England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Rolls Building Fetter Lane, London, EC4A 1NL
		21/03/2014; Revised 10 October 2014

Mr Justice Walker:

A. Introduction	1
B. The confiscation proceedings	3
B1. An overview of the confiscation proceedings	3
B2. The restraint order: English property & the Benalmádena villa	7
B3. The confiscation order and the receivership	8
B4. The Magistrates' Court proceedings	13
C. History of the present application	16
D. The legal framework	26
E. The hearing and written submissions	33
E1. The hearing	33
E2. Written submissions for the Crown Prosecution Service	47
E3. Written submissions for Mr Mundy	54
F. Analysis	59
G. Conclusion	77

A. Introduction

1. Mr Christopher Vincent Mundy applies for a certificate of inadequacy under section 14 of the Drug Trafficking Offences Act 1986 ("DTOA 1986"). For this purpose it is common ground:

(1) that the amount remaining to be recovered under the relevant confiscation order (an amount which I shall refer to as the "outstanding amount") is £63,032.30; and

(2) that Mr Mundy will be entitled to a certificate of inadequacy if, but only if, he shows on the balance of probability that his "realisable property", within the meaning of DTOA 1986, is inadequate for the payment of the outstanding amount.

2. On 31 July 2014 I made an order refusing the application.^[1] In this judgment I set out my reasons.

B. The confiscation proceedings

B1. An overview of the confiscation proceedings

3. Mr Mundy's application arises out of a confiscation order made following his conviction of conspiracy to produce a controlled drug. The application is governed by DTOA 1986 because he was charged with that offence, and indeed convicted of it, prior to 3 February 1995 (when the Drug Trafficking Act 1994 came into force), and because savings provisions in subsequent legislation have the effect that relevant provisions of DTOA 1986 continue to apply as they stood at the time when Mr Mundy was charged.
4. The confiscation order was preceded by a restraint order, made under powers conferred by sections 7 and 8 of DTOA 1986. Section B2 below explains that the restraint order specifically identified certain assets, among them real property in Spain.
5. More than two years after the confiscation order, at a stage when Mr Mundy was serving the sentence imposed for the offence of conspiracy to produce a controlled drug, a receiver was appointed. As explained in section B3 below, it seems that the receivership was in existence for a period of just under two years.
6. Nearly 10 years after the confiscation order enforcement proceedings were begun in Liverpool Magistrates' Court. By this time Mr Mundy had served his sentence, and was no longer in prison. The Magistrates' Court proceedings are dealt with in section B4 below.

B2. The restraint order: English property & the Benalmádena villa

7. On 9 November 1989, in proceedings in the Queen's Bench Division of the High Court entitled "DTOA 79 of 1989", Nolan J made an order on the application of the Crown Prosecution Service. The order was made against two defendants, they being Mr Mundy and a co-defendant, Roland Martin Gehrke. The order restrained them from dealing with their assets. Particular assets were specified in relation to each of Mr Mundy and Mr Gehrke. In the case of each of them the list of particular assets included an interest in a villa known as 2, Avenue Mediterranea, Benalmádena, Spain. I shall refer to it as "the Benalmádena villa".

B3. The confiscation order and the receivership

8. Both Mr Mundy and Mr Gehrke were convicted in the Crown Court at Manchester of conspiracy to produce a controlled drug. Confiscation orders under section 1 of DTOA 1986 were made. In the case of Mr Mundy the order was made on 20 December 1990 by HHJ Hammond in an amount of £164,806.46. The order required that payment be made on or before 20 December 1991. It stated that in default of payment Mr Mundy was to serve three years imprisonment consecutive to any term in custody which he was liable to serve for his criminal offending. It seems that at some point the date for payment was extended until 24 February 1995.
9. The sentence imposed on Mr Mundy for his criminal offending was a term of ten years imprisonment. He was released on licence in January 1994. Eight months before his release a further order was made in DTOA 79 of 1989, on this occasion by Mr Justice Schiemann. The order was dated 29 April 1993, and was made upon the application of the Crown Prosecution Service. It appointed Mr WS Martin of Ernst & Young as receiver ("the receiver") for the purpose of enforcing the confiscation order made against Mr Mundy on 20 December 1990. The order required delivery over to the receiver of all Mr Mundy's realisable property.
10. Almost all records of the receivership have been destroyed. A court database printout shows that on 21 February 1995 a sum of £101,774.16 was paid towards satisfaction of the confiscation order. All concerned agree that this was an amount realised and paid in by the Receiver. It is on this basis that the outstanding amount has been computed at £63,032.30.
11. No further payments were made towards satisfaction of the confiscation order. A record card held by Ernst & Young identifies that the Receiver was discharged from office on 14 March 1995.
12. Mr Mundy says he believed that the receiver had taken possession of the Benalmádena villa. It is common ground, however, that the Benalmádena villa was not in fact delivered over to the receiver.

B4. The Magistrates' Court proceedings

13. Until 1 April 2011 Her Majesty's Court Service had responsibility for enforcing confiscation orders. On that date it became part of Her Majesty's Courts and Tribunals Service. I shall use the abbreviation "HMCTS" without distinguishing between these two bodies.
14. On 1 December 2010 HMCTS wrote to Mr Mundy informing him that the outstanding amount was owing and that Liverpool Magistrates' Court would be dealing with enforcement. An initial hearing was fixed for 17 December 2010. This and subsequent hearings were adjourned, the magistrates' court having been told that Mr Mundy was awaiting the outcome of a Spanish court hearing concerning the eviction of squatters from the Benalmádena villa.
15. At a hearing on 16 March 2012 solicitors acting for Mr Mundy were informed that the default sentence would be activated unless evidence were provided both in relation to the Spanish proceedings and in relation to what was at that stage a proposed application for a certificate of inadequacy.

