Menelaou v Bank of Cyprus Plc

Subrogation to an unpaid vendor’s lien and proprietary remedies in unjust enrichment require more than the claimant’s detriment and the defendant’s benefit. The claimant must establish that the defendant was enriched at the claimant’s expense, including a transfer of value between them. A causal connection or economic sequence cannot be disregarded where the benefit was complete before the alleged detriment occurred. Where money used to acquire property belonged to another party, rather than the claimant seeking the remedy, the traditional proprietary routes are unavailable. The court may adopt a wider unjust-enrichment analysis, but it will not manipulate that doctrine to relieve solicitors from the consequences of their own breaches of undertaking.

The claimant acquired a house with money passing through solicitors’ client account from the sale proceeds of her parents’ charged property. The defendant bank agreed to release its charges over the old property on receipt of £750,000 and a third-party charge over the new property. The proposed charge was defective and did not secure the parents’ indebtedness.

The bank abandoned its claim that the defective charge was enforceable against the claimant and pursued a counterclaim. It alleged that the claimant held the new property on trust for the bank or that the bank was entitled to an equitable charge by subrogation to an unpaid vendor’s lien. The central issue was whether the bank could recover through proprietary or unjust-enrichment principles.

1. Traditional proprietary remedies. The sale proceeds of Rush Green Hall belonged beneficially to the claimant’s parents. The bank acquired no proprietary interest in them by agreement or operation of law. Barclays Bank v Buhr [2001] EWCA Civ 1223 was distinguishable: there the mortgagee’s security interest arose on an unauthorised disposition, whereas here the charges remained in place and the sale occurred with the bank’s consent. The parties’ rights therefore depended on the terms of that consent.
2. The same conclusion applied to the deposit paid on exchange of contracts. The money was not the bank’s money. The claims that the claimant held the property on trust for the bank and that the bank was subrogated to an unpaid vendor’s lien consequently failed.
3. Unjust enrichment. The court adopted the high-level questions identified by Lord Hoffman and Lord Steyn in Banque Financiere v Parc [1999] 1 AC 221: whether the defendant was enriched at the claimant’s expense, whether the enrichment was unjust, and whether public policy nevertheless denied a remedy. The public-policy issue did not arise, and unjustness would have been clear if enrichment at the claimant’s expense had been established.
4. The bank’s release of its charges was a detriment, and the claimant’s gratuitous acquisition of the property was a benefit. That did not establish that the benefit was at the bank’s expense. There had to be something in the nature of a transfer of value from the bank to the claimant. The claimant’s benefit was complete on 12 September 2008, whereas the bank’s detriment occurred a month later when the charges were released. The unjust-enrichment claim therefore failed.
5. Judgment was entered for the claimant against the bank, with costs, and for the bank against Boulter & Co. Consequential orders concerning damages and costs were made under the parties’ agreement.