In a decision to be welcomed by lenders, the UK Supreme Court has recently confirmed the availability of subrogation to the unpaid seller's lien as a remedy in the context of unjust enrichment.
The appellant, Ms Menelaou, owned a property purchased for her by her parents, which she was to hold for the benefit of her siblings. That property had been purchased by her parents using the proceeds of the previous family home. The respondent bank had two charges over that previous family home. It was agreed between the parents and the bank at the time of purchase of the new property that the bank would take security over the new property.
Through, it seems, undisclosed fraud the bank was granted a charge over Ms Menelaou's new property, without Ms Menelaou ever having executed the necessary documents.
The case therefore concerned the unjust enrichment of Ms Menelaou. The critical question was whether she was enriched at the expense of the bank. If so, the enrichment must clearly have been unjust. The Court thought that was plainly so; she had become the owner of the new property thanks to the bank's agreement to release a part of the debt in return for that charge. Since the charge was void, the value of the new property to Ms Menelaou was considerably greater at the expense of the bank. And, since the purchase of the new property was part of one overall scheme, whether the Court adopted a broad or narrow approach to the causal test, there was a sufficient causal connection between the bank's loss and Ms Menelaou's benefit.
The Court held the appropriate equitable remedy to be the bank's subrogation to the unpaid seller's lien. This had the effect of reinstating Ms Menelaou's liability under the charge, reversing her unjust enrichment, and allowing the bank to enforce its equitable interest in the property by sale.
See Court decision here.