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Lender able to rely on subrogation where failure to register a legal charge

01 December 2010

Case summary: Anfield (UK) Ltd v Bank of Scotland plc & ors [2010] EWHC 2374 (Ch), 24 September 2010

Although the defendant bank had failed to register its own legal charge, it was entitled to be subrogated to, and registered as proprietor of, a pre-existing legal land charge that ranked in priority to charges in favour of other intermediate lenders, including the claimant.

This case, Anfield (UK) Ltd v Bank of Scotland plc & ors, gives comfort to lenders who have failed to register charges in circumstances where they have made advances to discharge a secured debt owed to another financier. In such instances, the court may be prepared to invoke the equitable remedy of subrogation so as to allow the lender to step into the shoes of the other financier, so far as the security is concerned, thereby gaining priority over intermediate lenders holding security over the same property.


Mr Siddiqui was the proprietor of property in Stepney Green, London. In or around June 2000, he took out a loan with the Halifax Building Society and granted it, in return, a legal charge over his property. This charge (the Halifax Charge) was registered at the Land Registry in September 2000.

Some years later, in 2006, the defendant bank lent Mr Siddiqui money to redeem the Halifax Charge and received, in return, its own executed charge over Mr Siddiqui’s property (the 2006 Charge).

The executed charge was capable of being registered as a legal charge, but the defendant bank failed to register the 2006 Charge.

In April 2008, the claimant company registered an equitable charge over Mr Siddiqui’s property created by an interim charging order (the Claimant’s Charge).

In 2009, no doubt realising that its own security had not been registered, the defendant bank registered a unilateral notice on Mr Siddiqui’s title at the land registry in respect of its advance by remortgage.

Mr Siddiqui became bankrupt and the defendant bank successfully claimed at first instance that it was entitled to invoke the remedy of subrogation so as to allow it to step into the shoes of Halifax Building Society and become registered as the proprietor of the Halifax Charge. This entitled it to rank in priority to all intermediate lenders, including the claimant company. The claimant company consequently appealed.

The relevant legal principles

Mrs Justice Proudman, sitting in the Chancery division of the High Court, clarified the legal principles that applied to this appeal. She confirmed that, as a matter of law, a lender who has made advances which have been used to discharge a secured debt owed to another lender may be entitled to step into the shoes of the other lender, as far as the security is concerned, so as to prevent unjust enrichment to intermediate lenders.

Proudman J stressed, however, that the origins of subrogation in this context were equitable. Whilst intermediate lenders are necessarily enriched in cases where a higher ranking security has been discharged by a third party, it was necessary for such enrichment to be unjust or unconscionable in some way in order for the remedy of subrogation to be invoked.

Usually enrichment will be unjust where the lender, whose money was used to discharge the secured debt (and therefore improve the situation for the intermediate lenders), did not get the security that it bargained for. However, the central question on this appeal was whether the enrichment received by the claimant as a result of the Halifax Charge’s being discharged could still be regarded as “unjust” when the only reason the defendant did not receive the first ranking legal charge that it expected was its own failure to register the 2006 Charge.

The Judgment

Dismissing the claimant’s appeal and upholding the decision of Her Honour Judge Marshall QC at first instance, Proudman J found that the enrichment received by the claimant could still be regarded as “unjust”, and the defendant was therefore entitled to be subrogated to the Halifax Charge.

In reaching this decision, Proudman J acknowledged that there were potentially conflicting statements made in previous cases on the issue of whether non registration can preclude enrichment from being unjust, and thereby preclude the remedy of subrogation being invoked, namely:

  • In the High Court case of Burston Finance v Speirway Ltd [1974] 1 WLR 1648 (the Burston Case), Walton J remarked (obiter) that a lender who fails to obtain his desired security by reason of non registration under the Land Registration Acts is not entitled to subrogation because he has obtained from the borrower everything he bargained for, namely a charge that was capable of being registered and thereby becoming an equitable charge.
  • By contrast, in Cheltenham & Gloucester plc v Appleyard [2004] EWCA 291 (the Appleyard Case), the Court of Appeal took the view (also obiter) that a lender who insists upon a legal charge but who in fact obtains only an equitable charge because he fails to register under the Land Registration Acts does not obtain all that he bargained for. He bargained for a legal charge. Accordingly, subject to fulfilment of all other relevant requirements, he will be entitled to be subrogated to an earlier legal charge that was discharged with his advance. In making these comments, the Court of Appeal expressed severe doubts about the correctness of Walton J’s comments on the same issue in the Burston Case.

The claimant submitted in the instant case that the court should prefer the obiter dicta statements made in the Burston Case over those made in the Appleyard Case, but Proudman J disagreed.

Although she did not consider herself bound by the statements in the Appleyard Case (since that case had expressly left open the question of how a lender’s own negligence affected the availability of subrogation), Proudman J was nonetheless of the view that the Court of Appeal’s remarks must carry the strongest possible persuasive effect, and that their approach was to be preferred.

Proudman J confirmed that it was made clear by the House of Lords in Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 that a lender’s carelessness in obtaining the desired security does not, by itself, defeat a claim for subrogation. Accordingly, Walton J’s views to the contrary could not survive this House of Lords decision.

Proudman J instead emphasised that the court was required to shift its focus from facts affecting the conscience of the mortgagor, to the justice of the enrichment of the defendant. In applying this approach to this case, the judge found that the enrichment to the claimant was unjust because the defendant bank had funded the repayment of the Halifax Charge in the expectation that it would obtain a legal charge. This expectation was not realised. It did not matter that the borrower, Mr Siddiqui, had performed the terms of the bargain in granting a registrable charge, nor did it matter that the cause of the unfulfilled expectation was the defendant’s own failure to register the 2006 Charge.

Proudman J also disagreed with the claimant’s contention that allowing subrogation subverted the policy of the Land Registration Act 2002, which was arguably to ensure that the title register to a property formed a conclusive code, enabling those who lend to rely on the face of the register. The judge found instead that the policy of the Land Registration Act 2002 did not encroach on the principle of unjust enrichment, although she did acknowledge that detriment to third parties might form a basis for withholding the remedy of subrogation in certain cases (eg where the third party had acted in the reasonable, but false, belief that a particular state of affairs existed).

Comment: This case is clearly helpful to lenders who find themselves in the same predicament as the defendant vis-à-vis an unregistered charge. It also provides a welcome resolution of conflicting dicta in previous authorities.

The decision is, however, far from universally applicable. One can immediately limit the relevance of this case to situations where a lender has provided funds for a discharge of an earlier charge which already ranks above other lenders. Even then, there is still no guarantee that a court will come to the same conclusion as Proudman J did in this case.  The remedy of subrogation is, after all, discretionary and equitable in nature.  Whilst the decision in this case clarifies that a lender’s failure to register its charge will not necessarily preclude its ability to rely on subrogation, the courts will always weigh up the justice of the enrichment in each case, meaning that it is difficult to predict on each occasion where the balance will lie. Proudman J has, for example, already left the door open for cases where subrogation may be denied on the grounds of detriment to third parties.

It remains the case, therefore, that there is no substitute for prompt and accurate registration of charges, if only to avoid the type of dispute that the defendant had to have in this case to receive the security it had always bargained for.

Further information

This case is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey, or tel +44 (0)20 3088 3710.