J v Crown Prosecution Service

This is an appeal against the decision of Leveson J made on 24 November 2004 when he declined to set aside a restraint order which had been made against the appellant by Forbes J on 2 November 2004. The order had been made pursuant to s.77(1) of the Criminal Justice Act 1988 (“the Act of 1988”) at the behest of the Crown Prosecution Service (“the CPS”) at a without notice hearing. Although Leveson J continued the restraint order, he ordered that the CPS should pay the appellant’s costs of the application to him. Permission to appeal was first refused on consideration of the papers by Maurice Kay LJ on 16 February 2005, but was granted by Clarke and Jonathan Parker LJJ on 18 March 2005. In the course of his judgment Clarke LJ set out six questions which he described as “questions of principle of potential significance in the future”. It will be convenient to set them out after I have introduced the facts and the material provisions of the Act of 1988.

On Thursday 22 May 2003 the appellant was arrested on suspicion of conspiracy to defraud and fraudulent trading. He was charged with conspiracy to defraud on 4 February 2004. His trial in the Crown Court was under way at the time of the hearing of this appeal before us on 27 April 2005; we were told by Mr Mitchell QC for the CPS that it had about a further three weeks to run.

The particulars of the conspiracy with which the appellant was charged were drawn in these terms:

“[J] and others on a day between 1 December 2000 and 23 August 2001 conspired together to defraud such members of the public who applied to UK Finance (Europe) Ltd for a loan by falsely representing that:-

(i)

upon payment of an administration fee in the sum of £70 a loan would be made;

(ii)

UK Finance (Europe) Ltd had funds available from which such loans could be made.”

UK Finance (Europe) Ltd (“the company”) was incorporated on 21 May 1998. The controlling director and shareholder was RP, who in due course was also to be charged with the conspiracy. The company secretary was RP’s wife.

I understand it to be common ground that initially the business carried on by the company was legitimate. As the particulars of the conspiracy show, the alleged dishonest activity commenced in or about November 2000. At that time the company started to trade from an office on an industrial estate in Reddish, Stockport. The company advertised as a lender. Its marketing was directed at people with poor credit histories. It offered unsecured loans. Applications for loans were apparently made over the telephone. Applicants were told that there was an up front administration fee of £70. After the phone call a credit agreement document would be sent to the applicant together with a request for the fee of £70. Many applicants duly paid up. A search warrant executed at the company’s office on 13 July 2001 revealed, it was estimated, over 12,000 loan applications files.

But the company did not make a single loan. Nor (until later) did it return any of the applicants’ £70 fees. At length, in April 2001, many of the applicants complained to the Stockport Trading Standards Office. Trading Standards Officers visited the company on 14 May 2001 and spoke to RP. However there were no proceedings at that stage. After this visit some of the more pressing applicants had their fees returned. More complaints were made to the Trading Standards Office. Eventually a search warrant was issued and executed, as I have said on 13 July 2001. RP was unable to supply any records relating to loans said to have been made. He told the officers that the people he was dealing with could not afford to repay the loans. Not long thereafter the company was put into voluntary liquidation. The matter was reported to the police. RP was arrested on 24 April 2002. It is convenient to notice at this stage that a restraint order was thereafter also made against him (we were told in August 2004), as I understand it on the same basis as to the amount of benefit derived from the conspiracy as was relied on against the appellant. RP pleaded guilty to the indictment on 28 November 2004. Other defendants did so at the start of the trial, which then proceeded against the appellant alone.

Throughout the period of the alleged conspiracy the appellant was, on the face of it, no more than an employee of the company. He owned none of the shares. It is said on his behalf that over the period in question he received an income of £11,320.89, and his wife, who was also employed by the company, £1,895.91 (I shall have to return to these figures). But the Crown say that this gives an entirely misleading picture of the appellant’s true involvement with the company. The reality, it is claimed, is that he was as close to the heart of the conspiracy as was RP. It is convenient to reproduce paragraphs 17-20 of the prosecution opening note prepared for the appellant’s trial:

“17

[RP] and [J] were at the head of this conspiracy. They had worked together at Horizon Finance and [J] had expertise in IT that was useful to [RP]. [J] had a business that provided telephone numbers which earned fees for the company out of the very many telephone callers who rang in and were kept on line while their application forms were filled in and more particularly while they were left on hold so that that the nonexistent checks could be ‘carried out’. The two of them worked very closely together and they gave the clear impression that they were partners. Whenever [RP] was not present or away on holiday then [J] was in charge. On the internal telephone directory [J] was shown as management (Link to UK Finance Extentions sic). He attended all the management meetings. [J’s] position within this conspiracy can be judged by the fact that he was sufficiently important to be able to put his wife on the payroll of UK Finance Europe Ltd even though she never did any work there.

18

It will not surprise you to learn that although on the surface this was a properly run company with an accountant who was shown cheques being paid in, no record at all was kept of the number of blank uncrossed postal orders or amounts of cash that were paid to the company. Many of the applicants simply didn’t have £70 in a bank account on which to draw a cheque. They were in dire financial straits and often were trying to consolidate a number of loans and other debts by taking out a single loan on which there would be a single repayment. That is the very nature of the adverse credit market. And so in order to pay the administration fee of £70 many applicants sent in a postal order. The cash, postal orders and cheques were given to [J] who either passed them to [RP] or took them to the Post Office himself. Uncrossed postal orders could be cashed, and didn’t have to be shown in the company books. Since no records were kept [RP] must have trusted [J].

19

[J] administered and controlled the records of all the applicants. He administered and directed advertising policy. He administered and oversaw the telecommunications and information technology systems for the company. These were very significant and essential functions for this conspiracy.

20

One problem with a conspiracy such as this was that staff would become suspicious and ask embarrassing questions. It was necessary to keep them sweet. [J] played a full role in this using some of the cash that was being generated to buy goodwill at the bar of a local public house. Every Friday the staff were taken to the Elizabethan public house in Heaton Moor where [J] and [RP] would pay for all the drinks. [J] was heard to boast that he had spent £300 on drinks on one such night. This was clearly more than just generosity to the staff; it was an essential part of the management of this conspiracy that would keep the wheels well oiled.”

