(G) SUBROGATION
Subrogation[1] is a restitutionary remedy which is designed to ensure ‘a transfer of rights from one person to another.. .by operation oflaw’.[2] Essentially, the function of subrogation is to enable the claimant to rely on the rights of a third party against a defendant, or the rights of a defendant against a third party. This will be a particularly useful remedy where, for example, the claimant lends money to the defendant in circumstances where the claimant thinks that the loan is secured by a charge so that he or she has priority over the defendant’s other creditors. If the charge is invalid the claimant would simply be an unsecured creditor and so will not have priority over other creditors. In such a case the claimant could be subrogated to the rights of another secured creditor of the defendant, even where that security has already been discharged. The security in such circumstances is treated as though it had been assigned to the claimant,[3] so that he or she is able to rely on it as against the defendant and so gain priority over the defendant’s unsecured creditors. Since subrogation is a restitutionary remedy, this notional assignment of the charge is only effective as against a defendant who is liable to make restitution to the claimant.
In Banque Financiere de la Cite v Parc (Battersea) Ltd[4] the House of Lords acknowledged that there are two forms of subrogation which are recognized in English law.
