Crown Prosecution Service v Richards & Anor

This is the judgment of the court, largely drafted by Hedley J., on an application, by the CPS, to appeal against orders made on 3^rd November 2005 by Bennett J sitting at Liverpool concurrently in the Administrative Court and the Family Division. We granted permission to appeal at the outset of the hearing.

The question raised in this appeal is short but important: how does the court resolve the conflict between a public policy imperative to deprive offenders of the fruits of their crime and the requirement that dependants are provided for after divorce when the only funds available for both are the same?

In this case there were two sets of concurrent proceedings. In the Administrative Court, Bennett J. was dealing with an application for a restraint order in proceedings under the Drug Trafficking Act 1994 which covered the whole of the assets of a convicted drug dealer, Anthony Richards. In the Family Division he was considering the claims of the wife, Lindsay Jane Richards for ancillary relief under the Matrimonial Causes Act 1973 for herself and the child of the family Ben, who was born on 26^th February 2001.

For the purposes of this appeal the salient background can be stated quite shortly. The parties’ relationship began in 1994 when both were in their very early twenties. Mr Richards became embroiled in dealing in heroin and in particular in its importation from Holland. He was arrested in Holland in connection with a consignment of 169 kilos of heroin (worth about £8.8m in the UK market), was convicted in Holland in the summer of 2004 and was sentenced to 10 years imprisonment which he is currently serving. There are outstanding confiscation proceedings against him in Holland, which it is thought should be determined later this year.

The wife had begun divorce proceedings in October, 2003, which were undefended and concluded in the making Absolute of the Decree of Divorce on 9^th June 2004. The way was, thus, clear for her to seek final orders by way of ancillary relief.

Although the husband’s assets were all in this country, they were susceptible to Dutch confiscation proceedings by virtue of the Drug Trafficking Act 1994, (Designated Countries & Territories Order 1996) (S.1. 96/2880)). The learned judge correctly stated the effect of that order in his approval of the following passage from the skeleton argument of counsel for the CPS: –

“The Netherlands is a designated country. The CPS acts on behalf of the government and the husband was prosecuted in Holland. The Dutch court will shortly consider making a confiscation order against him, the effect of which is to require him to pay a sum of money in order to deprive him of the proceeds of drug trafficking…

Such an order (which under DCTO calls ‘an external confiscation order’) if made, may be enforced in England by registration pursuant to section 40 of the Drug Trafficking Act 1994, and then by appointment of a receiver pursuant to section 29 of Schedule 3 of the Statutory Instrument.

The powers of the Administrative Court to make restraint and receivership orders where there is, or may be, an external confiscation order in a designated country are the same as its powers where the confiscation order that has been, or may be, made is a domestic confiscation order made on conviction for a drug trafficking offence in the Crown Court.”

The Administrative Court had, indeed, made a restraint order on 3^rd November 2003 which, subject to a consensual variation on 22^nd March 2004, remained in force at the date of the order now under appeal. The order covered all the then known assets of Mr. Richards, including three properties (one of which was the former matrimonial home) and two bank accounts. The estimated maximum confiscation order which it is anticipated will be made by the Dutch courts is €871.836 (£534,000), a sum which exceeds the value of the restrained assets.

The present position of the wife is that she lives at 43 Inglewood Road, Rainford, the former matrimonial home, with Ben. She would like to remain in the Rainford area near her parents who have undoubtedly been very supportive. Her case, as put to Bennett J, was that she would need £150,000 to re-house herself and Ben in the Rainford area and that she would accept that in full and final satisfaction of her ancillary relief claims.

In his full and considered judgment Bennett J made a number of crucial findings of fact which are not susceptible to challenge. First, he concluded that the net value of the four properties of which he found the husband to be the beneficial owner was £431,000. Secondly, he found that the wife (by reason of a gift from her parents) had a 13.3% beneficial interest in the former matrimonial home which he quantified at £35,750. Thirdly, he found that all the family assets (other than the gift) were the proceeds of drug trafficking. Fourthly, he found it ‘highly likely’ that the husband had other undisclosed assets; and finally he found that “the wife knew that the husband was involved in criminal activities and that she really knew that from the word go.” It follows that the family assets comprise tainted money which the wife must have known was tainted.

