Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2009] CSOH 167
P1458/06	OPINION OF LORD BRACADALE in the cause THE SCOTTISH MINISTERS For a Recovery Order in terms of Section 266 of the Proceeds of Crime Act 2002 Petitioners against CLAIRE RENNISON or SMITH Respondent: ­­­­­­­­­­­­­­­­­________________

Petitioners: Crawford, Q.C., MacGregor, Advocate; Civil Recovery Unit

Respondent: Party

11 December 2009

Introduction

[1] The petitioners are the enforcement authority for Scotland for the purposes of the Proceeds of Crime Act 2002 ("the 2002 Act"). They seek a recovery order in terms of Chapter 2 of Part 5 of the 2002 Act. When the petition was raised the respondents named in the schedule were Lee Smith and Claire Rennison or Smith. Lee Smith died in August 2006. In this opinion I shall refer to him as Lee Smith. Claire Rennison or Smith is his widow and I shall refer to her as Mrs Smith. In the first stage of the hearing before me the petitioners were represented by Mr Sheldon and Mr MacGregor, advocates. In the subsequent stages Mr Sheldon was replaced by Ms Crawford Q.C. Mrs Smith represented herself throughout. At the outset of the hearing I refused an application to allow Mr James MacDonald to appear on her behalf. I did, however, allow her to have the benefit of the support of Mr MacDonald who sat behind Mrs Smith in court and rendered such assistance as he thought appropriate.

[2] The petitioners seek recovery of the following heritable properties: the house at 5 Briarcroft Drive, Glasgow, which was the house in which the Smith family lived; a flat at 102 Woodville Street, Glasgow; and two flats in the same block at 104 and 106 Woodville Street, Glasgow. The petitioners also seek recovery of sums at credit in three bank accounts held by the interim administrator: HSBC Plc, account number 51370472 in the name D J Lee re C & S Smith; HSBC Plc, account number 51370480 in the name D J Lee re Claire Smith; and HSBC Plc, account number 51366785 in the name D J Lee re Smith ISA. In addition, the petitioners seek recovery of PEP Policy Number 425915 with Family Assurance Friendly Society. The petition identified the following as associated property: a standard security in favour of the Bank of Scotland in relation to the house at 5 Briarcroft Drive; and standard securities in relation to each of the flats at 104 and 106 Woodville Street.

The statutory provisions

[3] Part 5 of the 2002 Act is headed "Civil Recovery of the Proceeds etc of Unlawful Conduct". These provisions form part of an initiative to tackle serious crime across the United Kingdom (Assets Recovery Agency v T [2004] EWHC 3340 (Admin) at paragraph 22). They are civil proceedings. It is not part of the scheme to establish that some particular offence had been committed by any particular person. Section 240 (so far as material) provides:

"(1) This Part has effect for the purposes of:

(a) enabling the enforcement authority to recover, in civil proceedings before the...Court of Session, property which is, or represents, property obtained through unlawful conduct,

(b) ...

(2) The powers conferred by this Part are exercisable in relation to any property (including cash) whether or not any proceedings have been brought for an offence in connection with the property".

The civil nature of the proceedings has been authoritatively recognised in Scottish Ministers v McGuffie 2006 SLT 1166 and Scottish Ministers v Doig 2009]SLT 1106.

[4] If the court is satisfied that any property is recoverable, the court must make a recovery order: section 266(1) provides:

"(1) If in proceedings under this Chapter the court is satisfied that any property is recoverable, the court must make a recovery order.

Section 266(3) provides for circumstances in which the court may not make a recovery order. The first of these relates to persons who have acquired property in good faith and does not arise in this case. Section 266(3)(b) provides that the court may not make in a recovery order any provision which is incompatible with any of the Convention rights (within the meaning of the Human Rights Act 1998). This issue did feature in this case and I shall return to it.

[5] "Recoverable property" is defined in section 304 in the following terms:

"(1) Property obtained through unlawful conduct is recoverable property."

Section 241 defines "unlawful conduct". Sub section (1) provides:

"(1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful conduct under the criminal law of that part".

The petitioners contend that the heritable properties were obtained through unlawful conduct.

[6] Section 245 provided for associated property. Sub section (1) is in the following terms:

"(1) "Associated property" means property of any of the following descriptions (including property held by the respondent) which is not itself the recoverable property -

(a) any interest in the recoverable property,

..."

Section 310 is in the following terms:

"(1) If a person grants an interest in his recoverable property, the question of whether the interest is also recoverable is to be determined in the same manner as it is on any other disposal of recoverable property.

(2) Accordingly, on his granting an interest in property ("the property in question") -

(a) where the property in question is property obtained through unlawful conduct, the interest is also to be treated as obtained through that conduct,

(b) where the property in question represents in his hands property obtained through unlawful conduct, the interest is also to be treated as representing in his hands the property so obtained."

The petitioners contend that the standard securities constitute associated property.

[7] Section 305 provides for tracing property. So far as material it is in the following terms:

"(1) Where property obtained through unlawful conduct ("the original property") is or has been recoverable, property which represents the original property is also recoverable property.

(2) If a person enters into a transaction by which -

(a) he disposes of recoverable property, whether the original property or property which (by virtue of this Chapter) represents the original property, and

(b) he obtains other property in place of it,

the other property represents the original property."

The contention of the petitioners is that the sums at credit in the bank accounts constitute recoverable property in terms of this section.

Section 307 provides for accruing profits. It is in the following terms:

"(1) This section applies where a person who has recoverable property obtains further property consisting of profits accruing in respect of the recoverable property.

(2) The further property is to be treated as representing the property obtained through unlawful conduct".

The contention of the petitioners is that rental payments in respect of properties in Woodville Street represents property obtained through unlawful conduct in terms of this section.

The pleadings

[8] The petitioners aver that, from at least 1997 onwards, Lee Smith was concerned in the supply of controlled drugs contrary to the Misuse of Drugs Act 1971. They aver that he was engaged in running an organised criminal enterprise which operated on a national and international basis, using other individuals to source, transport and sell controlled drugs on his behalf. They make detailed averments as to his conduct in the years between 1997 and 2006. The petitioners also aver that from at least 2004 until the date of his death, Lee Smith was involved in the security industry. The petitioners aver that between 1997 and 2004 Lee Smith and Mrs Smith received income and acquired assets with funds for which there was no legitimate source. They had insufficient legitimate income to support their lifestyle. They had assets which they had no legal means of obtaining. The petitioners aver that all the property of which recovery is sought is property obtained by unlawful conduct, namely, being concerned in the supply of controlled drugs. In addition, they aver that the mortgage obtained to purchase 5 Briarcroft Avenue was obtained by fraud.

[9] The answers were skeletal and Mrs Smith led no evidence. Most of the primary facts were not in dispute and the real question was what inferences fell to be drawn from the primary facts admitted or established on the evidence.

Absence of evidence in rebuttal
[10] In relation to the failure by Mrs Smith to give or lead evidence Miss Crawford referred me to the approach of Lord Penrose in Scottish Ministers v Buchanan, 10 March 2006, unreported, at paragraph 13 and invited me to adopt a similar approach. I should consider the strength of the primary material and put into the balance the absence of an explanation.

[11] Mrs Smith submitted that if her husband had been alive he would no doubt have given evidence. There did not seem any benefit to her to give evidence. She had responded to the Notice to Admit and had agreed certain facts. She did not wish to waste the time of the Court in trying to respond to questions that would have been put to her and she would have felt unable to answer.

[12] At paragraph 13 of his opinion dated 10 March 2006 Lord Penrose, dealing with the failure of the respondents to give evidence, said this:

"This issue puts into sharp focus the approach that may be taken in civil proceedings to drawing inferences adverse to a party who has had the opportunity to present evidence rebutting such inferences and has declined to take that opportunity. For the petitioners, counsel argued that it was not open to such a party to object to the drawing of the most adverse inferences that the evidence supports, relying on observations of the Lord Justice Clerk Wheatley in McIlhardy v Heron 1972 JC 38 at page 42. Counsel for the respondents did not challenge this approach. Nevertheless, it appears to me that the more appropriate approach is to consider what inferences may properly and reasonably be drawn from the primary material, having regard to the opportunity to present evidence in rebuttal and the absence of such evidence, rather than to seek for it any extreme formulation of the position."

I agree with that approach which I shall gratefully adopt.

The interim administrator

[13] By an interlocutor of the Lord Ordinary on 19 November 2004 David J Lee was appointed interim administrator in terms of section 256 of the 2002 Act. The interlocutor authorised him to exercise all of the powers mentioned in schedule 6 to the 2002 Act together with appropriate ancillary powers. Mr Lee gave evidence and referred to his Final Report (6/2 of process).

[14] Miss Crawford submitted that the interim administrator had demonstrated that he was a suitably qualified person to perform the duties and responsibilities of that office. He was not partisan and his independent opinion was based on his investigation. She submitted that there was no evidence to entitle me to reject the opinion and conclusions of the interim administrator. She submitted that I should reject any criticism of the approach of the interim administrator in the present case. This case was different from the case of Buchanan in which Lord Penrose had taken issue with the global approach adopted by the interim administrator. I should take a common sense approach to the circumstances in which the Woodville Street properties had been obtained. These had been obtained in unusual circumstances.

[15] Mrs Smith invited me to adopt the approach of Lord Glennie in the case of Scottish Ministers v Stirton and Anderson 2008 SLT 505 at paragraph 11 and the approach of Lord Penrose in Scottish Ministers v Buchanan 2008 CSOH 5 at paragraphs 8 and 10. Mrs Smith submitted that the interim administrator had demonstrated that his approach was that of acting as an agent for the petitioners. She was particularly critical of his findings in relation to Ronald Campbell and of his conclusions as to whether Bellshill Tyre and Exhaust was operating as a genuine business. Mrs Smith went on to draw my attention to paragraph 1.1.9 of the interim administrator's report where he stated that if further information came to his attention after the issue of the report he may need to amend his conclusions accordingly. She submitted that material relating to Lee Smith's earnings from the security business (6/148 of process) had not been included in the Final Report but had been in the possession of the Scottish Ministers since the death of Mr Smith in August 2006. This material should therefore have been available to the interim administrator.