The evidence placed before Forbes J, in the shape of DC Horrocks’ first statement dated 27 October 2004, contained this passage:

“3.u. Enquiries revealed that postal orders to a value of £124,000 had been cashed at a local post office. These had been sent by prospective loan applicants as their administration fee. Company accounts were later produced. These demonstrated that £460,903 had been received by the company in administration fees. This figure was comprised entirely from cheques. Of significance is the fact that no cash or postal orders were paid into the company bank account.

v.

Between 1 December 2000 and 13 July 2001, UK Finance (Europe) Limited, whilst advertising as a lender, obtained a total of £584,637.64 from the administration fees of £70. This figure includes postal orders cashed locally.”

At the core of the appellant’s case is the contention that the CPS failed to make full and proper disclosure before the judges below, in particular before Forbes J to whom, as I have said, they applied for a restraint order without notice. It is submitted that had proper disclosure been made Forbes J would certainly have declined to make a restraint order without notice being given to the appellant, and may have declined to make an order at all. It is also said that this court should discharge the order continued by Leveson J so as to mark its disapproval of the CPS’ failure to disclose: whether or not as a separate discretionary exercise the court then thought fit to impose a fresh order. I shall confront the arguments in due course. It is necessary at this stage to give an account of the factual matters which it is said were not, but should have been, disclosed. Of prime importance is a letter dated 18 August 2004 sent by the appellant’s solicitors to the Greater Manchester CPS (“the August letter”). It is in these terms:

“As a matter of courtesy we write to inform you of our client’s intention to re-mortgage his principal private dwelling.

Our client has a number of outstanding liabilities, both current and prospective, which he needs to attend to by way of re-mortgage. Those liabilities are as follows:-

£67,831 Tax – see copy accountants tax computation

£1,236.10 – Halifax overdraft – see letter from Halifax

£9,486 – Alliance & Leicester loan – see documentation

£2,407 – MBNA credit card – see statement

£3,300 – MBNA credit card – see statement

£320 – Nat West Joint Account overdrawn - see letter

£14,968.53 – Nat West account – Paul – overdrawn – see letter

£1,278.11 - Nat West account – Lynne [the appellant’s wife] – overdrawn – see letter

£1,729 – Nat West credit card – Lynne – see statement.

We are instructed by our client that there is no attempt by our client to dissipate his assets save only to meet outstanding liabilities by way of re-mortgage.”

I should say (as Leveson J noted (Footnote: ¹)) that the Senior Crown Prosecutor in the Central Confiscation Branch has made a statement showing that it was through inadvertence that the letter was not considered for disclosure to Forbes J. As I have said it was sent to the Greater Manchester CPS. The relevant people in London would not have seen it at the material time. That is unimpressive but, plainly, not malicious.

Counsel’s contrasting submissions on the August letter provide a faintly ironic feature to the case. Mr Elleray QC for the appellant says that it tends to show that his client would not have dissipated his assets had he been served with an application for the restraint order. Mr Mitchell submits precisely the opposite. Mr Elleray referred to certain more detailed financial material, put before Leveson J, which reflected the facts stated in the August letter and also showed substantial expenditure on renovations to the house at 165 Styal Road. He submits that taking the current value of the house (put at £530,000) along with all the other financial information there is a net increase in the equity. Mr Mitchell submits that the re-mortgage referred to in the August letter shows that the appellant was having to borrow to pay tax and other current debts, thus demonstrating that he was living beyond his means; and that by capitalising unsecured debts into a secured loan on the house he gave the lender priority over the Crown’s potential claim against his assets to make good any future confiscation order.

The August letter is not the only document which Mr Elleray says should have been disclosed below. There is next a coloured chart showing the movement of money between the company and RP and his wife. This was received by the appellant’s solicitors under cover of a letter from the CPS dated 25 November 2004 – the day after the hearing before Leveson J. The movements of money which the chart illustrates are a little convoluted, but in essence it shows some £226,975.33 going out of the company into the hands of RP and his wife, and a further sum of £18,508.01 received by RP which Mr Elleray says may also have been the company’s money.

The receipt by RP of these very substantial sums must have an important bearing, it is submitted, on what may or may not have been received by the appellant. A statement made for the purposes of this appeal on 4 February 2005 by the appellant’s solicitor, Mr Hanman, shows that this flowchart generated a train of enquiry which led the solicitors to appreciate the significance of another document which had in fact been served earlier but was buried within 3,736 pages of prosecution exhibits. This was a witness statement prepared by Mr Alan Mort, who is a financial analyst employed by the Greater Manchester Police. Mr Mort describes the flows of money in the chart. His statement also establishes, so Mr Elleray submits, the basis upon which DC Horrocks was to state that the appellant had benefited from the conspiracy to the tune of £584,637.64. Mr Mort sets out a long list of documents with which he has been provided by the police. They include bank statement sheets for accounts held by the company, accountancy records, management accounts, weekly balance sheets for the sub-post office where the postal orders were cashed, and many other documents. A figure of £369,354.25 is given as the company’s net income for the period 1 November 2000 to 30 June 2001. To this Mr Mort adds three further figures: £22,895 being refunds made in respect of the same period; £68,560.15 bank receipts for July 2001; and £123,828.24, the proceeds of postal orders cashed between 13 December 2000 and 18 July 2001. Hence the total of £584,637.64.

Mr Mort’s statement also includes details of payments, receipts and balances relating to the bank accounts of the appellant and his wife. Between 31 October 2000 and 28 September 2001, the appellant banked just over £29,000 and his wife banked just over £2,600. Between 25 January 2001 and 25 June 2001 Mr Mort’s documents show net salary received by the appellant from the company in the sum of £11,328.89, and a further receipt on 27 April 2001 of £10,000 from a director’s loan account. His wife received salary in the sum of £1,895.91 in May and June 2001. So the money which it is shown he received from the company (for this purpose including his wife’s salary) was only some £23,000. Even if one assumes that all of the sums credited to the bank accounts of the appellant and his wife should be attributed to the conspiracy, subject to what he might have had from the postal orders (to which I will come in a moment) his total benefit fell very far short of £584,000. Accordingly Mr Elleray says that the basis upon which the restraint order was made is wholly unsustainable, and the true picture was effectively concealed from Forbes J and Leveson J by the CPS’ failure to bring to light the facts described in Mr Mort’s statement.

