England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
AND FAMILY DIVISION
MR JUSTICE HOLMAN (B4/2008/2159)
MR JUSTICE CHARLES (B4/2008/1506)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12th February 2009

Lord Justice Hughes:

1. There were listed before us two related applications for leave to appeal. They arose in the context of matrimonial claims for ancillary relief against a husband and father who had been convicted and made the subject of a confiscation order. The principal application before us is the wife's. She seeks to challenge the decision of Holman J that her application for ancillary relief cannot proceed until the confiscation order has been discharged, at which point it would be possible to see whether there are any other assets which she can attack. In the months before Holman J's decision a number of orders had been made by different judges permitting the drawing of money from funds of the husband which had been frozen under a restraint order. As I at least understand it, most of those had been made without objection by the Revenue. Resistance was lodged, however, to the last in that series of orders made by Charles J on 6 June 2008, and an application for permission to appeal his order is listed also before us. However, we have determined to deal first with the substantive application of the wife.
2. The husband and wife began to live together in either 1993 or 1994 and married in 1997. The family consisted in addition to the spouses of a son of the wife by an earlier relationship, F, who is now either 20 or 21, and the parties' joint son, R, born on 27 August 1997 and now 11. The marriage broke down in about 2003 although both spouses remained initially in the former matrimonial home in Torquay. The wife petitioned for divorce in May 2004. The decree nisi was pronounced in July 2004. She left the house under order in May 2005.
3. The husband traded throughout the marriage as an art dealer. He had been fraudulently evading income tax for several years. The Revenue investigation went back to 1988. He was given the opportunity to remedy his situation by making a certificate of full disclosure and if that declaration had been honest he might well have escaped prosecution. However, it was not. He was charged in 2006 with criminal offences of cheating the Revenue and making false statements. The restraint order which I have mentioned was made at or about that time. He eventually pleaded guilty on 18 June 2007 to seven counts of cheating the Revenue and two of making false declarations, and he was sentenced in September 2007 to three years' imprisonment. Subsequently on 20 November 2007 the Crown Court made a confiscation order in the sum of £900,453 and some pence, with 12 months to pay and a term of three years' imprisonment set in default. There had been in the meantime a receivership order in relation to his assets.
4. That confiscation order was founded upon a determination of benefit in that sum, £900,000 odd. That was made up of unpaid tax of £531,000 odd together with interest and penalties totalling £368,000 odd. At that time it appeared that the husband's assets were not less than the £900,000 of benefit, so this was not a confiscation order limited, as often they are, to a sum less than the benefit and confined by the recoverable assets. That confiscation order is not and never has been appealed. Different statutory confiscation regimes have been in existence from time to time. The present order was made under the provisions of the Criminal Justice Act 1988.
5. The valuation of the husband's assets was historically complex. There was a dispute between him and one Sheikh Jafali over the beneficial ownership of £250,000 in a bank. There were disputed valuations of various pieces of artwork. Further, the wife asserts that the husband had hidden assets. In the Crown Court, the Crown at that stage asserted hidden assets of about £74,000. But if any such existed they were irrelevant to the confiscation proceedings in the Crown Court, because identifiable assets at that stage appeared to exceed the benefit of £900,000. Accordingly there was no question for any determination to be made in the Crown Court in relation to hidden assets.
6. By the time of the hearing before Holman J, the Sheikh's claim to beneficial ownership of the bank deposit of £250,000 had been upheld in the High Court. After a careful analysis of the evidence and the hearing, which had taken in all five days, Holman J assessed the husband's assets in the sum of £883,000. There is no possibility of challenge to that finding, although, as events have turned out, it is common ground before us that the assets are in fact not quite as large as that and probably nearer to something like £750,000.
7. Nothing has yet been paid under the confiscation order and that means that the available assets are insufficient to meet it. The wife does not assert any proprietary interest in either the former matrimonial home or any other of the husband's assets. Her application is for ancillary relief pursuant to sections 21 to 25 of the Matrimonial Causes Act 1973. Thus, it is an application for a discretionary order requiring the husband to make financial provision for her. For present purposes what is really in issue is a claim to a lump sum. As a matter of history, at the time of the judgment of Holman J the wife was contending that she should have the care of the younger son, R, and that her housing needs were the greater for that reason. As it has turned out a residence order has been made to the husband, but for the purposes of his judgment Holman J approached the case by making the assumption favourable to the wife that she would become carer for the child.
8. The wife was not complicit in the husband's crime. The judge dealt with her on the basis that she was entirely innocent of it. On her behalf Mr Hames' careful arguments here fasten largely on that finding. He contends that the judge failed to distinguish this wife from the wife in the case of Crown Prosecution Service v Richards [2006] 2 FLR 1220, which wife knew perfectly well about the crime and that the assets derived from the crime. The judge did not make that omission. He directed himself correctly that it is established by Commissioners of Customs and Excise v A [2003] 2 WLR 210 that neither an ancillary relief claim nor a confiscation order enjoys automatic priority, the one over the other. At paragraph 54 of his judgment he remarked entirely accurately that the two principal cases, A and Richards, are at opposite poles or extremes. In paragraphs 57 and 59 of his judgment he accomplished precisely the contrast between the present case and Richards, which it is suggested is absent.
9. This case is a good illustration of the fact, that while non-complicity in the crime is a necessary condition for the wife to succeed in an ancillary relief claim as a matter of discretion where she is in competition with a confiscation order, such non-complicity is not a sufficient condition. She will also fail in a number of other circumstances, including where the husband's assets are reduced to nil by having to pay now what he ought to have paid years ago. This is not a case in which the confiscation order relates to surplus income derived from crime such as profits from drug trafficking. This is a case where the husband owed the Revenue the tax from years before his conviction – see the telling way in which the judge put it at paragraph 66. Penalties were incurred also because he failed to pay his debts. The spouses both lived well on a domestic economy which included the non-payment of tax and penalties. For the same reason, Mr Hames' careful submissions about "taint" do not, as it seems to me, provide the wife with any arguable ground of appeal. "Taint" is not a statutory expression. Of course it is relevant where assets can be traced to acquisition from the proceeds of crime, but that is not the only case in which justice requires that the confiscation order should be met before there can be any question of allocating the assets between husband and wife. Another such case, of which is this one, is where the domestic economy and the assets accumulated are only of the size they are because the husband has failed to pay the tax due. If this husband had paid his tax and penalties, his assets would be nil rather than either £880,000 or £750,000.
10. For that reason, it is not critical that the Devon house and the London flat were not acquired from crime. What is critical, as it seems to me, is that they could not have been and cannot be preserved without non-payment of the tax and the penalties. Counsel who then appeared for the wife was constrained to concede before Holman J (see paragraph 62) that the sum which is now the subject of the confiscation order could equally have been recovered by the Crown by bringing an action for it and if necessary bankrupting the husband. In that event there would have been nothing from which to make any lump sum order in favour of the wife. That concession, which was unavoidable, is on the facts of this case fatal to the wife's claim. It is fatal because it fully justifies Holman J's conclusion. It is not that there was no discretion but it fully justified the way Holman J exercised it. That is not a question of treating a state creditor as in some way stronger than a private creditor. It is a question of ascertaining what are the assets available for distribution between husband and wife.
11. I can deal, I hope, quite shortly with other potential grounds.

