England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR JUSTICE NEWMAN)

		Royal Courts of Justice Strand, London, WC2A 2LL Friday 16th March 2001

LORD JUSTICE KEENE :

1. This appellant was convicted in April 1997 after a trial lasting 122 working days on two counts of conspiracy to defraud and conspiracy to account falsely on a prosecution brought by the Serious Fraud Office. On 8 May 1997 he was sentenced by Buxton J. to a total of fourteen years imprisonment. In addition the judge made a confiscation order in the sum of £2,943,115 to be paid within two years, with a further term of three years imprisonment to be served consecutively in default of payment. A costs order and a compensation order were also made against him. On 11 March 1999 the Court of Appeal (Criminal Division) dismissed his appeals against conviction, sentence and the orders, including the confiscation order.
2. Through the passage of time the appellant on 9 May 1999, having failed to make any payment under the confiscation order, became in default of it. He has paid nothing under either it or the compensation order. On 1 November 1999 notice was given on his behalf of an application for a Certificate of Inadequacy ("Certificate") under section 83 of the Criminal Justice Act 1988 ("the Act").
3. However, the Serious Fraud Office applied to strike out the application for such a Certificate, and on 18 April 2000 Newman J. ordered that it be struck out as an abuse of process. He concluded that the issues which the appellant was seeking to raise were ones which had been adjudicated upon by a court of competent jurisdiction and which the appellant had had full opportunity to raise during the confiscation proceedings or on appeal therefrom. It is from that order that this appeal is now brought.
4. The background to the trial is helpfully summarised in Newman J's judgment:

"The defendant and his family ran a huge international business involving shipping and other activities. There were over 200 companies, known as the Gulf Group. The group's main bank was The Bank of Credit and Commerce (BCCI) who, over the years, lent vast amounts of money to the group. The Crown alleged and established that BCCI had to keep the Gulf Group going because, if it failed, its level of borrowing was such that BCCI would fail too. Gulf became unable or unwilling to pay its debts. The Crown alleged and established that by 1985 the Gulf Group was insolvent and dependent upon the continued funding and financial support of BCCI to avoid its total financial collapse. Further lending had to be done secretly. The allegation in relation to the first count of conspiracy was that, between 1985 and 1991, officers of BCCI and Gulf conspired to create false documents to deceive the auditors and to cover secret lending to keep Gulf afloat. The allegation in the second count alleged a conspiracy between 1987 and 1991, between the same people, to defraud depositors by a new, secret, financial structure, which deceived the auditors, Price Waterhouse, concealed the relationship between BCCI and Gulf and facilitated additional funding of Gulf; this, the Crown said, kept BCCI afloat."

5. However, in July 1991 BCCI was put into liquidation with huge debts, causing a very large banking collapse. The frauds ran into hundreds of millions of dollars. The appellant played a central and essential role in these events. He was a willing and dishonest participant in both conspiracies, masterminding them on behalf of the Gulf Group.
6. The statutory provisions applicable to this case are contained in Part VI of the Act, provisions which have been amended a number of times since their original enactment. But because these offences were committed before 1 November 1995, this court is concerned with the provisions as they stood before the Proceeds of Crime Act 1995 and subsequent legislation came into force. Section 71(2) as it was dealt with the conditions required to be met before a confiscation order could be made. Paragraph (b) thereof required the court to be satisfied, in respect of an offender, that:

"he has benefited from that offence or from that offence taken together with some other offence of which he is convicted in the same proceedings or which the court takes into consideration in determining the sentence, and which is not a drug trafficking offence."

7. By section 71(4):

"... a person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained."

8. Section 71(6) provided:

"The sum which an order made by the court under this section requires an offender to pay must be at least the minimum amount, but must not exceed -

(a) the benefit in respect of which it is made; or

(b) the amount appearing to the court to be the amount that might be realised at the time the order is made, whichever is the less."

9. A definition relevant to para. (b) of section 71(6) is to be found in section 74(3):

"The amount that might be realised at the time a confiscation order is made is:

(a) the total of the values at that time of all the realisable property held by the defendant, less (b) ... ... ...

together with the total of all the values at that time of all gifts caught by this Part of this Act."

