B2/2013/0795 
Neutral Citation Number: [2013] EWCA Civ 1822
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION) 
ON APPEAL FROM STOKE‑ON‑TRENT COUNTY COURT
(DISTRICT JUDGE JACK)
Royal Courts of Justice 
Strand 
London, WC2 

Thursday, 28th November 2013
 
B E F O R E:

LADY JUSTICE ARDEN 
 
LADY JUSTICE GLOSTER 
 
LORD JUSTICE RYDER 
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JATINDER SANDHER
Respondent/Claimant
‑v‑
 
JANET PEARSON 
Appellant/Defendant 
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Mr S Charles (instructed by Dickinson Solicitors Ltd) appeared on behalf of the Appellant/Defendant
Mr R Chapman (instructed by Lewis Hymanson Small LLP) appeared on behalf of the Respondent/Claimant
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J U D G M E N T
1.	LADY JUSTICE ARDEN:  The issue on this appeal is whether the respondent, Mr Sandher, who bought Mrs Pearson's property at 5 Glendale Court, Claydon, Newcastle, Staffordshire ("the property") for £170,000 in October 2009 was unjustly enriched when £100,000 out of that purchase price was used by Mrs Pearson to pay off a charge in favour of Hedge Capital, or at least to clear a restriction.  Mr Sandher had arranged that transaction with Hedge Capital in his favour.  
2.	District Judge Jack sitting in the Staffordshire County Court, rejected Mrs Pearson's claim by way of a counterclaim in possession proceedings commenced by Mr Sandher.  In her counterclaim Mrs Pearson claimed payment of the sum of £108,519.77 pence, being the sum that was used to pay off Hedge Capital.
3.	District Judge Jack noted in his judgment that Mrs Pearson had no real recollection of the transaction.  Nonetheless, having considered all the evidence led before him the judge made a number of findings which I will now summarise.  I should say that at the time the transaction occurred it appears that Mrs Pearson was in financial difficulty.  She was the freehold owner of the property and it is common ground that the property was then worth between £117,000 (on forced sale basis) and £120,000.
4.	I now therefore go to the key findings by the judge.  In about the middle of 2009 Mrs Pearson saw an advertisement stating that a company, of which Mr Sandher was a director, was seeking to purchase properties quickly.  She telephoned the number given in the advertisement.  As a result Mr Shinh visited her to discuss whether Mr Sandher (or the respondent) would be willing to purchase the property.  After the meeting Mrs Pearson and Mr Shinh spoke on the telephone.  Mrs Pearson accepted the offer made by Mr Shinh on behalf of Mr Sandher to purchase the property for £36,000.  It appeared that at this time the parties wrongly believed that this was the total amount which Mrs Pearson required to clear the charges secured on the property.  In fact the true position was that Mrs Pearson owed some £43,000 to Halifax Building Society ("Halifax") and some £17,500 to Blemain Finance ("Blemain"). Both these debts were charged on the property.
5.	Mr Sandher discovered the existence of the second charge in favour of Blemain and he unilaterally decided to increase the purchase price so that the proceeds of sale would be sufficient to enable both charges to be cleared.  Again, without discussing the matter with Mrs Pearson, Mr Sandher decided to raise the price to £170,000.  He wanted this amount to be recorded as the price at HM Land Registry.  He believed that this would help him achieve a better price on resale of the property.  This has been called in the proceedings "the price manipulation arrangement".  Mrs Pearson never had any knowledge of the price manipulation arrangement.  However, at her first meeting with Mr Shinh she signed a form requesting entry of a restriction on the Land Register against the property.  This, once registered, would enable the beneficiary of the restriction to be consulted for its consent to be required before any disposition of the property.  It was this restriction which enabled Mr Sandher to cause a loan to be raised from Hedge Capital which was subsequently repaid on completion of the transaction.
6.	Mrs Pearson appointed a solicitor to act for her from a list provided by Mr Sandher.  Her solicitor exchanged contracts with Mr Sandher's solicitor on 16th September 2009.  The special conditions of sale incorporated into the contract include the following clause 2(b): 
"Notwithstanding that the Buyer has actual knowledge of the financial charges disclosed on the Epitime of Title and/or Charges Registered with the Seller [the buyer] will transfer the property free from such charges...
11.  Until all of the following conditions have been fulfilled, exchange of contracts should be regarded as conditional:..." 
I need not read subconditions 1 and 2.  The third subcondition was as follows:  
"The seller has satisfied himself that the purchase price is sufficient to discharge all charges and restrictions referred to in the Charges Register as at the completion date or if this shall not be the case the parties have agreed to increase the purchase price to enable the seller to do so."
