A lender which fails to register its legal charge will, subject to fulfilment of all other relevant requirements, be entitled to be subrogated to an earlier legal charge that was discharged from the advance.

In Anfield (UK) Ltd v Bank of Scotland plc and another, the bank advanced money to the second defendant to redeem a charge in favour of the Halifax Building Society. The bank received an executed charge but failed to register it. The claimant then obtained and registered a charging order. The bank sought to be subrogated to the Halifax's charge so that it would rank ahead of the claimant's charge. The court held the bank was entitled to be subrogated to and registered as proprietor for the Halifax charge to the extent of the moneys advanced to discharge it. The claimant appealed.

The court held that a lender who stipulated for a legal charge but only obtained an equitable one due to its failure to register its charge would be entitled to be subrogated to an earlier legal charge that was discharged with its advance. The claimant had been unjustly enriched by the non-fulfilment of the bank's expectation as to the security, which formed the basis of its decision to lend. In such a case, the court looked to the justice of the position as between the lender and the party enriched. Any unfair consequences of subrogation could be dealt with by way of a defence of change of position. It did not matter that the borrower had performed the terms of the bargain between the borrower and the lender.

Things to consider

Negligence or carelessness by the lender in perfecting its security is not a factor to be taken into account when considering a claim for subrogation.