Szepietowski v The Serious Organised Crime Agency

Marshalling may be available where one creditor has two securities and another has only one, even though the creditor with the wider security did not deliberately choose to disadvantage the other. The equity arises when the realisation of one security leaves the less-well-secured creditor at a disadvantage and another security remains available to correct the imbalance. A settlement agreement will exclude that equitable remedy only if its language clearly does so. Expectations about property values or the order in which securities would be realised are insufficient. Nor does the court have an unlimited discretion to refuse relief merely because the parties did not foresee the eventual shortfall. Absent a contractual bar, inequity requires more than an unforeseen outcome; it requires reliance on an assurance or representation causing detriment.

The appellant owned Ashford House and four other property groups. Ashford House was subject to a first charge and a second charge in favour of RBS. RBS also held first charges over the other properties. Under a settlement of recovery proceedings brought under the Proceeds of Crime Act 2002, certain properties were vested in the Trustee for Civil Recovery and the appellant granted SOCA a charge over the additional properties.

Two properties were sold first and their proceeds were paid to RBS. The additional properties were later sold, also substantially for RBS, leaving SOCA with little recovery. SOCA sought to marshal RBS’s securities by becoming subrogated to RBS’s second charge over Ashford House. Henderson J ordered that relief: [2010] EWHC 2570 (Ch). An earlier judgment had construed clause 4.5 as requiring a charge only over the additional properties: [2009] EWHC 655 (Ch). The issues were whether the settlement excluded marshalling and whether it was inequitable to grant it.

1. Appeal dismissed. The settlement did not contractually exclude SOCA’s equitable right to seek marshalling. Clauses 4.5–4.7 dealt with priorities and the use of proceeds from the additional properties. They did not address marshalling or Ashford House. The parties’ expectation that the additional properties would discharge the RBS debt was not a binding agreement that the debt was charged only on those properties. Any such exclusion would have required clear words.
2. Clause 2.1 released the existing ARA claims concerning the properties listed in Annexe A. It did not release every possible future claim relating to Ashford House. SOCA’s claim was not a claim against the appellant under the recovery proceedings. It was an attempt to enforce the clause 4.5 security through the equitable jurisdiction to marshal securities. The reasoning in BCCI v Ali supported the conclusion that the general release was insufficiently clear to cover a claim of that kind.
3. Marshalling does not depend on a deliberate or capricious choice by the creditor holding two securities. Lord Eldon’s reference to a creditor’s election described the disadvantage resulting when that creditor realised one security, not a requirement of positive wrongdoing. Equity may correct the resulting imbalance where the other creditor has only one security and another security remains available.
4. The parties’ unforeseen property-market losses and their expectations could not, without more, make relief inequitable. In the absence of a contractual bar, Mrs Szepietowski needed to show that SOCA was resiling from an assurance or representation on which she relied to her detriment. The court had no unlimited discretion to refuse an otherwise available equitable remedy. The clause 4.5 charge had already been held to create a relevant debt for marshalling, and that finding was not appealed. The court dismissed the appeal.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the order granting SOCA relief by marshalling the securities: [2011] EWCA Civ 856.
• High Court of Justice, Chancery Division: Henderson J ordered that SOCA be subrogated to RBS’s second charge over Ashford House: [2010] EWHC 2570 (Ch).
• High Court of Justice, Chancery Division: On construction of clause 4.5, Henderson J held that the appellant was required to grant a charge only over the additional properties: [2009] EWHC 655 (Ch).