England and Wales High Court (Administrative Court) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/03/2015

 


Mr Justice Collins:

1. This is a claim for compensation pursuant to Section 89 of the Criminal Justice Act 1988. It relates to a prosecution of the claimant which was commenced by an arrest warrant on 18 July 2001. On the same day, a world wide restraint order (RO) was obtained from Newman J. The identifiable asset which was covered by the RO was a property known as Updown Court in Windlesham, Surrey. This was being developed with a view to being sold for a very substantial sum said to be some £80 million. It was subject to a mortgage in favour of Irish Nationwide Building Society (INBS). On 19 July 2001 what has been described by the claimant as a raid was carried out at the property by officers of Customs and Excise under the RO. This was widely publicised.
2. At that time, INBS was owed over £14 million. The owner of the property was a company Heatherside Property Holdings Ltd, but the claimant had, as he has stated, the beneficial interest so that it represented his realisable property. A receiver was appointed by the court but on 11 September 2001 INBS appointed an administrative receiver following a declaration of an event of default and a demand for immediate repayment of the outstanding loan pursuant to the powers under the mortgage. In due course on 24 October 2002 the property was sold for £14,209,000, a sum approximately equal to the outstanding amount owed to INBS. The compensation claim accordingly approaches £66 million.
3. The alleged loss for which compensation is claimed thus occurred over 12 years ago. The charges which the claimant faced alleged that between 1 December 1996 and 30 April 1998 he was involved in evasion of excise duty and value added tax in dealing with alcohol and was guilty of laundering the proceeds of the frauds. One charge specifically alleged that he “"concealed monies which represented in whole or in part directly or indirectly his proceeds of criminal conduct by using the said monies to purchase and redevelop ‘'Updown Court’' through nominee offshore companies”". This was an offence contrary to Section 93C(1)(a) of the Criminal Justice Act 1988.
4. The excise and VAT offences involved what is known as a diversion fraud together with a missing trader. Alcohol can be kept in a bonded warehouse without payment of duty or tax. Goods can be transferred from one bonded warehouse to another. Duty and tax is only payable when the goods are placed on the home market. The goods can be exported to a bonded warehouse within the European Union and, if that occurs, equally no duty or tax is payable in the United Kingdom. They will be payable at the relevant rate when put on the market in the EU State to which the goods have been despatched. The export must be documented and the material document is called an AAD. This will show the goods being destined for a bonded warehouse in the relevant EU State. The fraud involved the production of false AADs while the goods in question were placed on the market in the UK and sold at a price which purported to include duty and VAT. The duty and VAT element was the profit to the perpetrators arising from the fraud. Since the duty and VAT combined would reach over 50% of the value of the goods the profits from the fraud were enormous.
5. There were a number of prosecutions carried out by what were then Her Majesty’'s Customs and Excise (HMCE) which were based on diversion frauds carried out through a bonded warehouse known as London City Bond (LCB). The manager during the relevant years, namely the latter half of the 1990s, was a man named Alf Allington. He became what was described as a participating informant in that he reported to officers of HMCE that he was issuing false AADs. He was permitted to carry on doing so since one part of the investigation side of HMCE had decided that it was desirable to permit the frauds to be carried out for a time with a view to apprehending those responsible rather than the lorry drivers or others way down the chain of command. A number of prosecutions were brought. There were PII applications made in order to protect the identity of Mr Allington as an informant. However, full details of his role were not given: in particular, it was not disclosed that he was a participating informant rather then a simple trade source. His true role was obviously material since it could have been possible that he had acted as an agent provocateur. In fact, as will become apparent when I refer to the material history, he had not and it is clear that those carrying out the fraud were not induced to do so by anything done by Mr Allington. It was necessary that he was aware of what was going on. Indeed, he was paid a very large sum of money, namely £100,000, as a bribe to ensure that he cooperated and in the expectation that he would not inform HMCE.
6. In order to conceal what he was in reality doing and because he was unwilling to identify himself as an informant for fear of what might be done to him by the criminals, he did not answer questions about his role truthfully. The HMCE officer particularly involved, Mr Bernie Small, knew that he was not giving a truthful account, but he was in effect encouraged to maintain the lies. As a result, a number of judges refused to disclose to the defence any information which could have been damaging to him or to the case presented by HMCE. In some cases, an abuse of process argument was raised based on the possibility that Mr Allington had to the knowledge of HMCE allowed the fraud to be carried out. When this argument failed, some defendants pleaded guilty and others were convicted. Substantial prison sentences were imposed.
7. The true state of affairs came to light when Mr Allington, and his brother, Edward, who was involved in the running of LCB, were concerned at the conviction and sentence imposed on a Michael Villiers. His and his co-defendants appeals came before the Court of Appeal in November 2001 and were, because of the failures to disclose the true role of the Allingtons, allowed. The court ordered a retrial since it seemed that full disclosure could justify a further trial.
8. Following the disclosure, appeals were heard by a number of defendants who had pleaded guilty to evasion offences arising from LCB. The court noted that the total loss to the revenue resulting from the LCB fraud was some £300 million. The appeals were allowed: see R v Early and others [2002] EWCA Crim 1904. Rose V-P giving the judgment of the court observed at paragraph 18:-

“"It is a matter of crucial importance to the administration of justice that prosecuting authorities make full relevant disclosure prior to trial and that prosecuting authorities should not be encouraged to make inadequate disclosure with a view to defendants pleading guilty……When inadequate disclosure is sought to be supported by dishonest prosecution evidence to a trial judge, this court is unlikely to be slow to set aside pleas of guilty following such events, however strong the prosecution case might appear to be…”".

Because of the time lapse and the fact that some appellants had served the sentences imposed the court decided not to order retrials.

