England and Wales High Court (Chancery Division) Decisions

IN THE COUNTY COURT AT MANCHESTER

		Manchester Civil Justice Centre 1 Bridge Street West Manchester M60 9DJ
		26th November 2015

HIS HONOUR JUDGE HODGE QC:

1. This is my extemporary judgment in a matter arising in the bankruptcy of Mr Mohammed Osman Tahir (who also goes by a number of aliases), number 1056 of 2014 in the County Court at Manchester. This matter comes before the court in somewhat unusual circumstances. The application formally before the court is one by Greater Manchester Police issued on 15^th October 2015. That application is supported by a witness statement of Detective Constable John Paul Lonsdale of Greater Manchester Police which is dated 8^th October 2015.
2. The matter first came before me last Friday, 20^th November. Due to circumstances into which I need not go, the respondent to the application, who is Miss Joanne Sara Wright, an insolvency practitioner with Begbies Traynor (Central) LLP and the trustee in bankruptcy of Mr Tahir's estate, had had only one day's notice of the application. At that stage she was represented by Mr Alfred Weiss (of counsel) and he sought an adjournment to put in evidence. I adjourned the matter to this afternoon, Thursday, 26^th November, reserving the case to myself and ordered that any evidence from the trustee in bankruptcy was to be filed and served on Greater Manchester Police by one o'clock yesterday. That was duly done. There is therefore now before the court a witness statement from Miss Wright dated 24^th November 2015 together with various exhibited documents.
3. Before me today the Greater Manchester Police are represented, as they were last Friday, by Miss Sarah Thomson. On this occasion the trustee in bankruptcy is represented by Mr Lawrence McDonald (of counsel). As a result of the submissions of Mr McDonald, interventions from the bench, and helpful indications from Miss Thomson, a fair measure of agreement has emerged between the legal representatives; but given that there is a hearing listed before the District Judge in Preston Magistrates' Court this coming Monday, 30^th November, it is appropriate that I should make my views clear in this judgment, sitting as a judge exercising insolvency jurisdiction in the County Court at Manchester in relation to Mr Tahir's bankruptcy.
4. The application notice effectively is in two parts. The application is said to be made pursuant to section 311 of the Proceeds of Crime Act 2002, to which I shall refer as "POCA". The application notice states that under section 311 (1) proceedings for a recovery order under POCA may not be taken or continued in respect of property which is an asset comprised in the estate of an individual who has been adjudged bankrupt. Reference is made to section 311(3) (d). That is all entirely correct; but it is really nothing to the point because the proceedings pending in the Preston Magistrates' Court are not proceedings for a "recovery order", which is an order under section 266 of POCA; rather, they are proceedings for the forfeiture of detained property brought under section 298 of POCA. Therefore, the first paragraph of section 3 of the application notice, whilst correct in point of fact, is irrelevant to the matter pending in the Preston Magistrates' Court.
5. However, the second part of section 3 of the application notice is relevant. It states that the applicant seeks leave of the court to continue proceedings currently ongoing in the Preston Magistrates' Court which were issued under section 298 of POCA against the bankrupt, Mr Tahir. The proceedings in the magistrates' court relate to the proposed forfeiture of three amounts of cash seized from Mr Tahir by police in August 2010 and May 2013 respectively. Thus, what is sought is permission to continue the ongoing proceedings in the magistrates' court under section 298 of POCA.
6. It is at this point that I should refer to the relevant provisions of Part 5 of POCA. Part 5 is headed "Civil recovery of the proceeds etc of unlawful conduct". It is divided into a number of chapters. Chapter 1 is headed "Introductory". It contains (in section 240) a statement of the general purpose of Part 5 of POCA. Subsection (1) states that Part 5 has effect for the purposes of: (a) enabling the enforcement authority to recover in civil proceedings before the High Court property which is, or represents, property obtained through unlawful conduct. That part of Part 5 is addressed in Chapter 2 of Part 5, which includes the provisions of section 266, relating to civil recovery orders. In section 316 proceedings for a recovery order are defined as meaning proceedings for an order under section 266. If such an order is made, it results in property vesting in an official called the trustee for civil recovery. I am not concerned in these proceedings with any proceedings under Chapter 2 of Part 5 of POCA.
