Journal of International Banking & Financial Law/2010 Volume 25/Issue 10, November/Articles/Marshalling
of Mortgages - (2010) 10 JIBFL 592
Journal of International Banking and Financial Law
(2010) 10 JIBFL 592
1 November 2010
Marshalling of Mortgages
Feature
Jonathan Lawrence
K&L Gates LLP
www.klgates.com
© Reed Elsevier (UK) Ltd 2010
Serious Organised Crime Agency v Szepietowski [2010] EWHC 2570 (High Court, Chancery Division) (Henderson J) (15 October 2010)
National Westminster Bank plc (the 'Bank') was first mortgagee of certain properties (the 'Claygate Properties') of which the Serious Organised Crime Agency ('SOCA') was second mortgagee. Mrs Szepietowski
owned the Claygate Properties and was mortgagor to both the Bank and SOCA. The Bank also held a second charge over another property (the 'Ashford Property') owned by Mrs Szepietowski. The Claygate Properties had been sold and the proceeds nearly exhausted in discharging the Bank's first mortgage. SOCA
wished to step into the Bank's shoes as second chargee of the Ashford Property and to keep the second
charge alive as security for the unsatisfied balance of the sums SOCA had secured on the Claygate Properties.
The principle of marshalling could be applied and SOCA could be subrogated to the Bank's second charge
over the Ashford Property as security for the shortfall left unsatisfied following the sale of the Claygate Properties. The principle of marshalling was to ensure equity between two or more creditors, each of whom are
owed debts by the same debtor, but one creditor can enforce its claim against more than one security or fund
and the other can resort to only one. The principle gives the latter an equity to require the first creditor to satisfy himself so far as possible out of the security or fund to which the latter has no claim. That factual matrix
was met in this case.
Marshalling should only be applied to do justice. The judge could not see any unfairness in the present case
in allowing SOCA to rely on the doctrine. On the contrary, it was only in this way that the charges which Mrs
Szepietowski freely agreed to grant over the Claygate Properties could yield to SOCA the sums which they
were intended to secure. The right to marshall can be excluded or varied by contract. The process of subrogation must be effected in a way which does not prejudice the Bank and any right it may still have to rely on
its second charge over the Ashford Property for monies the Bank is still owed. The parties were asked by the
judge to agree an appropriate form of order.