[16] Stirton and Anderson was concerned with issues arising at a stage before proof and has no bearing on how the court should treat the evidence and report of an interim administrator at proof. The approach of the court to the evidence of the interim administrator was considered by Lord Penrose in Scottish Ministers v Buchanan 2008 CSOH 5. He referred to the views expressed by Mr Justice King in the Director of the Recovery Agency v Jackson & Smith 2007 EWHC 2553 (QB). In relation to the approach to be adopted at the stage of proof, Mr Justice King expressed the following view at paragraphs 29 and 30:

"[29]...Further, in principle I am prepared to accept that the Receiver's findings as to recoverable property should be given considerable persuasive weight by the court and to that extent and to that extent her report enjoys special status.

[30] However this said, I also agree with the respondent's submissions that the receiver's findings of recoverable property are not binding on the court, that it is the primary evidential material underlying her findings and said by her to justify them, which is of crucial importance together with any additional evidence called before the court, and that it is the duty of the court in determining any area of dispute between the parties carefully to scrutinise and weigh that evidence in order to determine whether the claim to recoverable property is made out."

In Buchanan Lord Penrose agreed with the observations as to the approach to be adopted at the stage of proof. He went on to note that this was a relatively new area of law and inevitably there would emerge issues in relation to the role of the administrator in Scottish practice in providing the court with factual and opinion evidence. He went on to say that the responsibility to resolve issues arising from the interim administrator's reports and oral evidence, must lie with the court and much may depend on circumstances.

[17] I respectfully agree with the approach to the evidence of the interim administrator at proof outlined by Lord Penrose and Mr Justice King. In the present case the petitioners led primary evidence. My approach has been to examine the primary evidence and draw inferences from it. Where the interim administrator has collected and marshalled a body of evidence, and the primary facts so collected are not in themselves challenged, I have found it convenient to refer to the terms of the Final Report. I have examined his analysis of the information available to him. I have not found it necessary to decide whether I should regard the evidence of the interim administrator as enjoying special status. In the event I have not afforded his report any special status by treating it as having any particular weight. The evidence of the interim administrator has informed me as part of the whole evidence. It may be, of course, that in some respects I have arrived at similar conclusions to those of the interim administrator.

[18] The issue that arose for Lord Penrose in Buchanan related to the global approach adopted by the interim administrator in that case. After referring to Director of the Recovery Agency v Green [2005] EWHC 3168 (admin) and Olupitan v The Director of the Assets Recovery Agency [2008] EWCA Civ 104, Lord Penrose quoted from Jackson in which Mr Justice King followed these cases. In Jackson, Mr Justice King said:

"I do not consider it essential that the court considers each property transaction on an item by item basis in the sense that the claimant has an obligation to show some particular unlawful actions by the respondent at some particular time which enabled a particular transaction."

In Buchanan Lord Penrose said:

"In the case of an individual who holds a number of items of potentially recoverable property, and who has been shown to have engaged in unlawful conduct of a kind likely to have generated disposable funds, it is highly likely to be sufficient to ask whether that individual's legitimate resources as a whole were sufficient to explain his possession of the totality of the targeted property. In many, if not most cases, the application of funds available from legitimate sources and the application of funds from unlawful conduct would have been confused: the application of any particular sum would be a casual matter depending the total funds available at any given time and the individual's personal choices as to distribution of those sums. It would be unnecessary to engage in a detailed analysis of each transaction as at the date it occurred and to show that at that time and in the circumstances obtaining it was more likely than not that the particular item was obtained by or represented property obtained by particular unlawful conduct."

In Buchanan the difficulty arose because the interim administrator had considered the bank accounts of various members of the Buchanan family taking the view that the Buchanan family could properly be treated as a single unit. The interim administrator had aggregated the movement on all bank accounts, in whomsoever vested, for purposes of analysis notwithstanding that assets held by them as individuals were sought to be recovered. It was this aspect of the global approach which raised a question as to whether the methodology was fundamentally flawed, either as a matter of general approach or in the particular circumstances of that case.

[19] It seems to me that no such difficulties arise in this case. Mr and Mrs Smith were a married couple. They purchased the house at 5 Briarcroft Drive in joint names. They made a joint application for the mortgage. The deposit was said to be either a wedding present or a loan to the couple. The explanation offered by Lee Smith through his solicitors was that he had borrowed money to facilitate the purchase of the flats. Mrs Margo Wilson, the legal secretary at Guarino & Kirk, the solicitors who acted for Mrs Smith in the purchase of the flats, said that she had spoken to both Mr and Mrs Smith in connection with the purchase of the properties. In these circumstances, it seems to me that the approach contemplated by Lord Penrose in the paragraph quoted above as being appropriate in most cases involving an individual is appropriate in this case.

Unlawful conduct: being concerned in supply of controlled drugs

Evidence

[20] In support of their averments that over a period of years Lee Smith had been concerned in supply of controlled drugs the petitioners led evidence from a number of police officers in relation to particular incidents and the logs of surveillance operations. They also led the evidence of Detective Sergeant Kenneth Simpson who was aged49 years and had 30 years police service. Mr Simpson had extensive experience in the drugs squad of Strathclyde Police. Since 2000 he had been in charge of "STOP", a unit, formed in 1996, which provided statements of opinion in relation to the illegal supply of controlled drugs. That unit assessed drug trends, ingathering information and intelligence. As a result it had achieved a good understanding of the structure and operation of the drugs supply industry. In relation to this case, Mr Simpson had reviewed the surveillance logs and the authorisations for them. He had examined the report by the interim administrator and a number of affidavits which had been provided to him. He also examined the police intelligence records in relation to Lee Smith.

[21] Mr Simpson explained that the drugs trade in Scotland constituted one of the most serious threats from serious and organised crime. Serious crime for this purpose was defined as relating to a person who was over 21 who on conviction would receive a sentence of at least 3 years imprisonment. Organised crime related to a pattern of serious criminal behaviour.

[22] Mr Simpson explained that the illegal drug business was like any other business but without audit trails or formal records. It was driven by the forces of profit and power. Profits could be very large indeed. Organised crime groups took part in drug dealing. In order to succeed at the upper levels, a certain reputation was required. The position of a dealer was sustained by the use of violence or the threat of violence. Dealers operated at different levels. At the lowest end, there was the street dealer who fed his own habit. At a higher level were gangster like figures who controlled the organisation. Such persons did not tend to be "hands on" and did not handle drugs. Couriers took the risk of delivering drugs. In between the level of the street dealer and the control figures were the middle market dealers who supplied the street level suppliers. Individuals would promote themselves and might take over another person's business.

[23] Drug dealers at the upper level produced very large amounts of cash which required to be disposed of. Sometimes this was reflected in an expensive lifestyle. Sometimes the dealers went into business. In the past a typical example was the security industry. Security was provided to new building sites or premises under renovation. Lucrative contracts could be obtained by the security companies. The representative of the company, who would style himself as a consultant, would simply visit a site and advise the owners that they were going to organise security. The business was a territorial one and if the owners did not comply, there could be recriminations including destruction of property. More recently legislation had been passed in an attempt to regulate the security business.

[24] A drug dealer at the upper levels would avoid conviction by getting others to do the "hands on" work. Dealers operating at that level would also take certain precautions. They would take steps to counter the possibility that the police might be listening to them or following them. They would avoid speaking or meeting at home. Face to face meetings would be held at short notice and sometimes in places such as the middle of a park or in a car park. They would engage in anti-surveillance techniques. These would include changing cars, or going round a roundabout two or three times, or turning and driving back along the way they had just come. Sometimes they would stop the car and get out and watch. Cars were frequently changed and hired cars were used, as were taxis. It was common to use public telephones or to have a number of mobile phones. Drugs would not be kept in the home of a mid to upper level drug dealer, but at a safe house. Additional security measures would be taken to protect the home of the dealer. The drug dealer would tend to associate with other drug dealers.

[25] 6/16 of process comprised details of the previous convictions of Lee Smith. In 1991 on summary complaint he was convicted of assault and fined. In 1992 on indictment he was convicted of assault to severe injury and permanent disfigurement and sentenced to 2 years detention. Later in 1992 he was convicted of assault in the High Court and was admonished. In December 1994 on indictment he was convicted of assault to severe injury and permanent disfigurement and detained for 2 years.

[26] Evidence as to the early involvement of Lee Smith in drug dealing and associated violence was given by Graeme Richmond and Malcolm Waugh who had been police officers in the Wishaw area in the 1990s. In 1989 Mr Richmond went to Bellshill on uniform duties and spent three years there. He became aware of Lee Smith. Detective Constable Richmond arrested Lee Smith in connection with the incident which led to the conviction of Lee Smith in 1992. He recalled that he and a colleague were on mobile patrol in Hamilton Road. They saw Lee Smith leaving a public house and assaulting a man called Derek Mullen. Derek Mullen was assaulted again in 1995 by Samuel Barr and Gary Smith, a brother of Lee Smith, both of whom were convicted. Samuel Barr was sentenced to six years imprisonment. He was at the time well-known for being involved in the supply of controlled drugs and was a well-known criminal in Bellshill. 6/158 of process comprised the previous convictions of Samuel Barr. The schedule disclosed a significant history of violent conduct. In addition to the conviction in 1996 for which he was sentenced to six years imprisonment he had earlier convictions for assault and assault to severe injury and in 2004 on a charge of attempt to murder he was sentenced to seven years imprisonment. The opinion of the court in the appeal against conviction of Samuel Barr in 1996 was produced (6/157 of process). The evidence disclosed that on 14 April 1995 Mr Mullen was in a caravan at a caravan site in Strachan Street, Bellshill along with a woman called Margaret Dundas and her father. About 11.00pm Samuel Barr and Gary Smith arrived and attacked Derek Mullen. In the course of the attack Samuel Barr said that Derek Mullen had "stuck Lee Smith in" and Gary Smith said that he was a "dead man".

[27] Mr Richmond and Mr Simpson stated that it was common when a drug dealer was in prison that someone else would take over the business for them. The information was that Lee Smith had taken over Samuel Barr's business when Mr Barr was sentenced to imprisonment.

