England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice
		19th March 2009

MR. JUSTICE HENDERSON:

1. This is an application by the second defendant, Mrs. Susan Szepietowski, arising out of the terms of the Consent Order in Tomlin form dated 16^th January 2008 ("the Consent Order") and the annexed Deed of Settlement executed by the parties on the previous day ("the Settlement Deed") whereby a settlement was reached between the Assets Recovery Agency ("the ARA"), which has subsequently become the Serious Organised Crime Agency ("SOCA"), as claimant, and five of the defendants to the present proceedings. The application turns on a short point of construction of the Settlement Deed in circumstances which it is common ground were not consciously envisaged on either side at the time when the settlement was concluded.
2. The background to the proceedings is well known to the parties and I have already had occasion to deal with many aspects of it in earlier judgments. I will therefore confine myself to the minimum recitation of background needed to make this judgment intelligible.
3. In 1999 a sum of approximately US$2.5 million was transferred by a Mr. Jamie Sower (otherwise known as Mitchell) from Turkey into the client account of a small firm of solicitors, De Verney Brooke Taylor. The first defendant, Mr. John Szepietowski, was one of the two partners in the firm and the manager of its Weybridge office where the money was received. The second defendant is his wife, although she is often referred to in the documents by her maiden name of Susan Seery. SOCA alleges that the Turkish money represented the proceeds of drug trafficking, and in July 2005 an interim receiving order was made by the High Court in respect of the assets alleged to represent the Turkish money. A partner of BDO Stoy Hayward, Ms. Sara Dayman, was appointed as interim Receiver, and she conducted a detailed and lengthy investigation into the origin of the Turkish funds.
4. In the course of her investigations, the Receiver discovered that Mr. and Mrs. Szepietowski and a number of companies associated with them owned a substantial portfolio of properties with a net value at that time of around £6 million. The relevant assets were frozen by a second interim receiving order made in October 2005 and the Receiver was appointed to investigate and to report on the property portfolio. In her second report, dated 18^th August 2006, she stated her belief that:

"this portfolio of properties was acquired and maintained with the proceeds of unlawful conduct, being fraudulently obtained mortgage finance and income concealed from HM Revenue & Customs."

