CASE AND COMMENT 337

SUBROGATION AND UNJUST ENRICHMENT IN THE

SUPREME COURT

Menelaou v Bank of Cyprus

A. Introduction
In Menelaou v Bank of Cyprus UK Ltd,1 the Supreme Court granted the remedy of
subrogation to the unpaid vendor’s lien where the lender had not advanced its own monies
for the purchase of a property with defective security. The controversial questions faced by
the Supreme Court were: (1) whether a pre-existing property right is required for a claim of
subrogation through unjust enrichment; and (2) applying the principles, whether the Bank
could recover on the facts. The case also raised interesting questions as to the wider debate
concerning restitution from indirect recipients and the availability of proprietary remedies
for unjust enrichment claims. Lord Clarke, Lord Neuberger and Lord Carnwath gave three
separate judgments,2 where they adopted distinct approaches. All three judgments deserve
careful examination.
This Comment will first briefly summarise the facts and then examine the Supreme
Court’s decision in depth, paying particular attention to the court’s reasoning as regards
(i) the formulation of an unjust enrichment claim; (ii) the necessary causal link for the “at
the claimant’s expense” requirement; (iii) the proprietary link required for subrogation;
and (iv) the debate whether the case can be read as a vindication of property rights.

B. The facts
The case was one of “unusual” facts.3 Mr and Mrs Menelaou (the “Parents”) owed to the
Bank of Cyprus (the “Bank”) debts in the sum of £2.2 million which were secured by two
charges on their family home, Rush Green Hall. In 2008, the Parents decided to sell Rush
Green Hall with the aim of downsizing to a further and smaller property, Green Oak Court.
Their daughter, Melissa, was told that Green Oak Court would be purchased under her
name as a gift. The Bank agreed to release its charges over Rush Green Hall and allowed
the Parents to use £875,000 out of the sale proceeds of Rush Green Hall to acquire Great
Oak Court, subject to a lump sum payment of £750,000 and a new third-party charge over
Great Oak Court, which was registered in Melissa’s name. However, owing to negligence
of the solicitors, the charge on Great Oak Court was void; and the Bank had already
released the charge on Rush Green Hall at the time of discovery. Melissa was not aware of
the charge and subsequently sought rectification of the register, arguing that she had not
signed the charge and that the deed had been altered without her authorisation. The Bank
did not dispute the invalidity of the charge but counterclaimed that Melissa was unjustly
enriched at its expense, as a result of which it was entitled to an equitable charge arising
from subrogation to an unpaid vendor’s lien over Great Oak Court.

1. [2015] UKSC 66; [2015] 2 Lloyd’s Rep 585; [2016] AC 176 (hereafter “Menelaou”).
2. Lord Kerr and Lord Wilson agreed with both Lord Clarke and Lord Neuberger.
3. [2013] EWCA Civ 1960; [2013] Lloyd’s Rep Plus 70, [43].

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338 LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

In the Court of Appeal, Floyd LJ held that there was a “sufficiently close causal
connection” between the Bank’s loss (parting with its estate in Rush Green Hall without
the benefit of the intended charge) and Melissa’s enrichment (taking Great Oak Court
unencumbered by the intended charge) such that, “had it not agreed to release its charges
over Rush Green Hall, the purchase moneys could not have been used to purchase Great
Oak Court”.4 This justified the finding of a “transfer of value” from the Bank to Melissa
and thus the finding that Melissa was enriched at the Bank’s expense.5 Furthermore, the
Court of Appeal held that the Bank was entitled to subrogation to the unpaid vendor’s
lien even though it did not advance the funds for the purchase of Great Oak Court. It was
sufficient that the “at the claimant’s expense” requirement was satisfied for the Bank to
be treated as having taken over the extinguished rights of the vendor of Great Oak Court.
As Moses LJ observed, there was “no need to duplicate the reasoning in relation to both
unjust enrichment and subrogation”.6

C. Examining the Supreme Court decision

Although the Supreme Court unanimously dismissed the appeal and upheld the Court
of Appeal’s decision, there are interesting nuances in the judgment which are worth
considering. Importantly, on the majority’s approach, the claim was regarded as a claim
in unjust enrichment (or at least notionally so), while on Lord Carnwath’s approach it
seemed to be an ordinary equitable proprietary claim. Subject to this important caveat, the
majority’s approach will provide the general structure of the analysis.

