England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		1 March 2012

Mr Justice Simon :

Introduction

1. This is a claim for civil recovery brought by the Serious Organised Crime Agency ('SOCA') under Part 5 of the Proceeds of Crime Act 2002 ('POCA') against Mr Coghlan and Ms Burgoyne seeking a Recovery Order pursuant to sections 243 and 266 in respect of an interest in a house and land at Brook Lane Chapel, Alderley Edge, Cheshire ('the Chapel'). Mr Coghlan and Ms Burgoyne are domestic partners and joint owners of the Chapel, which is their home.
2. The claim was issued against Mr Coghlan under CPR Part 8 on 31 July 2009, and Ms Burgoyne was joined as the second respondent by order of Master Fontaine on 29 July 2011.
3. It is SOCA's case that Mr Coghlan's interest in the Chapel is recoverable property because it was acquired directly or indirectly with the proceeds of unlawful conduct (drug dealing) during a period when he had no, or no sufficient, lawful income to acquire it.
4. It is common ground that the legal interest in the Chapel was acquired by Mr Coghlan on 21 Sept 2007 by a sale to him from Blue Moon Holdings Ltd ('Blue Moon') for £450,000, with a 100% mortgage from Halifax Bank of Scotland ('Halifax'). However it is SOCA's case that he already held the beneficial interest at this time and that this was reflected in a sale at significantly below the market value. This is contested by Mr Coghlan whose case is that he acquired his interest in the property by means of the Halifax mortgage and had no prior legal or beneficial interest in it.

The relevant statutory provisions

5. Section 240(1)(a) of POCA enables the enforcement authority (SOCA) to recover property in civil proceedings which is, or represents, property obtained through unlawful conduct. 'Unlawful conduct' is defined in s.241 as conduct which is unlawful under the criminal law; and by s.243(3)(a) the court must decide on a balance of probabilities whether it is proved that that the matters alleged to constitute unlawful conduct have occurred.
6. By s.266(1) the court must make a recovery order if it is satisfied that any property is recoverable; and by s.266(2) such order vests the recoverable property in the trustee for civil recovery. Section 266(3) provides for exceptions which are relevant to the position of Ms Burgoyne.

SOCA's case in summary

7. SOCA submitted that Mr Coghlan was at the head of a large-scale and profitable drug dealing enterprise in Stockport from 1997/98 to 2003/2004 and had no declared income during this period; and, although he was employed from 2004/5 to 2005/2006, he was paid less than £30,000 per annum in those two years. SOCA contended that his drug dealing can be inferred both from his lifestyle and the lack of any alternative source of income.
8. In addition it relied on evidence obtained in the course of the investigation of the murder of a man named David Barnshaw. This evidence fell into three categories. (1) Evidence of recorded conversations between Mr Coghlan and a criminal associate, Graham Mansell, who was imprisoned at HMP Lowdham Grange, during visits in February and March 2001 ('the Lowdham Grange evidence'). (2) A statement made by Kevin Durr ('the Durr evidence'). (3) A statement made by Christopher Gregory ('the Gregory evidence').
9. The Lowdham Grange evidence, and the evidence of Durr and Gregory (who were drug dealers and later subject to a witness protection scheme) related to both Mr Coghlan's drug dealing at the relevant time and his interest in the Chapel.
10. SOCA contended that Mr Coghlan engaged in a series of transactions in relation to the Chapel which were designed to conceal his interest in the property: by using a friend (Mr Kayes) to purchase the house on his behalf; and then arranging for Mr Kayes to sell the house to Blue Moon Holdings Ltd ('Blue Moon'), controlled by another friend, Mr Tomlinson, before procuring the sale from Blue Moon to him in September 2007.

Mr Coghlan's case in summary

11. Mr Coghlan contended that he has been the victim of a campaign of harassment and criminal misconduct by Greater Manchester Police ('GMP') since at least 1996. He pointed out that he has no convictions for drug dealing and none for violence. He has been acquitted of two murders (Little and Barnshaw); and was able to show that a conviction for Assault Occasioning Actual Bodily in 1998, which was relied on by SOCA and for which he was sentenced to 18 months imprisonment, was subsequently quashed by the Court of Appeal. His antecedent record shows convictions for offences of dishonesty for which he has been sent to prison, but he has no convictions since 1997; and although he has been arrested, held on remand and prosecuted for a number of serious offences in addition to those identified above, these were the consequence of the enmity of the GMP and in each case either the charges were not pursued or he was acquitted. He denied that he had ever been a drug dealer, although he accepted that he had engaged in loan-sharking in the relevant periods.
12. The Chapel was bought by Mr Kayes and his wife in March 2000 on the understanding that Mr Coghlan would live there and act as project manager in developing it as a family house. Although there had been an agreement to pay rent, he was unable to do so from April 2001 to June 2003 when he was held on remand for the Barnshaw murder; and Mr Kayes did not insist on the payment of rent. The sale to Blue Moon was at a market price for the property, subject to a deduction to take into account that it was a sale with a sitting tenant. The subsequent sale to him by Blue Moon in September 2007 was also at a market value, again less a deduction to take into account the fact that he was a sitting tenant.
13. In short, although he had developed the property as a tenant during the ownership of Mr Kayes and Blue Moon, he had only done so on behalf of the landlords, and had purchased the property in September 2007 with a 100% mortgage at what was its market value.

The Court's approach

14. Part 5 of POCA has been considered in a number of cases which have clarified the approach that the court should adopt in this type of case: The Director of Assets Recovery Agency v. Jackson and Smith [2007] EWHC 2553 (QB), King J; SOCA v Gale and others [2009] EWHC 1015 (QB) Griffith Williams J, and [2011] UKSC 49 Supreme Court; and SOCA v. Hymans and O'Docherty [2011] EWHC 3332 (QB), Kenneth Parker J. A number of relevant principles emerge from these decisions which are not in dispute.

(1) The purpose of Part 5 proceedings is not to determine or punish for any particular offence; it is to ensure that property derived from criminal conduct is taken out of circulation, see Lord Dyson JSC in Gale at [123].

(2) The standard of proof is the civil standard; and the acquittal of a defendant on a criminal charge does not preclude a recovery under POCA on the same evidence, unless there is a procedural link between the criminal prosecution and the subsequent confiscation proceedings; see Lord Phillips PSC in Gale at [54] with whom Lord Clarke JSC, Lord Judge CJ, Lord Mance JSC and Lord Reed JSC agreed. Part 5 proceedings are not procedurally linked to a criminal trial: they are free-standing proceedings instituted whether or not there have been criminal proceedings against the respondent, see Lord Dyson JSC in Gale at [133].

(3) In all proceedings following an acquittal the court should be astute to ensure that nothing it says or decides is calculated to cast the least doubt upon the correctness of the acquittal, see Lord Brown of Eaton-under Heywood JSC in Gale at [115] and Lord Dyson JSC at [138]. As Kenneth Parker J expressed it in Hymans and O'Docherty at [18]:

This will not happen if the court's language and reasoning go no further than is necessary for the purpose of determining the issue before that court and without making imputations of criminal liability. The fact that the findings may implicitly cast doubt on the acquittal is not sufficient to bring article 6(2) into play. It is clear that a finding to the civil standard that unlawful conduct has been committed by a respondent who was acquitted of the very same conduct in criminal proceedings, will not undermine the effect of the acquittal.

(4) Although a civil recovery order cannot be made solely on the basis that a respondent has no identifiable lawful income to warrant a particular lifestyle, the absence of evidence to explain that lifestyle may provide the answer because the inference may be drawn, from the failure to provide an explanation or from an explanation which was untruthful (and deliberately so), that the source was of funds was unlawful, see Griffith Williams J in Gale at [14] and Kenneth Parker J in Hymans and O'Docherty at [12].

(5) The court is entitled to take a commonsense approach to inferences which may be drawn from the evidence or the lack of evidence, see for example King J in Jackson and Smith at [118],

The criminal dealer, in for example, illicit drugs will of course eschew any record by which his activities might be detectable.

(6) It follows that there are two ways in which SOCA can prove that that assets derive from unlawful conduct: either by proving it derived from particular crimes or by evidence of the circumstances in which the property was handled, such as to give rise to the irresistible inference that it could only have been derived from crime, see Griffith Williams J in Gale at [17].