9. In the result, other prosecutions which were based on LCB diversions were not proceeded with since the view was taken that the activities of Mr Small in particular and the treatment of the Allingtons meant that an abuse of process argument would be likely to succeed. As will become apparent when I deal with the claimant’'s circumstances in detail, the claimant was not in this country at the time the arrest warrant and the RO were obtained. He did not return until 2005. It had transpired that Mr Small had uplifted a number of AADs from LCB and another bonded warehouse involved in fraud without keeping a record of when they were taken and which particular consignments they related to. Following an advice from leading counsel who was instructed to prosecute, the case against the claimant’'s co-defendants was withdrawn. At that stage, the charges against the claimant and the RO remained.
10. The Criminal Justice Act 1988 (the 1988 Act) deals in Part VI with confiscation powers. Sections 76 and 77 enable a restraint order preventing a defendant from dealing with any realisable property to be made on application to a High Court judge where proceedings have been instigated against a person or he is to be charged with an offence to which Part VI of the 1988 Act applies, the proceedings have not been concluded and it appears to the court that a confiscation order may be made. Such applications are usually for obvious reasons made ex parte. Section 77(8) gives power to appoint a receiver to take possession of and to manage any of the defendant’'s realisable property.
11. Section 89 of the 1988 Act under which the claim is brought provides, so far as material:-

“"(1) If proceedings are instigated against a person for an offence or offences to which this part of this Act applies and…..

(a) the proceedings do not result in his conviction for any such offence….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 an order under this Part of this Act.

(3) The Court shall not order compensation to be paid in any case where it appears to the Court that the proceedings would have been instituted or continued even if the serious default had not occurred.

(4) The amount of compensation to be paid under this section shall be such as the High Court thinks just in all the circumstances of the case.

(5) Compensation payable under this section shall be paid….

(d) where the person in default was an officer within the meaning of the Customs and Excise Management Act 1979, by the Commissioners of Customs and Excise”".

12. In February 1998 the claimant who was at the time on bail awaiting retrial for involvement in a long firm fraud left the country using a false passport and eventually went to live in Los Angeles. He did not return to the UK until 2005 and in June 2005 he was convicted of an offence of attempting to kidnap and sentenced to 8 years imprisonment being released in November 2009. He also received 10 months imprisonment for his breach of bail. His excuse for having left the country in 1998 was that he feared for his life having been threatened with violence. The sentence imposed for the breach does not suggest that the judge was impressed with his excuse. However, his 2005 conviction clearly means that he was capable of involvement in violent offending.
13. If the claimant had been present in the country, he would have stood trial with a number of co-defendants. In particular, Anthony Pearce was named as a co-conspirator in the first charge against the claimant. Pearce was the claimant’'s manager for the development of Updown Court. The claimant was not identified in any documentary material as having the beneficial interest in Updown Court unlike Pearce as the person particularly involved with its development. Pearce and others were due to appear at Leicester Crown Court in the summer of 2003. The other four defendants were directors of a company called Bosworth Beverages which it was alleged had been used as a means of laundering the proceeds of evasion fraud by the claimant by purchase of a yacht in Hong Kong. I shall have to deal with the charges in some detail in due course.
14. There were in fact two separate frauds involved; each was given a code name by HMCE. One, known as Create, concerned LCB diversion fraud. The other, known as Kitsch, concerned diversion frauds through another bonded warehouse known as Fort Patrick (FP). FP had been set up by criminals and was used probably solely for criminal purposes. It was not directly linked to LCB, but over one third of the fraudulent transactions through FP were of goods which had been despatched from LCB in circumstances where it was known that evasion was to take place. In April 2003 following counsel’'s advice Create was not pursued. In June 2003 the same decision was reached in Kitsch. Thus the prosecution of those with whom the claimant would have stood trial as a co-defendant was abandoned.
15. It should have been obvious that in the circumstances the charges against the claimant could not proceed unless a different view was taken having regard to the allegations that he was the master mind of the frauds. But no immediate steps were taken to withdraw the arrest warrant or the restraint order. Mr Broad, the officer having conduct of the case against the claimant, was unable to recall when he attended Uxbridge Magistrates’' Court to return the warrant. This is material having regard to a limitation defence raised by the defendant.
16. Section 9(1) of the Limitation Act 1980 provides:-

“"An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration six years from the dates on which the cause of action occurred”".

It is to be noted that s.77(6) of the 1988 Act provides that a restraint order “"shall be discharged when proceedings for the offence are concluded”". However, when the claimant returned to this country in 2005, the RO was still in being. He applied for discharge and on 6 April 2006 Burton J ordered that it be discharged and “"any application, and supporting evidence, by the defendant for compensation to be filed and served by 4pm on 5 June 2006”".

