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Last week we commented on how marshalling has been under the spotlight following two recent cases*.  By way of a reminder, marshalling is the ability of a secured creditor to take advantage of assets held under another creditor’s security where they are both owed a debt by the same person.

This week we look at the second of these cases, Szepietowski v The National Crime Agency.

Is there an underlying debt?

Last October, the Supreme Court allowed an appeal against the Serious Organised Crime Agency’s (SOCA – now the National Crime Agency) right to marshal a charge granted to The Royal Bank of Scotland PLC (RBS) over a family home on the basis that there was no underlying debt.


In this instance, SOCA had a claim under the Proceeds of Crime Act 2002. Mrs Szepietowski and SOCA entered into a settlement agreement that the claim was to be paid from the proceeds of certain properties owned by Mrs Szepietowski. Mrs Szepietowski also granted security for the benefit of SOCA over certain properties (the Common Properties) – but not her home. These Common Properties, together with the home, were also charged by way of first charge to RBS. The home was excluded from the settlement agreement and as part of the settlement, SOCA gave up its claims that the home was recoverable property.

The Common Properties were sold to pay off RBS but there was not enough value in them to pay SOCA. SOCA brought a marshalling claim against the home so that it could benefit from RBS’s charge over it. Initially, the High Court found in favour of SOCA and allowed the marshalling claim.

Appeal dismissed

Mrs Szepietowski then appealed on two grounds:

  • That the settlement deed prevented SOCA from marshalling in order to enforce the RBS charge over the home
  • Whether (assuming it was not excluded by the deed of settlement) the High Court had properly exercised its discretion to order marshalling, having regard to the effect it would have on the debtors.

The Court of Appeal held that the term of the settlement agreement was not an unconditional release of all possible claims by SOCA against the home and so it did not prevent SOCA from marshalling.

Supreme Court overturns decision

On appeal to the Supreme Court, however, the decision was overturned.

The judges did have differing opinions however the general view was that, because the security did not create or acknowledge the existence of a debt owing from Mrs Szepietowski to SOCA, the right to marshal could not exist once the Common Property was sold, as there would be no surviving debt owing to SOCA.  SOCA had a right to receive whatever proceeds of the Common Properties were left after enforcement by RBS.  Owing to a drop in value, there was no residual value and so consequently no debt owing to SOCA.

To marshal security (subject to a contrary agreement between the parties) there must, at the time of marshalling, be a debt owing to the second creditor.

In considering the case, the court laid out the following test for marshalling:

“whether, in the perception of an objective reasonable bystander at the date of the grant of the second mortgage, taking into account, in very summary terms, (i) the terms of the second mortgage, (ii) any contract or other arrangement which gave rise to it, (iii) what passed between the parties prior to its execution, and (iv) all the admissible surrounding facts, it is reasonable to conclude that the second mortgagee was not intended to be able to marshal on the occurrence of the facts which would otherwise potentially give rise to the right to marshal.”


Both of these cases consider in detail an area of law that is not often examined. They have found:

  • An exception to the common debtor rule
  • A requirement that there must be a debt owing to the second creditor
  • That the intention of the parties, taking into account the terms of the second charge and facts and circumstances surrounding it must be considered.

The Highbury case mentioned last week also states that marshalling rights cannot be affected by a contract that is not between the two creditors however this wasn’t commented on in the later case of Szepietowski. So it remains to be seen whether the latter point above would have affected that outcome.

The cases serve as a reminder that where creditors wish to delay or otherwise restrict the right to marshall or, conversely, where they wish to make it clear, they should ideally do this in an agreement between all the parties, such as a priority deed.

*Highbury Pension Fund Management Company and Anor v Zirfin Investments Management Ltd and Ors

Szepietowski v The National Crime Agency (formerly the Serious Organised Crime Agency)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.