Lloyd's Maritime and Commercial Law Quarterly
SUBROGATION FINDS SOME ‘‘WELL-SETTLED PRINCIPLES’’
Halifax
v. Omar
The law of subrogation has, at its heart, a very simple concept. The idea is that, wherever a debtor (D) owes money to a creditor (C) and that debt is paid by a third party (P), P is entitled to the rights of C against D in respect of the debt. Apart from certain circumstances that will prevent P from assuming the rights, one (though certainly not uncontroversial) view is that that is all that is required to explain the cases. In his book, Restitution: Its Division and Ordering
,1
Hedley makes the argument that the current confusion in the law is the result of historical happenstance, and that recognition of the simple general principles of subrogation would help to provide a way through the turmoil. Such clarity is yet to be found in the courts, where subrogation remains a confused doctrine and a fertile ground of legal argument for unfortunate litigants and their not-so-unfortunate lawyers.
In Halifax Plc
v. Omar
,2
the Court of Appeal has inserted an important distinction into the law of subrogation that would appear to create a new and separate category of cases. Far from worsening the intellectual quagmire of the subject, however, it is submitted that the judgment provides a great step in the right direction. For commercial parties, and in particular lending banks, the decision is of great importance as it makes clear the basis upon which subrogation to security takes place, thus providing much-needed certainty that should enable lending, wherever there is pre-existing security to be discharged, to take place with confidence. For lawyers, the significance lies in the fact that it does so by excising from this area of the law the intellectual trauma created by the House of Lords’ judgment in Banque Financière de la Cité
v. Parc Battersea
3
(‘‘BFC
’’).
The Omar case
The claimant and defendant in Omar
were both the victims of the fraud of a third party. Halifax advanced to the fraudster the money to purchase a flat from a Mrs Garcia, expecting a first legal charge over the property. The flat was purchased but the change in ownership was never registered and the charge was not executed. When Halifax launched proceedings to be subrogated to Mrs Garcia’s vendor’s lien over the flat, it was found that
CASE AND COMMENT
7