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Cite as: [2008] ScotCS CSOH_20, [2008] CSOH 20, 2008 SLT 505, 2008 GWD 10-176

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OUTER HOUSE, COURT OF SESSION

[2008] CSOH 20

P223/05

OPINION OF LORD GLENNIE

in Petition of

THE SCOTTISH MINISTERS

Petitioners;

for an interim administration order in terms of the Proceeds of Crime Act 2002 and for warrant for inhibition and arrestment

RUSSELL STIRTON

First Respondent;

ALEXANDER ANDERSON

Thirteenth Respondent:

________________

Parties participating in hearing - Petitioners: Heaney; Scottish Executive Civil Recovery Unit

First Respondent: Party

Thirteenth Respondent: Party

Non-participating Party - Interim Administrator: Harper Macleod LLP

5 February 2008

Introduction

[1] This is a motion for recall of an interim administration order made as long ago as 3 February 2005.

[2] The petitioners are the Scottish Ministers. They are the enforcement authority in terms of section 316(1) of the Proceeds of Crime Act 2002 ("the 2002 Act" or "the Act"). On 2 February 2005 they presented a petition under section 256 of the Act seeking inter alia an interim administration order. Application was made ex parte for the appointment of an interim administrator. That application was granted by Lord Brodie on 3 February 2005. The court appointed LR as interim administrator and gave her certain powers as regards the conduct of that interim administration. LR has proceeded since then to act as interim administrator and in the process has inter alia seized property identified in the order and made investigations with a view to identifying what property is recoverable property within the meaning of the Act. She has reported on an interim basis on at least two occasions but has not yet produced a final report. It is said, and I do not understand this to be challenged, that the first and thirteenth respondents have failed so far to co-operate with her.

[3] The first respondent to the petition is Russell Stirton. The thirteenth respondent is Alexander Anderson. There are other respondents, but for present purposes it is convenient, unless the context otherwise requires, to refer to Mr Stirton and Mr Anderson as "the respondents". They lodged Answers to the petition on 4 March 2005. On 29 March 2005 they applied by motion for recall of the interim administration order. That motion was refused by Lord Macfadyen on 25 January 2006. His Opinion is reported as The Scottish Ministers v Stirton 2006 S.L.T. 306. Since then there have been a number of other motions for variation or recall of the interim administration order. Mr Anderson moved for the order to be recalled on the grounds that he was cited by an incorrect name, this having been the cause of the wrong attribution to him of various criminal offences. This motion to the validity of the process was refused by Lord Emslie on 23 February 2007 (2007 CSOH41). There have been applications to release certain monies from the ambit of the order. Some have been successful and some not. Finally, there was an application made in October 2007 for recall of the order, based upon the Affidavit sworn on behalf of the petitioners. That application sought to found upon particular sentences in that Affidavit without taking into account the whole context in which they occurred. It was refused by Lord McEwan on 16 October 2007. With the exception of the motion heard by Lord Macfadyen, neither party contends that the disposal these motions should have any bearing upon my consideration of the arguments before me.

The present motion for recall of the interim administration order

[4] On 27 August 2007 the respondents enrolled a motion in the following terms:

"In terms of section 260(3) of the Proceeds of Crime Act 2002. To recall the interim administration order ab initio in that there was a serious default in the petitioners' application ... in that the petitioners knew or ought to have known that the basis of the petition was incompetent."

Section 260(3) provides that the court may at any time vary or recall an interim administration order, though sub-section (4) requires the interim administrator to be given an opportunity to be heard before the court exercises that power. That has been done. I have omitted a reference in the motion to another section of the Act mentioned in the motion which was agreed by all parties before me to be irrelevant. The petitioners lodged grounds of opposition to the motion in the following terms:

"(1) The motion discloses no grounds upon which to recall the interim administration order.

(2) In any event, the interim administration order should not be recalled.

It is explained that the interim administration order was competently granted on 3 February 2005."

When the matter came before the court in August 2007, the respondents sought to support their motion by reference to a few items of correspondence. This was clearly inadequate. Having heard discussion on the point, I allowed the respondents further time within which to lodge affidavits and other material in support of their motion; and I gave the petitioners an opportunity to respond by affidavit or otherwise if they were so minded. After certain other procedure, the continued hearing of the motion took place on 22 and 23 November and 4 December 2007.

[5] From the documents and affidavits lodged by them, and from their submissions, it became clear that the respondents' motion for recall of the order appointing the interim administrator was advanced on two distinct, though overlapping, grounds. The first was that, at least in respect of some aspects of their claim, the petitioners could not show probabilis causa litigandi. The second was that their inability to show probabilis causa litigandi had been clear to them from the start, indeed from well before the petition was presented; and that in the way they had caused the petition to be presented and in their failure to bring certain matters to the attention of the court, the petitioners were in breach of their obligation of full and frank disclosure.

Representation at the hearing of the motion

[6] At the hearing of the motion Mr Heaney appeared for the petitioners. He had not appeared either on the ex parte application before Lord Brodie or at the hearing before Lord Macfadyen. The respondents were not legally represented, though they had been so represented at those earlier stages. Mr Anderson and Mr Stirton presented their arguments forcefully though with courtesy and restraint. The fact that they were not represented put a considerable burden upon Mr Heaney to put before the court all relevant arguments and materials. This he did with commendable thoroughness and candour both in his oral submissions and in two written notes of argument intimated to the respondents and to the court prior to and during the course of the hearing. In the event the arguments ranged over a number of important issues and I am grateful to Mr Heaney for his very considerable assistance.

