COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(Administrative Court and Divisional Court)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE JUDGE
MR JUSTICE WALL
| H M Customs & Excise & Anr||Appellant|
|- and -|
|MCA & Anr||Respondent|
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Christopher Hames (instructed by Messrs Gosling & Wilkinson) for the Respondents
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Schiemann :
The Statutory Framework
“(1) On granting a decree of divorce ... or at any time thereafter (whether ... before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say -
(a) an order that a party to the marriage shall transfer to the other party ... such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion…….
(3) ... where an order is made under this section on or after granting a decree of divorce ... neither the order nor any settlement made in pursuance of the order shall take effect unless the decree has been made absolute.”
“(1) It shall be the duty of the court in deciding whether to exercise its powers under section 23 [or] 24, ... above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.
(2) As regards the exercise of the powers of the court under section 23(1)(a), (b) or (c) [or] 24 ... above in relation to a party to the marriage, the court shall in particular have regard to the following matters -
(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) ... the value to each of the parties to the marriage of any benefit which, by reason of the dissolution .. of the marriage, that party will lose the chance of acquiring.”
Aspects of MCA 1973 of particular relevance to the instant appeal
If after the grant of a decree dissolving or annulling a marriage either party to that marriage remarries …. that party shall not be entitled to apply, by reference to the grant of that decree, for a financial provision or for a property adjustment order, against the other party to that marriage.
(1) the court is not obliged to exercise its powers under section 23 or 24: section 25(1) gives it a discretion to do so;
(2) the fact that one or both of the parties to the marriage had been engaged in or convicted of trafficking in drugs is plainly a material circumstance of the case within section 25(1); and drug trafficking is almost certainly conduct which it would be inequitable to ignore.
(3) the court would plainly be bound to have regard to any drug trafficking confiscation order and the financial obligation which one or both of the parties had under such an order;
(4) the court equally plainly must have regard to the extent to which the assets of the parties were the product of drug trafficking; and the extent to which their standard of living and respective financial contributions to the marriage derived from drug trafficking.
The Drug Trafficking Act 1994 (DTA 1994)
“The Act itself is terminologically complex, but the legislative intention and the broad scheme whereby that intention is to be achieved are reasonably clear. The intention is that no one convicted of drug trafficking offences shall be allowed to retain any part of the proceeds of his crime. The broad scheme involves the making of confiscation orders at the time of sentencing and of prior protective orders. The latter are designed to prevent an accused rendering a confiscation order inappropriate or nugatory by disposing of his assets between the time when an information is about to be laid against him and the making of a confiscation order in the event of conviction.”
“may be made subject to such conditions as the court thinks fit, including, without prejudice to the generality of this paragraph, such conditions as it thinks fit as to the time when the charge is to become effect.”
- under section 29(2) appointing a receiver in respect of realisable property
- under section 29(3)(b) empowering the receiver “in relation to any realisable property ... to take possession of the property subject to such conditions or exceptions as may be specified by the court”
- under section 29(4) ordering “any person having possession of realisable property to give possession of it to” the receiver
- under section 29(5) empowering the receiver “to realise any realisable property in such manner as the court may direct”
- under section 29(6) ordering “any person holding an interest in realisable property to make to the receiver such payment as it may direct in respect of any beneficial interest held by the defendant”, whereupon the court may “by order transfer, grant or extinguish any interest in the property”.
“(2) Subject to the following provisions of this section, the powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant’s case, the value for the time being of realisable property held by any person, by means of the realisation of such property……
(4) The powers shall be exercised with a view to allowing any person other than the defendant ... to retain or recover the value of any property held by him.
(5) In exercising the powers, no account shall be taken of any obligations of the defendant ... which conflict with the obligation to satisfy the confiscation order.”
The “value” of property is defined for this purpose by section 7(1) which provides that:
“the value of property ... in relation to any person holding the property is the market value of the property, except that, where any other person holds an interest in the property, the value is -
(a) the market value of the first-mentioned person’s beneficial interest in the property, less
(b) the amount required to discharge any encumbrance (other than a charging order) on that interest.”
