Fadhel Salman Hubail Alnajjar & Anor v Dana Samal Majeed & Ors

A clear compromise agreement governing the distribution of sale proceeds is given effect according to its terms. Where a creditor has security over several assets, the doctrine of marshalling does not ordinarily permit it to divert proceeds in which another creditor has a proprietary interest. The doctrine cannot be used where doing so would cause substantial injustice, including by replacing an immediate monetary fund with a less certain security over property. Standard set-off wording in a freezing order does not confer rights against third-party property. Nor should a freezing order be varied merely to benefit judgment debtors where the result would be unjust to the party entitled to the proceeds.

The applicants had obtained judgment establishing a partnership with the first respondent and ordering payment of more than £4.7 million. Three partnership properties were sold by receivers appointed by the intervenor, West One Loan Limited, whose charges over those properties had been redeemed. Correspondence on 31 March 2022 recorded an agreement that any surplus remaining after payment of West One’s and prior charges would be paid to the applicants.

West One applied for the surplus to be applied instead to a debt secured by a second charge over another property. It relied on the compromise’s proper construction, marshalling, set-off wording in a freezing order, and the court’s power to vary that order.

1. The application was dismissed. The 31 March 2022 correspondence constituted a binding compromise agreement. Its terms were complete, supported by consideration, intended to create legal relations, and arose from an actual dispute concerning the receivership arrangements.
2. The agreement was clear and unambiguous. Any surplus from the sale of the three London properties, after payment of West One’s charges and prior charges on those properties, was to be paid to the applicants’ solicitors for the applicants’ account in satisfaction of the judgment and costs. The wording left no room for applying the surplus to West One’s separate debt secured over Beaufort Drive. The wider commercial context could not displace the express terms; in any event, it did not assist West One.
3. Marshalling could not produce a different result. The doctrine, summarised by Lord Hoffmann in In re Bank of Credit and Commerce International SA (No. 8) [1998] AC 214, concerns the equitable adjustment between creditors where one creditor can resort to two securities and another to only one. It did not justify depriving the applicants of their proprietary interest in the sale proceeds. There was no unconscionability, and requiring the applicants to exchange an immediate fund for a third charge over property yet to be realised would cause substantial injustice.
4. The set-off provisions in the freezing orders operated between the bank and the judgment debtors. They did not entitle West One to divert proceeds belonging to the applicants. The court also declined to vary the freezing order for that purpose, since the proposed outcome would be unjust to the applicants and would merely benefit the judgment debtors.