1. Formulation of the unjust enrichment claim

The claim before the Supreme Court was framed in the language of unjust enrichment
under the four-stage test set out in Banque Financière de la Cité v Parc (Battersea) Ltd7—a
test which is now well established and requires little introduction. In brief, there are four
stages required to establish unjust enrichment: (i) there must be an enrichment; (ii) the
enrichment must be at the expense of the claimant; (iii) the enrichment is unjust (ie, one
of the recognised grounds of unjust enrichment must be applicable); and (iv) there are no
applicable defences.
In this regard, it is somewhat worrying that Lord Clarke endorsed Henderson J’s dictum
in Investment Trust Companies (in liq) v HMRC (“ITC”),8 where his Lordship noted that
the four questions were “no more than broad headings for ease of exposition” and did not
have statutory force.9 While it is unclear and certainly too early to say how far Lord Clarke
was prepared to go with the dictum, this does seem to open up the possibility of departure
from the principled approach in Banque Financière. This is undesirable because the
operation of restitution often involves unwinding completed transactions, and the principle

4. Ibid, [30]. The way it was put seems as if the judge were applying a “but-for” test.
5. Ibid, [42].
6. Ibid, [59].
7. [1999] AC 221, 227 (Lord Steyn).
8. [2012] EWHC 458 (Ch); [2012] STC 1150.
9. Ibid, [39]; Menelaou, [19].

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 CASE AND COMMENT 339

of security of transactions demands that these transactions should not be undone without
good reason.10 The four-stage test thus provides the needed certainty and predictability as
to when transactions might be undone. Departure from it would give excessive discretion
to the judges and increase the risk of decisions being reached on arbitrary grounds.11
The question of enrichment was not in dispute, as Melissa clearly received Green
Oak Court free of the intended charge.12 More problematic, however, was whether the
enrichment was unjust. Given the limited attention the court gave to this issue, it is
difficult to discern from the judgment what their Lordships thought the unjust factor in
the case was. Lord Clarke merely stated that “the unjust factor or ground for restitution
is usually identified in subrogation cases as being either (1)… mistaken assumption… or
(2) failure of consideration”, without identifying the factor which applied to the present
case. Similarly, Lord Neuberger suggested, without further elaboration, that the enrichment
was unjust simply because “Melissa received the freehold as a gift from her parents”.13 He
further concluded that the bona fide purchaser defence was inapplicable and thus did not
defeat the injustice.14
With respect, the court’s analysis of the unjust factor was deficient, even though the issue
was not in dispute. First, the Banque Financière test was fashioned to ensure a principled
approach in the analysis of unjust enrichment and its importance has been repeatedly
emphasised by academics and the judiciary. Secondly, the precise identification of the
unjust factor also has significant implications when it comes to establishing proprietary
restitutionary claims. As some commentators have argued, it is unnecessary in a proprietary
claim to show that the defendant has been unjustly enriched, for such a claim is based on
the “vindication of property right” and belongs to the realms of property law. The glossing
over of the unjust factor in this case might well feed into the argument in favour of this
“vindication of property right” analysis, which will be further discussed below.

2. Identifying the “at the claimant’s expense” test

The Supreme Court was unequivocal that Melissa was unjustly enriched at the expense
of the Bank.15 Lord Clarke reasoned that this is because “the two arrangements, namely
the sale of Rush Green Hall and the purchase of Great Oak Court, were not separate but
part of one scheme, which involved the Bank throughout”.16 To insist on there being a
direct payment from the Bank to Melissa would be “pure formalism” and “too rigid”
a requirement. The test for “at the claimant’s expense”, as Lord Clarke confirmed, was
whether there was “sufficient causal connection” between the loss and the benefit.17
In a similar vein, Lord Neuberger disposed of this issue on the ground that the purchase
of and the charge over Great Oak Court was a “single composite transaction” and was

10. See G Virgo, The Principles of the Law of Restitution, 3rd edn (OUP, Oxford, 2015) (hereafter
“Virgo”), 42.
11. Ibid, 56.
12. Menelaou, [20].
13. Ibid, [70].
14. Ibid, [69].
15. Ibid, [24] (Lord Clarke) and [73] (Lord Neuberger).
16. Ibid, [25] (emphasis added).
17. Ibid, [27].

