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 HIGH COURT OF JUSTICE ADMINISTRATIVE COURT
QUEEN'S BENCH DIVISION
MR JUSTICE HODGE

		Royal Courts of Justice Strand London, WC2
		18th May 2006

1. LORD JUSTICE HUGHES: The Director of the Assets Recovery Agency ("DARA") sought a recovery order under section 243 of the Proceeds of Crime Act 2002. She alleged that a house which the respondent, Mr Woodstock, had owned, and thus its proceeds of sale, were the product of unlawful (that is to say criminal) conduct. She then applied for summary judgment on her claim. Hodge J granted that application on 15 September 2005. Mr Woodstock appeals. Recoverable property includes property which was obtained through unlawful conduct. That is the effect of sections 241 and 304 of the Act. Mr Woodstock had bought a house in Wolverhampton in March 2001 for £89,950. Of that, he had borrowed £45,000 by way of mortgage from an established lender. The Director alleged that the balance must have been the proceeds of unlawful conduct. She also contended that the servicing of the mortgage must have been accomplished with money obtained through unlawful conduct. Her specific assertion was that the unlawful conduct was that Mr Woodstock had been living off immoral earnings.
2. The house had been sold in July 2004 for £160,000. Of the net proceeds of sale, after repayment of the mortgage, there remained at the time of the claim form £35,600 odd in Mr Woodstock's bank account. The Director claimed that money, together with an order that the total net proceeds of sale had been recoverable property. That would have enabled her to follow any other part of the proceeds which can be shown to be traceable within the Act. The claim was properly brought in February 2005 by a Part 8 claim form supported by a witness statement. That is the form in which such claims are required to be brought by the Practice Direction of February 2003, which is set out in the White Book at B.11-001A, and particularly by paragraph 4.1 of the Direction. A freezing order had been made immediately after issue.
3. Mr Woodstock's Notice of Appeal contended that it was not, and is not, open to the Director to seek summary judgment in a recovery order case. He contended that rule 24.2 of the Civil Procedure Rules either does not apply or should never be applied. That is a contention which seems to have occupied most of the time before the judge below. Mr Woodstock has been refused permission to appeal on that point. I should, I think, say that I can see no reason at all why rule 24.2 should not apply to this kind of claim as much as to any other, and every reason why it should apply. The rule is amply wide enough to apply. There is no warrant for any suggestion that it does not. If it can be shown that the respondent to a claim such as this has no real prospect of defending it, there is every reason why the recovery order should be made sooner rather than later.
4. That said, the question for us is whether in this case, Mr Woodstock was shown to have no real prospect of defending this claim. As at the time of the hearing before the judge, the state of the evidence was as follows:

(1) Mr Woodstock had lived in rented accommodation before this house was bought; there was no record of his having sold another property to fund its purchase.

(2) Inland Revenue records showed that between some time in 1996 and February 2001, there was no record of his having any income except jobseekers benefit. Between 1 February 2001 and 20 September 2002, there were records of income from paid employment, totalling just over £20,500 for the 19 or 20 month period.

(3) When interviewed by the police under caution in December 2003 after an arrest for an alleged assault on a woman called Karen Langston, Mr Woodstock had told the police that he had worked as a self-employed bodyguard for about the past five or six years. He said that he was paid in cash, and he accepted that he had not paid tax. He declined at that stage to identify any of the clients who had paid him for such work, and beyond saying that he earned "good money" he declined to say what his earnings were.

(4) Mr Woodstock's bank statements showed that between 30 January 1999 and 20 December 2004, that is to say near enough five years, a total of £34,440 in cash had been paid in. Some of those payments in had been made in the West Midlands on days when cash point withdrawals had been made, on the face of it by Mr Woodstock, in London. That suggested that someone else was paying in cash for him. Such cash receipts continued during the time when the mortgage was being serviced from March 2001 until sale in July 2004.

(5) Some 15 paying in slips relating to cash payments in were found in 2003 at the home of Karen Langston. They were dated variously between August 2002 and March 2003. Some were for amounts as small as £20, others were for some hundreds. They totalled a little over £2,000.