5. In November 2006 the ARA began the present proceedings, claiming that both the assets that now representing the Turkish money and the property portfolio were recoverable property within the meaning of section 266 of the Proceeds of Crime Act 2002. The settlement, which was concluded in January 2008, relates only to the property portfolio part of the claim ("the Portfolio Claim"). With the exception of certain provisions relating to Mr. Szepietowski's position as trustee of the Heritage Investment Trust, the settlement had no effect on the Turkish money claim which still remains to be decided either at trial or in a forthcoming application for summary judgment.
6. The relevant defendants to the Portfolio Claim are Mr. Szepietowski in his personal capacity, Mrs. Szepietowski, and three companies which were joined as the fifth, sixth and seventh defendants: Merchant Taylor Company Ltd., which is registered in the British Virgin Islands; Cobham Investments Ltd., a UK company, and Cobham Investments Leisure Ltd., which is also a UK company. The defendants to the Portfolio Claim were throughout represented by a different firm of solicitors, Messrs. Devonshires, from the firm representing the defendants to the Turkish money claim, including Mr. Szepietowski in his trustee capacity. On 8^th October 2007, they filed a combined defence settled on their behalf by leading and junior counsel, Mr. Andrew Mitchell QC and Mr. Stephen Hellman. All of the allegations of unlawful conduct were denied, and it is right I should emphasise that all of the allegations remain just that - allegations. Neither of the Szepietowskis has ever been charged with, let alone convicted of, any form of mortgage fraud in connection with the property portfolio, nor has any civil court ruled on any of the allegations.
7. With immaterial exceptions, all of the personal and business assets of the Szepietowskis were frozen by the interim receiving orders, including their matrimonial home at Ashford House on the St. George's Hill estate in Weybridge, where they live with their four children, one of whom has both physical and mental disabilities. Legal title to Ashford House is vested in Mrs. Szepietowski alone, but it is common ground that she and her husband have equal beneficial interests in it. The present market value of Ashford House was a major issue in a recent application in which I handed down judgment on 27^th February 2009, [2009] EWHC 344 (Ch). On the basis of the rather unsatisfactory evidence before me, I concluded that the present market value of the property was in the region of £3 million (plus or minus £250,000) and that the equity in the property is worth between about £1.1 and £1.6 million.
8. The principal encumbrance on Ashford House is a first charge in favour of The Mortgage Corporation plc, but there is also a registered second charge in favour of the Royal Bank of Scotland ("RBS"). The latter charge secures all monies due and owing at any time to RBS from Mrs. Szepietowski, including in particular the borrowings of her property business. Similar all monies charges were also given by her to RBS or, before its merger with RBS, to National Westminster Bank plc over at least four other properties or groups of properties of which she was then the sole registered proprietor. Those properties were as follows: 2 and 2a Thames Street, Walton on Thames, Surrey ("Thames Street"); 3 and 5 Church Street, Esher, Surrey, together with some adjoining land ("Church Street"); 2, 4 and 6 Torrington Close, Claygate, Surrey ("Torrington Close"); and Old Bank, 109 Hare Lane, Claygate, Surrey, together with two associated long leasehold titles ("Old Bank").
9. Accordingly, the position at the time of the January 2008 compromise was that Mrs. Szepietowski's indebtedness to RBS was secured by all monies charges on at least Thames Street, Church Street, Torrington Close, Old Bank and, by way of a second charge, Ashford House. I say "at least", because it is not entirely clear to me whether RBS had any other security for its lending to Mrs. Szepietowski and, if so, what form it took. For present purposes, however, the important point is that all five of the properties which I have mentioned were subject to all monies charges given at various times by Mrs. Szepietowski in favour of RBS.
10. With this introduction I can now turn to the terms of the Consent Order and the Settlement Deed. In general terms, the scheme of the settlement was to divide up the disputed properties so that some were vested in the Trustee for Civil Recovery ("the Trustee") on behalf of SOCA while others were released from the interim receiving orders and returned to their owners. Leaving aside the complication of Mrs. Szepietowski's debt to RBS, the properties were all to be transferred or released subject to the existing charges secured upon them. For the purposes of the compromise, figures were agreed for the value of each property, the debt secured on it and the resulting equity that was available.
