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Cite as: [2001] EWHC Admin 1102
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Hughes & Ors v Hm Commissioners for Customs and Excise [2001] EWHC Admin 1102 (21st December, 2001)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
| Royal Courts of Justice Strand, London, WC2A 2LL | ||
B e f o r e :
____________________
Nicholas David Lewys Hughes Applicants Timothy Hughes Fones 2 Go (Supplies) Limited ‘C’ -and- HM Commissioners for Customs and Excise Respondents Sara Elizabeth Dayman ‘R’ Applicants ‘W’ -and- Crown Prosecution Service 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)
Mr G Brodie (instructed by Martyn Prowel for N. Hughes)
Mr P Spencer (instructed by Huttons for the T. Hughes, Fones 2 Go (Supplies) Limited and ‘C’)
Mr A Mitchell QC and Mr B Gregory (for the HM Customs and Excise)
Mr K Talbot (for the Crown Prosecution Service)
____________________
AS APPROVED BY THE COURT
Crown Copyright ©
- These two cases raise a question of considerable importance concerning receivership orders made in restraint proceedings under the Criminal Justice Act 1988 (“CJA”) and the Drug Trafficking Act 1994 (“DTA”) : “Is an acquitted defendant or a third party affected by a receivership order required to bear the receiver’s remuneration and expenses (“costs”) out of those of his assets of which the receiver has taken possession?”
- This question arises in two separate cases which have been listed before me. Three of the applicants await trial. I have made an order protecting their identity until the conclusion of their respective proceedings. They are identified in this judgment by a letter only.
- Both cases concern the CJA. The provisions of the DTA are so similar that the answer to the question is almost certainly the same under both Acts. One case, which I shall call “the first case”, concerns H.M. Customs and Excise (C and E) as prosecutor and, as applicants, Fones 2 Go (Supplies) Ltd (“Supplies”), Nicholas Hughes (“Nicholas”), Timothy Hughes (“Timothy”) his brother and C., an employee of Supplies. The other case, which I shall call “the second case”, concerns the Crown Prosecution Service (the “CPS”) as prosecutor and, as applicants, R. and W.
- Nicolas and C. were defendants in criminal proceedings brought by C and E. On May 3 2000 Sullivan J. made standard restraint and receivership orders against them under the CJA. The order in the case of Nicholas included the following as paragraph 20 (paragraph 11 in the case of C. is similar):
- Nicholas and C. were subsequently acquitted upon the prosecution offering no evidence.
- Timothy Hughes was never charged and was not named in the order. He is a director and owns one share in Supplies. The only other share is owned by Nicholas who is also a director.
- C. faces a further indictment due to be tried at some time in the future. In respect of the matters covered by that indictment he continues to be subject to the order of Sullivan J. granted on May 3.
- When this case first came before me on 13 July 2001, Nicholas, Timothy and Supplies were seeking an order that they should not be held liable for the costs incurred by the receiver. During the course of the proceedings and in the light of the decision in Re Andrews [1999] 1 WLR 1236 (CA), to which I return below, I permitted an amendment of the application. What is now sought is an order deleting paragraph 20 (11 in the case of C.) of the order of Sullivan J.. C and E rightly did not object to that amendment, notwithstanding that Moses J., on the prosecutor’s ex parte written application, had discharged the order of Sullivan J. in so far as Nicholas was concerned. Because Mr Andrew Mitchell Q.C. submitted that the costs of the receivership would still be met out of the assets, even if paragraph 20 was deleted, an order is sought that the costs should not be so met.
- It not having been possible to conclude the hearing on 13 July 2001, I made a number of orders including an order that the applications to amend paragraph 20 be reduced into writing. In the meantime C. had made a similar application.
- The order now sought is:
- I set out the chronology relying in part on a chronology prepared by Mr Mitchell and Mr Barry Gregory.
- At the time of the receivership Supplies had a cash balance in its account of some £160,000. Supplies was, so the applicants say, trading healthily and making a profit. With the arrest and subsequent remand in custody of the applicants, Supplies ceased trading. The costs of the receivership are some £40,500. The substantial portion of those costs was incurred in following up and bringing into the receivership other assets of Nicholas, said by the Receiver not to have co-operated as fully as he might. This is challenged.
- According to Timothy, assets of Supplies have been used to pay off what would have been, but for the receivership, the personal debts of Nicholas, e.g. mortgage repayments. The purpose of so doing, it is said, was to preserve the assets of Nicholas to meet any confiscation order. That use of the company’s assets may be the subject of further proceedings.
- It may be that courts should, in the future, be careful to limit the powers of a receiver to use the assets of a company for these purposes particularly if others, not charged, have an interest in the assets whether as a joint owner, a shareholder or a creditor.
- Given that the corporate veil of Supplies had been lifted and given that the effect of the order was to vest all the assets of Supplies in the receiver, she could use the credit balances of Supplies as a “cash cow” to fund the receivership. With the acquittal of Nicholas, the corporate veil was “lowered” and Supplies had directly “lost” some £40,500 out of its account. It follows that Timothy and Nicholas, as shareholders, had also suffered that loss, albeit indirectly.
- In so far as C. is concerned, a man of modest means and very aggrieved by what has happened (so I am told), the costs of the receivership order incurred in the period 2 May 2000 to 30 November 2000 amounted to some £34,000. Those costs were apparently incurred in tracing down his assets. To protect his position should he be acquitted on the charges he currently faces, he seeks a deletion of paragraph 11 in the May 3 order.
- R. and W. are charged with offences of fraud arising out of the Jubilee line extension project. It is alleged, amongst other things, that the company which they jointly control and in which they are shareholders, has defrauded London Underground and others.
- I set out the facts from the skeleton argument prepared by Mr Nicholas Purnell Q.C. when this matter was originally before me. I have made a few changes. At the resumed hearing, the applicants were represented by Mr Mukul Chawla Q.C..