The relevant legislation

[7] Part 5 of the 2002 Act is concerned with the civil recovery of the proceeds etc. of unlawful conduct. As is made clear in section 240(1)(a), one of the main purposes of Part 5 (in so far as it falls to be applied in Scotland) is to enable the enforcement authority to recover, in civil proceedings before the Court of Session, "property which is, or represents, property obtained through unlawful conduct". The powers conferred under Part 5 are exercisable in relation to any property or cash "whether or not any proceedings have been brought for an offence in connection with the property": section 240(2). The Act goes on to give certain relevant definitions. Unlawful conduct includes "conduct occurring in any part of the United Kingdom ... [which] is unlawful under the criminal law of that part": section 241(1). Section 242(1) states that a person obtains property through unlawful conduct "if he obtains property by or in return for the conduct". The conduct in question need not be his own. Property obtained through unlawful conduct is known as "recoverable property": section 304(1). In civil recovery proceedings under Part 5 of the Act, "unlawful conduct" is to be proved on balance of probabilities, not according to any higher criminal standard. In the circumstances set out in sections 304-308, property may be recoverable property even though it is in the hands of a person who was not a party to the unlawful conduct. In the present case, however, the property which is affected by this motion for recall is said to have been obtained through the unlawful conduct of Mr Anderson and Mr Stirton themselves; its recovery is not sought to be justified on any other basis.

[8] Sections 243 and 244 of the 2002 Act contain the basic provisions pertaining to proceedings for recovery orders in the United Kingdom. I shall refer to such proceedings as "civil recovery proceedings". Section 244 applies to Scotland. It provides that civil recovery proceedings may be taken by the enforcement authority in the Court of Session against any person who the enforcement authority thinks holds recoverable property. If in such proceedings the court is satisfied that any property is recoverable, it must (subject to certain exceptions) make a recovery order vesting the recoverable property in the trustee for civil recovery: section 266. Ancillary to such civil recovery proceedings is the power given to the enforcement authority to apply for an interim administration order. So far as concerns Scotland, this power is contained in section 256 of the Act. The power is given in cases "where the enforcement authority may take proceedings for a recovery order in the Court of Session". The application may be made before or after starting the civil recovery proceedings. Rules of Court provide that if the application for an interim administration order is made before the enforcement authority has commenced civil recovery proceedings, it must be made by petition; but if it is made after the commencement of civil recovery proceedings, it must be made by a note in that process.

[9] It is clearly not in every case that it will be necessary for the enforcement authority to apply for an interim administration order. I was told by Mr Heaney that in the present case part of the reason for seeking an interim administration order was that this was the only way, once it was decided to start civil recovery proceedings, of preventing disposal or dissipation of property which was alleged to be recoverable property. The order for the appointment of an interim administrator inter alia prohibits any person to whose property the order applies from dealing with that property: section 261. There had earlier been restraint orders in force against the respondents made by the court under section 120 of the Act. Once it was determined that criminal proceedings were not to be pursued against the respondents, the restraint order had to be recalled. Whilst it was in force, civil recovery proceedings in respect of property to which the restraint order applied were incompetent, since section 308(8) of the Act provides that property is not "recoverable" whilst a restraint order applies to it. When the restraint order was recalled, civil recovery proceedings could be commenced but there was at that time no possibility of obtaining an ancillary order in the civil proceedings comparable to the restraint order. That position has now been changed by the insertion into the 2002 Act at section 255A-F of prohibitory property orders. When the order in the present case was obtained, an interim administration order was the only way in which the property in question could be safeguarded from disposal or dissipation. Section 256 of the Act, pursuant to which the application was made for an interim administration order, allows such an application to be made "without notice" if notice of the application would prejudice any right of the enforcement authority to obtain a recovery order in respect of any property. The application was made without notice in the present case, though it may be that such a course is perhaps less likely to be adopted in the future now that there is power to apply for a prohibitory property order.

The interim administration order

[10] The interim administration order sets out the functions of the interim administrator. Section 257 states both what may and what must be in such an order. Under sub-section (1), the order may authorise or require the interim administrator to exercise a wide range of powers which the court considers appropriate for securing the detention, preservation etc. of the property to which the order applies. It may authorise or require the interim administrator to exercise any of the powers mentioned in Schedule 6 to the Act or to take any other steps which the court thinks appropriate "for the purpose of securing the detention, custody or preservation of the property to which the order applies or of taking any steps under subsection (2)": see section 257(1). The focus is on the property rather than on the unlawful conduct. The powers in Schedule 6 include a power to seize property to which the order applies, a power to obtain information or require persons to answer any questions, a power to enter any premises to which the order applies and to do various things there including carrying out a search of the premises and a power to manage any property to which the order applies, including selling or disposing of assets which are perishable or are likely to decrease in value. Sub-section (2) lays down what must be in the order. The order must require the interim administrator

"... to take such steps which the court thinks necessary to establish -

(a) whether or not the property to which the order applies is recoverable property or associated property, [and]

(b) whether or not any other property is recoverable property (in relation to the same unlawful conduct) and, if it is, who holds it."

Again, the focus is on the property, rather than the conduct.

[11] The words in parenthesis in sub-section (2)(b), "in relation to the same unlawful conduct", are of importance. They set a limit - and it is clear that a limit must be set - on the investigations which the interim administrator is required (or permitted) to undertake as regards property which is not specifically identified in the order. His task is to identify the recoverable property relating to the unlawful conduct identified in the application (whether by petition or note) on the basis of which the court made the order. It seems to me that a similar limit must have been intended to apply to the duty imposed upon the interim administrator, in terms of sub-section (2)(a), to establish whether or not the property specifically identified in the order is recoverable property or associated property. In other words, the interim administrator will be required to take steps to establish whether or not the property identified in the order is recoverable property in the sense that it was obtained through the unlawful conduct alleged in the petition. The function of the interim administrator, therefore, is to establish what recoverable property there is which is linked in a relevant way to the unlawful conduct alleged in the petition or note. His remit does not extend to investigating the merits of the allegations of unlawful conduct, nor to investigating whether there are other instances (or types) of unlawful conduct which the petitioner has not averred in the petition (or note), which might relate to property mentioned in the order and upon which the petitioner might (if he came to know about it) seek to rely. This limit on the function of an interim administrator not only appears to me to be plain on a proper reading of the section, but it is also implicit from the fact that the interim administrator is not an agent for the enforcing authority but, when appointed, becomes an independent and impartial officer of the court to whom he reports on the matters to which he is directed by the order appointing him: see e.g. per King J in Director of Assets Recovery Agency v Jackson [2007] EWHC 2553 at para.29, and per Lord Penrose in Scottish Ministers v Buchanan and others (unreported, 18 January 2008) 2008 CSOH5 at paras.[8]-[10].

