COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
Strand, London, WC2A 2LL
B e f o r e :
Vice-President of the Court of Appeal (Civil Division)
LORD JUSTICE MANCE
LORD JUSTICE DYSON
| Jennifer Mary Bowman
|- and -
|William John Fels
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
James Copley (instructed by Male & Wagland) for the Respondent
Anthony Boswood QC, Roger Masefield and Jonathan Ashley Norman (instructed by the Bar Council pro bono unit) for the Bar Council intervening
Nicholas Elliott QC and Danny Friedman (instructed by the Law Society) for the Law Society intervening
David Pannick QC and Marcus Thompson (instructed by NCIS) for the National Criminal Intelligence Service intervening
Crown Copyright ©
|Part 1||The litigation in the county court||2|
|Part 2||The jurisdiction of this court to hear the appeal||6|
|Part 3||The issue at the centre of the appeal||19|
|Part 4||The 1991 Directive||26|
|Part 5||How the 1991 Directive was translated into English law||31|
|Part 6||The 2001 Directive||41|
|Part 7||Part 7 of the 2002 Act||44|
|Part 8||The respects in which the 2002 Act goes further than the directives||47|
|Part 9||The central issue on this appeal||52|
|Part 10||The central issue: linguistic considerations||64|
|Part 11||The central issue: policy considerations||70|
|Part 12||Our conclusion on the central issue||83|
|Part 13||The narrower issue||85|
|Part 14||Other arguments||92|
|Part 15||Consensual resolution in a litigious context||99|
|Part 16||"POCA" clauses||103|
|Part 17||Our conclusion on the facts of the present case||106|
Lord Justice Brooke : This is the judgment of the court, to which each of its members has made a substantial contribution.
Part 1 The litigation in the county court
Part 2 The jurisdiction of this court to hear the appeal
"(4) An authorised disclosure is not to be taken to breach any restriction on the disclosure however imposed."
"My Lords, I accept, as both counsel agree, that in a cause where there is an issue involving a public authority as to a question of public law, your Lordships have a discretion to hear the appeal, even if by the time the appeal reaches the House there is no longer a lis to be decided which will directly affect the rights and obligations of the parties inter se. The decisions in the Sun Life case and Ainsbury v Millington (and the reference to the latter in rule 42 of the Practice Directions applicable to Civil Appeals (January 1996) of your Lordships' House) must be read accordingly as limited to disputes concerning private law rights between the parties to the case."
Part 3 The issue at the centre of the appeal
(a) as entirely general;
(b) as apt to preclude that legal representative from taking any further step in the conduct of legal proceedings, prior to making appropriate disclosure of the relevant information to NCIS, if he knows or suspects that the outcome of the proceedings (whether by judgment or settlement) might facilitate the acquisition, retention, use or control by either party (or any third party) of criminal property;
(c) as applicable in this way although such information may have been obtained in circumstances of legal professional privilege or from documentation disclosed by another party, use of which would normally be restricted to the particular proceedings.
(d) s 328 applies only to an act of participation which is (i) active and/or (ii) performed with the purpose of facilitating the acquisition, retention, use or control of criminal property.
Further, both Mr Boswood and Mr Elliott submit that:
(e) s 328 cannot apply to acts prior to the actual making of an arrangement – this is a submission supported by Mr Copley for the respondent and adopted in Judge Cowell's judgment; and that
(f) s 328 cannot on any view override fundamental principles providing for legal professional privilege and (at common law) restricting the use of information obtained from documentation disclosed by another party to legal proceedings.
Part 4 The 1991 Directive
"Member states shall ensure that money laundering as defined in this Directive is prohibited."
"Member States shall ensure that credit and financial institutions and their directors and employees co-operate fully with the authorities responsible for money laundering:
- by informing those authorities, on their own initiative, of any fact which might be an indication of money laundering,
- by furnishing those authorities, at their request, with all necessary information, in accordance with the procedures established by the applicable legislation."
Article 7 contained further provisions designed to strengthen the new regime.
"The disclosure in good faith to the authorities responsible for combating money laundering by an employee or director of a credit or financial institution of the information referred to in Articles 6 and 7 shall not constitute a breach of any restriction or disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, and shall not involve the credit or financial institution, its directors or employees in liabilities of any kind."
