Serious Fraud Office v A

In this appeal the Director of the Serious Fraud Office contends that the Judge in the Crown Court was wrong to discharge on grounds of want of disclosure a restraint order previously made ex parte under the Proceeds of Crime Act at the request of a foreign investigator.

As is well known, the Proceeds of Crime Act 2002 provides for the Crown Court to have power in an appropriate case to make a restraint order freezing the assets of a person who is either being prosecuted or under investigation, pending the outcome of the case and the decision whether or not those assets are to be confiscated on the grounds that he has benefited from criminal conduct. The same Act, by s 444, authorises the making of delegated legislation to enable similar restraint orders to be made on applications received from foreign countries who are undertaking a criminal investigation or where there are criminal proceedings in train. Such delegated legislation has been made, and is to be found in the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005, SI 2005 No 3181 (“the External Requests Order”). By Article 7(2) of that Order, read with section 447 of the Act, the Crown Court has power to make a restraint order in such a case at the request of any foreign country’s criminal investigator if, so far as is relevant to the present case:

The plain purpose of the restraint order is to prevent a person from dissipating or hiding his assets once he knows that there is a criminal investigation under way, and thus frustrating the power of the Court eventually to make an order confiscating any benefits which he is shown to have enjoyed from criminal conduct. Where the application is made on behalf of the English police or prosecuting authorities, the English public interest in any potential English order not being frustrated in this way is plain to see. Where the application for a restraint order comes from a foreign country, there is still a legitimate English public interest in foreigners not being able to use this country as a place in which to shelter ill-gotten gains or their proceeds. The External Requests Order provides for requests which are received from investigators in foreign countries to be referred by the Secretary of State to one or other of the principal prosecuting agencies in this country for handling, in effect as agent for the maker of the foreign request; in the present case it is the Director of the Serious Fraud Office.

A restraint order is a far-reaching order. Although it takes away no property or assets from the person under investigation, and is by definition temporary in application, it prevents him from using the frozen property in any way until the criminal investigation and any ensuing prosecution is over. That may restrict him considerably in what he can do by way of business or private activity. If it turns out that the person is not shown to be guilty of crime, he may in the meantime have lost a good deal because of the restrictions put upon him by the order. His ability to recover any losses from those who asked for the order is in a domestic case strictly limited by section 72 to cases in which there has been serious default by an investigator of a kind which caused the investigation to continue when otherwise it would not have done; even that limited right to compensation appears not to apply in the case of a restraint order made upon an external request (see Part 2 of the External Requests Order and contrast the position under Part 5 and A 194 when an order has been made in a foreign court and it is being enforced here). The restriction of a restraint order may sometimes last for a long time, though it can be reviewed if it is persisting unfairly. The order has been called draconian, and so it may (deliberately) be.

An application for a restraint order, whether domestic or foreign in origin, is usually made in the first place without notice to the Defendant. This is necessary because if notice were given, most applications could be frustrated by the Defendant moving the assets, or converting them into something else, before any order could be made. But a person against whom such an order is made can readily apply to discharge it on the grounds that it ought not to stand. By this means, he achieves a full hearing on the merits.

Because the initial application is commonly made without notice, the court will not at that stage hear argument on both sides. For this reason, as with other without notice applications, the court insists on full and complete disclosure by the applicant of everything which might affect the decision whether or not to grant the order. There is a high obligation upon such an applicant to put everything relevant before the Judge, whether it may help or hinder his cause. Among many other cases, see Siporex Trade SA v Comdel Commodities [1986] 2 LLR 428 at 431 (per Bingham J subsequently approved by the Court of Appeal in Marc Rich v Krasner [1999] EWCA Civ 581), R v Lewes Crown Court ex p Hill (1991) 93 Cr App Rep 60 at 69, and Jennings v CPS [2000] 1 WLR 1443. This obligation has been common ground before us and further citation of authority is not necessary. We will return later to the consequences of any want of disclosure.

It is for the Judge to whom an application for a restraint order is made to decide whether the conditions which we have set out in paragraph 2 are satisfied. Assistance is given on the approach by Government of India v Quattrocchi [2004] EWCA Civ 40, and this has not been in issue before us.

