Melissa Menelaou (Respondent/Claimant) v Bank of Cyprus UK Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lord Justice Tomlinson,Lord Justice Moses |
| Judgment Date | 02 July 2013 |
| Neutral Citation | [2013] EWCA Civ 1960 |
| Date | 02 July 2013 |
| Docket Number | Case No: A3/2012/2052 |
| Court | Court of Appeal (Civil Division) |
[2013] EWCA Civ 1960
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR DAVID DONALDSON QC SITTING AS A DEPUTY HIGH COURT JUDGE
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moses
Lord Justice Tomlinson
and
Lord Justice Floyd
Case No: A3/2012/2052
Timothy Polli (instructed by Matthew Arnold & Baldwin LLP) for the Appellant
Mark Warwick QC (instructed by Jeffrey Green Russell Ltd) for the Respondent
The Third Party did not appear on the appeal
Hearing date: April 23 2013
This appeal raises questions about the law of unjust enrichment, and one of the remedies which may be granted to reverse the effect of unjust enrichment, namely subrogation to an unpaid vendor's lien. The appellant, the Bank of Cyprus UK Limited ("the Bank"), claims to be entitled by subrogation to a charge over a house owned by the respondent Melissa Menelaou, ("Melissa"). Although Melissa now accepts that the Bank expected to obtain a charge over her property, she knew nothing of it at the time. She was 18 years old when the house was purchased, and believed it was a gift from her parents. As explained below, it now appears that the signature on the charge was not hers or was otherwise defective. In consequence, the legal charge was void. The Bank's case is that Melissa has been unjustly enriched at its expense, and it asks the court to grant the remedy of subrogation, so as to make it an equitable chargee of Melissa's property by subrogation to the unpaid vendor's lien.
Parris and Donna Menelaou ("the Menelaou parents") had a property business. In 2008 they lived with three of their children including Melissa at Rush Green Hall, a property owned by the Menelaou parents. The Menelaou parents were indebted to the Bank in the sum of £2.2m, an indebtedness which was secured by two legal charges on Rush Green Hall. In 2008 the Menelaou parents decided to sell Rush Green Hall in order to purchase a further, smaller property as the family home as well as to provide funds to allow their eldest daughter Danielle to pay the deposit on a house which she wanted to buy with her future husband. A purchaser for Rush Green Hall was found who agreed to pay a purchase price of £1.9m, a sum which would have been inadequate to discharge the Menelaou parents' indebtedness to the Bank. A deposit of 10% (£190,000) was payable on exchange of contracts, which took place on 15 July 2008.
Boulter & Co ("Boulters) were the solicitors acting for the Menelaou parents in connection with the sale of Rush Green Hall. Paul Cacciatore, a legal executive at Boulters, was Mr Menelaou's brother-in-law. On the date of exchange of contracts Boulters wrote to the Bank setting a completion date of 12 September 2008.
Mr Menelaou located a suitable new property, 2 Great Oak Court ("Great Oak Court"). On 24 July 2008 contracts were exchanged with the vendors of Great Oak Court at a purchase price of £875,000. The purchaser was to be Melissa. A 10% deposit (£87,500) was paid out of the larger deposit which had been received from the purchasers of Rush Green Hall. Melissa was told that Great Oak Court was being bought in her name as a gift for her and for her two younger siblings, on the basis that she would hold the property for herself and for them. Nothing turns on the fact that Melissa held the property subject to these other interests.
The Bank was approached in connection with these arrangements. After some deliberation, on 9 September 2008 the Bank confirmed by letter that it would release its charges over Rush Green Hall provided that, on completion, £750,000 of its indebtedness was repaid to it and provided further that it was granted a new charge over Great Oak Court. As is often the case, the Menelaou parents' solicitors, Boulters, were also instructed by the Bank to act for it in connection with the discharge of the Bank's charges over Rush Green Hall and the obtaining of the new charge over Great Oak Court. These two linked transactions obviously required the co-operation of the Bank.
The Bank's letter of 9 th September 2008 to Boulters included the following:
"We confirm that upon receipt of £750,000 we will release our charges over [Rush Green Hall] subject to a 3 rd party legal charge over the property known as 2 Great Oak Court which is registered in the name of Melissa Menelaou."