11. The Consent Order provided, by Clause 1, that the properties listed in Schedule 1 (defined as the "Transfer Properties") and the further properties listed in Schedule 2 (defined as the "Additional Properties") should vest, upon the making of the order, in the Trustee. Clause 2 then provided that, upon the Trustee taking possession of the Transfer Properties and the Additional Properties, the relevant interim receiving order should be discharged as against the assets to be released, most of which were listed in Annexe A to the Settlement Deed. Once the vesting order had taken effect, all further proceedings in respect of the released assets were to be stayed on the terms set out in Schedule 4, that is to say the terms of the Settlement Deed, subject to a proviso in standard Tomlin form which enabled any of the compromising parties to apply to the court for the purpose of carrying the agreed terms into effect. Clause 5 provided, for the avoidance of doubt, that the Turkish money claim should continue, notwithstanding the making of the Consent Order. By Clause 6, SOCA agreed to pay one half of the compromising defendants' costs of the proceedings, down to 14^th November 2007.
12. The Transfer Properties were 13 in number and they included, as the last two items, Thames Street and Church Street. The Additional Properties were Torrington Close and Old Bank. The values assigned to those four properties - all of which, it will be recalled were subject to the RBS charge together with Ashford House - were as follows: Thames Street £570,000; Church Street £785,000; Torrington Close £2,670,000; and Old Bank £800,000, making a total of £4,825,000. The agreed figure for the RBS debt charged on the four properties was £3,224,668.77, and the agreed figure for the equity in the four properties combined was therefore £1,600,331.23. The total value assigned to the Transfer Properties, including Thames Street and Church Street, was £7,515,000, and the total amount of the debts charged upon them, excluding the RBS debt, was £2,112,320.03. The difference between those two figures, shown in the equity column, was £5,402,679.97. A footnote to the total debt figure explained that it was calculated on the basis that the RBS debt would be discharged from the equity arising from the sale of the Additional Properties. A footnote to the total equity figure repeated the same explanation and added: "This leaves an outstanding sum of £27,679.97 over and above the agreed settlement of £5,375,000".
13. In my judgment, these provisions alone give rise to a number of prima facie inferences, even without going to the Settlement Deed. First, the parties must have proceeded on the basis of an agreed settlement figure of £5,375,000 to be paid or otherwise provided by the defendants. Secondly, the Transfer Properties were evidently selected on the basis that the agreed equity in them would closely approximate to that figure. In fact it exceeded it by £27,679-odd. Thirdly, although the RBS debt was secured on two of the Transfer Properties, namely Thames Street and Church Street, it was clearly the intention and expectation of the parties that the RBS debt would be discharged in full from the proceeds of sale of the Additional Properties. On the basis of the agreed figures, the combined value of the two Additional Properties was £3,470,000, which exceeded the RBS debt as it then stood by a margin of £245,332.
14. Before going any further, I should record that the released assets listed in Annexe A to the Settlement Deed included Ashford House with an assigned value of £2,300,000, agreed debt charged upon it of £1,459,848.34, and equity of £840,151.66. Although RBS was listed in the Annexe as a secured creditor, together with The Mortgage Corporation plc, in relation to Ashford House, it is self-evident that the agreed debt figure of £1,459,848.34 cannot have included more than a small fraction of the RBS debt, and may well have excluded it altogether.
15. I now turn to the Settlement Deed, which was made between the director of the ARA, the Trustee, and the five compromising defendants, who were together defined as "the Respondents". Paragraph 1.6 recited that the Director and the Respondents had agreed terms in full and final settlement of the settled claim as defined in para.2.1. Paragraph 1.7 recorded that Mrs. Szepietowski had given instructions for contracts of sale to be exchanged on Torrington Close and Old Bank, i.e. the two Additional Properties, for £3.1 million and £800,000 respectively. I observe that the aggregate of those two sums (£3.9 million) was £430,000 higher than the combined value of £3.47 million assigned to the Additional Properties in the Consent Order. Paragraph 1.8 obliged the parties to cooperate with each other for the purposes of implementing the Settlement Deed. Paragraph 2.1 provided that the deed was made in full and final settlement of all of the Director's claims in relation to the released assets, and in relation to certain tax liabilities of the Szepietowskis, which were set out in para.13. Paragraph 3 provided for the parties to sign the Consent Order in the form of an attached draft - that being the form in which it was duly signed.
16. Paragraph 4 was headed "Procedure following vesting of the Additional Properties", and as these are the provisions on which the present dispute turns, I should cite them in full:

"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 each other informed of all steps they are taking in [that] regard.

4.2. In the event that a materially higher offer is received for any Additional Property pre any exchange of contracts, than that received at the date of this deed, then provided that shall yield a higher net return on completion, taking into account the cost of borrowing, any such offer shall be considered and if agreed between Susan Szepietowski and the Trustee as being the best offer shall be proceeded with in addition to any existing offer, it is permissible to apply all reasonable commercial pressure including re marketing and contract races (by way of example) to sell the said properties.

4.3. If the current offers do not proceed, then Susan Szepietowski shall be entitled to deal with the Additional Properties by selling them, or any one of them, at a price agreed with the Trustee and through the Trustee.

4.4. If after 6 months following from the date of the vesting of the Additional Properties some or all of them have not been sold i.e., no contract for sale has been exchanged, then Susan Szepietowski must elect in respect of those Additional Properties either that the property:

4.4.1. remains vested in the Trustee who shall then sell the property at the best price reasonably obtainable and use the proceeds of sale first in the discharge of any charges and secondly to account to Susan Szepietowski for any remaining monies by way of payment to Devonshires; or

4.4.2. is transferred back to Susan Szepietowski, subject to the charges and any liability to any tax.

4.5. If the Trustee wishes to sell the Transfer Properties at 2 and 2(a) Thames Street, Walton on Thames and 3 and 5 Church Street, Esher (the 'Remaining RBS Properties') before the Additional Properties are sold then the Respondents agree that, if the Royal Bank of Scotland consent, the combined charge over these properties and the Additional Properties in favour of the Royal Bank of Scotland (amounting to £3,398,507.18 as at 14 January 2008) (the 'Charge') shall be transferred to the Additional Properties only. If the Royal Bank of Scotland does not so consent then Susan Szepietowski will grant a charge to the Trustee or the Director, as directed by the Director, for the sums paid by the Trustee or the Director to the Royal Bank of Scotland from the sale proceeds of the Remaining RBS Properties.

4.6. The Respondents and the Trustee agree that the total funds from the sale of the Additional Properties shall be used in priority to the funds from the sale of the Remaining RBS Properties in satisfaction of the Charge.

4.7. The Respondents and the Director and the Trustee agree that on the sale of the Additional Properties the proceeds of sale shall be first applied against the settlement of any charges registered against those properties i.e., the bank charge and any charge under 4.5 above and the balance of the proceeds shall be fully accounted for by the Trustee to Susan Szepietowski without deduction or set off.

4.8. In the period before the sale of all or any of the Additional Properties is completed, the said Additional Properties shall be managed by Susan Szepietowski. Susan Szepietowski shall receive all income and discharge all expenses including all services and insurances. If the Trustee is obliged to insure the Additional Properties then Susan Szepietowski shall reimburse the Trustee for the amounts paid."