[28] The evidence of Mr Richmond in relation to this period was supported by the evidence of Malcolm Waugh. Between 1991 and 1995 he was stationed in Wishaw and Motherwell CID. Around that time there was a problem with controlled drugs in the Bellshill area. Mr Waugh was aware of Lee Smith who, according to information, worked on behalf of Samuel Barr who was involved in the drugs trade. The name of Lee Smith kept coming up in police information. That information would be information coming from members of the public and informants and interviews of prisoners. Samuel Barr was the main drug dealer in the area and Mr Waugh's impression of Lee Smith was of someone coming through the ranks under Samuel Barr.

Surveillance operations and other observations

[29] Detective Inspector Charles Caldwell explained how authorisation was obtained for the purposes of carrying out surveillance. Statutory authority was required under the Regulation of Investigatory Powers (Scotland) Act 2000 ("RIPSA"). That authority required to be granted by a superintendent. In terms of section 6 the granter required to be satisfied that the surveillance was necessary and proportionate to what was being sought to be achieved by carrying it out. The application would be based on material from an intelligence briefing.

[30] Mr Simpson explained that there was a national intelligence model for the UK which described three levels of criminal activity in relation to controlled drugs. Number 1 represented the street dealer; Number 2 cross-border dealers of the middle rank; and Number 3 represented serious and organised crime involving one or more people in Scotland or elsewhere. The reliability of intelligence material was graded according to a recognised system. Mr Simpson described intelligence as being the life blood of what the police did in relation to controlled drugs. It painted the picture and was the deciding factor in what action would be taken. It allowed the police to prioritise what they were going to do and whom they would pursue.

[31] The intelligence indicated that both Lee Smith and Andrew Cairns were involved in level 2 criminal cross-border activities in the United Kingdom. These comprised multi‑kilo deals of heroin, cocaine, amphetamine and cannabis resin. As a result of that intelligence, between 1999 and 2006 a number of surveillance operations were conducted involving Lee Smith and Andrew Cairns. These included Operations Plum; Prune; O'Hara; Simmer; Poker; and Springbank. Mr Caldwell had reviewed the authorisations for each of these surveillance operations and also reviewed the surveillance logs which were available.

[32] From the evidence in relation to the logs a picture emerged of the associates of Lee Smith. Ronald Campbell, who was an associate of Lee Smith, was traced to the premises of Bellshill Tyre and Exhausts in Bellshill. Lee Smith was seen at these premises on numerous occasions. His visits would last between five minutes and two hours. From the nature of the movements of Lee Smith in the course of the observations Mr Waugh formed the impression that Lee Smith was not working at the premises. 6/17 of process which comprised Ronald Campbell's previous convictions showed a pending case under the Misuse of Drugs Act.

[33] Detective Constable Richmond said that he was aware that Ronald Campbell had been arrested in connection with a recovery of drugs. He had been indicted to the High Court at Glasgow but had failed to appear and a warrant had been issued for his arrest. In the summer of 2008 Mr Richmond met Ronald Campbell in Tenerife. He had spoken to him and Mr Campbell told him that he had no plans to return and that he had been expecting a sentence of ten years imprisonment.

[34] Andrew Cairns was a very close associate of Lee Smith. He came from Clydebank and was involved in the drugs trade. His previous convictions included a conviction at the High Court in Glasgow on 17 March 2007 when he was sentenced to three years for assault and robbery and one year for assault. Andrew Cairns was the subject of a number of the surveillance operations. His brother William Cairns was another person whose movements were associated with Lee Smith in the course of the surveillance logs. He had previous convictions for contraventions of the Misuse of Drugs Act Section 4(3)(b) and in 2001 he was sentenced to 8 years imprisonment. In the course of the logs he was observed at the house at 5 Briarcroft Drive occupied by Lee Smith and at 102 Woodville Street occupied by Andrew Cairns.

[35] Another associate of Lee Smith, John Thompson, was an established drug dealer who had a previous conviction in Glasgow High Court in 1995 for a contravention of the Misuse of Drugs Act for which he was sentenced to three years imprisonment. John Nisbet, who was an established drug dealer from Wishaw was another associate of Lee Smith. He had a conviction for a contravention of Section 23 of the Misuse of Drugs Act. John Henry Nisbet was a member of the same family. Several other associates who were involved in drug dealing were identified, including Thomas Allan, Joseph Allan and Thomas Adam.

[36] On 30 November 2002 Sergeant Vincent Ferris stopped a motor car being driven by Thomas Allan in which Lee Smith was the front seat passenger. There were four mobile phones in the car, three on the front passenger seat and one on the rear seat. A red handled knife was recovered in the boot of the car. Mr Simpson said that it was common for a drug dealer to have several mobile phones in order to try to avoid tracing and interception of calls.

[37] The log for 23 March 2001 was produced as 6/54 of process. In the course of that surveillance Thomas Adam was observed driving a Skoda motor car with Lee Smith sitting in the front passenger seat. They travelled from Robroyston to the premises of Bellshill Tyres and Exhausts and later to Blackpool.

[38] Under reference to the next day's log (6/55 of process) Mr Caldwell described how on 24 March 2001 he had seen Lee Smith and Thomas Adams in Blackpool where they met a man called Vincent Smith. Thereafter, they drove back to the premises of Bellshill Tyre and Exhaust. Andrew Cairns and Andrew Ferguson also arrived at the premises. Mr Adam left the Bellshill Tyre and Exhaust premises and Andrew Cairns followed him as if shadowing him to ensure that they were not being followed. They stopped and Andrew Cairns handed a small package to Mr Adams which Mr Caldwell suspected was money changing hands. Thereafter they travelled in convoy and were joined by another man in a Sierra car, a Mr Ede. Mr Ede handed a black holdall from the boot of the car to Mr Adams. Mr Adams and Mr Cairns then returned to the Bellshill Tyre and Exhaust Centre. All persons present including Lee Smith were detained. Amphetamine with a value of between £19,000 and £22,000 was recovered. Thomas Adams and Alan Ede were convicted in connection with this incident.

[39] Mr Waugh described some of the techniques of anti-surveillance which featured in the logs. In the course of one operation Lee Smith was seen in a car being driven by Ronald Campbell. The vehicle was driven off the motorway at the Reith Interchange. The vehicle was driven halfway round the roundabout and stopped. At that point Lee Smith got out of the passenger's door and looked at the cars coming round the roundabout. Mr Waugh, who was driving a car carrying out surveillance, had to swerve in order to avoid hitting the motor vehicle in which Mr Smith had been travelling. On another occasion when Lee Smith was being driven by Ronald Campbell in the Kilmarnock area they drove over the brow of a hill and stopped to see what vehicles were coming behind. On a further occasion when Lee Smith was travelling with Andrew Cairns the vehicle was seen to drive into the exit lane of the motorway cross over and travel in the opposite direction. Mr Simpson commented on this evidence, describing the various manoeuvres as classic anti-surveillance tactics.

[40] Constable Robert Salmon described a search of the house at 5 Briarcroft Drive on 7 January 2000. He was involved in searching the loft where there was a T.V. monitor and recording equipment linked to three cameras covering the bottom of the rear garden, the front of the house facing the front, and the side of the house. There was a keypad for operating an alarm system within the loft. He thought this was unusual and rather excessive for a normal family home. Commenting on this evidence Mr Simpson said that this reflected the kind of paranoia that was typical of somebody involved in drug trafficking. Extra security would be put in place to protect the drug dealer from law enforcement and from other dealers. The C.C.T.V. system was in excess of what would be expected and was consistent with involvement in the supply of drugs.

[41] Detective Inspector William Ramsay had been the Senior Intelligence Officer in certain surveillance operations. He described an operation carried out in 2005. A man called Ian Levine who had featured in a Lancashire surveillance operation travelled to Tenerife. Lee Smith also travelled to Tenerife and met Ian Levine at the airport. They went to a place called Springers Bar in Los Christianos where they met James Smith and later a Croatian gentlemen called Marin Skarica. He was the subject of investigation for drug trafficking. Later, on 27 July 2005 Mr Levine met Lee Smith at a caravan site in Scotland. In cross-examination Mr Ramsay confirmed that no convictions had arisen from the incident in Tenerife. Mr Simpson noted that Lee Smith had bought a one way ticket, which was unusual. Mr Simpson considered that the observations in this surveillance operation indicated that Lee Smith was moving in significant circles.

[42] On 10 July 2005 a motor vehicle being driven by James McCadden was stopped on the M77 near Newton Mearns. Lee Smith was the front seat passenger and a man McLaughlan was in the rear. A number of items were recovered in the car. In the driver's door pocket there were a stun gun, a black leather belt rolled up as a knuckle duster and a small multi-tool. In the front passenger's door pocket there were a shifting spanner (a long heavy spanner), a rope and chicken wire. Within the boot of the car there were ski masks, gloves, an axe and a twelve inch knife in a sheath. There was also a sign headed "Perimeter Security". In cross examination Mr Ramsay said that McLaughlan pled guilty to charges relating to offensive weapons and firearms (a stun gun comes within the definition of a firearm) and Lee Smith was not convicted.

[43] Alan Todd, a retired detective constable of the Lancashire Police described the incident in which Joseph Allan was stopped in a motor vehicle in Blackpool in possession of a sum of money around £11,800. The bulk of the money was in Scottish notes. The notes were heavily contaminated with Diamorphine. Mr Allan was arrested on suspicion of money laundering. In the course of an interview he made reference to "Cairns". Among the documents in possession of Allan was a solicitor's letter addressed to Lee Smith. There was also material relating to a security company and a business card in the name of Lee Smith and a receipt for Lee Smith. There was reference to "Lockwood Security" and "Perimeter Security".

[44] Mr Simpson commented on a number of other aspects of the police surveillance operations as follows.

[45] In 6/36 of process there was a description of Andrew Cairns and Lee Smith using telephone kiosks to make telephone calls which was typical of the habits of those involved in trafficking. On 29 November 2000 (6/40 of process) in the presence of Lee Smith Andrew Cairns was heard in the telephone box to say "We will still need to meet him later tonight". On 15 December 2000 (6/45 of process) the log showed that Andrew Cairns was using a kiosk at 18.40. At 19.10 he used his mobile phone which raised the question as to why it was necessary to use the kiosk a short time earlier.