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340 LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

essentially “one scheme”.18 Further, it was held that, since the Bank’s agreement to let the
Parents use the £875,000 to purchase Great Oak Court was conditional on its obtaining
a valid charge, “the bank could have prevented the purchase proceeding until it had been
granted a charge”.19 In this regard, his Lordship quoted Lord Oliver of Aylemerton in
Abbey National Building Soc v Cann:20 “the acquisition of the legal estate and the charge
are not only precisely simultaneous but indissolubly bound together”.
One will notice that both Lord Clarke and Lord Neuberger were rather reluctant to lay
down causal principles or general tests to be applied and were instead content with an
impressionistic characterisation of the Bank’s dealing with the Parents and Melissa as one
massive conglomeration of events. Much like the “economic reality” rhetoric, the “single
composite transaction” language seems at times more conclusionary than it is explanatory
and does not provide much insight as to what it is that makes these events belong to such
a causal scheme. To be fair, Lord Neuberger did make an effort to unpack the language
of “single composite transaction”, but at the end this seems somewhat indistinguishable
from the counterfactual “but-for” test—“so the bank would have had the right to prevent
the £875,000 being used to purchase the freehold if it had not been provided with a valid
charge”.21 One might retort that it is not clear whether Lord Neuberger intended this to be a
causal enquiry for the purpose of establishing enrichment “at the claimant’s expense”, and
that Lord Neuberger was simply saying that the bank would retain its rights in the event
of misapplication of the funds. But, if that is true, it only serves to show that the treatment
of the “at the claimant’s expense” test is unclear and unsatisfactory. In this regard, Lord
Clarke was more explicit:22
“It was thus thanks to the bank that Melissa became owner of Great Oak Court, but only subject to
the charge. Unfortunately the charge was void for the reasons set out above … She was therefore
enriched at the expense of the bank because the value of the property to Melissa was considerably
greater than it would have been but for the avoidance of the charge …”

It therefore seems that, when the language of “single composite transaction” or

“sufficiently close connection” was used in the case, the court was essentially applying
the “but-for” test to determine whether the “at the claimant’s expense” requirement was
made out. To be sure, commentators’ rationalisations and proposals aside, the exact legal
status of “but-for” causation for “at the claimant’s expense” is not entirely clear. In the
Court of Appeal’s recent Relfo v Varsani decision,23 Arden LJ consigned it to the role of a
‘preliminary filter’:24
“‛But for’ is a filter, or preliminary filter, which the law uses to filter out loss for which a claim for
compensation will not succeed. … It is effectively common ground that liability in unjust enrichment
requires more than a ‘but for’ test to be satisfied where the claimant, as in this case, contends that the
defendant was enriched at the claimant’s expense through the intervention of third parties.”

18. Virgo, 636.

19. Ibid.
20. [1991] 1 AC 56, 92–93 (emphasis added).
21. Menelaou, [66] (Lord Neuberger).
22. Ibid, [24] (emphasis added).
23. [2014] EWCA Civ 360; [2015] 1 BCLC 14.
24. Ibid, [70], [72] (emphasis added).

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 CASE AND COMMENT 341

It is unclear what Arden LJ’s vision of this preliminary filter is, because a genuine “but-
for” could not be and was not demonstrated on the peculiar facts in Relfo. The finding of
the relevant transactional link was reached through judicial inference. The more difficult
question is whether a proprietary link is required in an unjust enrichment claim for
proprietary remedies by an indirect recipient. As argued in the next section, the Supreme
Court in Menelaou seems somewhat divided on this issue.
Finally, it may be noted that Lord Clarke was not completely oblivious to the academic
debate on what the proper causal test should be. As his Lordship duly recognised, there
is, on the one hand, the view that there remains a general “direct providers only” rule
requiring direct enrichment subject to certain exceptions.25 There is, on the other hand, the
view that a broader and more liberal approach be taken.26 Nonetheless, his Lordship felt
that there was no need to rule on this point, not least because “the result is likely to be the
same” under the two approaches and because the facts were clear in the case. With this in
mind, his Lordship’s next remark must be strictly obiter:27
“In a case in which more such considerations [as were identified by Henderson J in ITC] were
relevant, it would be necessary to have regard to a number of different factors, probably with no
presumption one way or the other where the starting point is.”