- The restraint order lifted the corporate veil of the company and vested its assets in the receiver, it being alleged that the company was used as a vehicle to carry out the offences (witness statement of Stephen Down, paragraph 49). Paragraph 8 of the W. order provides:
- Sub-paragraph f of paragraph 8 grants the receiver various powers, including:
- The receiver has so far invoiced some £376,000 in respect of her costs including VAT. All the receiver’s costs, whether incurred in the management of RWS or otherwise, are being paid by the company. The total bill is expected to be in the region of some £500,000 by the end of the criminal proceedings. The applicants seek a similar order to that being sought in the first case.
- Section 76 (1) and (1A) of the CJA provide:
- Section 77 deals with restraint orders. Section 77(1) provides:
- By virtue of section 74(1)(a), “realisable property” for the purposes of the sections under consideration means “any property held by the defendant”. (Section 74(1)(b) deals with gifts.) This is further widened by section 102(7) which provides: “Property is held by any person if he holds any interest in it.”
- Thus, for example, a restraint order may be made over the joint account of the defendant and his or her spouse or over the jointly owned matrimonial home. In the first case the corporate veil having been lifted, the assets of Supplies in which Nicholas held at least an interest became the realisable property of Nicholas to the possible detriment of his brother, Timothy, and indeed unsecured creditors. Stanley Burnton J. in In the matter of G [2001] EWHC Admin 606 has given important guidance as to how orders should be drafted and served to ensure that third parties know what is happening.
- Section 77(6) and (7) permit any person affected by an order to seek its discharge or variation. R and W have unsuccessfully made such an application. If a restraint order is made in the circumstances referred to in the previous paragraph (e.g. joint account/matrimonial home), the non-defendant spouse may apply to the Court for an order (in effect) safeguarding his or her rights. In the first case, Timothy was a person affected by the order. He applied for an order to exclude from the restraint and receivership order the assets of Supplies. He argued that the corporate veil should never have been lifted. He claimed that only a small portion of the funds of Supplies had been allegedly tainted (see his witness statements). For various reasons, this application was not resolved before the C and E offered no evidence against Nicholas. It thereafter became “academic”.
- Section 77(8) provides:
- I have already examined the meaning of the term “realisable property” in paragraph 23 above.
- Section 80 makes provision, amongst other things, for the realisation of property where a confiscation order has been made and has not been satisfied. Section 80(2) provides that in these circumstances the court may, as part of its powers to enforce the order, appoint a receiver in respect of realisable property. Section 80(3) provides:
- Section 81 of the Act provides:
- Section 82 provides, under the heading “Receivers: supplementary provisions”:
- Section 88 provides:
- Section 89(1) and (2) provide:
- I was told that this provision has never been used. Given that “serious default” has to be shown, this is not surprising.
- I turn now to the provisions of RSC Order 115, which sets out the rules for the exercise by the High Court of its jurisdiction in proceedings under the CJA and DTA.
- Rule 3 provides:
- Rule 4 (1) provides:
- The prohibition on a cross-undertaking in damages on the part of the prosecutor distinguishes the proceedings under these Acts from normal civil proceedings. Section 89 of the CJA only “fills the gap” if there has been serious default.
- Rule 5(3) provides:
- Rule 8(1) provides that: “Subject to the provisions of this rule, the provisions of Order 30, rules 2 to 8 shall apply where a receiver is appointed …”.
- RSC Order 30 Rule 3(1) provides:
- Rule 5 makes provision for receivers’ accounts. Rule 5(1) provides:
- The C and E and the CPS rely heavily on the decision of the Court of Appeal in Andrews.
- The headnote in Andrews reads, in part:
- The appellant applied for an order that:
- Ward L.J. started his judgment with these words:
- Ward L.J. set out a number of established principles:
- It follows, from principle 3, that a judge making a receivership order in a CJA or DTA case may not “make an interim order requiring one of the parties to pay the remuneration or expenses of the receiver”.
- Ward L.J. then turned to the question not previously decided:
- Given the manner in which the case was presented, the success of the application depended upon the construction to be given to Section 51 of the Supreme Court Act 1981, as substituted by section 4(1) of the Courts and Legal Services Act 1990, which provides:
- When considering the competing arguments, Ward L.J. said (1245):
- A little later in his judgment Ward L.J. said (1246):
- Mr Mitchell repeated before me his argument that section 89 provides a defendant with the only relief to which Parliament thought he was entitled. He extended the argument to include third parties affected by the order: for example, Timothy and Supplies in the first case.
- Ward L.J. concluded:
- Aldous L.J. agreed with the conclusion that:
- He continued:
- Hirst L.J. said that he also agreed.
- Andrews is therefore also binding authority for the proposition that the costs of the receivership are not recoverable under section 51 by any person who was a defendant (albeit acquitted) or a third party because they are not costs incidental to the proceedings in which the receiver is appointed.
- All counsel in the cases before me accepted that, should a defendant increase the costs of the receivership by unreasonable obstructive behaviour, the receiver could have a remedy against a convicted defendant against whom a confiscation order has been made, by seeking payment of the increased amount under section 81(1) and could have a remedy against an acquitted or convicted defendant under section 51.
- The receiver could also, of course, seek an order from this Court preventing the obstructive behaviour.
- The appellant in Andrews is pursuing a case to the European Court of Human Rights (“ECHR”) but an early hearing is not anticipated.
- Andrews did not concern a third party as in the first case. In the first case C and E gave what is a standard type of undertaking given in CJA and DTA cases:
- This compares with standard undertaking normally required by a party in a civil case seeking an interim injunction such as a freezing order:
- Whereas it is arguable that a prosecutor could be obliged to give a similar undertaking to third parties, this is not in practice done. If it were done, then any loss incurred by a third party could be recovered not by virtue of section 51 but by virtue of the receivership order itself.
- Mr Mitchell submitted that such an undertaking would not be required given the decision of the House of Lords in F. Hoffmann-Laroche & Co. A.G. and others v. Secretary of State for Trade and Industry [1975] A.C. 295. As Hoffmann J. said in Attorney-General v. Wright [1988] 1 W.L.R. 165, at 166 to the principle that the court should protect the interests of a defendant whose liberty may turn out to have been unjustly restricted, there is a potentially conflicting principle: Crown officials should not be inhibited from performing their duty to take action to enforce the law by the fear that public funds may be exposed to claims for compensation by people who have thereby suffered loss.