C. History of the present application

16. In mid 2012 Susan Howarth & Co Solicitors Ltd replaced those who had previously been acting on behalf of Mr Mundy. Mr Martin Ryan of that firm submitted to the High Court an application for a certificate of inadequacy. The application was returned for failure to provide copies of the original confiscation order and indictment. It was eventually issued by the court on 23 April 2013, after a copy of the original confiscation order was supplied and it had become apparent that a copy of the original indictment could no longer be obtained.
17. The application was supported by a witness statement of Mr Mundy dated 29 June 2012 ("Mundy 1"). Paragraph 6 of Mundy 1 asserted that Mr Gehrke had been the subject of a confiscation order, in relation to which a certificate of inadequacy had been issued. Turning to his own assets, Mr Mundy at paragraphs 7 to 9 of Mundy 1 dealt with two assets in England (a property in Maghull, Merseyside, and a hairdressing business) and the Benalmedena villa. Those paragraphs stated:

7. At no point whilst I was in custody was I informed that the property in Spain could not be seized. I believed that the Spanish property had been seized by the authorities. This property value was taken into account in the original Confiscation hearing and in assessing my apparent realisable property. That property is now the subject of contested legal proceedings in Spain. I attach herewith marked "CVM3" a copy letter from a Spanish Lawyer indicating the nature of the proceedings and the likely timescale. This Spanish property, subject to contested title in Spain, also involves my ex- Wife who has the title to the property. This property is not realisable, cannot be seized, and should now be properly considered afresh in the Crown Court after the issue of a Certificate of Inadequacy. I trust that the Crown Prosecution Service Confiscation Unit will be able to confirm this state of affairs to the Court.

8. Similarly, there are issues involving the Maghull property and the Hairdressing business, as to my ex Wife's title to both. Again, this should be considered in full at the Crown Court.

9. lt is now nearly 22 years since the original case and Order. My realisable property is less than that taken into account in making the original Confiscation Order. The Court needs to fully and properly consider what assets were taken into account in making the original Order, what the individual assets realised, and the value attributed to the Spanish property which is not realisable.

18. Exhibit "CVM3" was a letter from a Spanish lawyer, Noelia J Vrachnas, dated 9 April 2012. The letter read as follows:

Dear Mr. Mundy,

As requested, I will now try to answer the questions made by the Court in the UK on the 16^th of March 2012:

1.- We still do not have a date for the appeal to be heard by the Provincial Court but according to other appeals at the same section and Court, we estimate that it will take approximately two years for the hearing to be held.

The appeal is based on two major issues: a) defencelessness, as the plaintiffs did not have a solicitor present at the first hearing and b) they allege again that the contracts we provided with our defence are overruled by the ones they presented, which we have already proven to be false.

2.- I confirm that under our legislation, Mr. Mundy cannot force the sale of the property involved in this court proceedings, until the whole case has been finalized with a firm sentence. This is due to the fact that there are people occupying the property who allege that the property is theirs, therefore, until the Court determines the ownership rights, nobody can dispose of the property.

3.- As stated previously, we estimate that the appeal will not be heard until the end of 2013, beginning of 2014. This is only an estimate as the Court has not given us a date for the hearing of our case as yet. Once the hearing is held, the Provincial Court can take up to 6 months to rule their decision.

4.- If the Court found in Mr. Mundy's favour, in general terms, the other party does have the possibility to Appeal before the Supreme Court. This is a very specific appeal which is much more complex and it is not always admitted by the Supreme Court. Nevertheless, the plaintiffs might try it on just to gain time between the sentence of the Provincial Court and the final decision of the Supreme Court on whether the appeal is accepted or not.

19. Regrettably it was not until July 2013 that the relevant unit of the Crown Prosecution Service was informed of these proceedings, which came to their notice when they were served with an order of MacDuff J adjourning the proceedings to 30 July 2013. A skeleton argument dated 29 July 2013 was prepared by Mr Hamish Common on behalf of the Crown Prosecution Service. It sought time to consider the application and file evidence. Case management directions in this regard were made by Baker J on 30 July 2013.
20. In accordance with those directions the Crown Prosecution Service lodged a witness statement of Marie-Lise Hann dated 4 September 2013 ("Hann 1"). Hann 1 asserted that Mr Mundy's evidence failed adequately to address the nature and extent of his assets, or what he had done with the assets or the proceeds of sale of the assets. At paragraphs 18 to 23 and 28 to 30, Hann 1 dealt with properties in England, 20 Melling Lane, Maghull, Merseyside, and 8 Sherbourne Square, Huyton.
21. At paragraphs 24 to 27 Hann 1 dealt with the Benalmádena villa. Paragraph 24 made reference to the proceedings described in the letter from Ms Vrachnas dated 9 April 2012. The position of the Crown Prosecution Service was set out in paragraphs 25 to 27 as follows:

25. Ms Vrachnas confirms that the proceedings relate to ownership of the property and that it therefore cannot be sold until resolution of the same. The Crown accepts this position. She further confirms that the proceedings will not be heard until the end of 2013 or the beginning of 2014, with the Ruling taking up to 6 months to be made.

26. Given that Ms Vrachnas' letter dates back to April 2012, the defendant is requested to provide up to date information in relation to the proceedings.

27. It is the Crown's position that, until the Spanish proceedings are resolved, it is not possible to establish whether there is an inadequacy in relation to this asset. The Crown therefore opposes the application for a Certificate of Inadequacy in relation to this asset.

22. Consistently with this stance, a supplemental skeleton argument prepared by Mr Common dated 30 October 2013 submitted in paragraph 19 that a certificate of inadequacy should not be granted where there are pending proceedings which would involve uncertainty as to ownership of assets.
23. The matter was listed for hearing before me on 7 November 2013. On the day before the hearing a second witness statement of Mr Mundy ("Mundy 2") was lodged. It explained in relation to 20 Melling Lane that it had been sold while he was in prison, and his share of the proceeds had been paid to the receiver. As to 8 Sherbourne Square, his only interest in the property had comprised a 23 year lease in the joint names of himself and Mr R M Heyes. They were partners in a hairdressing business. Mr Mundy said that when the partnership was dissolved in 1989 he relinquished his interest in 8 Sherbourne Square.
24. As regards the Benalmádena villa, paragraph 3 of Mundy 2 made a number of assertions. For convenience, I have numbered each sentence in that paragraph in square brackets. As so numbered, it stated:

The Spanish Villa

[3.1] My co-defendant and I bought the Villa 50/50% in approximately 1988, in our respective wives' names and ours. [3.2] There were four of us on the title. [3.3] I thought that this property had been seized and sold whilst I was in custody.

