Bank of Cyprus UK Limited v Menelaou

An enrichment is at the claimant’s expense where the facts establish a sufficient causal nexus between the claimant’s loss and the defendant’s benefit. Direct payment from claimant to defendant is sufficient, but is not invariably necessary. Interrelated transactions should be considered as one scheme where that reflects their substance.

An innocent donee may be unjustly enriched by receiving property free from an intended charge. Subrogation to a discharged unpaid vendor’s lien may then reverse the enrichment, even though the purchase money did not pass directly from the claimant. The remedy must rest on principle and be fashioned to replicate, rather than exceed, the intended security. The general choice between a direct-enrichment rule with exceptions and a broader approach was left unresolved.

The Bank held charges over the home of Melissa Menelaou’s parents. It agreed to release part of the sale proceeds for the purchase of a replacement home in Melissa’s name, on condition that it received a charge over that property. The charge was invalid because Melissa had not executed it and the solicitors altered it without her authority. She consequently received the replacement property free from the intended security.

An additional judge of the Chancery Division dismissed the Bank’s counterclaim for subrogation: [2012] EWHC 1991 (Ch). The Court of Appeal unanimously reversed that decision and declared the Bank subrogated to an unpaid vendor’s lien for £875,000 plus interest: [2013] EWCA Civ 1960, [2014] 1 WLR 854.

The central issues were whether Melissa’s enrichment was at the Bank’s expense and, if so, whether subrogation to the unpaid vendor’s lien was an available remedy.

1. The appeal was dismissed unanimously. Lord Clarke and Lord Neuberger, with whose judgments Lord Kerr and Lord Wilson agreed subject to the treatment of a possible personal claim, held that the Bank had established unjust enrichment and was entitled to be subrogated to the unpaid vendor’s lien. Lord Carnwath agreed in the result by a narrower proprietary route.

2. Under the four-question framework recognised in Benedetti v Sawiris [2013] UKSC 50, Melissa had been enriched by receiving the property free from the intended charge. That enrichment was at the Bank’s expense. The sale of the parents’ property, the Bank’s conditional release of proceeds, the purchase of the replacement property and the intended charge formed one scheme. A direct payment from the Bank to Melissa was unnecessary. The required connection was a sufficient nexus between the Bank’s loss and her benefit.

3. The enrichment was unjust because the Bank released value on the mistaken assumption that it would receive replacement security. Melissa’s innocence did not prevent recovery. She was a donee and could be in no better position than her parents. She had no change-of-position defence and was not a bona fide purchaser for value. The Bank’s separate claim against the solicitors did not affect whether she had been unjustly enriched.

4. Subrogation was an equitable remedy capable of reversing the enrichment. The discharged lien was not literally revived. The parties’ legal relations were regulated as though its benefit had been assigned to the Bank. The remedy gave the Bank security for £875,000 plus interest, corresponding to the purchase price and remaining within the security contemplated by the scheme. Traditional formulations requiring the claimant’s own money to discharge the secured debt did not exhaust the circumstances in which restitutionary subrogation could arise.

5. The majority left open whether the Bank also had a personal monetary claim, its amount and its interaction with the proprietary remedy. Lord Kerr and Lord Wilson expressly preferred to leave that question entirely open.

6. Lord Carnwath concurred on the basis that traditional subrogation required a proprietary or tracing link. Boulters held the sale proceeds as trust money subject to arrangements that prevented their free disposal by the parents. The Bank therefore had the necessary interest in the money used to discharge the vendor’s lien. He considered it unnecessary and undesirable to extend proprietary subrogation by conflating it with the wider law of unjust enrichment.

1. United Kingdom Supreme Court: dismissed Melissa Menelaou’s appeal unanimously and upheld the Bank’s entitlement to subrogation: [2015] UKSC 66 .
2. Court of Appeal: unanimously allowed the Bank’s appeal and declared it subrogated to an equitable charge by way of unpaid vendor’s lien for £875,000 plus interest. The cover sheet identifies [2013] EWCA Civ 814 and [2013] EWCA Civ 1960 ; the latter is also reported at [2014] 1 WLR 854 .
3. High Court, Chancery Division: dismissed the Bank’s counterclaim and ordered removal of the invalid registered charge: [2012] EWHC 1991 (Ch) .