- When the first case came before me on 13 July, Mr Mitchell advanced the argument that there would be serious financial implications for public funds if acquitted defendants and third parties were not required to meet the costs of a receivership. I invited him to produce figures which would support this proposition. At the resumed hearing no figures were produced and both he and Mr Talbot stated that they would not rely upon this argument. Hoffmann-Laroche is thus of less significance given the abandonment of the argument advanced on 13 July.
- I return to the particular position of third parties later.
- It is submitted by the applicants in this case that I should not follow Andrews because the Court of Appeal did not consider their argument that the CJA and DTA statutory schemes do not permit the receiver to recover the costs of the receivership from the assets if the defendant is acquitted. Alternatively, they submit, Andrews should not be followed because of article 1 of the First Protocol, referred to by Ward L.J..
- The argument that the statutory scheme does not permit the permit the receiver to recover the costs of the receivership from the assets if the defendant is acquitted is succinctly made in paragraph 3-112 of Confiscation and the Proceeds of Crime (Mitchell, Taylor and Talbot) (2nd Ed.):
- The authors then refer to an unreported decision of Macpherson J. in Re P. 29 February 1996. He held that it was a matter for the discretion of the judge being asked to make a receivership order whether the receiver should be remunerated from the assets under receivership. His attention was not, so it appears, drawn to the argument now being presented. He also said (albeit tentatively) that, if the defendant was acquitted, then: “It seems wrong to assume that he will not be able to recover monies which will be expended in the conduct of the receivership proceedings” and that the judge before whom he was acquitted could order their recovery. It seems clear that the judge trying the criminal trial cannot make such an order. Mr Mitchell had originally argued that the judge being asked to make a receivership order did have the discretion to which Macpherson J. refers. He then altered his position and submitted that a judge has no discretion in this respect.
- The applicants agree that what they describe as the “clear and unambiguous scheme” of the Act has not been followed. “The departure from that scheme has been a wholesale one since the commencement of the Act”. They submit, rightly it seems to me, that in Andrews the Court’s attention was not drawn to this argument.
- A useful starting point for the argument is section 88 (set out earlier in paragraph 32). The effect of sub-section (2) is that the costs of a receiver shall be paid by the prosecution if no sum is available to meet the costs under section 81(5). Section 81 (see paragraph 30 above) sets out in detail how the receiver must apply the assets of a defendant against whom a confiscation order has been made. Thus it follows, so it is submitted, that the costs of a receiver shall be paid by the prosecution if no confiscation order is made. No confiscation order can be made if the defendant is acquitted or if there is no amount to be realised.
- There can be no doubt that section 81 deals, and only deals, with the assets of a defendant against whom a confiscation order has been made. Section 81 lays down the order in which the receiver must pay the money realised from the assets of such a defendant:
- The receipt by the clerk from the receiver reduces the amount by the defendant under the confiscation order. If the confiscation order is in the sum of £100,000 and the receiver pays £50,000 to the clerk, the defendant is now deemed to have paid off that £50,000.
- The clerk must, however, then apply the money in the following order (ss. 3):
- Notwithstanding that the above scheme envisages, at least on its face, that the costs of the receiver shall be met out of the amount ordered under the confiscation, in practice the receiver takes his costs out of the managed assets on a regular basis during the course of the receivership before any confiscation order has been made. This is achieved by the standard clause in a receivership order: “The costs of the Receivership shall be paid out of the assets received or managed by the Receiver and in priority to any other payment required or provided for by this Order …” and the clause authorising drawings (see e.g. paragraph 4 above). Only after those costs have been met out of the assets is the amount owing under the confiscation order paid to the justices’ clerk.
- Given that receivers are unlikely to work without regular payment, it would follow, if the applicants are right, that the prosecution would have to pay to the receiver amounts to reflect his or her costs, subject to an undertaking to reimburse the prosecution should a payment be made under section 81(5). If the defendant is acquitted the prosecution would bear the costs. As to the argument that the receiver may increase the overall value of the assets because of his or her wise stewardship, this was said to be very unlikely given the level of remuneration which receivers enjoy.
- If the defendant is convicted and a confiscation order is made the receiver would be paid his or her costs out of the amount paid to the justices’ clerk and that sum would be paid to the prosecution under the terms of the undertaking. Any shortfall would be met by the prosecution.
- It is important to note that, if the defendant’s realisable assets have not been used to pay the receiver, there should be more realisable assets available to pay the sum of money reflecting the amount by which the defendant has benefited from his criminal conduct. If so, the costs of the receivership will probably be met out of the defendant’s assets and the prosecution will not have to bear them.
- The third party would also be in a better position. Given that the defendant’s realisable assets include assets in which a third party has an interest (e.g. a spouse or a company such as Supplies), those assets may be used by the receiver to pay his or her costs- indeed the standard order has no provision for informing the third party of how much is being taken and from which assets. There will inevitably be a temptation for the receiver to use easily available assets, such as a joint bank account or the company’s bank account. Prior to the conclusion of the criminal trial, a receiver may not wish to, or may be prevented from, selling the defendant’s property to raise money. The third party can, of course, bring an application to this Court in an attempt to preserve his or her position, but may well not have the funds to pay for legal representation, or may have difficulty in persuading the receiver to finance the litigation or may have difficulty in obtaining public funding.
- Even if the third party makes such an application to this Court, there may well be issues of fact to be decided, such as the proportion of the interests in the property and whether a gift caught by the Acts has been made. At an early stage of the proceedings and before any criminal trial these are often extremely difficult to resolve. They become far easier to resolve after a trial or after the making of any confiscation order.
- If the respondents are right, there is no way by which the third party can ever recover that proportion of his assets which have been used by the receiver to meet his or her costs. This seems to me to be grossly unfair.
- It may also be difficult to find time for such an application. Timothy Hughes made an application to this Court in December which was not heard, for various reasons, before the prosecution had offered no evidence against his brother.