17. I would make a number of observations about the provisions of para.4. First, responsibility for the sale and marketing of the Additional Properties was divided between the Trustee and Mrs. Szepietowski, as provided for in paras.4.1 to 4.3, but if any of them remained unsold after six months, Mrs. Szepietowski was then obliged to make an election under para.4.4. The requirement to elect is mandatory, but no time limit is specified within which the election has to be made, nor is anything said about the manner or form in which the election must be made.
18. Secondly, it is clear that the beneficial interest in the Additional Properties, subject to the RBS debt, was to remain substantially, if not entirely, with Mrs. Szepietowski until they were sold, and the net proceeds of sale after discharge of any charges were then to be paid to her: see paras.4.4.1, 4.7 and 4.8. Similarly, if the properties were transferred back to her following the making of an election under para.4.4.2, it was clearly envisaged that she would then own them beneficially, subject to the charges and to any tax liability which might have arisen.
19. Thirdly, para.4.6 contains an express agreement that, as between the Respondents and the Trustee, the burden of the RBS charge is to be borne by the Additional Properties in priority to Thames Street and Church Street, those two properties being defined in para.4.5 as "the Remaining RBS Properties". This agreement of course reflects the way in which the properties are dealt with in Schedules 1 and 2 to the Consent Order.
20. Fourthly, it appears from para.4.5 that as at 14^th January 2008 the amount secured by the RBS charge had increased to a sum of nearly £3.4 million. However, this was still about £500,000 less than the £3.9 million for which Mrs. Szepietowski expected to be able to sell the Additional Properties.
21. It should further be noted that the RBS charge itself was described in para.4.5 as being a combined charge over the Remaining RBS Properties and the Additional Properties, with no mention of Ashford House, although it must have been well known to the parties that the RBS debt was in fact also secured by way of a second charge on Ashford House.
22. Finally, para.4.5 said what was to happen if Thames Street and Church Street were sold before the Additional Properties. If RBS agreed, their charge was to be "transferred to the Additional Properties only". It is common ground that what the parties must have meant by this rather inaccurate language is that Thames Street and Church Street would be released from the RBS charge and not that the RBS charge should thenceforth be secured on the Additional Properties alone, to the exclusion of Ashford House. If RBS did not agree - and, on the face of it, it is hard to see any reason why they should have agreed to a reduction in their security - Mrs. Szepietowski would then be obliged to "grant a charge" to SOCA in an amount equal to the sums paid to RBS from the proceeds of sale of Thames Street and Church Street.
23. This is the critical provision on which the present application turns. Before formulating the issue, however, I will briefly describe some of the remaining provisions of the Settlement Deed. Paragraphs 5 to 8 laid down the procedure to be followed once the Transfer Properties had been vested in the Trustee. In broad terms, their effect was to give the Respondents a right of preemption if the Trustee received an offer to buy any Transfer Property; to enable the Respondents to bid at any auction of a Transfer Property; and to grant the Respondents an option to purchase any of the Transfer Properties, subject to various safeguards designed to ensure that the sale would be for full market value. Paragraph 10.2 provided that if, following a sale of all the Transfer Properties and the discharge of all encumbrances, SOCA received more than the agreed settlement figure of £5.375 million, then the excess would be repaid to the Respondents up to a maximum of £27,679.97, i.e. the surplus figure referred to in note 2 on the second page of Schedule 1 to the Consent Order.
24. It is unnecessary for me to say any more about other provisions of the Settlement Deed, and I now revert to the critical words in para.4.5. The issue may be formulated in this way. In circumstances where the Remaining RBS Properties are sold before the Additional Properties, and the net proceeds of sale have been used to discharge part of the RBS debt, what is the nature and extent of the charge that Mrs. Szepietowski is obliged to grant to SOCA? The circumstances in which the question arises are briefly as follows. For reasons which do not matter, the intended sales of the Additional Properties arranged by Mrs. Szepietowski fell through, and they remain unsold today. They are still vested in the Trustee. The Remaining RBS Properties, that is to say Thames Street and Church Street, were, however, sold by the Trustee in March 2008 for a total gross consideration of £1,275,000. The net proceeds of sale have been paid to RBS as chargee and the amount of the RBS debt has been reduced accordingly. As a result of the collapse in the property market, however, there is now insufficient equity in the Additional Properties to discharge even the reduced amount of the RBS debt, let alone its original amount prior to the sale of Thames Street and Church Street. Accordingly, while it was the expectation of the parties in January 2008 that there would be sufficient value in the Additional Properties to discharge the whole of the RBS debt, and thus to enable SOCA to recover the full unencumbered value of Thames Street and Church Street pursuant to the compromise, the position has now been reached where the combined value realised, or yet to be realised, of Thames Street, Church Street and the Additional Properties amounts to substantially less than the full amount of the RBS debt, including the part of it which was discharged in March 2008.
