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
		25/04/2016

Mrs Justice McGowan :

1. The three named Applicants seek to set aside the orders of Supperstone J of January 16^th 2015 which granted the National Crime Agency, ("NCA") a Property Freezing Order, ("PFO"), and a Disclosure Order, ("DO"), against each of them and six other Respondents. The orders were granted pursuant to sections 245A and 357 of the Proceeds of Crime Act 2002, ("POCA") following an ex parte hearing.
2. The NCA is a designated "Enforcement Authority" under section 316(1) of POCA which has the statutory duty of tracing and recovering the proceeds of unlawful conduct (s304(1) of POCA). That duty is not predicated upon a criminal conviction, nor is the grant of the orders that were sought in these proceedings. In determining whether property acquired has been "obtained through unlawful conduct" it is not necessary to show that the conduct was of a particular kind if it can be shown that it was obtained through conduct of one of a number of kinds, each of which would have been unlawful, section 242(2)(b) POCA.
3. The first applicant, Shane Davies, ("SD"), is the main protagonist in these applications. He is joined in his application by Rhianna Davies, his wife. He is the son of the second applicant, Sheila Davies. The other defendants in the criminal proceedings were members of his extended family or his friends.
4. Lengthy skeleton arguments have been produced in this application and two lever arched files of authorities have been relied upon, in addition to many transcripts of the Crown Court proceedings which took place in Bristol in 2013. In reality what falls to be determined is what happened at the ex parte hearing on 16^th January 2015; whether the NCA complied with its statutory and common law duties of disclosure and whether the court hearing the application was misled, deliberately as is alleged, or at all. If such failings or deliberate action is proved against the NCA then the court would have to go on to consider whether the public interest nonetheless demanded the grant of the PFO and DO. Denial of orders which operate in the public interest is not the appropriate means of marking such failings or misconduct. All submissions, written or oral, have been considered but it is only necessary to decide those matters which determine the outcome of the applications.

The Background

5. The NCA has been interested in the activities of the first applicant, SD, for a number of years. It is believed that he has been involved in, at least to the extent of benefitting from, unlawful conduct by the supply of controlled drugs. It is believed that his friends and family, including the other applicants, have assisted him in the accumulation or consolidation of funds from this unlawful conduct. He has amassed a property portfolio, said to be worth in excess of £8m. Much of that group of properties is held in the names of his family and friends.
6. In an investigation launched by the police, the Crown Prosecution Service ("CPS"), alleged that a substantial part of that portfolio was acquired by the benefit of mortgages obtained by frauds on the lending institutions. The frauds were said to be the provision of false representations as to the income and financial status of the individual applying for a particular mortgage. Simply put the applicants for mortgages were falsely claiming to have incomes or financial status which was untrue. There was evidence, capable of belief as admissions against interest, that SD had instigated the use of fraudulent information by co-accused on mortgage applications for properties which were in reality to be treated as his, irrespective of the name of any putative purchaser.
7. These three applicants, with others, stood trial at the Crown Court sitting in Bristol in 2013. In simple terms they faced allegations that they had conspired to defraud mortgage lenders by providing false details as to income. Some connected defendants had earlier pleaded guilty to similar related charges. In the course of the trial evidence emerged which showed that the provision of false details had not operated as an effective deception on the staff employed by those lending institutions and that some of those details had not actually been provided by the applicants themselves. A financial advisor to SD, Mr Giblin, gave evidence that he completed the application forms on occasion and "embellished" the details. Staff of the lending institutions explained that they were not, at that time, necessarily concerned with the actual income declared by borrowers. The market in property was such that the likely increase in the value of a house and/or its potential rental income were so great that an ability to meet mortgage repayments was immaterial. Those two pieces of evidence, either alone or in combination, which had not been anticipated by the CPS, meant that the prosecution did not continue. Counsel prosecuting took the view that in the light of that evidence a properly directed jury would be unlikely to convict.
8. In due course those who had pleaded guilty were to be allowed to withdraw their pleas and no evidence was offered against them. After the "collapse" of the prosecution case against these applicants, counsel drafted a document for the court explaining their position and seeking to resist the application by the other defendants who had pleaded guilty to other charges to re-open their pleas and change them to pleas of not guilty. That short note titled "Response to Applications to Re-open Plea" with footnotes is very much at the core of this application to discharge.
9. After the unsuccessful prosecution the Avon and Somerset police referred the matter to the NCA who then commenced a civil recovery investigation. This investigation is still ongoing. As part of this investigation the NCA made an ex parte application to Supperstone J for a Property Freezing Order under s. 245A POCA. The NCA also applied for a Disclosure Order under s.357 POCA. As is common practice, having satisfied the burden of establishing a risk of dissipation, the applications were heard ex parte. The hearing, on 16th January 2015, was recorded and a full transcript was made available to the applicants afterwards and was produced in this application. At that hearing the NCA was represented by leading and junior counsel, who both appear in this application.

