Dictionary

  • Marshalling (in the context of equity)

    An equitable doctrine of application in cases where there are two claimants against one person, one claimant having recourse to two separate funds of that person, the other having recourse to only one of the two funds. Marshalling gives the second creditor an equity to require the first creditor satisfy themselves (or be legally treated as having done so) as much as is possible from the second security or fund (i.e. the one to which the second creditor has no claim).

    This also operates to mean that where the first creditor has already satisfied their debts via the fund to which both creditors had claim, the second creditor may satisfy their debts via the fund to which only the first creditor had claim.

    This doctrine rests upon the principle that a creditor with two avenues to satisfy his debt may not in a claim defeat another creditor who can only rely on one of those avenues.

    Example 1: Tom has security over A, and Sue has security over A and B. If Sue seeks to enforce her security over A, Tom may seek to prevent this, and via marshalling, have a court order she satisfy her debts through B first.

    Example 2: Pete has security over X, and Jane has security over X and Y. Jane chooses to enforce her security over X, and following settlement, the value of X is zero. Where a marshalling application is successful, Pete may be allowed to use the value of Y to satisfy his outstanding debt.

    The application of marshalling is at the discretion of the Court. The Court must be shown that its application is necessary to impart justice.

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