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Where A, intending to lend money on a secure basis, advances money to the borrower, B, which is applied to discharge the existing charge of C, then if A does not in fact obtain any valid security, A will be entitled to enforce C's charge to the extent that his money discharged the sums secured upon it. In such a case, the presumed mutual intention of the parties A and B is that A was to obtain security and that the earlier security was to be kept alive and available to A until he received valid security in place of it. A is subrogated to C's rights against B.
A number of Court of Appeal cases have brought the remedy of subrogation into the limelight and sought to describe its modern day scope: Boscawen v Bajwa is a good example. What they illustrate is that subrogation is an empirical remedy which can be a lifeline to lenders who have found themselves unable to enforce the terms of their security. It is a flexible remedy that can ensure a person is not unjustly enriched at another's expense in a variety of circumstances.
However, the courts have described as "perilous" any attempt to rely on analogy to justify applying subrogation to one set of circumstances resulting in unjust enrichment simply because it was used by the courts to avoid such a result in different circumstances. Subrogation is a remedy, not a right.
Most recently, the decision of the Court of Appeal in Bankers Trust v Namdar highlights its judicious application. The bank was both creditor C and lender A because it was simply restructuring a loan and (it thought) remortgaging a property. Moreover, the bank did not lend or otherwise provide the money used to discharge the existing secured debt. Instead, it provided a guarantee which facilitated the release of funds held in a German bank that were used to discharge the debt. The court did not rule out the application of the doctrine of subrogation where C and A were one and the same. But the fact that the bank assumed a contingent obligation and did not provide the money used to discharge the existing debt (owed to it) was seen as "an insuperable difficulty" in seeking to fit the bank's claim within the recognised scope of the doctrine.
It seems that, although the remedy of subrogation is available on prescription, lenders would be prudent to avoid the illness, for it is no panacea.