The dictum seems to suggest that there exist circumstances under which the “direct
providers only” rule will lose its presumptive force. Yet, to all intents and purposes, it
seems that this whole “general rule v exceptions” debate is nothing more than a semantic
and pedantic disagreement which will probably not make much of a difference in real life.
There is much force in this thinking, given that the court has readily found exceptions to
the “general rule” in cases such as ITC and Relfo v Varsani. After all, some of the most
trenchant criticisms of the “direct providers only” rule are merely directed against the
rule’s normative obscurity, the fact that it tends to overwork a threshold enquiry and its
potential danger of over-protecting security of receipts.28 So, if the Supreme Court were to
be criticised for failing to take the opportunity to clarify the law on this very point, it would
at most be a strategic failure, not a fatal one.
That said, the judgment did create some difficulties in so far as the double recovery
exception is concerned. One potential problem was Patten LJ’s remarks in ITC,29 that
indirect enrichment should be permitted only when the claimant had exhausted all other
remedies in order to eliminate the risks of double recovery. In Menelaou the Bank had,
however, already acquired damages for breach of fiduciary duties and an indemnity from
the negligent solicitors;30 thus, the risk of double recovery is real, as the Bank could in

25. See eg Investment Trust Companies (in liq) v HMRC [2012] EWHC 458 (Henderson J); Relfo v Varsani [2014]
EWCA Civ 360; Investment Trust Companies (in liq) v HMRC [2015] EWCA Civ 82; [2015] STC 1280 (Patten LJ).
26. See eg Investment Trust Companies (in liq) v HMRC [2012] EWHC 458, [60–69]. For the proposal of a
“but-for” test, see S Watterson, “‛Direct Transfers’ in the Law of Unjust Enrichment” (2011) 64 CLP 435. For the
proposal of a “but-for” test qualified by reasons of legal policy, see Eli Ball, “At the claimant’s expense” (2014)
130 LQR 13. See also C Mitchell, P Mitchell & S Watterson, Goff and Jones, The Law of Unjust Enrichment, 8th
edn (Sweet and Maxwell, London, 2011) (hereafter “Goff & Jones”), [6.40–6.46].
27. Menelaou, [32] (emphasis added).
28. Watterson (2011) 64 CLP 435; Goff & Jones, [6.18–6.24].
29. [2015] EWCA Civ 82; [2015] STC 1280, [43]; approved in Menelaou, [29–31]; see also Relfo Ltd v
Varsani [2014] EWCA Civ 360.
30. Menelaou, [10].

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342 LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

theory recover the same losses from both the solicitors and Melissa. It is regrettable that
the issue of double recovery had not been addressed by their Lordships.

3. Subrogation and proprietary interest

Coming now to the subrogation issue lying at the centre of the case, the legal issue here
is whether the Bank, which did not actually advance funds for the purchase of Great
Oak Court but instead released its charge over Rush Green Hall, could be subrogated to
the unpaid vendor’s lien. In other words, the question was whether subrogation should
be available here “by operation of law as a restitutionary remedy”.31 If so, what is the
monetary link required between the Bank and Melissa? It is not controversial that an
unpaid vendor’s lien arises as soon as a property sale contract is made where the vendor
has not been paid in full.32
Both sides relied on the key authority of Banque Financière de la Cité v Parc (Battersea)
Ltd, where it was held that subrogation could be granted in a claim of unjust enrichment.
The questions for the court were twofold. First, was Banque Financière concerned with
subrogation of a proprietary interest or a personal right? Secondly, if it were a case of
personal right, could it be extended to the present case and would the claimant Bank be
required to establish a proprietary interest in Great Oak Court?
For the first question, Lord Clarke noted that Banque Financière was essentially a case
concerned with subrogation to a security as a personal remedy.33 He also distinguished the
present case from Banque Financière as here the Bank was seeking a proprietary remedy
in the form of a charge over Great Oak Court.34 The distinction is a significant one, as a
proprietary remedy generally comes with advantages such as priorities in the event of
insolvency and the ability to claim increases in value of the property. Burrows has noted
that the main reason why personal but not proprietary remedies were granted in Banque
Financière was the consideration that the “claimant should not be given greater rights than
it bargained for”.35
Secondly, their Lordships disagreed whether Banque Financière could be applied in
the present case. Both Lord Clarke and Lord Neuberger saw no problem extending the
Banque Financière principles. For Lord Neuberger, once we accept that the money for the
purchase need not necessarily come from the Bank directly provided there was sufficient
proximity,36 the question that remains is whether subrogation should be used to “regulate
the legal relationships between a plaintiff and a defendant… in order to prevent unjust
enrichment”.37 Lord Clarke also favoured a flexible approach and argued that the scope
of Banque Financière should “not be limited to subrogation to personal rights”.38 The
principles of subrogation are, as his Lordship suggested, “somewhat broader” than Lord