Part 5 How the 1991 Directive was translated into English law
"(1) Subject to subsection (3) below, if a person enters into or is otherwise concerned in an arrangement whereby –
(a) the retention or control by or on behalf of another ('A') of A's proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or
(b) A's proceeds of criminal conduct -
(i) are used to secure that funds are placed at A's disposal; or
(ii) are used for A's benefit to acquire property by way of investment, knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct,
he is guilty of an offence."
"(3) Where a person discloses to a constable a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct or discloses to a constable any matter on which such a suspicion or belief is based –
(a) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise; and
(b) if he does any act in contravention of sub-section (1) above and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if
(i) the disclosure is made before he does the act concerned and the act is done with the consent of the constable; or
(ii) the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it."
"(4) In proceedings against a person for an offence under this section, it is a defence to prove –
(a) that he did not know or suspect that the arrangement related to any person's proceeds of criminal conduct; or
(b) that he did not know or suspect that by the arrangement the retention or control by or on behalf of A of any property was facilitated or, as the case may be, that by the arrangement any property was used, as mentioned in sub-section (1) above; or
(c) that -
(i) he intended to disclose to a constable such a suspicion, belief or matter as is mentioned in subsection (3) above in relation to the arrangement; but
(ii) there is reasonable excuse for his failure to make disclosure in accordance with sub-section (3)(b) above."
"(1) A person is guilty of an offence if –
(a) he knows or suspects that a constable is acting, or is proposing to act, in connection with an investigation which is being, or is about to be, conducted into money laundering; and
(b) he discloses to any other person information or any other matter which is likely to prejudice that investigation, or proposed investigation."
"(4) Nothing in sub-sections (1) to (3) above makes it an offence for a professional legal adviser to disclose any information or other matter –
(a) to, or to a representative of, a client of his in connection with the giving by the adviser of legal advice to the client; or
(b) to any person -
(i) in contemplation of, or in connection with, legal proceedings; and
(ii) for the purpose of those proceedings.
(5) Sub-section (4) above does not apply in relation to any information or other matter which is disclosed with a view to furthering any criminal purpose."
"(2) Sub-section (1) above does not make it an offence for a professional legal adviser to fail to disclose any information or other matter which has come to him in privileged circumstances."
Part 6 The 2001 Directive
(16) Notaries and independent legal professionals, as defined by the Member States, should be made subject to the provisions of the Directive when participating in financial or corporate transactions, including providing tax advice, where there is the greatest risk of the services of those legal professionals being misused for the purpose of laundering the proceeds of criminal activity.
(17) However, where independent members of professions providing legal advice which are legally recognised and controlled, such as lawyers, are ascertaining the legal position of a client or representing a client in legal proceedings, it would not be appropriate under the Directive to put these legal professionals in respect of these activities under an obligation to report suspicions of money laundering. There must be exemptions from any obligation to report information obtained either before, during or after judicial proceedings, or in the course of ascertaining the legal position for a client. Thus, legal advice remains subject to the obligation of professional secrecy unless the legal counsellor is taking part in money laundering activities, the legal advice is provided for money laundering purposes, or the lawyer knows that the client is seeking legal advice for money laundering purposes.
(18) Directly comparable services need to be treated in the same manner when practised by any of the professionals covered by the Directive. In order to preserve the rights laid down in the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and the Treaty of the European Union, in the case of auditors, external accountants and tax advisors who, in some Member States, may defend or represent a client's legal position, the information they obtain in the performance of these tasks should not be subject to the reporting obligation in accordance with the Directive."
(C) "Money laundering" means the following conduct when committed intentionally:
- the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such activity to evade the legal consequences of his action;
- the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from criminal activity or from an act of participation in such activity;
- the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such activity;
- participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned in the foregoing indents.
Knowing, intent or purpose required as an element of the abovementioned activities may be inferred from objective factual circumstances.