7. Section 240(1) goes on to make it clear that the alternative purpose for which Part 5 has effect is that of enabling cash which is, or represents, property obtained through unlawful conduct, or which is intended to be used in unlawful conduct, to be forfeited in civil proceedings before a magistrates' court. Subsection (2) of section 240 makes it clear that the powers conferred by Part 5 are exercisable in relation to any property (including cash) whether or not any proceedings have been brought for an offence in connection with the property. There is in section 241 a definition of "unlawful conduct", and in section 242 an explanation of what is meant by "property obtained through unlawful conduct". By subsection (1) of section 241 a person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct.
8. This case is concerned with proceedings under Chapter 3 of Part 5 of POCA. Section 294 confers a power to seize cash. Section 295 contains provisions relating to the detention of seized cash. By subsection (1) whilst a constable continues to have reasonable grounds for suspicion, cash which has been seized under section 294 may be detained initially for a period of 48 hours. By subsection (2) the period for which the cash or any part of it may be detained may be extended by an order of the magistrates' court; but such an order is of limited duration in accordance with the terms of section 295(2).
9. Section 298 is the principal section that falls to be considered on this application. It is headed "Forfeiture". Subsection (1) provides that while cash is detained under section 295, an application for the forfeiture of the whole or any part of it may be made to a magistrates' court by the police. By subsection (2) the court may order the forfeiture of the cash or any part of it if it is satisfied that the cash or part: (a) is recoverable property; or (b) is intended by any person for use in unlawful conduct. Subsection (3) has no present application. It relates to recoverable property belonging to joint tenants. Subsection (4) provides that where an application for the forfeiture of any cash is made under this section, the cash is to be detained (and may not be released under any power conferred by Chapter 3), until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
10. Section 299 provides for an appeal from the magistrates' court to the Crown Court. Section 300 contains provisions whereby if cash is forfeited, it is to be paid into the consolidated fund. Section 301 addresses the position of victims and other owners. By subsection (1) a person who claims that any cash detained under Chapter 3, or any part of it, belongs to him may apply to a magistrates' court for the cash or part to be released to him. By subsection (2) the application may be made in the course of proceedings under section 295 or section 298 or at any other time. By subsection (3) if it appears to the court concerned that (a) the applicant was deprived of the cash to which the application relates, or of property which it represents, by unlawful conduct, (b) the property he was deprived of was not, immediately before he was deprived of it, recoverable property, and (c) that the cash belongs to him, the court may order the cash to which the application relates to be released to the applicant. If (a) the applicant is not the person from whom the cash to which the application relates was seized, (b) it appears to the court that the cash belongs to the applicant, (c) the court is satisfied that the conditions in section 295 for the detention of that cash are no longer met or, if an application has been made under section 298, the court decides not to make an order under that section in relation to the cash, and (d) no objection to the making of an order under section 301 has been made by the person from whom the cash was seized, the court may order the cash to which the application relates to be released to the applicant or to the person from whom it was seized. By section 304 "recoverable property" means property obtained through unlawful conduct.
11. The section with which I am most directly concerned is section 311, within Chapter 4 of Part 5, headed "Insolvency". Subsection (1) provides that proceedings for a recovery order may not be taken or continued in respect of property to which subsection (3) applies unless the appropriate court gives leave and the proceedings are taken or (as the case may be) continued in accordance with any terms imposed by that court. Subsection (2) provides that an application for an order for the further detention of any cash to which subsection (3) applies may not be made under section 295 unless the appropriate court gives leave. By subsection (3) section 311 applies to recoverable property, or property associated with it, if (by paragraph (d)) it is an asset comprised in the estate of an individual who has been adjudged bankrupt. By section 311 (8) (b) the "appropriate court" means the court which is the court for the purposes of the applicable enactment. In this case the applicable enactment is the Insolvency Act 1986.