As for the postal orders, Mr Mort refers (albeit in passing) to a witness statement made by Pamela Hobson on 6 March 2003. She is the postmaster of the sub-post office where the postal orders were cashed. She describes RP visiting the post office, from about January 2001, with an increasing number of postal orders to be cashed. Over time large amounts of cash were paid over to RP; so much so that Ms Hobson had to increase her order for the supply of cash to the post office. She said that at some stage RP told her that he was going on holiday to Florida and someone else would be cashing the postal orders. So it transpired. RP introduced another man who would be cashing the orders in his absence. He gave Ms Hobson a description, which she records, and which Mr Elleray accepts for the purposes of the appeal could be a reference to the appellant. Ms Hobson says that this man came to the post office “on several occasions” to cash postal orders made out to the company.

It is to be noted that Mr Mort’s figure for the cashed postal orders for the period 13 December 2000 to 18 July 2001- £123,828.24 - is an estimate only: Ms Hobson said that before RP came along the average weekly total of postal orders cashed was £100. Relying on this, Mr Mort has deducted £100 per week from the overall weekly totals over the period in question, and so arrived at his estimated figure. At all events Mr Elleray submits that while the appellant may have had some of the cash from the postal orders, on Ms Hobson’s evidence he took what was plainly much the lesser share.

Mr Elleray submits that had all this relevant factual material been disclosed to Forbes J, leaving aside the question whether the CPS might have been refused any relief without notice of their application being given to the appellant, a restraint order could not reasonably or probably have been made to reflect any benefit obtained by the appellant in excess of, say, £50,000.

The statutory regime for the making of confiscation orders in connection with the proceeds of crime, and for the preservation of the assets of a suspect or defendant so that any later confiscation order might be made good, is now provided for by Part II of the Proceeds of Crime Act 2002 (“POCA”). Confiscation orders are dealt with at ss.6-39, and restraint orders at ss.40-47 and 69. These provisions reflect, though they do not precisely replicate, those contained in Part VI of the Act of 1988. A major change consists in the fact that whereas under the Act of 1988 the jurisdiction to make restraint orders was vested in the High Court, under POCA it is in the hands of the Crown Court. Confiscation orders are dealt with in the Crown Court (as they have always been) and so now the whole regime is administered in that court. Appropriate rights of appeal lie to the Court of Appeal (Criminal Division) (“the CACD”). The transfer of jurisdiction under POCA has effect in relation to applications for restraint orders linked with offences said to have been committed since 24 March 2003. Thus the material provisions for the purposes of this appeal are those of the Act of 1988.

The jurisdiction to make a confiscation order is given by s.71 of the Act of 1988. The amount which the order must require to be paid is to be equal to the lesser of (a) the benefit in respect of which the order is made and (b) the amount appearing to the court to be the amount that might be realised at the time of the order made. The latter amount is defined by s.74 as being the defendant’s realisable property less whatever is payable in pursuit of any obligations which have priority at the time the confiscation order is made. Of particular importance for present purposes is s.71(4), which defines “benefit”:

“A person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained”.

The jurisdiction to make a restraint order is conferred by s.77 of the Act of 1988. The conditions for its exercise are given by s.76, and there is no contest but that they were fulfilled in this case. S.77 provides so far as material:

“(1)

The High Court may by order (referred to in this Part of this Act as a ‘restraint order’) prohibit any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order.

(2)

Without prejudice to the generality of sub-section (1), a restraint order may make such provision as the court thinks fit for living expenses and legal expenses.

….

(5)

A restraint order –

(a)

may be made only on an application by the prosecutor;

(b)

may be made on an ex parte application to a judge in chambers; and

(c)

shall provide for notice to be given to persons affected by the order.

(6)

A restraint order –

(a)

may be discharged or varied in relation to any property; and

(b)

shall be discharged on the conclusion of the proceedings or application in question.

(7)

An application for the discharge or variation of a restraint order may be made by any person affected by it.”

S.82 of the Act of 1988 is by ss.(1) applied to the power conferred by s.77 to make restraint orders. S.82(2) provides as far as material:

“… [T]he powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant’s case the value for the time being of realisable property held by any person by the realisation of such property.”

The appeal is of course against the decision of Leveson J, although the extent of disclosure by the CPS upon its application to Forbes J has been, as I have foreshadowed, of the first importance. The appeal essentially involves two points, which I would articulate somewhat differently from their formulation in the grounds of appeal. The first is that the failure of the CPS to make proper disclosure should be visited by an order of this court to discharge the restraint order. The second is that a restraint order in the terms in which it was made in this case by Forbes J, and continued by Leveson J, was not in any event justified on the evidence.

These two grounds are connected in two ways. First, if on the first of these grounds this court were to conclude that the Crown’s failure of disclosure of itself justified the discharge of the restraint order, then we should have to decide, in the exercise of our own discretion, whether to re-impose a restraint order in like or different terms: and that would engage the second ground. Secondly, the gravity of the CPS’ failure to disclose is obviously conditioned by the extent of the failure. Thus if Mr Mort’s statement and the flowchart were not in truth relevant to the exercise which Forbes J was required to carry out, so that the failure of disclosure was established only in relation to the August letter, that would be a far less serious state of affairs than would have arisen if the chart and the Mort statement ought indeed to have been disclosed.

The extent of the duty to disclose, and the question whether on the facts here the flowchart and the Mort statement should have been disclosed, depend upon the correct construction of the Act of 1988. The question is whether the details of the facts spoken to in those documents are legally relevant to the exercise of the discretion to make a restraint order under s.77, given the background of the provisions contained in s. 71 and the associated “legislative steer” (as it has been called in the cases (Footnote: ²)) given by s.82(2).