17. Instead of claiming compensation, the claimant issued a claim in the Chancery Division against the defendant and INBS. This was clearly inappropriate since there was a statutory right to compensation contained in s.89 of the 1988 Act which was subject to the conditions therein contained. The Chancery proceedings were stayed by order of Master Moncaster on 1 May 2008. No further action was taken by the claimant until this claim was issued on 4 March 2011. An application was made before Hickinbottom J to extend the time limit imposed by Burton J. It was then and remains common ground that the date when the cause of action accrued for the purposes of s.9 of the Limitation Act was when the arrest warrant was cancelled.
18. Hickinbottom J considered some technical arguments based on provisions in RSC Order 115. This was because Rule 11A appeared, he said, to require that a s.89 claim would be by means of an application within the restraint order proceedings. He decided that notwithstanding the discharge of the restraint order, the restraint order proceedings remained live for the purposes of bringing a compensation claim. The six year limitation period would run from the date the arrest warrant was cancelled since only then would the proceedings not have resulted in the claimant’'s conviction.
19. Hickinbottom J considered a statement from Mr Broad and Mr O’'Donnell, who worked in the HMCE solicitor’'s office. Uxbridge Magistrates’' Court could find no record of the issue or of the return for cancellation of the warrant. Since the court destroyed records after 3 years, that may be thought consistent with a cancellation in 2003. However, Mr Broad could not provide a specific date for the cancellation save to say he did not recall it being as late as 2005. There was no application to discharge the RO which should have followed cancellation of the warrant if s.77(6) of the 1988 Act were to be complied with. Mr Broad said that the RO was forgotten.
20. Mr Kent, QC, who appeared before Hickinbottom J, conceded that on the currently available evidence, HMCE would not be likely to succeed in establishing a limitation defence as a preliminary issue. Before me, Mr Broad’'s evidence was even weaker in that he accepted that it could have been as late as 2005. In the circumstances, Mr Kent did not dissent from my indication that I would not find in his favour on limitation. Hickinbottom J considered but rejected an argument put by Mr Kent that even if the limitation points failed discretion should be exercised to strike out the claim.
21. The defendant’'s case is essentially based on two grounds. First, it is submitted that there was no serious default by any officer concerned in the investigation or prosecution of the offences against the claimant. Since the loss for which compensation is sought results from the RO and that led to the forced sale in October 2002, Mr Kent submits that only if there was serious default by an officer in investigating the offences and deciding that proceedings should be instituted followed by an RO could compensation be ordered. He further submitted that the proceedings would, having regard to the circumstances which I shall have to consider, have been instituted even if the serious default, assuming a relevant default were established, had not occurred. Mr Mallin submitted that there was serious default on the part of Mr Broad and his superior Mr Robertson, both of whom gave evidence before me, and a Ms Dunn, who was a member of the solicitor’'s office. In addition, he submitted that Mr Small’'s misconduct in his dealings with the Allingtons was part of at least the investigation of the offences. Such default was said to be shown by a failure to inform Newman J of the true position in relation to LCB or to go back to court when it was clear that the prosecution of the claimant could not be pursued to discharge the RO. Further, when the RO was sought, it was said that the claimant’'s extradition would be sought within 7 days since it was believed and counsel had advised that extradition would be possible. In fact, it was not since the offences were revenue offences which were not extraditable from the USA. Mr Mallin submits that when that was clear, as it would have been long before October 2002, a judge should have been informed so that the RO could be reconsidered.
22. The defendant’'s second ground of defence is that Updown Court was obtained by the claimant from the proceeds of crime. He was guilty of the evasion frauds and money laundering. There was no acquittal on the merits and it was clear that massive fraud had been committed. It was only because prosecuting counsel took what could be considered an overly pessimistic view of the likely effect on a jury of the misconduct in relation to the Allingtons that the prosecution was dropped against the claimant’'s co-defendant’'s and so against him.
23. Mr Mallin submitted that I should deal with the issue whether it was open to the defendant to seek to establish that the claimant had committed the offences with which he had been charged in order to establish that ground of defence. He presented an argument that the protection required by Article 6 of the ECHR was not afforded if I were to decide whether the claimant was guilty based on hearsay statements and documents dealing with matters which took place many years ago. He submitted that if I did allow the defence I would have to apply the criminal standard of proof since anything less would contravene jurisprudence of the ECtHR in being inconsistent with the presumption of innocence.
24. Article 6(2) of the ECHR does not directly apply since the claimant is not charged with any criminal offence. However, the Strasbourg jurisprudence has widened the scope to an extent by deciding that the presumption of innocence means that Article 6(2), which provides that “"everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law”", can apply. Some of the cases in Strasbourg are, as the Supreme Court observed in Gale v SOCA [2012] 2 All ER 1, mutually inconsistent. They have largely been concerned with actions taken after acquittals which were inconsistent with such acquittal. The test applied by Strasbourg seems to have turned on whether the action in question involved a procedural connection between the criminal trial and the subsequent proceedings. Claims for compensation do prima facie have such connection: see Sekanina v Austria [1993] 17 EHRR 221. However, I do not think it necessary or helpful to go through the Strasbourg cases since the Supreme Court has carried out that exercise in Gale and in R v Briggs Price [2009] AC 1029 the House of Lords dealt with some of the same issues.
25. In Gale the issue was whether Article 6(2) applied to a claim by SOCA for recovery of property allegedly obtained by crime. There was no question but that the proceedings against the appellant were civil and s.241 of the Proceeds of Crime Act 2002 provided that the balance of probabilities was the test to be applied. Where there has been a previous acquittal, care must be taken to avoid reaching a decision which is inconsistent with that acquittal, but it must be borne in mind that an acquittal does not establish innocence, merely that guilt has not on the evidence before the criminal court been proved beyond reasonable doubt. I cannot see that in principle there is a bar to the prosecuting authority pursuing a claim for compensation on the ground that notwithstanding the acquittal guilt can be established applying the civil standard of proof. The evidence may not be the same. What is admissible in civil proceedings may not have been admissible in criminal proceedings.
26. R v Briggs Price concerned a claim for confiscation under the Drug Trafficking Act 1994. The defendant had been convicted of conspiracy to import heroin, but no importation had taken place pursuant to the conspiracy so that no benefit which could lead to confiscation had resulted. However, it was the Crown’'s case and there was evidence produced that he had been recruited because he had extensive involvement in importing and dealing in cannabis. The jury were directed that it was not necessary for them to determine that issue. Following the conviction, the Crown sought and obtained a confiscation order based on his dealings in cannabis. The trial judge made an order following his appraisal of the evidence which led him to have no doubt that the defendant had been dealing in cannabis.
27. There was no doubt and the Strasbourg jurisprudence confirmed that confiscation claims were civil since they could not lead to conviction of crime. The House considered whether the criminal or civil standard of proof should apply and, by a majority, decided that it should be criminal. This stemmed largely from the view expressed by Lord Brown that this was how people were proved guilty according to law in this country. The view of the majority was as was pointed out in Gale, obiter. It must in my view be borne in mind that confiscation proceedings will lead to a decision which is obviously damaging to the particular defendant. The situation here is different insomuch as the defendant to a claim is seeking to establish that the claim is not a good one. Further, in this claim there is no question of seeking in any way to impugn an acquittal since there has been no consideration of the merits of the allegations made against the claimant. The Strasbourg cases are not directly applicable since they have been concerned with claims following acquittals on the merits.
28. I have no doubt that these are in fact civil proceedings so that the civil standard of proof should apply. It is not unusual for allegations which amount to the commission by a party of criminal offences to arise in civil proceedings. Fraud is an obvious example. It has never been suggested that because proof of guilt of a criminal charge requires the application of the criminal standard it is applicable to the civil proceedings. It is worth noting observations of Lord Nicholls in Re: H [1996] AC 563 at p.587 B to E:-