12. Drawing matters together, the effect of section 311 is that proceedings for a recovery order under section 266 of POCA or for the further detention of any cash under section 295 may not be made, taken, or continued, unless the court having jurisdiction in the insolvency of the relevant individual gives leave. It is that section which is invoked by Greater Manchester Police in the present case. As Mr McDonald has pointed out, however, on a true reading of section 311 no such permission of the insolvency court is required in connection with the proceedings presently pending in the Preston Magistrates' Court under section 298 of POCA. These are not proceedings for a recovery order under section 266, so subsection (1) of section 311 is not engaged. There is no application for an order for the further detention of cash under section 295, so section 311(2) is not engaged. The proceedings pending in the Preston Magistrates' Court are, in fact, under section 298 of POCA. That section is not mentioned at all in section 311.
13. I have puzzled over why section 311 should require the permission of the insolvency court to be obtained for proceedings under section 266 for a recovery order, or under section 295 for the further detention of cash, but not under section 298 for the forfeiture of that cash. I have wondered whether there is an unintentional omission in the language of section 311 of any reference to forfeiture proceedings under section 298. I had wondered whether the court might be called upon to seek to correct an inadvertent omission of any reference to section 298 in section 311 in accordance with the principles established by the House of Lords in the case of Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586; but it seems to me that the Inco conditions cannot be said to be satisfied because, when one looks at section 301 of POCA, it is quite clear from section 301(2) that Parliament had clearly recognised the difference between proceedings under section 295 and those under section 298 because proceedings under both sections are expressly mentioned in section 301(2).
14. So, even though I find the purpose underlying the omission of any reference to section 298 in section 311 difficult to discern, I am drawn to the conclusion that that omission was deliberate, and there can be no question of the court seeking to read into section 311 any reference to forfeiture proceedings under section 298. It follows from that that permission to continue these proceedings in the Preston Magistrates' Court is not required under section 311 and therefore I cannot make the order sought because it is simply unnecessary for this court to do so.
15. Both in earlier correspondence and in her recent witness statement the trustee in bankruptcy has invited the court to order that the detained cash should be paid over to the trustee in bankruptcy. Her argument is that the cash was property of the bankrupt at the date of the bankruptcy and, as such, it has vested in the trustee in bankruptcy pursuant to section 306 of the Insolvency Act 1986. Subsection (1) provides that the bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee. Miss Wright was appointed trustee in bankruptcy of Mr Tahir with effect from 14^th August 2014, following the making of the bankruptcy order by District Judge Richmond on 7^th July 2014.
16. Mr McDonald's submission is that the cash had vested in the trustee in bankruptcy when Miss Wright became the trustee in bankruptcy in August of last year and therefore the cash should be paid over to her. The difficulty with that is that section 298 (4) provides in terms that where an application for the forfeiture of any cash is made under section 298, the cash is to be detained, and may not be released under any power conferred by this Chapter, until any proceedings in pursuance of the application, including any proceedings on appeal, are concluded. Thus, Miss Thomson submits that the court is precluded from ordering the payment over of the detained cash to the trustee in bankruptcy by the terms of section 298 (4) of POCA; that is even apart from the fact that there is no application presently before this court by the trustee in bankruptcy for the cash to be paid over.
17. Mr McDonald had indicated that it would be his submission that the cash should be paid over as a condition of any order giving permission to continue the forfeiture proceedings under section 298. The difficulty with that is: first, that since no permission is required under section 311 to continue the forfeiture proceedings, it is not possible for the court to impose a condition upon the grant of such permission; and, secondly, if the court were to seek to do so, it would be imposing the condition as a condition of a section 311 order and that that would be a condition which would seem to fall foul of section 298 (4).
18. The culmination of all of that is that it seems to me that this insolvency court is precluded from giving permission to continue the forfeiture proceedings under section 298 because such permission is not required; but, equally, it is precluded from ordering the return of the cash to the trustee in bankruptcy by the terms of section 298 (4). In short, neither Greater Manchester Police nor the trustee in bankruptcy can obtain the orders that they have been seeking.
19. Mr McDonald, however, submits that the court should provide some further guidance to the district judge sitting in the magistrates' court next Monday. He submits that the court should make it clear that the cash has vested in the trustee in bankruptcy. I am not sure that it is open to me, sitting in this court, to go that far. I am not seised of all the evidence relating to the genesis of the three sums of cash which are the subject of the detention orders and the forfeiture proceedings; but what this court is able to say is that under section 306 (1) of the Insolvency Act 1986 the bankrupt's estate has vested in the trustee immediately upon her appointment taking effect on 14^th August last year.