10. "Realisable property" is defined by section 74(1) as:

"(a) any property held by the defendant; and

(b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Part of this Act."

11. Section 74(10) provides:

"A gift (including a gift made before the commencement of this Part of this Act) is caught by this Part of this Act if

(a) it was made by the defendant at any time after the commission of the offence, or, if more than one, the earliest of the offences to which the proceedings for the time being relate; and

(b) the court considers it appropriate in all the circumstances to take the gift into account."

12. . Finally, provision is made for a Certificate of Inadequacy by section 83, sub-sections (1) and (2) of which read as follows:

"(1) If on an application by the defendant in respect of a confiscation order, the High Court is satisfied that the realisable property is inadequate for the payment of any amount remaining to be recovered under the order the court shall issue a certificate to that effect, giving the court's reasons.

(2) For the purposes of sub-section (1) above -

(a) in the case of realisable property held by a person who has been adjudged bankrupt or whose estate has been sequestrated the court shall take into account the extent to which any property held by him may be distributed among creditors; and

(b) the court may disregard any inadequacy in the realisable property which appears to the court to be attributable wholly or partly to anything done by the defendant for the purpose of preserving any property held by a person to whom the defendant had directly or indirectly made a gift caught by this Part of this Act from any risk of realisation under this Part of this Act."

13. It will be appreciated from the recital of these statutory provisions that the making by Buxton J. of the confiscation order in 1997 necessarily involved the making by him of findings, first, that the appellant had benefited from the relevant offences to the extent of £2.943 million and secondly that there was at that time an amount which might be realised to at least the same value. It will be necessary in due course to look a little more closely at how Buxton J. arrived at each of these two findings. For the moment it is enough to note that the major part of the benefit identified consisted of funds received into the appellant's personal bank accounts and that the judge, when dealing with "realisable property", rejected evidence from the appellant that the money from those accounts had been returned to his companies or otherwise dissipated. The judge added:

"But, even if that were not the case, I have to say I found Mr Gokal's evidence on that matter wholly unconvincing and I cannot act on it. He was entirely unable to explain how these alleged private funds had been deployed."

14. Apart from gifts amounting to nearly £636,000, Buxton J's conclusion on the amount which might be realised was expressed as follows:

"It is quite clear from evidence that I have heard and from what Mr Gokal has himself said in reply to cross-examination, and I confine myself to that, that he continued in active business after 1991. It is also quite clear from what he himself has said that his own affairs were mixed up with those of his companies and I have every reason to think that he will have taken steps to protect his funds.

In those circumstances I do not feel able to act upon his assertion that he has no funds. I do not feel able to find that he has discharged even the burden to the civil level that rests upon him of showing the amount that might be realised is less than the amount that I have found to be the amount of his benefit. On those grounds therefore I make a confiscation order in the sum of his benefit of £2,943,115."