(6) Karen Langston was a much-convicted prostitute.

(7) Karen Langston had made a long witness statement in 2003 in which she had alleged that Mr Woodstock had been her pimp since the day she began work as a prostitute long ago. She also alleged that he used violence on her. She had subsequently retracted those allegations in a number of witness statements. She said that she had lied because of a grudge against Mr Woodstock. She asserted that she had not been in any manner intimidated into changing her story. She added that she had indeed paid money into Mr Woodstock's bank account, but that had been money from non-criminal sources, because it had been due to him for bodyguard or similar work and had been brought to her at times when he was absent in London.

(8) Although Mr Woodstock was prosecuted of offences of assault and living off immoral earnings, in each case in relation to Karen Langston, the Crown Prosecution Service in due course accepted that the charges could not be proved to the criminal standard and the prosecution was discontinued.

(9) Mr Woodstock has criminal convictions for offences which include theft, robbery, perverting the course of justice, assault and the possession of class A drugs, but not for living off immoral earnings. In June 2005, he was convicted of two offences of intimidating a witness. That was not Karen Langston.

(10) Apart from such inferences as could properly be drawn from these facts, there was no evidence of his living on immoral earnings.

(11) Mr Woodstock made a statement in response to the Director's claim. In it, he asserted that he had borrowed the lump sum deposit which he had paid for the purchase of the house from a number of friends. He said that they were Mr Balbir Basra who had lent £10,000; Mr J Matto who had lent £15,000; Mr B Singh who had lent £5,000; Mr H Singh, also £5,000; and a man whom he knew by the nickname, "Gitty", who had lent £10,000. Those sums totalled £45,000, that is to say effectively all the lump sum deposit. He went on to say in his statement that each of those people had paid by way of cheque, which had been provided to the conveyancing solicitors acting in the purchase. At a later stage, evidence lodged by the solicitor for Mr Woodstock demonstrated that there had been no written agreements for such loans and none of them had been repaid.

(12) Mr Woodstock had said in his police interview in 2003, before there was any question of the Director being involved, that he had borrowed the deposit on the house from friends and clients. He had at that stage declined to say who they were. As previously mentioned, the interview was in connection with a charge of assault, although he was aware that the enquiry extended also to living off immoral earnings. He was, of course, at the time under caution. It follows that he had said immediately on questioning about the house, and without notice of any claim being made by anybody upon it, that he had borrowed the money from friends or clients.

(13) The statement in response to the Director's claim followed directions which had been given by Collins J in April 2005. Mr Woodstock had been directed to file a witness statement exhibiting all relevant documents stating, inter alia, the nature of any interest claimed in the house:

"… including from whom it was acquired and when, with full particulars of the circumstances in which he claimed to have acquired such an interest".

The Director had contended in correspondence that the witness statement which Mr Woodstock lodged did not sufficiently comply with those directions. She asked for the full names, address and contact details of the alleged lenders, the terms of the loans, whether any repayments had been made, and what if anything was said still to be outstanding.

(14) Those questions were not answered by Mr Woodstock himself, who was by then in custody for the offences of witness intimidation.

(15) However, a solicitor instructed by him made a statement in September 2005, a few days before the hearing. He exhibited witness statements, apparently from three of the previously named lenders. The statements were in pro forma format. Each, however, said that he had advanced money to Mr Woodstock to buy the house. Each said he had paid by cheque sent to the conveyancing solicitors. Each gave details of the bank or building society, and in some cases the account number, on which the cheques had been drawn. One of them exhibited the cheque stub and an extract from his bank account which appeared to relate to the payment claimed. Each gave his address. The solicitor gave an address for the two alleged lenders from whom statements were not lodged.

(16) Independently, the Director had made enquiries of the conveyancing solicitors. From their bank there emerged two paying-in slips dated in February 2001 and annotated with the name of Mr Woodstock and of the house that he was buying. They show that seven cheques totalling £45,000 were paid in to the solicitors' account in connection with that purchase transaction. In the case of five of the cheques, the bank or building society on whom they were drawn was noted. They were broadly consistent with the institutions which the alleged lenders had said in their pro forma statements had been the source of the funds. The amounts of the individual cheques were, however, not precisely consistent with the makeup of the contribution which one of the three lenders said he had provided.

