This case has now been reported in full in The Weekly Law Reports as Menelaou v Bank of Cyprus UK Ltd [2015] 3 WLR 1334, SC(E).

RESTITUTION — Unjust enrichment — Subrogation — Bank releasing charges over claimant’s parents’ property in exchange for new charge over property purchased for claimant with proceeds of sale of other property — Claimant unaware of arrangement and purported charge invalid — Bank seeking equitable interest in new property on ground that claimant otherwise unjustly enriched at its expense — Whether bank entitled to claim subrogation to unpaid vendor’s lien as means of obtaining restitution

Menelaou v Bank of Cyprus plc

[2015] UKSC 66; [2015] WLR (D) 438

SC: Lord Neuberger of Abbotsbury PSC, Lord Kerr of Tonaghmore, Lord Clarke of Stone-cum-Ebony, Lord Wilson, Lord Carnwath JJSC: 4 November 2015

Where a person was given a property by her parents bought with money from the sale of the family home, made possible by a bank having agreed to release its charges over the family home (securing the parents’ borrowing) to allow it to be sold, in return for receiving a lump sum payment out of the proceeds of sale to reduce the borrowing and a fresh charge over the new property to secure the remaining indebtedness, but— because the person had not been told of the fresh charge and it had been defectively executed— the new charge was void, the bank had an equitable interest in the new property to the extent of the value of the purported charge, which it could enforce by means of subrogation to an unpaid vendor’s lien.

The Supreme Court so held by a majority (Lord Carnwath JSC relying on a different ground) when unanimously dismissing an appeal by the claimant owner, Melissa Menelaou, against the order of the Court of Appeal (Moses, Tomlinson and Floyd LJJ) [2013] EWCA Civ 1960; [2014] 1 WLR 854 whereby it had allowed an appeal by the defendant bank, Bank of Cyprus UK Ltd, against the order of David Donaldson QC who, sitting as a deputy judge of the Chancery Division [2012] EWHC 1991 (Ch) and having ordered the removal of the relevant entries in the land charges register at the Land Registry (the bank having conceded the invalidity) had dismissed the bank’s counterclaim for a declaration that it was entitled to be subrogated to an unpaid vendor’s lien over the property.

LORD CLARKE OF STONE-CUM-EBONY JSC said that the case was one of unjust enrichment. When faced with such a claim the court had to ask whether (1) the defendant had been enriched; (2) the enrichment had been at the claimant’s expense; (3) the enrichment was unjust; and (4) there were any defences available to the defendant. Here, there was no doubt that the owner had been enriched when she became the owner of the new property: her obligation to pay the purchase price to the vendor had been discharged. The answer to the question whether she had been enriched at the expense of the bank— and if she had been, there could be no doubt that the enrichment was unjust— was also in the affirmative. The bank had been central to the scheme from start to finish. The remedy of unjust enrichment did not require there to have been a direct payment by the bank to the owner. Any such a requirement, while sufficient, would be too rigid. Whether a particular enrichment was at the expense of the other party depended upon the facts of the case: whether there was a sufficient causal connection, in the sense of a sufficient nexus or link, between the loss to the bank and the benefit received by the defendant, here the owner. Nor could the owner rely on any defence: there was no change of position defence, nor was she a bona fide purchaser for value without notice. She was a mere donee.

The remedy available to the bank was subrogation to the unpaid seller’s lien in order to reverse what would otherwise be the owner’s unjust enrichment. A third party who provided some or all of the purchase money for a purchaser, thereby discharging the obligation to the vendor, could claim the benefit of the unpaid vendor’s lien by subrogation. That was so even after the lien had been extinguished as between vendor and purchaser. The answer as to how, or why, that should be the case— or how it was that the unpaid vendor’s lien transferred from the vendor to the third party— had been explained in earlier authority as being an equitable remedy by which the plaintiff’s legal relations with a defendant who would otherwise be unjustly enriched were regulated “as if” the benefit of the charge had been assigned to him: see Orakpo v Manson Investments Ltd [1978] AC 95, 104, 110, 112 and Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221, 233–234, 236. The doctrine of unjust enrichment allowed a flexible approach to the remedies appropriate in a particular case.

LORD NEUBERGER OF ABBOTSBURY PSC delivered a concurring judgment.

LORD KERR OF TONAGHMORE and LORD WILSON JJSC agreed with both judgments.

LORD CARNWATH JSC said that he agreed that the appeal should be dismissed, but by a strict application of the traditional rules of subrogation— by tracing the money in question— without any need to extend them beyond their established limits by conflating them with the doctrine of unjust enrichment. There was a clear “tracing link” between the bank and the money used to purchase the owner’s property. The bank’s interest in the purchase money was clear and direct. On that relatively narrow ground, he would dismiss the appeal.

Appearances

Mark Warwick QC and Joseph England (instructed by Jeffrey Green Russell Ltd) for the owner.

Philip Rainey QC and Timothy Polli (instructed by Matthew Arnold & Baldwin LLP) for the bank.

Reported by: Colin Beresford, Barrister.

© 2015. The Incorporated Council of Law Reporting for England and Wales.