Member States shall ensure that the obligations laid down in this directive are imposed on the following institutions:
(3) auditors, external accountants and tax advisors;
(5) notaries and other independent legal professionals, when they participate, whether:
(a) by assisting in the planning or execution of transactions for their client concerning the
(i) buying and selling of real property or business entities;
(ii) managing of client money, securities or other assets;
(ii) opening or managing of bank, savings or securities accounts;
(iv) organisation of contributions necessary for the creation, operation or management of companies;
(v) creation, operation of management of trusts, companies or similar structures;
(b) or by acting on behalf of and for their client in any financial or real estate transaction;
1. Member States shall ensure that the institutions and persons subject to this Directive and their directors and employees cooperate fully with the authorities responsible for combating money laundering:
by informing those authorities, on their own initiative, of any fact which might be an indication of money laundering;
by furnishing those authorities, at their request, with all necessary information, in accordance with the procedures established by the applicable legislation.
3 [first paragraph] ……
[second paragraph] Member States shall not be obliged to apply the obligations laid down in paragraph 1 to notaries, independent legal professionals, auditors, external accountants and tax advisors with regard to information they receive from or obtain on one of their clients, in the course of ascertaining the legal position for their client or performing their task of defending or representing that client in, or concerning judicial proceedings, including advice on instituting or avoiding proceedings, whether such information is received or obtained before, during or after such proceedings.
Member States shall ensure that the institutions and persons subject to this Directive refrain from carrying out transactions which they know or suspect to be related to money laundering until they have apprised the authorities referred to in Article 6. Those authorities may, under conditions determined by their national legislation, give instructions not to execute the operation. Where such a transaction is suspected of giving rise to money laundering and where to refrain in such manner is impossible or is likely to frustrate efforts to pursue the beneficiaries of a suspected money laundering operation, the institutions and persons concerned shall apprise the authorities immediately afterwards.
The disclosure in good faith to the authorities responsible for combating money laundering by an institution or person subject to this Directive or by an employee or director of such an institution or person of the information referred to in Articles 6 and 7 shall not constitute a breach of any restriction on disclosure off information imposed by contract or by any legislative, regulatory or administrative provision, and shall not involve the institution or person or its directors or employees in liability of any kind."
Part 7 Part 7 of the 2002 Act
"327 Concealing etc
(1) A person commits an offence if he-
(a) conceals criminal property;
(b) disguises criminal property;
(c) converts criminal property;
(d) transfers criminal property;
(e) removes criminal property from England and Wales or from Scotland or from Northern Ireland.
(2) But a person does not commit such an offence if-
(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;
(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;
(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
(2) But a person does not commit such an offence if-
(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;
(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;
330 Failure to disclose: regulated sector
(1) A person commits an offence if each of the following three conditions is satisfied.
(2) The first condition is that he-
(a) knows or suspects, or
(b) has reasonable grounds for knowing or suspecting,
that another person is engaged in money laundering.
(3) The second condition is that the information or other matter-
(a) on which his knowledge or suspicion is based, or
(b) which gives reasonable grounds for such knowledge or suspicion,
came to him in the course of a business in the regulated sector.
(4) The third condition is that he does not make the required disclosure as soon as is practicable after the information or other matter comes to him.
(6) But a person does not commit an offence under this section if-
(a) he has a reasonable excuse for not disclosing the information or other matter;
(b) he is a professional legal adviser and the information or other matter came to him in privileged circumstances; …..
(10) Information or other matter comes to a professional legal adviser in privileged circumstances if it is communicated or given to him-
(a) by (or by a representative of) a client of his in connection with the giving by the adviser of legal advice to the client;
(b) by (or by a representative of) a person seeking legal advice from the adviser, or
(c) by a person in connection with legal proceedings or contemplated legal proceedings.
(11) But subsection (10) does not apply to information or other matter which is communicated or given with the intention of furthering a criminal purpose
333 Tipping off
(1) A person commits an offence if-
(a) he knows or suspects that a disclosure falling within section 337 or 338 has been made, and
(b) he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure referred to in paragraph (a).
(2) But a person does not commit an offence under subsection (1) if- ..…
(c) he is a professional legal adviser and the disclosure falls within subsection (3)
(3) A disclosure falls within this subsection if it is a disclosure-
(a) to (or to a representative of) a client of the professional legal adviser in connection with the giving by the adviser or legal advice to the client, or
(b) to any person in connection with legal proceedings or contemplated legal proceedings.