It also follows that the whole of the family assets (save for £35,750) are susceptible to confiscation by the Dutch court and that that is enforceable in this country. Furthermore, it follows that these are the only assets to which the wife and Ben can look for their future housing and support. Hence the issue which the learned judge was required to determine.

The Judge ordered a sale of all the properties, declared she was entitled to £37,750, ordered a lump sum of £39,250 out of the net proceeds of sale and then subjected the remaining assets to a restraint order so as to satisfy any confiscation order made by the Dutch Court. The precise issue in the appeal is whether he was plainly wrong (or wrong in law) to order the lump sum of £39,250; the answer depends on the resolution of the issue identified at the outset of this judgment.

Bennett J sets out his essential reasoning in paragraph 73 of his judgment identifying fifteen considerations that he had taken into account. He had also considered the judgments of this court in Re MCA, known in full as: Customs & Excise Commissioners v A & Another, A v A [2003] Fam 55. Essentially he conducted a classic discretionary balance. He took into account the cardinal factors of the tainted money and the wife’s guilty knowledge, which he reflected in a significant discount on the lump sum actually awarded, whilst still giving effect to Section 25(1) of the 1973 Act which required him to make Ben’s welfare his first consideration.

Mr Talbot, on behalf of the CPS (supported by Mr Lazarus on behalf of the husband) challenges the judge’s decision to engage in any discretionary balancing exercise at all. Despite an elaborate skeleton argument, the essence of his submissions was straightforward. He contended that public policy required that drugs dealers were deprived of the fruits of crime and that those fruits should not be distributed to others, least of all those with guilty knowledge of the origin of those assets.

He developed that submission by demonstrating that that was the clear policy of the Drug Trafficking Act 1994 (and continued by its successor the Proceeds of Crime Act 2002). The Act was in furtherance of international obligations assumed by this country on signing and ratifying the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988 (the Vienna Convention), especially under Articles 3 and 5 thereof. He then submitted that that policy had been essentially recognised by this court in Re MCA (Supra).

In Re MCA the court upheld an ancillary relief order made in respect of sums subject to enforcement proceedings in relation to a criminal confiscation order. However, submitted Mr. Talbot, that was to be seen as a wholly exceptional case dependent on two central findings: that the sums subject to the ancillary relief order comprised ‘clean’ money; and that the wife had no knowledge of the husband’s criminal dealings. At paragraphs 36-37 of the court’s judgment, Schiemann LJ said this: –

“A finding of fact made by Hooper J in the proceedings under the 1994 Act and confirmed by Munby J is recorded in para 41 of the latter’s judgment [2002] EWHC 611 (Admin) in these terms - ”

“The wife’s evidence is that she had no knowledge of the husband’s criminal activities, that she never saw anything to alert her to what he was doing and that it all came as an incredible shock to her when he was arrested. Very fairly and properly Customs, both before Hooper J on 4 October 2001 (see In re A [2001] EWHC Admin 773, para 10) and again before me, accepted that no part of the equity in either the house or the policies was acquired with the proceeds of drug trafficking and that the couple had separated before the husband had started his drug trafficking activities. Indeed, says Mr Bird, the wife went so far as to assist the authorities by giving the prosecution a statement, though in the event she was not called at the trial. As Hooper J said, the wife ‘is not only innocent of any involvement in drug trafficking, but she also lives in a house and enjoys the benefit of policies all untainted by drug trafficking.”

I regard this finding as being of critical importance.