The test: probabilis litigandi causa

[12] Section 256(5) lays down certain preconditions to the grant of an interim administration order. The first, and the only one of any relevance to the issues before the court, is set out in section 256(5). It is that

"... there is a probabilis causa litigandi -

(a) that the property to which the application for the order relates is or includes recoverable property, and

(b) that, if any of it is not recoverable property, it is associated property."

The term "associated property" is defined in section 245(1) of the Act, but nothing turns on that for present purposes.

[13] In his Opinion at an earlier stage of this case Lord Macfadyen considered the meaning of the term "probabilis causa litigandi". He said this (at para.[28]):

"I do not consider that there is any real difficulty in understanding what is meant by 'probabilis causa litigandi' in section 256(5)(a). It is perhaps unusual to find a Latin phrase used unexplained in a modern statute, but it is not unprecedented (cf Legal Aid (Scotland) Act 1986, section 14). Before the introduction of civil legal aid, the same phrase was the criterion for eligibility for the benefit of the poor's roll (see Trayner's Latin Maxims sv "probabilis causa litigandi"). It therefore has a long history. It is my impression that, whatever words are used to translate the Latin into English, as to which I agree with Sheriff Bell, practitioners in the field of civil litigation in Scotland have a sound understanding of the practical operation of the test. Mr Cullen was in my opinion right to submit that the test is not exacting."

I accept that the test may readily be understood by practitioners in the field of civil litigation and that it is not exacting. But I would respectfully suggest that it is not only unusual to find a Latin phrase used unexplained in a modern statute; it is also undesirable. Such an approach to drafting makes the law less accessible than it should be to those who may be affected by it; and serves to feed a belief, alien to modern ways of thinking, that the law is the exclusive preserve of lawyers. Mr Heaney helpfully drew my attention to section 246(5) which contains the equivalent provision for England, Wales and Northern Ireland. There, instead of probabilis litigandi causa, the phrase "good arguable case" is deployed. Mr Heaney submitted that a different test cannot have been intended to apply for the exercise of the same power in different parts of the United Kingdom. I agree. The test "good arguable case" has been described as a flexible test susceptible of various shades of meaning: Director of Assets Recovery Agency v Szepietowski [2007] EWCA 766 per Moore-Bick LJ at para.111. In that case the Court of Appeal was considering the meaning of that expression as used in section 246 of the 2002 Act. At para.111, Moore-Bick LJ went on to say this:

"In the context of applications for freezing orders and interim relief of a similar kind it clearly requires something more than a case capable of being taken seriously, but not necessarily much more and does not mean a case which, on the evidence before the court, is more likely to succeed than fail. In cases such as the present, where the claim is based on allegations of fraud or other serious impropriety, it is sufficient in my view for the applicant to show that there is a good prospect of succeeding at trial. A case which is merely speculative, however, will obviously not do."

It seems to me that this accurately describes what a petitioner in Scotland for an order under section 256 requires to show to meet the test of probabilis litigandi causa.

[14] I would make two further points at this stage. First, as Lord Macfadyen points out at para.[30] of his Opinion, there do not require to be averments in the petition linking specific property to specific unlawful conduct. Waller LJ put it in this way in Director of Assets Recovery Agency v Szepietowski at para.26:

"Thus the ARA [the relevant enforcement authority] must first establish a good arguable case that a certain kind of unlawful conduct occurred and then a good arguable case that property was obtained through that kind of unlawful conduct. What the ARA is not required to do is to establish a good arguable case that any property was obtained through a specific criminal offence, even of the general kind alleged."

I did not understand this to be controversial.

[15] Secondly, in deciding whether the test of probabilis litigandi causa has been met for the purpose of the granting of an interim order, the court will require to have in mind that in the civil recovery proceedings to which the application for an interim order is ancillary, the unlawful conduct is to be decided on a balance of probabilities: section 241(3). So, at the stage of the interim application, the court requires to be satisfied that the applicant has shown "a good prospect of succeeding" (to use the expression in Director of Assets Recovery Agency v Szepietowski) on a balance of probabilities at proof in the civil recovery proceedings. But it will also be borne in mind that the test of "on a balance of probabilities" is also flexible, as has been shown in a number of well-known cases. In R(N) v Mental Health Review Tribunal (Northern Region) [2006] QB 468, after a comprehensive review of the authorities, Richards LJ, giving the judgment of the court, summarised the position in this way at para.62:

"Although there is a single civil standard of proof on the balance of probabilities, it is flexible in its application. In particular, the more serious the allegation or the more serious the consequences if the allegation is proved, the stronger must be the evidence before a court will find the allegation proved on the balance of probabilities. Thus the flexibility of the standard lies not in any adjustment to the degree of probability required for an allegation to be proved (such that a more serious allegation has to be proved to a higher degree of probability), but in the strength or quality of the evidence that will in practice be required for an allegation to be proved on the balance of probabilities."

In Chief Constable of Merseyside Police v Harrison (Secretary of State for the Home Department intervening) [2007] 1QB 79 at para.10, Maurice Kay LJ described that as:

"... a formulation which will serve all future courts well when they have to consider the question of the civil standard of proof and its application."

I respectfully agree with that observation and see no reason why that approach should not apply to civil recovery proceedings under the 2002 Act as to other cases where the matter is to be decided on a balance of probabilities. It seems to me that in assessing whether probabilis litigandi causa has been shown at the stage of the interim application, the court will wish to be satisfied that the material produced in support of the application is of sufficient weight and cogency to show that the applicant has a good prospect of putting forward a case at proof in the civil recovery proceedings of the strength or quality needed to prove the allegations of unlawful conduct upon which the case proceeds.

