In Menelaou v Bank of Cyprus  EWCA Civ 1960, the Court of Appeal considered the fundamental nature of subrogation to a prior discharged security, in this case, an unpaid vendor’s lien. What makes the case unusual, is that the lien was not discharged with money which had just been received from the Bank.
The Bank had agreed to release its charges over its security property, the former family home, permitting its sale, but only on condition that it received, amongst other things, a third party charge over a new home to be bought in the name of its borrowers’ daughter, Melissa with some of the proceeds of sale of the former family home. The transactions appeared to complete, but the charge apparently executed by Melissa to secure her parents’ debts turned out to be void. The Bank claimed to be subrogated to the unpaid vendor’s lien which had been discharged with some of the proceeds of sale of the former family home (over which it had released its security). Subrogation had never before been awarded in such circumstances, and Melissa argued that to permit subrogation would be a wholly unjustified and unprincipled extension of the law because the Bank could not show that the lien had been discharged with its money. Instead, it had been discharged with the parents’ money. At trial, the Bank failed, but it appealed.
Tim argued, by reference to Banque Financière de la Cité v Parc (Battersea) Limited  UKHL 7;  AC 221, that subrogation was a restitutionary remedy awarded to reverse what would otherwise constitute unjust enrichment; and that Melissa had been unjustly enriched at the Bank’s expense such that the Bank should be subrogated to the lien.
The appeal was successful. The Court of Appeal agreed with the restitutionary analysis advanced by Tim on behalf of the Bank, and concluded that Melissa had been enriched at the Bank’s expense. The Bank was entitled to be subrogated to the unpaid vendor’s lien. That made it unnecessary to consider the Bank’s alternative argument that, in fact, it did have an equitable interest in the proceeds of sale of the former family home (because they were, in essence, the fruits of its security).
If you would like further information about this case, or the issues arising concerning subrogation and/or unjust enrichment, please contact Tim Polli.