(17) The loans, if made, had not been repaid despite the sale of the house. The lenders, if that is what they were, had not made any formal claim to the proceeds being sought by the Director.

5. In granting the application for summary judgment, the judge relied heavily on what he regarded as the absence of full information about the alleged loans. He said that he would have expected Mr Woodstock to have produced far more information than he had about the loans if they had been obtained otherwise than by some form of unlawful conduct. That raised, and raises, a question as to whether there is sufficient explanation for absence of information or of evidence contributed by Mr Woodstock in the fact that he had been in custody for much of the time and also for most of it without legal aid. He was in custody when the claim form was served in February 2005. He remained there until 23 April. He was then at large for a month, between 23 April and 23 May. After that he was in custody again, where he has remained since.
6. As to legal aid, an application was made on 1 April following a visit by his solicitors to him in prison on 24 March. That was followed by a request for urgency, which might perhaps have been made sooner, on 18 April. On 29 April, the Legal Services Commission indicated that legal aid would be granted subject to means investigation. An emergency certificate was not, however, issued until 28 June. It was then cancelled on 18 July, but reinstated on 25 August. From those dates it follows that a certificate was in force from 28 June to 18 July, and from 25 August until the hearing on 15 September. I would not myself describe that, as the judge did, as a situation in which legal aid was in place for "a fair part of the last nine months". Any work which was done outside the period of the existence of a legal aid certificate would not, of course, be paid for. The preparation of Mr Woodstock's witness statement in response to the claim had in fact been accomplished without legal aid, presumably through the good offices of the solicitors acting pro bono, because there was a deadline in accordance with Collins J's directions. For my own part, I readily accept also that getting appointments to visit a prisoner in prison is by no means easy.
7. The extent of the information which Mr Woodstock gave does accordingly need to be viewed in the light of these difficulties. That said, those difficulties did not in fact prevent Mr Woodstock from saying that the money was borrowed from friends, from identifying the people from whom he was saying it had been borrowed, or from saying that it came by way of cheques paid to the conveyancing solicitors. Nor did it prevent him from saying that he had not lived off the earnings of Karen Langston and that she was an unreliable witness, as he asserted, by reason of addiction to crack cocaine and heroin.
8. There is only one topic on which it can be suggested that, given greater freedom or greater access to legal services, Mr Woodstock might have been able to say more. That is his source of income during the time that the mortgage was being serviced. Although he had referred to work as a bodyguard paid for in cash at the time of his police interview in 2003, he had not dealt with income in his witness statement filed in these proceedings. However, it seems to me that it is simply unnecessary to consider any further the disputed extent of his difficulties. It is not suggested that there was anything else that he could have added in relation to his case that he borrowed the lump sum deposit from friends. On the other hand, it is conceded realistically by Mr Weisselberg on behalf of the Director that if there existed a triable issue on the source of the lump sum, then summary judgment could not be given, whether or not there existed also a triable issue on the source of the money for mortgage repayments. It follows that it is to the critical question of the source of the lump sum that I need to turn.
9. The position, in short, was this, as at the hearing before the judge. First, except for the retracted statement of Karen Langston, there was no direct evidence of unlawful conduct generating this money, nor was there any conviction for any offence which might have generated it. Secondly, the Director had a prima facie case that the source must have been unlawful conduct. That prima facie case came from:

(a) the absence of any known legitimate source;

(b) such weight as could be given to Karen Langston's statement, now retracted, together with Mr Woodstock's record for violence, perverting the course of justice and witness intimidation;

(c) the asserted unlikelihood of sizeable loans being made on an informal basis, which had not been paid back although the house had been sold;

(d) the fact that two of the lenders had not made any form of statement in support of Mr Woodstock's case; and

(e) the absence of any claim made by the lenders to the money which had been frozen by the Director.