As I have indicated Clarke LJ granting permission to appeal on 18 March 2005 (with the concurrence of Jonathan Parker LJ) posed six questions which seems to him to be of potential future significance. They were as follows:

“(1)

What is the duty of the applicant in making an application for a restraint order under [POCA] to set out its reasons for fearing a risk of dissipation of the respondents assets? [It is not clear that Clarke LJ referred to POCA advisedly. As I have made plain the relevant statute for the purposes of this appeal is the Act of 1988.]

(2)

What is the correct approach of the court when the applicant fails to discharge that duty?

(3)

Does the applicant owe a duty to make full and frank disclosure of all relevant facts to the court?

(4)

If so, what is the correct approach of the court to any failure to discharge that duty? In particular, are the principles the same as or different from those applied in the case of such failure in a civil case?

(5)

What is the relevance (if any) of the applicant’s delay in making an application and how should the court approach such a delay?

(6)

In what circumstances should the [CPS] make an application to the court without notice, and how should the court react to a case in which the applicant should have made the application on notice?”

It will be evident that all these questions go to the first broad ground of appeal which I have identified.

Having described the facts and the relevant statutory material Leveson J dealt first with what he called “two procedural points”. The first was the appellant’s contention that the application to Forbes J should not have been made ex parte. After referring to the decision of this court in AJ and DJ (Footnote: ³) Leveson J concluded (Footnote: ⁴) that “this case was entirely appropriate for an ex parte application in the first instance”. The second procedural point was a contention that Forbes J should have fixed a return date rather than make an open-ended order with liberty to discharge on short notice. This too he rejected (Footnote: ⁵).

The judge next held (Footnote: ⁶) that on the material before Forbes J there was a sufficient basis for concluding that the appellant might dissipate his assets. He then proceeded to consider what he described as “the high watermark of the challenge” [to Forbes J’s order], namely the appellant’s complaint of the CPS’ failure to disclose the August letter (and the terms of a subsequent telephone conversation between the appellant’s solicitor and the police which, however, in my judgment adds nothing). The judge first addressed an argument put forward by the CPS to the effect that the August letter was not in truth of any relevance to the issue whether a restraint order should be made. He said (Footnote: ⁷):

“Mr Redpath [counsel for the appellant] argues that, objectively, the position is obvious. The letter was, if not of the highest importance, certainly of real significance to the exercise of the learned judge’s discretion. I agree.”

This argument has not been repeated by Mr Mitchell before us. In my view the judge was plainly right to reject it. It follows that there was, in relation to the August letter, a material failure of disclosure by the CPS.

Leveson J finally considered what should be the effect of this failure. He held (Footnote: ⁸) that if the letter “would have impacted in any way [upon Forbes J’s view of the proper course to take], it would have only done so to increase the concern of dissipation of assets, rather than reduce it”. He observed (Footnote: ⁹) that “[i]t is no part of my role to punish [the CPS] for what I accept was an innocent failure to disclose the letter”, and concluded that the order should be continued but that the CPS should pay the appellant’s costs of the application before him. There is no cross-appeal against this latter order.

WAS THE RESTRAINT ORDER JUSTIFIED ON THE EVIDENCE?

I find it convenient to deal first with the second broad ground of appeal, which I have so far expressed by reference to the facts of the case: was a restraint order, in the terms made by Forbes J, justified on the evidence? Behind this, however, there is a question of law: what is the proper approach, given the statute’s true construction, to the exercise of discretionary power conferred on the court by s. 77(2)?

Upon this question there was a fundamental divide between the parties. Mr Elleray’s case was (if I may summarise it in my own words) that the court should look to see what the defendant had got and retained for himself out of the crime alleged against him. That would represent his “benefit” under s.71(4). “Benefit” is one of the two variables (the other being “realisable property”) which condition the amount of any confiscation order. Accordingly, a focus on “benefit” at the restraint order stage is required to fulfil the “legislative steer” given by s.82(2).

Mr Mitchell does not dispute the importance of a suspect’s “benefit” for the purpose of the court’s task in making an appropriate restraint order. But he parts company from Mr Elleray as to the sense to be attributed to the term “benefit” upon the true construction of s.71(4). His argument is that it refers to whatever the defendant’s alleged criminal conduct has generated or delivered; and not only to what he has got and kept for himself.

The sense to be attributed to “benefit” in s.71(4) of the Act of 1988 has been the subject of a good deal of authority. We have of course to consider this learning, not least given the divide between the positions taken by counsel, but it comes, so to speak, with a health warning. The cases are generally concerned with the court’s function under s.71 to make a confiscation order. But this appeal is about the prior stage arising under s.77 relating to restraint orders, which is subject to the legislative steer given by s.82(2). I think it very important to have in mind that in deciding whether to make a restraint order under s.77 (and if so, in what terms) the court’s task is not to reach firm conclusions as to the precise extent of a respondent’s benefit, or realisable property, for the purposes of s.71; though of course if those matters are plain the facts will be put before the judge. Rather, under s.77 the court’s duty is to decide whether to make a protective order so that in the particular case the satisfaction or fulfilment of any confiscation order made or to be made will be efficacious.

I will return to the nature of the s.77 function to make restraint orders, but I should first consider the learning on s.71(4) and “ benefit”. In Currey (Footnote: ¹⁰) Lord Taylor CJ stated that benefit “does not mean that [the defendant] has retained property, simply that he has obtained it”. One may compare a dictum of Auld J as he then was in Rees (Footnote: ¹¹):

“The word ‘obtain’ in this provision is not… restricted to cases where the alleged offender has received into his possession or retained the property the subject of the charge.”

In Patel (Footnote: ¹²) the appellant had obtained some £51,950 by means of a fraudulent conspiracy. He paid half of it over to his accomplice. But a confiscation order was made against him under s.71 in respect of the whole amount. His argument that his benefit from the offence was limited to his half share of the proceeds was rejected by the CACD. May & ors (Footnote: ¹³), a case to which I shall have to return, concerned a VAT fraud. The CACD held (Footnote: ¹⁴) that “someone who has joint control of property has ‘obtained’ that property within the meaning of s.71(4)”, and (Footnote: ¹⁵) that three of the defendants before the court “had [each] benefited in the whole of the amounts by which the companies they had jointly controlled had benefited”.