The requirement for full and frank disclosure

[16] It is accepted on behalf of the applicants that it is incumbent on a party making an ex parte application for an order such as an interim administration order to make full and frank disclosure. At para.[24] of his Opinion Lord Macfadyen adopted the formulation given by Coughlin J in High Court of Justice of Northern Ireland in Director of the Assets Recovery Agency v Keenan and Others [2005] NIQB 67, at paragraph [13]:

"There is a clear obligation imposed upon those seeking to make ex-parte applications to ensure that a full and fair disclosure of all material facts is made to the court. This duty is not limited to facts known to the applicant but extends to facts that the applicant ought to have known after making proper inquiries. The material facts are those which it is material for the court to know for the purpose of dealing properly and fairly with the application, materiality being an issue to be decided by the court not the applicant."

I would only add that, as is clear from the citation at para.43 of the judgment of McCombe J in Director of Assets Recovery Agency v Singh [2004] EWHC 2335 (Admin), to which Coughlin J refers, that the duty includes a duty to identify the crucial points for and against the application. This is entirely in line with the general duty on any applicant for interim relief affirmed by the Lord Justice-Clerk (Gill) in Bell v Inkersall Investments Ltd. 2006 SC 507 at para.[20] in the following terms:

"I am also of the opinion that those acting for an applicant for interdict have a stringent professional obligation to draw to the attention of the court all relevant circumstances, whether favourable or unfavourable to the application."

The duty, of course, is not only on those acting for the applicant. It is for the applicant himself to do his part to ensure that full disclosure is made by making his legal representatives aware of all circumstances relevant to the application, favourable or unfavourable. Furthermore, it seems to me that it is essential, for the protection and information of the respondent, that all facts put before the court at the time of the application should be put before the court in writing, whether in the petition or note on the basis of which the application is made or, maybe, in an affidavit lodged in process in support of the application. Otherwise neither the respondent nor any court subsequently seised of the matter can know whether or not there has been compliance with the obligation of full disclosure. In some circumstances this may mean that the petition or note requires to be amended at the hearing or some other document lodged in process to reflect something that the court may have been told of relevance to the application. I see no difficulty in this.

Was there a failure to make full and frank disclosure?

[17] The petition sets out in Statement 5 a number of allegations of unlawful conduct through which it is alleged that the recoverable property was obtained. When the hearing began, the respondents' challenge was directed specifically to the averments that they extorted large sums of money from parties involved in a taxi business. It will be necessary to look at the material relating to these averments in more detail later. However, as the hearing developed it became apparent that I was being asked to look at the petitioners' alleged failure in that respect in the context of their alleged failures in other aspects of the petition. It is important, therefore, to look at the whole of the averments of unlawful conduct made against the respondents. I summarise these allegations using the same paragraph numbering as in the petition, adding in passing some comment on those allegations which were not initially the subject of specific criticisms from the respondents on this application. Not every paragraph within Statement 5 concerns these respondents but I shall briefly mention them as I go through the allegations.

[18] The petitioners' case that these respondents were involved in unlawful conduct as set out in Statement 5 is as follows:

5.1 Mr Stirton has convictions dating from 1975 and 1979 for theft by housebreaking.

[In the form in which it came before Lord Brodie on 3 February 2005, this paragraph also alleged that Mr Anderson had been convicted of theft by housebreaking in 1982, of theft and fraud in 1989 and of possession of controlled drugs in 1994. When the matter came before Lord Macfadyen on the respondents' motion for recall, the petitioners accepted that these averments against Mr Anderson were mistaken and in consequence they were deleted by amendment: see para.[26] of Lord Macfadyen's Opinion. I was told that they had been inserted in the petition upon a misapprehension by the petitioners that the thirteenth respondent was in fact a different person with a similar name.]

5.2 This alleges that the second respondent, the wife of the first respondent, has had certain convictions for theft and related offences, the last of which was in 1991. I need say no more about this.

5.3 It is averred that Mr Stirton is reasonably believed to have been involved in the supply of controlled drugs since at least 1983.

[No further specification is given in this paragraph. Mr Heaney explained that the paragraph was not intended as a free-standing allegation intended to be the subject of independent proof, but served merely to introduce the averments made in paragraphs 5.4, 5.6, 5.7 and 5.8. Its force, if any, must depend upon what is in those paragraphs.]

5.4 Mr Stirton was convicted in February 1988 of breach of the peace and offences under the Police (Scotland) Act 1967, section 41(1)(a) and the Bail etc. (Scotland) Act 1980, section 3(1)(B).

[So far, so good, in the sense that these are specific convictions relied upon, though their potential relevance to the recovery orders sought by the petitioners is highly questionable. But this paragraph goes on to say that the indictment on which Mr Stirton went to trial included charges that on a number of occasions between 1983 and 1986 he supplied, or was involved in the supply of, or was otherwise involved in drugs, including class A drugs; and further that he had in his possession a sawn-off shotgun. It is accepted by Mr Heaney for the petitioners, though it is not said in the petition, that he was found not guilty on all those charges. There is no offer to prove on balance of probabilities that he was involved in this unlawful conduct and therefore, as Lord Macfadyen says at para.[29] of his Opinion, these averments "cannot ... be deployed in support of the proposition that there is probabilis causa litigandi that [he] was involved in unlawful conduct".]

5.6-5.8 It is averred that in December 1997 Mr Stirton travelled on a cross-channel ferry with AH. Travelling on the same ferry was one MH, the driver of a heavy goods vehicle which the police suspected of containing controlled drugs. AH was seen in conversation with MH and Mr Stirton was observed paying attention to what was going on. After his conversation with MH, AH greeted Mr Stirton with a "high five" gesture and they both appeared happy. A few days earlier Mr Stirton had been seen in the company of one RD at a motorway service station. On the day following the incident on the cross-channel ferry law enforcement officers discovered a large quantity of drugs and a handgun in the heavy goods vehicle which had been on the cross-channel ferry. Subsequently MH and RD were convicted of offences relating to the misuse of drugs.

