IpsofactoJ.com: International Cases [2004] Part 13 Case 6 [CAEW]




- vs -

Cheltenham & Gloucester Plc




15 MARCH 2004


Lord Justice Neuberger

  1. This is the judgment of the court on an appeal by the defendants, Allan Appleyard and his wife Maureen Appleyard ("the Appleyards"), from a decision of His Honour Judge McGonigal, on the trial of certain preliminary issues. The effect of his decision was that the claimant, Cheltenham & Gloucester plc ("C&G"), was entitled to possession of the Appleyards’ home, Royds House, Low Bentley, Shelf, Halifax ("the property").

    The facts

  2. The property is registered at HM Land Registry with title no WYK 153502. The Appleyards became the registered proprietors on 22nd November 1978. They had purchased it with a loan provided by the Bradford & Bingley Building Society ("B&B") in the sum of £25,000, with interest payable at B&B’s "standard variable rate". This loan was, in the usual way, secured on the property by a mortgage in favour of B&B ("the B&B mortgage"). That mortgage, which was not merely in respect of the £25,000, but also in respect of any other sums advanced by B&B, was registered as a first charge in the Charges Register, also on 22nd November 1978.

  3. On 3rd February 1988, the Bank of Credit and Commerce International ("BCCI") registered a second charge over the property ("the BCCI charge") in the Charges Register in respect of the debts of Batchacre Limited, a company effectively owned by Mr Appleyard, and through which he carried on business. The BCCI charge contained a provision that no further charges or mortgages were to be registered against the property without the consent of BCCI, and this was duly recorded in the proprietorship register.

  4. During the first half of 1991, Mr Appleyard entered into negotiations with C&G (or, to be more accurate, their predecessor undertaking) with a view to C&G refinancing the loans secured on the property and providing additional finance. C&G agreed to advance a total of £321,975, with a first drawdown of £240,375, to be secured against the property. In that connection, Levi & Co ("Levi"), solicitors, were jointly instructed by the Appleyards and C&G. The Appleyards executed a mortgage ("the C&G mortgage") charging the property in favour of C&G on 5th July 1991. On the same day, Levi received a cheque in the sum of £240,375 from C&G. From that sum, Levi paid out £73,458.61 to B&B, and £150,089 to BCCI, both on 5th July 1991. There was no problem in relation to the former sum: it was the amount owing under the B&B mortgage, and, by virtue of its payment, the Appleyards’ liability to B&B was discharged.

  5. However, although the amount payable to BCCI under the cheque drawn in its favour by Levi was part of the amount owing under the BCCI charge, BCCI did not accept that it had been paid. By an unfortunate coincidence, the date that Levi paid over the cheque to BCCI, 5th July 1991, was the date on which provisional liquidators were appointed in respect of BCCI, and BCCI ceased trading.

  6. Although it appears clear from the evidence and documentation before Judge McGonigal that the £150,089 was paid to a bank account in BCCI’s name, BCCI, through their liquidators, did not acknowledge receipt of the sum. Consequently they refused to supply C&G with a Land Register Form 53 (whereunder a chargee confirms that his charge has been discharged), or even to give consent to C&G registering the C&G mortgage.

  7. In these circumstances, C&G had advanced £240,300 to the Appleyards, by paying two of their creditors and had what appeared to be a validly executed charge over the property, namely the C&G mortgage, but, although one of the previous chargees, B&B, accepted that they had been repaid, the other, BCCI, did not, and, in light of BCCI’s attitude, C&G were unable to register the C&G mortgage at the Land Registry. Their mortgage was, as a result purely equitable, and was recorded as such at the Land Registry.

  8. The Appleyards made no payments to C&G, at least in part because a large proportion of their funds was tied up with BCCI. On 3rd January 1992, C&G began proceedings in the Halifax County Court for possession of the property. In their Particulars of Claim in those proceedings ("the 1992 proceedings"), C&G relied on the C&G mortgage, the advance of £240,375, and the fact that no payments had been made by the Appleyards. In their Defence in the 1992 proceedings, the Appleyards took various points, including the fact that the property was recorded at the Land Registry as being subject to the BCCI charge, that the C&G mortgage was not registered, and that the amount owing to BCCI, at least according to its provisional liquidators, had not in fact been paid off by C&G. In particular, it was pleaded on behalf of the Appleyards that "any charge to which [C&G] may be entitled has not been completed by registration and is not a valid charge at law", and that "at best it confers the rights of an equitable chargee which rights do not include an application for possession such has been made in these proceedings". The Appleyards did not deny that B&B had been paid off, but relied on the fact that the B&B mortgage was still registered.

  9. We have seen at least some of the evidence in the 1992 proceedings. It included an affidavit sworn by a solicitor on behalf C&G. She exhibited correspondence which included:

    1. evidence that the B&B mortgage had been paid in full, and that B&B had executed a Form 53, which, if presented to the Land Registry, would have resulted in their registered charge being removed; and

    2. a letter from BCCI’s Leeds bank confirming that a banker’s draft for £150,089.83 had in fact been delivered, presented and paid to a BCCI account in July 1991.

    The affidavit also exhibited C&G’s standard mortgage conditions (1989 edition) to which the C&G mortgage was subject; they included express rights in favour of C&G to obtain possession of, and to sell the mortgaged property, in the event, inter alia, of the mortgagor failing to pay sums due under the mortgage.

  10. The 1992 proceedings were transferred to the Chancery Division of the Leeds District Registry. On 26th February 1993, an order for possession was made by the District Registrar in favour of C&G in respect of the property, but the order was suspended.

    .... provided [the Appleyards] shall pay to [C&G] the monthly sum of £500 in every calendar month in respect of both the monthly instalments payable under the said mortgage and the arrears thereof, the first such payment to made on 1 March 1993.

  11. While the 1992 proceedings were progressing, there were parallel discussions between the solicitors acting for C&G and for BCCI. During those negotiations, BCCI’s solicitors wrote to C&G on 23 December 1992 stating that BCCI "would be willing to enter into a Deed of Postponement whereby your client’s charge would take priority". This prompted a reply from C&G asking for a draft deed to that effect. BCCI’s solicitors indicated on 4 March 1993 that they were "currently discussing the Deed of Postponement" with BCCI’s liquidators. However, the liquidators wrote to C&G’s solicitors on 21st April 1993 stating that the matter was "so clear-cut that we cannot justify the further involvement of solicitors", and that "BCCI are entitled to a first charge over [the] property and we can see no reason to enter into a Deed of Postponement".

  12. On 9th December 1993, C&G issued proceedings against Levi in negligence and breach of trust, for having parted with the £240,300 without obtaining the security of a first charge over the property. C&G obtained summary judgment against Levi on 16th May 1994 in the sum of £166,841.39, together with interest, conditional on C&G assigning to Levi all their rights against the Appleyards, save insofar as those rights arose out of the payment of £73,458.61 made to B&B, and all their rights against BCCI arising out of the apparent payment of £150,089.83 to BCCI. The thinking behind this order was that, so far as the payment to B&B was concerned, C&G were subrogated to B&B’s rights as first chargee of the property, and, so far as BCCI were concerned, there appeared to be a strong case for saying that their charge had been discharged by C&G. As we understand it, this judgment was satisfied by the payment of £166,841.39 by Levi (or, presumably, Levi’s insurers) to C&G.