15. In the present case two further issues arise. First, how the court should approach the large amount of contested hearsay evidence? Secondly and particularly, how it should approach evidence which was challenged at a criminal trial and where such challenge may have founded, or partly founded, an adverse ruling by the trial judge?
16. The answer to the first question is to be found by the application of section 4(1) and (2) of the Civil Evidence Act 1995, see also King J in Jackson and Smith at [34]. Mr Coghlan has criticised SOCA for the quality of the evidence on which it relies. He has submitted that the transcripts and extracts of evidence which were exhibited were inaccurate and/or partial. I shall deal with these allegations later in the judgment. However, in civil litigation the Court proceeds on the basis of evidence placed before it; and, by reason of his civil claim against GMP, Mr Coghlan ought to have been in a position to place any relevant material before the court that he wished. I recognise that the court is disadvantaged by not seeing witnesses and hearing their evidence tested by cross-examination; but that has been largely the consequence of the parties' case-management decisions at an early stage. In any event, in many cases (and in civil law systems, in most cases) the court may have to assess and base its judgment on written evidence.
17. The answer to the second question calls for a careful analysis of the material concerned.

The chronology up to the issue of proceedings

18. Although the evidence covered a considerable amount of disparate material it is convenient to identify the relevant history and some of the points in issue between the parties.
19. In a letter of 10 August 1999, Ms Sharon Hall (of Zoi & Co) made an offer to purchase Blackshaw Farm in High Peak, Derbyshire from its owners for £360,000 on behalf of her client, Mr Coghlan. In the event, the owners were looking for a price of £380,000 and the purchase seems to have faltered due to the unavailability of mortgage finance. On 2 September Zoi & Co made a new offer on behalf of a 'Mr Kay' of £380,000. There is no issue that Mr Kay was Kerry Kayes and that Mr Coghlan had suggested the purchase to Mr Kayes, although nothing came of this offer.
20. In September 1999 David Barnshaw (a low-level drug-dealer) was murdered in particularly brutal circumstances.
21. On 4 February 2000 NatWest Bank valued the Chapel at £290,000; on 24 March 2000 it was sold to Mr Kayes by its owners, Adrian Harrington and Alexandra Wilkinson for £180,000. SOCA pointed out three apparent anomalies in relation to this sale. First, although £162,000 of the purchase was raised by a mortgage from the NatWest Bank, it is unclear where the deposit of £18,000 came from. It was paid by banker's draft, but the SOCA evidence was that it did not come from any identifiable account of Mr Kayes and, when asked about this, Mr Kayes had no recollection of it. The second apparent anomaly arises from a letter of 23 February 2000 from Mr Harrington's solicitors saying that they had been informed by their client that a sum of £170,000 was to remain outstanding on completion for a period up to 1 July secured by a charge. Mr Kayes's solicitors wrote to their client to ask for instructions; but on 6 March Mr Harrington's solicitors wrote to say that there was no sum outstanding. The third apparent anomaly is an undated and unsigned draft 'Guarantee' by which Mr Kayes promised to pay all sums due under an undated agreement between Mr Coghlan and the vendors. SOCA contended that this referred to a sum which was to be paid by Mr Coghlan to the vendors, and relied on the evidence of Gregory to the effect that Mr Coghlan owed the vendors £60,000 which was never in fact paid. Mr Coghlan submitted that this was not so, that nothing that Gregory said could be relied on, and that he had nothing to do with the purchase of the Chapel.
22. On 22 April 2000 Mr Coghlan moved into the Chapel. A tenancy agreement provided that Mr Coghlan was to pay rent of £1,000 per month, although there is no record of rental payments being received by Mr Kayes in any of his known accounts. What is clear is that the Chapel was in a poor state of repair, and that after he moved in Mr Coghlan began to pay for the development of the property according to his own design and paid for all the utilities.
23. On 3 and 17 February, and 3 and 17 March 2001 Mr Coghlan visited Mansell who was serving a 12-year sentence in HMP Lowdham Grange for drug dealing and possessing firearms. Their conversations were recorded by GMP as part of the ongoing Barnshaw murder enquiry.
24. On 28 April 2001 Mr Coghlan was arrested for the murder of David Barnshaw and was remanded in custody. Items found after his arrest (on his person, in his car and at the Chapel) included over £6,800 in cash and a strange (and unexplained) valuation of £42,000 for 3 items of cutlery. On 29 and 30 April Mr Coghlan was interviewed by officers of GMP; and on each occasion gave a pre-prepared statement. In summary he said that he was subject to the systematic victimisation by GMP who were trying 'fit the crime' to his name. The first statement included,

I am a single parent, self employed with my own business. My accounts are available for inspection. I am not prepared to comment about my lifestyle or my personal relationships. I have no involvement in the murder of David Barnshaw, I have no involvement in the supply of controlled drugs ...

25. On 11 November 2002 the trial of Mr Coghlan and six others began at Preston Crown Court. In addition to the charges of murder and conspiracy to murder David Barnshaw, he faced counts charging conspiracy to supply cocaine and cannabis between 1 January 1999 and 28 April 2001, and a further count of perverting the course of justice. After 2 juries had been discharged for legal reasons, the prosecution case ran into a number of further difficulties which culminated in a decision on 16 June 2003 by the trial judge (Penry-Davey J) to stay the indictment against all defendants. Although a summary cannot adequately convey the basis of the decision which involved a very close and careful consideration of the Prosecution's compliance with its disclosure obligations, it is necessary to note the strong adverse view taken by the Judge of the conduct of the Senior Investigating Officer, DCI Caldwell who had failed promptly to follow up critical intelligence in relation to potential suspects other than the defendants, and had later concealed relevant material from the prosecution lawyers. Penry-Davey J reached his conclusion with 'considerable reluctance'. He was 'only too well aware' of the extremely serious nature of the charges faced by the defendants; and the fact that the stay deprived the prosecution of the opportunity of proving the charges and the defendants of the opportunity of showing their innocence through a verdict of the jury.
26. Although the documents which I have seen indicate how the Gregory evidence was dealt with before the jury, there is little material that throws any light on how the Durr and the Lowdham Grange evidence was dealt with. Mr Coghlan submitted that both these categories of evidence had been largely if not entirely discredited by the time of Penry-Davey J's ruling.
27. Following the stay of the indictment Mr Coghlan returned to the Chapel; and on 1 May 2004 commenced his employment with Blue Moon as a project manager at an annual salary (2004/05) of £24,750. It appears that he also began legal proceedings against GMP at about this time.
28. On 6 June 2004 an appraisal report was prepared by NatWest. This described the former chapel hall as awaiting refurbishment, but the rest of the Chapel as being in good condition, complete with premium quality fittings such as beech-wood floors and modern kitchen and bathroom fittings. There were also a planning applications in relation to security, interior building and renovation work, in which Mr Kayes was the applicant, but where all the face to face dealings involved Mr Coghlan or his agents. Mr Bailey (a SOCA investigator) summarises SOCA's position in §7.25 of his 1st witness statement,

It has not been possible to identify any expenditure for the renovation work completed at the Chapel despite detailed analysis of the known bank accounts of both Kayes and Coghlan. This leads me to believe that all the works completed were paid for in cash by either Coghlan or his associates on his behalf.

29. On 8 June there was a NatWest valuation of the Chapel at £450,000; and on 9 July 2004 the Chapel was sold by Mr Kayes to Blue Moon for £300,000. When they were later asked why the Chapel was sold for 33% less than the valuation, Mr Kayes said he could not remember; and Mr Tomlinson said it was at least in part because Mr Coghlan was a sitting tenant.
30. Within the conveyance documents there was a letter from Blue Moon's solicitors seeking clarification as to the occupancy of the Chapel; and a response from Mr Kayes's solicitors:

We believe that there is an occupier of the property who is there on an informal basis. We understand that there is no formal agreement. We also understand that the occupier is known to your clients and that they are happy to proceed on that basis.