“"No doubt it is this feeling which prompts judicial comment from time to time that grave issues call for proof to a standard higher than the preponderance of probability. Similar suggestions have been made recently regarding proof of allegations of sexual abuse of children: see In re G. (A Minor) (Child Abuse: Standard of Proof) [1987] 1 W.L.R 1461, 1466, and In Re W. (Minors) (Sexual Abuse: Standard of Proof) [1994] 1 F.L.R. 419, 429. So I must pursue this a little further. The law looks for probability, not certainty. Certainty is seldom attainable. But probability is an unsatisfactorily vague criterion because there are degrees of probability. In establishing principles regarding the standard of proof, therefore, the law seeks to define the degree of probability appropriate for different types of proceedings. Proof beyond reasonable doubt, in whatever form of words expressed, is one standard. Proof on a preponderance of probability is another, lower standard having the in-built flexibility already mentioned. If the balance of probability standard were departed from, and a third standard were substituted in some civil cases, it would be necessary to identify what the standard is, and when it applies. Herein lies a difficulty. If the standard were to be higher than the balance of probability but lower than the criminal standard of proof beyond reasonable doubt, what would it be? The only alternative which suggests itself is that the standard should be commensurate with the gravity of the allegation and the seriousness of the consequences. A formula to this effect has its attraction. But I doubt whether in practice it would add much to the present test in civil cases, and it would risk causing confusion and uncertainty. As at present advised I think it is better to stick to the existing, established law on this subject. I can see no compelling need for a change”".

