Anfield (UK) Ltd v Bank of Scotland Plc & Ors

Equitable subrogation is directed to preventing unjust enrichment. A lender may be subrogated to a prior charge where its advance discharged that charge but the lender failed to obtain the security for which it advanced the money. The relevant question is whether the resulting enrichment is unjust in the overall circumstances, including whether the lender’s expectation as to security formed the basis of its decision to advance. The lender’s carelessness in obtaining or perfecting security does not, by itself, defeat the remedy. The court may nevertheless withhold subrogation where third-party detriment or a change of position makes the enrichment just. Non-registration under the Land Registration Act 2002 did not prevent subrogation in these circumstances.

The claimant appealed from an order of Her Honour Judge Marshall QC, sitting in the Central London County Court, which held that the Bank was entitled to be subrogated to a prior Halifax charge over property owned by a bankrupt borrower. The Bank had funded redemption of that charge and received an executed charge capable of registration, but failed to register it before the claimant obtained an equitable charging order and another lender held an intervening legal charge.

The issue was whether the Bank’s failure to register its charge meant that the enrichment of the intermediate secured lenders was not unjust, and whether the reasoning in Burston Finance v Speirway Ltd should be preferred to the later analysis in Cheltenham & Gloucester plc v Appleyard.

1. The appeal failed. The Bank was entitled to be subrogated to the Halifax Charge to the extent of the money advanced to discharge it, and the decision below was upheld.

2. Equitable subrogation is a restitutionary remedy founded on preventing unjust enrichment. The relevant inquiry is whether the defendant’s enrichment at the claimant’s expense is unjust, not whether the lender’s conduct satisfies a narrow contractual analysis of the bargain.

3. The court preferred the analysis in Cheltenham & Gloucester plc v Appleyard, applying the approach in Banque Financière de la Cité v Parc (Battersea) Limited. The Bank advanced the money on the basis that it would obtain a legal charge. Its failure to register meant that it obtained only a subsequent equitable charge, so it did not receive the security contemplated by the transaction.

4. Carelessness in obtaining or perfecting security does not, by itself, defeat subrogation. The court should assess the justice of the enrichment. Potential detriment to third-party lenders may justify withholding the remedy, including by analogy with change of position, but no such consideration displaced the remedy here.

5. The policy of the Land Registration Act 2002 did not create a conclusive code excluding subrogation. Any unfair consequences could be addressed through a change-of-position defence.

The judgment records that Her Honour Judge Marshall QC, sitting at the Central London County Court, held on 28 January 2010 that the Bank was entitled to subrogation. The High Court dismissed the appeal and upheld that decision.