[There is no averment that Mr Stirton was charged or convicted along with MH and RD. At the hearing before me Mr Stirton said that he had not even been questioned, let alone charged; and Mr Heaney, having taken instructions on the point, confirmed that this was correct. Nor do the petitioners offer to prove that Mr Stirton was involved in any unlawful conduct, whether drugs or firearms offences or otherwise, relating to the events described. Accordingly these paragraphs too must be disregarded from the point of view of the petitioners' ability to show probabilis causa litigandi.]

5.9 This paragraph contains an allegation that the fourteenth respondent (Mr Anderson's partner) made a false declaration on a mortgage application as to the amount and source of her available funds. The mortgage application was in respect of property 3 in Part II of the Schedule to the petition. There is no allegation against either Mr Stirton or Mr Anderson.

5.10 It is alleged that Mr Anderson was sequestrated at Glasgow Sheriff Court in May 1997 and that, contrary to the Bankruptcy (Scotland) Act 1985, section 67(2) he concealed income to the extent of over £200,000.

(It is difficult to see any link between this and any recoverable property listed in the Schedule to the petition.)

5.11 It is alleged that in May 2000 Mr Stirton, acting with his wife, purchased a property (property 2 in Part II of the Schedule to the petition) with a loan from a building society of £220,000, which loan was obtained by fraud.

5.12 It is alleged that between 1 March 2001 and 30 April 2004 Mr Stirton and Mr Anderson extorted about £473,000 from two individuals, AG and KM who were operating a taxi business. It is said they did this by requiring payments to be made to a company run by them known as RS.

5.13 It is alleged that between 1 January 2002 and 31 May 2004 Mr Stirton and Mr Anderson extorted a further £338,000 from the same individuals, carrying on the same taxi business, by requiring payments to be made to another company (AS).

5.14 - 5.16 It is alleged that between 24 March 2003 and 30 April 2004 Mr Stirton and Mr Anderson disguised criminal property as legitimate income, converted some of it into business assets and transferred other amounts between different bank accounts.

[I was told by Mr Heaney that these allegations amount, in effect, to allegations concerning the subsequent use or disposal of the money allegedly extorted from AG and KM and the taxi firm.]

[19] Statement 6 of the petition goes on to aver that there is a probabilis causa litigandi that the property mentioned in Part II of the Schedule is or includes recoverable property or, if it is not recoverable property, associated property within the meaning of the Act. There is then an explanation of the basis from which this averment is made.

[20] The respondents deny the allegations in paras.5.12 and 5.13 that they were guilty of extortion. Of itself, that does not take them very far: the court cannot decide disputed issues such as this on the basis of mere averment and denial. But they go further than that. They say that the petitioners have known from long before the petition was raised that the alleged victims of the extortion, AG and KM, denied that there had been any extortion and were refusing to support the case against the respondents. They have lodged in process letters from solicitors acting on behalf of AG and KM and the taxi company to this effect dating back to the first half of 2004. Statements attributed by the police and Inland Revenue as having been made by AG and KM are denied by them. AG and KM maintain that position to this day. And they have both sworn Affidavits (in September 2007) setting out the circumstances in which they say they have continually protested that there was no extortion. In the Affidavits they continue to protest that there was no extortion. They have both given precognitions on oath to that effect at Glasgow Sheriff Court. The respondents say that in failing to mention any of this in the petition, in putting forward their case that the respondents have been guilty of extortion without referring to the significant evidential difficulties which they will have in proving it, the petitioners are guilty of a failure to make full and frank disclosure and indeed have presented their case in an entirely misleading manner.

[21] The petitioners sought to answer this material in an Affidavit sworn later in September 2007 by Lorna Harris, Head of the Civil Recovery Unit ("CRU") which performs the function of the Scottish Ministers as the enforcement authority for the purposes of Part 5 of the 2002 Act. In para.2 of that Affidavit she explains the background to the application for an interim administration order. Restraint orders were granted against the petitioners in January 2004. The respondents were fully committed on 9 March 2004. On 3 February 2005 the restraint orders were recalled and the petition in the present case was presented and the order granted ex parte. She explains that papers had been passed by the Crown Office to the CRU on 28 January 2005, just under a week earlier. The averments in the petition were based on the information contained in those papers. In particular, she says

"they were based on evidence gathered by police and HM Revenue and

Customs during their investigations into the respondents' business and alleged criminal activities during the relevant period. They were based upon investigations by police and HM Customs into the business entities associated with the respondents including [here she names certain businesses]. They were based upon statements made among others by the witnesses [KM] and [AG] to police officers and officers of HM Revenue and Customs between August and December 2003. Those statements were to the effect that money paid by [the taxi firm] for management services was for "protection" and that no management or other services had in fact been provided. The witnesses [KM] and [AG] withdrew their earlier statements when formally precognosed on 4^th October 2004. Their position at that time was that they had made the statements under pressure from the police. The police officers who interviewed them formed the view that they had withdrawn their statements under pressure from the respondents. None of the statements from other individuals on which the averments were based have been withdrawn."

In para.3 of the Affidavit she says that the averments in the petition were also based upon documentation recovered in searches at certain properties, on documents recovered as a result of production orders and upon financial analysis of the documents recovered. I take this to refer to the averments made in para.6 of the petition. The material described in para.3 is likely to have provided information relevant to tracing monies into the properties and other assets listed in Part II of the Schedule to the petition. I did not understand Mr Heaney to suggest that it supported the case of extortion made in paras.5.12 and 5.13 of the petition.

[22] Ms Harris' Affidavit essentially confirms the case put forward by the respondents, namely that KM and AG do not and will not support the allegations of extortion laid against them; and, further, that this was known to the petitioners from well before the petition was presented and the ex parte order was applied for and granted. There appears to be some dispute as to whether KM and AG originally gave statements supportive of the petitioners' case, but that is of no direct relevance to the question before me. She does not explain why the court was not told in the petition or at the ex parte hearing that KM and AG denied the charge of extortion laid against the respondents.