[46] 6/49 of process is the log for 27 February 2001. Mr Simpson noted that Andrew Cairns and Lee Smith took a taxi to Balmore at a time when both had access to cars. There they met William O'Neill. In the course of conversation there was reference to "161/2". That figure was common in drug dealing conversations. Mr Simpson suggested that it was a reference to sixteen and a half thousand pounds which was the going rate at that time for a kilo of heroin. He also noted that the meeting was held in a café. The nature of the journey and the meeting was consistent with an involvement in drug trafficking.

[47] Mr Simpson referred to an incident on 19 August 2002 (6/79 of process). At 16.39 Lee Smith went to the Windmill Tavern carrying a package approximately 8 inches by 4 inches in size. Andrew Cairns went to the car park of Asda in Robroyston at 17.40. At 17.45 a man got into the car occupied by Mr Cairns carrying something, they shook hands and the man left the car without anything in his hand. This sequence of sounding a horn, shaking hands, delivery of something was stereotypical of the kind of exchange activities involving drugs or cash.

[48] On 7 October 2002 (7/81 of process) Andrew Cairns drove to the Asda car park in the evening where he met a man in another car. Something was removed from the boot of the Mercedes driven by Andrew Cairns and put into the car driven by the other man. The other man went to the car carrying a piece of paper. Such handovers were typically conducted in car parks of places like Asda or McDonalds or the car park of a gym.

[49] On 1 December 2003 (6/103 of process) Lee Smith and Andrew Cairns met Paul Tate. Mr Smith was seen at a kiosk making a short call which suggested a message. Later the vehicle described as the subject vehicle parked behind another car and two men were in the roadway. Mr Smith went to an address nearby and a short time later the subject vehicle was outside Lee Smith's house. Later Lee Smith got into a Jeep and went to Bellshill and then to Strathclyde Park where there was a meeting.

[50] Another associate of Lee Smith was Paul Ferris. Mr Ferris was known as being involved in the supplying of drugs and a man of violence. The log of 29 June 2005 ( 6/133 of process) made reference to a meeting between Lee Smith and Paul Ferris in Strathclyde Park.

[51] James Anderson was a retired detective inspector now living in Canada. He gave an account of an incident which he claimed occurred on 28 February 1998 when he was a sergeant at Shettleston Police Office. He said that Lee Smith was in the police office but could not recall the circumstances. He claimed that he spoke to Lee Smith in the detention room and that there was no one else present. During their conversation Lee Smith volunteered certain information. He said that he was dealing in drugs at a level above which the police would be able to catch him and that he was too smart for the police. He was dealing in multiple kilos of cannabis resin and heroin. He described a degree of bravado on the part of Lee Smith. It was not at all clear what the circumstances of Mr Smith's attendance at the police office were. It was not clear whether he was a detained person although the conversation was said to have taken place in the detention room. This conversation had happened ten years before the proof. Mr Anderson had not noted the conversation. I did not feel able to rely on this evidence.

[52] Mr Richmond said that he had been to the premises of Bellshill Tyres on many occasions himself. He had used it to get his own car attended to. He had gone perhaps over fifty times between 1989 and 1996-1997 and had never seen Lee Smith working in the premises. Had Mr Smith been working at Bellshill Tyres Mr Richmond would have expected to have known about it. In cross-examination Mr Richmond confirmed that the premises at Bellshill Tyres and Exhausts had three bays with hydraulic lifts and arrangement for tyres. The most number of fitters that he had seen working there was five. He said that he himself had paid by cash, switch and cheque and would be surprised if no bank accounts had been found for Bellshill Tyres.

[53] Police Constable Stephen Lowrie was on patrol on 31 May 2005. In Clydesdale Road, Bellshill he saw a Mitsibushi Shogun motor vehicle parked outside a building site which had just started operations. Lee Smith was at the rear of the motor vehicle. Lee Smith took two signs out of the vehicle which bore the words "Perimeter Security". He fixed these to a chain link fence around the building site. There were two mobile phone numbers on the signs. On 28 December 2005 Acting Sergeant Pauline Smith attended at a number of building sites in the Bellshill area. She noted signs for Perimeter Security on three of these. At two sites there was no one present and at the third site she spoke to a security guard who told her that the persons involved in Perimeter Security were Tam Allan, Lee, Andy and Darren.

[54] Mr Richmond recalled an occasion, although he could not recall when it had happened, on which he had been on mobile patrol and stopped a vehicle in which Lee Smith was a passenger. There were two or three other men in the car. Mr Richmond spoke to Lee Smith and asked him what his occupation was. Mr Smith said that he was a security consultant and handed a business card to Mr Richmond. They had a laugh together knowing the background of Lee Smith. He thought that this occasion was some time after 1996.

[55] Mr Simpson noted that Lee Smith was described as a consultant with Perimeter Security which was a company run by him. 6/148 of process was a document which related to the Perimeter Security business. The names on it included that of Andrew Cairns and T Allan. There was also a reference to a lunch appointment with Paul Ferris and Spencer Mellors who were listed as associates of Lee Smith. The involvement in the security industry was typical of an exercise in giving a visible income and fitted in well with the activities of a drug dealing business.

Unlawful conduct: being concerned in supply of controlled drugs

Submissions

[56] Miss Crawford submitted that the irresistible inference from the evidence was that Lee Smith had been concerned in the supply of controlled drugs since at least 1997 and that such conduct was unlawful under the Criminal Law of Scotland. It was clear from Assets RA v Green [2005] EWHC 3168 Admin that what required to be averred and proved was a general description of the unlawful conduct. It was not necessary to specify specific offences.

[57] Mrs Smith submitted that I should not draw such an inference. She pointed out that her husband had never been convicted of any offence related to drug dealing. She invited me to reject entirely the conclusions and opinions of Mr Simpson. She invited me not to rely on the evidence of the intelligence material. While hearsay evidence was admissible that would normally come from a named source and there would therefore be a possibility in one way or another of checking and corroborating that information. In the present case there was no guarantee as to the truth or veracity of anything that was included under the umbrella of intelligence and therefore any opinions that derived from intelligence could only be of a character, quality and strength that fell far short of what would have been intended by the ordinary expression "hearsay". She went on to point out that her husband was dead and therefore was not in a position to challenge the contents of the intelligence reports. In addition, she pointed out that Mr Simpson had conceded that intelligence could be wrong. Sometimes even a rumour could end up in an intelligence report.

Unlawful conduct: being concerned in supply of controlled drugs

Conclusion

[58] The question to be addressed at this stage is whether the evidence as to certain conduct of Lee Smith over a period of years between the mid 1990s and the time of his death in 2006 demonstrates that his conduct was unlawful conduct. It would be unlawful conduct for the purpose of these proceedings if it was conduct which was unlawful under the criminal law of Scotland (section 241(1) of the 2002 Act). I accept that a general description of the unlawful conduct is sufficient. Section 4(3) (b) of the Misuse of Drugs Act 1971 provides that it is an offence for a person to be concerned in the supply of a controlled drug to another in contravention of sec. 4 (1) of the Act. In Kerr v HMA 1986 JC 41 Lord Hunter delivered the following well known analysis of the types of conduct which fell with the section:

"Judging from its terms and the context in which it occurs, I consider that sec. 4(3)(b) was purposely enacted in the widest terms and was intended to cover a great variety of activities both at the centre and also on the fringes of dealing in controlled drugs. It would, for example, in appropriate circumstances include the activities of financiers, couriers and other go-betweens, lookouts, advertisers, agents and many links in the chain of distribution. It would certainly, in my opinion, include the activities of persons who take part in the breaking up of bulk, the adulteration and reduction of purity, the separation and division into deals and the weighing and packaging of deals."

Evidence of intelligence material featured in the case. I am prepared to have regard to the intelligence material as background material which partly informs Mr Simpson's expert evidence as to the structure of the drugs trafficking business and the practices of drug dealers. Such evidence has been routinely recognised in the criminal courts for years. Further, I have noted that the intelligence material forms a basis for applications under RIPSA. However, in identifying the relevant primary evidence from which to draw any inferences which may be available I look to the facts spoken to by individual police officers and to the contents of the suveillance logs. I also have regard to the interpretation of the facts offered by Mr Simpson. I reject the criticisms of Mr Simpson's evidence made by Mrs Smith. It seemed to me that Mr Simpson gave his evidence in a careful and considered manner. I considered him to be a credible and reliable witness who did not overstate the position. I accept his evidence as to the structure of the drug dealing business and the practices of those involved in it.

[59] As already indicated I leave out of account the evidence of James Anderson whose evidence I did not consider to be reliable.

[60] As noted above 6/16 of process comprised details of the previous convictions of Lee Smith. In 1991 on summary complaint he was convicted of assault and fined. In 1992 on indictment he was convicted of assault to severe injury and permanent disfigurement and sentenced to 2 years detention. Later in 1992 he was convicted of assault in the High Court and was admonished. In December 1994 on indictment he was convicted of assault to severe injury and permanent disfigurement and detained for 2 years. While Mrs Smith was correct to point out that there were no drug trafficking convictions, I require to take into account the evidence of Mr Simpson that a drug dealer at the top level would avoid conviction by getting others to do deliveries and collections. In addition, Mr Simpson described Lee Smith's convictions for violence as demonstrating an escalation of violence as part of a reputation being built up.

[61] When I examine the primary evidence which I have set out above I am driven by the evidence to conclude on a balance of probabilities that Lee Smith was engaged in unlawful conduct in the sense of being concerned in the supply of controlled drugs over a period of years between the mid 1990s and the time of his death in 2006. The evidence demonstrated that Lee Smith was a man who used violence and the threat of violence. He had previous convictions for assault. He was present in a car containing weapons. According to Mr Simpson the position of a dealer was sustained by the use of violence or the threat of violence. Lee Smith had gone into the security business, which according to Mr Simpson was a recognised diversion for those engaged in drug trafficking at a certain level. He associated with a number of other persons who were known drug dealers. On a number of occasions he had engaged in anti-surveillance techniques. His home had an unusual level of security arrangements. He had meetings in parks and car parks. He was in a car with a number of mobile telephones. Along with others he made use of public telephone kiosks. On a number of occasions he was linked to the recovery of controlled drugs or money contaminated with diamorphine.