25. Against this background, the rival contentions advanced by Mr. Andrew Mitchell QC on behalf of Mrs. Szepietowski, and by Ms. Sarah Harman, appearing with Ms. Kate Selway, on behalf of SOCA, are as follows. Mr. Mitchell submits that the settlement in the form in which it was finally agreed between the parties is a property-based one, and that SOCA must therefore carry the risk of any of the Transfer Properties ultimately yielding less than the equity values assigned to them for the purposes of the compromise. He submits that, read in the context of the settlement as a whole, the obligation on Mrs. Szepietowski to grant a charge under para.4.5 of the Settlement Deed can only mean a charge over the Additional Properties, and cannot require her to grant a charge over any further or other property, including in particular Ashford House. He submits that any additional security extending beyond the equity in the Additional Properties was outside the contemplation of the parties and, if it had been contemplated, it is inconceivable that the parties would not have specified the other property over which the charge was to be given. He also relies on the wording of paras.4.6 and 4.7 as providing further support for his argument
26. On behalf of SOCA, Ms. Harman does not dispute that the settlement is property-based, but she says it was the clear intention of the parties that SOCA should receive the full equity in Thames Street and Church Street free from the RBS debt. She further submits that SOCA should not be prejudiced merely because Thames Street and Church Street were sold before the Additional Properties. She says that SOCA should, in substance, be subrogated to the rights of RBS in respect of the part of the RBS debt which has been paid off from the proceeds of sale of Thames Street and Church Street, and that Mrs. Szepietowski should therefore be required to grant a charge for that amount on the same terms, mutatis mutandis, as the RBS charges, and over Ashford House as well as the Additional Properties. Anything less than that, says Ms. Harman, would represent an uncovenanted windfall for Mrs. Szepietowski. By contrast, the inclusion of Ashford House in the new charge would mean that the whole of the RBS debt could still be repaid without recourse to the proceeds of sale of Thames Street and Church Street.
27. Ms. Harman sought to bolster this submission by suggesting that the only reason for the transfer of the Additional Properties to the Trustee as part of the compromise was that Mrs. Szepietowski wished to benefit from the more favourable capital gains tax treatment which would supposedly apply if the properties were sold by the Trustee rather than by her personally. However, the transfer of the Additional Properties to the Trustee could not detract from the fact, well known to all the parties, that the RBS debt was charged on Ashford House as well as the properties mentioned in the Settlement Deed; and SOCA would not have agreed to the compromise had they thought that, as between the compromising parties, Ashford House was to be treated as not forming part of the security for the RBS debt.
28. Finally, Ms. Harman argued that even if, on the true construction of para.4.5, Mrs. Szepietowski could only be required to grant a charge over the Additional Properties, the court should still order her to do so, and should not take the short cut of simply directing that the net proceeds of sale of the Additional Properties should be paid to RBS. The reason for this, as Ms. Harman made clear, is that SOCA intends in due course to rely on the equitable doctrine of marshalling and, in broad terms, will ask the court to direct that RBS should satisfy its charge out of Ashford House (on which SOCA would, on this hypothesis, not have a charge) in priority to the Additional Properties (on which both SOCA and RBS would have a charge) or, alternatively, to order that SOCA should be subrogated to the rights of RBS in relation to Ashford House if that security were the first to be realised by RBS: see generally Fisher and Lightwood's Law of Mortgage, 12^th edition, paras.45.8 to 45.12, and Halsbury's Laws of England, 4^th edition, volume 32, paras.833 to 836.
29. I begin with the construction of para.4.5, in relation to which I will say at once that the submissions of Mr. Mitchell QC are, in my judgment, to be preferred. I reach that conclusion on the strength of a number of points, none of which is conclusive by itself but the combined force of which I find compelling. An obvious point to start with is the subject matter of para.4 as a whole. The paragraph is concerned with the Additional Properties after they are vested in the Trustee, just as para.5 is concerned with the Transfer Properties. Within para.4 itself, para.4.5 deals with the problem posed by a prior sale of the Remaining RBS Properties. In the event that RBS does not agree to release those properties from its charge, Mrs. Szepietowski is to grant a charge to SOCA securing a sum equivalent to the reduction in the RBS debt. The paragraph does not state in terms over what assets the charge is to be granted, but, in a paragraph dealing with the Additional Properties, the natural inference is that the charge is to be granted over Mrs. Szepietowski's interest, whether legal or beneficial, in the Additional Properties. If any further or wider security was contemplated, one would expect the parties to have spelt it out, identifying the assets to be charged or at least providing machinery for their selection. The very absence of any such provision is in itself a strong indication that only the Additional Properties were contemplated as being the subject of the further charge. I would add in this connection that I do not read the words "as directed by the Director", as qualifying the words "grant a charge", but only as going to the question whether the chargee is to be the Trustee or the Director, i.e. as qualifying the immediately preceding words "to the Trustee or the Director".