[3.4] It was not until approximately 2004 that my co-defendant contacted me to let me know that there were squatters and that it was up to ourselves to get the squatters out and to sell it. [3.5] This was to be a simple eviction and sale.

[3.6] My co-defendant had put the family in it in 1998. [3.7] It had been vacant for a number of years. [3.8] That family paid rent to my co-defendant Gerkhe.

[3.9] I had no contact with my co-defendant until he traced me through my wife in 2004. [3.10] He wanted a Power of Attorney from me and my wife in Spain to enable the eviction to take place.

[3.11] We went to Spain in 2005 and contacted Spanish Solicitors to sign the Power of Attorney, enabling the Solicitors to conduct the necessary legal proceedings, which have been on-going since. [3.12] In 2005 the Solicitor said she would have them out in three months!

[3.13] The legal proceedings Hearing did not take place until July, 2007. [3.14] Everyone was in Court. [3.15] We won the case and the Squatters were given two years to appeal under Spanish Law, which they did.

[3.16] On 11th October, 2013 the matter went before the Appeal Judge again in Spain. [3.17] I exhibit herewith marked CVM/1 copy email from the Spanish lawyer dealing with the matter, giving an account of the proceedings in Spain. [3.18] It confirms that on 25th October the proceedings were effectively ordered to start again. [3.19] The matter will take years to conclude. [3.20] The result is that the property in Spain is not available for sale and is not realisable.

[3.21] The value of the property in Spain has dropped significantly. [3.22] My share would be a quarter of what the property is possibly worth but I would have to [pay] 40% of that in tax to the Spanish Authorities, which is the same for the other three owners.

[3.23] My co-defendant successfully claimed to the Courts in 1995 that there were insufficient monies in the Spanish Villa or elsewhere to satisfy the order.

25. Exhibit "CVM/1" was an email from Ms Vrachnas dated 5 November 2013. It comprised fourteen numbered paragraphs, followed by three un-numbered paragraphs. For convenience, I have numbered the last three paragraphs in square brackets. As so numbered, it stated:

1. Law suit was presented on the 18/04/2007 against Mr. & Mrs Gehrke and Mr. & Mrs. Mundy (joint owners of the Spanish property).

2. The Law suit was admitted by the Court on the 11/05/2007.

3. With regards to Mr. & Mrs. Mundy the answer to the law suit was presented on the 13/07/13.

4. On the 19/12/07 the pre-hearing was held and the judge decided to reject the law suit presented against Mr. & Mrs. Lowe, at the moment of answering their law suit (in Spain, when you receive a law suit, you can just answer it opposing or not to it or you can answer it and at the same time present a law suit against other party. Mr. & Mrs Gehrke answered and also sued Mr. & Mrs. Lowe).

5. There was an appeal presented against this decision and the higher court finally resolved in our favour on the 28/09/09.

6. On the 16/11/09, the court of first instance sent copy of our law suit to Mr. & Mrs Lowe so that they would answer it, which they did on the 21/12/09.

7. The new pre-hearing was set for the 23/03/10.

8. In the meantime, Mr. Lowe passed away and until the 24/11/10 the court did not accept his heirs as new plaintiffs.

9. The new pre-hearing was held on the 23/03/11. As the parties did not come to an agreement at said pre-hearing, the judge appointed the 06/07/11 for the hearing.

10. The hearing was held on the 06/07/11, without the presence of a lawyer to represent the plaintiffs, as their lawyers alleged that they had another court case on the same day and time. The judge dismissed their allegations as there was no legal base to suspend the hearing.

11. On the 21/07/2011 the sentence was served and it ruled in our favour.

12. Mrs. Lowe and Mr. Lowe's heirs appealed this sentence to a higher court.

13. On the 11/10/13 the magistrates of the higher court dealt with the appeal, voted and ruled their sentence.

14. On 25/10/13 the sentence was served to us. On said sentence, the higher court does not deal with the main object of the court case, it just states that, as Mrs. Lowe and Mr. Lowe's heirs did not have a lawyer at the hearing, they were defencelessness and therefore, the proceeding have to go back to that particular point and the hearing has to be held again.

[15.] This means that all the paperwork has to go back to the court of first instance and a new date for the hearing will have to be appointed, the hearing will have to be held again and the judge (new judge now) will have to rule a new sentence.

[16.] With regards to timescale, I cannot tell you, it can be one or two more years and that is without taking into account an appeal. It all depends on the courts agenda and when the new hearing will be held.

[17.] I hope this gives you a picture of the whole process which, as you can see, has had all the hiccups it could have (obviously part of the plaintiffs strategy is to gain as much time as possible by interrupting the ordinary running of the process in any way possible). We have never come across a court case with so many interruptions and extraordinary circumstances.

D. The legal framework

26. The relevant legal framework was conveniently set out in written material supplied to the court by Mr Common. For ease of reference I adopt and set out key elements in that framework.
27. The High Court has the power under section 14 of DTOA 1986 to make an order certifying that an applicant's realisable property is inadequate to meet the original confiscation order. Section 14 is in these terms:

(1) If, on an application by the defendant in respect of a confiscation order, the High Court is satisfied that the realisable property is inadequate for the payment of any amount remaining to be recovered under the order the court shall issue a certificate to that effect, giving the court's reasons.