Assuming the conditions for making an order are made out, whether to make it or not remains a matter of discretion. Mr Miskin QC for the Appellant Director of the SFO would have us say that the legislative “steer” to be gathered from s 69 of the Act and A 46 of the Order is that once the conditions are met an order ought to follow almost inevitably. We have not heard argument from the Respondent on this proposition and our decision does not depend upon it. We say no more than that notwithstanding s 69 and A46 clearly demonstrate the importance of the public interest to which we have referred in paragraph 2, and clearly identify the purposes which any of the many different orders which can be made will (if made) be designed to serve, there may be many factors for or against the making of a restraint order which require individual assessment in each case. Both ss40-41, for domestic cases, and AA7-8, for foreign cases, provide that a restraint order may be made if the conditions are satisfied, rather than that it must be made. Similar provisions appeared in the legislation preceding the Proceeds of Crime Act. We draw attention to what Simon Brown LJ (as he then was) said in Hughes v Customs & Excise [2002] EWCA Civ 734, [2003] 1WLR 177, at paragraph 60 in the associated context of the remuneration and expenses of receivers appointed under a restraint order:

“Given that restraint and receivership orders can, as perhaps these very cases show, bear heavily upon the individuals involved and may leave acquitted defendants with substantially depleted assets, the court should, in deciding whether initially to make, and whether thereafter to vary or discharge, such orders, weigh up the balance of competing interests with the greatest care. The Crown's concern to safeguard an accused's property against dissipation or removal abroad must always be weighed against the possibility that the price to be paid will fall upon an innocent man. It is important that this legislation continues to be operated to strip criminals of their ill-gotten gains. But it is important too that the court keeps a close control over those it appoints to act as receivers on its behalf and that costs are not too readily incurred, particularly before any confiscation order is made.”

See also Lord Donaldson MR in Re Peters [1988] QB 871 at 879E-880B.

In this case a request for a restraint order was received from an investigator in Iran. In the usual way, the initial application was made to the Court without notice to the Defendant. In the Crown Court, Judge Elwen made an initial order on 22 June 2006. Subsequently, the Defendant applied to discharge it. After a full hearing on 5 December 2006, the same Judge determined that discharged it should be, on grounds of a failure of disclosure at the ex parte stage. This is an appeal brought on behalf of the Iranian investigator who contends that that latter decision was wrong.

The background allegation against the Defendant, Mr Al Zayat, is of a large scale fraud on an Iranian government agency, the State Purchasing Organisation, coupled with allegations of bribery or corruption of at least one of its officers. Mr Al Zayat is said to be of Syrian origin. It is common ground that he now has Portuguese nationality and lives principally in Cyprus. He is said to own or control property in a number of countries. On his own account he deals internationally in very large transactions. The allegation is that in 2001-02 he arranged a deal under which an airliner was to be bought from the Sultan of Brunei for US $85m and sold on to the Iranian State Purchasing Organisation for use as a VIP aircraft by senior members of the Iranian Government. Several companies were involved in the chain of proposed dealings. The selling price to the Iranians fluctuated during drawn-out negotiations, but settled at US $120m. Between August 2002 and April 2003, the Iranian authorities paid up front US $120m (or perhaps $118m) which the Defendant or a company controlled by him received. The prosecutor alleges that the money was obtained dishonestly, and in part as a result of a corrupt relationship with an officer of the State Purchasing Organisation, who, it is alleged, received substantial payments from the Defendant. The Iranian prosecutor alleges that this was thus fraud coupled with corruption. He says that Mr Al Zayat has spent much of the money. He alleges that some of it can be traced to the purchase of a Mayfair property and some to satisfying a judgment obtained against Mr Al Zayat in London by the Ritz Casino.

It is common ground that the money was paid up front, that the plane has not been delivered, and that the money has not been returned.

Mr Al Zayat, for his part, says he has been advised not to answer the allegations against him. But he does say that so far as he was concerned this was a straightforward business deal which went wrong. He denies that he knew that he was dealing with the Iranian SPO (at least until late on), and says that although the plane was known to be intended for use for Iranian VIPs, his only dealings were with an Iranian company in the aircraft business, called Saffat Aviation Services. He says that the potential profit was actually much less than it seems because there were enormous expenses, including for example $20m to Lufthansa who had some interest in the plane, and further expense upon undertakings such as conversion of the plane and ensuring that no US sanctions were broken. He appears to be saying that the sale is simply stalled over negotiations as to his expenses, but could yet be completed. There is, he says, no question of fraud; it is a simple commercial dispute. He accepts receipt of $118m. He says that he paid the SPO official no more than his expenses, and that so far as he knew, that gentleman was a director of Saffat rather than an officer of the SPO. He makes some incidental complaints of dishonest dealing against the purchasers. And he contends that since the parties fell out, he has been kidnapped and intimidated in Beirut by people acting on behalf of the Iranian Government.

Except that the original contract to buy the plane from the Sultan was made subject to English law at the insistence of the Sultan, there is no connection between this deal and England and Wales. None of the negotiations are said to have taken place here, nor was any English party involved. But Mr Al Zayat is a frequent visitor to England, and he is said to own real property and to have other assets here. In particular, he is said to have beneficial control, through a variety of companies incorporated in the British Virgin Isles or elsewhere, of the already-mentioned substantial property in Mayfair, worth something of the order of £9m or more, and of about 8 or 9 London flats. There are also said to be other companies owned or controlled by him registered in London, and some bank accounts here also. Thus it is that the application for the English restraint order was made.