These instances might be thought to support Mr Mitchell’s position, that “benefit” refers to whatever the defendant’s alleged criminal conduct has generated or delivered: at least where it is shown that the relevant proceeds of the crime have passed under the defendant’s control. However Mr Elleray points to other authority which, he would say, yields a somewhat different picture.

In Gokal (Footnote: ¹⁶), a major fraud conspiracy, the trial judge (Buxton J as he then was) had to deal with a submission by the Crown that the defendant’s benefit under s.71(4) was represented by the whole sum - £548 million – which had been got from BCCI for the group of companies owned by the defendant’s family. Buxton J was confronted by what Auld J had said in Rees. He considered it significant that in Rees the defendant was charged with an offence under s.15 of the Theft Act 1968, where the term “obtain” bears a specific meaning at variance with the word’s ordinary meaning. In Gokal the relevant offences were conspiracies to defraud. Buxton J declined to read Auld J’s reasoning across so as to apply to the case before him. He held that “the phrase ‘if he obtains’ in s.71(4) of the 1988 Act requires what can fairly be described as an obtaining by the defendant”, and that the benefit in that case consisted in the money obtained by the defendant for himself or for his family, which Buxton J assessed at £2,943,115.

On appeal the defendant in Gokal, very obviously, made no complaint of the judge’s rejection of the Crown’s argument that his benefit actually amounted to £548 million. The CACD noted the judge’s finding without comment; the points on which the appeal turned have no relevance for the present case.

Olubitan (Footnote: ¹⁷) involved a conspiracy by which innocent parties were fraudulently induced to send consignments of mobile phones and computer equipment to the conspirators’ company. The appellant joined the conspiracy at the very end of its course and the only consignment with which he was involved was a dummy run which was set up after one of the victim companies contacted the police. The CACD, overturning the confiscation order made by the judge, held that on the facts there was no evidence that the appellant had obtained any property whatever by means of the conspiracy.

In McKechnie (Footnote: ¹⁸), a case of credit card fraud, there was an undoubted loss of £220,000 but no evidence to show how it had been divided between the four conspirators before the court, or anyone else who might have been involved. In those circumstances the appellant submitted that the court was bound to hold that the benefit to each defendant was nil. The CACD had little difficulty in rejecting that argument. Hallett J, delivering the judgment of the court, observed that “dividing the total was as good a starting-point as any”; and that is what the court did.

Is there a tension between these groups of cases? It might be thought that Gokal at first instance, and perhaps, at a considerable stretch, Olubitan and McKechnie, suggest that “benefit” within s.71(4) of the Act of 1988 means what the defendant has got from the crime for himself (or his family); whereas Currey, Rees, Patel and May appear to indicate that “benefit” means any property which the defendant has been instrumental in getting out of the crime, whether for himself or not. However with the possible exception of Buxton J’s reasoning in Gokal, I do not consider that there is any real divergence among the authorities.

It is in my judgment plain that the essence of what is meant by “benefit” in s.71(4) is given by the verb “obtain”. And whether in any given case a person has obtained any particular property must involve issues of fact. In Olubitan there was no evidence that the appellant had obtained any property out of the crime in question, whatever sense should be attributed to “obtain”. The case went entirely on its facts, as was acknowledged by Keene LJ delivering the judgment of the court in May & ors (Footnote: ¹⁹). In McKechnie the court did not hold that a defendant’s benefit was limited to what he had obtained for himself or his family. The court delivered a practical solution for a practical problem: there was no doubt that the conspirators between them had collected a substantial sum, but no evidence as to how they had dealt with it. Apportionment between them was therefore treated, as I have said, as being “as good a starting-point as any”. As was observed in May & ors (Footnote: ²⁰), the court in McKechnie was not being asked to decide whether a defendant in that conspiracy might be liable for the total proceeds of the fraud.

Olubitan and McKechnie, then, cannot support Mr Elleray’s contention that “benefit” means what the defendant got and kept for himself. We have not been shown the full text of Buxton J’s ruling in Gokal, and as we have indicated the material part of his reasoning, being favourable to the appellant, was obviously not challenged in the CACD; but to the extent that it does support Mr Elleray’s position, then with great respect I would be prepared to hold that it is out of line with the general run of authority.

What remains to be said about the meaning of the word “obtain” in s.71(4)? Clearly it does not mean “retain” or “keep”. But no less clearly, in my judgment, it contemplates that the defendant in question should have been instrumental in getting the property out of the crime. His acts must have been a cause of that being done. Not necessarily the only cause: there may, plainly, be other actors playing their parts. All that is required is that the defendant’s acts should have contributed, to a non-trivial (that is, not de minimis) extent, to the getting of the property. This is no more than an instance of the common law’s conventional approach to questions of causation.

I do not believe that there is a separate requirement that the defendant must be shown to have control over the property, although in reality if he has been instrumental in getting it he will, no doubt, in some sense (and at some stage) have had control over it. In May & ors it was important on the facts that the companies which fraudulently retained VAT were jointly controlled by various of the appellants. The court’s judgment makes reference both to that fact and the possible human rights issues that might arise if confiscation orders originally made against several defendants were to deliver to the prosecuting authority multiple recovery of the same sum, being the loss occasioned by the crime. The court had this to say (Footnote: ²¹):

“39.

In our judgment, someone who has joint control of property has ‘obtained’ that property within the meaning of s.71(4). None of the authorities cited in argument require [sic] such an approach to be rejected and it seems to us to be the natural meaning of the words in the statute. In the same way it matters not that an individual who holds a joint account has not drawn out a specific sum of money from that account: he has still obtained the whole of the money in the account. As the House of Lords’ decision in Smith (David) [2002] 1 CAR 466 emphasises, s.71(4) bites the moment that the property is obtained or the pecuniary advantage derived.

40.

