in construing the meaning and effect of the CML Handbook. The construction of s.10.3 by this court in Markandan and Davisons supports, I think, the lender's contention that the release of the mortgage advance was an essential part of completion and that MRC's authority to disburse the monies depended upon their possession of the undertakings I have referred to. Without these undertakings they would not and did not complete.
42. It must follow from this that the judge was wrong to treat the breach of trust as limited to that part of the mortgage advance which was paid to the Sondhis instead of being used to discharge their liability to Barclays on the second account. He construed the CML Handbook as giving MRC authority to pay to Barclays what was required to procure a release of their charge and to pay the balance to the borrowers. He therefore treated the payment of the £273,777.42 to the borrowers instead of to Barclays as unauthorised and a breach of trust. In response to Mr Cousins' submission that MRC had no authority to release the mortgage advance except on completion and that this required them to be in receipt of an undertaking from Barclays or its solicitor to release the charge he said:-

"33. I do not agree that the authority should be construed so as to impose an absolute requirement that nothing could be paid to Barclays before a valid undertaking had been given. There is no such express term either in the letter of instruction or the CML handbook terms incorporated by that letter. The most nearly relevant provision is in para 10.3 of the handbook, which provides as follows:

"You are only authorised to release the loan when you hold sufficient funds to complete the purchase of the property and pay all stamp duty land tax and registration fees to perfect the security as a first legal mortgage or, if you do not have them, you accept responsibility to pay them yourself."

This wording is obviously not directly applicable to a remortgage, and is not without ambiguity of language, but it emphasises that the solicitors must hold sufficient funds to procure the first ranking mortgage title sought before the loan is released, and provides for the consequences if the funds held are insufficient, i.e. that the solicitors will be responsible to make payment themselves."

43. But this, I think, fails to give proper effect to the terms of s.10.3 of the CML Handbook on which AIB's case is based. As this court has accepted in both Markandan and Davisons the effect of s.10.3 is that the solicitors have no authority to disburse the money (other than at the express direction of the lender) except upon completion of the relevant transaction. For the reasons which I have given, I accept Mr Cousins' submission that the completion of the remortgage transaction required MRC to be in receipt of a solicitors' undertaking, or unconditional confirmation from Barclays that the advance monies would be applied by it in redemption of its charge, before releasing the advance. Had there been proper completion in this case a subsequent failure by the solicitors to pay sufficient monies to Barclays to discharge the existing mortgage would not have been a breach of trust even though it would have been a breach of their retainer. If, on the other hand, completion does not take place then the solicitors have parted with trust monies without authority regardless of the purpose for which they have been used. The difficulty about the judge's reasoning is that his finding that only the £273,777.42 was paid in breach of trust must be based on the premise that there had been completion in respect of the transaction generally. If so, it must, I think, follow that the trust imposed by s.10.3 was at an end and a finding of breach of trust even in respect of part of the advance is inconsistent with that.

Causation and Remedy

44. AIB's claim for equitable compensation equivalent to the entire amount of the advance (less recoveries) is based on the premise that as at the date of breach they were entitled to have the fund reconstituted. This is the same argument as was advanced by the lender in Target v Redferns but was rejected by the House of Lords by reference to events subsequent to the breach of trust: in that case the grant of the charge over the intended security.
45. As mentioned earlier in this judgment, the judge found that but for the breach of trust the transaction would have gone through. He said:-

"41. In the circumstances, I do not intend to venture into the arguments that were addressed to me as to whether, if the defendant committed a breach of trust in paying out any part of the advance at all, the correct remedy would be based on reconstitution of the trust by repayment of the entire advance, subject only to a credit for actual recovery on sale of the property, save to deal with one matter which would require a finding of fact in the event that I am wrong in my conclusions above. That is the question as to what would have happened but for the breach of trust. Since the breach alleged is the payment out without authority, it seems to me the question may be approached in principle on one of two bases, namely what would the outcome have been if the solicitors had either:

(i) in fact dealt with the funds held in the manner they were authorised to do, or

(ii) instead of making the unauthorised payment that they did, had asked the bank for its instructions at that point, disclosing the reasons why the payment was outside their existing authority.

42. In either case, it seems to me, the answer is the same on the facts of this case. There would have been a short delay while the solicitors obtained a redemption figure in a form that bound Barclays to release its charge, they would have paid that amount to Barclays and in due course have received that release and registered AIB's charge as a first charge. I am in no doubt that, in the somewhat implausible scenario that the solicitors, realising that they did not have a valid redemption quotation, approached AIB for instructions rather than simply dealing with the matter themselves, AIB would not have withdrawn from the transaction but simply instructed them to carry on with it, complying with their existing instructions. It was clear from the evidence that AIB as a whole was anxious to lend to the borrowers, and that the domestic remortgage was being driven by the need to facilitate the business lending which the bank was very keen to make. There would have been no reason for it to suppose that the failure to obtain a full redemption figure could not be corrected, or to use that failure as an excuse to withdraw from the mortgage lending."