Hearing of 16^th January 2015

10. The transcript shows that the evidence presented to Supperstone J was largely in the form of two witness statements from Daniel Byrne, a financial investigator at the NCA, to which a number of other documents were exhibited. The papers had been provided in advance of the hearing and read by the Judge along with the 29 page skeleton argument drafted by counsel for the NCA. The court was taken through the legal test to be applied before granting such orders, namely that the NCA had to establish "a good arguable case" and was also taken through a precis of the background to the trial. The judge was addressed on the significance of the acquittals and his attention was drawn to the relevant and most recent authorities. He was informed of the evidence of Mr Giblin, SD's financial advisor, which had been to the effect that he himself had filled in the details on the mortgage application forms on some occasions. It is right that the Judge was not taken by counsel specifically to the evidence of staff members of the lending institutions to the effect that any false representations on the forms were not effective because they, the staff, would have granted the applications without consideration of those details, nor was he provided with all the evidence in and transcripts of the Crown Court proceedings.
11. In Daniel Byrne's first witness statement he cited widely from the response prepared by prosecution counsel about the failure of the trial, paragraphs 5.65-5.69 of his witness statement are direct quotations. He did not cite the footnote. He did "however" exhibit the full note and it was produced to the court and read by the Judge. The omission to cite from the footnote in his witness statement is said to be a "surgical excision" carried out in bad faith. It is said that the omission of reference to the footnote "creates a seriously misleading picture" of the prosecution difficulties at trial. The footnote reads,

"Naturally the learned judge was not explicit in all of his reasoning but seemed to have the following in mind: it was clear from the evidence that many of the conspiracy counts, if run as substantive deceptions would have failed on the issue of the lack of an operative deception. The indictment alleged that the accused had conspired to tell lies about their employment and income, but the evidence demonstrated that on the particular Buy to let mortgages applied for in this case the lenders were mainly (and in many cases solely) interested in the rental potential of the properties rather than the personal income of the applicants. Thus, if the accused had conspired, they had done so (artlessly) to tell lies that were irrelevant to whether the mortgages were granted i.e. they could have obtained the same mortgages by telling the truth. Added to this was the minimal risk caused to the lenders and lack of any default in payments i.e. actual loss."

12. This document is prosecution counsels' response to the application made by the co-accused who had pleaded guilty to vacate their pleas. It seeks to resist that application and encourages the court to mark the acquittal of the defendants in the trial by an adjustment in sentence in favour of those who had pleaded guilty. It concludes with this paragraph,

"9. The unspoken substance of the complaint made by each of the three remaining accused is that they are left to "carry the can" on this indictment while the author of this dishonest scheme has emerged without a conviction. To the extent that the court accepts the justice of such a complaint an appropriate adjustment can be made to sentence."

The dishonesty on the face of the mortgage application forms has not been raised as an issue in this application, merely the lack of operation on the minds of those processing the forms. An interesting but moot point arises as to whether that lack of operative deception would have prevented a proper conviction for conspiracy to bring about such a result. The real point remains that an acquittal does not preclude the pursuit of the proceeds of unlawful conduct and in particular that the judge hearing the application had his attention drawn to the contents of the response, footnote and all.

The Basis of the Application to Discharge.