[62] I am also satisfied on the evidence that the type of unlawful conduct in which Lee Smith was engaged over a significant period of time would have been likely to have generated significant sums of money which would require to be hidden from the authorities.

Article 6(2) of the Convention

[63] In relation to the incident on 24 March 2001 in respect of which Lee Smith was indicted on a charge alleging a contravention of section 4(3)(b) of the Misuse of Drugs Act 1971 and subsequently acquitted, a question arose as to whether article 6(2) of the European Convention on Human Rights and Fundamental Freedoms ("the Convention") was engaged and, if so, whether the article was breached. Under reference to Geerings v Netherlands
[2008] 46 EHRR 49 Mrs Smith submitted that it was engaged and had been breached. At the time of submissions in the present case the case of Scottish Ministers v Doig (reported at first instance at 2007 SLT 313) was under consideration in the Inner House. I continued the hearing on submissions until after the advising of that case. The matter has now been authoritatively resolved in Scottish Ministers v Doig 2009 SLT 1106 In that case the petitioners averred that over a period of years one of the respondents, the third respondent, had been concerned in the supply of controlled drugs in various respects. Among the averments was a detailed account of an incident in which the respondent was detained driving a vehicle which contained a quantity of controlled drugs. An indictment was raised against him and the trial commenced. In the course of the trial an objection to certain evidence was sustained by the trial judge and the Advocate depute withdrew the libel against the third respondent. The court held that the proceedings under the 2002 Act were not sufficiently linked to the previous criminal proceedings as to make article 6 (2) applicable. The petition proceedings could not be said to be the consequence, or to any extent, or the concomitant of the criminal proceedings. The court endorsed the reasoning of the Lord Ordinary who expressed the opinion that, in the first place, the parties to the criminal proceedings and the parties to the petition proceedings were not the same. He went on, in the second place, to express the view that the subject matter of the petition proceedings was not the same as the subject matter of the earlier criminal proceedings. In this regard the Lord Ordinary drew attention to four points. First, the purpose of the petition proceedings was to recover property which had been wrongfully obtained; thus the proceedings were essentially proprietary in nature. Secondly, for the petition proceedings to succeed it was not necessary for the petitioner is to prove that the third respondent had been guilty of any criminal charge; it was sufficient to prove that the property alleged to be recoverable represented the proceeds of criminal activity. Thirdly, the proceedings did not seek a conviction or any form of punishment but merely the recovery of property wrongfully obtained by some person at an earlier stage. Fourth, the proceedings were conducted in a civil court using civil forms of procedure. In the third place, the function of the petition proceedings was not to call into question the third respondent's earlier acquittal. The court was not entitled to make any finding of guilt to the effect that the third respondent committed any particular criminal offence. In addition, it was pointed out by the Inner House that proceedings for recovery can be brought regardless of whether they are have been any criminal proceedings.

[64] In the light of the decision in Doig I am satisfied that article 6(2) of the Convention is not engaged in the circumstances of the present case. It seems to me that the averments in relation to the events of 24 March 2001 are of a similar nature to the averments which were the subject of complaint in Doig. Further, in the light of what is said in paragraphs [30] - [33] of the opinion of the court in Doig. I specifically exclude from my consideration any evidence which tended to suggest that in relation to the events of 24 and March 2001 Lee Smith was guilty of a specific offence despite having been acquitted. In my opinion the events of 24 March 2001 are to be seen as constituting one element among the many introduced in evidence in an attempt by the petitioners to prove that over a period of years there had been a course of unlawful conduct as defined in the 2002 Act.

Unlawful conduct: fraud

[65] It is unlawful under the criminal law of Scotland to commit fraud. Common law fraud is defined in Macdonald, Criminal Law of Scotland, fifth edition, at page 52 as "a false pretence made dishonestly in order to bring about some definite practical result". The examples of fraud cited at page 54 include pretending to be a person of means in order to get credit.

Evidence

[66] At paragraph 3.1 of his report the Interim Administrator noted that according to the Land Register Mr and Mrs Smith purchased the property at 5 Briarcroft Drive in October 1997 for a purchase price of £77,995. This was funded by a mortgage of £70,995 with the Bank of Scotland and the remainder paid as a deposit. The petitioners aver that the mortgage from the Bank of Scotland obtained by Lee Smith and Mrs Smith was obtained by fraud. They aver that Lee Smith falsely stated that he was employed by Bellshill Tyre and Exhaust earning £20,000 per year. In terms of paragraph 56 of the Notice to Admit it was admitted that there would have been no purchase but for the loan funds.

[67] The mortgage application was produced as 6/6/17 of process at pages 89 to 102. The application form was completed and signed by each of Lee Smith and Mrs Smith on 12 June 1997. At page 100 there is a section headed "Your declaration". This section includes a declaration that "the information given in this form is true and complete". The declaration is signed by each of Lee Smith and Mrs Smith. At page 90 there is a section headed "About work and earnings". Under this section a number of parts required to be completed. In respect of Lee Smith the following information has been given:

Work status: full-time work

Occupation and nature of business: tyre & exhaust

Position in the business: manager

Employer's name and address: Bellshill Tyre & Exhaust, 83 Main Street, Bellshill

Length of time with this employer: 4 years

Basic earnings before deductions: £20,000

Net income: £1209 paid monthly

How paid: by cash

An indication is given in relation to earnings that it may be necessary to produce the applicant's last three payslips. At a later point in the form in a section headed "Savings and investments" it was stated that the couple had joint savings of £6000.

[68] The details of the employment of Mrs Smith were given as a personal assistant with Scottish TV earning £11,000 per year are given. The petitioners accept that Mrs Smith was so employed and that these details were true.

[69] Miss Trudie Flynn was employed as a Litigation Manager at Halifax Bank of Scotland. She explained the procedure for obtaining a mortgage in 1997. The bank placed reliance on the statements in the application form and expected a truthful account of income and other information. After referring to the information outlined above in respect of Lee Smith, she stated that Lee Smith had submitted three pay slips from Bellshill Tyre and Exhaust to confirm the information in the application and the application was subsequently approved. She explained that the bank required at least two years full time employment prior to an application. If he was not employed by Bellshill Tyre and Exhaust in 1997 he would have fallen outwith the criterion as he would not have had sufficient income. Had the bank been aware that he had been released from prison in mid 1995 the likelihood was that they would not have lent. The income of Mrs Smith would have been insufficient on its own to sanction a loan of that amount and the bank would not have lent the amount applied for. No independent checks were carried out on the pay slips and pro forma which were submitted. Information was taken on trust. In cross examination she confirmed that mortgage payments had been regularly made and were kept up to date. She also accepted that there was no box in the standard form for explaining that one had a criminal conviction for violence.

[70] The three wage slips to which Miss Flynn referred were produced (6/6/17/211 of process). These are printed wage slips which on the face of them confirm the employment details included in the mortgage application form in respect of Lee Smith. The Bank wrote to Bellshill Tyre & Exhaust on 25 June 1997 enclosing a pro-forma for completion confirming the employment and salary of Lee Smith by Bellshill Tyre & Exhaust. The pro-forma was returned and was produced (6/6/17/214 of process). It bears to be completed and signed by the personnel manager of Bellshill Tyre & Exhaust and is dated 2 July 1997. The signature is difficult to make out. The interim administrator considered that it appeared to be "R Campbell". The form confirmed that Lee Smith had been employed for 4 years and 2 months, that he was on the permanent staff, and that his annual salary was £20,000. The tax district is given as Glasgow 5 and a tax reference number 8201820023735 is given for Lee Smith. The form bears the stamp of Bellshill Tyre & Exhaust and a VAT number is included.

[71] Against that background the interim administrator made enquiries into Bellshill Tyre & Exhaust. The results of his inquiries were produced in various documents but are conveniently drawn together in chapter 7 of his report. The sources of the material ingathered by him included HM Revenue & Customs, Companies House, and Bryce Findlay, the Liquidator of Squarevend Ltd (who also gave evidence). The interim administrator also had access to the various bank accounts of Mr and Mrs Smith. In addition, he received information in a series of letters from Fleming & Reid, the solicitors then acting for Mr and Mrs Smith setting out the position of Lee Smith and Mrs Smith in relation to the matters under consideration. Fleming & Reid informed the interim administrator that the owner of Bellshill Tyre & Exhaust was Ronald Campbell who had been the employer of Lee Smith. They stated that Lee Smith had commenced employment with Bellshill Tyre & Exhaust in August 1995 and was employed as a supervisor responsible for administrative tasks. The solicitors also advised the interim administrator that Lee Smith recollected that there were five other employees, one of whom was called R Halford. They also advised him that Lee Smith was paid weekly on a Friday in cash in a brown envelope. They stated that as far as Lee Smith was concerned, appropriate deductions were made and were written down on the front of the brown envelope. The interim administrator was advised by HM Revenue & Customs that they were unable to trace any records for a business named Bellshill Tyre & Exhaust. They could not locate any PAYE references for Lee Smith in relation to Bellshill Tyre & Exhaust or any other business. Their employment records for Lee Smith began with his self employment as a sub-contractor in 2000. HM Revenue & Customs' records for Robert Halford showed that he was employed as a mechanic by W R J Casings between 1999 and 2000. They were unable to find any employment records for him after January 2000.