As I have explained, Mr Sandher made an application to Hedge Capital for a loan of £100,000.  Hedge Capital paid £180,500 to Mrs Pearson's solicitors at completion.  Her solicitors used this sum to repay the amount that had been borrowed from Hedge Capital.  They also cleared the other charges with moneys provided by Mr Sandher at completion.
7.	The judge did not have all the evidence that he indicated he would have been desirable.  However, there was a letter dated 15th September 2009 purporting to be from Mrs Pearson's solicitor to Mrs Pearson, recording her instructions that she had instructed her solicitors to proceed on the clear understanding that the sale proceeds would be used to clear all outstanding charges, leaving a nil balance to herself.  In consequences of the contract the legal title in the property was transferred to Mr Sandher who became the owner of the property.
8.	The judge concluded that Mrs Pearson could not recover the moneys provided by Hedge Capital because she had agreed to a transfer containing a recital stating that all monies due to her had been repaid.  Mr Richard Chapman, who appears for Mr Sandher, accepts that the judge was wrong to place this level of reliance on that recital.  Accordingly, even though permission to appeal was given in wider terms, the only issue on this appeal is whether Mrs Pearson is entitled to be subrogated to the rights of Hedge Capital in respect of the money which it advanced, namely £108,500.  I should say that Mr Charles refined that submission in the course of his address to us.
9.	The starting point, however, is the conditions for a claim of this kind.  In Banque Financière de la Cité v Parc (Battersea) Ltd [1998] 1 AC at 221, Lord Hoffmann, with whom a majority of the House agreed, held at page 234 that it should be recognised that in subrogation one is concerned with a "restitutionary remedy" and that the appropriate questions are therefore, first, whether the defendant would be enriched at the plaintiff's expense, second, whether such enrichment would be unjust and, third, whether there are nevertheless reasons of policy for denying such a remedy.
10.	It is common ground on this appeal that in order to be subrogated Mrs Pearson must show that Mr Sandher was unjustly enriched at her expense by payment out of the proceeds of sale paid to Mrs Pearson's solicitors of the amount due from Mr Sandher to Hedge Capital.  There is no issue as to the third requirement set out in Lord Hoffmann's speech, namely it is not suggested that there is any reason of policy for denying the remedy.  So the focus of the argument on the appeal has been on the question of unjust enrichment and was it at the plaintiff's expense.
11.	Mr Simon Charles appears for Mrs Pearson on this appeal.  He submits that Mr Sandher was unjustly enriched.  In short, the contractual price for the property was £170,000 and that is what he should have paid.  Instead, a considerable part of that sum was used to repay Hedge Capital.
12.	Mr Charles submits that the enrichment was unjust for the following reasons.  Mr Sandher had taken advantage of the vulnerability of the appellant, in addition the transaction was at an undervalue.  Mr Charles submits that the test of unjust enrichment is to be ascertained by analysing the economic reality of the transaction.  In this regard he relies on the recent decision of this court in Menelaou v Bank of Cyprus UK Ltd [2013] EWCA Civ 1960.
13.	In his skeleton argument Mr Charles also emphasises that the unjust enrichment occurred not simply when Mr Sandher received the loan but also occurred when Hedge Capital was repaid.  Therefore, Mr Charles submits, the appellant became entitled to be subrogated to Hedge Capital's rights.  
14.	We did not call on Mr Chapman.  We had his skeleton argument.  He submits that the loan by Hedge Capital was in fact fictitious because it went round in circles.  There was no unjust enrichment because the monies were used to clear the title.  Mrs Pearson had agreed in the contract to transfer the property free from charges and restrictions.  In any event, if she had not performed the contract she would have had to remove the restriction before selling the property to any other party.  Furthermore repayment avoided the risk of Hedge Capital starting enforcement proceedings against her.  In addition Mr Chapman submits that subrogation would be inconsistent with the parties' agreement.  Mrs Pearson had orally agreed the price should be £36,000.  In addition, she would get a windfall, on the appellant's case, because the value of the property was taken to be only £120,000.  Mr Chapman also submits that Mrs Pearson should not be subrogated because this would give her the right to interest at the rate charged by Hedge Capital, which was not known.  In addition, Mr Chapman makes the point that Mrs Pearson has not shown that the transaction was voidable, was made under duress or that it constituted an unconscionable bargain.  
15.	Mr Charles put it to us that if the court was not satisfied that Mrs Pearson was enriched on the basis that the contract price was £170,000, the court could limit the relief to the windfall that Mr Sandher had received because of the actual value of the property being £120,000, whereas the charges paid off were a mere £60,000.  He submits that there is discretion in the court to fashion the relief as may be appropriate.  I would accept this argument.  It is clear that subrogation is a remedy and that the court can fashion it as appropriate to the circumstances of the case:  at page 236 of his speech in Banque Financière de la Cité Lord Hoffmann points out that subrogation is not a right or a cause of action but an equitable remedy.  To continue he holds:
"It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is 'kept alive' for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched."
