Sandher v Pearson

Subrogation is a restitutionary equitable remedy. A claimant must establish enrichment at the claimant’s expense, unjustness, and absence of policy reasons to deny relief. Economic reality may assist in deciding whether there is a sufficient connection between the defendant’s benefit and the claimant’s loss, but it does not permit the court to disregard an applicable contract. Where a contract requires a party to clear charges or restrictions, performance of that bargain is not unjust enrichment. Relief can be tailored to the circumstances, but the claim must first be established. A new unconscionable-bargain case based on undervalue and inadequate advice will not ordinarily be entertained on appeal where it was not properly pleaded or investigated at trial.

Mr Sandher bought Mrs Pearson’s property for £170,000. Part of the transaction involved finance from Hedge Capital and the discharge of charges and restrictions affecting the property. Mrs Pearson counterclaimed for the money used to discharge those liabilities. District Judge Jack rejected the counterclaim in possession proceedings. On appeal, Mr Sandher accepted that insufficient weight had been placed on a contractual recital, leaving the issue whether Mrs Pearson could be subrogated to Hedge Capital’s rights. She also sought permission to advance an unconscionable-bargain case based on undervalue, vulnerability and the price manipulation arrangement.

1. Disposition. The Court of Appeal dismissed the appeal and the fresh application for permission to appeal. The county court’s conclusion was upheld on the case as pleaded and argued at trial.
2. Subrogation. The leading judgment of Arden LJ adopted the restitutionary framework identified in Banque Financière de la Cité v Parc (Battersea) Ltd [1998] 1 AC 221: enrichment at the claimant’s expense, unjustness, and absence of a policy reason to deny relief. No policy issue arose. Subrogation is an equitable remedy rather than a cause of action, and the court may tailor relief to the circumstances. Arden LJ’s observations about limiting relief to the relevant windfall were alternative and were not necessary to the decision.
3. Contractual obligations. Menelaou v Bank of Cyprus UK Ltd [2013] EWCA Civ 1960 concerned a materially different connection between the benefit and the claimant’s loss. It did not establish a general power to disregard contractual terms when considering unjust enrichment. The court also relied on the need to avoid conflict with contracts and leapfrogging over an immediate contractual counterparty, identified in Investment Trust v HMRC. Mrs Pearson’s contract required the property to be transferred free of the relevant restrictions and charges. The buyer was therefore not unjustly enriched by performance of that bargain. Unjust enrichment could be established only if the contract were set aside.
4. Unconscionable bargain. The trial judge’s findings criticised the buyer’s conduct and recognised the seller’s vulnerability, but the wider case based on undervalue and lack of independent advice had not been fully investigated. The pleaded case focused on the price manipulation arrangement. A broader case, if taken at trial, might have shifted the burden to the buyer to show independent advice and absence of unconscionable conduct, but that was only an alternative observation. The appellate court was entitled to reject the late application.

Lady Justice Gloster and Lord Justice Ryder agreed with Arden LJ.

1. Court of Appeal (Civil Division): appeal from the county court dismissed; fresh application for permission to appeal dismissed. [2013] EWCA Civ 1822.
2. Stoke-on-Trent County Court (District Judge Jack): counterclaim in possession proceedings rejected.