20. The bankrupt's estate is defined in section 283 of the Insolvency Act and it comprises all property belonging to or vested in the bankrupt at the commencement of the bankruptcy. By subsection 283 (3) there is an exception in the case of property which is held by the bankrupt on trust for another person; but it would not seem to me that property is held on trust for a person merely because it has been the subject of criminal conduct. Prima facie, it would seem to me that the cash which was held by Mr Tahir, and to which it would appear that no one other than himself has any better legal or possessory title, did form part of the bankrupt's estate and thus vested in the trustee in bankruptcy with effect from the date of her appointment. On that footing, it would seem to me that if no forfeiture order is made, the cash ought to be paid over to the trustee in bankruptcy for rateable distribution amongst the bankrupt's creditors which will, no doubt, include the victims of any criminal conduct.
21. As I read the legislation, the fact that the cash may belong now to the trustee in bankruptcy does not prevent the magistrates' court from making a forfeiture order. The magistrates' court has to be satisfied either that the cash is recoverable property, that is to say that it is property obtained through unlawful conduct (see section 304), or that it is intended by any person for use in unlawful conduct. Given that title to the cash would appear to have been divested from Mr Tahir, it would be difficult to say that he now intends to use it in unlawful conduct because it will not re-vest in him; but it may still, nonetheless, be recoverable property, in the sense of property obtained through unlawful conduct. If it is not, then the forfeiture provisions will not be engaged in any event and the cash should be handed over to the trustee in bankruptcy of Mr Tahir. If, however, the magistrates' court is satisfied that the cash is recoverable property, or that part of it is, the district judge will nevertheless still have a discretion to order its forfeiture under section 298 (2). By the use of the word "may", it is clear that that section confers a discretion on the district judge.
22. A factor relevant to the exercise of that discretion will be the consideration that if a forfeiture order is made, the cash will be paid over to the consolidated fund, whereas if the district judge declines to make a forfeiture order then it will be paid over to the trustee in bankruptcy who, subject to her costs and expenses, can be trusted to apply it rateably to satisfying the claims of Mr Tahir's creditors. It is for the district judge in the magistrates' court to decide how his discretion should be exercised, subject to the possibility of any appeal under section 299 to the Crown Court; but it does seem to me that it would be a relevant consideration affecting the exercise of his discretion as to the ultimate destination of any cash if it is, or is not, to be forfeited.
23. I do not feel that it is open to me to give any further guidance in this matter beyond saying that, for the reasons I have given, it seems to me that the Greater Manchester Police's application falls to be dismissed simply because it is unnecessary to make the order sought since it is not required by the terms of section 311. I should add that on Friday I was taken to the explanatory note to POCA in relation to section 311. Section 311 is said to set out the interrelationship between civil recovery and insolvency proceedings. It states that, broadly, a civil recovery claim is to be treated in the same way that any other civil proprietary claim is treated in insolvency proceedings. That means that in most circumstances the enforcement authority will have to apply for leave from the court dealing with the insolvency proceedings to bring or continue civil recovery proceedings.
24. Paragraph 437 of the note reads that section 311 covers insolvency proceedings that are not otherwise covered by the 1986 Act so that the enforcement authority will have to apply for leave from the insolvency court "in all circumstances". It seems to me that that note cannot be construed as extending beyond civil recovery proceedings under section 266 of POCA. Paragraph 438 states that the section also covers the interrelationship between cash forfeiture and insolvency proceedings. It states that under subsection (2), an application for the further detention of cash under the cash forfeiture provisions in Chapter 3 may not be made without the leave of the insolvency court.
25. It seems to me that the explanatory note is potentially misleading because it refers to the cash forfeiture provisions when, in fact, leave is required only in relation to proceedings for the further detention of cash and not for the forfeiture of cash. It may be that it is that explanatory note which misled Greater Manchester Police into thinking that they in fact needed to apply for permission in relation to the pending forfeiture proceedings when, in fact, they did not. If this judgment serves any useful purpose at all, it may be to underline the distinction between proceedings for the further detention of cash under section 295 and for its forfeiture under section 298 and to make it clear that whilst permission of the insolvency court is required for the former, it is not for the latter.
[Discussion re order follows]