[23] In my opinion the fact that the alleged victims of the alleged extortion will not only not come forward to support the case for the petitioners but actually deny that there was any extortion is highly material to the exercise which the court is required to undertake on the hearing of an ex parte application, namely deciding whether there is probabilis causa litigandi that the property identified in the petition was obtained through unlawful conduct. As Waller LJ put it in the passage quoted above from Director of Assets Recovery Agency v Szepietowski, the first thing that the petitioners have to establish, when applying for an interim order of the type sought in this action, is "a good arguable case [or, in Scotland, probabilis causa litigandi] that a certain kind of unlawful conduct occurred". In assessing whether that threshold has been passed, the court is entitled to expect the petitioner to put before it all relevant circumstances, whether favourable or unfavourable to the application. That does not mean that all the available evidence must be rehearsed. But where there is a real problem which the petitioners will have to overcome if they are to prove their case - and I am not to be taken as saying that in this case it cannot be overcome - that problem should be brought to the attention of the court in the petition or note (whichever was the method used for making the application) or in some other way which will be available as a record of what was relied upon before the Lord Ordinary. There is no doubt in my mind that the attitude of KM and AG to the allegations of extortion, and the impact that this might have upon the ability of the petitioners to prove their case, ought to have been put before the court on the ex parte application. The petitioners' failure to put this information before the court amounts to a breach of their duty of full and frank disclosure.

[24] I was told by Mr Heaney that this evidential problem was brought to the attention of Lord Macfadyen at the hearing of the earlier motion for recall. This may explain the reference in para.[12] of his Opinion to counsel having explained the circumstances leading to the conclusion that the respondents should not be indicted. It is not clear to what extent, if any, his attention was drawn to the possible impact of this evidential problem upon the ability of the petitioners to prove their case on balance of probabilities. It may not have been mentioned, since the complaint of non-disclosure with which he was dealing was focused on the decision taken by the petitioners to make the application ex parte and the failure to mention the existence of the restraint order; and an explanation of the reasons for not proceeding with a criminal prosecution was but an incidental part of the relevant narrative. Nor was Mr Heaney able to say whether the court was told simply that the alleged victims were unwilling to give evidence or was told that they in fact denied that any crime had taken place and were prepared to give evidence to that effect for the respondents. But ultimately it does not matter since the occasion by reference to which the allegation of non-disclosure must be judged is the hearing of the ex parte application before Lord Brodie. If there was non-disclosure at that point, it is not cured by the evidential difficulties having been mentioned in some form at a later hearing, unless of course that later hearing was a hearing at which the particular allegation of non-disclosure was raised as an issue for decision.

[25] The impact of this non-disclosure is not only upon the particular allegations of extortion in paras.5.12 and 5.13. As Mr Heaney explained, the averments in paras.5.14 to 5.16 are entirely dependent upon success in proving the allegations of extortion. Those paragraphs aver, respectively, that the respondents disguised criminal property as legitimate income, converted criminal property into business assets and transferred criminal property between bank accounts. In each case the criminal property is said to consist of large sums of money, though less than the sums alleged to have been extorted from KM, AG and the taxi business. Let it be assumed that the respondents did deal with such sums in the manner alleged. The question is whether such sums are criminal property. The case proceeds, as it was explained to me, on the basis that had they not extorted the sums of money from KM and AG, the respondents would not have had the amounts referred to in paras.5.14 to 5.16. The inference is sought to be drawn from that that such sums must be criminal property. The dealings averred in paras.5.14 to 5.16 are alleged, in effect, to be ways in which the respondents laundered the money unlawfully obtained from KM and AG by extortion and therefore turn upon proof of that allegation.

[26] In his written submissions intimated to the court and the respondents in advance of the hearing (at paras.22 and 23), Mr Heaney submitted that, unless there had been a material change of circumstances, I should not accede to the respondents' motion for recall since there had already been an opposed hearing on a motion for recall. That was the hearing before Lord Macfadyen. For one Lord Ordinary to interfere with an interim order which another Lord Ordinary, after an opposed hearing, had refused to recall, would be to invite litigation by attrition, with the respondents "[coming] back to court time and again hoping that they will get a judge more sympathetic to their arguments than the judge who heard their arguments the week before." In his oral submissions, Mr Heaney emphasised that he was not arguing that it was incompetent for the court to hear this motion. Rather his submission was that once Lord Macfadyen had decided the motion for recall which came before him, the court subsequently seised of a similar motion should refuse to consider it unless it was demonstrated that there had been a material change of circumstances (or, possibly, that there was new evidence to put before the court which could not reasonably have been put before the court on the previous occasion). I agree that care should be taken not to cut across a decision taken previously in the case. In addition, multiple piecemeal applications ought to be discouraged. But it is also necessary to have in mind that a person upon whom an order of this sort is served is in a quandary. The order is draconian, much more draconian than a simple restraint order. It is intrusive, because it gives the interim administrator the power to conduct inquisitorial investigations into the respondents' conduct, including into the businesses in which the respondents have an interest; and it gives him power also to regulate the respondents' access to their assets. Faced with this, it is understandable that a respondent will want to take quick action to seek to recall the order on the points which he considers, or is advised, are then available to him. But being "on the back foot", he will not necessarily be in a position to put together a complete case for presentation to the court. In the present case the application which the respondents make for recall does not trespass into areas which came before Lord Macfadyen for decision. Nor does it trespass into areas decided on other motions which the respondents have made. I would not accept the submission that the respondents should be debarred from making this application for recall by reason of the fact that they have made previous unsuccessful applications for recall.

What are the consequences of that failure?

