Where one debtor owes different debts to two or more creditors, but one of the creditors can enforce its claim against more than one security and the other can only resort to one, the equitable principle of marshalling provides that the creditor with only one security can satisfy itself out of the security, to which it has no claim.
This case is useful as it is an interesting example of how marshalling is to be applied and it explains the legal basis for marshalling.
Mrs Szepietowski owed debts to National Westminster Bank Plc (“the Bank”) and the Serious Organised Crime Agency (“SOCA”). The Bank held charges over two separate properties known as Ashford House and the Claygate Properties. As a result of a compromise agreement, SOCA held a charge over the Claygate Properties. The Claygate Properties were sold and the proceeds of sale were nearly exhausted in paying off the Bank, leaving only a small sum for SOCA. SOCA wished to step into the shoes of the Bank in respect of the Ashford Property for the unsatisfied balance owed to it.
Counsel for Mrs Szepietowski argued that had the compromise agreement referred to the Ashford Property, it would have said so. The Judge, however, decided that the compromise agreement neither explicitly or implicitly prevented SOCA from rely on the principle of marshalling. The Ashford Property had not been excluded from the compromise agreement nor was it contrary to the agreement and neither should SOCA be estopped from advancing the claim.
The Judge explained that marshalling is a doctrine of equity and like other equitable principles it should only be applied in order to do justice. The right to marshall can be excluded or varied by contract and the equitable defences to an application should be available. However, in this case there was no unfairness in allowing SOCA to rely on the doctrine.
Counsel for Mrs Szepietowski argued that marshalling was a form of equitable subrogation, designed to prevent unjust enrichment and that it could not be invoked by a lender who has obtained all the security for which he bargained or so as to put him in a better position than he would have been in if he had obtained all the rights for which he had bargained. The Judge held that it was far from clear that the doctrine of marshalling was a species of subrogation and it was a doctrine with its own particular and distinct characteristics.
There were no obstacles to the claim and so SOCA could now steps into the shoes of the Bank in respect of Ashford House as security for the shortfall which was left following the sale of the Claygate Properties.
Serious Organised Crime Agency v Szepietowski [2010] EWHC 2570