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

IN THE CENTRAL CRIMINAL COURT
In the matter of an application under Section 72 of the Proceeds of Crime Act 2002

		15th February 2017

The Honourable Mr. Justice OPENSHAW :

1. This is a claim for compensation brought by the claimant under section 72 of the Proceeds of Crime Act 2002 alleging a serious default on the part of the police in not disclosing to the Crown Court when applying for a restraint order against him, the fact that he was an informant who had given valuable information against the very criminal whose assets he was alleged to have laundered, thereby causing him loss.
2. Because X, the man against whom he has informed, is very dangerous, and has dangerous associates who would not hesitate to kill or to do some really serious injury to him or to his family, if they knew what he had done, I allowed him to bring this action in an assumed name. For the same reason, and because of the dangers which would attend his identification, I allowed this trial to be held in secret, having posted notices of my intention to do so. I have handed down a detailed closed judgment, which should not be published or circulated to anyone except the parties. I now provide a short 'open' judgment, so as to give some explanation for what I have decided, without giving any of the relevant names, or places or dates, by which the claimant might be identified and thereby exposed to personal danger.
3. I also add for the sake of completeness that in an earlier 'closed' judgment, I struck out a claim against the CPS on the grounds that it was statute bound. I cannot release that judgment because of the dangers of jigsaw identification
4. The relevant part of section 72 of the Proceeds of Crime Act 2002 reads as follows:

(1) If the following three conditions are satisfied the Crown Court may order the payment of such compensation as it believes is just.

(2) The first condition is satisfied if a criminal investigation has been started with regard to an offence and proceedings are not started for the offence.

(4) If subsection (2) applies the second condition is that—

(a) in the criminal investigation there has been a serious default by a person mentioned in subsection (9), and

(b) the investigation would not have continued if the default had not occurred.

(6) The third condition is that an application is made under this section by a person who held realisable property and has suffered loss in consequence of anything done in relation to it by or in pursuance of an order under this Part.

(9) Compensation under this section is payable to the claimant and—

(a) if the person in default was or was acting as a member of a police force, the compensation is payable out of the police fund from which the expenses of that force are met;

(b) if the person in default was a member of the Crown Prosecution Service or was acting on its behalf, the compensation is payable by the Director of Public Prosecutions …'.

5. A criminal investigation was started against the claimant, but criminal proceedings were not, therefore it is common ground that the first condition under the section is satisfied. As I shall explain, late in the course of the proceedings before me, Miss Pinto QC on behalf of the respondent police, conceded that they had been responsible for a 'serious default', but the parties do not agree as to the nature, extent or indeed seriousness of that default; furthermore, there remains a lively dispute as to whether 'the investigation would have not continued if the default had not occurred'; so I must decide whether the second condition is satisfied. As to the third condition, the claimant did hold realisable property but there is a dispute as to whether he suffered any loss in relation to anything done in relation to it by or in pursuance of the restraint order; so before considering whether it was appropriate to order compensation, I will also have to decide whether the third condition is satisfied.
6. Since the claimant brings the case, it is for him to prove it, on the balance of probabilities.
7. The claimant's case is that when he first met X, he believed him to be a legitimate businessman. X lent him money to buy various properties, which loans the claimant claims to have repaid. Later, he discovered that X was in fact a major league drug dealer, who has since been convicted of drugs related offences.
8. This case concerns one particular property, which the claimant says he bought with money lent not by X but by Y, whom he contends is a legitimate businessman. The respondents do not accept that the money was lent by Y at all; they say that it came from X; they contend that the money to buy and develop the property was provided by X himself, and that the property (or its proceeds of sale) therefore was part of the proceeds of X's crimes, and amenable to confiscation in the event of X's conviction for drugs trafficking. However – as it seems to me - even if the immediate source of the purchase price came from Y, the evidence establishes that he was one of X's criminal associates and himself another of X's money launderers and it is therefore highly likely that he was put in funds by X.
9. After he had bought the property, the claimant says that he learnt that X was in fact a drug dealer and went to the police to tell them what he knew and thereafter he provided valuable information about X.
10. As a result of this, he was granted the status as a Covert Human Intelligence Source (or CHIS) agreeing to continue to provide information about X, but also agreeing that he would tell no one else about his new status as a CHIS.
11. Following the claimant's information, the police started an investigation into X; that investigation gradually gave rise to the suspicion, on reasonable grounds, that the claimant himself had been guilty of money laundering offences and so a criminal investigation into his conduct was started. In due course this resulted in the claimant's arrest and interview. However, as he was being questioned, he faced a dilemma. His real defence to the charges was that when he was lent the money by X, he had no reason to know or suspect that it had a criminal source resulted from drugs dealing, but that as soon as he found out he went to the police and told them all about it. However, he couldn't say any of this at the interview, since he had been repeatedly told that he could not tell anyone, even other police officers, that he was a CHIS, giving information about X, the very person whose assets he was alleged to be laundering.
12. In an attempt to resolve this dilemma, an agreement was reached by the police to the effect that the investigation into the claimant's criminality would proceed, without the investigating officers knowing of his status as a CHIS, but that when their inquiries were complete, the full facts would be put before the CPS for them to decide whether there was sufficient evidence to justify charging the claimant and, if so, whether it was in the public interest for the prosecution to proceed. In my opinion, this agreement had a number of flaws, not least that it failed to foresee that an application might be made to the court to restrain the claimant's assets, by officers who had no knowledge of the claimant's status as a CHIS nor of the defence which might be available to him.
13. In fact, that is precisely what happened: a restraint order was made against the claimant without the court being told of these matters. And although this happened without fault on the part of any particular individual officer, there has been a regrettable failure of systems which has resulted in this seriously misleading application being put before the court, which should never have happened.
14. I come then to examine the legal duty of disclosure which arises in these applications. A restraint order is a gross interference of a person's rights to dispose of his property, or property in his possession or control, as he wishes and it may greatly handicap a person's ability to fund his business and even his daily living expenses. Anyone applying for such an order, without notice to the persons adversely affected, has a duty to make a full and frank disclosure of all relevant material, particularly that which might tend to suggest that the order should not be made as sought. This is well known, indeed axiomatic.
15. The point is best made by Hughes LJ in Re Stanford International Bank Ltd [2011] Ch 33 [at 191].

