Anfield (UK) Ltd v Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE PROUDMAN,Mrs Justice Proudman |
| Judgment Date | 24 September 2010 |
| Neutral Citation | [2010] EWHC 2374 (Ch) |
| Docket Number | Case No: CH/2010/APP/0102 |
| Court | Chancery Division |
| Date | 24 September 2010 |
[2010] EWHC 2374 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mrs Justice Proudman
Case No: CH/2010/APP/0102
Richard Lander (instructed by Chandler Harris) for the Claimant Appellant
Charlotte Eborall (instructed by Optima Legal Services Limited) for the First Defendant/Respondent
Hearing dates: 13 July 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mrs Justice Proudman:
The issue on the appeal
This is a case about the remedy of subrogation as it affects the priority of charges.
It has been argued before me on behalf of the claimant and appellant, Anfield (UK) Limited (“Anfield”), and Bank of Scotland Plc (“the Bank”), the first defendant. The case arises out of loans to the second defendant, Mr Siddiqui, a bankrupt, who is the registered proprietor of property (“the property”) at Stepney Green in London. Neither Mr Siddiqui nor his trustee in bankruptcy appeared at trial or on the appeal. There is another party to the action, London Scottish Finance Limited (“LSFL”), joined after trial pursuant to an order of the trial judge on 3 rd March 2010. However LSFL (which is in administration) was not represented at and did not participate in the appeal.
The following items appear on the charges register within the register of title in respect of the property, in the following order:
(1) A registered charge dated 30 th June 2000 (“the Halifax Charge”) to secure the moneys including the further advances therein mentioned. The Halifax Charge was registered on 29 th September 2000. As is evident from earlier versions of the register, and is common ground, the Halifax Charge was granted to the Halifax Building Society. The Bank is registered as the Proprietor of the Halifax Charge and the date of registration is 3 rd December 2007. Again it is common ground that the Bank advanced moneys to Mr Siddiqui to discharge the Halifax Charge.
(2) A registered charge dated 28 th June 2007 registered on 16 th July 2007. LSFL is the proprietor of that charge and was registered as such on the same date.
(3) A Unilateral Notice in respect of a pending land action for a charging order registered on 4 th October 2007 of which the beneficiary is Anfield, registered as such on the same date. On 3 rd April 2008 an equitable charge created by an interim charging order dated 25 th March 2008 was registered.
(4) A Unilateral Notice in respect of an advance by remortgage (completed on 1 st September 2006) was registered on 1 st April 2009 of which the Bank was registered as beneficiary on the same date.
The Bank lent Mr Siddiqui the money to redeem the Halifax Charge and in September 2006 received in return an executed charge (“the 2006 Charge”) capable of being registered as a legal charge. However, the Bank failed to register the 2006 Charge. Anfield obtained and registered its charging order. Subsequently, the Bank caused its Unilateral Notice to be entered in respect of the 2006 Charge.
The Bank claimed to be entitled to invoke the remedy of subrogation to the Halifax Charge. If it was so entitled, it would rank in priority to Anfield's equitable registered charge at (3) and LSFL's registered legal charge at (2).
By Order dated 28 th January 2010, Her Honour Judge Marshall QC, sitting at Central London County Court, held that the Bank was entitled to be subrogated to and registered as proprietor of the Halifax Charge to the extent of the moneys advanced to discharge it.
Anfield appeals against that decision, relying on a similar reasoning to that of Walton J expressed in Burston Finance v. Speirway Ltd [1974] 1 WLR 1648. Anfield's difficulty is that in Cheltenham & Gloucester plc v. Appleyard [2004] EWCA 291, Neuberger LJ, giving the judgment of the full Court of Appeal, comprising also Lord Phillips of Worth Matravers MR and Kennedy LJ, expressed the view of the Court that such reasoning was wrong in principle.
Mr Lander on behalf of Anfield submitted that (a) the facts of Appleyard are distinguishable from those of the present case, (b) the expression of opinion on the issue now arising was obiter and (c) the Court of Appeal's opinion should not be followed.
The law
A lender who has made advances which have been used to discharge a secured debt owed to another lender may be entitled to step into the shoes of the other lender as far as the security is concerned, thereby gaining priority over intermediate lenders also holding security over the same property.