29. As Lord Nicholls observes, the civil standard is flexible. It has always been recognised that cogent evidence is required when findings of criminality are to be made and the more serious the criminality the more cogent the evidence must be. In reality, the distinction between the criminal and civil standards can sometimes be more illusory than real. The approach I have indicated does not in my view go against Lord Nicholls’'s observations and it is applied routinely in civil proceedings. I am not persuaded that the R v Briggs Price approach is applicable in this case so that the criminal standard does not apply. However, as I have said, cogent evidence of guilt must be provided. I should say, as I indicated in argument, that I have considered the alternative approach based on the criminal standard and, as will become clear, I am satisfied to that standard that Updown Court was acquired and its development undertaken through funds obtained by criminal conduct.
30. On 28 November 2002, following 35 days of applications made by each of 15 defendants to stay proceedings in Liverpool Crown Court concerned with LCB frauds as an abuse of process, the prosecution decided to offer no evidence against all defendants. Grigson J observed that there was a need for an urgent inquiry into the roles of the National Investigation Service (NIS), as an arm of HMCE, and their relationship with other branches and the solicitors department of HMCE because of the problem created by material nondisclosure. On 28 November 2002 Butterfield J was appointed to undertake the inquiry. His extensive report has been put before me and the parties have agreed that I should take account of his findings in reaching my decision. His inquiry required him to make recommendations as to the future structure of HMCE and its solicitors. These are not material for the purposes of this case.
31. It is important to note that Butterfield J expressly decided that he found no evidence that officers of HMCE or any employee of LCB incited or persuaded any trader to commit fraud or that they actively encouraged crime which would not otherwise have occurred. However, one Gordon Smith who was working in HMCE solicitor’'s office between 1991 until he retired on health grounds in 2000 had alleged that there was a conspiracy to pervert the course of justice by concealment of Alf Allington’'s true status. Butterfield J did not seek to determine the issues raised by Mr Smith since there was an ongoing police investigation into them which he did not want in any way to prejudice. But he was satisfied that his allegations played no part in the decision to offer no evidence in the Liverpool case.
32. Butterfield J considered in chapter 7 of his report a case codenamed Stockade which concerned evasion fraud operated through FP. The goods diverted came from a number of different sources but some 37% were from LCB. I have noted in considering the use of London warehouses that it is permissible for goods to be transferred from a bonded warehouse within the UK to another without payment of duty or tax since such payment is only required when the goods are placed on the home market. Otherwise, there was no connection with LCB. An abuse of process argument was put to the trial judge in October 2000. One of the grounds was based on the connection with LCB and the assertion that HMCE was aware of the fraudulent intent behind the despatch to FP from LCB. The judge was assured that such despatches had not been encouraged. Appeals were brought by all defendants, including those who had pleaded guilty. They were allowed on 21 January 2003. Mr Small had accepted that he had failed to produce material documentation and had misled the trial judge. Since in the event of any retrial his evidence would have been essential, the decision was taken not to seek a retrial.
33. Butterfield J considered Create. The allegations were of fraud in October and November 1998 when the control of LCB had moved to the Romford excise unit and Mr Small had ceased to be involved in monitoring LCB. However, the prosecution could not rely on AADs recovered from LCB since their provenance could only be established by calling someone from LCB. Mr Small had had some input into intelligence gathering in February 1998. In the circumstances, prosecuting counsel advised “"with no enthusiasm”" that the case should not proceed. That advice was accepted. Butterfield J did not consider Kitsch.
34. I am considering matters which occurred between 19 and 14 years ago, Mr Mallin has submitted that to determine whether Updown Court was acquired with the proceeds of crime when relevant documents and witnesses are not produced and the claimant and indeed the officers are asked to recall what occurred so long ago is unfair. The delay has largely been caused by the claimant. He remained abroad, having absconded from his bail, until 2005. Since then, he instituted proceedings before the Chancery Division which were stayed in May 2008. Presumably those then acting for him would or certainly should have made enquiries and sought his evidence and any support for it. He then failed to take any action until this claim was lodged in March 2011. It has taken a long time to be heard since Hickinbottom J allowed it to proceed. It was not until May 2013 following a consent order relating to service of evidence that it was actively pursued. There was then some interlocutory skirmishing, culminating in an application by the claimant to strike out the defence which was refused by Ouseley J on 10 October 2014. In addition, there was leave to amend to raise all issues put before me.
35. Default in s.89 does not require any deliberate action or inaction which is known to be wrong. Negligence or even inadvertence provided that it can properly be considered serious will suffice. The question is whether anything done or omitted by an officer concerned in the investigation or prosecution of the offences concerned was not in the circumstances reasonable: cf: Bowen LJ in Re: Young [1885] 31 Ch D 168. The default must be by an officer within the meaning of the Customs and Excise Management Act 1979. Section 2 of the 1979 Act defines an officer as a person commissioned by the commissioners. This by s.8(2) can include a person “"engaged by the orders and with the concurrence of the commissioners…..in the performance of any act or duty relating to an assigned matter”". As a member of the solicitors’' office, Ms Dunn was not commissioned by the commissioners nor was she engaged in the performance of any act or duty relating to an assigned matter. Accordingly, she does not come within s.89 (5)(d) of the 1989 Act.
36. Paragraph 21 of the amended points of claim asserts that the officers whose defaults were material “"included in particular Mr Stephen Broad, Ms Maureen Dunn and Mr Brian Robertson”". In argument Mr Mallin sought to add Mr Small. However, in relation to Kitsch, Mr Small played no part in relation to diversions carried out through FP which had no connection with LCB. This is material since, as will become apparent, in deciding whether to prosecute the claimant was appropriate, consideration was given to the problems arising in relation to any goods coming from LCB and it was decided that the case could properly be pursued relying solely on the diversions with which LCB had had no connection.
37. It must however be noted that the dates within which the offending was alleged to have occurred were between 1 December 1996 and 30 April 1998. FP was not operating after the autumn of 1997 and so it is said that it must be that some transactions through LCB would have to be relied upon. It is clear that, as was decided by the Court of Appeal in R v Villiers in November 2001, prosecutions relating to diversions were not impossible provided full and proper disclosure was made of the Allingtons roles. However, laundering would have taken place after FP had been closed down.
38. In considering whether there was default in instituting the proceedings against the claimant, it is necessary to consider the advices of counsel. It seems to me to be clear that to act on the advice of counsel will be likely to show that there was no default, provided of course that counsel was not misled by any omissions in the information given to him.
39. One of the claimant’'s interests involved the setting up and running of a business concerned with the sale of Lamborghini motors in Monaco. In September 2000, HMCS received information from a Rebecca Wood concerning her and a colleague’'s involvement with the claimant, whom she knew as Bal. In due course, she made a statement in November 2000 and her colleague, Mr Bowen-Easley made a statement in March 2001. Bal informed both that he did not want his name to be associated with the business and that Tony Pearce would act as their boss. Ms Wood describes her dealings with Bal in Monaco and later, when he had gone to America, phone calls. In about February 1998 she recalls him proudly indicating that he was purchasing a yacht in Hong Kong, which he sold after a relatively short time. The claimant had an apartment in Monaco from which before the showroom for the Lamborghini business was ready the business operated. She recalls faxes coming with details of alcohol and pricing. The company nominally running the business was called Tredwell. By late 1998, the claimant was concerned to sell the business and there were a considerable number of telephone calls made from the USA. He became, Ms Wood says, increasingly agitated when it seemed the sale was not progressing as he wished and made threats to her. Mr Bowen-Easley’'s statement covers much the same ground and confirms much of what is said by Ms Wood, including purchase of the yacht. The claimant wanted to sell Tredwell because he needed money to continue the development of Updown Court. Both witnesses had concerns after threats from the claimant which led them to go to the police in Monaco.
40. Ms Wood says that following the claimant’'s final departure to America a man named Minto came to the showroom with what he claimed were the remainder of the claimant’'s possessions from his apartment. Among them was a briefcase which she recognised having seen him with it in London and at his apartment in Monaco. Because she was suspicious about what had been going on in Monaco, she took it on herself to look into it and found a number of documents, including a green book. This contained listings of alcohol together with names and large sums of money. Mr Bowen-Easley also saw the briefcase and said he believed it to be the claimant’'s because he had seen it in his apartment and with him in London.
41. The contents of the briefcase are most important since if they belonged to the claimant they are powerful evidence of his involvement in the frauds. He denies that either the briefcase or the contents were his. Neither Ms Wood nor Mr Bowen-Easley have been willing to attend to give evidence since they are, they say, afraid of what might be done to them if they do. The previous threatening behaviour of the claimant coupled with his conviction of attempted kidnapping shows grounds for those fears. Furthermore, that those concerned in the lucrative frauds are capable of violence is to an extent confirmed if there is any truth in the claimant’'s assertion that he left the UK in breach of bail because of fears for his life.
42. Mr Robertson has explained the significance of the contents of the briefcase, in particular the book. An analysis of invoices of goods sold to traders in the UK which had duty and tax paid showed in a significant number of cases exact correspondence to the entries in the book, but the invoices had been adjusted to conceal the true position. The amounts of money received were paid into a bank account of a firm, UK Supplies, who were clearly operating the fraud. The book was also believed to be a record for the person in control of UK Supplies, namely the claimant.
43. There was in addition evidence that enormous sums of cash were involved. Thus a Mr Palumbo, who was responsible both for the refurbishment of the claimant’'s apartment in Monaco and Updown Court, made six lodgements of cash totalling £1.48 million in April and May 1998. Other sums came in via Mr Pearce, but he was merely the manager for the claimant of Updown Court. The company said to be the owner, Heatherside Property Holdings Ltd, had as its directors two involved with a firm of accountants in Jersey, Michel & Co. Michel & Co had been instructed by the claimant to act on his behalf.
44. Advice was sought from Mr Mitchell, QC in April 2001 concerning the admissibility of the briefcase and documents and whether the evidence as a whole could justify prosecution of the claimant and Pearce. This was the first of a number of conferences with Mr Mitchell. On 20 June 2001 there was perhaps the most important. He advised Pearce should be prosecuted as a money launderer, but the underlying criminal conduct had to be proved. However, Mr Mitchell is recorded as saying he was “"not concerned about the LCB side of things”". Mr Mallin submits that this short sentence suggests that Mr Mitchell could not have been given the necessary full information about LCB. In order to rely on it, the instructions to Mr Mitchell should be produced. They no longer exist. There is nothing sinister in this since due to the lapse of time they have been destroyed. The solicitor’'s department cannot be expected to retain documents when no action is taken which might require them for a long time.
45. At the time, Mr Robertson said in evidence that he was not aware of Mr Small’'s actions in relation to LCB’'s AADs. He believed the evidence trail not to be the problem: the problem was disclosure. He was, contrary to the account given by Mr Smith, not aware as early as 2000 of any general problem or that Alf Allington was a participating informant. However, he was aware that there were disclosure problems in relation to LCB and so he was concerned not to rely on LCB evidence. He thought that reliance could and should be placed on FP, not LCB. Since the LCB problems were well known, Mr Mitchell was aware of them as his comment shows. If there was to be a successful prosecution of both Pearce and the claimant, there could be no incentive for Mr Broad or Mr Robertson to conceal any relevant matter from Mr Mitchell: the contrary was the case.
46. There was a further conference on 28 June 2001. This was attended by Mr Pini who was junior counsel for the prosecution in Create and he was well aware of the LCB problems. One of the documents in the briefcase contained some calculations of payments which were concerned with what was obtained on the sale of the yacht which the claimant had only kept for a few months. It was acquired through a firm called Bosworth Beverages. Mr Mitchell was assured, as indeed was clearly the case, the purchases were all in cash. Bosworth was, the prosecution alleged, used to launder the proceeds of the claimant’'s fraud. Bosworth paid for the yacht. In evidence, the claimant said he could not remember the name Bosworth, but “"lots of people owed me money”" and so the purchase of the yacht must have been in discharge of what was owed to him.
47. The next conference with Mr Mitchell was on 10 July 2001. Mr Mitchell’'s view was that they had evidence of the fraud but still needed to show where the money had come from. Further inquiries were needed in Jersey. Mr Mitchell advised that an arrest warrant should be obtained against the claimant and Pearce should be arrested. A restraint order was to “"be sorted out against”" the claimant.
48. On 17 July 2001 there was a further conference. Mr Mitchell had by then completed a written advice. He stated that he was satisfied that there was evidence that properly justified seeking the extradition of the claimant for the offences relating to the evasion of the VAT and the diversion of non-duty paid dutiable goods onto the domestic market. He also considered that there was a strong case against the claimant for entering into arrangements in relation to the proceeds of criminal conduct. He set out the charges which he suggested should be brought. The arrest warrant followed then. He concluded:-