16.	Accordingly I would accept that if the court were minded to grant relief it could go and consider the further question whether relief should be limited to the difference between the undervalue and the price which Mr Sandher paid.   
17.	That takes me back to the principal argument on the appeal.  In my judgment, the argument must fail because the basic premise on which it is founded is misplaced.  The judge did not, as I see it, go far as to hold that Mr Sandher had caused the appellant to enter into the contract.  She had after all instructed a solicitor before entering into a legally binding contract.  She was not bound by any agreement until she signed the written contract.  In addition, in my judgment, the authorities do not go so far as to hold that the court need not have regard to the terms of a contract by reason of the fact that the claimant is a vulnerable person in a transaction at an undervalue.
18.	The Menelaou case was, as I see it, a very different situation.  The issue in that case was whether the bank could be subrogated to a charge on a property acquired by the daughter with the proceeds of sale of another property, which were released by reason of the bank having withdrawn its charges over that other property.  That was the property of their parents.  The bank did not have any proprietary interest in those proceeds of sale.  They belonged to the parents and they had made them available to the daughter, so there was an issue as to the connection between the actions of the bank and the acquisition of the property by the daughter.  This court held that, in determining whether there was a sufficient connection to enable the court to say that the daughter had been unjustly enriched, the court was entitled to have regard to the economic reality of the situation, which was the bank would never have released its charges unless it had been promised a further charge over the property of the daughter which was not forthcoming.
19.	In my judgment it does not follow that the court is entitled to disregard the terms of a contract when considering unjust enrichment generally. Indeed, this court cites the authority of Investment Trust v HMRC, a decision of Henderson J, in which Henderson J had sought to identify as one of the relevant factors in considering whether there was a connection for unjust enrichment purposes: 
"... the need to avoid any conflict with contracts between the parties, and in particular to prevent 'leapfrogging' over an immediate contractual counterparty in a way which would undermine the contract..." 
20.	The court did not have to decide whether that was a relevant consideration in Menelaou because there was no relevant contract which had to be taken into account.  There was no contract which was inconsistent with the unjust enrichment claim being established.  In this case there is.  The terms of the contract were that Mrs Pearson would clear any restriction.  In my judgment, it cannot therefore be said that the defendant was unjustly enriched when she performed the terms of her bargain.  Accordingly I would not accept the principal argument of Mr Charles on this appeal.  He does not seek to go behind the contract which his client agreed for the purposes of this argument.  In my judgment, he could only on the facts of this case establish unjust enrichment if the contract could be set aside.  That led Mr Charles, as an alternative submission, to make a fresh application for permission to appeal based on paragraph 20 of the judgment dated 23rd January 2013 of District Judge Jack.  It so happens in this case that the district judge gave two judgments, one with his findings on fact and then subsequently to deal with the resolution of the parties' claims.  The judgment of 23rd January is his second judgment.  In paragraph 20 the judge held he was not satisfied: 
"that she [Mrs Pearson] is entitled to any of the remedies she seeks in the counterclaim, for the same reasons expounded here and in my earlier judgment."
21.	Mr Charles submits that the judge should have found, on the basis of the judge's findings in his earlier judgment, that the appellant had entered into an unconscionable bargain and was therefore entitled to relief on that basis.  I must therefore go in a little more detail into the facts in the first judgment.  First I must go to the counterclaim.
22.	In Mrs Pearson's counterclaim Mrs Pearson repeated an allegation in her defence that at the first meeting between her and Mr Shinh, Mr Shinh had held himself out as someone who was acting in her best interests and who had the necessary experience and qualifications to offer her advice and guidance and in relation to the sale of the property.  She pleaded that he had used words to the effect of "I" or "the people that I work for help and assist people in financial difficulties" and "we care about our clients and do what we can to sort out their problems" and that everything would be all right.  She repeated a further allegation in the defence that it was "to her manifest disadvantage to sell her property pursuant to an agreement or transaction structured in a manner which meant that she gave up her right to receive £108,519.77 pence", meaning the net proceeds of sale available after the redemption of the charges secured in favour of both Halifax and Blemain.
23.	She sought relief in her counterclaim which included an order avoiding the contract and restoring her as the registered proprietor of the property.  We understand that the appellant does not have the cash to enable the status quo of the parties to be restored, that is the cash necessary to repay Mr Sandher what he paid to Halifax and Blemain.  However, we have not had full argument on the consequences of that and thus I would express no view as to whether that would have been determinative of any claim to set aside the contract.  Provisionally it seem to me that she could in fact have had the contract set aside on the basis of some charge being raised to secure finance for that purpose.
