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Orakpo -v- Manson Investments Ltd

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Orakpo -v- Manson Investments Ltd

Postby dls » Mon Mar 02, 2015 8:41 pm

Orakpo -v- Manson Investments Ltd - HL - 1977 - Lords Diplock, Salmon and Keith ([1978] AC 95, (1977) 3 All ER 1) - Consumer - Financial Services - Equity
Transactions were entered into under which loans were made to enable the borrower to acquire and develop certain properties were held to be unenforceable under the 1927 Act. The effect was to enrich the borrower, who had fallen into arrears of payments of interest and moneys due but was successful in his defence that all the transactions including those which provided security rights to the creditor were unenforceable.
Held: While the Acts were designed to protect unsophisticated borrowers from being overreached by unscrupulous moneylenders, they were capable of being used by unscrupulous borrowers to avoid paying their just debts to moneylenders. Whether a remedy in subrogation to redress the unjust enrichment might be available was considered, but it was not open to the court to mitigate the harshness to the moneylender and the undeserved enrichment of the borrower which had resulted from the technical failure to observe the provisions of the Act.
Lord Diplock stated the principle in relation to such provisions as follows: "Agreements or securities that are unenforceable are not devoid of all legal effect. Payments made voluntarily pursuant to their terms are not recoverable and I regard it as open to question whether the unenforceability of a higher ranking security which is not void ab initio excludes the doctrine of the merger in it of a lower ranking security in respect of the same charge, at any rate when the higher ranking security remains potentially enforceable in the hands of an assignee."
As to subrogation: "It is a convenient way of describing a transfer of rights from one person to another, without assignment or assent of the person from whom the rights are transferred and which takes place by operation of law in a whole variety of widely different circumstances." and as an example "One of the sets of circumstances in which a right of subrogation arises is when a liability of a borrower B to an existing creditor C secured on the property of B is discharged out of moneys provided by the lender L and paid to C either by L himself at B's request and on B's behalf or directly by B pursuant to his agreement with L. In these circumstances L is prima facie entitled to be treated as if he were the transferee of the benefit of C's security on the property to the extent that the moneys lent by L to B were applied to the discharge of B's liability to C. This subrogation of L to the security upon the property of B is based upon the presumed mutual intentions of L and B; in other words where a contract of loan provides that moneys lent by L to B are to be applied in discharging a liability of B to C secured on property, it is an implied term of that contract that L is to be subrogated to C's security."
Lord Salmon said: "The test as to whether the courts will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is, I think, impossible to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demand that it should be."
Moneylenders Act 1927 s. 6 s. 13(1)

Cited by:
Wilson -v- Secretary of State for Trade and Industry; Wilson -v- First County Trust Ltd (No 2) HL 10-7-2003 (House of Lords, Gazette 18-Sep-03, Times 11-Jul-03, Bailii, [2003] UKHL 40, [2003] 3 WLR 568, [2004] 1 AC 816, [2003] 2 All ER (Comm) 491, [2003] HRLR 33, [2003] UKHRR 1085, [2003] 4 All ER 97)
Castle Phillips Finance -v- Piddington CA 1995 ([1995] 1 FLR 783)
Dimond -v- Lovell HL 12-5-2000 (Gazette 31-May-00, Times 12-May-00, House of Lords, Bailii, [2000] UKHL 27, [2000] 2 All ER 897, [2000] 2 WLR 1121, [2002] 1 AC 384, 2000 Rep LR 62, [2000] CCLR 57, [2000] RTR 243)
Cheltenham & Gloucester Plc -v- Appleyard & Another CA 15-3-2004 (Times 29-Mar-04, Bailii, [2004] EWCA Civ 291, Gazette 01-Apr-04) - Applied
Boscawen and Others -v- Bajwa and Others; Abbey National Plc -v- Boscawen and Others CA 10-4-1995 (Gazette 01-Jun-95, Independent 23-May-95, Times 25-Apr-95, [1996] 1 WLR 328, Bailii, [1995] EWCA Civ 15)
McGuffick -v- The Royal Bank of Scotland Plc ComC 6-10-2009 (Bailii, [2009] EWHC 2386 (Comm))
Bankers Trust Company -v- Namdar and Namdar CA 14-2-1997 (Bailii, [1997] EWCA Civ 1015)
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