10. The onus was on the Director to show unlawful conduct as the source of the money, on the balance of probabilities. Her case depended substantially on calling on Mr Woodstock to explain the source and inviting adverse inferences from what was suggested to be his failure to do it sufficiently. I entirely accept that that may be a legitimate route to proof, although care needs to be taken not to reverse the onus of proof, even upon the balance of probabilities. In particular, as it seems to me, the temptation needs to be resisted to equate the absence of regular documented source of income or capital with proof of criminal origin.
11. Next, Mr Woodstock for his part had a prima facie case that the money had been borrowed informally from friends: (a) he said so; (b) he had said so before the Assets Recovery Agency was in any way involved; (c) three of the five men who he said were lenders also said so; (d) they gave details of the source of the cheques, and one of them exhibited the cheque stub; and (e) seven cheques from different sources, totalling the money which he and they said had been lent, were paid into the account of the conveyancing solicitors in order to effect the purchase.
12. As thus summarised, the issue is a short one. Did that give rise to a triable issue? It appears, however, that the argument in front of the judge concentrated almost entirely upon two topics, which it seems to me are likely to have obscured that as the real question. One was whether summary judgment is as a matter of principle available to the Director in a recovery order case. The other was whether and to what extent Mr Woodstock had been handicapped in preparing his case by the twin difficulties of incarceration and the absence of legal aid, and to what extent either he or his solicitors had been at fault in filing evidence, giving particulars or answering questions raised by the Director. Those two topics having occupied most, of not all, of the argument in front of the learned judge, it is perhaps hardly surprising that the question of whether there was or was not, on the evidence which had been filed, a triable issue was not focussed upon below in the same way as it has been before us. That, as it seems to me, may have led the learned judge into understandable error, but now that the question is faced I, for my part, am quite clear that a triable issue was raised.
13. There were certainly grounds for suspicion. It might be that Mr Woodstock and his witnesses were lying and would be found to be lying once they were heard at trial and their accounts explored. Or it might be that if these people did advance the lump sum to buy the house, the correct inference would turn out upon all the evidence at trial to be that the source of it must have been criminal conduct. Or it could be that there had been the kind of association between Mr Woodstock and these men, whether of friendship or of irregular but non-criminal character, as to lead them to be ready to fund him in this way on very informal terms.
14. At the summary judgment stage it was, as it seems to me, simply not possible to say that Mr Woodstock and these men were bound to be disbelieved, or that the Director was otherwise bound to succeed on some other basis. I accept, contrary to one of Mr De Mello's written submissions, that it may well be possible to say in some cases that a story which is advanced by a defendant is so obviously untrue that it is fanciful to suggest that it might be accepted. In such a case, summary judgment will be justified. I do not, however, consider that this is such a case. This was a story which, however flimsy it might in some senses appear, needed to be tested at trial. There was very little in the way of direct evidence that the source of this money was unlawful, that is to say criminal, conduct. It depended in effect upon showing that Mr Woodstock and his three or five witnesses, whichever it turned out to be, were lying. That needed more than the fog of suspicion which was all that was cast over it at the stage of the hearing before the judge. It needed trial. In those circumstances, it is unnecessary to consider whether there was also a triable issue as to the source of the money used to service the mortgage, though I incline to the view that there was.
15. That conclusion makes it unnecessary to consider on the one hand Mr De Mello's application to adduce fresh evidence, or on the other the very voluminous material subsequently put in by the Director by way of resistance to that application. We enquired of the parties, and particularly of the Director, at the outset whether we were invited to proceed pursuant to the Civil Procedure Rules 52.11(1)(b) by way of re-hearing considering all the much more extensive material now available. We were, however, not asked to do so, and specifically not invited to do so by the Director. The extra material was not before the judge, nor was any adjournment sought on either side to collect it. In those circumstances, I say nothing about the impact one way or the other which it might have had on an application for summary judgment; still less, of course, as to what might be its impact at trial.
16. I would, for those reasons, allow this appeal.
17. LORD JUSTICE WILSON: I agree.
18. LORD JUSTICE TUCKEY: I also agree.

Order: Appeal allowed.

Permission to rely on further evidence, no order.

Permission to rely on additional further evidence, no order.