Equitable subrogation: one co-habitee charging interest to secured creditor of her partner

In Insol Funding Company Limited v Cowlam ([2017] EWHC 1822 (Ch)) Ms Cowlam and Mr Cowey were equitable tenants in common of their family home. Mr Cowey gave his creditors (Insol) an equitable charge over his 20% share in the property.

Insol brought proceedings to enforce the charge. Ms Cowlam sought to head these off to protect her own interests. She agreed to pay Insol GBP325,000 by 31st December 2015. If this payment were not made then the amount to be paid would rise to GBP330,000 and the property would be put up for sale. Ms Cowlam gave Insol an equitable charge over her own share in the property as security for this payment.

The parties agreed that this would, as far as Ms Cowey and the property were concerned, exonerate Mr Cowey’s liability. Insol would lose its right to enforce its equitable charge over Mr Cowey’s share and seek an order for sale.

The property was now to be sold. Ms Cowlam claimed to have a right to be equitably subrogated to Insol’s equitable charge over Mr Cowey’s share. This right would have priority over the charge that Ms Cowlam had granted to Insol. Insol would, in effect, be deprived of any right to receive any of the proceeds of sale.

The equitable subrogation claim failed. Master Bowles explained that there are two situations in which equitable subrogation may apply:

‘firstly, where a guarantor, or surety, pays the principal debtor’s debt and, secondly, where a lender, in the expectation of security in respect of his lending, advances money in payment of a debt, or towards the purchase of property, but where, for one reason, or another, the expected security does not arise.’ ([120])

Neither of these situations applied in the present case:

‘Ms Cowlam has simply promised to pay, in her own right, a sum of money, in part satisfaction of Mr Cowey’s indebtedness, and, where, in due course, and pursuant to her promise, such a payment will be made ([123]).

Master Bowles thought that the right approach to equitable subrogation was to test his conclusions by reference to the principles of unjust enrichment. In one sense, Insol was enriched by the agreement with Ms Cowlam but there was no unjust enrichment:

‘Insol entered into a valid contractual bargain with Ms Cowlam under which she agreed to pay the settlement sum. It is hard to see that payment to Insol of an amount agreed to be paid to Insol, under a contract which has not, in itself, been impugned, can be said to unjustly enrich Insol.’ ([132])

Rather, allowing Ms Cowlam’s claim to succeed would be unjust to Insol ([132]). It would be inconsistent with the intended effect of Ms Cowlam’s agreement with Insol ([135]).

Michael Lower



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