24.	The findings on which Mr Charles relies are in the first judgment.  I should point out that the judge observes at paragraph 5 as follows:  
"Through absolutely no deliberate fault of her own, the defendant was unable to help the court with her recollection of events, conversations or discussions.  She simply could not remember, she became very confused and not a little distressed, and whilst the court has every sympathy for her, I do still have to make findings in the knowledge of the burden of proof rests upon her to prove her case on the balance of probabilities." 
I should say that I too have sympathy for the appellant's situation in the light of the facts as I will subsequently explain them to be.  The judge went on to say that the oral evidence of the defendant had been non‑existent.  There was little in her written evidence to support some of the matters in the pleading to which I have referred.
25.	In his application for permission to appeal Mr Charles identifies the findings on which he relies.  He refers to particularly paragraphs 70 to 84 of the judge's first judgment.  In paragraph 73 to paragraphs 75 the judge noted that Mr Charles drew the court's attention to two matters.  The first was the fact that:  
"...this was originally a significant undervalue transaction singled out rather than acting on commission from third parties to make significant profit quickly."  
I am there reading precisely as it is typed at page 190 of the bundle.
26.	Mr Sandher explained that he was taking this contract in his own name, which was unusual for him, rather than finding a third party to take on the contract.  That, as I understand it, is what the judge means by saying that this was originally a significant undervalue transaction "singled out".
27.	The second matter was the defendant's circumstances.  Although there was no evidence as to her circumstances, the judge noted that Mr Charles relied on authority for the proposition that poverty or other kinds of vulnerability might give rise to a need for explanation of a transaction:  Blomley v Ryan was cited.  
28.	However, the judge went on in a later passage in his judgment to accept the submission made by Mr Chapman for the respondent, that the restriction must have been placed on the property with the consent of the defendant.  The judge noted specifically that there was no handwriting evidence to the contrary, and that Mrs Pearson appears to have signed the form RX1 which was necessary for this purpose.  The judge then observes: 
"One then asks oneself, as before, when, where, in what circumstances, with what advice from her solicitor, and, more particularly, why?  I have no evidence to help me on that."  
‑  see paragraph 84 of the judge's judgment of page 191 of the bundle.
29.	The judge was certainly critical of Mr Sandher and with good reason.  He found that Mr Sandher targeted properties where the owner was vulnerable and he, Mr Sandher, was prepared to pay £36,000 for a property which he knew was worth £120,000.  He further found that Mr Sandher had not come to equity with clean hands and that he knew or must have known how vulnerable the defendant was and that he was prepared to mislead potential purchasers of the property and deliberately intended to do so by hugely inflating the purchase price.
30.	In my judgment leaving aside the lateness of this application and that it comes to the court without any authorities or skeleton argument, we should reject it on the grounds that the issue was simply was not fully investigated at trial.  Mr Charles accepted that the challenge at trial did not stretch to saying that the transaction should be set aside because of the element of undervalue.  He sought to have it set aside on the basis pleaded in the counterclaim and the issue of unconscionable bargain was put to the court on that basis.  He submits that the contract could not have been avoided at the time of trial because the appellant was unable to repay the amounts which had been used to discharge the charges with Halifax and Blemain.  So the claim being run at trial was that the contract was unconscionable because of the price manipulation arrangement.  It was part and parcel of the background that the transaction was at an undervalue and so the judge rightly points out that Mr Charles drew his attention to that fact.  However, the principal claim, if not the sole claim, was based on the price manipulation arrangement.  Mrs Pearson hoped to get a monetary remedy which would leave her in the same position as if the contract had been set aside without her having to repay the amount of the charges which had been discharged by Mr Sandher.
31.	If the point had been taken at trial on a wider basis that the contract was an unconscionable bargain because the price was at an undervalue and the price was struck when the appellant was not properly advised and that Mr Sandher had deliberately sought to make a profit at her expense, then the burden might well shifted to Mr Sandher to show that she received independent advice and that she did not act as a result of an unconscionable conduct.  However, that was not the way the case was put at trial.  As I understand it the case was put in terms of the counterclaim which I have quoted.  Paragraph 20 of the judge's second judgment addresses the case in the terms in which it was pleaded.  In my judgment, the judge was entitled to come to that conclusion on the basis of the case as it had been pleaded.  There was, in short, no basis for saying that Mrs Pearson would have become entitled to the monies raised from Hedge Capital but for the price manipulation arrangement.  Like the judge, I reach these conclusions with regret, but in the circumstances I consider that the appeal and the application for permission must be dismissed.
32.	LADY JUSTICE GLOSTER:  I agree.
33.	LORD JUSTICE RYDER:  I also agree.