[27] In para.[25] of his Opinion on the previous motion for recall, Lord Macfadyen said this:

"Thirdly, if I had held that there was non-disclosure of material facts at the stage of the ex parte application, I would not have been inclined to recall the interim administration order without considering whether, on the information before me, including the ex hypothesi now-disclosed material facts, the order appeared to be justified. I find persuasive and practical the observations of Dillon LJ in Lloyds Bowmaker at 1350, where he said:

'I find it a cumbrous procedure that the court should be bound instead of itself granting a fresh injunction, to discharge the existing injunction and stay the discharge until a fresh application is made, possibly in another court, and that the court which is asked to discharge the injunction, it (sic) should not simply, as a matter of discretion in an appropriate case, refuse to discharge it if it feels that it would be appropriate to grant a fresh injunction.'"

That test was originally formulated in the context of Mareva injunctions (now freezing orders) in England. However, it has been applied in the context of interim orders under the 2002 Act, including interim administration orders, for example by Coughlin J in Director of Assets Recovery v Keenan. Mr Heaney argued, under reference to a supplementary written submission, that a slightly different approach should be taken in the context of an interim administration order if the court finds that there has been a failure in the duty of disclosure. He submitted that the court should put itself in the shoes of the court hearing the ex parte application and ask: what difference would the material have made? He said that this was the approach taken in Jennings v CPS [2006] 1 WLR 182 at paras.52-57.

[28] I am not persuaded that there is any practical difference between the test in Lloyds Bowmaker and that in Jennings. In Jennings, a restraint order was obtained on a without notice application. The issue of non-disclosure related to the applicants' concern that assets might be dissipated, that being the reason given for applying for a restraint order under the 2002 Act. The defendant argued that the applicant had not put certain material before the court which, he argued, would have shown the concern to be unjustified. The court rejected that argument on the facts. In doing so, Laws LJ, at para.52, said that the documents (apart from an August letter) "would not on a proper view of the law have affected the judge's decision whether or not to make a restraint order." "Accordingly", he concluded, "their non-disclosure was not a material failure." It is that short passage which founds Mr Heaney's submission. However, I do not think Laws LJ can have intended to suggest a different test. In the next paragraph, he deals with the August letter. He concludes that the judge was not plainly wrong to regard the letter as increasing concern rather than reducing it; and that the failure to disclose it was inadvertent. He then says this:

"In the circumstances I am quite unable to hold that the failure was such as to require the court to discharge the restraint order, and then consider as a separate exercise whether to impose a fresh order."

The two stage exercise there described, which Laws LJ appears to assume would have been triggered had he found there to have been material non-disclosure, is entirely consistent with the approach in Lloyds Bowmaker.

[29] Consideration is given in Jennings to the question whether the approach to discharging a restraint order made under the 2002 Act is or should be different from that taken in connection with freezing orders in private litigation. At para.56, Laws LJ says this:

"It seems to me that there are two factors which might point towards a different approach being taken ...; but they pull in opposite directions. First, the application is necessarily brought (assuming of course that it is brought in good faith) in the public interest. ... Here is the first factor: the court should be more concerned to fulfil this public interest, if that is what on the facts the restraint order would do, than to discipline the applicant - the Crown - for delay or failure of disclosure. But secondly, precisely because the applicant is the Crown, the court must be alert to see that its jurisdiction is not being conscripted to the service of any arbitrary or unfair action by the state, and so should particularly insist on strict compliance with its rules and standards, not least the duty of disclosure."

He concluded that the court should have both these considerations in mind, but that they did not promote some distinct and separate test. Longmore LJ (with whose remarks on this point Laws LJ concurred - see para.54) addressed the same point in this way at para.64:

"The fact that the Crown acts in the public interest does, in my view, militate against the sanction of discharging an order if, after consideration of all the evidence, the court thinks that an order is appropriate. That is not to say that there could never be a case where the crown's failure might be so appalling that the ultimate sanction of discharge would be justified."

These remarks confirm that there may be a failure to make full and proper disclosure which is so serious - one need not be too concerned about the particular epithet to apply to it - that the only proper response to it would be to discharge the interim order even though, on all the evidence now available to the court, the test of good arguable case or probabilis causa litigandi is now met. Without such sanction there would be nothing to prevent an applicant - whether that be, in proceedings under the 2002 Act, the enforcement authority or, in any other civil proceedings, the pursuer or petitioner as the case may be - coming to court to obtain an ex parte order without making full disclosure, safe in the knowledge that the order will not be discharged if, at the stage it is sought to be set aside for non-disclosure, he can then demonstrate, on the facts then belatedly put before the court, that his case passes the arguability test. The public interest cuts both ways, as Laws LJ explains, and the enforcement authority should not assume that its failures will be treated either more tolerantly or more severely than those of other litigants. The only difference is that there are additional factors to be brought into account in arriving at any decision, one of which is the public interest which the order obtained ex parte is designed to protect.