31. In an agreement between Blue Moon and Mr Coghlan dated 12 July 2004 Blue Moon let the Chapel to Mr Coghlan for a fixed period of 12 months at a rent of £1,000 per month, with provision for a two month written notice of termination. The signatures were witnessed by Sharon Hall.
32. On 3 September 2004 land adjoining the Chapel was purchased by Blue Moon from Crosby Homes (North West) Limited for £23,500. It is common ground that Mr Coghlan initiated and negotiated this sale, seeing it as an opportunity to add amenity and financial value to the Chapel.
33. In the financial year 2005/06 he continued to be employed by Blue Moon, at a slightly increased annual salary of £27,000. Mr Tomlinson and he both told SOCA in their interviews that no rent was paid during this period. Despite this, there is a signed letter from Mr Tomlinson (dated February 2007) to a Building Society confirming,

that the tenancy has been conducted in a satisfactory manner, and rent received in accordance with the agreement between Blue Moon Holdings and Mr Coghlan.

34. At some point in the financial year 2005/6 Mr Coghlan began employment with Zoemack Ltd at a considerably enhanced salary. It is unnecessary to say anything further about his employment with Zoemack Ltd and his interest in another company (Advice & Consultancy Ltd) since, although SOCA raised various matters in the evidence, they do not bear directly on the issues I have to decide.
35. In a letter dated 22 May 2006 from Blue Moon, Mr Tomlinson acknowledged an obligation to Mr Coghlan.

In recent weeks you have brought up our earlier agreement, that due to your assistance in putting me on to the purchase of the Chapel and thereafter assisting with the negotiation to purchase the land to the rear, I would give you first refusal when it came to sell the property.

As you will remember that agreement was for a period of twelve months, and of course we are a few years down the line now.

I have taken on board your comments about sitting tenants, and take into account you original assistance; however I recently had the property valued at a figure of £750k; and after taking legal advice from my solicitors with regard to the properties (sic) valuation with a sitting tenant. Even though the value can sometimes be halved, I do not think that this would be a fair deal for me.

If as part of the settlement of your employment and in order that you know I'm not attempting to play hard-ball with you, I have decided to offer the house and land at a 40% discount at £450k ...

36. SOCA made a number of points about this letter. First, if the 12 July 2004 Tenancy Agreement was a genuine document and Mr Tomlinson had taken legal advice about the effect of Mr Coghlan's tenancy, he would have known that Mr Coghlan's tenancy gave him no security, let alone a right which was worth a sum in the region of £300,000. Secondly, if this were an arm's-length transaction it is inconceivable that the outstanding rent at the time (over £50,000 on Mr Coghlan's case) would not have entered the financial equation.
37. On 31 May 2006 Mr Coghlan's employment with Blue Moon ended, and an agreement was signed (dated 27 June 2006) by which Blue Moon agreed to make a tax free payment of £30,000 to him in settlement of his outstanding claims.
38. On 9 August the Chapel was valued by Roger Hannah & Co (Chartered Surveyors) for 'secured lending purposes' at the request of Mr Tomlinson. The surveyors described the tenure as an assured short-hold tenancy at a rent of £1,800 per month on the basis of an original 12 month assured short-hold tenancy which had been held over for 3 years. Although it was qualified by the reservation that no building survey had been carried out, the writer of the report considered the property to be,

... in a generally satisfactory condition for its age and type where it is apparent that the renovation and conversion works have been carried out to a detailed specification and where no major defects or deficiencies were noted.

The report also noted that the conversion works had been,

undertaken to an exacting and contemporary specification but retaining original architectural details where appropriate.

39. On 12 June 2007 the Chapel was valued by Halifax at £900,000 at the current state of the property market; and on 21 September Mr Coghlan purchased the Chapel from Blue Moon for £450,000, with a 100% interest-only mortgage from Halifax.
40. Shortly after this, on 18 October 2007, the Assets Recovery Agency (ARA) executed search warrants at the Chapel, during which they discovered (among other items) a large knife, five replica firearms, two axes and a baseball bat, four sets of body armour 'stab vests', a file containing information on the new money laundering legislation dated 8 June 2005, a glass case containing a number of ear pieces, small microphones and receivers and 19 used 'pay as you go' sim cards. During this search SOCA also found a document on Mr Coghlan's computer ('the Computer Printout document'), which appeared to show outstanding rent: £25,244 (£28,558 less £3,314 direct council payment) due to Mr Kayes, and £53,400 due to Blue Moon over the period July 2004-August 2006. There was also a reference to an increase in rent to £1,900 from 1 November 2005. SOCA did not accept that the Computer Printout document was a genuine document; on the contrary, it submitted that it had been created by Mr Coghlan to create a false impression.
41. On 28 November 2008 SOCA officers carried out a number of simultaneous interviews under civil caution with Mr Kayes, Mr Tomlinson and Mr Coghlan, which it will be necessary to consider in more detail later in this judgment.
42. In the course of March 2009 Mr Coghlan was involved in a number of transactions relating to the Chapel. On 12 March 2009 he and Ms Burgoyne signed a 'Joint Ownership Information Sheet' confirming that they wished to hold the Chapel as Joint Tenants; and on 23 March he transferred the registered property from his sole name to joint names, subject to the Halifax legal charge. It seems that these transactions were carried out at a time when he was aware that SOCA was in the process of making an application under Part 5 of POCA. The Land Registry entry shows that the transfer was not for money or anything that had a monetary value. On 21 March he drew down a sum of £126,000 from a Halifax facility; and from which he paid £50,996 to Blue Moon and £18,993 to Mr and Mrs Kayes, as shown in a completion statement of 31 March 2009.

The history of the litigation

43. As already noted, the Part 8 claim was issued on 17 July 2009, and was supported by the 1st, and very full, witness statement of Daniel Bailey, a Financial Investigator and member of SOCA's staff. The witness statement exhibited 2 bundles of documents (860 pages). The claim was certified as suitable for the Part 8 procedure, as required by paragraph 4.1 of the Practice Direction, Civil Recovery.
44. At the end of August 2009 a Part 8 Acknowledgment of Service was served indicating that Mr Coghlan intended to contest the claim on the basis of his witness statement of 28 August. In that document Mr Coghlan raised a number of issues.
45. First, the Durr, Gregory and Lowdham Grange evidence had been procured as part of the Barnshaw murder investigation and that as the information had been supplied by GMP in the course of that investigation, it could not be relied upon, in the light of the failures highlighted by Penry-Davey J's 16 June 2003 ruling.
46. Secondly, Mr Bailey's witness statement contained a number of assertions which were misleading. First, although the Lowdham Grange covert recording had been transcribed in a way which indicated that there had been five references to murder and fifty to drugs, the prosecution witness who had made the transcriptions had conceded that there was no reference to either (see §4.10.D p.4). Secondly, the evidence of Gregory (and the evidence of a number of officers of GMP) had been totally discredited by the end of the trial, as could be seen by the ruling of Penry-Davey J (see §4.10.L p.5 and §4.14 p.5).
47. Mr Coghlan asserted that there was,

... a considerable amount of evidence I will wish to introduce to these proceedings if [SOCA] continues with their case in the way in which they presently are. In particular there is a good deal of material concerning their allegations under the heading 'Unlawful Conduct' (which I consider to be irrelevant in any event).

48. In the light of these contentions it is surprising that there was no objection in the Acknowledgment of Service to the matter proceeding under the Part 8 procedure, at a time when he was represented by solicitors (Messrs Garstangs).
49. On 18 September 2009, Garstangs wrote to SOCA.

It is intended that Mr Coghlan will serve a great deal of additional material in his defence, the reply already served was prepared at relatively short notice with Mr Coghlan being unable to access and/or obtain a great deal of material relevant to his defence. Mr Coghlan hopes to be in a position whereby he has collated a significant amount of his defence documentation by the end of October, thereafter we shall consider the same with him and serve further evidence where appropriate. We hope to be in a position to do so by the end of November.

No such evidence was served.