  13. Thereafter, C&G and BCCI had discussions, which resulted in an agreement that BCCI would sell the property as mortgagees, and pay £73,458.61 out of the proceeds of sale to C&G. BCCI obtained possession by peaceable entry on to the property some time in 1994, but failed to sell it. In or about June 1997, the Appleyards regained possession. Thereafter, again following discussions with C&G, BCCI took possession proceedings against the Appleyards, with a view to re-obtaining possession of the property, selling it, and accounting to C&G for £73,458.61. However, BCCI’s application for summary judgment was dismissed on 12th July 1999, and their appeal failed on 17th December 1999.

  14. At this point, perhaps not entirely surprisingly, BCCI lost heart, and, at the end of August 2001, they informed C&G through solicitors, that they were unwilling to pursue the possession action. As a result, in October 2001, C&G decided to begin fresh proceedings against the Appleyards and BCCI for a determination that C&G were subrogated to B&B’s rights as first chargee, and for an order for possession against the Appleyards. Their solicitors prepared draft Particulars of Claim in that connection, which they sent to BCCI (and indeed to the Appleyards) with a view to initiating further discussions. During those discussions, BCCI stated that they would not dispute C&G’s claim to be subrogated to B&B’s rights as first chargee (and the Appleyards indicated that they did not accept that C&G’s claim for possession was justified).

  15. Shorn of inessentials, the relevant correspondence between solicitors to C&G and to BCCI consisted of two letters. First on 18th March 2002, C&G’s solicitors wrote a letter ("the March 2002 letter") seeking confirmation that BCCI agreed:


    That by virtue of its entitlement to be subrogated to the redeemed [B&B] mortgage, [the C&G] mortgage .... has priority over [the BCCI charge] to the extent of £73,458.61 together with interest ....


    To consent to the [C&G] mortgage .... being registered ....


    To consent to an entry being made on the Charges Register .... stating that [the C&G mortgage] has priority over [the BCCI charge] to the extent of the rights which the court finds were acquired by [C&G] by subrogation.


    [To] cooperate insofar as is necessary to give effect to this arrangement.

  16. BCCI’s position was made clear, after further correspondence, in a letter from their solicitors dated 3rd May 2002 ("the May 2002 letter"), to this effect:


    Our clients cannot by private agreement determine that your client is subrogated to the rights enjoyed by [B&B] under the terms of its charge. That is an issue of law to be determined by the court. However, our clients will not dispute your clients’ claim to be subrogated to the rights of [B&B] in the sum of £73,458.61 together with interest arising under [the B&B mortgage] ....


    Our clients will give their formal consent to [the C&G mortgage] being registered.


    Our clients will give their consent to an entry stating that your clients’ charge should have priority to BCCI’s charge to the extent set out in paragraph 1.


    Our clients will provide cooperation so that the relevant entries can be made at HM Land Registry ....

    This was subject to certain requirements with regard to costs and the like, not relevant to the issues in these proceedings.

  17. Some five weeks after the May 2002 letter, on 7th June 2002, C&G began the current proceedings against the Appleyards, but not against BCCI in light of the May 2002 letter. In these proceedings, C&G claimed:

    1. to be entitled to be subrogated to the rights of B&B under the B&B mortgage; and

    2. relief under their subrogated rights, including possession of the property.

  18. In their Particulars of Claim, C&G set out the essentially relevant facts founding their claim unequivocally on the basis that C&G were entitled to be "subrogated to the rights of [B&B] under its charge", and annexing the May 2002 letter. In their Defence and Part 20 Counterclaim, the Appleyards raised various issues, some of which were determined by HHJ McGonigal, and are now the subject of this appeal. We should, however, refer to paragraph 5 of the Defence, wherein the Appleyards admitted that they executed the C&G mortgage in July 1991, but went on to deny that it bound Mrs Appleyard "who signed it under duress from [Mr Appleyard] and without the benefit of independent (or indeed any) advice, though it was against her interests to do so". It was said to be against her interests because "she was not liable for [Mr Appleyard’s] separate debts", and that the purpose of the C&G mortgage "was in part to refinance such debts". Accordingly, the Appleyards contended that they were not bound by the C&G mortgage.

  19. As a result of an order made by His Honour Judge Behrens, certain preliminary issues were to be determined, and those preliminary issues came before Judge McGonigal.

  20. In his judgment given on 18th July 2003, Judge McGonigal determined all the preliminary issues in favour of C&G. Accordingly he held that C&G were subrogated to the rights of B&B under the B&B mortgage, and were entitled to rely on that subrogation in these proceedings.

  21. It followed that all the defences raised by the Appleyards in these proceedings either failed, or, as in the case of the contention that Mrs Appleyard should not be bound by the C&G mortgage, became irrelevant. The order drawn up as at 18th July 2003 recording Judge McGonigal’s decision contained declarations to the following effect:

    1. that C&G were subrogated to the rights of B&B under the registered B&B mortgage;

    2. that the subrogated debt amounted to £73,458.31, together with interest;

    3. that the rate of interest applicable was "whichever was the lower of [B&B’s] standard variable rate and the rate applicable to the [C&G] mortgage dated 5th July 1991 ....;"

    4. that "the subrogated debt amounts to no less that £119,442.58 ...."

  22. As a result, Judge McGonigal also ordered the Appleyards to give up possession of the property to C&G on or before 31st October 2003, and he gave directions in relation to an inquiry as to the precise amount of interest due to C&G. These directions resulted in an order on 22nd September 2003, in which "the subrogated debt" was recorded as being £182,421.04. The execution of the order for possession has been stayed by agreement, pending the determination of this appeal.

  23. In December 2003, C&G’s solicitors sent to the Land Registry a copy of the Particulars of Claim in the present proceedings, a copy of the May 2002 letter, and copies of the sealed orders made by Judge McGonigal. The Land Registry subsequently contacted C&G to inquire which charge should be registered, and the reply, accompanied by a copy of the Amended Particulars of Claim, was that it should be the C&G mortgage. Accordingly, as of 23rd December 2003, the Charges Register in respect of the property was amended. First, a note was added to the registration of the BCCI charge stating "see entry below altering the priority of this charge". Secondly, a "registered charge dated 5th July 1991", previously noted in the register as an equitable charge of which C&G was recorded as proprietor, was entered, with the following note:

    Pursuant to an order of the Leeds County Court made on 18 July 2003 and a further order in the same proceedings made on 22 September 2003 this charge has priority over the [BCCI] charge .... referred to above to the extent therein mentioned.

    The issues - subrogation

  24. C&G’s case is that they are entitled to be subrogated to the rights of B&B under the B&B mortgage because:

    1. in July 1991 they advanced money, part of which was to be used for the purpose of paying off what was owing to B&B;

    2. B&B had a registered first legal charge over the property to secure what was owing to them;

    3. Repayment of the money advanced by C&G was contractually intended to be secured by a registered first legal charge in favour of C&G over the property; but

    4. C&G did not obtain such a first legal charge as they were unable to register the C&G mortgage owing to BCCI’s stance, and an unregistered mortgage of registered land only operates as an equitable charge.

  25. The principle upon which C&G rely has been nowhere better stated than by Walton J in Burston Finance Limited v Speirway Limited (in liquidation) [1974] 1 WLR 1648 at 1652B-C:

    [W]here A’s money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B’s rights as a secured creditor ..... It finds one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he has advanced, and for one reason or another, he does not receive the promised security. In such a case he is nevertheless to be subrogated to the rights of any other person who at the relevant time had any security over the same property and whose debts have been discharged in whole or in part by the money so provided by him.

  26. This formulation was cited with obvious approval by Oliver J in Paul v Speirway (in liquidation) [1976] Ch 220 at 231E-G, by Jonathan Parker LJ in Halifax plc v Omar [2002] 2 P&CR 377 at paragraphs 79-80, and by Lord Hutton in Banque Financiere de la Cité -v- Parc (Battersea) Limited [1999] 1 AC 221 at 245C-D.