(2) For the purposes of subsection (1) above—

(a) in the case of realisable property held by a person who has been adjudged bankrupt or whose estate has been sequestrated the court shall take into account the extent to which any property held by him may be distributed among creditors, and

(b) the court may disregard any inadequacy in the realisable property which appears to the court to be attributable wholly or partly to anything done by the defendant for the purpose of preserving any property held by a person to whom the defendant had directly or indirectly made a gift caught by this Act from any risk of realisation under this Act.

(3) Where a certificate has been issued under subsection (1) above, the defendant may apply to the Crown Court for the amount to be recovered under the order to be reduced.

(4) The Crown Court shall, on an application under subsection (3) above—

(a) substitute for the amount to be recovered under the order such lesser amount as the court thinks just in all the circumstances of the case, and

(b) substitute for the term of imprisonment or of detention fixed under subsection (2) of section 31 of the Powers of Criminal Courts Act 1973 in respect of the amount to be recovered under the order a shorter term determined in accordance with that section (as it has effect by virtue of section 6 of this Act) in respect of the lesser amount.

28. "Realisable property" is defined for the purposes of DTOA 1986 in section 5 as follows:

(1) In this Act, "realisable property" means, subject to subsection (2) below—

(a) any property held by the defendant, and

(b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Act.

…

(4) Subject to the following provisions of this section, for the purposes of this Act the value of property (other than cash) in relation to any person holding the property—

(a) where any other person holds an interest in the property is—

(i) the market value of the first mentioned person's beneficial interest in the property, less

(ii) the amount required to discharge any incumbrance (other than a charging order) on that interest,

and

(b) in any other case, is its market value.

29. Section 38 of DTOA 1986 (general definitions) states in subsections (1), (3) and (7):

(1) … "property" includes money and all other property, real or personal, heritable or moveable, including things in action and other intangible or incorporeal property.

(3) This Act applies to property whether it is situated in England and Wales or elsewhere.

(7) Property is held by any person if he holds any interest in it.

30. In R v Walbrook and Glasgow (1994) 15 Cr. App. R. (S.) 783, the Court of Appeal held that where there was an asset held by the defendant (in that case a debt),

… the onus is on him to satisfy the court that the realisable value of the debt is less than its face value. In our view, this he must do by producing clear and cogent evidence; vague and generalised assertions unsupported by evidence will rarely if ever be sufficient to discharge the burden on the defendant.

31. In R v Summers [2008] EWCA Crim 872, the Court of Appeal confirmed the position in Walbrook and Glasgow, adding:

11. It is clearly established by authority and was accepted in this case that the burden of establishing that the realisable amount was less than the benefit so as to justify a lower figure for the confiscation order was on the appellant to the civil standard on the balance of probabilities and it is equally clear that if he sought to establish that he had to do so by clear and cogent evidence: Walbrook & Glasgow [1994] 15 Cr.App.R (S) 783 followed in Anderson [2005] EWCA Crim. 3384. Following from that, it is also clear that there is no burden on the prosecution to show a prima facie case of hidden assets, but for the appellant to provide evidence demonstrating the extent of his realisable assets: Barwick [2001] 1 CrAppR (S) 129 and Barnham [2006] 1 CrAppR (S) 16.

12. At paragraph 39 of the judgment in the latter case, Gage LJ, giving the judgment of the court, said:

"We reject the submission that the prosecution was required to do anything further at the second stage of the proceedings by way of providing a prima facie case for the appellant to meet.

In our judgment the correct approach for the court to take when dealing with confiscation proceedings at the second stage is the same whether the benefit has been proved by evidence in addition to the statutory assumptions. Once the prosecution has established the benefit there is no requirement on it to provide a prima facie case. At the second stage the burden of proof shifts to a defendant to establish, if he can, his realisable assets to the satisfaction of the court. By the second stage a defendant will know exactly how the court has determined benefit attributable to him and must prove by evidence what his realisable assets are. It is for him to show why the confiscation order should not be 'the value of (his) proceeds of drug trafficking'. If he proves that he has no, or appreciably less, realisable assets than the amount of the benefit determined by the court the order will be made in the lesser sum. Provided the judge keeps well in mind the principle that the risk of serious injustice to the defendant must be avoided and does not just pay lip service to that principle the order will be in the amount assessed as either the amount of benefit or such other sum as the defendant shows represents his realisable assets.

To hold that the prosecution must, in some way, show a prima facie case that the defendant has hidden assets in our judgment would defeat the object of the legislation. It is designed to enable the court to confiscate a criminal's ill-gotten gains. The expression 'hidden assets' is indicative of the fact that the prosecution can have no means of knowing how and where a defendant may have dealt with or disposed of the proceeds of his criminal activities."

