Menelaou v Bank of Cyprus UK Ltd

An unpaid vendor’s lien is an equitable charge created by operation of law. It secures the unpaid purchase price and has priority over the purchaser’s legal and beneficial interests, including interests arising under a trust of land. A bank subrogated to the lien may seek an order for sale, although sale is not available as of right and remains an equitable remedy. The court must consider all relevant circumstances, including the secured creditor’s priority and loss, the occupants’ circumstances, alternative accommodation and any effect on children. The statutory mortgage-realisation power in Law of Property Act 1925, s 90 applies. The possession-postponement regime in Administration of Justice Act 1970, s 36 and the trust-of-land regime in Trusts of Land and Appointment of Trustees Act 1996, s 14 do not apply on these facts.

The claimant acquired the family home with money derived from a transaction financed by the defendant bank. The bank’s intended legal charge was invalid, but the Court of Appeal and Supreme Court held that the bank was subrogated to the unpaid vendor’s lien over the property. The matter was remitted to the Master to decide whether an order for sale should be made.

The bank sought sale of the property to enforce its equitable security. The claimant and her family opposed the application, relying on the family home, the interests of a minor beneficiary and the possibility of postponement. The issues were the nature and priority of the lien, the applicable legal regime, and whether sale should be ordered.

1. Nature and priority. An unpaid vendor’s lien arises when a contract for sale of land is made and survives completion while purchase money remains unpaid. It is, in effect, an equitable charge. The bank, being subrogated to the vendor’s rights, had security only to the extent of £875,000 plus interest. The lien bound the whole legal and beneficial title and had priority over the claimant’s and beneficiaries’ interests.
2. Applicable regime. The lien was a charge securing money and therefore fell within the statutory definition of mortgage in Law of Property Act 1925, s 205. The realisation power in s 90 applied, including the power to appoint a person to convey the land and vest a term of years to facilitate sale. Section 36 of the Administration of Justice Act 1970 did not apply because the bank primarily sought sale, not possession in an action of the kind contemplated by that provision.
3. The bank was not a trustee of land and its prior lien was not an interest in property subject to the trust. Accordingly, s 14 of the Trusts of Land and Appointment of Trustees Act 1996 did not govern the application. CPR rule 73.10C and Practice Direction 73, paragraph 4 concerned charging orders and did not apply in terms, although some of the information contemplated by the Practice Direction might be relevant.
4. Human rights and discretion. Article 8 did not require a separate proportionality test. The lien was settled law, arose from the consensual purchase and protected the vendor’s right to payment. In any event, the remedy remained equitable and the court had to consider all relevant circumstances. The family’s opposition and the minor beneficiary’s schooling were outweighed by the bank’s priority, the continuing loss caused by non-payment, the absence of meaningful equity and the availability of alternative accommodation. The bank’s indemnity from the conveyancers did not prevent enforcement against the claimant.
5. An order for sale was made under s 90 of the Law of Property Act 1925. The interim charging order securing the separate £90,000 judgment debt was made final.

• High Court, trial: the counterclaim for subrogation to an unpaid vendor’s lien was dismissed on 19 July 2012.
• Court of Appeal: the bank’s appeal was unanimously allowed on the question of principle. The bank was declared entitled to be subrogated to an equitable charge by way of an unpaid vendor’s lien.
• Supreme Court: the claimant’s appeal on the question of principle failed. The question whether sale should be ordered was remitted to the Master.
• High Court (Chancery Division): the present court ordered sale and made the interim charging order final.