- The respondents’ submissions are neatly encapsulated in Mr Mitchell’s skeleton argument:
- I accept the respondents’ arguments that there are provisions which, on their face, enable this court to authorise the receiver to use the assets under receivership to pay their costs. However these self same provisions also have other purposes- for example, to safeguard the position of the defendant or third parties and are so used. If the applicants’ submissions are right, they are not rendered otiose. If the applicants’ submissions are right, the receiver will not have the powers which he or she ordinarily has to use the assets to meet the costs. The receiver can continue to administer the assets in the ordinary way, but will have to look to the prosecutor for the costs. The prosecutor can then seek reimbursement out of any confiscation order under section 81(6).
- I do not accept that the presence of the word “due” in section 88 is a helpful guide to understanding the scheme.
- It was also submitted that the regime for which the respondents contend is not unfair because the receiver is protecting the estate. This can only be right if it is assumed that the estate would have been less valuable if the receiver had not been appointed. For the reasons given by the applicants (paragraph 77 above ), I do not accept this argument. It seems far more likely, given the level of receivers’ fees, that the value of the estate will reduce. The scheme for which the respondents contend cannot be justified on this “off chance”.
- There is a certain irony in the respondents’ submissions that the receiver should have all the normal powers of a receiver but that third parties should not be entitled to the type of order to which I have referred in paragraph 63 above.
- The respondents also rely on section 89 (paragraph 33 above). That provides that compensation can only be ordered if there is no conviction, serious default is shown and the loss has been suffered in consequence of something done to the property in receivership. The applicants are not seeking compensation. They are saying that the defendant’s realisable property is not available to meet the costs of the receiver until after a confiscation order has been made.
- In my judgment the applicants’ submissions are well founded and the regime is that for which they argue. The receiver may not use an unconvicted defendant’s assets to meet the costs of the receivership. The costs of a receivership (excluding any costs associated with unreasonable obstructive behaviour, see paragraph 59) may only be met out of the convicted defendant’s assets and out of any confiscation order subsequently made. It follows that an acquitted defendant or a third party affected by a receivership order is not required to bear the receiver’s costs out of the realisable property of which the receiver has taken possession.
- The Court of Appeal in Andrews was not directed to the legislation in the detailed manner in which I have been. I have already referred to Hoffmann-Laroche (paragraph 65 above) and noted that the respondents ultimately did not rely on the argument that there would be severe financial implications if the prosecution had to bear the costs of a receiver following an acquittal. The principles in that case, if they do bear on the issues in question, would be subject to any contrary statutory intention.
- If I am wrong and there is doubt about the matter or if Andrews would be binding on me subject to the provisions of the Human Rights Act 1998, I would reach the same result by construing the legislation in the light of those provisions
- Article 1 of the First Protocol is a “Convention right” within the meaning of section 1 of that Act. That provides:
- Article 3 of the 7th protocol, not in force in so far as the UK is concerned, provides:
- It is clear that the regime of restraint and receivership orders is not contrary to Article 1 of the First protocol, see Raimondo v. Italy (1994) 18 EHRR 237. It is also clear that the Convention does not require compensation to an acquitted defendant for any loss caused by the bringing of criminal charges, or for his legal, travel or subsistence costs or compensation of the kind specified in Article 3 of the 7th Protocol, see e.g. Masson and Van Zon v. Netherlands (1996) 22 EHRR 491. Mr Mitchell relies on these authorities.
- In my judgment to deprive an unconvicted defendant of his assets or to deprive a third party of his share of lawfully obtained assets which he jointly owns with a defendant (whether unconvicted, convicted or acquitted) to pay for the costs of receivership is a disproportionate measure in the fight against crime and thus a breach of Article 1 of the First Protocol. It would upset the fair balance which should be struck between the protection of property and the general interest.
- These applications succeed.
- The receiver may not use an unconvicted defendant’s assets to meet the costs of the receivership. Subject to an exception where there has been unreasonable obstructive behaviour on the part of a defendant (paragraph 59 above), the costs of a receivership may only be met out of a convicted defendant’s assets and out of the amount ordered to be paid by the defendant under any confiscation order subsequently made against him. It follows that an acquitted defendant or a third party affected by a receivership order is not required to bear the receiver’s costs out of those of his assets of which the receiver has taken possession.
- In the first and second cases those paragraphs in the orders which permit the receiver to use the assets to meet the costs of the receivership will be deleted. The applicants are also entitled to a declaration to the effect that the costs of a receivership may only be recovered from the assets of a defendant in the circumstances set out in section 81(5), namely out of any amount paid by the receiver to the justices’ clerk in satisfaction of a confiscation order. I leave it to counsel to prepare a draft of the precise wording. Should there be an issue as to unreasonable obstructive behaviour which the respondents wish to have decided, I shall do so at some appropriate time. Likewise, if there is to be an issue in the first case relating to the use of the assets under receivership to pay off the debts which, but for the receivership, would have been the personal debts of Nicholas, I shall decide that at some appropriate time.
MR JUSTICE HOOPER:
The first case
“The costs of the Receivership shall be paid out of the assets received or managed by the Receiver and in priority to any other payment required or provided for by this Order (other that the costs of realisation provided by paragraph 17.f. above) but if no assets or insufficient assets are so received or so managed the costs of the Receivership to the extent of the deficiency shall be paid by HM Customs and Excise.”
Paragraph 17 gave the receiver various powers, including the power in (b) to draw monthly from the assets such sums as are required by her to meet the costs of the receivership upon 14 days notice to the C and E and the defendant. The receiver also had the power in (f):
“to discharge from the proceeds of the realisation of the assets of the defendant the costs of and incidental to such realisation.”
“1. that paragraph 20 of the [discharged] order of the Honourable Mr Justice Sullivan dated 3 May 2000 [Nicholas] made in the case number CJA 64 of 2000 be deleted;2. that paragraph 11 of the [current] order of the Honourable Mr Justice Sullivan dated 3 May 2000 [C.] made in the case number CJA 65 of 2000 be deleted;
3. that neither of the Respondents do seek to recover the costs of the receivership ordered within the proceedings (such costs to include, but not be limited to, fees, charges, disbursements, expenses or any other costs or remuneration) from the first, second or third Applicants [Nicholas, Timothy and Supplies] ;
4. that neither of the Respondents do seek to recover the costs of the receivership ordered within the proceedings (such costs to include, but not be limited to, fees, charges, disbursements, expenses or any other costs or remuneration) from the fourth Applicant [C.]for the period 2 May 2000 to 30 November 2000 [the latter being the date on which C. was charged at Nottingham with other matters in respect of which the receivership order continues] ...”