31. Virgo, 636.

32. Barclays Bank Plc v Estates & Commercial Ltd [1977] 1 WLR 415.
33. Menelaou, [40].
34. Ibid, [41].
35. A Burrows, The Law of Restitution, 3rd edn (OUP, Oxford, 2011) (hereafter “Burrows”) 155.
36. Menelaou, [86].
37. Ibid, [90]. He also endorsed dicta of Lord Diplock in Orakpo v Manson Investments Ltd [1978] AC 95,
104E–F.
38. Menelaou, [49].

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 CASE AND COMMENT 343

Carnwath suggested. By adopting a pragmatic “form over substance” approach, their

Lordships concluded that, as the monies were in reality advanced by the Bank through the
release of the charges, subrogation is the appropriate remedy for the unjust enrichment.39
On the other hand, Lord Carnwath reached the same conclusion with a more conventional
approach under the “traditional rules of subrogation”, effectively treating the claim as an
equitable proprietary claim.40 Most crucially, he was hesitant to characterise the claim
as one under unjust enrichment.41 Following Millett LJ in Boscawen v Bajwa,42 he held
that the claimants must be able to establish, in the context of subrogation, a “tracing link
between the claimant’s own money and the payment used to discharge the security”.43
The Court of Appeal’s “economic reality” approach would not suffice. This “tracing link”
requirement is justified by the principle of security of titles and that one should not be
deprived of its property without good reason.44 A further point is that tracing is a process
but not a remedy and the two are not mutually exclusive.45 In other words, tracing is the
process of identifying the claimant’s proprietary interest in the property, and subrogation
is the remedy which gives the claimant the interest in the property. Following these
principles, Lord Carnwath found that the requisite tracing link existed in the present case.
He concluded that, since the proceeds of Rush Green Hall were held by the solicitors on
trust for the Parents and the Bank when the money was paid into the clients’ account, it
followed that the Bank had an equitable interest in the sum and could trace the money into
the purchase of Great Oak Court.
Conversely, Lord Neuberger did not think that the Bank had to show a tracing link to
claim the proprietary remedy. He thought that it is enough that “the bank has established
that Melissa’s enrichment was at its expense even though the money did not emanate
from the bank directly”.46 Lord Neuberger departed from the conventional approach by
doubting the correctness of Boscawen.47 He raised two objections to Millett LJ’s dictum in
Boscawen: first, Millett LJ did not rule out the possibility of subrogation where tracing is
not available; secondly, as the remedy is “fashioned to the circumstances”, it would be a
mistake to apply the Boscawen rule to every single context.48
However, a closer examination should raise doubts as to the correctness of Lord
Neuberger’s analysis. First, although Millett LJ did not expressly say subrogation should
be granted only when a tracing link could be granted, he did say that tracing was needed
to establish a “retention by him of a beneficial interest”.49 Millett LJ emphasised that,
“unless he can prove this he cannot… show that the defendant’s unjust enrichment was at
his expense”.50 Secondly, Millett LJ clearly regarded tracing and subrogation as different

39. R Cohen, “A Victory for Substance Over Form” (2015) 159(46) Sol J 28.
40. Menelaou, [107].
41. Ibid, [108].
42. [1996] 1 WLR 328.
43. Menelaou, [128]; see Goff & Jones, [7.02] and [37.10].
44. Goff & Jones, [7.02].
45. Boscawen v Bajwa [1996] 1 WLR 328, 334–335 (Millett LJ); affirmed in Foskett v McKeown [2000]
Lloyd’s Rep IR 627; [2001] AC 102.
46. Menelaou, [92].
47. Ibid, [96].
48. Ibid, [97].
49. Boscawen v Bajwa [1996] 1 WLR 328, 333.
50. Ibid.

