Supreme Court of United Kingdom– Deciding on an appeal in a case concerning unjust enrichment and subrogation, the Court with the majority of 4:1 held that the appellant was enriched as she received the freehold of the property free of any charge, instead of receiving it subject to a charge to secure her parents’ indebtedness to the Bank (a “Charge”) and her enrichment was at the expense of the bank. Giving reasons the Court stated that the appellant was enriched at the expense of the Bank because the value of the property given to the appellant was considerably greater than it would have been but for the avoidance of the charge and the Bank was left without the security which was central to the whole arrangement.
According to the facts, the appellant is the owner of 2 Great Oak Court (“the Property”), bought by her parents (in her name as a gift to her) as a family home for her, her siblings and her parents. The respondent Bank had two charges, securing the parents’ borrowing, totalling about £2.2 million over the previous family home owned by the parents, which was sold. The Bank agreed to release those charges, in return for a lump sum payment of £750,000 discharging part of the debt, and a fresh charge over the Property to secure the remaining indebtedness of £1.45 million. This left £875,000 to be used out of the sale proceeds for the purchase of the Property in appellant’s name. The appellant claimed that she did not know of the charge since the beginning and it was also void because she had not signed it and it had been altered without consulting her. The Bank counterclaimed and invoked the unpaid vendor’s lien because the £875,000 used to pay the vendor effectively originated from its release of the charges over the previous property, and was intended to be secured on the Property.
Lord Clarke, delivering the judgment accepted the submission made on behalf of the Bank that the unjust factor or ground for restitution is usually identified in subrogation cases as being, either (1) that the lender was acting pursuant to the mistaken assumption that it would obtain security which it failed to obtain: or (2) failure of consideration. The Court further noted that in order to prove unjust enrichment, it is pertinent to find whether there is 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 appellant. The Court also justified the remedy of subrogating the Bank to the lien over the freehold as broad and flexible, and justified on analysis of the decision of the House of Lords in Orakpo v Manson Investments Ltd [1978] AC 95, 104. [Bank of Cyprus UK Limited v Menelaou, [2015] UKSC 66, decided on 4.11.2015]