12.04.2000: Nicholas Hughes charged with between 08.08.99 and 11.04.2000 conspiring to cheat HM Customs of VAT by dishonestly causing to be made taxable supplies of mobile telephones; receiving payment including VAT; and failing to pay VAT to the Commissioners.
28.04.2000: Sharon Crowson (“Crowson”) made witness statement in support of restraint and receivership. She summarises the prosecution’s case. The alleged fraud was of a type known as “missing trader” fraud. Crowson names four limited liability companies (Fenline, Penrise, Sureprise, Questgold) which, she says, had imported mobile phones from other EU countries, the supply of which carries VAT at zero rate. The companies had then sold the phones, charged VAT and not accounted for that to the C and E. Each company only traded for some 6-8 weeks. She alleged that the proceeds of the fraud had been sent to Cyprus. She further alleged that Supplies had purchased phones from two of the companies for resale and that, in effect, these purchases were part of the fraudulent scheme (Crowson, paragraphs 18 (d) and 19).
03.05.2000: restraint and management receiver order made by Sullivan J. The restraint order prevented Nicholas from disposing of, or otherwise dealing with, or diminishing the value of (amongst other things) of:
“Shares in, the undertaking and assets held in the name of Fones2Go (Supplies) Ltd including:-
i. Account number 11749323 held at The HSBC Bank plc 1 Bridge Street Newport Gwent NP20 4UT in the name of Fones2Go (Supplies) Limited.
ii. 1,000 mobile telephones seized by HM Customs and Excise on or about the 11th April 2000.” (Paragraph 1(c), underlining added)
The effect of the underlined words was to “lift the corporate veil” of Supplies. Its assets were being treated as the assets of the defendant, Nicholas.
The order also provided (paragraph 3):
“3. Fones2Go (Supplies) Limited must not (i) remove from England and Wales or (ii) in any way dispose of or deal with or diminish the value of its assets including in particular:-
a. Account number 11749323 held at The HSBC Bank plc 1 Bridge Street Newport Gwent NP20 4UT in the name of Fones2Go (Supplies) Limited.
b. 1,000 mobile telephones seized by HM Customs and Excise on or about the 11th April 2000.”
18.12.2000: Witness statement of Timothy Hughes in support of an application for variation.
18.01.01: Sarah Dayman, the receiver, made a witness statement for the hearing of Timothy Hughes’ application to vary. In that statement, under the heading “Corporate veil”, she writes:
“... At paragraph 18.d of her witness statement, Ms Crowson stated that Supplies had purchased phones from Questgold Limited and Sureprize Limited, two of the ‘missing trader companies’ used by the Defendant in the fraud and money laundering in respect of which he is charged. Because Supplies had been used for a fraudulent purpose, or for laundering of the proceeds of crime, the Court lifted the corporate veil and treated Supplies’ assets, including the Account, as realisable property of the Defendant.”
19.01.2001: Timothy Hughes made an application to adjourn the hearing of his application
26.01.2001: Timothy Hughes served amended Application Notice
08.05.2001: No evidence offered by prosecution at Cardiff Crown Court. HHJ Peter Jacobs directed not guilty verdicts in relation to all counts.
11.05.2001: Mr Justice Moses siting in private discharged restraint and receivership order upon written application of the prosecutor.
15.05.2001: Order of Mr Justice Scott-Baker giving directions as to return of certain property and the hearing of what is now these applications.
The second case
“4. The two applicants are defendants in criminal proceedings at the Central Criminal Court. Those proceedings are now the subject of two separate trials, both involving the applicants. The first trial is currently fixed to commence in September 2002 with an estimated duration of approximately 6 months. No date has yet been fixed for the second trial. That second trial has an estimated duration of approximately three months. Thus, it is likely that if both trials take place, the trial proceedings will be completed at some time in 2003.5. The Restraint Orders were sought on the application of the Crown Prosecution Service who have the conduct of the prosecution of the criminal proceedings against the applicants.
6. The Restraint Order provides for the appointment of a Receiver, Sara Elizabeth Dayman of BDO Stoy Hayward, to act as the receiver and manager of the assets of the Claimants (paras 4 - 9 in the Order in relation to W. and paras 6 - 11 in the Order in relation to R.).
7. Provision for the costs of the Receivership is made under paragraphs 8(W.) and 10 (R.).”
“The costs of the Receivership shall be paid for out of the assets received or managed by the Receiver and in priority to any other payment required or provided for by this Order (other than the costs of realisation provided by paragraph 7 [in fact 6].f. above) but if no assets or insufficient assets are so received or so managed the costs of the Receivership to the extent of the deficiency shall be paid by the Crown Prosecution Service.”
“f. power to discharge from the proceeds of the realisation of the assets of the defendant the costs of and incidental to such realisation.”
The legislative framework
“(1) The powers conferred on the High Court by sections 77(1) and 78(1) below are exercisable where-(a) proceedings have been instituted in England and Wales against any person for an offence to which this Part of this Act applies;(b) ... and(c) the court is satisfied that there is reasonable cause to believe-(i) … ;(ii) in any other case, that the proceedings may result or have resulted in, or that the application is made by reference to, a conviction of the defendant for an offence of a relevant description from which he may be, or has been, shown to have benefited.(1A) The court shall not exercise those powers by virtue of subsection (1) above if it is satisfied-
(a) that there has been undue delay in continuing the proceedings or application in question; or(b) that the person who appears to the court to be the person who has or will have the conduct of the prosecution or, as the case may be, who made that application does not intend to proceed with it.”
“The High Court may by order (referred to in this Part of this Act as a ‘restraint order’) prohibit any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order.”
“Where the High Court has made a restraint order, the court may at any time appoint a receiver-(a) to take possession of any realisable property, and(b) in accordance with the court’s directions, to manage or otherwise deal with any property in respect of which he is appointed,subject to such exceptions and conditions as may be specified by the court; and may require any person having possession of property in respect of which a receiver is appointed under this section to give possession of it to the receiver.”
