The Court of Appeal has affirmed the decision made by the High Court in the case of Serious Organised Crime Agency (“SOCA”) v Susan Szepietowski and others [2010] EWHC 2570 (Ch). At first instance the High Court considered whether SOCA could rely on the equitable doctrine of “marshalling” in order to step into the shoes, and receive the benefit, of another lender’s charge over a property owned by Mrs Szepietowski which SOCA did not have a charge over, in order to secure a debt owed to SOCA.


The equitable remedy of marshalling entitles a creditor to use assets that are secured in favour another creditor to discharge a debt owed by the same debtor provided that a number of circumstances are met. As an equitable remedy, its aim is to do justice between two or more creditors and it will therefore be applied to ensure that justice is done.

Marshalling is available to a creditor (Creditor B) in the following circumstances:
– Creditor A and Creditor B have both taken security over some of the Debtor’s assets (Assets X);
– A has taken security over some of the debtor’s assets over which B has not taken security (Assets Y);
– A has enforced its security over Assets X but not over Assets Y;
– In these circumstances, B is entitled to use Assets Y to repay any of the secured debts owed to it that cannot be repaid out of Assets X because of A’s actions.

For marshalling to be available, there must be two creditors of the same debtor, each owed a different debt.


In January 2008, SOCA entered into a settlement deed with Mrs Szepietowski (the “Debtor”) relating to an action by SOCA against the Debtor under the Proceeds of Crime Act 2002 for recovery of property obtained through unlawful conduct. At the time in question, the Debtor owned:
(i) two properties in Claygate, Surrey (the “Claygate Properties”) and two other properties in Surrey (the “Remaining RBS Properties”), all of which were subject to first-ranking mortgages in favour of The Royal Bank of Scotland plc (“RBS”); and
(iii) the family home (known as “Ashford House”), which was subject to a first-ranking mortgage in favour of The Mortgage Business plc and a second-ranking mortgage in favour of RBS.

Under the terms of the settlement deed between SOCA and the Debtor, the Claygate Properties and the Remaining RBS Properties were transferred to the Trustee for Civil Recovery, the intention being that when these properties were sold, the proceeds would be used to pay SOCA the agreed settlement sum of £5.375 million, after paying off RBS’ mortgage debt secured on those properties.

When the settlement deed was entered into, the Debtor owed RBS approximately £3.4 million. It was expected that this debt would be discharged in full from the sale proceeds of the Claygate Properties alone. If those sales had proceeded as expected, RBS would have been repaid in full and released its mortgages over the Claygate Properties as well as the Remaining RBS Properties and Ashford House. In these circumstances, SOCA would have received the sale proceeds from the Remaining RBS Properties (but not Ashford House) unencumbered by the RBS debt.

By March 2008, the sale of the Claygate Properties had not proceeded and instead the Remaining RBS Properties were sold. The sale proceeds were paid to RBS in part-payment of the debt owed to it by the Debtor. This triggered a provision in the settlement deed which required the Debtor to grant SOCA second-ranking mortgages over the Claygate Properties to secure an amount equivalent to the sum paid to RBS (approximately £1.275 million). These new mortgages in favour of SOCA ranked behind RBS’ existing security. RBS also continued to have its second-ranking mortgage from the Debtor over Ashford House. SOCA had no security over Ashford House.

Between November 2009 and January 2010 the Claygate Properties were sold for £2.33 million. The sale proceeds fully discharged the remaining amounts due to RBS but, as a result of the downturn in the property market since the settlement deed was entered into, only a small sum was available to be paid to SOCA in respect of the amount secured by its second-ranking mortgages. SOCA was therefore left with a shortfall on the monies owed to it with no security.

SOCA sought to invoke the equitable doctrine of marshalling so that it could step into the shoes of RBS (as second mortgagee of Ashford House). There was likely to be sufficient equity in Ashford House to discharge the first mortgage in favour of The Mortgage Business plc and the outstanding secured debt owed to SOCA (the debt to RBS having already been paid out of the sale proceeds from the Claygate Properties).

In the High Court, the Debtor argued against SOCA’s attempt to use marshalling on the basis that (1) the settlement deed (and related consent order) implicitly excluded it; (2) there were not two separate secured debts from the Debtor to two creditors; and (3) marshalling is a form of equitable subrogation designed to prevent unjust enrichment and, in the circumstances, it was not available to SOCA.

The Appeal

The Court of Appeal held that the settlement deed did not exclude the court’s ability to marshal the available security between existing creditors. In reaching this conclusion Patten LJ followed the reasoning of Henderson J in the High Court, adding that, even taking into account all the relevant circumstances, the natural and ordinary meaning of the words used in the settlement deed was clear. There was nothing in the settlement deed which limited the rights of SOCA as a secured creditor to whatever it can recover from a sale of the Claygate Properties (and the Remaining RBS Properties). The fall in the property market created the shortfall in realisations and this was probably not foreseen and was not provided for in the settlement deed. SOCA was therefore entitled to exercise its lawful rights as a secured creditor, including marshalling the security, unrestricted by the terms of the settlement deed.

The Court did not agree that marshalling can only arise to correct a scenario where a creditor who has more than one security option chooses positively to disadvantage the less well-secured creditor in choosing which assets to realise. Instead, the equitable remedy is there to correct the imbalance in realisations, so far as there is other available security.

The Debtor argued that the settlement deed was drafted on the basis that there would be a surplus in sale proceeds from the Claygate Properties or at least there would be no recourse to Ashford House. In these changed circumstances, it would be unjust to the Debtor to allow SOCA to get the benefit of another creditor’s security over the family home. Although recognising that SOCA was fortunate in being able to invoke marshalling, Patten LJ reasoned that the expectation of the parties could be used to support arguments on both sides and considerations of that kind were not sufficient to make it inequitable to allow marshalling. In the absence of a contractual exclusion, the Debtor would need to show that SOCA’s reliance on marshalling involved it going back on some form of assurance or representation that it gave to the Debtor and upon which the Debtor relied (to her detriment). The mere fact the parties had not contemplated a shortfall in sale proceeds was not enough and the Courts do not have unlimited discretion in that regard.


This case serves as a useful reminder to creditors of the availability of the equitable remedy of marshalling in certain circumstances. It is worthy of note that the fact that neither party had considered or catered for a situation arising would not be enough to prevent a claim for marshalling. It should be remembered that the right to marshalling may be excluded in contract, but such exclusion must be clearly worded

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