50. On 9 February 2010 Mr Coghlan was arrested and charged with the murder of a man named Akinyemi, who had been shot in his house. Mr Coghlan always maintained that Akinyemi was killed in lawful self defence, and this was eventually accepted by the Prosecution.
51. An order was made by Master Fontaine on 29 April 2010, while Mr Coghlan was on remand, directing that he raise any objection to the evidence relied on by SOCA by 14 January 2011.
52. On 20 May 2010 Mr Bailey made a 2nd short witness statement which exhibited 4 volumes of material relating to the Barnshaw murder trial (including the 16 June 2003 ruling of Penry-Davey J). It is common ground that this was produced at the request of Garstangs; and that it was not material relied on by SOCA.
53. On 28 July 2010 Mr Coghlan was released from custody, but he retained his freedom for only a few months. On 10 September 2010 he was arrested again as part of Operation Confection for conspiracy to supply cocaine; and was not released until 19 June 2011.
54. On 29 July 2011 there was a further hearing before Master Fontaine, with each side again being represented by Counsel. It was at this hearing that Ms Burgoyne was joined as a respondent to the claim; and the Master further ordered:

3. The Respondents must file a final witness statement in response to the claim issued on 17 July 2009 and any further evidence on which they wished to rely by 31 October 2011

4. The Respondents shall include within the final response any objection to the evidence on which [SOCA] seeks to rely as contained within the witness statement of Daniel Bailey dated 15 July 2009.

55. This order was not complied with. No witness statement was served on behalf of Ms Burgoyne and no further witness statement was served on behalf of Mr Coghlan until after the trial had begun. It followed that there was no objection to the evidence relied on by SOCA in the form directed by the Master.
56. In the course of the autumn Mr Coghlan ceased to be represented by Garstangs. In an Application Notice dated 29 November 2011, he applied for a Case Management Conference to be held, with the object of deciding a preliminary issue: namely, the extent to which SOCA should be entitled to rely on material which he contended had effectively been undermined by Penry-Davey J's 16 June 2003 Barnshaw ruling. This application had not progressed to a hearing by the first day of the trial, and I doubt very much whether a Master would ever have made such an order with the trial so close.
57. The trial began on Monday 16 January 2012, when I refused Mr Coghlan's application for an adjournment, and a further application for an adjournment on behalf of Ms Burgoyne made by Mr Csoka QC (appearing for her pro bono) for reasons which I gave at the time.
58. On the following day Mr Coghlan produced a new (3rd) witness statement which set out the points he wished to make in relation to the evidence relied on by SOCA; and the evidence that he now wished to rely on. In the course of her submissions on 18 January Ms Harman objected strongly to the admission of the matters raised in Mr Coghlan's 3rd witness statement, saying that SOCA was severely disadvantaged by what was in effect an ambush, that there had been plenty of time in which to present this evidence and that there were a number of points which SOCA would wish to make in answer, even in the short time available.
59. I ruled on an application under CPR rule 3.9 in favour of Mr Coghlan to the limited extent that he be permitted to object to the evidence relied on by SOCA in the terms of his 1st witness statement, as belatedly supported by his 3rd witness statement. In short, my reasons were that it had always been clear that Mr Coghlan challenged the admission of the evidence procured as part of the prosecution case in the Barnshaw murder trial. It was made clear in his 1st witness statement, and it had been made clear in the correspondence in the autumn of 2011. In allowing this relief I recognised the difficulties in which SOCA was placed by the ruling; and indicated that what Ms Harman had told me in the course of her argument in opposition to the application should be put in the form of a further witness statement, together with any other relevant material which SOCA might wish to deploy in response, together with answers to one or two specific points which I asked to be addressed. I fixed a time limit of 4.00 pm on 24 January, with a liberty to respond to Mr Coghlan by 4.00pm on 27 January.
60. Also on 18 January Ms Burgoyne faxed a witness statement in which she set out for the first time the basis on which she opposed the application. I deal with those arguments below.
61. Following the hearing, Ms Harman submitted a further skeleton argument dealing with a new point which emerged at the end of the hearing, and a further (4th) witness statement from Mr Bailey. On 31 January Mr Coghlan submitted a skeleton argument in reply to the new point and also sought to raise new factual issues by way of two further witness statements. I have taken into account the arguments but not the content of the witness statements for which no leave was given and no application made.

Mr Coghlan

62. Since he did not give evidence my views of the quality of his evidence derive from the documents. However, I should note that in arguing his case he showed that he was an intelligent and articulate man, who had a very clear grasp of the issues and the evidence. On more than one occasion he made an assertion which was not obviously consistent with the evidence, but which proved to be true on further investigation.

The evidence of unlawful conduct

63. It is clear that from at least the tax year 1999/98 to the tax year 2003/04 Mr Coghlan did not have a declared source of income. It is also clear that the Chapel was developed from a point at which it was not habitable to a state at which it was valued on a 'substantially developed' basis. A Schedule of Known Expenditure for the period 1998-2001 shows payments of £271,918 over 4 years. A small proportion of this sum (just over £17,000) related to the Chapel, and all but £7,200 of this related to outgoings. However the schedule shows an ascertained level of expenditure, over £67,000 per year, which calls for an explanation in the light of a lack of any declared source of income during those years; as does the further expenditure which must have been undertaken in the development of the Chapel for which there is no evidence of payments.
64. Mr Coghlan has offered an explanation: loan-sharking, in other words, lending money at exorbitant rates of interest, with the possibility of debt enforcement by illegal means. In his first statement to the police on 29 April 2001 he said he was self-employed with his own business whose accounts were available for inspection. In the interview with SOCA on 28 November 2008, he was asked about his finances before he was arrested for the Barnshaw murder, and said that he was 'loan sharking on the estates in Stockport'. He was not prepared to say how much he earned on what he called 'other black business.'

I'll take advice on whether that's relevant and in due course how it is relevant. I'm trying to give you a bit of background because you have asked me. I don't believe I have to, so I'm doing it out of the goodness of my heart. So far as how much and exact figures, I'd have to go away and think about it. Go through with my lawyers, go through it with my accountants, all the rest of it. That's a separate question, should it be deemed I have to answer that. (126).

65. There is a later suggestion in the interview that the reason for his diffidence in talking more about loan sharking was a concern about the tax implications (175). In his 1st witness statement Mr Coghlan did not address the source of his income prior to his employment with Blue Moon in 2004/05 nor in his 3rd witness statement.
66. Ms Harman submitted that his explanation for the source of his income is and always has been a smoke screen; and that in any event, it is simply the admission of a less opprobrious form of unlawful conduct.
67. I turn then to consider the three items of evidence relied on by SOCA in support of its case that Mr Coghlan's income derived from drug dealing in the relevant period.

1. The Lowdham Grange Evidence

68. Part of the evidence exhibited to Mr Bailey's 1st witness statement related to a police interview on 29 April 2001 during the course of which officers of GMP put to Mr Coghlan what they said had been recorded on 2 visits to Mansell while he was in prison.
69. First, a visit on 3 February 2001 (654-672), where there was a reference to giving people a 'crack' (ie hitting them), to earning 'twenty grand in ten days' and to confiscation legislation. Mr Coghlan made no reply and offered no explanation.
70. Second, a visit on 3 March (672-689), where he was said to have described the Chapel and work being done to it; and it was suggested that he was talking about the Chapel as if it were his house. There was also said to be a reference to a sizeable debt being owed which, unless the first 'ten grand' were paid within a month, Mr Coghlan would get a family tree of the debtor and ask him 'who do you want me to start on?' There was said to be a further reference to Mr Coghlan talking about 'a hundred thousand pills' and a passage which the police interpreted as Mr Coghlan paying an individual £36,000 to purchase 100,000 ecstasy pills. Again Mr Coghlan made no reply and offered no explanation.
71. The other part of the evidence exhibited to Mr Bailey's 1st witness statement was a 125-page transcript of a recorded conversation during a visit by Mr Coghlan and others to HMP Lowdham Grange on a third visit on 17 March 2001(690-813). In this transcript Mr Coghlan appeared to be describing in great detail his plans for the Chapel: for the interior fittings and furnishings, a gym, railings and security systems.
72. In his first witness statement of 28 August 2009, Mr Coghlan took issue with the accuracy of all the transcripts:

Again it is correct that the prosecution sought to introduce evidence from covertly recorded meetings between myself and others in custody. These recorded meetings had been transcribed and the prosecution expert initially suggested that within the vast amount of documentation served there were some 5 references to murder and 50 to drugs. Following a defence examination of the material it was accepted that there was no reference to either.

73. In a letter from Garstangs dated 12 November 2009 objection was taken to SOCA's evidence as being 'too narrowly drawn and focussed', and to extracts being taken in isolation. The letter also raised the issue of the expert evidence called at trial to deal with the transcripts of these recordings.
74. In his third witness statement of 17 January 2012, Mr Coghlan said,

56. There were 26 hours of continuous speech, scanning a great number of months from visits lasting approximately two hours.