[72] In relation to Ronald Campbell, HM Revenue & Customs advised the interim administrator that the tax reference number shown on the employment reference form for Lee Smith completed by the personnel manager at Bellshill Tyre & Exhaust was the tax reference number for Squarevend Ltd. Ronald Campbell was a director of that company. HM Revenue & Customs were unable to locate any PAYE reference in relation to Squarevend Ltd. Squarevend Ltd's annual accounts on file at Companies House showed the following administrative expenses:

Year Ending	Administrative Expenses (£)
May 1994	£1,359.00
May 1995	£8,806.00
May 1996	£3,902.00
May 1997	£4,734.00
May 1998	£5,045.00

These expenses related to accountancy, legal, insurance, repair and renewal costs and depreciation. The annual account of Squarevend Ltd did not include any expenses relating to employee wages. There was no trace of employee costs and the interim administrator pointed out that the levels of money involved in administrative expenses would not be sufficient to support the stated pay of Lee Smith.

[73] HM Revenue and Customs stated that they were unable to find any record to suggest that Squarevend Ltd had been registered for VAT. They were unable to locate any VAT numbers associated with Ronald Campbell or Bellshill Tyre & Exhaust. In relation to the VAT number on the Bellshill Tyre & Exhaust stamp on the employment reference form, HM Revenue and Customs stated that it was believed that that number was issued in the 1990's. However it did not appear on a system which came into being in 1996 and was considered to be a redundant number. The interim administrator was able to ascertain through the solicitors acting for Squarevend Ltd that the company owned the property at 83 Main Street, Bellshill. Squarevend Ltd sold the premises in May 2001 for £110,000. Ronald Campbell received £34,000 as the balance of the sale proceeds after repayment of an Allied Irish Bank mortgage. The sum of £34,000 was transferred to a bank account in Spain. Squarevend Ltd was wound up on 2004 following a petition by the Inland Revenue. The liquidator appointed in relation to Squarevend Ltd, Bryce Findlay, was unable to trace Ronald Campbell in 2003 and he reported Ronald Campbell as unfit to be a company director.

[74] The interim administrator pointed out that the information given to him by Lee Smith through his solicitors, namely, that the information in relation to his wages was handwritten on a brown envelope, was not consistent with the printed pay slips which were presented in support of the mortgage application. The solicitors had also stated that Lee Smith was paid weekly on a Friday whereas these payslips showed a monthly payment. The interim administrator also demonstrated that payments into the bank accounts of Mr & Mrs Smith were not consistent with weekly payment of a wage.

[75] Detective Constable Richmond said that he had been to the premises of Bellshill Tyres on many occasions himself. He had used it to get his own car attended to. He had gone perhaps over fifty times between 1989 and 1996-1997 and had never seen Lee Smith working in the premises. Had Mr Smith been working at Bellshill Tyres Mr Richmond would have expected to have known about it.

[76] Mr Waugh said that during the period in the course of the 1990s to 2001 after which time he had left the drugs squad, he was not aware of Lee Smith having any legitimate employment.

[77] Mr Simpson said that it was common practice for a drug dealer to obtain a mortgage. He would enlist people who could provide pay slips. Once the mortgage was obtained the lender would not come looking for the debtor unless they failed to pay. Money would be paid into bank accounts to cover the mortgage when due.

[78] The Bank of Scotland mortgage statements showed that mortgage payments were made in the period between October 1997 and November 2004 amounting to £33,420.48. The statements showed that the monthly payments covered interest and did not repay the capital sum. Around 2001 the property was extended at an approximate cost of £12,000.

Unlawful conduct: fraud

Submissions

[79] Miss Crawford submitted that the mortgage for 5 Briarcroft Drive had been obtained by fraud. There was a joint declaration made by the applicants. The obligation undertaken was a joint and several obligation. That being so, the declaration by either party was, as regards the truth of all the matters in the application sufficient. Miss Crawford also referred to Section 242 of the 2002 Act. It was not necessary to point to any fraud on the part of Mrs Smith. But for the fraud there would have been no loan. There was a clear link between the unlawful conduct and the acquisition of the loan.

[80] It was not true that Lee Smith had been employed for four years as at June 1997. He had not been released from prison until mid 1995. It would be fanciful to suggest that he had been employed while he had been in prison. So far as Bellshill Tyre and Exhaust was concerned it may well have been the case as it operated legitimately. It was necessary to read the whole of chapter 7 of the report in relation to the way in which the business was operated. There was an absence of records held by HM Revenue and Customs in relation to Lee Smith and Squarevend Limited. Squarevend had no employee costs. Mr Findlay, the liquidator under reference to his files 6/96/104 had explained that he had examined the books and records to see if there was value for the creditors. He had examined the conduct of the director with a view to seeing whether there was possible misfeasance. Mr Findlay had concluded that Ronald Campbell was unfit to be a director. The main asset which was the premises at 83 Main Street had been sold. The last accounts had been filed in 1998 and there were no records in the books of employees. There was no support for the suggestion that Squarevend could support paying Lee Smith £20,000 a year. So far as Mr Campbell himself was concerned he was living in Spain and there was an outstanding warrant in a drugs case for him. The interim administrator had also looked at the claimed manner of payment. Lee Smith had stated that he was paid weekly in brown envelopes. There were no records of weekly payments in the bank accounts.

[81] Lee Smith and Mrs Smith must have known that the statement with respect to his employment was false and that Ronald Campbell had falsified the pro forma at 6/6/17.

[82] If I were to take the view that some of the mortgage was paid for by lawful income then I should recognise that but for the fraud on the bank there would have been no mortgage and the whole transaction was challengeable and the house could be recovered. Miss Crawford also pointed out that it was possible to grant the prayer of the petition subject to conditions. If I came to the conclusion that some of the mortgage had been paid for by lawful income then I could grant the prayer of the petition subject to a condition that the Scottish Ministers repay the sum to represent the legitimate repayments. She was unable to make any submission as to what that amount might be.

[83] In relation to Bellshill Tyre and Exhaust Mrs Smith invited me to reject the conclusions of the interim administrator with respect to Bellshill Tyre and Exhaust. She submitted that his view as to its being a front for other activities was contradicted by the evidence of Detective Constable Richmond about the premises operating as a tyre and exhaust servicing company. He and his colleagues had used the premises for a number of years and he had made payments in various ways. He had made observations of the number of people that were working there. Accordingly, she invited me to reject the evidence in chief of the interim administrator. Mrs Smith submitted that the evidence demonstrated that the property had been purchased in a bona fide way through solicitors and registered in the Land Register. The mortgage payments had been made regularly and were up to date.

Unlawful conduct: fraud

Conclusion

[84] In forming my conclusion on this issue I should stress that I have not simply accepted the conclusions of the interim administrator. Rather, I have considered all the relevant evidence, including the material ingathered by the interim administrator, and the views expressed by him. From the information before me, I conclude that Bellshill Tyre & Exhaust was operating as a business providing a service of the kind that a service centre replacing tyres and exhausts would be expected to provide. However, I infer from the whole of the evidence, including the police evidence and the enquiries carried out by the interim administrator, that the premises were also used as a place where persons who were engaged in drug trafficking frequented. Again, having considered the whole of the evidence I infer that Lee Smith was not employed at the premises of Bellshill Tyre & Exhaust in the manner in which he claimed on the mortgage application form. I infer that the wage slips and the pro forma which were produced in support of the mortgage application were false and were created in order to perpetrate a fraud. Accordingly, I am satisfied on a balance of probabilities that the mortgage obtained from the Bank of Scotland in order to buy the premises at 5 Briarcroft Drive, was obtained by fraud. That means that the property was obtained by unlawful conduct within the meaning of the 2002 Act and is recoverable property.

The Deposit for the purchase of 5 Briarcroft Drive

[85] At paragraph 7.1.67 of his report the interim administrator stated that Fleming & Reid (the solicitors then acting for Lee and Mrs Smith) had advised him that Mr and Mrs Smith claimed that the deposit came from was a wedding gift of £8,000 from Mr Smith's mother, although it was later referred to as a loan. A bank statement in the name of a Mr John Walker which was provided as evidence of the payment showed a debit entry of £8,000 on 24 September 1997. McDonalds, the solicitors who acted for Mr and Mrs Smith in the purchase of 5 Briarcroft Drive, stated that the £8,000 was paid into their bank account on 25 September 1997 and was in the form of a cheque or banker's draft as opposed to cash. The interim administrator was not able to verify who paid the deposit into the account of McDonalds. In relation to Mr John Walker's bank statement, HBOS Plc stated that no further information was available with regards to the £8,000 draft because their retention period was only 6 years. In relation to the bank account of McDonalds, HBOS Plc stated that due the historical nature of the transaction, no further information was available. The interim administrator asked Fleming & Reid for information about Mr John Walker and the connection between the entry in his bank statement and the mother of Mr Smith. Fleming & Reid did not provide that information and stated that there was nothing that they could usefully add.

[86] Miss Crawford submitted that the deposit for the purchase of 5 Briarcroft Drive had been gained through unlawful conduct, namely, being in concerned in the supply of controlled drugs. There was no audit trail. The only reasonable inference was that it was cash derived from drug dealing. There was a need to disguise such cash.

[87] The explanations given in relation to the deposit were inconsistent. On the application form it was stated that there were savings of £6,000. Miss Crawford submitted that it was unlikely that a couple in their early twenties, she a personal assistant and he in detention, would have been able to save £6,000. There were contradictory explanations given in the letter from the solicitors where it was referred to as a wedding present and at another stage as a loan. In relation to the £8,000 cheque or bankers draft there had been no attempt to explain the involvement of Joseph Walker.

[88] Mrs Smith submitted that the explanations offered in respect of the raising of the deposit were acceptable and I should not draw the inference that the deposit was obtained by unlawful conduct.

[89] In my opinion the explanations offered by Lee and Mrs Smith to the interim administrator through their solicitors were unsatisfactory and contradictory. The payment made by Mr Walker is unusual and the refusal, or inability, to provide further explanation as to his involvement bears the hallmarks of the kind of activity described by Mr Simpson as being typical of the disposal of the proceeds of drug dealing. I am driven on the balance of probabilities to conclude that the deposit did derive from the proceeds of drug dealing. It was obtained by unlawful conduct within the meaning of the 2002 Act and is recoverable property.

Mrs Smith's legitimate income

[90] The interim administrator calculated, and I did not understand this to be disputed by Mrs Smith, that her own income between 1997 and 2004 was £23,689 (being £16,726 from employment plus £6,963 from Child Benefit). The interim adminsitrator stated that the information provided by her through her solicitors regarding her employment income was broadly consistant with the sources that he had used to verify it.