It is not necessarily any more unjust for the whole of that property jointly controlled to be treated as the individual defendant’s benefit than for money which has passed through a defendant’s hands to be treated as his benefit, even though that money is a much greater amount than his personal profit. Yet the applicants accepted that the latter situation is well-established by the authorities. It was contended that there may be circumstances in which making an order in the full amount against several defendants would be disproportionate and contrary to Article 1 of the First Protocol to the European Convention on Human Rights. Mr Owen accepted that the confiscation regime pursues a legitimate public interest as required by that Article, namely to punish offenders and to remove criminal assets from circulation. But he argued that proportionality requires that the interference with property rights should be no greater than is necessary to achieve those aims.

41.

We see force in that point as a general proposition, and in some circumstances it may lead the court to adopt an apportionment approach. For example, there may be cases where the defendants have substantial assets, with the result that making orders for the full benefit in each case would lead to the Revenue recovering far more than the conspiracy or joint enterprise had obtained. In such a case the court may be prepared to apportion the benefit. But that situation does not apply here. In particular, the total of the confiscation orders made by the judge was well below the £12 million of which the Revenue had been cheated by these conspirators.”

I do not think that this reasoning confers any special magic on the idea of “control”. The issue in every case is whether the defendant has obtained property by his crime: it means, as I have indicated, whether his acts have materially contributed to the getting of it. Now, the acts of more than one defendant or suspect may have so contributed. In that case, each of them will have obtained the property. This implies the possibility of multiple recovery of the same sum by concurrent confiscation orders against more than one defendant. This possibility, in my judgment, is open on the face of the Act of 1988. That view marches with what was said by Dyson LJ in Simpson (Footnote: ²²), cited by Keene LJ in May & ors (Footnote: ²³):

“In the line of cases concerning drug dealers of which Banks is the latest, the phrase ‘any payments or other rewards received in connection with drug trafficking’ has been interpreted literally, notwithstanding that such an interpretation means that there can be multiple recovery of the same sum which passes through the hands of successive dealers, regardless of the amount of profit made by the dealer or dealers or of whether any profit was made at all.”

So far as Article 1 of the First Protocol to the European Convention on Human Rights (“the ECHR”) may constrain such an approach, the court’s duty no doubt (anticipated in paragraph 41 of the court’s judgment in May & ors) will be to have regard to the Convention rights case by case and, it may be, moderate its orders accordingly. I pass no judgment as to what in any given case the ECHR might or might not require; no such question arises for adjudication in this case.

In any event, however, Article 1 of the First Protocol does not, in my judgment, condition the court’s task in deciding upon the terms of any restraint order to be made under s.77 of the Act of 1988: at least not to any like extent. Here I should return to the s.77 function, which is of course at the centre of this appeal.

It is obvious that restraint orders and confiscation orders fulfil different functions. The confiscation order constitutes a final judgment, subject to appeal, of what should be taken from a defendant as representing, in essence, the proceeds of his crime. By contrast the restraint order is pre-emptive and provisional. Lord Donaldson MR said this in Re Peters (Footnote: ²⁴):

“[Counsel] for the commissioners points out that a court faced with the making or variation of a restraint order or a charging order is not concerned with the making of a confiscation order or the process of execution in satisfaction of such an order. It is concerned solely with the preservation of assets at a time when it cannot know whether the accused will or will not be convicted. Such a jurisdiction is closely analogous to that exercised by the courts in relation to Mareva injunctions and might, not inaccurately, be referred to as a ‘Drugs Act Mareva’ (Footnote: ²⁵). Under the Mareva jurisdiction the interest of the potential judgment creditor has to be balanced against those of the actual creditors, whether secured or unsecured, and of the defendant himself who may succeed in the action and should be fettered in his dealing with his own property to the least possible extent necessary to ensure that the processes of justice are not frustrated.

Subsection (2) (Footnote: ²⁶) is consistent with such a purpose, subject to what [counsel] describes as a ‘legislative steer’, namely, that, so far as is reasonable taking account of the fact that the accused may be acquitted and that, unlike the position under the Mareva jurisdiction, there is no counter undertaking in damages although there is a discretionary power to award compensation under section 19 of the Act, the value of the realisable property shall be maintained in order that it may be available to satisfy any confiscation order.”

See also the judgments of Nourse LJ (Footnote: ²⁷) and Mann LJ (Footnote: ²⁸).

When a restraint order is applied for, the court is not only ignorant of the defendant’s future fate at the hands of the jury. There may be other defendants; the court is, of course, equally ignorant of the jury’s future view of them. Indeed it may be unclear who, if anyone, will stand his trial beside the defendant whom the court is considering. There may be large unanswered questions as to the respective roles of different defendants, as to who did what with the crime’s proceeds, and the ultimate extent and destination of those proceeds. There may be other uncertainties. In all these circumstances, it may often be appropriate in a case where there are several prospective defendants to make restraint orders against each of them, so as to protect, as against each, the whole sum which represents the proceeds of the crime so far as the court can at that stage ascertain it. While of course the Crown must lead evidence as to the amount of the proceeds, and the defendant’s acts in getting – “obtaining” – the proceeds, and also the defendant’s assets so far as they are known, the exercise is quite unlike the later exhaustive investigation undertaken by the trial judge in deciding what, if any, confiscation order to make. At the restraint order stage the court makes no final decision as to the defendant’s “benefit” or “realisable property”. It is concerned only, as I have said, to make a protective order so that in the particular case the satisfaction or fulfilment of any confiscation order made or to be made will be efficacious. Given the court’s obligation under s.82(2), there will be cases where it will advisedly make orders to preserve the same sum of money in the hands of multiple defendants.

Mr Elleray raised a distinct argument, to the effect that the Crown case for a restraint order requires the court “to pierce the corporate veil” by treating property (money) that went into the hands of the company as if it was the property of the appellant; and there is on the facts nothing to justify that being done. Mr Elleray relies on the judgment of Sir Andrew Morritt VC in Trustor AB v Smallbone & ors (Footnote: ²⁹):

“In my judgment the court is entitled ‘to pierce the corporate veil’ and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or a façade to conceal the true facts thereby avoiding or concealing any liability of those individual(s).”