30. Strong support for this interpretation of para.4.5 is, in my view, to be found in para.4.7 which says that, when the Additional Properties are sold, the proceeds are first to be applied "against the settlement of any charges registered against those properties i.e., the bank charge and any charge under 4.5 above". This provision is significant for at least two reasons. First, the only charges which it expressly envisages as being registered against the Additional Properties are the RBS charge and any charge under para.4.5. Secondly, it does not expressly envisage the possibility of a charge under para.4.5 extending to any property other than the Additional Properties. Furthermore, the likelihood of any such extension having been contemplated by the parties is reduced by the fact that the RBS charge is defined in para.4.5 in terms which exclude Ashford House. Since, for the purposes of para.4, the RBS charge was defined in terms excluding Ashford House, it is highly unlikely that the parties should have contemplated a replacement charge which included it.
31. This brings me on to a more general point. Looking at the Consent Order and the Settlement Deed as a whole, it appears to me that, for the purposes of the compromise, the parties drew a clear distinction between Ashford House on the one hand and the other four properties subject to the RBS charge on the other hand. Ashford House was one of the released properties and, as I have already said, the figure shown for the debt charged upon it in Annexe A to the Settlement Deed must exclude most, if not all, of the RBS debt. Furthermore, the deed was made in full and final settlement of all of SOCA's claims against Mrs. Szepietowski in relation to, among other properties, Ashford House: see para.2.1. The main such claim was obviously SOCA's claim that Ashford House was recoverable property, but the wording of para.2.1 is wide and general, and my provisional view (although I have not heard argument directed to this specific point) is that it is wide enough to rule out any claim by SOCA to be granted security by Mrs. Szepietowski on Ashford House.
32. There would be nothing inherently surprising in the parties having agreed to exclude Ashford House in this way. It was, and is, the Szepietowskis' home where they live with their young family, one of whom has special needs. In January 2008, nobody foresaw the crash in the property market with which we are now all too familiar, and, on the basis of the figures set out in the schedules to the Consent Order, there appeared to be ample equity in the other four properties to discharge the RBS debt in full. One would indeed expect the unconditional release of Ashford House to have been a key feature of any compromise acceptable to the Szepietowskis.
33. Another way of making this point is to say that for the purposes of the compromise the risk of any insufficiency in the equity of the four properties to discharge the RBS debt was, in my judgment, to be borne by SOCA. Consistently with this approach, the only charge that SOCA would be entitled to require under para.4.5 is a charge over the Additional Properties, securing an amount equal to the sale proceeds of Thames Street and Church Street which were paid to RBS. If that charge leaves a shortfall, the result is, from SOCA's point of view, an unfortunate consequence of the downturn in the property market, but it is not a reason for re-writing the agreement between the parties.
34. I accept that Mrs. Szepietowski may have had fiscal reasons of her own for wishing the Additional Properties to be vested in the Trustee and for any sale which would yield an otherwise taxable gain to be made by the Trustee. I express no view at all on the efficacy of the tax planning, if that is what it was, beyond observing that on normal CGT principles a sale by a nominee or bare trustee is treated as a disposal by the beneficial owner: see section 60 of the Taxation of Chargeable Gains Act 1992. However, I have to construe the compromise in the form in which it was implemented, and even if this fiscal motivation was known to SOCA so that it could form part of the admissible evidence of surrounding circumstances, I do not see how it could assist me to construe para.4.5 in the way for which SOCA contends. The intention of the parties to exclude Ashford House from the ambit of the RBS charge for the purposes of the compromise is gathered from a number of indicators to which I have referred, and does not depend in any way on the transfer of the Additional Properties to the Trustee, which was in any event liable to be reversed by an election under para.4.4.
35. For these reasons, I would decide the crucial question of construction in favour of Mrs. Szepietowski. The only charge that she is required to grant is, accordingly, a charge over the Additional Properties. In his opening submissions, Mr. Mitchell QC expressed the confident hope that, once I had pronounced on this question, the parties would be able to agree on the appropriate machinery to give effect to it and to bring about the sale of the Additional Properties which both sides now wish to achieve. In her seventh witness statement, dated 4^th March 2009, Mrs. Szepietowski confirms that she is happy to grant SOCA a charge creating security only over the Additional Properties. In the course of the hearing, Mr. Mitchell also confirmed, having taken instructions, that Mrs. Szepietowski is willing for the Additional Properties to be re-transferred to her, whether or not she has already made an election either way under para.4.4. Since a re-transfer of the properties is what SOCA desires, Mrs. Szepietowski's willingness fortunately makes it unnecessary for me to decide the disputed, and not entirely easy, questions whether she has already made an election either by conduct or in writing and, if so, to which of the Additional Properties the election related.
36. In the circumstances, and subject to what counsel may say, it seems to me that the appropriate directions for me to give at this stage are, first, that the Additional Properties be re-transferred by the Trustee to Mrs. Szepietowski, and, secondly, that she do then immediately grant a charge over the entirety of her interest in the Additional Properties to SOCA in terms to be agreed between the parties in the light of this judgment, with liberty to apply if agreement cannot be reached.