  27. It was accordingly argued on behalf of C&G that, on an application of the approach laid down by Walton J, C&G should be treated as subrogated to B&B’s rights as the registered proprietors of the B&B mortgage. C&G’s "money [was] used to pay off the claim of [B&B], who [was] a secured creditor", and it would therefore follow that C&G "is entitled to be regarded in equity as having had an assignment to [them] of [B&B’s] rights as a secured creditor". Further C&G "advance[d] money on the understanding that [they were] to have certain security for the money [they had] advanced, and .... [they did] not receive the promised security", in the form of a first registered charge.

  28. The preliminary issues before Judge McGonigal encapsulate the four reasons which the Appleyards raise for contending that C&G cannot succeed in establishing a right to possession of the property against them based on the contention that they are subrogated to the B&B mortgage. Those four reasons are as follows:

    1. C&G are prevented being subrogated to the rights of B&B under the B&B mortgage:

      1. by virtue of their having obtained a valid contractual security, in the form of the C&G mortgage, even though that mortgage was not, initially at least, registrable; alternatively,

      2. by virtue of the fact that, before the issue of these proceedings, C&G had perfected their security as a result of BCCI’s eventual agreement, as contained in the May 2002 letter, and now by registration of the C&G mortgage.

    2. If C&G would otherwise have a valid claim based on subrogation, they have effectively lost the right to raise that claim:

      1. by virtue of their failure to bring it forward or rely on it in the 1992 proceedings; alternatively

      2. by virtue of the equitable principle of laches.

  29. It is right to record that, in his oral argument for the Appleyards, Mr Davies concentrated his case very much on the second of these four points, ie issue i)b).

  30. The issues raised on behalf of the Appleyards require consideration and analysis of the law relating to subrogation. We have been referred to a number of cases, from which we have concluded that the following propositions can be derived. We acknowledge that there is a limit to the extent to which one can extract any general rules applicable to equitable subrogation, bearing in mind that "the remedy of subrogation ‘may vary with the circumstances of the case, the object being to effect a fair and just balance between the rights and interests of the parties concerned’": see Goff & Jones on The Law of Restitution 6th Edition, 2002 at paragraph 3-003, citing Lord Clyde at 231D in Banque Financiere at 237D (and see also the observations of Millett LJ in Boscawen -v- Bajwa [1996] 1 WLR 328 at 338H-339B).

  31. It would appear from his judgment that Judge McGonigal considered that the decision of the House of Lords introduced entirely new concepts into the law of subrogation. Indeed, that also may have been the view of Jonathan Parker LJ in Halifax -v- Omar at paragraphs 70-76, and of Arden LJ in Eagle Star Insurance Co Ltd -v- Karasiewicz [2002] EWCA Civ 940 at paragraph 13. We believe that, on analysis, while the decision of the House of Lords in Banque Financiere does represent an important development of the law relating to subrogation in more than one respect, it does not establish any new principles. Nor does it appear to us that there is anything in the speech of Lord Hoffmann, with whom the other members of the House of Lords agreed, in Banque Financiere, which conflicts with any of the established principles relating to subrogation. Indeed, much of Lord Hoffmann’s speech was expressly based on an analysis of the previous authorities: see the discussion at 231C-234G.

  32. First, subrogation "embraces more than a single concept": it is sometimes contractual in nature and it is sometimes based on equity - see per Lord Diplock and per Lord Keith of Kinkel in Orakpo at 104D and 119A-B. The particular type of subrogation with which cases such as the present are concerned was described by Lord Hoffmann in Banque Financiere at 231G-H as:

    An equitable remedy to reverse or prevent unjust enrichment which is not based upon any agreement or common intention of the party enriched and the party deprived.

    Any reference hereafter to subrogation should be treated as a reference to this equitable species of subrogation.

  33. Secondly, subrogation is a remedy primarily aimed at preventing unjust enrichment. That is clear from what was said by Lord Diplock in Orakpo -v- Manson Investments Limited [1978] AC 95 at 104C-D, and it has been recently repeated by Millett LJ in Boscawen at 335C, and by Lord Hoffman and by Lord Clyde in Banque Financiere respectively at 231G-H, and 237D-E.

  34. Thirdly, subrogation is a flexible remedy, which nonetheless must be applied in a principled fashion. That was made clear by Millett LJ in Boscawen at 338G - 339C relying in part on what was said by Lord Diplock in Orakpo at 104, and by Lord Clyde in Banque Financiere at 237D-E.

  35. Fourthly, a classic case of subrogation is that described by Walton J in Burston Finance at 1652B-D, cited above. The reasons that a lender’s anticipated security may not have been forthcoming so that he has sought to invoke subrogation are various. Examples include the lender’s ineptitude (as in Burston Finance), the lender being misled (as in Banque Financiere and in Boscawen), the borrower being an infant (as in Thurstan -v- Nottingham Building Society [1903] AC 6), and the borrowing being ultra vires the borrower (as in Re Cork and Youghall Railway Co (1860) LR 4 Ch App 748).

  36. Fifthly, although the classic case of subrogation involves a lender who expected to receive security (in the proprietary sense - eg a mortgage) claiming subrogation to another security, it can apply to personal rights. In Re Wrexham Mold and Connah’s Quay Railway Co [1899] 1 Ch 440 at 458, Vaughan Williams LJ referred to the claim for subrogation being to "the rights of the creditor who has been paid off", and does not appear to have limited those rights to proprietary rights. In Banque Financiere, the lender bargained for what Lord Hoffmann called at 229C "a negative form of protection .... in the form of an undertaking", which he did not get. This did not prevent his claim to be subrogated to a security, albeit essentially as a personal remedy - see per Lord Steyn at 228C-D and Lord Hoffmann at 229C.

  37. Sixthly, the fact that a lender of money gets some security does not prevent him from claiming to be subrogated to another security: see Banque Financiere, perhaps most clearly per Lord Hutton at 241C-D. In that case, the lender anticipated two forms of protection, one of which (a pledge of shares) was provided as agreed. Although this was "the principal security" (see at 229G), it did not prevent the lender obtaining a subrogated right owing to the failure of the other form of protection.

  38. Seventhly, a lender cannot claim subrogation if he obtains all the security which he bargained for, as in Burston Finance (applying Capital Finance Co Limited -v- Stokes [1969] 1 Ch 261) or where he has specifically bargained on the basis that he would receive no security as in Paul -v- Speirway Limited (in liquidation) [1976] 1 WLR 220.

  39. Eighthly, the fact that the lender’s failure to obtain the security he bargained for was attributable to his negligence is irrelevant. It does not prevent him from claiming subrogation - see per Lord Hoffmann at 235E-G in Banque Financiere. The effect of that observation was probably impliedly to disapprove observations of Walton J in Burston Finance at 1657C and F. However, Walton J was concerned with a case where the lender obtained the security, but negligently failed to protect himself by registering it, whereas in Banque Financiere the lender’s negligence was in failing to check that he had obtained the security.

  40. Ninthly, the absence of a common intention on the part of the borrower and the lender that the lender should have security is by no means fatal to a lender’s subsequent claim for subrogation: see Banque Financiere at 232B-234C. However, the intention of the parties to the arrangement which is said to give rise to a claim for subrogation may be "highly relevant": ibid at 234D. It would seem that the intention of the lender is particularly important (see for example Banque Financiere at 235A-B and Boscawen at 339H-340A).