15. As I have already indicated, the challenges to the trial judge's findings, both as to benefit and as to realisable property, were rejected by the Court of Appeal.
16. The evidence in support of the recent application for a Certificate took the form of a witness statement by Adam George William Cowell, a partner in the firm of solicitors acting for Mr Gokal. In the witness statement it is said that the appellant "seeks to prove that he has no realisable property to be applied in satisfaction of the Confiscation Order." Apparently an attempt was going to be made to produce evidence at this stage to show that the money which went into the appellant's personal bank accounts had been dissipated. This would take the form of schedules produced by accountants and available at the time of the appeal to the Court of Appeal (Criminal Division) but not produced to that court.
17. That is not a proper basis on which to seek a Certificate. It amounts to an attempt to go behind the original confiscation order finding as to the amount of the defendant's realisable assets. Such a finding can only be challenged by way of an appeal against the confiscation order. The trial judge clearly rejected the argument that the money in the personal bank accounts had gone back to the companies or had been otherwise dissipated. An application for a Certificate does not provide an opportunity to try to make good deficiencies in the case presented at the time of the confiscation order or at the appeal against it. This is a principle to which it will be necessary to return in due course.
18. However, the basis of the appellant's case has altered. The main plank of that case now rests upon an argument about realisations of property belonging to companies in the Gulf Group by the liquidators of BCCI since the date of the confiscation order. It is argued that this should lead to a Certificate because those assets being realised are ones in which the appellant has an interest or which may prove to be his property. Therefore they should stand to his credit when realised and if a Receiver had been appointed by the Serious Fraud Office those funds obtained by such realisation could have been applied to meet the confiscation order.
19. It is acknowledged that when Buxton J. was dealing with the ascertainment of the extent of the benefit obtained by the appellant, he rejected a prosecution argument that the corporate veil should be lifted, so as to include the £548 million obtained by the Gulf Group companies. But Mr Mitchell, QC, for the appellant argues that the ascertainment of benefit and the ascertainment of a defendant's realisable property are two separate stages in the process. "Benefit is unrelated to realisable property", as it was put during argument in the court below. Attention is drawn to a conclusion reached by Buxton J. at the subsequent compensation order hearing that he was unable to find that Mr Gokal had relevant means over and above those dealt with in the confiscation order. Therefore, it is said, any property realised by the liquidators and capable upon examination of being ascribed to the appellant should diminish his liability under the confiscation order. Since the judge did not identify the assets of which the £2.94 million was composed, it is open to a court to conclude that the company assets being realised by the BCCI liquidators form part of the £2.94 million. The appellant should not be shut out from advancing arguments to this effect.
20. On this principal issue, I find myself wholly unpersuaded by the appellant's arguments. There are two main reasons for this. First, when Buxton J. found in 1997 that the realisable amount was not less than £2.94 million, he did not find that that consisted in whole or in part of interests which the appellant had in the companies which formed part of the Gulf Group. It is right that he was unable to identify the form in which the appellant held property to that value, but that was because the appellant's evidence did not enable him so to identify. The defence at trial argued that it seemed impossible to say that he had any realisable assets in the companies and nowhere does the judge make any finding to the contrary.
21. Indeed, it is to be inferred that the judge was proceeding on the footing that the defence was right on this aspect. He was well aware that the appellant had interests in those companies and that company assets were already being realised by the date of the confiscation order. Yet there is no suggestion that the appellant's interest in those assets formed part of the £2.94 million. No doubt the reason for that was that company assets had already been pledged to BCCI. As Newman J. said in the court below:

"In order to conclude that the defendant had realisable assets in the companies he would have had to identify unpledged assets, and to have then considered whether the defendant had an interest in them. There was no evidence upon which he could conclude that the defendant had realisable assets in the companies."

22. I have already referred to the rejection by Buxton J. of the appellant's evidence that the money in his personal bank accounts had been returned to his companies or otherwise dissipated. What the judge said was this:

"I just mention one matter that was relied upon by Mr Gokal and adduced by him in evidence: that is to say that during his control and custody of the companies in the Gulf Group he had, he said, from his private funds contributed considerable amounts of money to his companies. That is in fact irrelevant to the matter before me, unless there could be established, which there has not been, that specific sums of money identified in the previous proceedings as passing in to Mr Gokal's personal control have, in fact, been returned to his companies or otherwise dissipated. "