32. Other authorities relied on by the parties are referred to in sections E and F below.

E. The hearing and written submissions

E1. The hearing

33. At the hearing before me on 7 November 2013 Mr Mundy appeared in person. He was assisted by Mr Ryan. Mr Common appeared on behalf of the Crown Prosecution Service. I am grateful to both sides for their clear and helpful submissions.
34. At the start of the day's proceedings in court I put back the case which was first in the list so that I could discuss with the parties the position in the present case. I expressed my concern at the amount of public money that had been spent in this case, not merely in relation to the application for a certificate of inadequacy but also in the enforcement proceedings. I asked the parties to consider whether the interests of justice might be best served if Mr Mundy were to give an undertaking as to such interest as he may have in the Benalmádena villa following the conclusion of the proceedings in Spain concerning that villa. For this purpose, and in order to enable the first matter in the list to be dealt with, I adjourned the present case to 2pm.
35. When the hearing resumed at 2pm Mr Common informed me that there had been no settlement. So far as the hearing that day was concerned, the Crown Prosecution Service was content that Mr Mundy's late evidence should be received.
36. So far as Mr Mundy was concerned, his submission was that the Benalmádena villa was not realisable. The legal proceedings concerning the squatters at the property meant that neither the property itself, nor Mr Mundy's interest in it, could be sold. Mr Mundy was willing to assign his interest in the property to the Crown Prosecution Service.
37. Mr Mundy then gave evidence on oath. In his evidence in chief he verified the two witness statements that he had made.
38. Mr Mundy was then cross examined by Mr Common on behalf of the Crown Prosecution Service. The cross examination concerned both the Benalmádena villa and the English properties. It is convenient first to summarise the cross examination concerning the English properties. On that, Mr Mundy repeated the evidence he had given in Mundy 2. He added that he had known about the restraint order made by Nolan J since 1989 and had complied with it. He was permitted to spend the state benefits that he received and £100 per week. While in prison he had dealt with Ms Jane Bowman of Ernst & Young. There had been advice to apply for a certificate of inadequacy while he was in prison. However the solicitor he had instructed to deal with it, in Mr Mundy's words, "went bankrupt".
39. Turning to the Benalmádena villa, Mr Mundy said that in 2004 Mr Gehrke contacted him, saying that there were squatters and that it was their responsibility to get the squatters out. As to the position prior to this, in or around 1995 he had been aware that Ernst & Young had paid a sum of money into court and had been discharged as receivers. He had known that it was around £60,000 short, but had taken it as read that the Benalmádena villa would be sold. He himself had taken no steps to sell it: the crown court judge had said that if he attempted to sell any assets he would be in prison. His understanding was that it was not his to sell, because it had been seized.
40. As to the purchase of the Benalmádena villa, Mr Mundy said it was bought in the names of himself and his co-defendant and their wives using money from drug trafficking. He had not given any share in the property to his wife. The money for the property had been provided by him and his co-defendant in equal shares.
41. In answer to questions from me, Mr Mundy explained that he and his wife were divorced in or around 1996. He could not recall what financial provision was made by the court as part of the divorce, but stated that he had no ongoing liability to his ex-wife.
42. Mr Common asked Mr Mundy why he had not made payments weekly in order to discharge the confiscation order. Mr Mundy replied that he was convinced the Benalmádena villa would have been seized and dealt with, because of its value. He accepted that the fact that £60,000 was outstanding meant that the most likely position was that the Benalmádena villa had not been sold. He had not made payments as he was on benefits and as he had nothing left over after he had spent his money on living expenses. He said that he was unaware that he had any responsibility for the Benalmádena villa. He had not done anything to solve the problem of the £60,000 outstanding because he was under the impression that the Benalmádena villa would cover it. He had not heard from the Crown Prosecution Service until 2010 when he had been told of the enforcement proceedings. He described learning of the enforcement proceedings in 2010 as "a shock".
43. In reply to further questions from Mr Common, Mr Mundy accepted that he had engaged Spanish lawyers in 2005 and travelled to Spain in order to deal with the matter. He did not know the value of the property because they had not been able to get anybody in to value it. The instructions to Ms Vrachnas were to evict the squatters, to take possession and to sell the property subject to the confiscation order. He hoped that his share would meet the outstanding sum.
44. There was no re-examination of Mr Mundy. The stance adopted on his side of the matter remained that all assets other than the Benalmádena villa had been realised by the Receiver, and that the Benalmádena villa was not realisable.
45. On behalf of the Crown Prosecution Service Mr Common submitted that it had not been possible to test any of the assertions made in Mundy 2. If that statement had been provided earlier, the Crown Prosecution Service would have investigated Mr Mundy's wife's share in the Benalmádena villa, and what happened in relation to one of the English properties. He accepted that Ernst & Young would have gathered in all that they could so far as assets in this country were concerned, but that was in 1995. There might have been property that they could not gather in then but which was realisable now.
46. Turning to the Benalmádena villa, Mr Common submitted that the fact that it was subject to litigation should not mean that it was not realisable. I observed that this stance in relation to the Benalmádena villa was not the way that the matter had been put on behalf of the Crown Prosecution Service previously. It seemed to me to be important that the parties should have an opportunity of researching the point. I accordingly ordered that the hearing was adjourned for the remainder of argument to be dealt with by written submissions.

E2. Written submissions for the Crown Prosecution Service

47. In his written submissions on behalf of the Crown Prosecution Service Mr Common asked me to make four findings of fact. He expressed them in this way:

(1) The Applicant purchased the Spanish property in or around 1988 jointly with Roland Gehrke with funds held jointly between them.

(2) The Applicant still holds an interest in the Spanish property.

(3) Any share in the Spanish property held by the Applicant's ex-wife was given by the Applicant to her in or after 1988.

(4) The Spanish property is the subject of litigation in the Spanish courts and is proving difficult to sell, involving litigation and delays. The merits of the Applicant's position in Spanish law as having a valuable interest in the Spanish property appear to be in his favour, given the two court decisions in his favour before a higher court ordered proceedings to re-commence.

48. Turning to case law, Mr Common relied on R v Liverpool Magistrates' Court ex parte Ansen [1998] 1 All ER 692 for the proposition that the fact that an asset may be difficult to realise is simply not relevant. As was shown in the later case of Re R [2002] All ER (D) 431, the court would only grant a certificate if there had been a reduction in the value of the asset since the making of the confiscation order.
49. Mr Common relied upon the decision of the Court of Appeal in R v Modjiri [2010] EWCA Crim 829, [2010] 4 All ER 837 as summarising the policy taken by the confiscation legislative regimes towards assets held in real property which are difficult to realise. At paragraph 23 of its judgment, delivered by Stanley Burnton LJ, the Court of Appeal said this:

23. … The possibility that the defendant will not obtain an order for the sale of the property as a whole does not affect or diminish its market value (although the costs of obtaining the order may be relevant). A house does not have a market value of nil because a beneficial owner may not readily be able to obtain an order for its sale in order to realise its value. The same applies to the market value of a beneficial interest in the house. The suggestion that the market value of the beneficial interest is nil confuses market value (for the purposes of a valuation under POCA) with an individual's personal difficulty in putting the house on the market or otherwise realising his interest in it.