Here, says Mr Elleray, the company had not been established as a device or a façade and was in any event controlled by RP. If RP later used the company as a vehicle for fraud that was outwith the control of the appellant.

Mr Mitchell places much reliance on the judgment of Simon Brown LJ as he then was in CPS v Compton & anor (Footnote: ³⁰), an appeal against orders made in the Administrative Court declining to make a restraint order under the Drug Trafficking Act 1994 (whose relevant provisions, like those of the DTOA which they succeeded, are parallel to those contained in Part VI of the Act of 1988) or to appoint a Receiver. The case was in some ways unusual. The defendant had pleaded guilty to drugs offences in January 2001. The relevant application for a restraint order was made and refused on 26 March 2002. But thereafter, on 19 July 2002, a confiscation order was made against the defendant; and the appeal to this court against the refusal of the restraint order came on after that, in November 2002. Simon Brown LJ indicated (Footnote: ³¹) that the appeal was moot, partly because of a point relating to the defendant’s bankruptcy, but also because in effect the confiscation order had overtaken the restraint order application. However he proceeded to consider, as a matter of public interest, certain aspects of the case including an issue relating to “piercing the corporate veil”. He said (Footnote: ³²):

“Where, as here, it is established upon a full investigation of the facts that, save for the most limited and sporadic continuation of its original business activities, a small family company from a given date has wholly changed character and become essentially a vehicle for money laundering and, through investment, profiting from the proceeds of crime, it appears to me appropriate to pierce the corporate veil and to impute to the director(s) involved the ownership of the relevant company assets. As Rose LJ made plain in Re H, in cases like these ‘no useful purpose would have been served by introducing into criminal proceedings the additional complexities as to the corporate mind and will which charging the companies would have involved’. The courts should not permit those profiting from crime to escape the confiscation of their gains simply by pursuing under corporate guise what are no more than nominal trading activities as a cover for money laundering operations.”

It is important to be clear as to the context in which a debate about piercing the corporate veil may actually arise. If an application to the court, whether for a restraint order or a confiscation order, seeks to restrain or confiscate a named item of property as being in the ownership or control of the respondent, though on the face of it the property belongs to a company, there is at once a question about the corporate veil. But that is not the case here. The application to Forbes J, and the order made by him, did not seek to restrain the appellant from dealing with anything which belonged (nominally or actually) to the company on the footing that nevertheless it fell to be treated as the appellant’s realisable property. Moreover, the suggestion that the constraints of the corporate veil should apply to anything stated as a defendant’s “benefit” within s.71(4) may be difficult to sustain if what I have said about the sense to be attributed to the term “benefit” is right: a defendant will have “obtained” property, even if it has in truth been transferred to a company’s ownership, if by his crime he has been instrumental in getting it.

At all events I see neither scope nor need in this case for any adjudicative exercise to be undertaken by way of piercing the corporate veil. In the circumstances there is nothing in this further argument to advance the appellant’s case.

In light of all these considerations I return to the question: was a restraint order, in the terms made by Forbes J, justified on the evidence? I have no doubt that it was. No submission has been made which undermines the proposition, albeit (as against the appellant) provisional at this stage, that the proceeds of the conspiracy amounted to £580,000 odd. It is true that the components of the precise sum of £584,637.64 differ somewhat as between the statements of Mr Mort and DC Horrocks, but there is nothing to suggest that the figure should be lower. And it is clear that the particular assets described in paragraph 7 of DC Horrocks’ first statement and expressly restrained by Forbes J’s order certainly do not exceed £580,000 in value. It was in principle appropriate (subject to the first point in the appeal, which I have yet to resolve) to make restraint orders against both the appellant and RP on the basis that the proceeds indeed amounted to £580,000 odd, and that each of them had apparently “obtained” the proceeds. In my judgment the fact that there was some evidence (in the shape of the flowchart and Mr Mort’s statement) suggesting that RP kept far and away the bulk of the money does not, for reasons I have given, touch the merits of the restraint order against the appellant.

It is convenient before leaving this part of the case to consider whether the CPS’ delay in bringing their application before Forbes J should have persuaded him to hold his hand. As I have said the appellant was arrested on 22 May 2003 and charged on 4 February 2004, and the application for a restraint order was made and granted by Forbes J on 2 November 2004. We have not been shown any detailed material to demonstrate with any particularity (nor so far as we know did Forbes J enquire) when the Crown should and could have got its case together and been in a position to apply for an order. In the nature of things, I am confident that it might have been done significantly sooner than 2 November 2004. It is clear that delay in seeking a restraint order may be an important factor in the court’s decision whether to grant the order sought: see AJ and DJ (Footnote: ³³) (a case to which I must return) per Glidewell LJ (Footnote: ³⁴). It may tend to show that, there having been no dissipation of assets so far, the defendant is thereby less likely to dissipate them now. Mr Mitchell accepted, plainly rightly, that delay might in any given case be material to the court’s view of bite of s.82(2) – the “legislative steer”. He says it goes no further than that. That I think is generally right; the principal question for the court must always be whether the protection of a restraint order is on the facts necessary to ensure so far as possible that any confiscation order will be efficacious. There remains the theoretical possibility of the eccentric case in which the Crown delay on purpose for some collateral or mischievous reason. That, I am sure, can generally be discounted in the real world, as it can certainly be discounted in this case.

Leveson J (Footnote: ³⁵) acknowledged Crown counsel’s argument that despite the passage of time the case was still in its early stages. The appellant’s trial was some months off; a date had been fixed for April 2005. In the event as I have stated he concluded (Footnote: ³⁶) that there was a sufficient basis to justify the order. I cannot say that on delay grounds he was wrong to do so.

WHAT SHOULD BE THE EFFECT OF NON-DISCLOSURE?

Though this question occupied centre stage in the appeal, I can deal with it relatively shortly. For reasons I have given, the only material failure of disclosure by the CPS related to the August letter. The flowchart and Mr Mort’s statement might, of course, have been disclosed. But given what I have said about ss.71(4) and 77 of the Act of 1988, they would not on a proper view of the law have affected the judge’s decision whether or not to make a restraint order. Accordingly their non-disclosure was not a material failure.

