Category: Insurance case law · Reviewed by Jake Leat, Associate Director · Last reviewed June 2026
The Supreme Court decision confirming that equitable compensation for breach of trust by solicitors handling mortgage funds is limited to losses caused by the breach on a “but for” basis, and not the full sum advanced.
AIB Group (UK) plc was a bank which agreed in 2006 to lend £3.3 million to Mr and Mrs Sondhi to refinance their existing borrowing on the security of their home, a property near Watford. The existing borrowing was a mortgage with Barclays Bank in the sum of approximately £1.5 million. The AIB loan was to be secured by a first legal charge over the property, and AIB instructed Mark Redler & Co Solicitors to act on the refinancing under the standard CML Lenders’ Handbook conditions.
The solicitors were obliged to ensure that the Barclays charge was discharged and that AIB obtained a first legal charge. They obtained a redemption statement from Barclays but, by an error, ascertained the sum required to redeem only one of the two parts of the Barclays facility. The redemption monies remitted to Barclays were therefore short by approximately £309,000. The result was that, when the AIB charge was registered, it ranked behind a continuing residual charge in favour of Barclays in respect of that shortfall, rather than being the first charge AIB had bargained for.
Some time later, the Sondhis defaulted. The property was sold for £1.2 million in 2011, far less than was owed. Barclays retained around £273,000 from the proceeds in respect of its residual charge. AIB recovered the balance of approximately £867,000 but was left with a substantial loss on its £3.3 million advance.
AIB sued the solicitors. It contended that the solicitors had committed a breach of trust in releasing the loan monies on completion without ensuring that the Barclays charge would be fully discharged and that AIB would obtain a first charge as promised. AIB sought equitable compensation in the full sum advanced (£3.3 million), less recoveries, on the basis that the trust monies had been disbursed in breach of trust and must be reconstituted.
The principal issue was the proper measure of equitable compensation for breach of trust by solicitors handling client funds in a conveyancing context. Specifically, where solicitors hold mortgage advance monies on trust to be released only on the satisfaction of stated conditions (here, discharge of the existing first charge), and the conditions are not in fact satisfied, is the lender entitled to be repaid the full amount advanced, or only the actual loss caused by the breach assessed on a “but for” causation basis?
The case required the Supreme Court to consider the relationship between the strict reconstitution-of-trust-fund principles articulated in older authorities such as Re Dawson [1966] 2 NSWR 211 and the more flexible loss-causation approach signalled by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] AC 421.
The Supreme Court unanimously dismissed AIB’s appeal, affirming the decisions of the courts below and confirming the Target Holdings approach.
Lord Toulson (with whom the other Justices agreed) held that, while solicitors holding completion monies under a commercial conveyancing transaction are trustees of those monies, the equitable compensation payable upon breach of that trust is not necessarily the full sum advanced. Rather, the measure is the loss which would not have been suffered “but for” the breach, assessed by reference to what would have happened had the trust been properly performed.
On the facts, had Mark Redler & Co performed their duties correctly, AIB would have obtained a first charge securing the full £3.3 million advance. The Sondhis would still have defaulted and the property would still have sold for £1.2 million. The difference in AIB’s position attributable to the breach was therefore the loss of priority in respect of the £309,000 Barclays shortfall — approximately £273,000 of which Barclays in fact recovered out of the sale proceeds and which would otherwise have gone to AIB. That, not the full £3.3 million, was the proper measure of equitable compensation.
The Supreme Court emphasised that equitable compensation, while distinct from common-law damages, must reflect a causal connection between the breach and the loss complained of, and must not be used to produce a windfall by recoupment of losses that would have been incurred in any event.
Where solicitors hold mortgage advance monies on trust subject to conditions agreed with the lender, and pay away those monies in breach of trust, the measure of equitable compensation is the loss the lender would not have suffered but for the breach. It is not the full sum advanced. The trust-reconstitution analysis associated with traditional family-trust cases does not apply with full rigour to a commercial conveyancing trust whose purpose is fulfilled on completion.
AIB v Mark Redler is a critical authority for solicitors’ professional indemnity insurance, particularly in lender-claim cases. By confining equitable compensation to “but for” losses, the Supreme Court substantially limited the catastrophic outcomes that had previously been argued for in such cases, where lenders sought to recover the entire advance on a breach-of-trust theory regardless of what they had actually lost as a result of the breach.
For PI underwriting and broking the decision has several consequences. First, lender claims against solicitors, which form a significant portion of solicitors’ PI exposure, are now measured by reference to true loss rather than restitutionary reconstruction of the advance. This makes such claims more tractable to settle and reserve, and reduces the spread of potential outcomes. Second, the decision reinforces the central importance of causation analysis in PI claims: insurers and defence solicitors will routinely ask what would have happened had the breach not occurred, and damages flow accordingly. Third, AIB sits alongside Dreamvar and P&P Property in shaping the modern law of solicitors’ breach of trust, but it pulls in the opposite direction by limiting damages — a useful counterweight from the insurer’s perspective.
For brokers placing solicitors’ PI cover, the case offers reassurance that runaway breach-of-trust recoveries are unlikely in mainstream lender-fraud or lender-error scenarios outside the identity-fraud context. It also illustrates the importance of careful management of completion procedures: the practical error in AIB was small but had outsize consequences and is the kind of risk that conveyancing-firm risk management should target.
By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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