(4) But a disclosure does not fall within subsection (3) if it is made with the intention of furthering a criminal purpose.
338 Authorised disclosures
(1) For the purposes of this Part a disclosure is authorised if-
(a) it is a disclosure to a constable, a customs officer or a nominated officer by the alleged offender that property is criminal property….. and
(c) the first or second conditions set out below is satisfied.
(2) The first condition is that the disclosure is made before the alleged offender does the prohibited act.
(3) The second condition is that-
(a) the disclosure is made after the alleged offender does the prohibited act,
(b) there is a good reason for his failure to make the disclosure before he did the act, and
(c) the disclosure is made on his own initiative and as soon as it is practicable for him to make it.
(4) An authorised disclosure is not to be taken to breach any restriction on the disclosure of information (however imposed).
(6) References to the prohibited act are to an act mentioned in section 327(1), 328(1) or 329(1) (as the case may be).
(3) Property is criminal property if-
(a) it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and
(b) the alleged offender knows or suspects that it constitutes or represents such a benefit.
(4) It is immaterial-
(a) who carried out the conduct;
(b) who benefited from it;
(c) whether the conduct occurred before or after the passing of this Act.
(5) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(6) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.
(7) References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained in both that connection and some other.
(8) If a person benefits from conduct his benefit is the property obtained as a result of or in connection with the conduct.
(11) Money laundering is an act which-
(a) constitutes an offence under section 327, 328 or 329,
(b) constitutes an attempt, conspiracy or incitement to commit an offence specified in paragraph (a),
(c) constitutes aiding, abetting, counselling or procuring the commission of an offence specified in paragraph (a), or
(d) would constitute an offence specified in paragraph (a), (b) or (c) if done in the United Kingdom."
Part 8 The respects in which the 2002 Act goes further than the directives
Part 9 The central issue on this appeal
"(l) the provision by way of business of legal services by a body corporate or unincorporate or, in the case of a sole practitioner, by an individual and which involves participation in a financial or real property transaction (whether by assisting in the planning or execution or any such transaction or otherwise by acting for, or on behalf of, a client in any such transaction."
Part 10 The central issue: linguistic considerations
Part 11 The central issue: policy considerations
"35. …. The principle whereby a civil claim must be capable of being submitted to a judge ranks as one of the universally 'recognised' fundamental principles of law; the same is true of the principle of international law which forbids the denial of justice. Article 6(1) must be read in the light of these principles. …
36. ….. it follows that the right of access constitutes an element which is inherent in the right stated by Article 6 …."
"The requirement of judicial control … reflects a general principle of law which underlies the constitutional traditions common to the member states. The principle is also laid down in articles 6 and 13 of the [ECHR]. …. As the European Parliament, Council and Commission recognised in their joint declaration of 5 April 1977 (OJ 1977 No c 103, p 1) and as the court has recognised in its decisions, the principles on which that Convention is based must be taken into consideration in Community law."
"… the lawyer-client relationship is, in principle, privileged and correspondence in that context, whatever its purpose, concerns matters of a private and confidential nature."
"The Court can see no justification for this procedure and considers that the action taken was not in keeping with the principles of confidentiality and professional privilege attaching to relations between a lawyer and his client. It notes in this connection that the Government have not sought to argue that the privileged channel of communication was being abused; nor have they invoked any other exceptional circumstances which would serve to justify the interference with reference to their margin of appreciation."
"Community law, which derives from not only the economic but also the legal interpretation of the member states, must take into account the principles and concepts common to the laws of those states concerning the observance of confidentiality, in particular, as regards certain communications between lawyer and client. That confidentiality serves the requirement, the importance of which is recognised in all of the member states, that any person must be able, without constraint, to consult a lawyer whose profession entails the giving of independent legal advice to all those in need of it."
"The principle which runs through all these cases, and the many other cases which were cited, is that a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests."
"… [T]he dicta to which I have referred all have in common the idea that it is necessary in our society, a society in which the restraining and controlling framework is built upon a belief in the rule of law, that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyers' legal skills in the management of their (the clients') affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busy-bodies or anyone else (see also paras. 15.8 to 15.10 of Adrian Zuckerman's Civil Procedure where the author refers to the rationale underlying legal advice privilege as "the rule of law rationale"). I, for my part, subscribe to this idea."