Employment of Lee Smith

[91] Brian MacKay was the managing director of A Class Builders. He had employed Lee Smith as a sub-contractor to do ground work, including concrete work, slabbing and mono-blocking. He was paid through the Construction Industry Scheme (CIS). Under that scheme a sub-contractor was paid after deduction of tax. Mr MacKay provided to the interim administrator tax payment vouchers in respect of Lee Smith under the scheme. Mr MacKay also explained that he had got his men to do the extension for Lee Smith at weekends. Materials were paid for as soon as they came on site. They were paid for by Lee Smith. Lee Smith paid the tradesmen direct. In cross-examination Mr MacKay said that he was aware of Lee Smith's drug use which sometimes affected his ability to work.

[92] In a letter dated 16 February 2005 Fleming & Reid, provided to the interim administrator the following details relating to the self-employment of Lee Smith in the building trade. He was self-employed between April 2001 and February 2004. His accountant was Peter Moonie. Books were prepared in respect of the income. He was principally working for A Class Builders and monies were paid to him by way of cash payments. He earned on average a sum of approximately £10,000 per annum. The solicitors went on to state:

"These sums (the £10,000 per annum) were probably not declared by him to his accountant. We have advised him as to his obligations in respect of his duties to the Inland Revenue and instructed him to meet his accountant to have prepared revised accounts to reflect the true extent of his income received by him during that period".

On 22 January 2005, Mr Smith wrote to his accountant stating:

"I have been reviewing my tax affairs and have discovered that I have under-reported my self-employment income for the 3 years that ended 5 April 2004. The payments received were cash payments and I don't have a record of these. The approximate total amounts under reported was £30,000".

Fleming & Reid provided copies of Lee Smith's tax returns which had been amended to reflect the under-reporting of £10,000 of income per annum. The amended tax returns disclosed the following income for Mr Smith:

YEAR ENDING	GROSS INCOME PER AMENDED TAX RETURNS (£)
April 2002	£16,841
April 2003	£25,600
April 2004	£30,225

In a letter dated 4 July 2005, Fleming & Reid provided certain further information in relation to the work, namely, that it was building, labouring and ground work. He was paid weekly from A Class Builders on a Friday. Invoices and receipts were provided to his accountant. He had no correspondence in relation to the business nor had he any addresses of contact details of his clients.

[93] The interim administrator obtained from HM Revenue & Customs and Peter Moonie Associates, the tax returns for Mr Smith prior to the £10,000 per annum adjustment. The original returns showed the following income:

YEAR END	GROSS INCOME PER ORIGINAL TAX RETURNS (£)
April 2001	£2,170
April 2002	£8,499
April 2003	£15,600
April 2004	£20,225
TOTAL	£46,494

A Class Builders provided to the interim administrator Construction Industry Scheme tax payment vouchers. These vouchers showed the gross amount of income for Mr Smith and any deductions. Peter Moonie Associates explained that the CIS certificates were evidence of the income shown on the tax returns for the years ending April 2001 and 2002 of £2,270 and £8,499 respectively. They further stated that for the years ended 5 April 2003, Mr Smith had not maintained a good recording of income and expenses. At the time when the tax return was being prepared he had estimated that his gross weekly income was in the region of £300 per week. He estimated that his weekly motor costs were £35 per week and other costs were £30 per week. In relation to the 2004 tax return they stated that the CIS certificates supported £10,474 of gross income and the balance of £9,751 was the figure provided by Mr Smith when the original return was prepared. They had no documentation in relation to that or the round sum expenses claimed on the original return.

[94] The interim administrator noted that the original tax returns showed income of £46,494 between the years 2000/01 to 2003/04. Of that amount £21,143 had been verified by CIS tax payment vouchers. For the remainder of the income, Peter Moonie Associates relied on Mr Smith's representations when producing the tax returns. The interim administrator took the view that since the original tax returns were produced contemporaneously by Mr Smith's accountant and that approximately half of the income was evidenced by the CIS tax payment vouchers, he accepted that Mr Smith did earn the income shown on the original tax returns.

[95] In relation to the request by Mr Smith to Peter Moonie Associates to increase the income shown on his original tax returns by £10,000 per annum, the interim administrator noted that despite repeated requests, he had not been provided with details of customers, employers and suppliers or copies of estimates, contracts and receipts in relation to the self employment. He did not consider that the extra income was verified. In relation to the year 2004/05, the only information provided was the CIS tax payment vouchers which verified income of £7,546 for the period up to 5 December 2004.

[96] I have already found that Lee Smith was not employed by Bellshill Tyre and Exhaust. I accept the approach of the interim administrator to the original tax returns. While all the income was not vouched, the interim administrator accepted that Mr Smith did earn the income shown on the original tax returns and I am content to proceed on that basis, which is, on any view, favourable to Lee Smith. In my opinion the interim administrator was correct to go on to conclude, as I do, that the increased figures in the revised returns were not supported or verified. In my view Ms Crawford was correct to characterise that as a crude attempt to try to present an income figure which might explain the level of expenditure.

The interim administrator's analysis of income v expenditure

[97] At paragraph 8.1.1 of his report, the interim administrator set out in a table the legitimate income of each of Lee Smith and Mrs Smith compared with the expenditure shown in their bank accounts. This led him to conclude at paragraph 8.1.3 that between April 1997 and April 2002, Mr and Mrs Smith received total legitimate income of £34,313. This was insufficient to have provided for expenditure of £95,708. He went on to note that expenditure did not include the extension to 5 Briarcroft Drive or the purchase of the properties at Woodville Street. He also noted that in the year 2001-2002, the total expenditure included in the bank accounts was only £6,702 which would be unlikely to be sufficient to pay for the living expenses of a family of four. The interim administrator concluded that the majority of the living expenses of Mr and Mrs Smith and the asset purchases in the period April 1997 to April 2002 were funded by unexplained cash receipts; unexplained round sum unidentified receipts; and any cash acquired by them which was not paid into their bank acounts.

The flats at Woodville Street

[98] In 1999 Mrs Smith purchased the two flats at 100 and 102 Woodville Street from Yvonne Nisbet for a consideration of £9000 each. The transactions were entered on the Land Register in February 1999. Around July 2004 the flat at 100 Woodville Street was sold by Mrs Smith to Paul Heron for £70,000.

[99] Later in 1999 Mrs Smith purchased two further flats at 104 and 106 Woodville Street from Elizabeth McCaffer for a total consideration of £60,000. These transactions were entered on the Land Register in October 1999. The payment for these flats comprised a £10,000 deposit and £50,000 to be paid by instalment missives. A standard security was recorded against 104 Woodville Street in favour of Barrland Investments Limited and a standard security was recorded against 106 Woodville Street in favour of Elizabeth McCaffer. The terms of the instalment missives were that monthly payments of £417.50 were to be made to each of Elizabeth McCaffer and Barrland Investments. Barrland Investments had provided a loan to Elizabeth McCaffer in 1994 in relation to her purchase of 104 and 106 Woodville Street. This loan was due to be repaid "on the settlement of the sales" of these properties. However, Barrland Investments accepted payment by way of instalment missives in lieu of the previous arrangement. Between 10 January 2000 and 28 August 2003 payments in respect of each of these instalment missives were made totalling respectively £16,917.50 to Barrland Investments and £17,330 to Elizabeth McCaffer making a total of £34,247.50.

[100] Mrs Margo Wilson was the legal secretary at Guarino and Kirk, solicitors who acted for Mrs Smith in the purchase of the premises at Woodville Street. She had spoken to both Mrs Smith and Lee Smith about the purchase of these properties. She explained that the payment for 100 to 102 was made direct to Yvonne Nisbet and did not come through their office. She described that as an unusual arrangement and novel in her experience. The arrangements in respect of 104 and 106 were also unusual and, again, she had not come across such arrangements before.

[101] In relation to 100 and 102 Woodville Street, Fleming & Reid informed the interim administrator that Lee Smith borrowed £18,000 from his former employer Ronald Campbell to facilitate the purchase of these properties. In relation to the purchase of 104 and 106 Woodville Street, the solicitors advised that Lee Smith had borrowed £10,000 from Ronald Campbell to facilitate these transactions. The solicitors advised that in relation to these sums of money, no security was offered, and no interest was payable. They further explained that the sum of £18,000 was retained by Lee Smith's father in his house at 26 Stafford Street, Glasgow. The arrangement was that the loans were to be repaid at the rate of £100 per week. According to the solicitors sums of £100 were deducted from the wages of Lee Smith and the entire sum were repaid.

[102] In support of the proposition that Ronald Campbell had made these loans Fleming and Reid submitted to the interim administrator a letter purporting to have been written by Ronald Campbell dated 8 February 2005 marked for the attention of Mr Paul Reid (a solicitor in the firm of Fleming & Reid) which was in the following terms:

"This letter is to confirm details of loans given by myself Ronald Campbell to my friend Lee Smith. The first amount of £18,000 was paid late 1997 for the purpose of buying property to develop. The second sum of £10,000 was approximately paid in the summer of 1999. These loans were for money I had withdrawn from my account at Bank of Scotland, Brandon Parade, Motherwell, and can be verified by them".

[103] Ronald Campbell stated that he provided the first loan of £18,000 in late 1997. The interim administrator noted that according to the Land Register, Mrs Smith purchased 100 and 102 Woodville Street around February 1999. In between these two dates, Lee Smith claimed, through Fleming & Reid, that "the sum of £18,000 was retained by his father in his house at 26 Stafford Street, Glasgow."

[104] Not surprisingly, the interim administrator made further inquiries into the assertion by Ronald Campbell that the loans totalling £28,000 provided by him to Lee Smith for the purpose of purchasing the flats could be verified by the Bank of Scotland, Brandon Parade, Motherwell. HBOS Plc advised the interim administrator that they had been able to locate one bank account held in the joint names Ronald Campbell and Mrs Marie Campbell held at the branch in Motherwell. The bank statements provided showed that no transactions other than interest were recorded between January 1997 and April 2004.