23. The reference to the previous proceedings is a reference to the hearing in relation to the amount of benefit obtained by Mr Gokal. It follows that, although the judge was unable to identify (subject to the question of gifts) exactly where the £2.94 million was, he did make a finding as to where it was not, namely the companies. That specific finding is in no way undermined by his general comments later about the finances of Mr Gokal and the affairs of his companies being inextricably bound up together. So when the judge found that the appellant had taken steps to protect his funds, that is not to be seen as indicating that the £2.94 million was to be found in the assets of the Group companies, but rather the reverse. Anything realised from those company assets must be extraneous to the £2.94 million and will undoubtedly be swallowed up in meeting the civil liability of some 830 million dollars to the BCCI liquidators for which judgment has been obtained.
24. Consequently there does remain the question: what has happened since the making of the confiscation order to the £2.94 million of realisable property found by the judge to be held by the appellant? Evidence as to that is crucial to the grant of a Certificate of Inadequacy. As has been said many times in the authorities, it is not enough for a defendant to come to court and say that his assets are inadequate to meet the confiscation order, unless at the same time he condescends to demonstrate what has happened since the making of the order to the realisable property found by the trial judge to have existed when the order was made; see R -v- C, unreported, 18 November 1997 and R -v- W, unreported, 29 January 1998. Any other approach would amount to an attempt to go behind the finding embodied in the confiscation order, and such an attempt would be an abuse of process. In the present case the appellant does not seek to demonstrate where the realisable property of over £2 million was in May 1997 nor to show how it has decreased in value or otherwise diminished since then.
25. Secondly, the appellant faces another insuperable problem, arising from the way in which he successfully sought to persuade the trial judge to approach the issue of the benefit obtained from the fraudulent conspiracies. In this connection it needs to be borne in mind that section 71(5) provides that deriving a pecuniary advantage as a result of or in connection with the commission of an offence is to be treated as the obtaining of an equivalent sum of money. At trial the prosecution had argued that, because the appellant had a controlling interest in the Gulf Group, the corporate veil should be lifted and the £548 million obtained by the Gulf Group of companies from BCCI should be treated as property obtained by the appellant. The defence successfully resisted that. The judge was not prepared to regard assets obtained by those companies as ones obtained by the appellant. For the purpose of ascertaining the benefit obtained by the appellant, the trial judge only took account of funds received into the appellant's personal bank accounts, plus certain gifts by him.
26. In the circumstances of this case, that has repercussions when it comes to realisable property. I entirely accept Mr Mitchell's proposition that the benefit stage of the exercise and the realisable property stage are separate and that there are different tests applicable at each stage. That is obvious, if only because a defendant may have benefited from an offence by obtaining property which he no longer holds, and which falls outside the meaning of "realisable property". Conversely, he may hold property obtained by him in a way completely unconnected with the offence.
27. However, it does not follow from that that the approach adopted at the "benefit" stage will always be irrelevant to the "realisable property" stage. If at the benefit stage the court excludes certain assets from the calculation of benefit, that may or may not have implications for the realisable assets stage. It depends on why the court excluded them from the calculation of benefit. If they were excluded because, though they were property obtained by the defendant, they were not obtained "as a result of or in connection with" the commission of the offence(s), then they may nonetheless come within the definition of realisable property held by him. But if they were excluded from the calculation of benefit because the defendant contends that they were not obtained by him but by some other person, and he succeeds in that contention, he cannot subsequently assert that they were in truth his property. The court will treat that attempt to blow hot and cold as an abuse of process.
28. That in my judgment is what the appellant is seeking to do in the present case. Having persuaded Buxton J. not to lift the corporate veil for the purposes of assessing benefit obtained, the appellant now seeks to gain advantage from the sale of the corporate assets. As it was vividly put by Sedley L.J. in the original refusal of permission to appeal:

"The applicant, having secured the penny in the form of disregard by the trial judge of the company assets, now wants the bun in the form of credit for what they may realise."

29. That remains so, even if one bears in mind that a person holds property if he holds any interest in it: section 102(7) of the Act. The trial judge was not prepared to regard the appellant's interest in the assets obtained by the Gulf Group of companies as a result of the offences as a benefit obtained by him, and it is not now open to the appellant to contend that his interest in those assets should be capable of being seen as part of his realisable property. That argument must fail in limine. That deals with the principal issue raised in this appeal.
30. I turn to the argument raised on behalf of the appellant about gifts. Buxton J. had, when dealing with the amount which might be realised, concluded that Mr Gokal had made gifts to relatives of his amounting to almost £636,000. He heard evidence from Mr Gokal on this topic, but he concluded that the terms of section 74(10) of the Act were met. That included a finding by him that it was "appropriate" in all the circumstances to take these gifts into account.
31. On behalf of the appellant it is contended that he should be allowed on the application for a Certificate to call evidence from the recipients of the gifts to explain why they did not give evidence at the confiscation order hearing and to show that the money received from the appellant has been dissipated, so that they now have no money. They would therefore be unable to discharge the amount which they received from the appellant. This is new evidence which ought to be taken into account to show that the realisable property is inadequate to meet the confiscation order.
32. On behalf of the Serious Fraud Office, Mr Hacking QC, argues first that the £2.94 million which the judge found might be realised did not include the £636,000 worth of gifts. It is said that this was a matter dealt with separately by the judge and that his conclusion as to the £2.94 million was arrived at principally on the basis that Mr Gokal had failed to show that he did not have realisable property equivalent to the total benefit which he had obtained. Consequently, his liability under the order is not altered by what happened to the gifts after reaching the hands of the recipients. Secondly and as an alternative to that, it is submitted by Mr Hacking that it is not open to someone in Mr Gokal's position to come back at this stage and rely upon evidence which could have been produced at the confiscation order hearing to the effect that the gifts had already been dissipated by then.
33. For my part, I accept that, if the £636,000 of gifts had formed no part of the £2.94 million which the judge concluded might be realised, then this part of the appeal must fail. But I am not persuaded that this was the way in which Buxton J. dealt with this matter. It is not easy to be confident about how his ruling is to be interpreted on this particular aspect, but he does go through a lengthy exercise examining the evidence about the alleged gifts before concluding that they were in fact gifts and that "it is entirely appropriate they should be taken into account under the Act."
34. He went on to say:

"The total under this head which forms part of the amount that might be realised under section 74(3)(b) is, as the prosecution have calculated, £635,860."

35. That indicates that this did indeed form part of the £2.94 million which he subsequently found was the amount which might be realised. That interpretation is confirmed by his conclusion at the compensation order hearing that Mr Gokal did not have means over and above £2.94 million. I therefore reject the first of the Serious Fraud Office's submissions on this part of the case.
36. That leaves the issue of whether it is open to a defendant to call evidence about the dissipation by the recipients of gifts received directly or indirectly from the defendant. It is relevant to distinguish between the dissipation of such gifts before the confiscation order is made and dissipation thereafter. In both cases the court when dealing with an application for a Certificate has the power to disregard an inadequacy if the terms of section 83(2)(b), set out earlier in this judgment, are met. But an applicant for a Certificate faces a further problem if he seeks to rely on dissipation by donees before the confiscation order was made.
37. If such dissipation has already taken place by that date, the gift will normally no longer be "property held by a person" to whom the defendant has made a gift, and by the terms of section 74(1) it will no longer be "realisable property". That means that it can only be included by the court within "the amount that might be realised" if it is caught by Part VI of the Act, as defined by section 74(10). The court dealing with the confiscation order has a discretion under section 74(10). Such a gift is only caught by Part VI if the court "considers it appropriate in all the circumstances to take the gift into account." The fact that a gift has been dissipated will not automatically prevent it being "appropriate" to take it into account: see the reasoning in R -v- Liverpool Magistrates Court, ex parte Ansen [1998] 1 AER 692 at 701. But it will be a highly relevant consideration, as can be seen from the fact that once a gift is no longer held by the donee, proceedings to recover it under section 82 and the associated powers can no longer be taken. If past dissipation is to be raised, it should be raised and dealt with by evidence at this stage of the confiscation order in relation to the issue of appropriateness. To produce such evidence, which could have been produced at the hearing into the making of the confiscation order, on an application under section 83 for a Certificate amounts to saying that it was not "appropriate" to include such a gift in the amount to be realised. Such an attack on the judge's ruling can only be done by way of appeal.
38. It is nowhere suggested in the witness statement of Mr Cowell lodged in support of the section 83 application that the evidence of the recipients of these gifts could not have been produced at the Crown Court hearing or at least at the subsequent appeal. These recipients were relatives of the defendant and one of them at least was in court at the confiscation order hearing. Evidence as to the past dissipation of gifts, if it is to be relied on at all, must be produced at that stage of the process. Section 83 is not to be used as if it were a further appeal stage or for a second bite at the cherry. In my judgment, it is an abuse of process to seek to challenge the inclusion of these gifts in the order on such a basis, and yet that is what this argument amounts to.
39. It may well be that the appellant is alive to this difficulty, since it is contended on his behalf that the evidence to be given would be of the dissipation of the gifts by the recipients since the confiscation order was made in May 1997. However, the evidence in support of the section 83 application provides no basis for such a submission. Mr Cowell's witness statement sets out brief details of each of the five recipients and of the evidence to be called. All received their gifts from the appellant between July 1990 and the end of 1992, over four years before the confiscation order was made. In the case of Mohammed Kassim Gokal, it is said expressly that the money was spent in the six months following its receipt. In the case of Sukaiyna Gokal, the money is said to have been dissipated in the form of two payments in July 1991. The money received by Ruhail Mohammed, a nephew of the appellant's wife, is described as having been used to meet administrative expenses of the appellant's Dutch companies, as he had said in a statement dated 2 May 1997. No date is given as to when the gifts to the remaining two relatives were dissipated, but nowhere is it asserted that these were dissipations after the making of the confiscation order. There simply is no adequate evidential basis for treating these dissipations as post-order ones. Such evidence as there is points in the opposite direction.
40. I am not to be taken as saying that evidence of the dissipation by donees of the gifts after the order would, if produced, necessarily support a section 83 application for a Certificate. Such evidence would give rise to different issues, which it is unnecessary to decide on this appeal. It is sufficient to conclude that nothing justifies treating the section 83 application in this case as being based on evidence of post-order dissipations, and that to produce evidence of pre-order dissipation amounts to an abuse of process as the court below found.
41. Mr Mitchell raised one final contention as to treating the donees as third parties with third party rights. He acknowledged that that was not a point which could stand alone and in my judgment he was right not to attach weight to it. There has been no application by the donees or any of them to assert third party rights, as there was in: in re Norris [2000] 1 WLR 1094. This case concerns simply an application by a defendant for a Certificate of Inadequacy.
42. None of the arguments advanced on behalf of the appellant can be sustained. The judge below was right to treat the section 83 application as an abuse of process and to strike it out. I would dismiss this appeal.