(i) That the wife may be cast upon the state is a relevant factor – see Customs and Excise v A. I am not at all sure how likely it is in this case, because the husband has the capacity to earn substantial sums and he has been released from prison. But even if it is a possibility, it cannot prevail over the considerations so far set out. Sadly, if there is not enough money to go round in a family, this may be unavoidable.

(ii) This is not a case of punishing the wife for the husband's crime. Sadly, if one spouse turns out to be a spendthrift the result may be that the other suffers an absence of assets from which to seek ancillary relief. The same may happen if he turns out to be a criminal.

(iii) If there were surplus assets beyond what is needed to pay the confiscation order, that of course would be different. However, the wife's assertion that there are is and was by the time of Holman J's decision a wholly speculative one. It would not be a legitimate exercise of the court's powers to use them in a manner which in effect requires the receiver to use up public funds on a search for such assets in the hope that both the wife and the tax can be paid.

(iv) White v White [2000] UKHL 54 deals with the position as between husband and wife. It cannot assist on the present question. But the submission that there should be no distinction between the wife with a proprietary interest in assets and the wife with a non-proprietary ancillary relief claim is, I am afraid, unarguable. The distinction is a critical one. To the extent that a wife has a proprietary interest in property, that property is not part of the husband's assets and his realisable assets are the smaller. In either case the wife is not in competition with the confiscation order, because her interest is vested and one never gets to the Commissioners of Customs and Excise v A question.

12. For all those reasons I am for my part entirely sure that the judge was right. Indeed, as it seems to me he would have been wrong to make any other order. He was right for the reasons which he gave and which I have only imperfectly summarised. They also included the very rapid haemorrhaging of the pot by the incurring of very substantial costs.
13. We were told at the outset of the hearing that if that was our conclusion the Revenue and Customs Prosecution Office would not wish to pursue its application in relation to the decision of Charles J to allow various payments out from the frozen funds, including an A v A order for maintenance pending suit to cover the wife's costs of ancillary relief proceedings. That stance by the Revenue no doubt recognises firstly that those orders were discharged by Holman J and are now water under the bridge which cannot be recalled, and secondly that the Revenue had not raised any objection to similar orders previously made. There is therefore no occasion for us to determine that application. It may if it arises in a future case raise quite difficult questions at any rate in relation to interim periodical payments, though perhaps less obviously in relation to A v A costs provision.
14. I should just briefly draw attention to the significant tightening of the statutory rules made in the subsequent statute, the Proceeds of Crime Act 2002 – see section 69(2)(c) and the recent decision of this court and the Criminal Division in SFO v Lexi Holdings [2008] EWCA Crim 1443. But the impact of that on ancillary relief, particularly interim periodical payments, must, as it seems to me, await full argument and will undoubtedly be fact-sensitive.
15. For those reasons I would refuse permission to the wife to appeal.

Lord Justice Lloyd:

16. I agree.

Lord Justice Thorpe:

17. I also agree. I add my appreciation of Mr Hames' valid and skilful submissions. I also, subject to my Lord's assent, think that the judgment he has just delivered should be made available to the specialist law reports, despite the fact that we are only dismissing an application for permission. But that is something he and I can discuss.

Order: Application refused