The lender advanced £3.3m on a residential re-mortgage which was part of a much larger lending facility for business purposes. The Defendant firm of solicitors mistakenly failed to redeem one of two mortgage accounts. As a result the prior lender's charge was not redeemed, and remained as first legal charge. The Defendant had paid away the remaining balance of the advance to the borrowers, who failed to repay it despite repeated promises to do so. The lender negotiated an agreement with the prior lender so that its charge was registered, but its security was postponed by the value of the prior charge (which amounted to less than £300,000 after borrowers' payments were taken into account). Negligence and breach of retainer had been admitted in the Defence, but the lender still pursued a full recovery of its entire advance. The judge held that the payment of £1.8m to the borrowers was not a breach of trust, this was done with the authority of the lender, however paying away the additional sum to make a total payment to the borrowers of £2.1m was a breach of trust. The payment to the prior lender was also not a breach of trust as it was done with the authority of the lender. Accordingly the breach of trust was limited to the additional £300,000 sum which should have been retained, but was in fact paid to the borrowers. The judge dismissed the lender's contention that it would have withdrawn from the transaction if it had known that a first legal charge would not be obtained. The Claimant lender has indicated an intention to appeal the decision.
Graeme McPherson QC and Sian Mirchandani of 4 New Square acted for the Defendant solicitors.
For a copy of the Judgement please click here.