Lord Justice Robert Walker:

43. I agree that this appeal should be dismissed for the reasons given in the judgment of Keene LJ, which I have had the advantage of reading in draft. I add a few comments of my own on one aspect, that is the suggestion (canvassed below and in this court) that Mr Gokal had an interest in corporate assets of the Gulf Group and should obtain credit for realisations made by the liquidators of BCCI.
44. It is necessary to pause and ask what is meant by asserting that an individual is interested in corporate assets. An individual who is managing director and principal shareholder of a company has two obvious interests in the company: as a potential unsecured creditor for unpaid salary, commission or expenses, and as a shareholder. He may also be a secured or unsecured creditor for money advanced by him to the company. Sometimes he may own assets (such as business premises, or farmland, or patents or other intellectual property rights) which he permits the company to use, either gratuitously or for consideration, for the purposes of its business. In such a situation the individual's affairs may be closely entwined with the company's affairs. But if the company's affairs are run honestly and competently, there will be no room for doubt as to what the company owns, and what proprietary or personal claims the individual has against the company.
45. However there are cases in which a single individual runs a company or a group of companies as if its assets were his own, without regard to any of the statutory requirements and restrictions which are the price of incorporation with limited liability. There is a range of cases from simple ignorance and incompetence on the part of individuals (who are not dishonest but should never have been made company directors) at one end, to large-scale fraud and dishonesty at the other end, and the range of disqualification orders made under the Company Directors Disqualification Act 1986 reflects this.
46. The affairs of BCCI and the Gokal Group were at the extreme and most serious end of the range. Where the affairs of a group of companies have been run dishonestly for a long period any normal analysis of ownership and of proprietary and personal claims becomes very difficult, if not impossible. The ensuing liquidations have been correspondingly difficult and expensive. Buxton J in effect gave Mr Gokal the benefit of the doubt in assuming that no assets in the apparent ownership of the Gulf Group were in any way reflected in Mr Gokal's personal assets, either as a secured or unsecured creditor or as a shareholder. Mr Gokal himself gave evidence that he had no assets. There is no basis on which he can now claim, without any detailed explanation, that realisations by the liquidators of BCCI should be treated as proportionately discharging the confiscation order.

LORD JUSTICE SIMON BROWN:

47. I agree with both Judgments.
ORDER: Appeal dismissed with costs. Permission to appeal to the House of Lords refused. (Order does not form part of approved Judgment)