41. The wife’s evidence is that she had no knowledge of the husband’s criminal activities, that she never saw anything to alert her to what he was doing and that it all came as an incredible shock to her when he was arrested. Very fairly and properly Customs & Excise, both before Hooper J on 4 October 2001 (see Re A  EWHC Admin 773 para ) and again before me, accepted that no part of the equity in either the house or the policies was acquired with the proceeds of drug trafficking and that the couple had separated before the husband had started his drug trafficking activities. Indeed, says Mr Bird, the wife went so far as to assist the authorities by giving the prosecution a statement, though in the event she was not called at the trial. As Hooper J said, the wife:
“is not only innocent of any involvement in drug trafficking, but she also lives in a house and enjoys the benefit of policies all untainted by drug trafficking.”
The sums of money involved
i) Section 31(2) of the 1994 Act takes effect subject to section 31(4). Accordingly, in the case of conflict the effect of the 1994 Act is to protect the claims of those whose rights are safeguarded by section 31(4) against the operation of the confiscatory regime. Section 31(2) does not make satisfaction of the confiscation order the overriding objective.
ii) In principle section 31(4) safeguards the right of a third party to continue to enjoy his property in specie.
iii) A third party will bring himself within section 31(4) if he has either an “interest” or a “right” “in” or “in relation to” the relevant property. It is not necessary for a third party to have an “interest” in the relevant property; a “right” will suffice. But whatever the origin of the right it will not fall within the protection of section 31(4) unless it is something that can properly be said to be a right “in” or “in relation to” the property.
iv) The rights of a co-owner of property are in principle safeguarded by section 31(4). Save where the defendant is bankrupt the protection includes that conferred by section 15 of the 1996 Act. The conflicting claims of the co-owner and the prosecutor are to be determined in accordance with section 15, in the light of the principles referred to in Bank of Ireland Home Mortgages Ltd v Bell  2 FLR 809 and having regard to Convention principles.
v) A wife’s claims under section 24 of the 1973 Act can amount to rights in or in relation to property within the meaning of section 31(4) of the 1994 Act. The wife’s claim to relief must be evaluated having regard to the provisions of section 25 of the 1973 Act. Conflicting claims of the wife and the prosecutor are to be considered having regard to the principles contained in the European Convention on Human Rights and Fundamental Freedoms. The court must have regard to the possible penal consequences for the defendant if because of the court’s order he is unable to pay the amount to be confiscated.
vi) The court must exercise its powers, whether under the 1994 Act or the 1996 Act, in a way which is compatible with the Convention and having regard to a number of potentially conflicting rights and interests: the wife’s right to respect for her private life and her home under Article 8 (Article 1 of the Protocol adds nothing to the protections already afforded to her under domestic law); the husband’s right to liberty under Article 5 and his right under Article 1 of the Protocol (recognised by Article 8(2)) to use his assets to discharge his liabilities; and the interests of the prosecutor, representing the public’s interest (also recognised by Article 8(2)) in the prevention of crime, the protection of health and the protection of the rights and freedoms of potential victims of drug traffickers.
vii) The court has to strike a proper balance between the competing interests of the prosecutor, the husband and the wife. The conflict has to be resolved according to the general Convention principles of necessity and proportionality, balancing the competing rights and interests in a manner which is consistent with the true intention of the Convention taken as a whole.
Priority between MCA 1973 and DTA 1994
The construction of section 31(4)
The Status of a Wife’s claims under Section 24 MCA 1973
“It is abundantly plain, in my judgment, that the principle exemplified in Re Peters is established and not new and that it cannot be appropriate for this Division to steal a march on the 1986 Act structure and take assets away that are otherwise available to satisfy the draconian powers granted by Parliament to punish those concerned in drug trafficking.”
Can the order of Johnson J, dismissing the application of 11 April stand? In my opinion it cannot. First the wife was entitled to have the charging order varied to remove from its sphere her separate property. Section 78(3) provides that a charging order may be made subject to such conditions as the court thinks fit. Subsection (4) provides that:
"....a charge may be imposed by a charging order only on-
(a) any interest in realisable property being held beneficially by the defendant...."