It is plain from the authorities cited and authoritatively analysed in Appleyard (and particularly the decision of the House of Lords in Banque Financière de la Cité v. Parc (Battersea) Limited [1999] 1 AC 221) that the principle underlying such subrogation is equitable in origin and is now recognised as primarily aimed at preventing unjust enrichment.
Intermediate lenders are necessarily enriched by the discharge of a prior security. However, in order for the principle to be engaged it is necessary to identify some unconscionable or unjust factor. As May LJ (with whom the other members of the Court of Appeal agreed) said in Filby v. Mortgage Express (No 2) Limited [2004] EWCA (Civ) 759 at [62],
“…the remedy of equitable subrogation is a restitutionary remedy available to reverse what would otherwise be unjust enrichment of a defendant at the expense of the claimant. The defendant is enriched if his financial position is materially improved, usually as here where the defendant is relieved of a financial burden…The enrichment will be at the expense of the claimant if in reality it was the claimant's money which effected the improvement. Subject to special defences, questions of policy or exceptional circumstances affecting the balance of justice, the enrichment will be unjust if the claimant did not get the security he bargained for when he advanced the money which in reality effected the improvement, and if the defendant's financial improvement is properly seen as a windfall. The remedy does not extend to giving the claimant more than he bargained for. The remedy is not limited to cases where either or both the claimant and defendant intended that the money advanced should be used to effect the improvement. It is sufficient that it was in fact in reality so used. The remedy is flexible and adaptable to produce a just result. Within this framework, the remedy is discretionary in the sense that at each stage it is a matter of judgment whether on the facts the necessary elements are fulfilled.”
In Appleyard the Court of Appeal set out 13 established principles distilled from the authorities. Of particular relevance to the present case are 7, 8 and 11, as follows:
“Seventhly, a lender cannot claim subrogation if he obtains all the security which he bargained for, as in Burston Finance (applying Capital Finance Co Limited v. Stokes [1969] 1 Ch 261) or where he has specifically bargained on the basis that he would receive no such security as in Paul v. Speirway Limited (in liquidation) [1976] 1 WLR 220.
Eighthly, the fact that the lender's failure to obtain the security he bargained for was attributable to his negligence is irrelevant. It does not prevent him from claiming subrogation- see per Lord Hoffmann at 235G in Banque Financière. The effect of that observation was probably impliedly to disapprove observations of Walton J in Burston Finance at 1657C and F. However, Walton J was concerned with a case where the lender obtained the security, but negligently failed to protect himself by registering it, whereas in Banque Financière the lender's negligence was in failing to check that he had obtained the security…
Eleventhly, it is difficult, and may be impossible, for a lender who has obtained security to invoke subrogation where the security he has obtained gives him all the rights and remedies of security to which he claims to be subrogated (see Burston Finance at 1653 D-E), or is a security on which the original security would naturally merge (see Burston Finance at 1653C and per Lord Diplock in Orakpo [ v. Manson Investments Limited [1978] AC 95] at 105B-C.”
The central issue in the present appeal is whether the enrichment of intermediate secured lenders (that is to say, Anfield and LSFL) is unjust in circumstances where the lender claiming subrogation (the Bank) expects to receive a first legal charge over the property but does not do so solely because of its failure to register the charge under the Land Registration Act 2002.
Mr Lander submitted that the lender has all it bargained for in the matter of a charge, since registration was a matter solely for the lender, not for the borrower. In those circumstances he submitted that the fact that the failure to register may have been negligent is irrelevant.
Two potentially conflicting views appear from the authorities as to the effect of non-registration. In Burston Finance, Walton J remarked that a lender who fails to obtain his desired security by reason of non-registration under the Land Registration Acts is not entitled to subrogation because he has obtained everything he bargained for, namely a charge in registrable form.
By contrast, in Appleyard, the Court of Appeal took the view that a lender who stipulates for a legal charge but who in fact obtains only an equitable charge because he fails to register under the Land Registration Acts does not obtain all that he bargained for. He bargained for a legal charge. Accordingly, subject to fulfilment of all other relevant...
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