Supreme Court Decision Aids Mitigation Of Lender Claims Against Solicitors

The Supreme Court last week handed down judgment in the case of Bank of Cyprus UK Limited v Menelaou [2015] UKSC66. The judgment confirms the 2013 decision of the Court of Appeal that a lender may take a subrogated interest in a property by way of a vendor's lien, where the owner has been otherwise unjustly enriched at the lender's expense by way of a defective security.

The case is good news for lenders and therefore of interest for their solicitors when dealing with cases of ineffective security prejudicing the lender's proprietary interest.


The full facts of this case can be found here. In brief:

The Menelaou parents (the "Menelaous") were indebted to the Bank in the sum of GBP 2.2 million, an indebtedness which was secured by two legal charges on Rush Green Hall. In 2008 the Menelaous decided to sell Rush Green Hall in order to release funds to purchase a further, smaller property as the family home, Great Oak Court (the "Property"), as well as to provide funds to allow their eldest daughter Danielle to pay the deposit on a house. A purchaser for Rush Green Hall was found who agreed to pay a purchase price of GBP 1.9 million.

The Bank agreed that it would release its charges over Rush Green Hall upon receipt of GBP 750,000 out of the sale proceeds and in return for a charge over the Property to secure what would be the remaining indebtedness of GBP 1.45 million. This would thereby enable the Menelaous, on the strength of that undertaking by the Bank, to use GBP 875,000 out of the sale proceeds of Rush Green Hall for the purchase of the Property in the name of their daughter, Melissa ("M").

M knew nothing of the Bank's charge over the Property. Her signature on the mortgage deed documenting the Bank's interest was a forgery. M sought an order that the registered charge in favour of the Bank over the Property was invalid and should be removed.

The Bank counterclaimed that M had been unjustly enriched by way of the defective security, as she had received the Property without the burden of the security; the Bank's remedy being an equitable charge as if it was entitled to be subrogated to an unpaid vendor's lien over the Property.

The Bank's solicitors (introduced as a Part 20 defendant by the Bank due to their error in failing to notice the mortgage deed had been improperly executed) admitted breach and provided an indemnity to the Bank for its losses.

Appellate history

At first instance the Bank's counterclaim for subrogation...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT