Susan Ann Szepietowski v The Serious Organised Crime Agency
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Sullivan,Lady Justice Arden |
| Judgment Date | 21 July 2011 |
| Neutral Citation | [2011] EWCA Civ 856 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 July 2011 |
| Docket Number | Case No: A3/2010/2597 |
[2011] EWCA Civ 856
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE HENDERSON
HC09C03170
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Sullivan
and
Lord Justice Patten
Case No: A3/2010/2597
Kevin Pettican (instructed by Devereaux Solicitors) for the Appellant
Sarah Harman and Kate Selway (instructed by SOCA Legal Department) for the Respondent
Hearing date: 26 th May 2011
Introduction
A legal mortgage of real property confers upon the mortgagee a title by way of security which will subsist until the redemption of the mortgage or the sale of the property. Correspondingly the mortgagor retains an equity of redemption which entitles him to redeem the property from the mortgage upon payment of the mortgage debt, interest and costs. The position is, however, more complicated where the property is subject to more than one charge and the mortgagor has charged other property which he owns to the same lender or lenders. In cases of this kind the mortgagor may find that his ability to redeem a particular property upon satisfaction of his liabilities to the mortgagee may be inhibited by the right of the mortgagees of his other property to look to the security for satisfaction of the debts due to them.
So in a case where two or more creditors are owed money by the same debtor but only one of them has a charge over more than one of his properties equity empowers the court to marshal the securities so that the creditor with a choice of security satisfies his claims so far as possible out of the proceeds of the security over which the other creditors have no claim. This equitable principle does not extend to compelling a first mortgagee to realise any particular security in preference to another. He is entitled to realise them in whatever order he chooses. What amounts to a principle of maximum distribution therefore takes effect by permitting a second chargee of property which is realised and utilised by the first chargee to rely on the benefit of the surplus (and possibly unrealised) security of the first chargee over other property of the debtor in satisfaction of his own claim. He is in effect (but not as a matter of law) subrogated to the first chargee's rights under that security to the extent of the debtor's secured liabilities to him: see In re Bank of Credit and Commerce International S.A. (No. 8) [1998] AC 214 at pp. 230–1.
The appellant, Mrs Susan Szepietowski, is the registered proprietor of a property known as Ashford House, Four Winds Park, Old Avenue, St George's Hill, Weybridge ("Ashford House"). She lives there with her husband (Mr John Szepietowski) and their four children. There is some dispute as to whether she is the sole beneficial owner or shares beneficial ownership with her husband but that is not material for the purposes of this appeal.
In 1999 Mr Szepietowski was one of two partners in a firm of solicitors, De Verney Brooke Taylor. The firm received a transfer from Turkey of some US$2.5 million which it is alleged represented the proceeds of drug trafficking. In July 2005 the Assets Recovery Agency ("the ARA") which later became the Serious Organised Crime Agency ("SOCA") obtained a receiving order in the High Court over the assets which were alleged to represent the Turkish money. Further investigations by the interim receiver revealed that Mr and Mrs Szepietowski and various associated companies owned a substantial portfolio of properties which were estimated to have a net value of some £6 million. These were frozen by a subsequent court order obtained in October 2005.
The interim receiver produced a report in August 2006 stating that she believed that the properties had been acquired and maintained with the proceeds of unlawful conduct including fraudulently obtained mortgage finance and income concealed from HM Revenue & Customs. In November 2006 the ARA began proceedings against Mr and Mrs Szepietowski in which they claimed that the assets representing the Turkish money and the portfolio of properties were recoverable property within the meaning of s.266 of the Proceeds of Crime Act 2002.
In January 2008 Mr and Mrs Szepietowski concluded a settlement of the claims against the properties the terms of which were embodied in a consent order made by Master Moncaster on 16 th January. At the time of the settlement Mrs Szepietowski was the sole registered proprietor of Ashford House and of the following properties:
(1) The Old Bank, 109 Hare Lane, Claygate ("the Old Bank") which included the freehold of the property and two registered leases of the first and second floors and of the basement and ground floors;
(2) 2, 4 and 6 Torrington Close, Claygate ("Torrington Close");
(3) 2 and 2a Thames Street, Walton on Thames ("Thames Street"); and
(4) 3 and 5 Church Street, Esher ("Church Street").