[30] I have come to the clear view that the petitioners failure in the present case to comply with its duty of disclosure is sufficiently serious to raise the question whether it should be dealt with by what Longmore LJ calls "the ultimate sanction of discharge". I have already explained why I consider that there was a duty to disclose to the court the fact that the alleged victims of the alleged extortion had consistently denied from as far back as mid-2004 that they were the victims of any extortion and that they had maintained that position in precognitions under oath. This failure was absolutely central to the central allegation against the respondents. Nor was it innocent, since the petitioners knew full well what the position was. As Lord Macfadyen says at para.[25] of his Opinion, citing Coughlin J in Director of the Assets Recovery Agency v Keenan, failure to disclose is only innocent if it results from lack of knowledge which remains despite proper inquiries. Further, the failure must be seen in the context of the other significant failures in the presentation of the petitioners' case to which I have drawn attention in para.[17] above. In the form in which the petition came before Lord Brodie it contained (in para.5.1) an untruthful averment that Mr Anderson had previously been convicted of a number of serious offences. I do not suggest that this was put forward in the knowledge that it was untrue, but it can only have happened because the petitioners did not take the care which it was incumbent upon them to take before making serious charges against an individual and coming before the court without notice to the respondents. It contained (in paras.5.4 and 5.6-5.8) averments which sought to damn Mr Stirton by association, to infer his involvement in serious charges to do with drugs and firearms which had been laid against others, without mentioning that in the one case he had been found not guilty and in the other he had not even been questioned by police, let alone charged. In neither case did the petitioners offer to prove even to the civil standard that Mr Stirton was involved in the unlawful conduct referred to, though this might not have been clear to the court hearing the matter at an ex parte hearing. None of these averments had any place in a petition presented with proper regard to the requirements of full and fair disclosure. They can only have been put in, in my opinion, in an attempt to present a picture of Mr Stirton's propensity to criminal behaviour which the petitioners were either unable or unwilling to prove. None of that can be described as innocent in the sense in which that word is to be understood in this context. Stripped of these matters, the petition would, in my opinion, have looked very different. Some discrete instances of unlawful conduct would have remained albeit not of the same character. But in approaching the central allegations of extortion in paras.5.12 and 5.13, and the ensuing paragraphs, the court would not have had before it material calculated only to blacken the character of the respondents by suggesting that they were accustomed to take part in serious criminal behaviour. If, in that context, the court had also been told that the alleged victims of the extortion were denying that there had been any extortion, the court might well have taken a very different view of the question of whether probabilis causa litigandi had been shown. I cannot of course say what conclusion Lord Brodie would have reached on the question. To my mind these failures, taken together, evidence a cavalier disregard for the obligations incumbent on petitioners to put matters fairly before the court when seeking to persuade the court on an ex parte basis to grant an order which inevitably will have very serious consequences for the respondents.

[31] However, in reaching a decision as to whether the order must be recalled, I have to take into account not only the seriousness of the failure to comply with the duty of disclosure, but also the other matters to which Mr Heaney properly drew my attention. He emphasised in particular that on the basis of certain material pled in the recovery order petition, which material had been available to the petitioners at the time of the ex parte application for the appointment of an interim administrator, the petitioners could show probabilis causa litigandi. At one point he appeared to be inviting me to have regard to what he called "the fruits of the poisoned tree", i.e. to evidence which had come into the possession of the petitioners only as a result of the order having been granted. He referred me to the latest interim report by the interim administrator, which contained information which appeared to be directed to attempting to prove unlawful conduct as well as dealing with the question of what property was recoverable. For reasons which I have explained at para.[10] above, I have reservations about the propriety of the interim administrator looking into these matters. Her role is to assist in identifying the recoverable property deriving from the unlawful behaviour of the respondents which the petitioners offer to prove - it is not to assist them in proving those allegations of unlawful conduct. Having regard to the difficulties of relying on the illicit fruits in light of the remarks of Lord Macfadyen at para.[31] of his Opinion, Mr Heaney did not ultimately seek to persuade me to take such matters into account. However, he argued that even without such new information the petitioners could show a sufficiently arguable case. He referred to the Affidavit of Lorna Harris. I have already quoted from para.2 of that Affidavit (see para.[20] above). There she simply says that the averments in the petition for the appointment of an interim administrator were based on the information in the papers received from Crown Office and the evidence gathered by police and HM Revenue and Customs; and that there are a number of other witnesses who have not withdrawn their statements. That is wholly unspecific and, linked only to the bare averments of extortion made in paras.5.12 and 5.13 of the petition, is insufficient to form the basis for an order of this kind. Nor, having regard to the views which I have expressed about the nature and quality of the averments made in the petition, does it inspire confidence. However, at para.5 of her Affidavit, Ms Harris goes on to say this:

"A first order in the petition for a recovery order was granted on 1 September 2005. A copy of that petition was appended to this report. The petition for a recovery order is based on the same information as that which formed the basis for the petition for an interim administration order, together with further information gathered as a result of the interim administrator's investigations and analysis. Inventories of productions and a list of witnesses will be intimated in the normal way when dates for a proof in relation to that petition have been fixed."

Mr Heaney showed me averments in the recovery order petition which, so he told me, were not derived from investigations carried out under the authority of the ex parte order but were part of the material available to the petitioners before it was made. Those averments, he submitted, went into some detail and fleshed out the statements which the petitioners would seek to prove had been made by KM and AG before being retracted by them; showed the lack of any business reasons for the taxi business making payments to the respondents; showed inconsistencies in the explanations given by KM and AG for the payments that were made; and cast doubt upon the validity of a leasing deal under cover of which some of the payments were made. Taken together, he argued, they showed probabilis causa litigandi for the averments of extortion, notwithstanding the retraction by KM and AG and their refusal to support the petitioners' case.

[32] Had these detailed averments been in the petition for the appointment of an interim administrator, and even if there had been full and frank disclosure on the other matters to which I have already referred, it is, in my view, likely that the judge hearing the ex parte application would have held that the petitioners had satisfied the test of probabilis causa litigandi. Since these averments will be the subject of proof in due course in the recovery order petition, I propose to say no more about the merits of the case against the respondents, save to say that in coming to this view on the basis of these averments, I have had regard to the quality of the evidence which will be required at the proof to make good the serious allegations against the respondents. In these particular circumstances, where a sufficiently detailed and compelling case is now put forward (of a kind which ought to have been in the petition from the start), the public interest in maintaining the order in force becomes a powerful consideration. If I were to recall the order to punish the petitioners for their failure in carrying out their duty to the court, I would be giving the respondents a windfall which they have done nothing to earn, and I would be allowing for that reason alone the respondents to have free use of the property which the petitioners seek to recover for the purposes of the 2002 Act. Having regard to the public interest, I do not consider that it would be right to punish the petitioners by setting aside the order granted on 3 February 2005. I should, however, emphasise that I regard this as very much a borderline case - had the case now put forward been less compelling, I might well have come to a different view. The petitioners should not assume that the balance will always fall their way.

Disposal

[33] For the above reasons I shall refuse the motion for recall of the order granted by Lord Brodie on 3 February 2005. I shall put the case out By Order to deal with questions of expenses and any other issues that arise. There is also outstanding a motion in the civil recovery petition and I shall deal with that at the same time.