In 1999, Mr. Szepietowski, a partner in a firm of solicitors received a transfer of US $2.5m from an unnamed entity. It was alleged that the funds were proceeds of drug trafficking although neither Mr. nor Mrs. Szepietowski had ever been charged with any offence of fraud, corruption, money laundering or drug trafficking.
In July 2005, the Assets Recovery Agency (ARA), whose staff assets and functions were transferred to Serious Organised Crime Agency (SOCA) obtained interim receiving orders over certain assets acquired with the US $2.5m. Later, the receiving order was extended to a number of other properties, allegedly acquired with proceeds of mortgage fraud and with income concealed from Her Majesty’s Revenue and Customs (HMRC).
In November 2006, the ARA began civil proceedings against Mr. and Mrs. Szepietowski seeking to confiscate the various properties (about 20) on the basis that the proceeds of crime could be followed into them, and that the said properties accordingly constituted recoverable property within the meaning of Section 266 of the Proceeds of Crime Act 2002 (the 2002 Act)
ARA and Mr. and Mrs. Szepietowski settled the proceedings herein by a Consent order dated 16th January 2008 which stayed ARA’s claim, save for the purpose of enforcing the terms of settlement.
The terms of settlement contained in a settlement deed were 20 properties charged to the Royal Bank of Scotland (RBS) by Mr. and Mrs. Szepietowski. The consent provided SCOA with information about the secured creditor of the value of the amount charged on, and the equity in about each of the 20 properties.
The property which brought much controversy and substantiated the SCOA’s claim for marshalling, was at clause 3.1 of the consent, where Mr. and Mrs. Szepietowski agreed to vest in a Trustee 15 “Transfer Properties”, which included Thames Street and Church Street whose recorded value was at £570,000 and £785,000 respectively, charged to RBS for a debt of about £3.225m and having equity of about £1.6m. Also of controversy were two Claygate properties, at Torrington Close and Hare Lane, which were recorded as valued at £2.67m and £800,000 respectively, charged to RBS for a debt of about £3.225m, and having equity of about £1.6m.
In the consent, it was suggested that the liability to RBS could be fully met from the sale of the properties above, and it anticipated that ARA would be able to realize the Transfer Properties free of any liability to RBS and that it would enable ARA to recover just over £5.4m from the sale of the Transfer Properties after clearing all the mortgages thereon.
SOCA’s case is that the classic requirements of marshalling are satisfied in the present case in light of the facts that:
a) Claygate and Ashford House were both owned by Mrs. Szepietowski.
b) Claygate and Ashford House were both subject to the RBS charge, which secured the monies owing to RBS by Mr. and Mrs. Szepietowski.
c) Claygate, but not Ashford House, was subject to the later 2009 Charge in favour of SOCA, which was a second mortgage which secured some £1.24m,
d) RBS was repaid the debt owing to it out of the sale proceeds of Claygate, while Ashford House remains unsold.
e) The £1.24m secured by the 2009 Charge remains unpaid (save to a minimal extent) despite the sale of Claygate.
SOCA contended that, because a second mortgagee of Claygate, was subject to a first mortgage, together with Ashford House, in favour of RBS, it is entitled to look to Ashford House in order to obtain payment of the sum which was secured by the 2009 Charge on Claygate, and that the proceeds of sale of Claygate be used to pay off what was due to RBS.
Mrs. Szepietowski’s argument against the marshalling was that: -
a) in the light of the terms of the Settlement Deed and the 2009 Charge, SOCA’s marshalling claim cannot be maintained;
b) Even if marshalling could otherwise be justified, it cannot succeed, as the property against which SOCA’s marshalling claim focused, namely Ashford House, was the home of Mrs. Szepietowski, the mortgagor, whereas the property against which the RBS Charge was enforced was never her home.
At the High Court
Henderson J held that SOCA’s marshalling claim was well-founded and the Court of Appeal (Arden, Sullivan and Patten LJJ) agreed with him: – see [2010] EWHC 2570 (Ch) and [2011] EWCA Civ 856 respectively. However, it is argued that the judgments in both courts concentrated on the first strand of Mrs. Szepietowski’s argument, and did not consider the second (because it was not raised).
Further, Henderson J had held in his 2009 judgment [2009] EWHC 655 (Ch), that Ashford House was excluded from the ambit of the charge envisaged as per the terms of the consent. However, in his subsequent judgment, he concluded that there was nothing in the consent or charge which expressly provided, or necessarily implied, that SOCA’s right to marshal was to be excluded: – see [2010] EWHC 2570 (Ch), paras 27 and 37. In particular, Henderson J in finding that the consent did not preclude SOCA’s marshalling in as much as the property was not in the consent held that the debt due to SOCA arose from the creation of the charge, if not earlier, albeit one limited to satisfaction from the proceeds of the sale of Claygate - para 46. He also held that there was no other reason to deprive SOCA of its prima facie right to marshal
At the Court of Appeal
In a judgment given by Patten LJ, the Appellate Court agreed, and approved the reasoning, as well as the conclusion, of Henderson J, although, not for the same. In particular, they concluded that the consent did not preclude marshalling: – (see [2011] EWCA Civ 856, para 48), and that marshalling was not precluded by the fact that it was SOCA and Mrs. Szepietowski, rather than RBS, in selling the Clay Gate properties, Thames Street and Church Street: – (see at para 52). Nor that marshalling was precluded by the limited nature of the charge which Mrs. Szepietowski gave, and the absence of any underlying obligation to pay the secured amount; that was treated as merely going to the discretion whether to exercise the equitable power to marshal: – (see at para 54).
The holding which made Mrs. Szepietowski appeal to the Supreme Court.