57. It was argued during the trial that the police had held back recordings from certain dates because these recordings were exculpatory.

58. It was also argued that some of the tapes started or finished abnormally/abruptly at times when the context of the conversation would have been clarified.

59. The Crown used 'inaudible' or simply did not transcribe parts of the tapes that were provided which the defence demonstrated to be exculpatory, including direct reference to being loan sharks and a direct reference to honouring rent obligations to the 'landlord'.

75. In the course of his submissions Mr Coghlan said it was impossible to work out the status of the transcripts from the transcripts exhibited to Mr Bailey's 1st witness statement. It appears from Mr Bailey's 4th witness statement that Mr Coghlan was correct in saying that most of the references to drugs were removed in the transcript relied on by the Prosecution in the Barnshaw trial, and that a very limited amount of recorded material went before the jury.
76. It would be difficult to resolve such a conflict of evidence on documents, even if the full documentation were available. I accept that the evidence of the 29 April 2001 interviews is formally admissible, the crucial question is the weight that can be given to it. I have concluded that no weight should be attached to it. First, it involved an interpretation of what Mr Coghlan was saying which has never been accepted, and to which he did not reply. Secondly, it is clear from the ruling of Penry-Davey J that at least some members of GMP had a motive for not putting a fair picture before the Court. Although I do not intend to say that any particular member of GMP acted improperly in relation to this aspect of the case, it is possible that the selected passages from the transcripts which the Court has been shown did not fairly reflect what had been said. Thirdly and consequently, although I do not hold SOCA responsible, I do not feel confident that the underlying evidence has been presented in a way which allows me properly to evaluate it. It would have been very much better if any version of the transcripts had been put before the court, rather than the extracts picked out by the police officers in the course of the interview. These are relevant matters in deciding what weight to give the hearsay evidence, see s.4(2) of the Civil Evidence Act 1995.
77. I take a different view about the transcript of the visit on 17 March 2001 and will return to that when I consider the transactions in relation to the Chapel.

2. The Durr evidence

78. In his 1st witness statement Mr Bailey described Durr as a previous associate of Mr Coghlan, who had a number of convictions for drugs and violence. He exhibited (p.24-89), a witness statement made by Durr on 19 June 2000. The statement described a group of people, which included Durr, who were associated with Mr Coghlan and dealt with controlled drugs on his behalf. It presented a picture of Mr Coghlan as a ruthless and well organised drug dealer, who set up Durr as part of his team.

I was told by Az [Mr Coghlan] to work everything as a box system, this meant that on one page in my book I would have 4 people which had to be a minimum of ½ kilo (of cannabis), this way the finances could be worked out easily. If I sold a kilo this would fetch £2,200, from that I would received £400 ... I was not allowed to sell to anybody cheaper than that.

79. He described falling out with Mr Coghlan as a result of failing to pay money due to him for drugs, and of the severe beatings that he received from him on two occasions.
80. This evidence was not addressed in Mr Coghlan's 1st witness statement, possibly because no particular point was made about it in the body of Mr Bailey's witness statement; nor was it mentioned in Garstang's letter of 12 November 2009 or Mr Coghlan's letter of 28 October 2011, in which objections to the Gregory and Lowdham Grange evidence were raised. The first proper notice that SOCA were given about the points which might be made about the Durr evidence was in §§22-42 of Mr Coghlan's 3rd witness statement made on the second day of trial.
81. Mr Coghlan's evidence about Durr was as follows. (a) He fell out with him over Stephen Beddows's girlfriend.

Regrettably this culminated in me being violent towards Kevin Durr and our friendship was, at that point, over.

(b) Durr was arrested for a drugs offence, jumped bail and left the area. (c) The police found him and brought improper pressure to bear on him, by telling him that Arran Coghlan was looking for him, in order to kill him. (d) Durr was faced with a choice of either making a statement implicating Mr Coghlan or being charged with conspiracy to murder. This choice was put to him by DCI Caldwell. (e) In private (i) Durr had denied he had any knowledge of the Barnshaw murder, and (ii) had expressed a hatred of Mr Coghlan. Durr later told GMP that he would make a statement, but then absented himself. (f) While in Blackburn he seriously assaulted a taxi driver. (g) He then surrendered himself to DCI Caldwell, before being accompanied to Burnley Police Station where he made the statement implicating Mr Coghlan. (g) He should have been sentenced to life imprisonment for a second offence contrary to s.18 of the Offences Against the Person Act 1861, instead of which he was sentenced for robbery and was only sentenced to a 3-4 year term of imprisonment.

82. This part of Mr Coghlan's 3rd witness statement concluded,

Given the above chronology, during the trial (Durr) was rendered incredible as a witness. The accusations contained in (Durr's) statement were said to be designed to embarrass and undermine (me); and they were ruled inadmissible at trial.

In the course of his submissions Mr Coghlan drew back from what was said in the last phrase and submitted that 'parts' of his evidence had been ruled inadmissible.

83. There is nothing in the 16 June 2003 Ruling dealing with the evidence of Durr; but Mr Bailey's 4th witness statement exhibits a ruling of Penry-Davey J on 31 October/1 November 2002. Among other points, this ruling dealt with an application made on behalf of Mr Coghlan that the circumstances in which Durr came to make his statement constituted an abuse of process, or alternatively that his evidence should be excluded under s.78 of the Criminal Justice Act 1978. The Judge went through the chronology, setting out that the assault by Durr had been investigated by a different police force, the offence considered by a different branch of the CPS, and how he had eventually been sentenced to a term of 4 years imprisonment. The Judge noted Durr's criminality and extreme animosity towards Mr Coghlan; but accepted that in drugs conspiracy cases the prosecution may have to rely on the evidence of criminal associates. In ruling against the application the Judge concluded,

... even if legitimate criticisms can be made about the approach to Durr in this case they are not such as to render a fair trial in the case of any of the defendants impossible or to make it unfair for them to be tried ... they are matters which go to the weight and reliability of his evidence but are matters for the jury, if appropriate with any necessary warning from me as to the way in which they should approach the evidence.

84. The Judge concluded that it was for the jury to reach a conclusion as to the weight of the evidence. Mr Bailey's 4th witness statement recounts the recollection of Junior Counsel for the Prosecution that Durr's evidence about drugs was not significantly compromised and was 'extremely compelling.'
85. I take into account that I have not seen a transcript of Durr's evidence; and I ignore the views of counsel for the Prosecution that parts of his evidence were compelling, since Advocates hearing their own witnesses may sometimes mistake the croak of the frog for the song of the nightingale. However, I am prepared to give weight to the evidence of Durr's witness statement that Mr Coghlan was dealing in drugs through a gang of which Durr was a member at the material time. As such, this evidence throws light on whether Mr Coghlan was dealing in illegal drugs as SOCA contend or loan-sharking as he says. In doing so I have taken into account the matters set out in s.4(1) and (2) of the Civil Evidence Act 1995.

3. The Gregory evidence

86. The first part of this consists of what was said to be Gregory's police statement being put to Mr Coghlan in interview on 30 April 2001. As he did in relation to the Lowdham Grange material, Mr Coghlan gave 'no reply' answers to all police questions.
87. In the course of the hearing Mr Coghlan submitted that it was important to understand the background to Gregory's emergence as a prosecution witness in the Barnshaw trial. He had had been found in possession of a kilo of heroin, and this discovery had been used by DCI Caldwell to bring illegitimate pressure on him to implicate Mr Coghlan in the murder of Barnshaw, and as a drug dealer.
88. Gregory's police statement appears to describe Mr Coghlan's activities as a drug dealer: the 'box' system he operated (as described by Durr), his complaints about the price he was paying for drugs, Gregory's interaction with Durr on Mr Coghlan's behalf, the names used by Mr Coghlan and others to describe particular drugs and Mr Coghlan's boasts as the extent of his drug dealing. In addition Gregory appears to recall a conversation about the old Chapel in Alderley Edge, in which Mr Coghlan said that it would be a mistake to buy the house outright in his name, in case the police were ever in a position to seize it.
89. The second part of the Gregory material was an earlier 'discussion' between police officers and Gregory on 2 December 2000, at a time when the police were investigating him in relation to the possession of heroin. Part of this evidence related to the Chapel.