The original letter of request for a restraint order was before the Judge at the without notice hearing. It came from an Iranian Judge who said in it:

“I am the Judge appointed by the Head of the Judiciary of the Islamic Republic of Iran to investigate and take all necessary steps in the investigation of a serious and complex fraud committed against the State Purchase Organisation.”

He went on to detail the allegation against Mr Al Zayat and what he had unearthed in the course of his investigation. His letter of request made clear that although he was a Judge, the function that he was performing was effectively that of investigator/prosecutor. It was he who was questioning witnesses and obtaining documents. He spoke of proposing to indict Mr Al Zayat and to seek his trial in absentia if he remained out of Iran. Elsewhere in a long document he described himself as “an investigating judge” (para 38), and referred separately to the anticipated “trial judge” (paras 30, 39). He said that in the former capacity he himself had power to make local orders seizing property which was alleged to be the proceeds of bribery and that he had done so. He said that he was in a position to give the necessary undertaking that any proceedings would not lead to corporal or capital punishment being carried out.

In support of his application to discharge the ex parte order, and although as we have said he preferred not to answer the allegations against him specifically, Mr Al Zayat made a very large number of complaints against the Iranian system generally. Amongst them, he contended that this investigation was being conducted by the military in Iran.

This last of Mr Al Zayat’s contentions resulted in a long second statement from the Iranian investigating judge. On this question, he said this:

“I am an investigatory judge……. Since 1995 I have specialised in substantial cases of financial crime but I deal with cases involving other crimes as well…. [para 1]

[The officer of the SPO] is the principal defendant so far placed under formal investigation and charged. Given his status as a serving military officer and because the victim of the crime is the SPO…this case has been assigned to the Military Branch of the Judicial Organisation…. [para 3]

The investigation branch of the Judicial Organisation and the Military Court are independent of [the ministry] and is manned by the Judiciary. All judges of both the Military Court and the General Public Court are from the Judiciary…. [para 9]

Upon the joinder of Fouad al Zayat to these proceedings the issue arises whether the indictment against him – as a civilian – should be remitted for trial before Military Court No 1 or Public Criminal Court No 1. In practice generally cases are sent for trial before the same branch as the investigation. However, the fact that a case is investigated in one particular branch is not conclusive as to the trial court…. [para 14]

I confirm that on Fouad Al Zayat’s return to Iran I will issue the indictment so that the trial is before the Public Criminal Court……the trial Judge will be one who is experienced in dealing with complex financial crime….. once the matter is remitted for trial I will have no further role in the present case and will take no part in the trial process…. [para 15]

The present case does not involve any military offences (such as desertion); the substantive offences could thus equally be heard in Public Court Number 1 (dealing with serious cases) as Military Court Number 1…. [para 84(2)]

The investigation is carried out by an investigating judge who once he has issued his final report no longer has any role in the case.” [para 84(4)]

He added that both military and public courts are subject to appeal to the same Supreme Court on matters of law and fact. He referred in paragraph 10 to the general level of co-operation between UK and Iranian law enforcement agencies in relation to crimes including drug trafficking. In a later statement also before the Judge on the application to discharge he made clear what was implicit in the earlier statements, namely that it is his assertion that he is a professional Judge trained in the law who specialises in cases of alleged financial crime and may investigate cases within either the civil or the military structure of courts [statement of 3 December 2006, paragraph 6(1)].

Judge Elwen discharged the initial restraint order which he had made. He did so on the sole ground that the original request for the order had not disclosed the fact that it came from the military branch of the Iranian judicial organisation. He treated that as sufficient want of disclosure to lead to immediate discharge. He said this:

“Having considered carefully the competing arguments in the authorities, I am firmly of the opinion that the fact that this external request emanated from the Military Branch of the Judicial Organisation is a matter which I would have taken into account in the exercise of my discretion. It is a factor which would have influenced the decision I would have come to. The jurisdiction I was being asked to exercise is exorbitant and its effects draconian. I view the lack of candour by the overseas authority very seriously indeed. It should have been made plain in the letter of request what the true position was. The status of the requestor is not some minor matter which can be put into the category of mere oversight or lapse of memory, curable by subsequent disclosure. It goes to the heart of the matter and leads me without hesitation to discharge the restraint order.”