“The court may empower a receiver appointed under subsection (2) above, under section 77 above or in pursuance of a charging order-(a) to enforce any charge imposed under section 78 above on realisable property or on interest or dividends payable in respect of such property; and(b) in relation to any realisable property other than property for the time being subject to a charge under section 78 above, to take possession of the property subject to such conditions or exceptions as may be specified by the court.”
“(1) Subject to subsection (2) below, the following sums in the hands of a receiver appointed under this Part of this Act or in pursuance of a charging order, that is-(a) the proceeds of the enforcement of any charge imposed under section 78 above;(b) the proceeds of the realisation, other than by the enforcement of such a charge, of any property under section 77 or 80 above; and(c) any other sums, being property held by the defendant;shall first be applied in payment of such expenses incurred by a person acting as an insolvency practitioner as are payable under section 87(2) below [which deals with the expenses of insolvency practitioners] and then shall after such payments (if any) as the High Court may direct have been made out of those sums, be applied on the defendant’s behalf towards the satisfaction of the confiscation order.
(2) If, after the amount payable under the confiscation order has been fully paid, any such sums remains in the hands of such a receiver, the receiver shall distribute them-
(a) among such of those who held property which has been realised under this Part of this Act, and(b) in such proportions,as the High Court may direct after giving a reasonable opportunity for such persons to make representations to the court.
(3) The receipt of any sum by a justices’ clerk on account of an amount payable under a confiscation order shall reduce the amount so payable, but the justices’ clerk shall apply the money received for the purposes specified in this section and in the order so specified.
(4) The justices’ clerk shall first pay any expenses incurred by a person acting as an insolvency practitioner and payable under section 87(2) below but not already paid under subsection (1) above.
(5) If the money was paid to the justices’ clerk by a receiver appointed under this Part of this Act or in pursuance of a charging order, the justices’ clerk shall next pay the receiver’s remuneration and expenses.
(6) After making-
(a) any payment required by subsection (4) above; and(b) in a case to which subsection (5) above applies; any payment required by that subsection,the justices’ clerk shall reimburse any amount paid under section 88(2) below.
(7) The justices’ clerk shall finally pay any compensation directed to be paid out of any sums recovered under the confiscation order under section 72(7) above.
(8) Any balance in the hands of the justices’ clerk after he has made all payments required by the foregoing provisions of this section shall be treated for the purposes of section 61 of the Justices of the Peace Act 1979 (application of fines, etc) as if it were a fine imposed by a magistrates’ court.”
The effect of sub-section (8) is that the balance goes into the Consolidated Fund and not to the prosecutor.
“(1) This section applies to the powers conferred on the High Court by sections 77 to 81 above or on the Court of Session by sections 90 to 92 below, or on a receiver appointed under this Part of this Act or in pursuance of a charging order.(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 the realisation of such property.
(3) In the case of realisable property held by a person to whom the defendant has directly or indirectly made a gift caught by this Part of this Act the powers shall be exercised with a view to realising no more than the value for the time being of the gift.
(4) The powers shall be exercised with a view to allowing any person other than the defendant or the recipient of any such gift to retain or recover the value of any property held by him.
(5) An order may be made or other action taken in respect of a debt owed by the Crown.
(6) In exercising those powers, no account shall be taken of any obligations of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order.”
“(1) Where a receiver appointed under this Part of this Act or in pursuance of a charging order takes any action-(a) in relation to property which is not realisable property, being action which he would be entitled to take if it were such property;(b) believing, and having reasonable grounds for believing, that he is entitled to take that action in relation to that property,he shall not be liable to any person in respect of any loss or damage resulting from his action except in so far as the loss or damage is caused by his negligence.
(2) Any amount due in respect of the remuneration and expenses of a receiver so appointed shall, if no sum is available to be supplied in payment of it under section 81(5) above, be paid by the prosecution or, in a case where proceedings for an offence to which this Part of this Act applies are not instituted, by the person on whose application the receiver was appointed.”
“(1) If proceedings are instituted against a person for an offence or offences to which this Part of this Act applies and either-(a) the proceedings do not result in his conviction for any such offence, or(b) where he is convicted of one or more such offences-(i) the conviction or convictions concerned are quashed, or(ii) he is pardoned by Her Majesty in respect of the conviction or convictions concerned,the High Court may, on an application by a person who held property which was realisable property, order compensation to be paid to the applicant if, having regard to all the circumstances, it considers it appropriate to make such an order.
(2) The High Court shall not order compensation to be paid in any case unless the court is satisfied-
(a) that there has been some serious default on the part of a person concerned in the investigation or prosecution of the offence concerned, being a person mentioned in subsection (5) below; and(b) that the applicant has suffered loss in consequence of anything done in relation to the property by or in pursuance of -(i) an order under this Part of this Act; or(ii) …”
Sub-section (5) names various persons involved in the investigation and prosecution of offences.
“An application for a restraint order … or for a charging order … (to either of which may be joined an application for the appointment of a receiver) may be made by the prosecutor by the issue of a claim form notice of which need not be served on any other party.”
“A restraint order may be made subject to conditions and exceptions, including but not limited to conditions relating to the indemnifying of third parties against expenses incurred in complying with the order, and exceptions relating to living expenses and legal expenses of the defendant, but the prosecutor shall not be required to give an undertaking to abide by any order as to damages sustained by the defendant as a result of the restraint order.”
“Upon the court being notified that proceedings for the offences have been concluded or that the amount, payment of which is secured by a charging order has been paid into court, any restraint order or charging order, as the case may be, shall be discharged.”
“A person appointed receiver shall be allowed such proper remuneration, if any, as may be authorised by the court.”
“A receiver shall submit such accounts to such parties at such intervals or on such dates as the court may direct.”
Rule 5(3) provides that an application may be made to the court should any party be “dissatisfied with the accounts of the receiver.” Rule 8 provides:
“A receiver may at any time request the court to give him directions and such request shall state in writing the matters with regard to which directions are required.”
