The owner of a Hertfordshire property has failed to persuade the Supreme Court that she holds title to it free of a bank charge.
In a case which Lord Clarke said was “concerned with the law of unjust enrichment and subrogation”, the court upheld an earlier ruling by the Court of Appeal that the Bank of Cyprus UK Ltd is entitled to an £875,000 charge over the property – equivalent to its purchase price in 2008.
Melissa Menelaou had sought rectification of the register to remove a charge registered by the Bank of Cyprus over the property at 2 Great Oak Court, Hunsdon, bought by her parents in 2008 as a gift to her.
She discovered the existence of the charge in 2010, and also learned that it had not been properly executed because she had not signed it. While it had been purportedly signed by her, she denied that it was her signature, claimed the charge was void and sought rectification.
However, the bank invoked the unpaid vendor’s lien – the charge which the law gave to the vendor over the property to secure the purchase price balance of £875,000 which the purchasers, Menelaou’s parents, were contractually due to pay him.
It counterclaimed that, because the £875,000 used to pay the vendor effectively originated from its release of charges over the parents’ previous property, and was intended to be secured on 2 Great Oak Court, the law entitled it to be subrogated to the unpaid vendor’s lien, and thereby to claim a charge over the property in the sum of £875,000.
The bank’s counterclaim was the only live issue for determination at trial. It was dismissed at first instance, but granted by the Court of Appeal.
Lord Clarke, giving the main judgment, said that this was a case of unjust enrichment. He said there was “no doubt” that Menelaou was enriched by the gift of 2 Great Oak Court, albeit on the basis that she would hold it for the benefit of herself and her two younger siblings, but that the critical question was whether she was enriched at the expense of the bank.
He continued: “In my opinion the answer to the question whether Melissa was unjustly enriched at the expense of the bank is plainly yes. The bank was central to the scheme from start to finish.”
He said that the bank had two charges on the parents’ previous property – Rush Green Hall, in Great Amwell – which secured indebtedness of about £2.2m.
He went on: “It agreed to release £785,000 for the purchase of Great Oak Court in return for a charge on Great Oak Court. It was thus thanks to the bank that Melissa became owner of Great Oak Court, but only subject to the charge. Unfortunately the charge was void… In the result Melissa became the owner of Great Oak Court unencumbered by the charge. She was therefore enriched at the expense of the bank because the value of the property to Melissa 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.
“As I see it, the two arrangements, namely the sale of Rush Green Hall and the purchase of Great Oak Court, were not separate but part of one scheme, which involved the bank throughout.”
He said that the bank is entitled to a lien on the property, “which is in principle an equitable interest which it can enforced by sale”, adding: “In short, by effectively reinstating Melissa’s liability under the charge, the remedy of subrogation is reversing what would otherwise be her unjust enrichment.”
Bank of Cyprus UK Limited v Menelaou Supreme Court (Lords Neuberger, Kerr, Clarke, Wilson and Carnwath) 4 November 2015
Mark Warwick QC and Joseph England (instructed by Jeffrey Green Russell) for the appellant
Philip Rainey QC and Timothy Polli (instructed by Matthew Arnold & Baldwin LLP) for the respondent