“"This advice should be read in conjunction with the two witness statements that I have prepared in the course of the last few days with the officers as they summarise the detail of the evidence as it currently exists to support the restraint and receivership orders which are to be applied for on the 18 July 2001”".

49. Mr Broad had been involved in an operation named ‘'Fallover’'. An abuse of process argument had been made at Kingston Crown Court in 1999. Alf Allington gave evidence which Mr Broad said he did not hear because, as case officer, he was kept out of court, no doubt in case his evidence was required. The judge was misled by the evidence of Mr Small and another officer, Mr Snuggs. Mr Broad himself was not party to any misleading evidence. He was, however, obviously aware that there were problems in relation to LCB and the Allingtons. In evidence he said he did not recall hearing Alf Allington give evidence and in any event he was not made aware of his precise role. While unaware of the full extent of the problems, he said he was ‘'loath to touch anything to do with LCB’'. However, I have no reason to doubt that he informed Mr Mitchell of the problems and of his concerns to avoid LCB. He had attended a conference on 1 February 2000 at which Alf Allington’'s role was supposed to have been identified by Mr Small.
50. A note of that meeting prepared by Ms Dunn records that Mr Small told those present that Alf Allington had always been helpful and happy to help HMCE. He informed Mr Small about new customers and told him about the bribe which was subsequently handed over to HMCE. Mr Small had not registered Alf Allington as an informant because, according to Ms Dunn’'s notes, of concern he might be seen as an ‘'Agent Provocateur’'. It was never put to him that he was anything other than a trade source. This was incorrect but Butterfield J was not prepared to conclude that this showed that there had been a decision to conceal Alf Allington’'s status from counsel. As Butterfield J observed in paragraph 4.139 of his report, if that was the case, it was to say the least curious that Mr Small would choose to make his public confession in front of all present including a prosecuting solicitor.
51. Mr Robertson is said to have failed to investigate further to see whether the problems in relation to LCB were as is now known. As with Mr Broad, Mr Robertson knew that there was an issue with Mr Allington. He like Mr Broad thought the problem related to disclosure not to an evidential trail. It was put to Mr Robertson that by February 2000 everybody involved in LCB cases knew that Alf Allington was a participating informant. Mr Robertson said he was not aware. He knew there was a general problem but there was no reason for him to know he was a participating informant since he did not give evidence in any case Mr Robertson was working on.
52. I have no doubt that both Mr Broad and Mr Robertson were entirely honest in the evidence they gave before me. There were inevitable difficulties in recollecting details of events occurring up to 15 years ago. I am satisfied that Mr Mitchell was fully informed of all that was known by then and in particular was aware of the likely disclosure difficulties because of Alf Allington’'s position. There was in my judgment no default by either of them in connection with the institution of the prosecution. Mr Mallin in his skeleton argument sought to include Mr Small’'s conduct. But he was not concerned in the investigation or prosecution of the offences charged against the claimant. His conduct in other cases undoubtedly created problems but those were known to Mr Mitchell. Problems relating to an evidential trail were at that time unknown, but no officer concerned in the material offences was responsible.
53. When the RO was obtained, it was said that steps were to be taken within 7 days to extradite the claimant. Mr Mitchell believed that extradition was possible. He was wrong, but the officers were entitled to rely on his advice since that was a question of law. Mr Mallin submits that once it was clear, as it was very soon after the arrest warrant and the RO were obtained, there should have been an application to the High Court disclosing that that was the position. In fact, consideration was given to whether charges of for example false accounting could be brought which it was believed could be extraditable. That turned out to be a blind alley. But it was believed that the claimant might return, perhaps with a false identity since he had left the UK with a false passport. That he had entered the USA with a false passport might in itself persuade the authorities to remove him. I am satisfied that to maintain the proceedings was no default and there was no need to go back to a judge.
54. It is important to follow subsequent advices of counsel in relation to Kitsch, since the prosecution of Pearce and others was proceeding. There were a number of conferences with Mr Mitchell. Finally, on 1 May 2002 there was a conference with Mr Mitchell. By then, Villiers had been decided in the Court of Appeal and so the true role of Alf Allington was known. Mr Mitchell said he was very optimistic that extradition might be possible since the Americans were to bring in a new bill. Furthermore, a letter had been received from the claimant’'s solicitors saying he would be prepared to return to the UK provided he was granted bail. There was no suggestion that the proceedings could not properly be pursued despite the conduct of Mr Small the extent of which was by then known.
55. In December 2002 counsel instructed in the Create case which concerned Bosworth Beverages gave advice. Pearce had been joined in Create by means of a voluntary bill but his case had been severed. His involvement had been essentially to launder the proceeds. Mr Martin Wilson QC and Mr John Pini advised that because the prosecution against those other than Pearce relied on documents uplifted from LCB it was ‘'simply untriable’'. It would be impossible to prove the provenance of the AADs without calling a witness from LCB.
56. Following this advice, no evidence was offered in Create. But in January 2003 Mr Wilson and Mr Pini advised in relation to Kitsch. They said:-

“"Our case is fundamentally different to the cases thus far considered in that we are alleging money laundering and not excise diversion fraud. There can be no realistic argument that there was any form of entrapment to commit these offences…..”"