Andrews
“The defendant and his son were charged with offences to which Part VI of the Criminal Justice Act 1988 applied and restraint orders were obtained against them both. On the basis that the son was likely to dissipate assets, a receiver was appointed over money which had been seized from the defendant and other assets, including 56 vehicles belonging to companies with which the defendant and his son were associated. The son was convicted but the defendant was acquitted and awarded his costs out of central funds. The taxing officer held that those costs did not include the costs of the receivership proceedings. The restraint order was discharged but, when the receiver released the property, she retained £10,011 to cover the prior expenses of the receivership.”
"the costs of [the appellant] of and occasioned by these proceedings (inclusive of the fees, charges, disbursements, expenses and all other costs and remuneration of the receiver appointed herein by order of Schiemann J. dated 7 July 1994) be paid to [the appellant] by H.M. Customs and Excise."
Owen J. dismissed the summons and the Court of Appeal dismissed the appeal.
“This appeal gives rise to an interesting and difficult question in an arcane field at the intersection of the old equitable remedy of receivership and the modern procedures of the Criminal Justice Act 1988 designed to combat serious crime. The problem in a nutshell is this: if a receiver is appointed under that Act to receive and manage a defendant's property and incurs costs and expenses in so doing, who bears that cost and expense if the defendant is subsequently acquitted by the Crown Court and awarded his costs of defence out of public funds?”
“1. When the court appoints a receiver or manager the receiver/manager is an officer of the court not the agent of either party in the proceedings: see Gardner v. London Chatham and Dover Railway Co. (No. 1) (1867) L.R. 2 Ch.App. 201, 211-212, per Cairns L.J., who added:"When the court appoints a manager of a business or undertaking, it in effect assumes the management into its own hands; for the manager is the servant or officer of the court, and upon any question arising as to the character or details of the management, it is the court which must direct and decide."2. For their remuneration, the ordinary position was stated by Warrington J. in Boehm v. Goodall [1911] 1 Ch 155, 161-162:
"I think it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the assets which are under the control of the court. The court itself cannot indemnify receivers, but it can, and will, do so out of the assets, so far as they extend, for expenses properly incurred; but it cannot go further. It would be an extreme hardship in most cases to parties to an action if they were to be held personally liable for expenses incurred by receivers and managers over which they have no control. But the receiver here says that this is not the ordinary case, because the judgment appointing him was by consent and, by consenting, all the parties have impliedly requested him to incur these liabilities. In my opinion that fact makes no difference at all. If I were to accede to that argument, I should have to hold in every case that the person who puts the court in motion and gets a receiver appointed would have to indemnify the receiver. The fact that the order was made by consent does not, in my opinion, distinguish this case from the numerous cases in which orders have been made without consent."This seems hallowed authority and, although the point is made in the appellant's favour of the "extreme hardship" of holding him personally liable for expenses incurred, the judgment is clearly dealing with expenses incurred in excess of the amount in the receiver's hands. On the other hand the finding which is against the appellant is that the plaintiff does not, merely by making the application, become liable for the receiver's remuneration and expenditure.
3. In Evans v. Clayhope Properties Ltd. [1988] 1 W.L.R. 358, 362, Nourse L.J. said:
"Boehm v. Goodall [1911] 1 Ch 155 was a decision based on statements of principle of high authority. In my judgment it was correctly decided and it applies to this case. Moreover, the decision is one of jurisdiction and, unless any part of the receiver and manager's remuneration and expenditure can be treated as 'costs' . . . no question of discretion arises."In that case this court held accordingly that where the court had by interlocutory order appointed a receiver and manager to manage property the subject of an action pending trial of the action, it had no power, before the issues in the action had been determined, to make an interim order requiring one of the parties to pay the remuneration or expenses of the receiver and manager; and that, accordingly, the receiver and manager was entitled to recover his remuneration and expenses only from such funds as were under the control of the court pursuant to the receivership.
4. That principle was extended by Mr. Michael Hart Q.C., then sitting as a deputy High Court judge in Mellor v. Mellor [1992] 1 W.L.R. 517, where he held that the receiver's lien over the assets gave him a continuing right to possession even after the discharge of the receivership order and accordingly he was entitled to an order charging all the assets available to him during the currency of his receivership with the amount of his costs and remuneration.
So much appears to be settled. The ordinary rule is that receivers should not accept their appointment unless satisfied that the receivable assets will be sufficient to meet their claim for costs and for remuneration or that they would be otherwise indemnified, by contract or by order of the court, by the party responsible for their appointment. In this case there was an agreement between the receiver and H.M. Customs and Excise that Customs and Excise would indemnify the receiver if she were unable to bring in sufficient assets to meet her costs. That did no more than replicate the statutory position because section 88(2) of the Act of 1988 provides: "Any amount due in respect of the remuneration and expenses of a receiver so appointed shall, if no sum is available to be applied in payment of it under section 81(5) above, be paid by the prosecutor . . ." Section 81(5) provides that, if the receiver has paid moneys in his hands to the clerk of the court in satisfaction of a confiscation order made against the defendant, then the clerk shall pay the receiver's remuneration and expenses out of that sum.” (1243-1244)
“whether or not the remuneration and expenses incurred by the receiver could be treated as part of the costs of the action in which the receiver was appointed.” (1243-1244)
"(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in . . . (b) the High Court . . . shall be in the discretion of the court."
“I have not found this an easy point to decide. Eschewing, as I have, any suggestion that the appellant can count himself lucky to have been acquitted, I find it intrinsically unfair that the appellant should be indemnified in the Crown Court [under what is now known as a defendant’s costs order] but not in the Queen's Bench Division where the proceedings should stand or fall with the criminal proceedings.”
“The true position, as it now appears to me, is that the investigation of whether or not the defendant has suffered loss by reason of the receivership is an investigation which should be and ordinarily would be conducted in deciding whether or not damages should awarded against the plaintiff for breach of the usual undertaking as to damages a plaintiff would normally be required to give. Such an investigation would enable justice to be done. Here no undertaking was given and none ordinarily is. Mr. Mitchell submits that section 89 of the Act provides a defendant with the only relief to which Parliament thought he was entitled.”
In fact, as Aldous L.J. pointed out in his judgment (1249) and as I have shown (paragraph 35 above), a prosecutor may not be required to give such an undertaking “as to damages sustained by the defendant”.