46. Had the remortgage been properly completed and the Barclays' charge redeemed, AIB would still have been exposed to the losses caused by the borrower's default but would have had security for an additional £300,000 odd of its loan. This case is therefore fundamentally different from the position in Markandan and Davisons where had the solicitors not released the monies in advance of completion there could have been no transaction and no loss would have been suffered at all.
47. In a case such as the present one, Target establishes that equitable principles of compensation, although not employing precisely the same rules of causation and remoteness as the common law, do have 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. The principles were described by Lord Browne-Wilkinson (at page 434 C-F and 437 C-E) as follows:-

"The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries' rights can been protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v Lord Ashburton [1914] AC 832, 952, 958, per Viscount Haldane LC. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v Darby (1801) 6 Ves 488; Clough v Bond (1838) 3 M & C 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred: see Underhill and Hayton, Law of Trusts & Trustees 14^th ed. (1987), pp 734-736; in re Dawson, decd; Union Fidelity trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NEW 211; Bartlett v Barclays Bank Trust Co Ltd (Nosy 1 and 2) [1980] Ch 515. Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach: see also In re Miller's Deed Trusts (1978) 75 LAG 454; Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.

. . .

A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for "stopping the clock" immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered."

48. Later in his speech Lord Browne-Wilkinson referred to the decision of the Supreme Court of Canada in Canson Enterprises Limited v Boughton and Co (1991) 85 DLR (4^th) 129:

"The majority considered that damages for breach of fiduciary duty fell to be measured by analogy with common law rules of remoteness, whereas the minority considered that the equitable principles of compensation applied. Your Lordships are not required to choose between those two views. But the judgment of McLachlin J (expressing the minority view) contains an illuminating exposition of the rules applicable to equitable compensation for breach of trust. Although the whole judgment deserves study, I extract the following statements.

At p 160:

"While foreseeability of loss does not enter into the calculation of compensation for breach of fiduciary duty, liability is not unlimited. Just as restitution in specie is limited to the property under the trustee's control, so equitable compensation must be limited to loss flowing from the trustee's acts in relation to the interest he undertook to protect. Thus, Davidson states ['The Equitable Remedy of Compensation' (1982) 3 Melbourne UK Rev 349] 'It is imperative to ascertain the loss resulting from breach of the relevant equitable duty' (at p 354, emphasis added).

At p 162:

"A related question which must be addressed is the time of assessment of the loss. In this area tort and contract law are of little help . . . The basis of compensation at equity, by contrast, is the restoration of the actual value of the thing lost through the breach. The foreseeable value of the items is not in issue. As a result, the losses are to be assessed as at the time of trial, using the full benefit of hindsight." (Emphasis added.)

At p 163:

"In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e. the plaintiff's loss of opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach." (Emphasis added.)

In my view this is good law. Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."

49. 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 MRC 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. Even had there been no such mortgage they would have been subrogated to Barclays' first charge insofar as they discharged part of the Sondhis' indebtedness by the payment of the £1.2m. In my view all of these are matters to be taken into account in considering what loss has ultimately been caused by the solicitors' breach of trust. In the light of the judge's findings it is not open to AIB to contend that but for the breach of trust it simply would have asked for its money back. This is not a case as in Markandan where the lender was a victim of a fraud and received nothing in return for its advance.
50. Mr Cousins submitted that the breach was never made good in this case because AIB never obtained a first charge over the intended security. But in my view that is irrelevant to the question of what loss AIB has suffered as a result of the breach. The breach of trust comprised the unauthorised release pre-completion of the mortgage advance: not the failure by MRC to obtain a first charge. And in calculating what loss has resulted from the breach the commonsense approach advocated by Lord Browne-Wilkinson in Target requires the court to take account of the beneficial effect of what security AIB was eventually able to obtain.
51. For these reasons I would affirm the judge's order of 8^th March 2012 which calculated equitable compensation in the sum of £323,501.38, including interest, but answer the first preliminary issue to the effect that MRC were in breach of trust as alleged in paragraph 22 of the particulars of claim by releasing the Advance Monies in August 2006.

Section 61 of the Trustee Act 1925

52. Although relied upon in its defence the judge expressed no views as to whether MRC should be relieved of liability for breach of trust under s.61 of the Trustee Act and I have some reluctance to express my own view on this matter without the benefit of any findings of fact by the judge on this issue. But in the event nothing turns on this because MRC do not seek s.61 relief in respect of their failure to pay the additional £273,777.42 in order to redeem the Barclays' mortgage. They accept that their conduct in that respect was both negligent and unreasonable. Since the result of this appeal is that their liability is limited to that sum, together with the calculation of interest made by the judge, it is unnecessary for us to express any view on whether they acted reasonably and ought to be excused from personal liability for releasing the mortgage advance prior to completion.
53. I would therefore allow AIB's appeal against the judge's order of 25^th January 2012 but dismiss their appeal against his order of 8^th March 2012. The Defendant's appeal will also be dismissed.

Lord Justice Sullivan :

54. I agree.

Lady Justice Arden :

55. I also agree.