Banque Financière De La Cité v. Parc (Battersea) Ltd and Others

The House of Lords allowed the appellant bank's appeal and held that a restitutionary remedy (equitable subrogation limited in scope) was available against the intra-group creditor (OOL). The court applied principles of unjust enrichment: the bank's advance was traceable into the discharge of RTB's secured debt, OOL was enriched at the bank's expense, and that enrichment was unjust because the bank had advanced money in the mistaken belief that a postponement letter would protect it against intra-group claims. The remedy was fashioned so as to prevent OOL's unjust enrichment but not to disturb RTB's priority; the bank was to be treated, as against OOL only, as if subrogated to the benefit of RTB's charge to the extent of the repayment effected.

The appellant, a Swiss bank (BFC), advanced DM30m to enable Parc (Battersea) Ltd to repay part of an earlier loan from Royal Trust Bank (RTB) which was secured by a first charge on development land. In obtaining the advance BFC required a ‘‘postponement letter’’ from the Omni group which it expected would postpone intra-group creditors from demanding repayment until BFC had been repaid. The letter proved ineffective to bind Omnicorp Overseas Ltd (OOL). Parc became insolvent and OOL's second charge thereby benefited from the partial repayment funded by BFC. BFC sought a restitutionary remedy/subrogation against OOL to reverse OOL's enrichment.

Nature of the claim: BFC sought to prevent OOL from retaining the benefit of sums paid (a restitutionary remedy framed as limited subrogation to RTB's first charge as against OOL).

Issues framed: (i) whether OOL was enriched at BFC's expense; (ii) whether any enrichment was unjust; (iii) whether the bank's carelessness or absence of common intention barred relief; and (iv) whether subrogation would improperly improve the bank's position or prejudice RTB.

Procedural posture: At first instance Robert Walker J. found for BFC (subject to detailed findings on construction and authority). The Court of Appeal reversed. The House of Lords restored the result in favour of BFC, albeit limiting the operative declaration so that the subrogation operates as against OOL only.

Reasoning (concise): The Law Lords treated the claim primarily as one in unjust enrichment. They found BFC's funds were traceable into discharge of RTB's claim, that OOL was thereby enriched at BFC's expense, and that the enrichment was unjust because BFC had advanced money under the mistaken expectation of intra-group postponement which it would not otherwise have made. Lack of a common intention between BFC and OOL was not fatal to a restitutionary claim; carelessness by BFC did not alone negate unjust enrichment. Subrogation was available only to the extent necessary to prevent OOL's unjust enrichment and would not disturb RTB's priority. The House of Lords therefore allowed the appeal and ordered relief tailored to prevent OOL's unjust enrichment.

This was an appeal which the House of Lords allowed. The court held that BFC was entitled, as against OOL, to a restitutionary remedy in the form of limited subrogation: BFC's advance was traceable to the part repayment of RTB's secured debt, OOL was enriched at BFC's expense and that enrichment was unjust. The remedy was confined to preventing OOL's enrichment and did not affect RTB's priority; the declaration was amended so BFC was to be "treated as against OOL as if it had" the benefit of RTB's charge to the extent of the repayment.

At first instance Robert Walker J. granted relief to the bank. The Court of Appeal (Morritt L.J., Mummery and Beldam L.JJ.) allowed the respondents' appeal and dismissed the bank's claim. The House of Lords allowed the bank's further appeal and restored the judge's order subject to an amendment limiting the subrogation remedy to operate as against OOL. (House of Lords neutral citation: [1998] UKHL 7; reported also at [1999] AC 221 and [1998] 2 WLR 475.)