  41. Tenthly, subrogation cannot be invoked so as to put the lender in a better position than that in which would have been if he had obtained all the rights for which he bargained: see Banque Financiere at 235D and 236G-273B per Lord Hoffmann. This point was also made by Lindley MR in Wrexham at 447.

  42. Eleventhly, it is difficult, and may be impossible, for a lender who has obtained security to invoke subrogation where the security he has obtained gives him all the rights and remedies of security to which he claims to be subrogated (see Burston Finance at 1653D-E), or is a security in which the original security would naturally merge (see Burston Finance at 1653C and per Lord Diplock in Orakpo at 105B-C).

  43. Twelfthly, the capital sum in respect of which a lender is subrogated cannot normally be greater than the amount of the secured debt that has been discharged: see per Lord Diplock in Orakpo at 104G, and per Evans LJ in Halifax Mortgage Services -v- Muirhead 76 P&CR 418 at 426.

  44. Finally, normal equitable principles apply to subrogated rights. Thus, the familiar equitable defences can be raised against a claim for subrogation, and priority as between the person with the subrogated right and other parties are to be determined in accordance with normal equitable principles: see Halifax -v- Omar, at paragraphs 81-83 per Jonathan Parker LJ.

  45. Many of these principles were applied in Banque Financiere. It is a difficult and, as already mentioned, an important case in this field. Its difficulty arises partly from the complexity of the facts. Its importance arises partly because it is a recent and authoritative confirmation of many of the principles which have been set out above. Its difficulty and importance also both arise from the fact that, as Lord Steyn said, it was "not .... the usual case of subrogation to security rights in rem" and that "no decided case directly in point [had] been found": see at 228C-D.

  46. In the circumstances, it may be of assistance if we set out the essential features of Banque Financiere:

    1. Parc had a property, subject to a first charge in favour of RTB, a bank, and a second charge in favour of OOL, a member of the same group of companies as Parc ("the group");

    2. Parc approached Banque Financiere de la Cité ("BFC") for a loan for the purpose of refinancing some of their borrowings;

    3. BFC agreed to advance monies to Parc to enable them to pay off some of the monies owing to RTB;

    4. While BFC made it plain that they did not seek any security in the form of a charge over property, they were to get:

      1. some shares ("the shares") in the group holding company ("Holdings"); and

      2. a letter from Holdings on behalf of all the companies in the group, including OOL ("group creditors"), stating that they would agree to postpone their right to repayment of any sums owing by Parc until BFC was repaid in full ("the letter of postponement");

    5. The shares were duly pledged to BFC, the letter was duly executed by Holdings, and the loan was made by BFC to Parc, who used it to pay off, albeit only in part, the loan from RTB.

    6. Unknown to BFC, the letter of postponement was defective because Holdings did not have the authority to sign it on behalf of Parc’s creditors with the group ("the group creditors").

    7. Parc became insolvent, and, OOL contended that once the balance of RTB’s loan was paid off under their first charge, OOL was entitled, by virtue of their second charge, to look to the property for repayment of what was owing to OOL, thereby obtaining priority over BFC.

    8. At first instance, Robert Walker J held that:

      1. BFC’s loan was intended to be protected to the extent of the contractual rights given by the letter of postponement, but, because that letter was ineffective, BFC did not obtain all the protection for which it had bargained;

      2. the money BFC loaned was used to pay off, in part, the first chargee, RTB, and consequently it "enriched" OOL because the value of its second charge was increased owing to the reduction of the amount secured by the first charge;

      3. this "enrichment" of OOL would be unjust, because it was only achieved by BFC being persuaded to lend money to Parc in the belief that group creditors, including OOL, would not seek to be repaid unless and until BFC had been repaid in full; the fact that OOL did not know of the letter of postponement did not prevent their enrichment being unjust;

      4. accordingly, BFC was entitled to be subrogated, and the nature of the subrogation was that they were entitled to the benefit of RTB’s first charge, save that, RTB had the right to be satisfied in respect of their debt out of the first charge, before BFC could look to that charge.

    9. The Court of Appeal reversed Robert Walker J, holding that there could be no claim for subrogation in these circumstances.

    10. The House of Lords, however, agreed with the conclusion of Robert Walker J, subject to one important point. The order made by the judge would have given BFC better security than BFC would have enjoyed if they had secured all that they had bargained for: with the exception of RTB, they would have had priority against all other creditors of Parc, whereas under the letter of postponement, they would only have had priority as against group creditors. Accordingly, BFC should be treated as subrogated to the first charge only as against group creditors, and in particular OOL, the second chargee. As against any other creditors of Parc, however, BFC were to be treated as unsecured.

  47. We would analyse the decision in Banque Financiere as follows.

    1. In the absence of an intention to the contrary, BFC, having discharged part of RTB’s debt, would have been subrogated to RTB’s first charge, subject to RTB’s priority for the balance of their debt.

    2. In the course of negotiations, however, BFC made it plain that they were not seeking to acquire security for their loan in the form of a charge over property valid against all the world. This prevented their becoming subrogated to RTB as against all the world.

    3. BFC intended and believed that their loan would take priority over any claims against Parc by creditors, including OOL.

    4. It would have been unjust for OOL to have been enriched as a result of BFC’s discharge of RTB’s debt, which ranked before OOL.

    5. In these circumstances, the principle of subrogation applied so as to give BFC priority as against OOL.

  48. Banque Financiere demonstrates the flexibility of the remedy in three particular respects. First, a lender can be subrogated in relation to a security which is still contractually to be relied on by an earlier lender: see at 235G-236B. Secondly, subrogation can be accorded to a lender who has bargained for protection which is not security in a proprietary form, but is purely contractual - in that case a letter of postponement. Thirdly, the flexibility of the remedy is such that the court does not have to decide whether or not a lender is generally subrogated to a particular security as against the world: it can, for instance, decide that a lender is subrogated to a particular security as against some third parties, but not as against others.

  49. The facts of Banque Financiere were without precedent. They are unlikely to be repeated. We doubt if reference to that decision is likely to be of assistance in a conventional case, such as that with which we are concerned. Indeed, as we have mentioned, the judge encountered some difficulty in attempting to apply the reasoning in that case to the facts of the present case. Banque Financiere demonstrates the flexibility of the doctrine of subrogation, but it would be a mistake to attempt to apply the decision like a straitjacket.

    Overview of this case

  50. Before getting into the details of the four issues raised on this appeal, it is, we think, important to consider the realities of this case. No doubt, questions relating to the law of subrogation, and the circumstances in which it can apply, are of interest to some lawyers, and it is obviously the function of the parties to raise such questions, and the duty of the court to answer such questions, provided that they are of relevance to the real issues between the parties. In that connection, the real issue between the parties in the present case is plain: it is whether C&G are entitled to a legal charge over the property, so that they can obtain possession and sell the property with good title.

  51. Once one bears that factor in the forefront of one’s mind, it appears to us that, even if we were to determine all four issues raised on this appeal in favour of the Appleyards, it would not have enabled them to resist the conclusion that C&G had a first legal charge over the property, and were therefore entitled to possession. The reason for this is as follows.

  52. The Appleyards’ case on the first two issues is essentially based on the proposition that there is no room for a claim for subrogation in circumstances where the person claiming subrogation has actually obtained a valid charge over the property, particularly where the valid charge is all that he bargained for. On the first issue, the Appleyards’ contention is that execution of the C&G mortgage, even though it was unregistered, was a sufficient charge in favour of C&G to prevent them invoking any rights of subrogation. The Appleyards’ case on the second issue is that, even if they are wrong on the first issue, C&G have now registered their charge, and consequently they have a first legal charge over the property.