Arran got Kerry Kayes to be mortgage (sic) on it, the name on it, so he obviously can't have took it off him for a drug related debt ... Andy [Hague] brought it to me (sic) attention when he still owed sixty thousand pounds to his brother.

Gregory then described Mr Coghlan asking him to speak to Hague to stop the rumours of an outstanding payment.

90. In his 1st witness statement at §4.10.E Mr Coghlan made a number of points about the Gregory evidence in the context of Barnshaw investigation and subsequent trial,

The evidence given by Christopher Gregory was totally discredited. It was the positive defence case that Gregory himself had been involved in the murder. The defence teams made numerous very specific requests for disclosure of materials linking Gregory and his associates to the murder. It was as a result of the failure to disclose this material that Mr Justice Penry-Davey stayed the proceedings as an abuse of process ...

91. In his 3rd witness statement (§§64-73) Mr Coghlan elaborated on these points. (a) Gregory had initially denied knowing who was responsible for the Barnshaw murder; but had been persuaded by DCI Caldwell to incriminate Mr Coghlan 'in various types of criminality' in order to avoid the consequence of being found in possession of a kilo of heroin. (b) When Gregory was eventually charged with the heroin offence he had written to DCI Caldwell to complain about what had occurred, (c) Gregory was closely implicated in the Barnshaw murder.
92. Gregory gave evidence-in-chief in the Barnshaw trial on 13 and 14 February 2003 to the effect that Mr Coghlan was at the head of a gang of drug dealers; and described his drug dealing. On 17-19 February he was cross-examined by Leading Counsel on behalf of Mr Coghlan. He admitted that, within hours of being arrested for (among others) a drugs offence, he started to give information against Mr Coghlan. He said that he had visited the Chapel and was impressed by the security arrangements. He accepted he did not know whether the Chapel had been brought by Kerry Kayes on a mortgage and whether Mr Coghlan was paying rent. He said he had been told about the £60,000 debt to Andy Hague's brother. He admitted that (1) he worked for a one of the biggest (named) drug-dealers in the North-West; (2) was in trouble when the kilo of heroin was found by the police; (3) DCI Caldwell was convinced that Mr Coghlan was responsible for the murder of Barnshaw; (4) he thought he had been told that he would either not be prosecuted or would receive a lesser sentence if he gave assistance to the police in relation to the Barnshaw murder and to the activities of Mr Coghlan and his associates in the supply of controlled drugs in the Stockport area. Mr Coghlan's case on this part of the evidence can be summarised by the following exchange between Leading Counsel and Gregory.

Q. You had many chats, three, four, possibly more that we know about with Kenny Caldwell? A. That's correct.

Q. During which he had sought to persuade you or to sway you to the view that Coghlan was guilty of pretty much anything really, wasn't it? A. That's correct.

Q. And all you have to do to achieve protection from the police and avoid prosecution yourself is to go along with Kenny Caldwell's mindset and slot Arran Coghlan's name into the truth of what you knew about very many drugs activities over the year or two before. That's right, isn't it? A. That's incorrect.

Q. But all that came to pass, didn't it, as a result of your telling the police that Coghlan was a drugs dealer, in essence? A. It did, yes.

93. In reaching his decision to stay the indictment Penry-Davey J was plainly concerned by the Prosecution's failures to discharge its disclosure obligations.

The failure to disclose material at the proper time has in my judgment resulted in prejudice to the defence in the particular circumstances of this case which cannot effectively be put right. It has prevented proper and full exploration by the defence of the contention made from an early stage that others not in the dock were responsible for the murder and it has disadvantaged the defence in my judgment in dealing with major witnesses called by the Crown, including for example, the witness Gregory and his involvement in the events in this case. It is unrealistic to suggest that those matters could not be put right by the recalling of one or more of those witnesses [Ruling p.38B].

94. Penry-Davey J's reference to Gregory, and the extent to which the Prosecution failures directly impacted on the quality of his evidence in so far as it implicated Mr Coghlan, is significant. As the Judge noted [18G] Gregory's credibility in the Barnshaw trial was 'very much in issue and extensively attacked.'
95. Although I accept that in his Ruling of 31 October/1 November 2002 Penry-Davey J concluded that the nature and propriety of the contact between DCI Caldwell and Gregory (as it was then understood) was a matter to be considered by the Jury and was not a sufficient basis for an abuse application, it is clear that by June 2003 the Judge had concluded that some the disadvantages to the Defence in dealing with Gregory's evidence were irremediable.
96. There is also force in Mr Coghlan's observation that the reference in Mr Bailey's 1st witness statement to Gregory's arrest for possession of 1 kilo of heroin as evidence of Mr Coghlan's criminal associations was an unfair view of the facts. While I do not criticise Mr Bailey for this, it appears the information which derived ultimately from GMP tended to give a misleading impression.
97. In these circumstances, although I am not however prepared to dismiss it entirely, since the general evidence that Mr Coghlan was a drug dealer is consistent with the Durr evidence, I consider the hearsay Gregory evidence carries very little weight in so far as it relates to drug dealing. However, I take a different view of the Gregory evidence in relation to the Chapel. Again, in reaching these views, I have taken into account the matters set out in s.4(1) and (2) of the Civil Evidence Act 1995.

Conclusion on unlawful conduct

98. I am satisfied from the evidence that while he was at large between 1999 and at least April 2004 Mr Coghlan was engaged in unlawful conduct as a drug dealer, and that his drug dealing was the source of his income.
99. I have taken into account the denials in his witness statements and the fact that he has never been convicted of a drugs offence; but I have also weighed against this evidence the following matters in coming to this conclusion.

(1) The lack of any evidence of either a legitimate or any source of income during this period.

(2) The evidence of Durr that Mr Coghlan was a drug dealer.

(3) Mr Coghlan's association with known and convicted drug dealers including Mansell, to whose solicitors (Zoi & Co) he made a payment of £6,741 in respect of the costs of an appeal.

(4) His lifestyle; and the Schedule of Known Expenditure for the period 1998--2001 which included: a £2,000 phone system, a £11,525 gold watch and a number of cars (a Lexus, a Bentley Mulsanne, a Porsche and an armour-plated BMW).

(5) The cash found following Mr Coghlan's arrest on 28 April 2001.

(6) The file containing information about money-laundering legislation, the ear-pieces, small microphones and sim cards discovered in October 2007.

(7) The payment for the development and refurbishment of the Chapel with good quality materials and items, such as beech flooring, and a modern kitchen and bathroom fittings, from unidentified sources.

100. In his statement to the police on 29 April 2001, following his arrest for the Barnshaw murder, Mr Coghlan referred to being self-employed with his own business and accounts available for inspection. In his SOCA interview on 28 November 2008 he said he was loan-sharking at the time, and suggested that his accountants might throw light on this. No accounts or evidence have been produced in support of this assertion; and I have concluded that Mr Coghlan made a calculated admission of a lesser transgression in order to conceal the true source of his cash income, which was drug dealing.
101. I have reached this conclusion without giving any weight to the Lowdham Grange and Gregory evidence in relation to drug dealing, which (such as it is) is not inconsistent with this conclusion.