50. What was said in paragraph 23 may be contrasted with a later passage in the judgment of the Court of Appeal at paragraph 27:

27. It is clear that if a defendant proves that it is impossible to realise an asset, what is contended as its value cannot be included in the defendant's recoverable amount: see, e.g., Houssam Ali [2002] EWCA Civ 1450 at paragraph 11; Chen [2009] EWCA Crim 2669 at paragraph 27.

51. In R v Modjiri the governing statute was the Proceeds of Crime Act 2002 ("POCA"). The analysis is the same for DTOA 1986: at paragraph 24 the Court of Appeal commented that there was "no material difference between the provisions of the 1986 Act and those of POCA."
52. The decision of the Court of Appeal in R v Modjiri, submitted Mr Common, was an example of the general principle that if it is possible that the value of the interest in property can be realised, then it is to be regarded as realisable property. The policy of each of the confiscation legislative regimes was draconian, penal, designed for deterrence, designed to deprive an offender of the proceeds of criminal conduct and to impoverish defendants.
53. In the conclusion to his written submissions Mr Common repeated earlier points and, in paragraph 20, made certain additional points as follows:

(vi) The Applicant's bare assertion in his 6^th November 2013 witness statement that the property had diminished in value is not remotely sufficient to discharge the burden of proof. Notably there is no valuation currently, no any statement of what the properly was purchased for in 1988. 25 years have elapsed since the purchase of the property, and interest does not run on DTOA confiscation orders, despite changes in the value of money since 1988.

…

(viii) The possibility that the Applicant would not be capable of selling the Spanish property does not diminish its market value. A house does not have a market value of nil because a beneficial owner may not readily be able to obtain an order for its sale in order to realise its value. The same applies to the market value of a beneficial interest in the house: Modjiri paragraph 23, and supported in Stanley Burton LJ's view by Ansen in Modjiri paragraph 24.

…

(x) If an asset is impossible, and not merely difficult, to realise then it can be excluded from the ambit of realisable property. In Chen a pension fund was to mature in 9 years, but was impossible to surrender or borrow against before then. The court in Chen regarded as highly significant that under POCA, the prosecution would be able to apply to the Crown Court later to increase the 'available amount' upon the later availability of the pension fund: paragraphs 26 and 27. That power is not available under the DTOA. If the Applicant succeeds in obtaining a certificate of inadequacy and later has the confiscation sum reduced to zero or nominal sum, he will, upon a successful conclusion of the Spanish proceedings obtain the value of his interest in the Spanish property. This would be particularly invidious given the Applicant's evidence that it was bought with the direct proceeds of drug trafficking, and it is submitted, contrary to the plain purpose of the DTOA.

(xi) If the Applicant's evidence to the effect that he had assumed until enforcement proceedings started in 2011 that the Spanish property had been seized and his interest in it extinguished is accepted, the very fact that enforcement proceedings were re-commenced would have drawn the Applicant's attention to an asset in which he could realise his interest. Thus, if a certificate of inadequacy is obtained, the bringing of enforcement proceedings which then unsuccessfully concluded may allow a convicted drug trafficker to realise his interest in property acquired in connection with the offending, which he would otherwise not have realised. This further ironic set of circumstances is submitted to be contrary to the purpose of the DTOA.

E3. Written submissions for Mr Mundy

54. Written submissions on behalf of Mr Mundy were settled by Mr Ryan. Those submissions acknowledged that the application for a certificate of inadequacy could not be used to go behind the finding made at the confiscation hearing or embodied in the confiscation order as to the amount of realisable assets at the stage when the order was made: see Gokal v Serious Fraud Office [2001] EWCA Civ 368. It was necessary to demonstrate what had happened since the making of the order. The procedure in this regard was intended to be used only where there had been a genuine change in financial circumstances.
55. The written submissions then turned to the case of R v Chen (see paragraph 27 of the Court of Appeal's judgment in R v Modjiri, cited in section E2 above, and paragraph 20(x) of Mr Common's submissions, also cited in section E2 above). Extensive passages were cited from the judgment of the Court of Appeal, delivered by Elias LJ, in R v Chen. Among them were these:

15. … The pension policies are due to mature in 2018. The appellant's interest is therefore all in the future. He had no right to access the fund until that date. In particular, there was no surrender value and the policy could not be assigned or sold. The policy had an underlying value which represented the value of the units in the policy fund. It also had an anticipated transfer value, namely the anticipated capital value which would be available to the appellant on maturity. But neither value reflected any immediate benefit to the appellant.

…

27. … In our judgment, it is wrong to say that the market value of this policy was the current value of the underlying fund. There is simply no way in which it would have been possible to realise that or, in reality, any other money of property of any value under this policy. There was simply no market. The prosecution say that the appellant did not give evidence to the court to that effect. That is true, but all parties plainly and realistically accepted that he could obtain no money at all on the back of this policy.

56. Particular stress was also placed on what was said by Pill LJ in Re O'Donoghue [2004] EWCA Civ 1800 at paragraph 18:

All I would add, whilst expressing full agreement with what my Lord has said, is that the judge needs to keep a sense of proportion in conducting that exercise, however dishonest or unco-operative a defendant may have been with respect to what has been found to be one or more of his realisable assets. There could be cases where, on an overall view, it would be open to the judge to hold that the value was on balance of probability inadequate within the meaning of the section, even if the defendant has declined to condescend to give an explanation with respect to every single asset." [emphasis added].

57. It was submitted on behalf of Mr Mundy that there was no case law directly on point, but that the decision in R v Chen was nearest in principle.
58. The submissions stressed that Mr Mundy had been open, honest and cooperative throughout, and was not seeking to have a "second bite at the cherry". They also stressed that the restraint order still subsists, and that Mr Mundy's co-defendant successfully obtained a certificate of inadequacy in respect of the Benalmádena villa. The villa had not been realised, nor was it realisable: it could not be realised for the foreseeable future.