13. The applicants contend that the NCA should have ascertained the central issues at trial, obtained transcripts of material evidence regarding those issues and accurately summarised that evidence in Mr Byrne's witness statement.

i) Lack of disclosure is alleged by all the applicants.

a) It is alleged that there was material non-disclosure in the obtaining of the PFO, the NCA "consciously misled the court when making its application".

b) It is also alleged that the NCA failed to comply with its duty to conduct proper enquiries before making the application.
"The overwhelming inference is that the NCA must have suspected that there was further material that assisted the Respondents but deliberately closed its eyes to making proper inquiries".

ii) Bad faith is further alleged by the first applicant, SD. It is said that in the hearing before Supperstone J there was "a surgical excision" of an essential part of prosecution counsel's response from the trial in Bristol, the footnote.

14. The alleged failure to disclose and properly to investigate relates to the fact that the judge hearing the ex parte application was not provided with relevant transcripts of evidence from the Crown Court trial, which related to the fact the mortgage lenders did not rely on the declarations in the mortgage applications, either already in the possession of the NCA or still held by the CPS and therefore falling into the category of material to which they could and should have drawn to the judge's attention.
15. If material non-disclosure, with or without bad faith, is established that is not the end of the matter. This court would have to continue to consider the wider public interest before going on to discharge the PFO.

Discussion

16. A number of propositions can be drawn from submissions and used to determine whether there is merit in the applications to discharge and the fundamental allegations of deliberate misconduct made on behalf of the applicants:

i) It is not submitted that there was no proper basis upon which to bring the criminal prosecutions against the applicants. Some co-accused pleaded guilty and there were no applications to dismiss the charges at a preliminary hearing.

ii) It is not submitted that the information on the mortgage application forms was anything other than false and dishonest. There is cogent evidence that the defendants in the trial had agreed at the behest of SD to provide false information on the forms in order to obtain mortgages on the properties, which were to be held for his benefit. Unanticipated evidence that the false nature of those representations was of no material effect came to light in the trial.

iii) No proper basis for the necessity of providing the information to the judge hearing the application has been established. The judge was informed of as much of the broad nature of the case as was necessary and crucially of the acquittals and their significance.

iv) The response note by prosecution counsel was cited in great detail in the witness statement, it was produced to the judge in full and he read it. There was no surgical excision. There is no basis for the allegation of bad faith.

v) Despite submissions to the contrary the judge was taken to the relevant and most recent authorities on the status of acquittals in such proceedings.

vi) In any event the acquittal of these applicants does not disprove the arguable case, on the balance of probabilities, that funds concerned were the proceeds of unlawful conduct.

vii) It is not possible to isolate a single cause for the failure of the prosecution. The consequence of the acquittals means that these applicants and their co-accused are not guilty of the mortgage frauds alleged against them. It does not mean, without more, that the funds involved are not arguably the proceeds of unlawful conduct. Nor does it preclude, on the test of the balance of probabilities, that the funds could not be recovered under POCA.

viii) Further the application for the PFO was based on the NCA's submission that they had a good arguable case that the property concerned is recoverable or associated property under POCA.

ix) Irrespective of any evidential burden no material has been adduced to demonstrate, by way of contradiction of the NCA's position, any legitimate source of the disputed funds. There is no support for the legitimate source of any funds in records held by HMRC.

x) The NCA merely has to establish good arguable grounds for the grant of a PFO and reasonable grounds to suspect that property is recoverable or associated before the grant of a DO. There is nothing advanced in these submissions which unsettles the judge's conclusions that such relatively low thresholds have been crossed on the material in the case.

xi) The PFO is an interim measure pending final determination of the issue. The DO facilitates the gathering of material to inform those proceedings.

xii) In the absence of a finding of deliberate or inadvertent non-disclosure or any bad faith, it is not necessary to go on to consider the public interest in not setting aside the orders. On all the material in the case it is difficult to see how the public interest test would not have been satisfied, irrespective of bad faith.

17. Accordingly the applications to discharge the orders granted ex parte by Supperstone J on 16^th January 2015 are dismissed. An order will be granted in the terms of the draft submitted, extending the PFO for six months from the date of handing down of this judgment and joining another respondent.