[105] As noted above, in relation to the purchase of 104 and 106 Woodville Street, Fleming & Reid advised the interim administrator that Lee Smith had borrowed £10,000 from Ronald Campbell to facilitate these transactions. However, according to the conveyancing files of Guarno & Kirk the deposit for these flats was paid by a banker's draft bought from an account held in the name of James Nisbet. James Nisbet gave evidence and explained that he had owned the flats at 100 and 102 Woodville Street and sold them to his nephew John Henry Nisbet who had subsequently been murdered. He understood that John Henry Nisbet in turn sold the flats to Lee Smith. John Henry had come to see Mr Nisbet with £10,000 of cash. Mr Nisbet bought the bank draft (6/13/95 of process). Mr Nisbet thought that this related to the sale of the flats at 100 and 102 rather than 104 and 106.

[106] Through the solicitors, Mrs Smith stated that she obtained rental income of £34,800 in respect of her flats at Woodville Street. It was stated that the rent was paid in cash and was almost immediately thereafter outlaid by Mrs Smith. It was applied by her in respect of her obligations in terms of the instalment missive. She paid to the owner of these flats the sum of £34,000. At paragraph 7.1.39 and following paragraphs of the Final Report, the interim administrator examined Mrs Smith's claim that she had obtained rental income of £34,800 in respect of the flats at Woodville Street and that this was used to pay the instalments due to Elizabeth McCaffer and Barrland Investments for 104 and 10-6 Woodville Street. The interim administrator checked the position with respects to the tenants named by Mrs Smith through her solicitors. He calculated that on the information available to him, the rental income at most, would have been of the order of £27,000.

Submissions

[107] In relation to the properties at Woodville Street Miss Crawford submitted that common sense indicated that the circumstances of the acquisition of these properties did not carry the normal hallmarks of an ordinary citizen acquiring properties. Mrs Smith had used her maiden name in an attempt to conceal the true identity of the ownership. The price of £9,000 for each of the properties, 100 and 102 Woodville Street had been paid directly to the seller. According to Ms Wilson the arrangements had been unusual. They reflected an attempt to prevent the source of the purchase price being ascertained. In relation to 104 to 106 Woodville Street the disposition referred to "good and onerous conditions". Miss Crawford submitted that there was a desire to conceal the true price. It was unusual in residential properties to pay the purchase price by instalments. The deposit was paid to the solicitors by bankers draft drawn on the account of James Nesbitt. The money had come to James Nesbitt from Lee Smith and for reasons which were not clear J. H. Nesbitt had delivered the draft to the solicitors. There was no audit trail in relation to this money and no indication as to where it had come from.

[108] The explanation in relation to an £18,000 loan from Ronald Campbell in 1997 and a further £10,000 in relation to number 106 Woodville Street was incredible. There were no records, no evidence of repayments and the question arose as to why someone would keep £18,000 for two years. Mrs Smith was able a few months later to make an outlay of £10,000 for 104 and 106 Woodville Street. The payments of instalments were made by cash to the security holders. The only possible explanation was that the money derived from the cash profits from drug dealing. All this pointed inevitably to the conclusion that the flats had been obtained through unlawful conduct.

[109] Section 307 of the 2002 Act dealt with the fruits of the poisoned tree. The rental income was fruit of the poison tree and was also recoverable. It was not appropriate to give Mrs Smith credit by using such rent as she received to pay the instalments of 104 and 106 Woodville Street. It was a case that unlawfully obtained property was being used to raise the rental income.

[110] Mrs Smith submitted that the evidence demonstrated that the properties had been purchased in a bona fide way through solicitors and registered in the Land Registry.

Conclusion

[111] In my opinion the submissions of Miss Crawford in relation to the flats at Woodville Street are well founded. On any view, the circumstances in which the transactions to purchase each of the flat in Woodville Street were carried out were unusual. The payment of the price in respect of each of the flats at 100 and 102 was made directly to Yvonne Nisbet rather than through the solicitors acting for Lee Smith and Mrs Smith. The arrangements to pay instalments for 104 and 106 to the seller and the seller's lender was unusual. The payments were made in cash. The involvement of John Nisbet and John Henry Nisbet in relation to the deposit was odd. In relation to the loans from Ronald Campbell no security was offered and no interest was payable. The information appeared to indicate that the father of Lee Smith had retained the sum of £18,000 in his house for a period of two years. According to the information provided by Lee Smith through his solicitors the loan was repaid by £100 per week being deducted from his wages for his employment at Bellshill Tyre and Exhaust. I have already found that Lee Smith was not employed by Bellshill Tyre and Exhaust as claimed by him. I do not find any of the evidence in relation to the provision of loans by Ronald Campbell to be credible. I conclude on a balance of probabilities that the flats at Woodville Street were purchased with the proceeds of drug dealing and were consequently obtained by unlawful conduct. Accordingly, the flats at 102, 104 and 106 Woodville Street are recoverable property. In addition, I am satisfied that any rental income raised through payments to Mrs Smith by way of rent for these properties constitutes profits accruing from the recoverable property and is to be treated as representing property obtained through unlawful conduct in terms of section 307 of the 2002 Act.

Bank accounts

[112] The flat at 100 Woodville Street was sold around July 2004 for £70,000. On 9 August 2004 the proceeds were paid into a Halifax bank account 00109111 held in the name "Mrs Claire Smith in re & Miss Skye Smith". When the interim administrator was appointed the balance on that account stood at £37,447.50 which he transferred to an interest bearing account HSBC Plc, account number 51370472 in the name D J Lee re C & S Smith. The only other payments into this account were payments of child benefit. Using "first in first out" tracing principles the interim administrator calculated that of the balance at 15 November 2004 £37,006.70 represented what was left of the proceeds of the sale of 100 Woodville Street. The statements relating to this account showed that on 23 August 2004 a bankers draft for the sum of £6,400 was drawn made payable to Strefford Tulip solicitors. In the event it was not presented for payment. Strefford Tulip explained to the interim administrator that this related to the proposed purchase of a new build property which did not proceed. Accordingly, the draft was cancelled and a cheque for £6,400 paid into account number 51370472 in the name D J Lee re C & S Smith. As at 17 March 2006 the balance on that account including payment of interest stood at £45,543.87.

[113] On 28 October 2004 a transfer of £5000 was made from the Halifax account 00109111 held in the name "Mrs Claire Smith in re & Miss Skye Smith" into a Halifax account 00069108 in the name of Mrs Claire Smith. As at 23 November 2004 the balance on that account stood at £1,548.29. The interim administrator calculated that that sum derived from the proceeds of the sale of 100 Woodville Street. That balance was transferred by the interim administrator to HSBC Plc, account number 51370480 in the name D J Lee re Claire Smith.

[114] At section 3.5 or of the Final Report the interim administrator records the information obtained by him from Family Investments in relation to a PEP and an ISA which were funded by payments from Mrs Smith's Halifax account number 00069108. Around November 2005 the ISA was encashed but Family Investments advised the interim administrator that the cheque had been stopped and the proceeds were not issued. The sum of £2,036.37 was subsequently paid into HSBC Plc, account number 51366785 in the name D J Lee re Smith ISA. Interest on each of the accounts held by the interim administrator has continued to accumulate.

[115] It is clear from the analysis carried out by the interim administrator, which I accept, that the sums in each of the accounts held by the interim administrator derived from the proceeds of the sale of 100 Woodville Street. In my opinion in terms of section 305 of the 2002 Act the sums in each of the accounts is property which represents the original property and represents property obtained through unlawful conduct.

Associated property

[116] Miss Crawford submitted that the standard securities in respect of each of the properties was property that had an interest in the recoverable property and consequently was associated property. In terms of Section 310 the associated property fell to be treated as obtained through the unlawful conduct. Mrs Smith did not challenge that proposition which seems to me to be well founded.

Article 8 of the Convention

[117] As noted above section 266(3)(b) provides that the court may not make in a recovery order any provision which is incompatible with any of the Convention rights (within the meaning of the Human Rights Act 1998). Article 8 of the Convention is in the following terms:

"1. Everyone has the right to respect for his private and family life, his home and his correspondence.

2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others."

Mrs Smith did not take any point in relation to article 8. Miss Crawford touched briefly on the issue and submitted that the rights under article 8 were not absolute; they were qualified and interference with these rights may be justified if proportionate and with respect to a legitimate aim. There were no averments made by the respondents and there was no proof of any extent to which the respondent's Article 8 rights had been interfered with. Therefore the court was unable to conclude that there would be an interference by including the house at 5 Briarcroft Drive in the recovery order. If the court took the view that Mrs Smith was in a house with a family, Miss Crawford submitted that a civil recovery order interfering with her rights was a legitimate aim in pursuit of public policy and that interference was proportionate and justified.

[118] Mrs Smith chose not to raise an issue in relation to her rights under article 8. She was clearly familiar with the Convention rights and specifically took the point under article 6(2) in relation to the events of 24 March 2001. There were no pleadings directed to any issue under article 8, no evidence was led and no submissions advanced by Mrs Smith. In these circumstances I have no information in relation to the domestic circumstances of Mrs Smith and no basis for forming any view in relation to the application of article 8. The issue does not arise.

Decision

[119] In the light of the conclusions at which I have arrived in the course of this opinion I conclude that I should make a recovery order in the terms sought in the prayer of the petition. However, one matter remain unresolved. As Ms Crawford pointed out it would be open to me under certain circumstances to grant the prayer of the petition subject to a condition that the Scottish Ministers repay a certain amount. She made that observation in the context of whether some of the mortgage repayments may have been made from legitimate income. That raises an issue as to whether the fraudulent obtaining of the loan vitiated all repayments. There might also be mixing of property as contemplated in section 306 of the 2002 Act. Mrs Smith made no submissions whatsoever on these questions and Ms Crawford touched on them only briefly. It seems to me that in the light of the decision that I have arrived at in relation to the main questions raised in the petition this issue remain live. Without hearing fuller argument I do not feel able to form a concluded view on it. I propose, therefore, before making the recovery order to put the case out by order for a discussion on this limited area. While it is a matter for her, it may be that Mrs Smith will wish to seek legal advice on this issue.