Supreme Court awards subrogation as proprietary remedy

Supreme Court awards subrogation as proprietary remedy

Tim Polli of Tanfield Chambers examines the Supreme Court’s use in an unjust enrichment case of the remedy of subrogation to an unpaid vendor’s lien in Bank of Cyprus UK Ltd v Menelaou.

Original news

Bank of Cyprus UK Ltd v Menelaou [2015] UKSC 66, [2015] All ER (D) 38 (Nov)

The appellant’s parents had owned a property over which the respondent bank had two charges totalling £2.2m. When the parents sold that property, they bought a new property in the appellant’s name. The bank released the charges in exchange for a payment of £750,000 of what the parents owed it and a charge over the new property to secure the parents’ remaining debts. However, the charge was not executed properly and the appellant sought its removal from the register. The bank counterclaimed that it should be subrogated to the lien which the vendors of the new property had over the freehold before they were paid. The Supreme Court held that, albeit through no fault of hers, the appellant had been unjustly enriched at the expense of the bank and that, as a remedy, the latter was therefore entitled to the lien on the property.

What is the doctrine of subrogation and what was its importance in this case?

Subrogation is often employed by a lender in circumstances in which, for some reason, the lender did not have the security that it expected to have for its loan. The disappointed lender may, in some circumstances, be treated as though it had received an assignment of a prior discharged security interest (or even a prior discharged personal claim) or is otherwise entitled to step into the shoes of a prior creditor. There is no assignment—the earlier security or personal right has been discharged in whole or in part—but the disappointed lender is treated as though there has been an assignment of some or all of the rights of the prior creditor.

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.