By way of contrast, Mr Talbot points to paragraph 13 of the judgment where these words appear: –

“In short, in deciding whether to exercise its powers to make a property adjustment order under section 24 of the 1973 Act, the court would be bound fully to take into account any order made under the 1994 Act and to decide whether or not, in all the circumstances of the case it was appropriate to exercise the discretion under section 25 of the 1973 Act to make a property adjustment order under section 24, or whether it was appropriate to decline to make such an order and to allow the 1994 Act order to be enforced. It is not difficult to envisage cases in which the latter would be the correct course – an obvious example being where the matrimonial assets were the fruits of drug dealing in which both parties were engaged or complicit. That, however, is wholly different question from whether the terms of the 1994 Act prevent the court exercising its 1973 Act jurisdiction at all.”

That, he contends, is this case. It is also helpful to note the words of Judge LJ at paragraph 90 where he says: –

“Second, however the provisions of the 1994 Act may apply in the context of property jointly owned by a criminal and someone other than his spouse, the marriage, and the dissolution of the marriage, and the consequent rights of the innocent spouse are not subsumed by the 1994 Act. “Innocent” in this context is not a reference to the circumstances in which the marriage broke down, but underlines that the acquisition of the home was untainted by criminality by either party to the marriage, and that the wife herself enjoyed no personal benefit, direct or indirect, from her husband’s drug dealing. The purpose of the 1973 Act is to ensure, among other considerations, an equitable adjustment of the property rights of both spouses at the end of the marriage. The court is empowered, if appropriate, to extinguish some or all of the rights of one spouse and transfer the benefits of those rights to the other. All marriages are subject to the provisions of the 1973 Act: the marriages of criminals and drug dealers are not excluded. Moreover, the powers under the Act are wide enough to enable the court to look into and disapply any collusive agreement designed to enable the drug dealing spouse to find a safe haven for the profits of crime, or to refuse to transfer property rights from one spouse to the other, if they represent the proceeds of crime.”

Lastly it is useful to look at what Wall J (as he then was) said at paragraph 101: –

“Substantively, I agree entirely with Judge LJ’s judgment and am strongly of the opinion that the judges of the Family Division in dealing with future applications of the type exemplified by this case will be astute to balance the public interest represented by the 1994 Act with the public interest in the protection of the rights of spouses under Part II of the 1973 Act. There can be no question of the 1973 Act being used as a means to circumvent the provisions of the 1994 Act, and I am confident that the judges will be acutely alert to ensure this is not the case.”

Mr. Talbot submits that MCA is exceptional and depends on the specific finding that the wife was innocent, ignorant of the criminal source of some of the assets, and some of the assets were untainted by drug money. By contrast, the instant case, however, it is submitted, has nothing exceptional about it and that on these facts the learned judge should not have sought to distribute assets available for confiscation, when the wife had guilty knowledge of their true origins. By way of example, Mr. Talbot points to the case of Harris v Harris (unrep) 11^th June 1997, where this court recognised that the interests of the family had to be postponed to those of the victims of the dishonest husband.

It was clear that Mr. Sharpe for the wife faced a difficult task. This he addressed with consummate skill, attractive clarity and beguiling simplicity of approach. He started with the undoubtedly correct proposition that Re MCA established that there was no priority between the 1973 and 1994 Acts. He then submitted that it was, accordingly, incumbent on the learned judge to undertake the discretionary exercise required by Section 25 of the 1973 Act given that there were significant assets in which the husband had a beneficial interest. In so doing, the judge was required by Section 25(1) to give first consideration to the welfare of Ben and in undertaking that exercise the judge had concluded that the essential need was for housing. Mr. Sharpe points out that the consequence of the order would be less ample accommodation in a less desirable area. Thus, he submitted, Bennett J, had correctly approached the discretionary exercise, had taken every material issue into account and had arrived at a conclusion not susceptible of challenge on usual appellate principles. Moreover he invited our attention to the speech of Lord Hoffman in Piglowska v Piglowska [1999] 2FLR 763, where at p.784 (F-H) he says: –

“The exigencies of daily courtroom life are such that reasons for judgment will always be capable of having better expressed. This is particularly true of an unreserved judgment such as the judge gave in this case but also of a reserved judgment based upon notes, such as was given by the district judge. These reasons should be read on the assumption that, unless he has demonstrated the contrary, the judge knew how he should perform his functions and which matters he should take into account. This is particularly true when the matters in question are so well known as those specified in s.25(2). An appellate court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow textual analysis which enables them to claim that he misdirected himself.”