The Chapel

102. Three interviews were carried out by SOCA on 26 November 2008, with Mr Kayes, Mr Tomlinson and Mr Coghlan. They were conducted by different SOCA officers; and it is convenient to summarise the material parts of the evidence putting it into chronological order.
103. Mr Kayes is a man of good character. He said he was a wealthy man who had bought and sold 15-20 houses over the previous 20 years (538). Although Mr Coghlan was a friend he had never done property deals with him (580). He had been to see Blackshaw Farm in Derbyshire, and had concluded that it was too far away. He didn't think Mr Coghlan had any role in his potential purchase of the property (577); but he could not remember the property, nor the involvement of Zoi & Co and Sharon Hall (578). He heard that the Chapel was on the market from Andy Hague who was the brother of the vendor Simon Harrington. He thought it was a distress sale (568). Issues relating to the Building Regulations had been sorted out before he bought the property. (551). He bought it in his name and that of his wife for £180,000. He rented it to Mr Coghlan because it was a house that was 'a bit of a mess', 'a complete building site' (563). He bought it as an investment (544). It could not be rented out; and Mr Coghlan 'needed somewhere to live' and was prepared to oversee the renovation work. (543). Mr Coghlan had project managed it; and Mr Kayes would have been very happy to have got £1,000 per month rent on the open market (544). He had never been to the Chapel. Mr Coghlan 'was in charge of everything but I paid a few bills.' The accountant would have the details any payments for CGT purposes. He thought he had paid for the building materials (or some of the building materials) (553), but could not remember (545). Mr Coghlan had run up arrears of rent (and, as at November 2008) still owed arrears. Mr Kayes could not remember how he had paid rent (548); but there had been a written Tenancy Agreement (549). By the time Mr Coghlan had been remanded in custody the work had been more or less done (551). He thought there was a mortgage (565), although this was unusual for him (568). He sold it for £300,000 at a time when it was a building site (539). He sold it because it had become a 'hassle' and he had been offered a profit on what was an unfinished project (540).
104. Mr Tomlinson explained that Blue Moon was a holding company in which he had a substantial interest. He knew Mr Coghlan from the time when he had run a mobile phone sales company, and Mr Coghlan and his associates had purchased phones. He had also assisted him in funding his civil claim against GMP (258). Mr Coghlan approached him, as the sitting tenant, with a view to his buying the Chapel. Mr Tomlinson thought it could be developed into flats (264) or knocked down and rebuilt, and he eventually fell out with Mr Coghlan about this (300). Mr Kayes had been 'ill with it' because he had not been paid rent. In his view buying property with a sitting tenant always led to a reduced price (264). He had previous experience of buying a property with a 50% discount when there was a sitting tenant (266). He had sent a faxed offer of £300,000 to Mr Kayes which was accepted (270). The house was habitable at the time, although the chapel-room had not been developed (275). The intention was that Mr Coghlan would have a tenancy and develop the property (279). He could have bought it and just sold it the next day for £475,000; but his intention was to develop it and split it into two (280). When he entered into the tenancy agreement he knew that he could give Mr Coghlan short notice to quit (280). As far as he was concerned, Mr Coghlan was living in the property and promoting Blue Moon's interests (282). Mr Coghlan had not advanced any money towards the purchase of the property (293). No significant work was done while it was owned by Blue Moon: from July 2004 to Sept 2007 (303), apart from some drainage and flagstones (284). He paid for these because they were in his accounts (288). The disadvantage of the property was that it did not have a garden (276); but Mr Coghlan negotiated with Crosby Homes to acquire land adjacent to the Chapel. Blue Moon employed him to oversee building projects at a basic salary, with commission if the project came in under budget (238). The payment of £30,000 under the Compromise Agreement of 31 May 2006 was partly in respect of this obligation (259). The letter offer of 22 May 2006 (851) offering a 40% discount from a price of £750,000) was sent when their relationship was at a low point (305). There were a number of considerations in relation to the price: Mr Coghlan was a tenant, he was an employee, he had brought in projects (307). He started to pay rent from 2006, and the rent was later doubled to bring the arrears up to date (307).
105. Mr Coghlan described the Chapel as being in a poor state when he moved in (140). The £18,000 did not come from him (134). He had initially acted as the project manager for Mr Kayes (149 and 181). He could not recall whether he had laid out money on behalf of Mr Kayes and then got the money back. He was asked questions about the Schedule of Known Expenditure 1998-2001 prepared by GMP, but questioned the relevance of any document in relation to the period before his arrest (183). A time had come when he did not feel sufficiently appreciated by Mr Tomlinson (166), and he stopped paying rent to Blue Moon (169). Mr Tomlinson had increased the rent (187). The deduction of 40% from the valuation of £750,000 was due to a number of factors: he had introduced property to Blue Moon in the first place, there had been an agreement that he would have first refusal, he had negotiated the land deal, he was a sitting tenant and had done work for Mr Tomlinson (191-194). When the house was sold to Blue Moon half the house had nearly been done (199). He had prepared the Computer Printout himself (161).
106. In this interview Mr Coghlan gives the general impression that he was confining himself to the questions he was prepared to answer. Thus, for example, he does not accept that he was negotiating Blackshaw Farm on behalf of Mr Kayes; and describes what he might have done (p.135-137).

The acquisition of the property

107. In the light of my view of the evidence I have reached the following conclusions.

(1) The history of the negotiations in relation to Blackshaw Farm is illuminating. The initial inquiry and offer to buy Blackshaw Farm in August 1999 had come from Zoi & Co on behalf of Mr Coghlan. A subsequent offer to buy had then come from Zoi & Co purporting to act on behalf of Mr Kayes. Mr Kayes seemed to know very little about this offer on his behalf; and had no knowledge of Zoi & Co. Ms Sharon Hall and Zoi & Co acted as Mr Coghlan's solicitors on other occasions.

(2) The acquisition price of £180,000 which was agreed in March 2000 was significantly lower than the NatWest valuation of £290,000 in February 2000. This is in itself gives rise to questions, and no sufficient explanation has been given. Although it is unnecessary to reach a view about this, I consider that the most likely explanation is that a higher price was in fact agreed, with a side agreement which provided how the difference between such higher price and £180,000 should be paid. If the true price was in the region of £240,000 it would explain the obscure draft document and the references to a missing £60,000, with Mr Coghlan being mentioned in relation to both. However the evidence about this is not sufficient to enable me to be satisfied other than it was a sale at an undervalue; and the correspondence in February 2000 in relation to an outstanding sum of £170,000 throws no further light on the matter.

(3) Even if the true price was £180,000 it is difficult to see the commercial attractions of the property for Mr Kayes without any plans to develop it. The involvement of Mr Coghlan was plainly crucial, and yet was said by Mr Kayes not to have occurred until after he had bought the Chapel. I am satisfied that this was Mr Coghlan's project from before the Chapel was purchased.

(4) The purchase of the Chapel using a mortgage was an unusual transaction for Mr Kayes; and although £162,000 was advanced on the mortgage, Mr Kayes was unable to explain where the £18,000 deposit came from. Its source is still unexplained, but is likely to have come from Mr Coghlan.

(5) The building work at the Chapel was entirely in the hands of Mr Coghlan from March 2000 until his arrest in April 2001. Mr Kayes was not involved. It would be unusual to entrust such a task to a short-term tenant. As I have previously indicated, I have taken a different view of the weight to be attached to the transcript of the recording of Mr Coghlan during his visit to HMP Lowdham Grange on 17 March 2001. In that transcript Mr Coghlan refers to the Chapel in a way which is inherently credible. What was being said about the amount of money to be incurred shows someone who was intending to fit out the house both extravagantly and in accordance with his own taste. In my view he was describing plans for a house in which he had a proprietary interest; and not a house of which he was simply a short-term tenant and project manager. This is supported to some extent by the Gregory evidence about the Chapel. It is one of the oddities of the 26 November 2008 interviews that Mr Kayes appears to say the Chapel was a building site when he bought it and when he sold it (540); yet Mr Tomlinson says no significant work was done when Blue Moon owned it.

(6) Most of the development costs were paid in cash, although some appear in the Schedule of Known Expenditure 1998-2001. Despite detailed analysis of the bank accounts of both Mr Kayes and Mr Coghlan by SOCA it was not possible to identify any expenditure on the renovation work; and, in these circumstances, I accept SOCA's submission that these were paid for in cash by Mr Coghlan or on his behalf. The fact Mr Coghlan paid for the renovation work, and that Mr Kayes did not do so, reinforces my view that Mr Coghlan regarded the Chapel as his, and for good reason. The Tenancy Agreement, with its provision for payment of £1,000 per month was not a document which reflected the relationship between the parties and was not intended to be relied on, save to create the impression that Mr Coghlan's interest in the property was limited to that of a tenant. That impression was created to divert the attention away from his real interest in the Chapel. I do not accept that Mr Kayes paid any significant sums in relation to the development of the Chapel or received any rent.

(7) I am satisfied that Mr Kayes's purchase of the Chapel was a transaction which was carried out in order to provide Mr Coghlan with a house which he could develop using his available cash.