"7. Two of the principles relevant to construction are not in dispute. First, legal professional privilege ('LPP') is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice. The cases establishing this principle are collected in the speech of Lord Taylor of Gosforth CJ in R v Derby Magistrates' Court, ex p B  AC 487. It has been held by the European Court of Human Rights to be part of the right of privacy guaranteed by article 8 of the Convention ….and held by the European Court of Justice to be a part of Community law….
8. Secondly, the courts will ordinarily construe general words in a statute, although literally capable of having some startling or unreasonable consequence, such as overriding fundamental human rights, as not having been intended to do so. An intention to override such rights must be expressly stated or appear by necessary implication. The speeches of Lord Steyn and myself in R v Secretary of State for the Home Department, Ex p Simms  2 AC 115 contain some discussion of this principle and its constitutional justification in the context of human rights. But the wider principle itself is hardly new. It can be traced back at least to Stradling v Morgan (1560) 1 Pl 199.
9. Section 20(1) contains no express reference to LPP and the question is therefore whether its exclusion must necessarily be implied."
"Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights. The Human Rights Act 1998 will not detract from this power. The constraints upon its exercise by Parliament are ultimately political, not legal. But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual. In this way the courts of the United Kingdom, though acknowledging the sovereignty of Parliament, apply principles of constitutionality little different from those which exist in countries where the power of the legislature is expressly limited by a constitutional document."
Part 12 Our conclusion on the central issue
Part 13 The narrower issue
"45. It is accepted that the statute does not contain any express words that abrogate the taxpayer's common law right to rely upon legal professional privilege. The question therefore becomes whether there is a necessary implication to that effect. A necessary implication is not the same as a reasonable implication as was pointed out by Lord Hutton in B (A Minor) v Director of Public Prosecutions  2 AC 428, 481. A necessary implication is one which necessarily follows from the express provisions of the statute construed in their context. It distinguishes between what it would have been sensible or reasonable for Parliament to have included or what Parliament would, if it had thought about it, probably have included and what it is clear that the express language of the statute shows that the statute must have included. A necessary implication is a matter of express language and logic not interpretation.
46. In the present case the statutory language falls a long way short of meeting this criterion."
"Fundamental rights cannot be overridden by general…words."
For these reasons, even if s 328 does apply to the ordinary conduct of legal proceedings, it does not override legal professional privilege.
"The concept of an implied undertaking originated in the law of discovery in civil proceedings. A solicitor or litigant who receives documents by way of discovery is treated as if he had given an undertaking not to use them for any purpose other than the conduct of the litigation. As Hobhouse J. pointed out in Prudential Assurance Co Ltd v Fountain Page Ltd  1 WLR 756, 764 the undertaking is in reality an obligation imposed by operation of law by virtue of the circumstances in which the document or information is obtained. The reasons for imposing such an obligation were explained by Lord Keith of Kinkel in Home Office v Harman  1 AC 280, 308:
'Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.'"
"Linguistic arguments of this character should be handled warily. They are a legitimate and useful aid in statutory interpretation, but they are no more than this. Sometimes a difference in language is revealing and therefore important, other times not. In the process of statutory interpretation there always comes a stage, before reaching a final decision, when one should stand back and view a suggested interpretation in the wider context of the scheme and purpose of the Act. After all, the object of the exercise is to elucidate the intention fairly and reasonably attributable to Parliament when using the language under consideration."
Part 14 Other arguments
"apt to cover facilitation ….. without reference to what the reason or purpose for that conversion was. As it seems to us, what the guilders which came into the appellant's hands were to be used for was immaterial. It is to be noted that there is no reference in the section to the purpose for which, as distinct from the means by which, the facilitation took place."
The motivation of a transaction which otherwise falls within s 328 is on this basis not directly relevant. In these circumstances, we are not able to accept Mr Boswood's further submission that we should read into s 328 some requirement of purpose.
Part 15 Consensual resolution in a litigious context
Part 16 "POCA" clauses
Part 17 Our Conclusion on the facts of the present case