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344 LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

stages of the same process.51 This implies that only if the prior stages were satisfied could
subrogation be granted. Finally, in relation to Lord Neuberger’s second argument, it is
submitted that Millett LJ’s dictum was concerned with the very nature of subrogation and
tracing, and so the principles governing them should remain static regardless of context. It
is for these reasons that Lord Carnwath’s “equitable proprietary claim under subrogation”
approach should be preferred, as it echoes with long-established authorities. His Lordship
noted that the unjust enrichment approach is attractive, but nonetheless “this is not how the
case has been argued”.52 Thus, there is no good reason to extend the decision in Banque
Financière where a conventional approach could be used to reach the same decision.
Besides, there is an additional uncertainty to the majority’s approach, namely, how
far the approach of Lord Neuberger and Lord Clarke should be extended. Following
the majority, does it mean that the requirement of proprietary link is now abolished
absolutely? The majority in Menelaou seemed to have substituted the proprietary link
requirement with the “at the expense of” requirement to the effect that subrogation
could be granted as long as the enrichment was at the expense of the bank.53 The
substitution is troublesome, as the two tests are founded on different justifications. The
“at the expense of” test is concerned with establishing a sufficient proximate nexus
between the parties.54 The required nexus would not normally be found if there were
third-party involvement.55 This echoes the fundamental principle that restitution is a
gain-based remedy.56 On the other hand, the proprietary link requirement is concerned
with a different matter. It is a requirement that “the plaintiff [trace] what has happened
to his property… and [justify] his claim that the money… can properly be regarded
as representing his property”.57 In other words, it is the claimant’s pre-existing
proprietary right which enables him to recover—unless the defendant is a bona fide
purchaser.58 With all these in mind, it is clear that, on a doctrinal level, the two tests
are not interchangeable. It follows the majority’s approach should not be preferred, as
their Lordships have confused the fundamental justifications of the two tests. It may
be true that, in practice, the distinction would make little difference, but the doctrinal
implications should not be overlooked. It is this question, and the surrounding debate,
which will be addressed in the following section.

4. Proprietary restitution and vindication of property rights

A related issue which arose from Menelaou concerns the wider debate of proprietary
remedy for claims framed in unjust enrichment. On the one hand, it is without doubt that
the present case would provide powerful support for academics such as Burrows and the
editors of Goff & Jones, who have argued that proprietary remedies should be available

51. Ibid, 334–335.

52. Menelaou, [109].
53. Ibid, [49], [92].
54. Goff & Jones, [6.02].
55. Eg, MacDonald Dickens & Macklin (a firm) v Costello [2011] EWCA Civ 930; [2011] BLR 544; [2012]
QB 244.
56. Goff & Jones, [6.02].
57. Boscawen v Bajwa [1996] 1 WLR 328, 334 (Millett LJ).
58. Foskett v McKeown [2001] AC 102, 127.