  53. It is thus fundamentally inherent in, and necessary to, the Appleyards’ case on the first and second issues that the C&G mortgage is valid and effective. If it is not valid, because it is void or voidable, then the whole basis for the Appleyards’ case against C&G’s case on subrogation goes, at least so far as the first two issues are concerned.

  54. Subject to the latter two issues, therefore, it would appear to follow that the Appleyards can only succeed in defeating C&G’s case on subrogation by accepting that the C&G mortgage is a valid legal charge. Yet the Appleyards have maintained, in paragraph 5 of their Defence, throughout these proceedings, that the C&G mortgage is voidable on the grounds that it was executed by Mrs Appleyard under duress.

  55. As Lord Phillips MR pointed out in argument, it is impossible for the Appleyards to rely on the C&G mortgage as being a valid charge for the purpose of defeating C&G’s case on subrogation, and, having defeated C&G’s case on this basis, then to contend that the C&G mortgage is invalid. The point is underlined by the recent decision of this court in UCB Group Limited v Hedworth [2003] EWCA Civ 1717, where it was held that a lender who received a voidable security was entitled to invoke the right of subrogation in the same way, and to the same extent, as a lender who had received security which turned out to be void: see per Jonathan Parker LJ in paragraphs 130 to 132. Having taken instructions, Mr Davies realistically conceded this point and undertook on behalf of the Appleyards that they would not pursue the argument that the C&G mortgage was voidable.

  56. However, even with that concession, the Appleyards’ case plainly runs into difficulties. Having unequivocally based their case on the contention that the C&G mortgage is voidable, they cannot be entitled, for the first time at the hearing of the appeal, and without any prior notice to C&G, to abandon that contention and to stand their case on its head, by relying on the validity of the C&G mortgage. It is a classic case of a party trying to blow hot and cold.

  57. Further, even if the Appleyards were allowed to change their case at this very late stage, it would not avail them. By virtue of the concessionary undertaking, there would be no ground left for challenging the validity of the C&G mortgage, and, now that it has been registered, there would appear to be no ground upon which the Appleyards could resist an order for possession in favour of C&G based on their rights under the C&G mortgage.

  58. Mr Davies, however, argued that if C&G would otherwise be entitled to rely upon the C&G mortgage to obtain possession, the Appleyards may be able to defeat that claim on the basis of limitation. In our view that is a hopeless argument, although it is fair to Mr Davies to record that it was raised as an answer to a question which had not been raised before the hearing in this court. The C&G mortgage was executed under seal (or so we presume, and so Mr Davies appeared to presume) on 5th July 1991. Accordingly, ignoring the order for possession obtained by C&G in February 1993, the earliest date upon which time could possibly expire would have been 5th July 2003. Therefore, the fact that the present proceedings, whereby C&G sought possession of the property were issued on 7th June 2002 would appear to defeat any possibility of a limitation argument succeeding. Although C&G’s pleaded claim is based on subrogation, all the relevant facts are pleaded for a claim based on the C&G mortgage. So possession could be awarded on this basis, even pursuant to an amendment outside the twelve year period: see s35 of the Limitation Act 1980 and CPR 17.4(2).

  59. If the C&G mortgage is valid and enforceable, then we do not see how it can sensibly be suggested on behalf of the Appleyards that they could succeed on the latter two issues. Those issues are predicated on the argument that C&G should have raised the basis for which they now claim possession of the property, well before they raised that claim in these proceedings. (On the third issue, the Appleyards contend that the point should have been raised in the 1992 proceedings, and, on the fourth issue, their contention is effectively that the point should have been raised much earlier.) However, neither of those points could be raised in relation to the C&G’s reliance upon the fact that they have a valid legal charge, because that contention can only be raised now that the C&G mortgage had been registered. Such registration could not have been effected before BCCI agreed to it, given BCCI’s registered right to prevent any further charges being registered, and such consent was only given in the May 2002 letter.

  60. In these circumstances, it appears to us that the reality of the situation is as follows. If C&G’s case on the first two issues is correct, then they are entitled to possession, unless the Appleyards can succeed on either of the second two issues. On the other hand, if C&G fail on either of the first two issues, it would only be because the C&G mortgage is valid, in which case they must be entitled to possession of the property.

  61. The result of this analysis puts the arguments raised by the parties on this appeal in rather a strange light. C&G are rather better off, and the Appleyards are rather worse off, if C&G fail on either of the first two issues, because, in such circumstances,

    1. the latter two issues could not sensibly be raised by the Appleyards, and

    2. C&G would not be limited to recovering interest at the B&B standard variable rate.

    On the other hand, if C&G succeed on the first two issues, the Appleyards would be a little better off because

    1. they could still seek to raise the latter two issues and

    2. they would be entitled, at least according to the July 2003 order, to limit the interest secured on the property to the B&B variable rate.

    More importantly, the time and expense involved in arguing the first two issues, particularly after the entries on the register effected on 23rd December 2003, but even after the May 2002 letter, appear to us to have been of no real value or significance to the parties.

  62. In these rather unsatisfactory circumstances, we turn to consider the four issues that have been argued.

    The first issue – no subrogation after 5th July 1991

  63. Mr Davies contended that, although the inability to register the C&G mortgage meant that C&G did not have a legal charge, C&G nonetheless had security, because the C&G mortgage operated as an equitable charge. In those circumstances, he said that, far from assisting C&G in the present case, the judgment of Walton J in Burston Finance, when read as a whole, effectively destroys C&G’s case on subrogation.

  64. In Burston Finance, the plaintiffs lent a substantial sum to the defendants to assist them in purchasing properties, and the properties were duly transferred to the defendants. In accordance with their obligation, the defendants executed in favour of the plaintiffs a charge over the property, which was duly registered at the Land Registry. However, the charge was not registered under s95 of the Companies’ Act 1948 ("s95"). After the defendants had failed to make any repayment, the claimants appointed a receiver. The defendants then went into voluntary liquidation, and the liquidator took the point that the charge was void against him by virtue of lack of registration under s95. In those circumstances, the plaintiffs contended that they were entitled, by way of subrogation, to the unpaid vendor’s lien over the properties, which the vendors would have had, but for the payment of the purchase price by the plaintiffs. In other words, the plaintiffs were contending that

    1. it was intended that they should be secured creditors,

    2. their security had become ineffective due to failure to register the charge in their favour under s95,

    3. the vendors of the properties would, in the absence of payment, have had an unpaid vendor’s lien over the properties,

    4. that, because the lien had been satisfied by the plaintiffs paying the vendors, the plaintiffs were subrogated to the lien.

  65. Walton J rejected this argument. He said this at 1653B-C:

    [C]ommonsense suggests that if a vendor takes as a security for the unpaid purchase money a charge over the whole of the property comprised in the contract, he must deliberately be intending to replace his vendor’s lien by that security, and that accordingly, either as a result of the doctrine of merger or by presumed intention to waive the unpaid vendor’s lien, that lien has gone.

  66. In that connection he drew support from the earlier decision of this court in Capital Finance Co Limited v Stokes [1969] 1 Ch 261. In that case, the first defendant sold a property to the second defendant, on the basis that part of the purchase price would remain outstanding, and would be secured by a legal charge; although this was done, the first defendant failed to register the charge under s95. The plaintiff, as a subsequent debenture holder of the first defendant, appointed a receiver, who contended that the charge in favour of the first defendant was void as against him because of non-registration under s95. The first defendant contended that, in light of the non-registration of the charge, he was entitled, in effect, to fall back on his lien as an unpaid vendor. Harman LJ said at 279E:

    It does seem to me, however, that this lien must be taken to have been abandoned when the contract was completed, from the happening of that event the vendor [sc the first defendant] obtained all that he had bargained for, namely one-quarter of the purchase money in cash and the balance by way of the stipulated legal charge.

