Mortgage fraud — Unregistered dealings — Mortgagee in dispute with subsequent purchaser — Mortgagee claiming to be subrogated to vendor’s lien — Purchaser resisting on grounds of unjust enrichment — Whether such grounds applicable — Purchaser’s appeal dismissed
The leasehold title to a flat on Edgware Road, London, was, at all material times, registered in the name of G. The alleged interests of the claimant (H) and the defendant (O) were derived from their respective innocent* dealings, off the register, with a fraudulently operated company (U Ltd), which had used the services of a dishonest solicitor (T).
In July 1990, G sold and transferred the flat to U Ltd. The agreed purchase price of £132,000 was paid to G out of an advance of £147,000 that had been dishonestly obtained from H by U Ltd. This had been done with the assistance of T, who, although appointed to act also for H as well, took no steps to register the transfer or attend to the execution and registration of a legal charge. In December 1990, U Ltd contracted to sell the flat, for £150,000, to O, who paid a deposit of £50,000 and went into occupation as a lessee of U Ltd, pending completion. In April 1991, H, having been alerted to the fraud, registered a caution against dealings with the flat. In December 1991, U Ltd purported to complete with O, who paid the balance of the £150,000. In March 1992, O attempted to register his purchase, but was prevented from doing so by H’s caution .
In or about December 1993, H, having learned that O was in occupation of the flat, brought proceedings against O, claiming, inter alia, that: (i) since G had been paid with the money advanced, H was entitled to be subrogated to the extent of the unpaid vendor’s lien that had, until then, subsisted in favour of G; (ii) there was no reason to disturb the general rule that priority should follow the order in which the competing equitable interests arose. The judge ruled in favour of H, and O appealed.
O accepted that the subrogation-based right would have prevailed over any claim by U Ltd, but argued, relying upon the decision of the House of Lords in Banque Financière de la Cite SA v Parc (Battersea) Ltd [1999] 1 AC 221 (BFC), that because H’s claim sounded in restitution, it could not be asserted against O unless it were shown that O had been enriched at the expense of H. It was argued that no such enrichment had occurred, as it was the very payment to G that had presented the buying opportunity to O, who now stood to be unjustly deprived, by the doctrine of subrogation, of the property he had purchased.
Held: The appeal was dismissed.
O derived no assistance from BFC, where the House of Lords had applied the doctrine of unjust enrichment solely as a means of fashioning the remedy of subrogation to meet a situation in which property rights were not in issue. In a straightforward case like the present, the remedy of subrogation gave effect to a property right (the vendor’s lien) that already existed in equity: see per Millet LJ in Boscawen v Bajwa [1996] 1 WLR 328 at p335.
As explained by Walton J in Burston Finance Ltd v Speirway Ltd [1974] 1 WLR 1648 at p1652, the basis of the doctrine of subrogation, in an ordinary and typical case, is that where A’s money is used to pay off the claim of B, who is a secured creditor, A is entitled in equity to be regarded as having had an assignment to him of B’s rights as a secured creditor.
* Editor’s note: For the purpose of the appeal, it was assumed that O had acted in good faith throughout.
Alexander Hill-Smith (instructed by the Sethi Partnership, of Ruislip) appeared for the appellant; Geoffrey Zelin (instructed by DLA) appeared for the respondent.
Alan Cooklin, barrister
