In Spencer Day v Tiuta International Ltd and other [2014] EWCA Civ 1246, the Court held that a creditor who relies on subrogation is still a secured creditor, and therefore cannot be subject to a set off claim for unliquidated damages as per Natwest v Skelton (1993).


The Claimant purchased a substantial property with a loan from Standard Chartered for £3m, which was secured against the property. He wanted to develop the site further so he then arranged to borrow £12m, to be drawn down in tranches, part of which was used to repay the Standard Chartered loan.

Subsequent draw downs of approx £1.2m were made, based on architects certificates relating to progress on the development of the site. The Claimant alleged that the payments took so long that they significantly disrupted and delayed the development.

The lender went into administration before the development finished and was unable to pay the remainder of the draw downs. The Claimant could not finish the development, which was left half-built. The administrators of the lender appointed LPA Receivers who repossessed and marketed the property for sale.

The Claimant issued proceedings against the lender and receivers and others, asserting that he had an unliquidated claim in damages and that the damages were more than he owed the lender. By virtue of set off, the loan would be discharged and the receivers’ appointment invalidated. Furthermore, the Claimant had been induced to enter into the loan with the lender by virtue of fraudulent misrepresentations made by the lender in relation to its solvency.

By way of defence and counterclaim, the lender sought a declaration that the charge and receivers’ appointment was valid, that the set off could not work (pursuant to the line of authorities ending in Natwest Bank v Skelton) and that they were subrogated to the Standard Chartered charge to the extent of £3m plus and therefore could appoint LPA Receiver’s by virtue of that subrogation, even if the lender’s charge was rescinded.

The lender sought and was granted a strike out of part of the Claimant’s claim, as well as summary judgment on its own counterclaim which was granted in part. The Claimant appealed to the Court of Appeal.

The first ground of appeal by the Claimant was a submission that the lender could not be subrogated to Standard Chartered’s charge, and rely on those rights to validate the LPA Receiver appointment, in circumstances where there had not yet been an acceptance or finding that the bank’s charge was in fact invalid, void or defective.

The second ground was that, even if subrogation was effective, the lender had to appoint the LPA Receivers in accordance with the terms of the Standard Chartered charge, and not the lender’s charge (there were some procedural differences between the two in relation to the demanding of the outstanding sum).

The third ground related to the fact that the Claimant had every prospect of establishing at trial that the lender would not be entitled to any equitable rights of subrogation as any such claim would be defeated by an equitable defence – i.e. the set off of the unliquidated damages claim.


All three grounds failed and the first instance decision in favour of the lender was upheld.

As to the first ground, the Court of Appeal held that the fact that a security was voidable as opposed to void does not preclude the operation of subrogation. The fact that the security is voidable means that the lender did not get what it bargained for, which triggered the right to rely on subrogation.

The Court held that the second ground was not supported by any legal authority, and affirmed that the right of subrogation created an equitable proprietary interest in the property in favour of the lender at the time of the redemption of the Standard Chartered charge. That interest is not the interest of Standard Chartered but a new and independent equitable security. There is no assignment of the Standard Chartered charge. As long as the Standard Chartered charge contained the right to appoint receivers (which it did), that the specific methodology of appointing receivers set out in the Standard Chartered charge had not been followed did not make the appointment invalid.

In addition, the Court made clear that in circumstances where the lender had been unaware of the challenge to the validity of the lender’s charge at the time of the appointment, the doctrine is flexible enough to operate to deem an appointment purportedly pursuant to a voidable security as one having been made to subrogation rights.

The Claimant relied, for his third ground of appeal, on equitable defences such as “he who comes to equity must come with clean hands”. It was submitted that Natwest v Skelton did not apply in the context of subrogation, which is based on a requirement to show unjust enrichment. The Court held that a creditor who relies on subrogation is still a secured creditor, and therefore cannot be subject to a set off claim for unliquidated damages as perNatwest v Skelton.


This is a case with a convoluted set of facts and an enraged customer but it is relevant to the ability (or not) to set off unliquidated counterclaims against a mortgage debt. In conclusion, some rather fanciful defences roundly dismissed by the Court of Appeal.