They observed that even on a worst case Court of Appeal decision there was still a case based on the existence of diversion fraud. This would run even if the FP documentation could not be admissible. They observed:-

“"We can link [the claimant] prima facie to diversion fraud through the lists of drinks seen arriving at his house and the lists of spirits in his records all at duty free prices. We also have the evidence of [a named witness] who recalls hearing Pearce and [the claimant] discussing alcoholic spirits and we can prove that Pearce was [the claimant’'s] right hand man in the country. We can prove the handling of very large and frequent sums of cash by Pearce and [the claimant] and, in particular, we can link Pearce to the deposit of £3 million in used notes into Credit Suisse. We can prove how £1.25 million went through the bank account of Bosworth Beverages to fund the yacht purchase with Pearce providing the balance”".

57. I have cited this because it is material in considering whether the defendant has established that the claimant was guilty of the offences alleged against him. But it seems that at that stage counsel were clear that Kitsch could and should continue.
58. Following the abandonment of Create, and the most recent Court of Appeal decision in Stockade (FP), a conference was held with Sir John Nutting, QC together with Mr Wilson and Mr Pini. Detailed consideration was given to all the circumstances which were by then well known. There would now be no question of a failure to make full disclosure. The major problem related to proof of the movement of the goods. It was decided that Kitsch could continue.
59. However, in June 2003 Mr Lawson-Rogers, QC (who had taken over as leading counsel from Mr Wilson) and Mr Pini gave a further advice. While Kitsch concerned FP, not LCB directly, the question was whether the LCB ‘'diseases’' infected FP. Incidentally, it is noted that the indictment, which extended to April 1998, was still regarded as limited to FP. Laundering would have taken place after the closure of FP. However, it was known that about one third of the FP goods had originated in LCB. This meant that it would not be possible to maintain the stance that LCB was irrelevant to the issues and so ‘'notwithstanding the other clear indications of guilty knowledge, we succumb to the LCB disease and regrettably it is fatal’'. There was a further problem in relation to disclosure referred to as ‘'further information concerning “"Mike”"’' (who had apparently been responsible for bribing Alf Allington) which meant that there could be ‘'no meaningful assurance that full disclosure had been made’'. This has been relied on by Mr Mallin but there is no reason to believe that full disclosure could or would not be given. The real concern was that the defence would be able to build on HMCE’'s failures and the jury would be likely as a result to be hostile to the prosecution. That advice was accepted and no evidence was offered in June 2003. But the arrest warrant and the RO against the claimant remained in being. However, by then any alleged loss had already been caused.
60. Mr Mallin has sought to place reliance on an unsigned statement of Mr Smith. Mr Kent objected as it was unsigned but I agreed to consider it as hearsay evidence. It was his view that there had been ‘'gross deceit’' on the part of certain known NIS officers involved in LCB. Mr Smith’'s main concern related to the position of Alf Allington and essentially whether he was involved in the fraud and whether his true role had been disclosed. His concern was in the light of events well founded. Nothing in Mr Smith’'s statement indicated that Mr Broad or Mr Robertson were involved in any deceit. It may be that he questions Ms Dunn’'s role, but even if there were any real concerns about what she knew, she is not an officer within the meaning of s.89 of the 1988 Act. The police investigated the matters raised by Mr Smith but no action was taken against anyone.
61. I am satisfied that no officer concerned in the investigation or prosecution of Kitsch was guilty of any default let alone serious default. Furthermore, as the history of counsel’'s advices shows, even if there had been any serious default as put forward by Mr Mallin, the prosecution would have been instituted. There was a reasonable expectation that, despite the offences charged not being extraditable, the claimant would return or be returned.
62. On 11 December 2002 Mr Broad provided a note from his supervisor in relation to Kitsch. The RO was served on a firm of solicitors in Wimpole Street, Alexander Marks & Co. Mr Leaman of that firm claimed to be acting as an agent for lawyers abroad who represented the claimant. It was discovered that Pearce had issued a cheque for £50,000 in favour of Alexander Marks and had cashed a further cheque for £50,000 in Wimpole Street. In December 2001 there was information that the claimant had sent two debt collectors to England believing that Pearce owed him £12 million. On 8 April 2002 there was a significant new development. Mr Broad and Mr Robertson were asked by the US customs attaché to attend the US Embassy. They did so and contact was made with a Mr Hensley, an ex US customs attaché, who had interviewed the claimant at the request of his lawyer. Mr Broad’'s notes read:-

“"In essence [the claimant] wanted to cut a deal to facilitate his return to the UK. [He] had said that he wants to work for C&E. He was offering to pay a ‘'civil’' fine and in return does not want to go to jail and also get some money back. He had said he was willing to testify and to give up his records concerning excise fraud, false passport and Swiss banking. [He] also alleged that the ‘'agent’' for (Updown Court) the house tried to ‘'cut him out’'. This is assumed to be a reference to Pearce”".