Ashford House was subject to a first charge in favour of The Mortgage Business plc and a second charge in favour of the Royal Bank of Scotland ("RBS"). Mrs Szepietowski had also given all monies charges in favour of RBS over the four groups of properties described in paragraph 6 above. These were all first charges.
Under paragraph 1 of the consent order, the properties listed in Schedules 1 and 2 to the order were vested in the Trustee for Civil Recovery. Schedule 1 included Thames Street and Church Street which, with the other Schedule 1 properties, are defined in the consent order as the Transfer Properties. The Schedule 2 properties comprised Torrington Close and the Old Bank (defined as the Additional Properties).
Paragraphs 2 and 4 of the consent order were in the following terms:
"2. Upon the Trustee taking possession of the Transfer Properties and the Additional Properties, the Interim Receiving Order granted by Mr Justice Stanley Burnton on 26 October 2005 ( POCA No. 8611 of 2005) (the "Interim Receiving Order") shall be discharged as against any of those assets listed at Annexe A to Schedule 4 hereto or any other asset listed in Appendix 2 to the Interim Receiver's Report dated 18 August 2006.
……
4. Immediately after the vesting order made in paragraph 1 above takes effect, all further proceedings in this claim by the Claimant against the Compromising Defendants to the assets listed at Annexe A to Schedule 4 hereto, any other asset listed in Appendix 2 to the Interim Receiver's Report dated 18 August 2006 and any asset of the Compromising Defendants of a value less than £20,000 (but, for the avoidance of doubt, excluding those aspects of the claim referred to at paragraph 5 below) be stayed upon the terms set out in Schedule 4 hereto save for the purpose of carrying such terms into effect and for that purpose the Claimant and the Compromising Defendants have permission to apply."
Schedule 4 to the order contains a deed of settlement dated 15 th January 2008 which has been executed by the director of the ARA and the Trustee for Civil Recovery for the claimants and by Mr and Mrs Szepietowski and the other defendants to the recovery proceedings. The deed contains a number of annexes. Annexe A is a list of properties including Ashford House, Thames Street, Church Street, Torrington Close and the Old Bank. Annexe B and Annexe C contain schedules of the Transfer and the Additional Properties in the form in which they appear in Schedules 1 and 2 to the consent order.
These lists of the properties include particulars of the secured creditors with charges over the respective properties; the value of the properties as at October 2007; the amount of the outstanding debt; and a valuation of the available equity based on the preceding two figures. They were obviously prepared for use in the negotiations leading up to the settlement in order to provide an indication of the values available to meet the ARA's claims. Annexe B (the Transfer Properties) shows Thames Street and Church Street having a net value of £1,600,331.23 when combined with Torrington Close and the Old Bank. The net amount available to the ARA from all the Transfer Properties is shown as £5,402,679.97 on the assumption that the debt due to RBS is discharged from the sale of Torrington Close and the Old Bank.
The deed of settlement provides in clause 2.1 that it is made:
"in full and final settlement of all of the Director's claims against the Respondents in relation to the properties and the other assets listed in Annexe A to this Deed, the Tax Liabilities of John Szepietowski and Susan Szepietowski as defined in paragraph 13 below, any other asset listed in Appendix 2 to the Interim Receiver's Report dated 18 August 2006 and any asset of an individual value less than £20,000 (together the "Settled Claim")."
Under clause 3.1 the defendants agreed to sign the consent order vesting the Transfer and the Additional Properties in the Trustee for Civil Recovery in satisfaction of the claims against the properties listed in Annexe A. On the basis of the net values calculated in October 2007, this would have given to the ARA realisable property in the sum of £5.4 million. In respect of Torrington Close and the Old Bank which were to be used to pay off the borrowings from RBS, clause 4 of the deed provided that:
"4.1. Once the Vesting Order referred to at para 3.1 above has been made by the Court, Susan Szepietowski and the Trustee shall use their best endeavours to progress the sales of the Additional Properties to those buyers who are currently interested in the Additional Properties and shall keep...
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