Summary

In the instant case, reason and justice demanded that the doctrine of subrogation be applied so that the claimant was entitled by "sub-subrogation" to a lien over a property.

Facts

Appeal by the defendant ('G') from an order for possession of a property made by Recorder Narayan on 1 February 2002 at Carlisle County Court due to default under a charge. In 1986, G and her husband ('H') purchased a group of properties from the executors of a deceased's estate. They did so with the aid of a bridging loan from Barclays. In 1987, a legal charge over the properties was made between Barclays and G and H to secure all moneys owed by H to Barclays. By 1990, Barclays was pressing for repayment of H's indebtedness. H applied to the claimant ('UCB') for a loan. In December 1990, the remortgage transaction was completed. By a legal charge, G and H charged one of the properties ('the farm'), held in their joint names, as security for all moneys owed by one or both of them to UCB. H transferred the UCB advance to Barclays, who applied it in extinguishing the outstanding balance on the bridging loan account and in reducing the remainder of H's indebtedness. Barclays also released the farm from its charge. UCB subsequently brought proceedings as chargee and, in October 1992, a possession order in respect of the farm was made in the absence of G. G then succeeded in having the possession order set aside as against her on the ground that her execution of the charge had been procured by undue influence and/or misrepresentation by H. The possession order was not set aside as against H and, accordingly, the action continued against G alone. The recorder found that G had failed to prove either undue influence or misrepresentation and, accordingly, made a possession order against her. On appeal, UCB argued that: (i) G and H were in default under the charge and it was therefore entitled to possession of the farm; and (ii) alternatively, it was entitled to possession by "sub-subrogation" to the unpaid lien of the executors. G maintained that the charge was not binding on her as she signed it in consequence of either H's undue influence on her or misrepresentations he had made to her.

Held

(1) The recorder's judgment had been so superficial and perfunctory that his conclusion, that G had failed to discharge the burden of proving undue influence and/or misrepresentation, could not stand. He had failed to give a proper explanation for his findings that it was unlikely G had signed the UCB charge without reading it and without asking questions of a legal assistant. It was difficult to see how the various aspects of the evidence to which the recorder had expressly referred in his judgment had led him to the conclusion he had reached. (2) The decision in Castle Phillips Finance v Piddington (1995) 1 FLR 783 was clear authority that the principle in Butler v Rice (1910) 2 Ch 277 applied in the instant case. Consequently, assuming the Barclays charge to be voidable at the instance of G, Barclays had to be taken to have intended to retain and keep alive any security rights to which it was entitled in the absence of an effective security. By parity of reasoning, UCB was entitled to be subrogated to those rights. There was no conceptual difficulty in subrogation at one remove, as it were, provided that the requirements for subrogation were otherwise met. In the instant case, reason and justice demanded that the doctrine of subrogation be applied. To deny UCB an entitlement to be subrogated to the lien to which Barclays in turn became entitled would produce a windfall benefit for G. In that respect the case was on all fours with Piddington (supra) and the same result should follow. (3) Accordingly, UCB was entitled to an equitable charge on the farm to secure £132,906.75. The appropriate relief to enforce that security, including an order for possession of the farm, should be granted.

Appeal allowed in part.