Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

Document

SUBROGATION TO A SECURITY

Cheltenham & Gloucester v. Appleyard

A recent Court of Appeal judgment has revisited both the criticized1 House of Lords’ decision of Banque Financière de la Cité v. Parc (Battersea) Ltd 2 and two subsequent Court of Appeal decisions in which it was considered. Cheltenham & Gloucester Plc v. Appleyard 3 was also a refinancing case. The defendants, Mr and Mrs Appleyard, had agreed to re-mortgage their house to the predecessors of Cheltenham & Gloucester Plc (‘‘C&G’’). C&G agreed to advance £321,975 to the Appleyards which would be applied, inter alia , to pay off an existing debt of £73,458.61 owed to Bradford & Bingley Building Society (‘‘B&B’’) and secured by a first legal charge on the property, and also an existing debt of more than £150,0894 owed to Bank of Credit and Commerce International (‘‘BCCI’’) and secured by a second legal charge over the house. It was agreed that C&G would take a first legal charge over the property to secure the debt.

On 5 July 1991 C&G remitted the initial drawdown of £240,375 to solicitors acting jointly for C&G and the Appleyards. On the same day the Appleyards executed a mortgage over their property in favour of C&G and the solicitors sent cheques to B&B and BCCI for £73,458 and £150,089 respectively. As a result, the Appleyards were discharged from all liability to B&B. Matters did not proceed so smoothly with regard to the debt owed to BCCI. Unfortunately, 5 July 1991 was the date on which provisional liquidators were appointed to BCCI and it ceased trading. The liquidators refused to acknowledge receipt of the £150,089,5 refused to supply the requisite Land Registry form, to confirm that the mortgage had been discharged, and refused to consent to the registration of the C&G mortgage at the Land Registry.6 C&G was left in the unenviable position of having a purely equitable mortgage to secure the loan of £240,375. The Appleyards failed to make any loan repayments. C&G and BCCI agreed that BCCI would obtain possession of the property, sell it and account to C&G for £73,4587 from the sale proceeds. Meanwhile C&G obtained judgment against the negligent solicitors in the sum of £166,841.

By August 2001, however, BCCI had decided to give up in its claim against the Appleyards. C&G therefore decided to obtain possession of the property and, before issuing proceedings against the Appleyards, C&G obtained BCCI’s written consent to the registration of the C&G charge and to its having priority over the BCCI charge to the extent of £73,458. BCCI also confirmed that it would not defend a claim by C&G to be subrogated to B&B’s first legal charge.

C&G issued proceedings against the Appleyards claiming to be entitled to be subrogated to the rights of B&B under its by then discharged legal mortgage and to relief

1. See, eg, M. G. Bridge, ‘‘Failed Contracts, Subrogation and Unjust Enrichment: Banque Financière de la Cité v. Parc (Battersea) Ltd ’’ [1998] JBL 323.

2. [1999] 1 AC 221.

3. [2004] EWCA Civ 291.

4. The judgment does not give the exact figure of the outstanding debt owed to BCCI.

5. Although the evidence presented to the judge at first instance indicated that the money had been paid into a BCCI bank account.

6. Under the terms of the BCCI charge no further charges could be registered on the property’s title without the consent of BCCI.