  67. A further passage in the judgment of Walton J in Burston Finance, at 1657B-D justifies citation:

    [Counsel] urged strongly that if the correct test was indeed as propounded by Harman LJ, and as I believe, ie did the vendor obtain all that he bargained for?, then here he did not obtain it, because one of the things for which he bargained was that the defendants would fulfil their statutory duty of registration pursuant to section 95 of the Act of 1948. But this is to confuse substance with formalities. As regards the formality of registration under s26 of the Land Registration Act 1925, nothing can at the end of the day turn upon this because it was duly effected. But even if it had not been, this is a matter wholly within the plaintiff’s own power, and therefore it could not be suggested that the failure to register could have any conceivable effect on the plaintiff’s obtaining ‘all they had bargained for’. As regards registration under s95, once again, this is undeniably, as pointed out by Harman LJ, within the plaintiff’s own power, although the primary duty was cast on the defendants. Nevertheless, even without such registration, the charge remained effective against the defendants and still so remains.

  68. The decision and reasoning of Walton J in Burston Finance are said by the Appleyards to lead to the conclusion that it is not open to the court to conclude that C&G are subrogated to B&B’s registered charge. At any rate now that Mrs Appleyard has abandoned her undue influence claim, there is no doubt that, on 5th July 1991, C&G were granted, through the C&G mortgage, a charge over the property, which was a valid and enforceable charge as between C&G and the Appleyards. Accordingly, on 5th July 1991, at least as between themselves and the Appleyards, C&G can be said to have obtained all they bargained for. The fact that they failed to register the C&G mortgage can be said to be of no assistance to them, because of the plain, if strictly obiter, observations of Walton J at 1657C, where he dealt, albeit briefly, with the consequences of failure to register the charge in that case at the Land Registry. Furthermore, if C&G are subrogated to the rights of B&B, there could be said to be the difficulty, briefly alluded to by Walton J at 1656C "of the coexistence of the two securities, especially in view of the differing rates of interest". That point was picked up in strong terms by Lord Salmon in Orakpo at 110H-111D. He suggested that "to apply the doctrine of subrogation in the present case would be absurd" because it would result in the parties being bound both by the terms of their contract and by the terms of the contract in respect of which subrogation was claimed, and those terms differed. Of particular significance in Lord Salmon’s view were the differences between the terms for repayment and the terms regarding interest. It could be said that Lord Salmon’s view applies a fortiori in the present case, where the contractual terms are binding: in Orakpo, the contract between the parties was unenforceable (see eg per Lord Edmund-Davies at 114D).

  69. Despite these arguments, we are of the view that, as at 5th July 1991, as a result of the inability to register the C&G mortgage, due to the attitude of BCCI, C&G were entitled to claim to be subrogated to the B&B mortgage, thereby becoming legal chargees, albeit only the extent of the value of the B&B mortgage at the time is was paid off (together with interest thereafter).

  70. First, it seems to us clear that a lender who obtains some security, but less than that for which he bargained, is not precluded from claiming further security by subrogation. As already mentioned, that appears clear from Banque Financiere, especially per Lord Hoffmann at 235A-B and Lord Hutton at 241C-D. The mere fact that the actual security is a less valuable charge over the very property over which the subrogated charge is claimed, should not, in our view, affect the applicability of that principle.

  71. Secondly, unlike the lenders in Burston Finance and in Capital Finance, C&G did not obtain the security they bargained for. In the two earlier cases, the failure to register the charge under s95 did not affect the character of the charge obtained by the plaintiff in each case. Non registration under s95 did not prevent the charge in either case being a legal charge. It merely rendered it "void" as against a subsequent creditor or a liquidator. On the other hand, non-registration of the C&G mortgage at the Land Registry prevented it from being a legal charge: it was merely an equitable charge. Yet it was a legal charge for which the parties bargained. Indeed, at the end of the passage of the judgment of Harman LJ at 279E in Capital Finance, he referred to the vendor obtaining "all that he bargained for" in the form of the "stipulated legal charge". It also is interesting to note in this connection, that, in Boscawen at 339H, Millett LJ referred to the party seeking subrogation as intending "to retain the beneficial interest in its money unless and until that interest was replaced by a first legal mortgage on the property". The fact that the effect of non-registration under the Land Registration Act 1925 of the charge would prevent it from being a legal charge may have been overlooked by Walton J in Burston Finance at 1657C. If so, it is not particularly surprising, given that it was an ex tempore judgment and his observations on this aspect were purely obiter.

  72. Thirdly, in his judgment in Burston Finance at 1635E, Walton J made the point that the charge obtained by the plaintiff in that case "comprises all the remedies afforded by [the unpaid vendor’s] lien, to which the plaintiff claimed to be subrogated". In the present case, the equitable charge obtained by C&G on 5th July 1991 did not bestow on C&G all the remedies afforded by the B&B mortgage to which C&G claimed to be subrogated: the unregistered C&G mortgage was an equitable charge, whereas the B&B mortgage was a registered first legal charge.

  73. Fourthly, in Burston Finance and in Capital Finance, the lender was contending that it was subrogated to a charge which was inferior to the charge it actually obtained. There is obvious difficulty in accepting that the person who actually obtained a charge could have intended that an inferior charge should have survived so that he could rely on it for the purpose of subrogation. That notion is inherent in Walton J’s reference to "the doctrine of merger" at 1653C. The same point was made by Lord Diplock in Orakpo at 105B-C, where he said this:

    On the execution of the legal charge, however, the equitable charge-by-subrogation will merge in the higher ranking legal charge in favour of the same chargee.

  74. In this case, although C&G would be relying on an equitable principle, namely subrogation, the right they are seeking to obtain by subrogation is a legal right, namely the right of a first legal chargee. On the other hand, the right which they obtained in July 1991 in common law as a result of the execution of the C&G mortgage was an inferior interest, namely that of an equitable chargee. The subrogation argument therefore faces no merger problem such as that raised in Burston Finance and Orakpo.

  75. In Burston Finance and in Capital Finance, reference was made by the court to the fact that the lender claiming subrogation only had himself to blame for the failure to register his charge under s95. It does appear that the negligence of the lender in failing to register his security may have influenced the court in those cases, at least to some extent, when refusing the remedy of subrogation. As we have mentioned, it is clear from the speech of Lord Hoffmann in Banque Financiere, especially at 235E-G, that negligence or carelessness on the part of the lender is not a factor to be taken into account when considering his claim for subrogation, at least where the negligence relates to the obtaining of the security. It may be (although we doubt it) that lender’s negligent failure to protect or perfect the security should be treated differently. Insofar as the lender’s negligence played a part in the reasoning of the court in Burston Finance or Capital Finance, it is worth mentioning that, although Levi were negligent in the present case, there was not a negligent failure to register as in Burston Finance and Capital Finance: C&G tried to register their mortgage at the Land Registry at once. The negligence involved in this case was of a type similar to that in Banque Financiere, in that the bargained for security was not obtained, viz there was no first legal charge due to BCCI’s ability to prevent registration of the C&G mortgage.