As for the August letter, Leveson J did not accept that it constituted evidence which, had it been before him, should have persuaded Forbes J not to make an order. Plainly the letter displayed a willingness on the appellant’s part to disclose to the CPS transactions which he then intended to carry out relating to his property. But it cuts both ways. The letter tends also to show (as Mr Mitchell submitted) that the appellant was living beyond his means. He was having to borrow to pay tax; and he was proposing to turn unsecured debt into a secured loan, thus giving the lender a statutory priority over the Crown (see s.77(4) of the Act of 1988). At the very least Leveson J was not plainly wrong to hold that the impact of disclosure of the letter would only have been “to increase the concern of dissipation of assets, rather than reduce it”. And the failure to disclose it was inadvertent. In the circumstances I am quite unable to hold that the failure was such as to require the court to discharge the restraint order, and then consider as a separate exercise whether to impose a fresh order. Nor am I persuaded, any more than was Leveson J, that disclosure of the letter ought to have persuaded Forbes J to decline to make an order ex parte.

However given the depth of argument devoted to this issue by counsel. I do not think it would be right simply to leave the matter there. First I should say that I concur in Longmore LJ’s answers to Clarke LJ’s questions. I will make some brief remarks about the proper response of the court to non-disclosure by the Crown in cases of this kind. In the course of counsel’s submissions much attention was paid to the decision of this court in AJ & DJ, to which I have already referred in passing. In that case Glidewell LJ said this (Footnote: ³⁷):

“In my view, where there is a reasonable apprehension of dissipation of assets, an ex parte application will normally be the appropriate procedure.”

Leggatt LJ concurred (Footnote: ³⁸). Glidewell LJ also stated (Footnote: ³⁹):

“… the same general considerations apply to the making of an application under these provisions as apply to an application in civil proceedings for a Mareva injunction. In particular, in an application for a restraint or charging order, the prosecution are under a duty to disclose in the affidavit in support all material facts known to them. If they fail to do this, [that] of itself, in an appropriate case, can be a ground on which an order obtained ex parte may, although I certainly do not say ‘shall’, be set aside.”

This approach has been generally followed by the court in exercising the jurisdiction given by s.77 of the Act of 1988, and analogous and predecessor provisions. Thus the court has imposed a duty on the shoulders of the Crown to make disclosure of material facts, if it seeks a restraint order without notice, just as a claimant in a private civil suit must do if he seeks a freezing order without notice. Now, it is important to recognise the reality of these applications. As Mr Mitchell frankly told us they are always, certainly routinely, made without notice. The reasons are obvious enough. The respondents to such applications are usually charged with or suspected of serious crimes involving large sums of money or money’s worth. The risk of dissipation will generally speak for itself. That is no doubt reflected in Leggatt LJ’s comment in AJ & DJ (Footnote: ⁴⁰): “In the ordinary case, the prosecution would no doubt be unwise not to proceed ex parte”.

It seems to me that there are two factors which might point towards a different approach being taken to without notice applications for restraint orders in comparison to applications in ordinary litigation for freezing orders; but they pull in opposite directions. First, the application is necessarily brought (assuming of course that it is brought in good faith) in the public interest. The public interest in question is the efficacy of s.71 of the Act of 1988. Here is the first factor: the court should be more concerned to fulfil this public interest, if that is what on the facts the restraint order would do, than to discipline the applicant – the Crown – for delay or failure of disclosure. But secondly, precisely because the applicant is the Crown, the court must be alert to see that its jurisdiction is not being conscripted to the service of any arbitrary or unfair action by the State, and so should particularly insist on strict compliance with its rules and standards, not least the duty of disclosure.

The court needs to have both these considerations in mind. But they do not, I think, promote some distinct and separate test for the exercise of the s.77 jurisdiction. They are relevant factors which in his good sense the judge will consider and weigh as they arise case by case.

Mr Mitchell suggested, albeit coyly, that there was a more root and branch distinction between the approach to be taken to applications for restraint orders and applications in ordinary litigation for freezing orders. The argument was that by force of certain provisions in the relevant rules of procedure, notably sc115(3) compared with sc115(6), the application for a restraint order is not merely to be regarded as a “criminal Mareva” but is rather an autonomous process in which a without notice procedure is actually mandated by the rules so as to achieve a swift ring-fencing of the assets of a suspect or defendant. For my part I decline to offer any final judgment upon the merits of this argument, for three reasons. First, it is unnecessary for the disposal of this appeal. Secondly, there is I think a deep question, which would require more extended argument, whether it is within the vires of procedure rules to establish a regime in which application without notice for relief such as a restraint order is to be treated as a standard process requiring no justification. Thirdly, it would involve a departure at least from the emphasis of authorities such as AJ & DJ, and possibly from the ratio; again, we should need to give more extended consideration to such a possibility.

For the reasons I have given I would dismiss the appeal.

In granting permission to appeal Clarke LJ said that the case raised the following questions of principle:-

“(1)

What is the duty of the applicant in making an application for a restraint order . . . to set out its reasons for fearing a risk of dissipation of the respondent’s assets?

(2)

What is the correct approach of the court when the applicant fails to discharge that duty?

(3)

Does the applicant owe a duty to make full and frank disclosure of all relevant facts to the court?

(4)

If so, what is the correct approach of the court to any failure to discharge that duty? In particular, are the principles the same as or different from those applied in the case of such a failure in a civil case?

(5)

What is the relevance (if any) of the applicant’s delay in making an application and how should the court approach such a delay?

(6)

In what circumstances should [the CPS] make an application to the court without notice, and how should the court react to a case in which the applicant should have made the application on notice?”

I entirely agree with Laws LJ’s disposition of this appeal but I consider that it may be helpful to set out shortly my own views on the above questions.

(1) Duty to set out reasons for fearing asset dissipation.

(2) Failure to discharge the duty.

(3) Duty to make full and frank disclosure.

(4) Failure to discharge the duty.

(5) Delay.

(6) Applications without notice.