"… it is essential that the duty of candour laid upon any claimant for an order without notice is fully understood and complied with. It is not limited to an obligation not to misrepresent. It consists in a duty to consider what any other interested person, would, if present, wish to adduce by way of fact, or to say in answer to the application, and to place that material before the judge. That duty applies to an claimant for a restraint order under [the 2002 Act] in exactly the same way as to any other claimant for an order without notice. Even in relatively small value cases, the potential of a restraint order to disrupt other commercial or personal dealings is considerable. The prosecutor may believe that the defendant is a criminal, and he may turn out to be right, but that has yet to be proved. An application for a restraint order is emphatically not a routine matter of form, with the expectation that it will routinely be granted. The fact that the initial application is likely to be forced into a busy list, with very limited time for the judge to deal with it, is a yet further reason for the obligation of disclosure to be taken very seriously. In effect a prosecutor seeking an ex parte order must put on his defence hat and ask himself what, if he were representing the defendant or a third party with a relevant interest, he would be saying to the judge, and, having answered that question, that is what he must tell the judge ...".

In the face of such a clear ruling, it is not necessary to cite other authorities, which merely re-state this principle in other terms.

16. Before finding a 'serious default' on the part of the police, within the meaning of section 72 of the Proceeds of Crime Act, 2002, in applying for an order, it is not, I think, necessary to identify the individual officer or officers at fault. I have no doubt that there was here a collective failure on the part of the relevant police force: the application for a restraint order should never have been made without disclosing his status as a CHIS and the fact that he had given valuable information against X and claimed to have gone to the police as soon as he learned that the money he had borrowed from X was the proceeds of drug dealing. In fact, at an advanced stage of the trial, when the writing was on the wall, Miss Pinto very properly so conceded.
17. What then is the consequence of the restraint order having been made without this full and frank disclosure? The practice of the Divisional Court is to find that orders made without proper disclosure are unlawful, and will strike them down, it does not need to be 'positively satisfied that, had there been full disclosure, it would have made a difference" (see, for example R v (Mills and Mills) v Sussex Police and Southwark Crown Court [2014] 2 Cr App R 34).
18. The test which I must apply to satisfy the second condition of section 72(4)(b) is markedly different; I must consider whether the investigation 'would not have continued'. I take the expression 'would not have continued' to mean "would not have continued to the stage of making the order which has caused the loss in respect of which compensation is claimed".
19. So the question for me to determine is whether the investigation into the claimant's criminality and into the possibility that the property was part of the proceeds of X's drug dealing 'would not have continued' up to the making of the order if proper disclosure had been made.
20. In fact, in due course the claimant was not prosecuted and the restraint order was discharged.
21. In the light of all the evidence that I heard (the recital of which would risk identification of the claimant), I drew the following conclusions:

i) The money for the purchase of the property was provided to the claimant by X, out of the proceeds of his drug dealing.

ii) If, which I doubt, the money did at some stage pass through the hands of Y, the money had been provided to Y by X.

iii) It is not necessary for me to find that the claimant knew of the tainted source of the money from the beginning, but there were reasonable grounds for the police so to suspect right up until the police submitted the file to the CPS for a charging decision and certainly up to the time that the police applied for the restraining order.

iv) The claimant went to the police and agreed to act as a CHIS principally because he intended thereby to provide himself with the defence should he later be suspected of money laundering the proceeds of X's drug dealing.

v) Although, as I have already said, his status as a CHIS, and his defence, should have been disclosed when applying for the restraint order and although it was in my opinion a serious default on the part of the police not to do so, I am clearly of the opinion that the investigation would have continued, even if the judge had been made fully aware of the true position.

vi) That the investigation did in fact continue even after the officers knew the full facts is, of itself, compelling support for the conclusion which I reached in paragraph (v).

vii) Furthermore, the property would in any event have been, or become or remained, restrained under an order made against X's assets.

viii) Therefore, the second condition under section 72 is not made out and the claim fails.

22. There is no need therefore to deal with the allegation that the claimant incurred a loss resulting from the making of the restraint order. In fact, the evidence established that he was in a serious financial state long before the restraint order was made; his bank would not lend him money once they heard of the on-going investigation and, in my opinion, that was the real cause of his difficulties and the reason why any deal involving the property fell through. Again, any further recital of the evidence, would risk the identification of the claimant. I am therefore unpersuaded that the third condition is made out either.
23. Therefore, the claim fails.