In short, Mr. Sharpe submits that this very experienced judge must be taken to have considered everything that he should have considered and that he has arrived at a conclusion to which he was well entitled to come and which accordingly should not be disturbed.

Mr. Sharpe (by way of subsidiary submission) pointed out that if public policy required the wife to receive nothing then the public through the social security and housing benefit system would pick up the bill. He questioned both whether that made sense and suggested that that might provide a reason in this case for concluding that public policy under the 1994 Act was not decisive. He pointed out that the judge’s order would not in fact leave her conspicuously better off than if she were to receive nothing at least in terms of quality of housing and disposable income.

The father’s support of this appeal is essentially based (as Mr. Lazarus conceded) on his desire to preserve the maximum assets to satisfy a confiscation order, so as to mitigate the risk of his having to serve any consecutive sentence of imprisonment for failure to meet such an order. It should be added, as Mr. Sharpe pointed out, that if (as Bennett J thought) the husband had undisclosed assets, the refusal of ancillary relief to the wife would confer an unmeritorious benefit on the husband.

We have come to the conclusion that in making the order he did, the learned judge fell into error. Although the learned judge found that all the assets were tainted as the proceeds of drug dealing and although he reminded himself of the relevant passages from Re MCA (Supra), he failed to give sufficient weight to the inevitable consequences of that finding.

The learned judge was of course correct to identify that a real value should be ascribed to the wife’s present and future care of Ben and that this was the only occasion on which (as respects the husband) this could be done. We recognise the need to give effect to the statutory prescription in Section 25(1) of the 1973 Act. But in our view the judge failed to appreciate the significance of the decision in Re MCA.

This court in Re MCA clearly anticipated, in a case such as this, assets should not be distributed – see paragraph 13 quoted above. In the instant appeal the whole of these tainted assets should be subjected to confiscation procedures and simply not distributed to satisfy any ancillary relief order. We had wondered, at one stage, whether the judge could have met the policy objection by making the order in favour of the untainted child under Section 23(1)(f) of the 1973 Act but that is clearly open to the same objections that no assets available should be distributed where, to the knowledge of the applicant seeking relief, they were derived from drug trafficking.

Where assets are tainted and subject to confiscation they should ordinarily, as a matter of justice and public policy, not be distributed. This is not to say that the court is deprived of jurisdiction under the 1973 Act nor to say that no circumstances could exist in which an order would be justified; an example of a seriously disabled child living in specially adapted accommodation was mooted in argument. It is to say that, in most cases, and certainly in this one, the fact that the assets are tainted is the decisive factor in any balance. The error of the judge lay in thinking that the requirement to conduct a balancing exercise meant that in every case, all factors are relevant. In cases such as this the knowledge of the wife, throughout her married life, that the lifestyle and the assets she enjoyed were derived from drug trafficking is dispositive.

In Section 24 of the 1973 Act the reference is to property to which “the party is entitled”. Whilst, of course, pending confiscation the husband remains the ‘owner’ of the assets, he has in reality forfeited ‘entitlement’. This is, of course, another sad example, all too familiar to family judges, of the fact that the court cannot protect children from every consequence of their parents’ behaviour.

It has to be borne in mind of course that proceeds of crime can be attacked even when held in hands other than those of the criminal. That much is clear from Part V of the 2002 Act. There was some discussion before us as to whether funds in the hand of a person pursuant to an ancillary relief order were susceptible to challenge under Part V. Whilst (assuming the court making the order had known all the relevant facts) we were doubtful whether such a challenge could successfully be made, final determination of that issue would have to await much more detailed argument and consideration than was appropriate or necessary to determine this appeal.

In consequence the appeal will be allowed. The order for a lump sum of £39,250 in the ancillary relief proceedings will be set aside and the restraint order will be varied by substituting for the figure of £75,000 in paragraph 4(c) thereof the figure of £35,750.