F. Analysis

59. So far as the English properties are concerned, there is no reason to doubt Mr Mundy's evidence that they have been disposed of and that such funds as were due to him were paid over to the Receiver. It is no more than speculation to suggest that there may have been property which the Receiver was unable to get in at the time but which constitutes realisable property now.
60. Thus the real issue in the case concerns the Benalmádena villa. In that regard there is a preliminary point which I can dispose of at the outset. Both in evidence (see, for example, the passage numbered [3.23] in Mundy 2 as set out in section C above) and in submissions Mr Mundy has relied upon an assertion that his co-defendant was granted a certificate of inadequacy in relation to the Benalmádena villa. I have very little information in this regard. It seems, however, that the certificate of inadequacy in the co-defendant's case turned on circumstances which are quite different to those which apply to the present case. Accordingly, such little information as I have about the certificate granted to the co-defendant does not assist Mr Mundy.
61. There is a second preliminary point concerning the Benalmádena villa. It concerns the fact that the property was bought in the names not only of Mr Mundy and his co-defendant, but in the names of their wives as well. Mr Common was concerned to establish that any gift on the part of Mr Mundy to his then wife would have been a tainted gift. This point does not arise. Despite what was said in the passage numbered [3.22] in Mundy 2 as set out in section C above Mr Mundy maintained in evidence that his wife had no interest in the Benalmádena villa. He has, in effect, accepted that he and his co-defendant purchased the Benalmádena villa in equal shares, and thus he holds a fifty per cent interest in it.
62. In these circumstances I can deal at once with the first three findings of fact sought by Mr Common (see section E2 above). I hold that:

(1) Mr Mundy purchased the Benalmádena villa in or around 1988 jointly with his co-defendant, Roland Gehrke, with funds held jointly between them.

(2) Mr Mundy does not now dispute that by that purchase he obtained a 50% interest in the Benalmádena villa. It is no part of his case before me that he has lost that interest.

(3) Mr Mundy's ex-wife has no interest in the Benalmádena villa.

63. The crucial question is whether Mr Mundy can satisfy the test in R v Chen, as explained in R v Modjiri. Has he proved that it is impossible to realise the Benalmádena villa? Or is it merely the case that a sale would encounter difficulties which the court, applying the analysis in R v Modjiri, must disregard?
64. To my mind the answer is clear: Mr Mundy has not shown that it is impossible to realise the Benalmádena villa. What Ms Vrachnas says in paragraph 2 of her letter of 9 April 2012 is that nobody can sell the property until the Spanish court determines the ownership rights. It seems to me that this does not make good Mr Mundy's assertion that for the foreseeable future the Benalmádena villa will not be realisable. On the contrary, it is foreseeable that there will be a decision of the court which will determine whether or not the villa is a realisable asset of Mr Mundy and his co-defendant.
65. If the Spanish court had decided the position now to be that Mr Mundy and his co-defendant no longer hold any interest in the villa, then I would have concluded that the villa was no longer held by Mr Mundy for the purposes of section 5 of DTOA 1986. But we have not reached that stage. In my view Ms Hann accurately stated the position in paragraph 27 of Hann 1: until the Spanish proceedings are resolved, it is not possible to establish whether there is an inadequacy in relation to this asset. It is common ground that Mr Mundy bears the burden of proof: he must show that his assets are inadequate, and he cannot do so.
66. At first sight the conclusion may seem unfair, for it means that Mr Mundy is exposed to enforcement proceedings under the confiscation order at a time when he is in course of establishing his entitlement to realise a property whose value was taken into account when assessing the amount of the confiscation order. However in reaching that conclusion I must apply the principles set out in the judgment of the Court of Appeal in R v Modjiri. I also bear in mind what was said by the Divisional Court in Ansen (see section E2 above). The leading judgment was given by May J, with whom Astill J agreed. At page 701 May J said:

Mr Talbot [Counsel for HM Customs & Excise, respondents] submits that the fact that an asset may be difficult to realise is simply not relevant. The provisions of the Act, he submits, define 'realisable property' in terms of s 5 and do not address any question of whether in practical terms it is difficult to recover the money. I agree with that submission for two reasons. Firstly, the definition of 'realisable property' includes property held by the defendant and by definition 'property' is held by any person if he holds an interest in it and the 'interest' in property includes a right. Accordingly, if, as Mr Ansen's affidavit indicates, the sum of approximately £8,500 held by agents in Germany is an amount which he is entitled to recover, then it is realisable property by definition irrespective of any difficulty in its actual recovery.

Secondly, s 5(1)(b) of the 1986 Act, referring, as it does, to 'realisable property' including 'gifts caught by the Act', necessarily means that circumstances may arise where gifts which an applicant has made may be practically, even legally, irrecoverable, but they are nevertheless still regarded as realisable property under this draconian Act. The purpose of these draconian procedures is obvious: they are intended, as has often been said, to make it as difficult as possible for those who traffic in drugs to get away with the proceeds of that traffic. ...

67. In the light of this analysis, and that set out in R v Modjiri and other cases cited below, my conclusion does not in my view run counter to the observations of Pill LJ in Re O'Donoghue (see section E3 above). The present is not a case where Mr Mundy has declined to give an explanation. There is no question of penalising him in that regard, for I do not find that he has failed to give adequate detail in support of the case he currently advances. My conclusion arises because this is a case where, if Mr Mundy does indeed have an interest in the Benalmádena villa, then under relevant statutory provisions it would be wrong to disregard that interest when calculating his assets.
68. Two cases have been referred to where it was shown to be impossible to realise an asset for the purposes of valuation under relevant confiscation legislative regimes. They do not, however, assist Mr Mundy.
69. The first of these cases is R v Cornfield [2007] 1 Cr App R (S) 124. The appellant was the holder of a pension policy which was not transferable and under which no early surrender value could be taken. At the age of 50 the appellant could draw 25% of the value of the pension fund if he chose to do so. For the purposes of valuation under the Criminal Justice Act 1988 the judge took the amount predicted to be available at 50 and, because the appellant was six months short of 50 at the date of the order, discounted it to allow for the six months. The resulting figure was a little in excess of £30,000. The appellant contended that the fund had no market value because it could not be assigned or sold. Moreover, even if some wider concept of market value could be adopted, so as for example to include sums which might be raised by way of a bank loan on the security of the policy, still in this case the value was nil because the appellant was bankrupt and no bank would lend any money to him.
70. The Crown submitted that the proper value was in fact the transfer value of the policy, that is the valuation of the projected benefits at the age of 50, which in that case was £128,000. However, the court had a discretion to accept the lower figure, and that was the basis on which the judge's decision below was capable of being supported.
71. The Court of Appeal (Lord Justice May Vice-President, David Clarke and Teare JJ) considered that there was no market value in the policy. They explained their conclusion as follows:

27. In our judgment, market value in section 74(4) of the 1988 Act has to be viewed in the context that it is seeking to define 'realisable property'; and in the context of legislation, draconian certainly, but whose purpose is to confiscate that which a defendant is able to realise. It must be realisable in some real way. Although it could extend to a contingent beneficial interest under a will (see the decision of R v Walbrook and Glasgow (1994) 15 Cr App R (S) 873), it does not, in our judgment, extend to the putative possible future receipt of a lump sum pension payment which could not be used as security for a loan; which, if it were paid, would go to the trustee in bankruptcy; and when the real possibility of the appellant borrowing money with reference to it was zero. On that analysis, the pension payment, its value or any value with reference to the possibility of a lump sum payment, was not part of the amount that might be realised at the time the order was made against the appellant.

72. The second of the two cases is R v Chen, where the Court of Appeal applied R v Cornfield. As can be seen from paragraphs 15 and 27 of the judgment in R v Chen (cited in section E3 above) the facts of the two cases were similar, as was the essential reasoning of the court.
73. Both cases have an important, and to my mind crucial, common feature. It is this: the inability to realise the relevant policy at the time of the order is an inherent feature of the policy itself. Each policy was an asset held by the defendant, but it was clear that the asset held by the defendant was an asset of such a nature that its value at the relevant time was nil.
74. These two cases undoubtedly demonstrate that an asset which can be expected to have a value in the future may nonetheless have no value at an earlier time relevant for the purposes of confiscation legislative regimes. This, however, does not mean that this court can give a value of nil to an asset which Mr Mundy himself asserts (in the Spanish proceedings) to be, and at all material times to have been, something of substantial market value. Unless Mr Mundy demonstrates to the court that the asset in itself is reduced in value, the principles set out in R v Modjiri require this court to ignore problems in putting his asset on the market.
75. For the purposes of this analysis I have put on one side an argument advanced by Mr Common on the basis of the lack of any powers enabling the Crown, under DTOA 1986 as enacted, to rely upon any subsequent increase in value of the defendant's assets. Mr Common observes that such powers have been a feature of more recent legislation, and that in R v Chen the Court of Appeal took this into account when reaching the conclusion that the property in that case was unrealisable. It does not seem to me to follow that I can, as appears to be suggested on behalf of the Crown Prosecution Service, in some way take into account the absence of such powers in the present case. In that regard:

(1) I am concerned in the present case with statutory provisions in DTOA 1986 which are materially identical to those considered in R v Chen.

(2) As regards DTOA 1986 powers enabling the Crown to rely upon a subsequent increase in value of the defendant's assets did not exist when it was enacted and during its initial years in force. Such powers were, however, conferred as regards confiscation orders under DTOA 1986 with effect from 1 July 1991 by section 16 of the Criminal Justice (International Co-operation) Act 1990.

(3) The Court of Appeal held in Re Barretto, Wadstead v Barretto [1994] 1 All ER 447 that the presumption against the retrospective application of penal statutes applied to these powers, and accordingly that section 16 did not apply to confiscation orders made before it came into force.

(4) The present case is governed by the statutory provisions in force prior to 1 July 1991 and accordingly I accept that in the present case the powers in question were and are not available. I also accept that the court in R v Chen attached significance to the existence of those powers. It does not follow that I can give a different meaning to the unchanged words of DTOA before 1 July 1991 from that which was held in R v Chen to be applicable and must on any view be applicable to those words from 1 July 1991 onwards.

76. I have dealt earlier in this judgment with Mr Common's proposed findings (1), (2) and (3). Proposed finding (4) has two elements. The first element concerns the litigation in the Spanish courts concerning the Benalmádena villa and consequent difficulties in sale of the villa. As to that I hold, on the basis of Ms Vrachas's letter of 9 April 2013, that property interests in the Benalmádena villa are the subject of litigation in Spain, and that it is currently not possible to dispose of the villa. The second element invites me to find that the merits of Mr Mundy's "position in Spanish law as having a valuable interest" in the Benalmádena villa appear to be in his favour. I consider it neither necessary nor appropriate to make such a finding. For the reasons given above it suffices that Mr Mundy himself says he has a valuable interest in the villa. He has not said, and I have no basis on which to conclude, that the Spanish court is likely to hold that he does not have the interest he asserts, or has only some lesser interest. Nor has he said that the villa's value, if it were possible to sell it, would be so little that he would be unable to pay the outstanding amount. These circumstances are important features of the background to my conclusion that Mr Mundy has not satisfied the statutory test for the grant of a certificate of inadequacy.

G. Conclusion

77. It is for the reasons set out above that I have concluded that the application for a certificate of inadequacy must be refused. Nothing in this judgment has involved any consideration by me of such future course as may be taken in the proceedings in the Liverpool Magistrates' Court. That will be a matter for consideration by those who are concerned with the Magistrates' Court proceedings.

Note 1   The order of 31 July 2014 superseded an order made on 21 March 2014. The present judgment, issued on 10 October 2014, is a revision of and supersedes the judgment handed down on 21 March 2014, which had proceeded upon an erroneous factual and procedural basis.    [Back]