63. Mr Broad noted that there was no current intelligence as to the claimant’'s whereabouts but ‘'due to his seemingly ready access to false identities there has to be the possibility of him being in the UK’'. The claimant accepted in evidence that Mr Hensley was acting on his behalf but said that there must have been a misunderstanding since he never offered to pay a civil fine. That offer would have been somewhat inconsistent with his contention that he had not been involved in any diversion fraud or money laundering. Mr Broad’'s note also referred to a number of false identities used by the claimant. One he admitted was Shaukat Ali which he had used in the USA. In addition, in his accountant’'s office in Jersey was found a faxed copy of a Uruguayan passport in the name of Alejandro Jungor Wajsbrodt which had been sent to his accountant by the claimant. This individual had arrived in Los Angeles from Zurich on 20 August 2001. This was consistent with the claimant following the execution of the RO having cleared his Swiss accounts and left for the USA.
64. While having regard to my conclusions that the claimant does not meet the requirements of s.89 it is not strictly necessary to consider whether the acquisition of Updown Court was from proceeds of crime, I should deal with the issue since much argument was directed to it and I should resolve it.
65. Mr Mallin submitted that the case against the claimant depended upon establishing that the briefcase and its contents identified by Ms Wood and Mr Bowen-Easley belonged to him. That is important but there is other evidence which points to his guilt. The claimant said that he had earned some £23 million in two years between 1996 and 1998 from commission payable on honest transactions. He received 5% to 8% on turnover running into £100s of millions. That, as Mr Kent submitted, is not feasible. Such large profits are entirely consistent with involvement in diversion fraud which was as is clear being carried out through LCB and FP. The claimant said that he had registered for VAT and paid tax. He said that Peter Michel had all his records but he had registered as a sole trader, BS Bhandal. HMCE had no record of any such registration nor was there any record of tax payments. All that the claimant could say was that his records had been with Michel or at Updown Court and HMCE had them. I am entirely satisfied that HMCE had no such records and that the claimant’'s account of registration of VAT and payment of sums due was untrue.
66. Peter Michel was prosecuted in Jersey. He supplied, it was said, a money laundering service. In May 2007 he was convicted on a number of counts. Some related to laundering on behalf of the claimant and Pearce. The crown sought to prove that Updown Court had been purchased with the proceeds of crime. A property called Hillfield House had been purchased through an account in the name of Avtar Kelley trading as ASK Distribution with an account at the Walton-on-Thames branch of Barclays bank. ASK’'s account only ran for a few months between June 1996 and February 1997 during which time sums totalling £21.5 million passed through it. £836,000 was the cost of Hillfield House and in addition a total of £5.6 million was transferred to a Michel account and were held by him for the claimant’'s benefit. In March 1997 the sum of £5.8 million was transferred to a Swiss bank account.
67. Mr Michel sought to appeal his convictions. He failed before the Court of Appeal in Jersey but succeeded in the Privy Council. The appeal was allowed on the ground that the commissioner who had tried the case had interrupted Mr Michel when giving his evidence to an unfair extent. A retrial was ordered.
68. On 15 June 2010 Mr Michel pleaded guilty. The claimant denied that he was Avtar Kelley or ASK. When it was put to him that the sum of £836,000 was the precise sum used to purchase Hillfield House in the name of a Jersey based company and that an accountant instructed by the Jersey authorities had traced the £836,000 through to the purchase of Hillfield House, the claimant said it must have been a trade debt. £1,370,111.50 from the proceeds of sale of Hillfield House were used as part of the amount needed to purchase Updown Court. The claimant suggested that Mr Michel was not concerned with the validity of his plea of guilty since he knew, having regard to time already served in prison, that he would not serve more. While I recognise that Mr Michel’'s plea is not to be regarded as evidence which directly implicates the claimant, I am entitled to take it into account. Similarly, Mr Pearce has identified the claimant as behind the criminality. He had of course a motive to seek to transfer the blame so far as possible. However, the evidence clearly supports his claim.
69. The account book in the briefcase showed transactions of UK Supplies. There was overwhelming evidence from invoices and other documents obtained that UK Supplies were involved in excise and VAT fraud. There was a multi-million pound turnover, but VAT of only a few hundred pounds was declared before UK Supplies disappeared. UK Supplies was a trading name used by Samarjit Sirha. He lived in Wood Green but his bank was Barclays in Walton-on-Thames. This was the same bank as was used by ASK and is a long way from Wood Green. Furthermore, the VAT return made by UK Supplies gave an address in Regent Street which was the same as ASK. This the claimant said must have been a coincidence or it showed a close relationship between the two, but he was not connected to either.
70. Mr Kent has identified a significant number of links to the claimant in the records contained in the briefcase. Those include the purchase of the yacht through Bosworth Beverages. The claimant when taxed with these was unable to say who the documents belonged to and any sums referable to payments for his benefit must have been from trade debts owed to him. His name never appears in any of the transactions which he admits were for his benefit. That in itself is, Mr Kent submits with force, a sign of one engaged in criminal conduct. The purchase of the yacht is said to have been payment by Bosworth of a debt. Again, as Mr Kent submitted, that would be an extraordinary means of dealing with a proper honest trade debt, particularly as enormous sums were paid in cash. Furthermore, huge sums paid in cash are not indicative of normal honest transactions.
71. The documents in the briefcase do not, the claimant says, contain any of his handwriting. Mr Robertson accepted this: he did not believe that the entries in the book in particular were in the claimant’'s writing. He assumed a bookkeeper would have been employed. The claimant has relied on the entry which he says shows he could not have been UK Supplies. The book’'s first page contains a list which seems to indicate what it will contain. It refers to monies owed by and to customers, suppliers, transport and a named person, Alan. There then follows headings ‘'expenses, banking, stock in trade and profit’'. The significant entry relied on reads ‘'commission owed to Bal’'. This must, it is said by the claimant, refer to him and is not consistent with him being UK Supplies. There was, Mr Robertson said, another Bal known as ‘'little Bal’' – the claimant was ‘'Big Bal’'. It was possible but I think improbable that little Bal was referred to. However, I do not think that the use of the word commission shows what the claimant alleges. There would undoubtedly be matters which would have to be carried out as the list shows. To describe the claimant’'s personal payments as commission does not indicate that he was not directly involved. There were no doubt others, for example Pearce, who would require payment and that would no doubt come out of notional profit. UK Supplies were after all registered and would have to produce accounts or VAT returns which needed to show apparent profit and explain payments.
72. Mr Kent has identified the many connections with the claimant shown in the documents in the briefcase. They support the evidence of Ms Wood and Mr Bowen-Easley. Neither would appear to have any reason to give false evidence against him and each recognised the briefcase as one that he had in his possession.
73. I do not propose to lengthen this already over long judgment by going into further detail. The claimant I regarded as a thoroughly unsatisfactory witness, reduced to relying on alleged retention of documents by HMCE and lack of memory of various matters. All material apparently linking him to fraud must be coincidental or there are missing documents.
74. For the reasons I have given, I am satisfied beyond any reasonable doubt, were that to be the required standard, that the claimant is guilty of the criminal conduct alleged against him and that Updown Court was acquired from the proceeds of crime. That together with the bars to success in s.89 means that this claim must be dismissed.