(8) The sale of the Chapel in July 2004 to Blue Moon was also a sale at an undervalue. The NatWest property appraisal report of 6 June 2004 gives the impression of a project which had been substantially completed; and this is consistent with the other evidence. The sale at £300,000 on 9 July was considerably below the NatWest valuation £450,000 in the previous month. None of the interviewees was able to give an explanation for the price which made commercial sense. As a short term tenant Mr Coghlan had no significant security of tenure, and was (on his own case) over £27,000 in arrears of rent at the time. The letter from Mr Kayes's solicitors with its reference to Blue Moon being 'happy to proceed' on the basis that Mr Coghlan was occupying the property was appropriately opaque.

(9) Mr Tomlinson appeared to be frank in his admission about the significance of Mr Coghlan's status as sitting tenant, when he said that Blue Moon could have sold the property for £450,000 the next day. However, this was not a true analysis of the relationship between Mr Tomlinson/Blue Moon and Mr Coghlan. Mr Coghlan considered that he had rights which went very considerably beyond the status of the tenant as set out in the Tenancy Agreement dated 14 July 2004, witnessed by Sharon Hall.

(10) The description of the friction between the two men may be at least partly accurate. Mr Tomlinson appears to have regarded Blue Moon's interest as entitling the company to deal with the Chapel as it liked, as indeed on the face it was. However, Mr Coghlan made it quite clear that this was not so. There is no satisfactory commercial reason for Blue Moon's offer in the letter of 22 May 2006 to sell the Chapel for £450,000, a 40% discount of the market value. The explanation that the discount was due to Mr Coghlan's status as a sitting tenant has to be seen in the light of Mr Tomlinson's knowledge that Mr Coghlan was not a sitting tenant and that any such claims were valueless. Mr Coghlan's Computer Printout found in October 2007 indicated that as at June 2006 he was £40,800 in arrears of rent. The fact that a false reason was given for the discount tells against the legitimacy of the offer; and even if Mr Coghlan's contractual rights as an employee contributed to the discount, they were to be at least partly recognised by the Compromise Agreement on 31 May 2006. The fact that the 'arrears of rent' would have entitled Blue Moon to prompt possession and yet did not enter into the price calculation in any way, casts further significant doubt on the straightforwardness of the transaction.

(11) On Mr Coghlan's case the letter of 6 February 2007 from Blue Moon (signed by Mr Tomlinson) to Vernon Building Society stating that rent had been received in accordance with the rent agreement was misleading and dishonest, in view of the accumulated rent arrears, and the contents of the interviews with Mr Tomlinson and Mr Coghlan in which they said that no rent was paid.

(12) By the time of the sale to Mr Coghlan 16 months later in September 2007, the value of the Chapel had increased, having been valued at £900,000 by Halifax on 12 June; and a discount of 50% in circumstances where the rent arrears had increased to £53,400 (according to Mr Coghlan's Computer Printout) makes no commercial sense if it were a bona fide transaction.

(13) The sale to Mr Coghlan on a 100% mortgage was designed to give the impression that there was no equity in the property which might be attributed to him. There followed the transfer into joint ownership with Ms Burgoyne and the draw-down of £126,000 from the Halifax facility in March 2009. Although each might be regarded as the honouring of a pre-existing obligation, in my view the primary purpose of both transactions was to make any recovery from him more difficult.

(14) It follows that I do not accept that the sums (£50,996 to Blue Moon and £18,993 to Mr and Mrs Kayes) which appear to have been paid according to the Completion Statement of 31 March 2009, were payments in discharge of bona fide prior debts in respect of rent.

(15) It also follows that I do not accept that the Computer Printout, purporting to show outstanding rent owed to Mr Kayes and Blue Moon (and an increase in rent from £1,000 to £1,900 from June 2006), is a genuine document. On the contrary it was a false document prepared by Mr Coghlan with the intention of supporting his contention that he was no more than a tenant of the Chapel.

108. I find that from an early stage Mr Coghlan had available cash from his unlawful conduct and was highly sensitive to the risk of recovery under POCA. Although he took careful steps to conceal his interest in the Chapel, I am satisfied that it existed and derived from his income from drug dealing; and the steps he has taken to conceal his interest in the property and to put it beyond the reach of SOCA is further support for the conclusion that his income came from unlawful conduct.

The position of Ms Burgoyne

109. As already noted, although Ms Burgoyne did not participate in the hearing she sent a witness statement to the court on the second day of the hearing. This was significantly outside the time allowed for evidence by Master Fontaine. In summary she said that she had lived in the Chapel with her two children by Mr Coghlan since April 2000, contributing to the family finances in various other ways and to the mortgage payments since September 2007. The property had been transferred to joint names in March 2009 because of her concern that her interest in the Chapel had not been recognised; and (perhaps surprisingly) because she objected to the delay in making her a party to the proceedings. At §14 she stated,

On all occasions I acted in good faith and there was no suggestion that the house was purchased with the proceeds of drug trafficking because we got a 100% mortgage. I believe I have put my time and money to our family home and looked after the children and maintained the home. I have not acquired my share through crime.

110. The witness statement also referred to the decision in Jones v. Kernott [2011] UKSC 53 and Gibson v. Revenue and Customs Prosecution Office [2008] EWCA Civ 645; and an argument that she contended that she might have a defence under s.308 of POCA.
111. For SOCA Ms Harman submitted that the cases referred to by Ms Burgoyne are of no relevance to the issue, which turns on the proper application of s.308. She submitted that Ms Burgoyne's interest in the Chapel (as a joint tenant in law and in equity) was acquired as a result of the transfer on 23 March 2009. Subject to the mortgage, the whole legal and beneficial interest in the Chapel was recoverable from Mr Coghlan before the transfer and the disposition to Ms Burgoyne would only cease to be recoverable if she had acquired her interest in good faith, for value and without notice that it was recoverable property (see s.308(1)(b)). Ms Harman argued that Ms Burgoyne had not acquired her interest in good faith and without notice since she was well aware of SOCA's interest. In addition it was clear from the conveyancing documents that no payment passed from her in respect of the transfer. The only obligation she undertook was a covenant with the mortgagee that she would be jointly liable for the interest payments in respect of the interest-only mortgage.
112. Furthermore, if Ms Burgoyne's argument (that she acquired a beneficial interest from the moment Mr Coghlan acquired the legal interest) were to succeed, she would still have to establish facts from which the Court could imply that Mr Coghlan held the property subject to a trust in her favour. It had not be suggested that she made any contribution to the purchase price, nor could it be said that there was some act which would make it unconscionable for Mr Coghlan to deny that he held the beneficial interest in trust: a common intention with some action to her detriment. The mortgage payments were interest-only payments and constituted no greater contribution than the payment of an electricity bill.
113. Section 308 of POCA provides that,

(1) If

(a) a person disposes of recoverable property, and

(b) the person who obtains it on the disposal does so in good faith, for value and without notice that it was recoverable property,

the property may not be followed into that person's hands and, accordingly, it ceases to be recoverable.

'Value' is defined in s.316 as 'market value'.

114. There is material (in the Durr and Lowdham Grange evidence) which suggests that Ms Burgoyne knew what was going on to an extent which might cast doubt on her good faith; and it may be that, if her evidence had been received in proper time, SOCA would have been able to produce evidence to contradict her evidence that she had no idea that the Chapel was procured from the proceeds of drug dealing. However, the evidence presently before the Court is insufficient to make a finding of bad faith against her.
115. Nevertheless it seems to me that Ms Harman is right in her first submission that Ms Burgoyne did not obtain her interest for value, and for the reasons she advanced. This was recoverable property before the transfer, and was not acquired for value.
116. Like Blake J in SOCA v. Lundon and others [2010] EWHC 353 (QB) at [65]-[67] I would not accept a general submission that transfers to spouses or domestic partners of property which is, or represents, the proceeds of unlawful conduct, are never capable of being disposals for value within the meaning of s.308. However, in the present case there is no sufficient evidence that the parties were seeking to recognise a real contribution by means of the transfer in 2009. On the contrary the transfer seems to have been no more than the latest step in Mr Coghlan's attempts to place his property beyond the reach of SOCA.

Summary

117. For the reasons set out above I have concluded that the Chapel is recoverable property; and I propose to make the order vesting it in the Trustee for Civil Recovery.