Plainly there was scope for the wife to ask for the clear definition of what was the husband's beneficial property and what was her beneficial property. Second, she was entitled to seek a determination of her share of the family assets upon the application of the criteria in s 25 of the Matrimonial Causes Act 1973. As between herself and her husband the extent of that share had been compromised in proceedings to which the Customs and Excise had not been joined as intervenors in order to enable them to protect their legitimate interest; that is, to ensure that the bargain was bona fide and not a device to extract assets out of the confiscatory regime to the advantage of the former wife and children.
Mr Mitchell also relies on the case of Re Peters  QB 871,  3 All ER
That authority directly prioritises the confiscatory regime above the anticipatory discharge of future maintenance liabilities. Here the wife's claim rested on the past and not on the future. She relied on 22 years of very hard work in a quasi partnership endeavour that ended for her three years before the husband commenced his criminal activities.
Third, a sensible and cooperative arrangement had been set up by interlocutory orders both in the Queen's Bench Division and in the Family Division to enable the determination to be made by a Family Division judge. However, there was little profit in the expense of a trial of the extent of her separate property and of her claim to transfer of property orders if there was the prospect of the husband satisfying the confiscation order from other sources. By 15 August 1997 the husband had been convicted and confiscation proceedings were in train. We do not know when negotiations between the husband and the Customs and Excise commenced. We only know that agreement was reached in principle prior to 1 July 1998.
Clearly the sensible course in August 1997 would have been to adjourn both applications generally with liberty to restore once the Customs and Excise knew where they stood.
Harman v Glencross  Fam. 81
The length of Munby J’s judgment
i) The losing party, the Court of Appeal and any future readers of the judgment will not be able to identify the crucial matters which swayed the judge;
ii) The judgement will contain something with which the unsuccessful party can legitimately take issue and attempt to launch an appeal;
iii) Citation of the judgment in future cases will lengthen the hearing of those future cases because time will be taken sorting out the precise status of the judicial observation in question;
iv) Reading the judgment will occupy a considerable amount of the time of legal advisers to other parties in future cases who again will have to sort out the status of the judicial observation in question. All this adds to the cost of obtaining legal advice.
Lord Justice Judge:
“It is plain that the object of the Act is to ensure, so far as is possible, that the convicted drug trafficker is parted from the proceeds of any drug trafficking which he has carried out. The provisions are intentionally Draconian.”
“…the (confiscation) order does not override or confiscate the interests of others in the value of that property…this would be implicit even in the absence of an express provision since the confiscation order only applies to the convicted defendant and, indirectly through such defendant, donees caught by the Act. To apply it so as to confiscate the property of innocent third parties would be not only exorbitant but also outside the purpose of the Act. Any such confiscation would now also raise human rights issues.”
The House of Lords was considering the Drug Trafficking Offences Act 1986: Lord Hobhouse’s observations apply with equal force to the 1994 Act.
Mr Justice Wall
“…… it cannot be appropriate for this Division to steal a march on the 1986 Act structure and take assets away that are otherwise available to satisfy the draconian powers granted by Parliament to punish those concerned in drug trafficking.”
“If that exercise is to be performed objectively and [not] artificially, in having a look at what the resources are one has to look at the negative resources. This husband would come before any court dealing with ancillary relief with a negative resource of his vulnerability to further implementation of the confiscation order. It is wholly artificial first to exercise the jurisdiction to delete a debt and then to consider adjustment of assets. So it is abundantly plain on authority and on principle that the Drug Trafficking Offences Act exercise must logically, as a matter of law, come first.
One has a degree of sympathy with the wife. ... What in truth she has lost is the loss of an illusory claim against the greatly expanded assets of the husband that were the proceeds of crime. If he had remained nothing more than a panel beater and paint sprayer, I apprehend that there would not have been more to look at than the matrimonial home and perhaps some small savings; and in any such claim, absent criminal proceedings, the husband would have made a plausible claim to have recovered either half or some substantial share of the matrimonial home to re-house himself. Thus it is not immediately and ineluctably true that the wife has lost the prospect of some larger compensation. It is the shadow of such larger compensation represented by sums derived, it would appear, entirely from criminal offences and either confiscated or spent.”
Accordingly the Deputy Judge dismissed the wife’s application to adjourn the DTOA 1986 proceedings and directed a sale of the property.