  76. Despite Walton J’s reference to two rates of interest in Burston Finance, and the strong observations of Lord Salmon in Orakpo, it is inherent in many cases of subrogation, at least of the sort described in Walton J’s classic formulation, that there will be two rates of interest, namely the contractual rate agreed by the parties, and the rate applicable to the security in relation to which subrogation is claimed. We believe that the law in this connection was accurately summarised by Evans LJ in Halifax -v- Muirhead at 427:

    Clearly, the rights which are transferred .... to the third party who discharges the mortgage must be those which existed immediately before the charge took place. With the extent to which they may be exercised by the third party thereafter by virtue of subrogation depends also upon the terms upon which the money, which is used to discharge the original mortgage, is advanced to the borrower by the new lender. If he makes an unsecured loan, he cannot claim the benefit of a security which was available to the original mortgagee (Paul v Speirway ....; see also Boscawen ....). Similarly, he cannot recover a greater rate of interest that he agreed to accept under the new mortgage (Chetwynd v Allen [1899] 1 Ch 353; see also Western Trust & Savings Limited v Rock (unreported, 26th February 1993, CA) per Peter Gibson LJ at 9G.

  77. As with many aspects of subrogation, it is not possible to generalise confidently. However, subject to precisely what has been agreed between the borrower and the person claiming subrogation, and subject to the rights of third parties such as second chargees, it appears to us that it may be important to distinguish between contractual rights and rights which are enforceable pursuant to the subrogated charge.

  78. Finally, it is right to mention that Mr Davies, rightly in our view, did not seek to suggest that there was any difficulty in principle in C&G contending that they were subrogated to the B&B mortgage in respect of the money paid to B&B, while, in relation to the money paid to BCCI, there was no such subrogation. Subrogation is a remedy which is plainly flexible enough to permit of application in such circumstances.

    The second issue – the alleged perfection of C&G’s security

  79. The Appleyards’ contention is that the effect of the May 2002 letter, and the effect of the entries of 23rd December on the Charges Register is that C&G have now registered the C&G mortgage and, insofar as it relates to the money paid out to B&B, it has priority over the BCCI charge, and therefore is a first mortgage. In those circumstances, at least in relation to the amount paid to B&B in 1991, they say that C&G have now got, on any view, all that they bargained for, namely a first legal charge, and therefore any subrogated right which they would have enjoyed in the past has now ceased. In other words, now that C&G have secured a valid and effective legal charge in respect of the monies paid out to B&B, they do not need to rely on subrogation.

  80. This argument raises a difficult question as to whether the events of 2002 and 2003 resulted in C&G being accepted by BCCI, determined by the court, and registered by the Land Registry as subrogated to the B&B charge, as C&G contend, or whether, as the Appleyards contend, these arrangements really amounted to C&G being able to register the C&G mortgage as a legal charge with priority over the BCCI charge, but only to the extent of the amount which would have been owing on the B&B mortgage. This identification of the issue merely serves to highlight the aridity of the dispute between the parties. Whichever is the correct analysis, C&G have a first legal charge for precisely the same amount of money, properly registered at the Land Registry, and against which the Appleyards do not raise any claim based on duress (now that any such claim has been abandoned).

  81. There are a number of points to support the contention that C&G now have a simple registered charge, namely the C&G mortgage, which has priority in respect of the monies which they are now seeking to recover. First, it is the obvious, simple and commonsense arrangement one would have expected BCCI and C&G to have agreed. Secondly, the notion of an express contractual arrangement as to the existence of a subrogated right, which might be said to be C&G’s case as to the effect of the correspondence between March and May 2002, is somewhat unusual. Thirdly, some of the expressions in that correspondence are much more consistent with the parties agreeing that the C&G mortgage should have priority, albeit only to the extent of the monies paid out to B&B, over the BCCI charge. Thus, C&G’s solicitors referred, in paragraph 1 of the March 2002 letter, to seeking agreement that "the [C&G] mortgage .... has priority over [the B&B mortgage]" and in paragraph 2, to the C&G mortgage being registered. As Mr Davies pointed out, that would appear to indicate that it is the C&G mortgage which is to be registered and which is to have (albeit limited) priority, and that no question of subrogation to the B&B mortgage arises. Similarly in the May 2002 letter, BCCI’s solicitors referred to the C&G mortgage being registered, and in paragraph 3, to the C&G mortgage having priority over the BCCI charge. Mr Davies also relied on the fact that on 23rd December 2003, the C&G mortgage was registered.

  82. On the other hand, the 2002 correspondence has to be assessed in the context of the draft proceedings which were then being threatened by C&G against BCCI, as well as the Appleyards. In those draft proceedings it is quite clear that C&G were not basing their proposed claim against BCCI and the Appleyards on the C&G mortgage being enforceable, but on the ground that C&G was subrogated to the B&B mortgage. Further, although the March 2002 letter referred to the C&G mortgage as having priority over the BCCI charge, that was said to arise "by virtue of [C&G’s] entitlement to be subrogated to the redeemed [B&B mortgage]". Indeed, in the first paragraph of the March 2002 letter, C&G’s solicitors referred to "our client’s subrogation claim", and, in the penultimate paragraph of the letter, they wrote:

    One of the effects of this proposal is that your client agrees to be bound by the court’s decision as to the precise extent of our client’s subrogated rights without being a party to the proposed action.

  83. It is perhaps a measure of the difficulties involved in the law of subrogation that it is plain that C&G’s solicitors did not appear to have a clear idea of the precise nature of subrogated rights.

  84. It is fair to say that BCCI’s solicitors, in the May 2002 letter, do not appear to have been so confused. They rightly made the point that the question as to whether C&G were subrogated to the B&B mortgage could not simply be agreed by BCCI: it had to be determined by the court, which would not be true about priorities. They also made it clear that BCCI would not dispute C&G’s "claim to be subrogated to the rights" of B&B. They further referred to the consequences, pointing out that "the terms of the charge are a matter between [B&B] (or your client standing in its shoes) and the Appleyards". Again, that seems to us plainly more consistent with the notion of subrogation. On the other hand, it remains the case that BCCI’s solicitors clearly envisaged that it would be the C&G mortgage which was registered: see paragraphs 2 and 3 of the May 2002 letter.

  85. The one area in which it is clear what was being claimed, argued about and determined, was in these proceedings. We have already referred, albeit in brief terms, to C&G’s pleaded case. The terms of the judgment are quite clear: no-one, least of all Judge McGonigal, was in any doubt but that C&G’s case, both with regard to the declarations and with regard to the substantive relief they sought, was based on the contention that C&G were subrogated to the B&B mortgage. This is also quite clear from the terms of the orders drawn up in July and September 2003. Furthermore, by the time the matter came before Judge McGonigal, C&G had a very good reason for wishing to maintain the contention that they were subrogated to the B&B mortgage, rather than having to rely upon the C&G mortgage, namely that the duress argument advanced by Mrs Appleyard could not be invoked against the former charge, whereas it was being invoked against the latter.

  86. When one comes to the entries effected in the Charges Register on 23rd December 2003, Mr Andrew Sutcliffe QC, who appeared with Mr David Gilchrist for C&G, realistically accepted that, if C&G were subrogated to the B&B mortgage, then the B&B mortgage should have been reinstated on the register, possibly with a note recording C&G’s interest, and it was inconsistent with their case for the C&G mortgage to have been registered as a legal charge. However, when considering an entry in the Charges Register, it appears to us that normal principles of interpretation apply. In particular, one cannot read the words "registered charge dated 5 July 1991" on their own, when they are immediately followed by "note". One has to read the entry as a whole. Once one reads it as a whole, we are of the view that a sensible reader would appreciate that there had been a mistake, and that he would also appreciate the nature of the mistake. The order of July 2003, which, importantly for this purpose, is referred to in the note on the Charges Register, is unequivocally clear as to the rights of C&G, namely to be subrogated to the rights of B&B under the B&B mortgage. Indeed, the words "subrogated" or "subrogation" appear in five of the six declarations granted by the court. Similarly, the September 2003 order, also referred to in the note, describes C&G’s debt as a "subrogated debt". In our opinion, the reader of the order would appreciate what had gone wrong in the entry on the Charges Register, in the light of the terms of those orders.