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 CASE AND COMMENT 345

following a claim under unjust enrichment.59 This view also seems to be consistent with
Relfo, which appears to suggest that the proprietary claim in equity exists alongside the
unjust enrichment claim. On the other hand, it has been argued, most notably by Virgo, that
proprietary remedies are not available in unjust enrichment claims. If proprietary remedies
are available, it is argued, it must be due to the nature of the claim as a vindication of the
claimant’s property right.60 If the first view is correct, then Virgo’s argument that there “is
no case which explicitly recognises that property rights can derive from the defendant’s
unjust enrichment”61 seems to have met its ultimate demise. Indeed, it is tempting to
conclude that Menelaou had put an end to the debate. However, there are two reasons
which suggest that Menelaou might not be the final word on it.
First, both Lord Clarke and Lord Carnwath expressly endorsed the distinction
established in Foskett v McKeown62 between a claim to enforce property rights and a claim
for unjust enrichment. Although Lord Clarke cited Foskett as supporting authority for the
assertion that “a claim in unjust enrichment does not need to show a property right”63 and
granted subrogation as a proprietary remedy for the present unjust enrichment claim, his
endorsement could be read as creating a general rule that a proprietary remedy should not
be granted for unjust enrichment with subrogation as an (and possibly the only) exception.
Furthermore, Lord Carnwath’s more orthodox approach would also suggest that the
subrogation principles should not be extended too readily, and that a prior property right is
still required for a proprietary claim to be established.
Secondly, as argued above, the Supreme Court did not clearly identify the ground
on which Melissa’s enrichment was said to be unjust. Lord Neuberger suggested that
the enrichment would not have been unjust had Melissa been a bona fide purchaser.64
Commentators such as Virgo will probably argue that Menelaou is therefore a claim to
vindicate property rights. This is consistent with how Virgo analysed Lipkin Gorman (A
Firm) v Karpnale Ltd.65 Arguably, the approach of the Supreme Court in Menelaou is
similar to that in Lipkin Gorman in that both Lord Clarke and Lord Neuberger focused on
showing how Melissa was enriched at the expense of the Bank but did not really address
the question how the enrichment was unjust. It is for these reasons that the “vindication of
property rights” analysis may still be used to explain Menelaou, namely that the remedy
of subrogation operated under principles of property law to vindicate the Bank’s equitable
property rights. Other commentators such as Burrows and the editors of Goff & Jones
will disagree and this is where one will find criticisms of the “fiction of persistence” of
property rights and argument that the “vindication of property rights” analysis represented
the “categorical error” of failing to distinguish between the source of the property right
and the event triggering it.66
59. Burrows, ch.8; Goff & Jones, [8.4].
60. Virgo, 559.
61. Ibid, 563.
62. Menelaou, [37–38] (Lord Clarke), [108–109] (Lord Carnwath).
63. Ibid, [38].
64. Ibid, [70].
65. [1991] 2 AC 548. Virgo argued that the reason why Lord Goff did not identify a ground of restitution but
“focused on showing that the defendant had received money which belonged to the firm” was that “the claim
turned on the vindication of a property right”: see Virgo, 560.
66. See Burrows, ch.8; R Chambers, “Tracing and Unjust Enrichment”, in J Neyers et al (eds), Understanding
Unjust Enrichment (Hart, Oxford, 2004).

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346 LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

As to the current state of the law, it should be admitted that Menelaou is not as clear
an authority as both sides may have wanted it to be, although on an evaluative level Lord
Carnwath’s orthodox approach in this case has much to commend it. There are also two
remaining issues which are not fully answered. First, even though the equitable lien on the
facts is aimed at securing repayment of the debts, the court has reserved its opinion on the
availability of a personal claim against Melissa.67 Secondly, the extent of the subrogation
remedy in Menelaou is unclear and needs to be sorted out. One can only hope that the
pending appeal of ITC to the Supreme Court and future subrogation cases will shed some
light on these issues.

John Leung* and Siu Yin Wong†

HOW TO AVOID A DERIVATIVE ACTION: A CAUTIONARY TALE

FROM SINGAPORE

Petroships Investments Ltd v Wealthplus

When confronted with a derivative action brought by a disgruntled shareholder, a natural
reaction of the defendant directors would be to make it go away—even if it meant erasing
the company from existence. In Petroships Investments Pte Ltd v Wealthplus Pte Ltd1 the
defendant directors, who were also in control of the majority of the company’s voting
power through holding companies, caused the company to enter members’ voluntary
liquidation. Should the directors be allowed to avoid the derivative action by killing the
company? The Singapore Court of Appeal seems to have said “yes”. This case should
stand as a cautionary tale to Commonwealth observers of how clever lawyers can use
“settled” law to force unsettling outcomes.

The facts and procedural history

Wealthplus Pte Ltd (“Wealthplus”) was an investment vehicle established in 1998 by Alan
Chan (“AC”) and the Koh Brothers Group Ltd (“KBGL”) to exploit rights to develop land
in China. AC held his investment through Petroships Investment Pte Ltd (“Petroships”),
which was a 10 per cent shareholder in Wealthplus. KBGL held its investment through
Megacity and Koh Brothers Building and Civil Engineering Contractor (Pte) Ltd
(“KBBCE”), which collectively held the remaining 90 per cent of shares in Wealthplus.2
From July 1998 to September 2009, Wealthplus’ three directors consisted of two nominees

67. Menelaou, [55], [80–82], [141].

* Magdalen College, Oxford.
†
Clare College, Cambridge.
1. [2016] SGCA 17 (hereafter “Petroships (CA)”); affg [2015] SGHC 145 (hereafter “Petroships (HC)”).
2. Initially, Megacity held the entire 90% shareholding in Wealthplus. In 2011, Megacity transferred
a portion of its shares to KBBCE, such that Megacity held 49% and KBBCE held 41% shareholding. See
Petroships (CA), [2].

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