“I am, with unfeigned reluctance, compelled to conclude that, even if the expenses of the receivership are within the definition of costs, they are not costs ‘of and incidental to [the] proceedings.’ They must lie where they fall.We have had no argument addressed to us as to whether or not the events which have happened could amount to a breach of article 1 of the First Protocol (1954) (Cmd. 9221) to the Convention for the Protection of Human Rights and Fundamental Freedoms (1953) (Cmd. 8969), which provides: ‘No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law . . .’.
“The remuneration of a receiver is an expense of the receivership not costs incidental to the proceedings in which he is appointed.” (1248)
“I realise that on the facts of this case the appellant may seem to have been treated unfairly by the conclusion that I have reached, as his £10,000 was used up as an expense of the receivership and therefore cannot be recovered. That in my view is the result of the type of proceedings and the conditions for recovery laid down in the Act. Parliament in section 88 of the Act specifically limited the right to recover from a receiver to cases where negligence is established. It is accepted for the purposes of these proceedings that there was no negligence.I would add that in my judgment Mr. Mitchell was right in his submission that this really was a claim for compensation dressed up as an application for an award of costs; and it is therefore most significant that by section 89 Parliament laid down a carefully regulated code for such a claim. Consequently, in my judgment section 89 is the proper avenue for a compensation claim of this kind, provided of course the claimant can bring himself within the rather strict requirements of the section.” (1248-1249)
Comparison between CJA/DTA cases with civil cases
“HM Customs and Excise will pay the reasonable costs of anyone other than the defendant, ... Fones 2 Go (Supplies) Limited, ... which have been incurred as a result of compliance with this order including the costs of ascertaining whether that person holds any of the defendant’s assets SAVE THAT HM Customs and Excise will not pay any legal or accountancy costs so incurred without first giving their consent in writing.”
The order excluded a number of persons as well as Supplies.
“The Applicant will pay the reasonable costs of anyone other than the Respondent which have been incurred as a result of this Order including the costs of ascertaining whether that person holds any of the Respondent’s assets and if the Court later finds that this Order has caused such person loss, and decides that such person should be compensated for that loss, the Applicant will comply with any Order the Court may make.” (See Schedule B of the form set out in Practice Direction 25- Interim Injunctions)
If this had been a civil case, Supplies would probably have been named as a defendant, in which case the normal cross-undertaking given to the opposing party would have given it protection. If not, then Supplies would have had the benefit, as would Timothy, of this undertaking.
Applicants’ submission that Andrews should not be followed
“ the scheme of the legislation is that the receiver’s costs should be met by the prosecutor and then if the defendant is convicted and a confiscation order is made, the prosecutor will be reimbursed from the sums paid in satisfaction of the confiscation order.”
(a) to an insolvency practitioner, in respect of expenses incurred by him (ss. 1)(b) to such person (if any) and in such sums as the High Court may direct (ss. 1)
(c) the justices’ clerk, to satisfy the confiscation order (ss. 1 and 3).
If there is a balance in the receiver’s hands after the confiscation order has been fully paid to the justices’ clerk, then the receiver must distribute the balance in accordance with the directions of the High Court (ss. 2).
(a) to an insolvency practitioner, in respect of expenses incurred by him, if not already paid (ss. 4)(b) to a receiver, in respect of his costs (ss. 5)
(c) to the prosecution, to reimburse the prosecution for any payments made by the prosecution to the receiver under s. 88(2) (ss. 6)
(d) to any person to whom compensation has been directed to be paid under s. 72(7) (ss. 7)
(d) to the Consolidated fund (ss. 8 and see paragraph 30 above).
“19. S.88(2) is a supplementary provision which is only relevant in circumstances where money has been paid to the justices clerk by a receiver appointed under Part VI of the CJA (S.81(5)) and there are insufficient funds to pay the receiver or there are no proceedings brought against the defendant (for he cannot make a compensation claim). [see s.89]20. The CJA, sc.30 and sc.115 provide a scheme whereby the receiver can be paid from the assets controlled by the receiver. The level of the remuneration to be paid is within the discretion of the Court.
21. Section 77(8) which provides the power for the appointment of a pre-conviction management receiver permits the court to order that the receiver manage or otherwise deal with the property subject to exceptions and conditions as it may specify. The court in this appointment permitted the receiver to be paid her costs in accordance with the usual terms from the property under her management.
22. Section 81(1) recognises that there will be realisations from receivers appointed under section 77 (see subsection (b)). It directs that the court will first discharge the costs of an insolvency practitioner and then permits the High Court to direct payments to be made as is appropriate before directing funds be paid for a confiscation order. This process is in advance of monies reaching the justices’ clerk (see 81(3), (4) and (5)).
23. Accordingly there may be circumstances where the receiver has been paid or is permitted to be paid out the property under control. Section 88 would only become relevant if there was ‘any amount due in respect of the remuneration and expenses of a receiver’ and the justices’ clerk has insufficient funds or the person made subject to the receivership order was never charged. It is not applicable where the court has made provision for the receiver to be paid and the money is there to pay the receiver in accordance with the terms of the appointment.
24. Therefore in the first place remuneration under the Order should be made from the estate under the common law and sc.30; or in the second place from sums remitted to the justices clerk under s.81(5) CJA; or, finally if there are no sums available, from the prosecutor.
25. To read the provision so that the Crown must pay the receivers costs in all cases unless any or sufficient monies have been paid to the clerk to the justices would make all the statutory scheme and sc.30 and sc.115 otiose and fails to take account of the fact that the receiver is an Officer of the Court.
26. Had Parliament intended that the consequence of the appointment of a receiver under the provisions of Part VI CJA to be that the prosecutor would pay the costs of the receiver in all cases save where the realisations had led to payments being made to the magistrates court it would have expressly so stated. It has not so stated.”
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
“When a person has by a final decision been convicted of a criminal offence and when subsequently his conviction has been reversed, or he has been pardoned, on the ground that a new or newly discovered fact shows conclusively that there has been a miscarriage of justice, the person who has suffered punishment as a result of such conviction shall be compensated according to the law or the practice of the State concerned, unless it is proved that the non-disclosure of the unknown fact in time is wholly or partly attributable to him.”
Conclusion and summary
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