  87. Although we acknowledge the strength of the contrary arguments, which were attractively advanced by Mr Davies, we have come to the conclusion that the Appleyards fail on the second issue as well. The correspondence on its own can be said to cut both ways. However, it has to be read bearing in mind the fact that there was some muddle and misunderstanding as to the precise nature of subrogation, and in the context of the draft proceedings. Read in that light, we consider that it establishes that C&G were seeking and obtaining BCCI’s acceptance that C&G were subrogated to the B&B mortgage, and not BCCI’s agreement to a re-arrangement of the priorities. That conclusion is strongly reinforced by the pleadings, the judgment, and the order in these proceedings, and by the fact that, at all times after receipt of the Appleyards’ Defence, it was plainly in the interests of C&G to maintain a case based on their being subrogated to the B&B mortgage, rather than seeking to enforce their own mortgage. The entries of 23rd December 2003 in the Charges Register undoubtedly provide some further ammunition for the Appleyards’ case. However, quite apart from the fact that they were effected after Judge McGonigal’s decision, we think that these entries, when read as a whole, were plainly intended to give effect to the order made by the judge, and should therefore be interpreted as having that effect.

    The third issue – the failure to rely on subrogation in the 1992 proceedings

  88. The Appleyards’ contention is that it would be oppressive or an abuse of process for C&G to be allowed to raise a claim for payment and possession, based on the contention that they are subrogated to the B&B mortgage, when that contention was open to them in the 1992 proceedings, and they did not raise it then. As Mr Davies says, his case is based on what is sometimes called Henderson abuse of process, based as it is on the well known principle enunciated by Wigram V-C in Henderson v Henderson (1843) 3 Hare 100.

  89. The principle was recently considered by Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1 at 31. He said that:

    The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.

    However, he went on to say this:

    It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved, and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.

  90. In light of the guidance given in that passage, and on the basis of the facts in this case, Judge McGonigal concluded that it was not an abuse of process for C&G to rely upon the subrogation argument even though they had not raised it in the 1992 proceedings. He accepted that "the facts giving rise the right of subrogation were clearly known to [C&G] when it began the original possession proceedings in 1992". However, he immediately went on to point out that, at that time, C&G "believed that BCCI would agree that [their] charge had priority and there was therefore little reason to raise the question of subrogation in [the 1992] proceedings", but "BCCI changed its mind after the suspended possession order had been made".

  91. In those circumstances, the judge concluded that, at the time of the 1992 proceedings it was, in his view, "a reasonable decision by [C&G] not to raise the question of subrogation because it had a legitimate expectation that BCCI would agree to the postponement of their charge". He therefore decided that it was not "a misuse of the court process or an abuse" for C&G to have begun the current proceedings to establish their right of subrogation as against the Appleyards. (The judge also concluded that the basis of the suspended order for possession made in the 1992 proceedings was probably the contractual right vested in C&G under the terms of the C&G mortgage.)

  92. In our judgment, that was, to put it at its lowest, a decision to which Judge McGonigal was entitled to come for the reasons he gave. Mr Davies relied upon an observation of Lord Atkin in Workington Harbour Board v Trade Indemnity Co Limited (No 2) [1938] 2 All ER 101 at 106, where he said that a judge had "to keep in mind principles established for the protection of litigants from oppressive proceedings". In that case, the plaintiffs had failed to obtain "a considerable sum of money .... on what may appear to be technical grounds", but they were nonetheless prevented, on abuse of process grounds, from issuing fresh proceedings for the same money. The present case is a long way from that one. Quite apart from the fact that the law on abuse of process has developed since 1938, this is a case where the claimant succeeded in the first action. It is not a case, like Workington, where the plaintiff was seeking to raise a new argument on precisely the same facts as those on which he had failed in this first action. Nor is it a case where the claimant, having blown hot, is now seeking to blow cold. Having blown hot in the 1992 proceedings, C&G are now seeking to blow hotter.

  93. Further, the Appleyards have paid nothing to C&G since the order made in the 1992 proceedings, and therefore C&G were entitled to bring fresh proceedings against them in any event. (In this connection, Mr Davies, quite rightly in our view, did not suggest that there was any objection to a mortgagee, who had obtained a suspended order for possession a long time ago, issuing a fresh proceeding for possession, based on arrears which had accrued well after the previous judgment, rather than seeking to enforce the previous judgment, particularly when that judgment had been given over six years previously).

  94. While not directly in point, there is an observation of this court in connection with mortgage possession proceedings which gives some further support to the judge’s view in this case that it would be wrong to hold against C&G the fact that they did not raise the subrogation argument in the 1992 proceedings. In Alliance & Leicester plc v Slayford 33 HLR 743, Peter Gibson LJ said at paragraph 20, after referring to Henderson:

    I would add that it would not help mortgagors, mortgagees or the courts if mortgagors had to claim and pursue to judgment all their possible claims at one and the same time. Mortgagees usually only go for a possession initially and pursue other remedies later if they have to, and that practice is entirely sensible and to the advantage of all concerned.

    (We think that the second reference to "mortgagors" should be to "mortgagees".)

  95. This observation indicates that mortgage possessions should be kept as simple and cheap as possible, and that, while each case has to be determined on its own facts, a mortgagee should not normally be penalised for having sensibly limited the points it raises in a mortgage possession application.

    The fourth issue – laches

  96. As the judge rightly observed, the law relating to laches was set out in summary form by Lord Selborne LC in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 239:

    Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or whereby his conduct or negligence has, though perhaps not waiving that remedy, yet put the other party in the situation in which it would not be reasonable to place it if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material.

  97. As is stated in Snell’s Equity (30th Edition) at page 35:

    Laches essentially consists of a substantial lapse of time coupled with the existence of circumstances which make it inequitable to enforce the claim.

  98. It was argued on the behalf of the Appleyards that they were both in poor health, over 60 years of age and in distressed circumstances, but the judge concluded that the evidence showed that "Mr Appleyard’s financial difficulties stemmed from the collapse of BCCI in 1991, and that his health problems had begun by 1993". He further found that it was clear from the history of the matter which he had set out rather more fully than I have done that C&G had "not given [the Appleyards] any cause to believe that [they were] not intent on seeking to enforce [their] rights".

  99. In these circumstances, it appears to us that the judge was right to conclude that the Appleyards had no case on laches. As Mr Sutcliffe pointed out, if the remedy of subrogation had not been granted, which would have been the effect of the laches argument succeeding, the Appleyards would probably have received an unjustified windfall in that their liability to B&B would have been discharged at the expense of C&G without any concomitant liability on the Appleyards. Equally, C&G would have suffered a substantial penalty. Accordingly, even if there had been some merit in the Appleyards’ laches argument, the judge would have had to carry out a balancing exercise (see Erlanger v The New Sombrero Phosphate Co (1873) 3 App Cas 1218 at 1279) and that balancing exercise would, as we see it, have inevitably come down in favour of C&G.


  100. In these circumstances, it follows that this appeal must be dismissed.


Adrian Davies Esq (instructed by Messrs Fenwick & Co) for the Appellant.

Andrew Sutcliffe Esq, QC & David Gilchrist Esq (instructed by Messrs Parker Bullen) for the Respondent.

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