House of Lords, Banque Financière de la Cité v Parc (Battersea) Ltd. and others [1998] 1 All ER 737

Abstract

Banque Financière de la Cite is a further contribution to the developing English law on restitution. In particular it examines the relationship between restitution and subrogation. The case had the following set of facts: The claimant made an advance of DM30m to enable the defendant to repay part of a loan from another bank, secured by a first charge on the defendant's property. Under the terms of the advance it was not contemplated that the defendant would provide any security, but it was an express condition of the advance that other companies in the group to which the defendant belonged would not demand repayment of their loans until the claimant had been repaid. One such company (O) was, however, protected by a second charge over the property. The persons who negotiated the transaction had no authority to commit O to the express condition so it was not contractually bound. The defendant became insolvent. If the claimant had no priority over O's second charge, it was unlikely to be repaid. The court had to decide whether, as against O, the claimant was entitled to be subrogated to the first charge to the extent that its money was used to repay the debt which it had secured. The claimant argued that if O was allowed to enforce its second charge, it would be unjustly enriched at the expense of the claimant. The House of Lords considered that the appropriate questions to be asked when a restitutionary remedy was sought were: (i) whether the defendant would be enriched at the plaintiff's expense; (ii) whether such enrichment would be unjust; and (iii) whether there were nevertheless reasons of policy for denying a remedy. On the facts, in the absence of subrogation, O would be enriched at the claimant's expense and prima facie such enrichment would be unjust. Moreover, subrogation as against O, which was all that the claimant sought in the action, would not give it greater rights than it had bargained for; all that would happen would be that O would be prevented from being able to enrich itself to the extent that the claimant's money paid off the first charge. The following case notes examine this set of facts from the points of view of Greek, Portuguese and Belgian law.