On 10 September 2008 Boulters provided the Bank with a certificate of title in standard form in which they undertook, prior to the use of "the mortgage advance", to obtain in the form required by the Bank, the execution of a mortgage by Melissa over Great Oak Court.
In order to create a valid charge over Great Oak Court, it was necessary for Melissa to sign it. Melissa's case was that she did not sign the charge, and that the signature on the charge was not hers. She was supported in this version of events by her younger brother Max, who said that Mr Cacciatore had asked him to sign it, and he had done so without any explanation of what it was. The absence of Melissa's signature, if true, was not the only thing wrong with the charge. The charge identified Melissa as "the customer" of the Bank, which she was not. Of course it was the Menelaou parents who were the customer, as it was their indebtedness to the Bank that the charge was intended to secure. The Bank pointed out this error after the charge was sent to them on 11 September. Mr Cacciatore dealt with the error by simply changing names in manuscript to identify the Menelaou parents instead of Melissa as the customer.
Completion of both sales took place on 12 September 2008. On that day Boulters received into its client account the balance of the proceeds of sale of Rush Green Hall. From those funds, as had been agreed, Boulters sent £750,000 to the Bank to repay part of the indebtedness of the Menelaou parents and £785,000 to the vendor of Great Oak Court to meet the balance of the purchase price on that property. They also sent the necessary forms to the Bank to be completed by them for the purpose of releasing the charges on Rush Green Hall. These forms were returned by the Bank on 13 October 2008, approximately a month after completion. Following completion, the Menelaou parents moved into Great Oak Court with Melissa and the two younger children.
In the spring of 2010 the Menelaou parents' property business was experiencing difficulties. They proposed that Great Oak Court be sold and a smaller property purchased. The conveyancers pointed out that there was a charge dated 12 September 2008 over Great Oak Court securing the indebtedness of the Menelaou parents to the Bank.
These proceedings were commenced by Melissa on 2 November 2010 seeking rectification of the register to remove the charge dated 12 September 2008. There were two limbs to her case. The first was that she had not signed the charge. The second was that the deed had been altered by Mr Cacciatore without Melissa's authorisation. The Bank defended the proceedings on the basis of what they were told by Boulters, about the validity of the charge, and joined Boulters as a third party. It also launched a counterclaim, which I explain further below. The position adopted by Boulters, as put forward by Mr Cacciatore, was that Melissa had signed the charge in front of a witness. They further argued that the alteration to the deed did not invalidate it, as it had occurred before delivery.
At an early stage of the trial Boulters and the Bank abandoned the allegation that the charge was enforceable against Great Oak Court as security for the indebtedness of the Menelaou parents to the Bank. Boulters and the Bank entered into an agreement, the terms of which were in substance that:
i) in failing to obtain for the Bank an enforceable charge over Great Oak Court as security for the debts of the Menelaou parents, Boulters were in breach of duties which they owed to the Bank in contract and in tort;
ii) it was thereby liable to the Bank for the loss it had suffered in consequence of the invalidity of the charge as security for those debts.
It followed that the invalidity of the charge, but not the reason or reasons for its invalidity, was now common ground between Melissa and the Bank. What was left in the proceedings was the Bank's counterclaim against Melissa. By its counterclaim the Bank sought, first, a declaration that Melissa held Great Oak Court on trust for the Bank. That contention was no longer pursued before us. Alternatively the Bank sought a declaration that it was entitled to an equitable charge arising as a result of subrogation to an unpaid vendor's lien over Great Oak Court.
The judge, Mr David Donaldson QC sitting as a deputy judge in the Chancery Division, rejected the Bank's counterclaim. He held that whether one applied what he described as a "narrow or traditional approach" to the doctrine of subrogation to the unpaid vendor's lien, or a "wider approach" based on the law of unjust enrichment, the fact that the monies provided for the purchase were not paid by and did not belong to the Bank was fatal to the counterclaim. The Bank appeals, with the permission of Sir Stanley Burnton, from his judgment and order.
"Subrogation to an unpaid vendor's lien"
Although well known to those who specialise in the field, the concept of subrogation to an unpaid vendor's lien is not a particularly straightforward one to understand. In terms of the present case, what the Bank seeks to achieve is to be placed in a position equivalent to that of the vendor of Great Oak Court at the point where the purchase money has not been paid. At that point the vendor would be able to refuse to convey the title to Great Oak Court, unless the...
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