The law upon the consequences of non-disclosure has not been in contention before us. Plainly, in order to provide any ground for discharging the initial order which has been obtained without notice to the suspect, any non-disclosure must be material, that is to say it must be of something which would have affected the Judge’s decision on the application. If there has been a material failure of disclosure, that may justify discharging the order, but it need not do so. The proper approach is to consider whether the public interest does or does not call for the order to stand, now that the true position is known, and taking into account the previous failure of disclosure. Whether the non-disclosure was deliberate or accidental will be a material factor, although not necessarily determinative. These propositions emerge from a number of cases: see in particular Brink’s Mat v Elcombe [1988] 1WLR 1350, and Jennings v CPS [2005] EWCA Civ 746 at paragraphs 52-57 and 62-64. A similar approach to a different kind of without notice application in aid of a criminal investigation, namely one for the production of special procedure material, was taken in R v Crown Court at Lewes ex p Hill (1991) 93 Cr App R 60 at 69. Whilst it is appropriate to insist on strict compliance with the rule of disclosure, discharge of the order does not necessarily follow as a means of disciplining the applicant, at least absent what Longmore LJ in Jennings referred to as ‘so appalling a failure’ that that ultimate sanction should be applied.

As well as challenging much of what the investigating judge said, Mr Al Zayat made many allegations about the Iranian system generally. Essentially he contended that there are routine abuses of human rights and that its judicial structures are hopelessly unfair. The entire system, but especially military courts, he asserted to be biased and unfair, and characterised by torture, Government domination and foregone conclusions. There could be, he said, no possibility of his being treated fairly by such an investigation or ensuing trial. The submission made to the Judge was in large part that such alleged characteristics made the omission to disclose the exact origins of the request a sinister one. However, the Judge expressly declined to make any findings on these issues. He held that his decision as to non-disclosure of the military status of the investigation made it unnecessary to do so.

Given that approach by the Judge, we have understandably heard no argument from the respondent Mr Al Zayat upon the question of how far the fairness of the investigation and judicial procedures of the requesting State may be relevant in law to whether a restraint order (as distinct from an order enforcing a foreign confiscation order, as to which see Article 21(1) & (4)) should be made. That topic we regard as less than immediately straightforward. We are, we think, obliged in the circumstances to leave for full argument on another occasion the possible contention that such unfairness (if shown) is relevant under the Soering principle – viz on the basis that there is such flagrant and arbitrary abuse of fairness (not merely a failure to measure up to the European standard contained in Article 6 ECHR) that to give effect to a request would put the UK in breach of its Convention obligations – see for example the discussion in USA v Montgomery (No 2) [2004] UKHL 37 at paragraph 22-29. Similarly we are in no position to resolve any argument that similar factors (if shown to exist) might make it impossible for the Judge to be satisfied for the purposes of Article 7 that there is reasonable cause to believe that the alleged offender has benefited from criminal conduct and/or that property in this jurisdiction may be needed to satisfy a foreign confiscation order.

However, in the absence of any findings by the Judge on these issues of Iranian standards, the difficulty lies in ascertaining why he found that the fact that the investigating judge was in this instance operating within the framework of the military courts made a crucial difference to whether a restraint order should be made. If the investigating judge’s explanation of his own position and of the nature of the investigation is correct, it is not easy to see why it should. If he is right, it is not easy to see why it makes a significant difference that, as a career lawyer, he is in this instance investigating a case proceeding within the military court structure when he operates in a similar way in what he says is a parallel system of civil courts governed essentially by the same rules. If he is right, it is not easy to see why even if the investigator were a military officer that makes a significant difference where the trial will be before a properly constituted civil court. It might or might not be different if Mr Al Zayat were being investigated by a biased or politically motivated officer with a view to a show trial with a pre-ordained end. But there is no finding that that is the case, or even that the contrary has not been sufficiently shown.

In this court, Lord Brennan QC has taken his principal stand upon the Judge’s reference to lack of candour. He invites us to say that the Judge was entitled to conclude that since he had been deliberately misled as to the structure within which the investigation was being conducted, he could not rely on anything else the investigator told him. For example, he could not, it is said, rely on the allegations about the evidence said to exist against Mr Al Zayat, nor on the assurance that the defendant would not be tortured, nor on the undertaking given as to the nature of possible punishment. But this is not what the Judge says; there is no finding that he has been deliberately misled by the investigating judge, and we are quite unable to say that deliberate deception is the only inference which can be drawn from the way this application was presented. That may be the explanation, or it may be that which of two parallel frameworks the investigating judge is operating within is not a matter of particular significance to him and thus did not figure in his original request. To say, as the Judge did, that the fact that the external request emanated from the military branch of the judicial organisation of Iran would have been a factor relevant to his decision is to beg the question of what its effect would have been upon that decision, and why. To answer that unanswered question involves answering the antecedent questions, likewise unresolved, (i) how much if any of the investigating judge’s explanation of the non-disclosure can be accepted, and (ii) what is the import of the undisclosed origin of the request. Without the answer to any of those questions, it is impossible to know whether the non-disclosure was sufficiently significant to justify the immediate discharge of the order. In any event, the Judge has not considered whether the order should, on its merits, stand or fall.

If the conclusion drawn in the Crown Court had been one of deliberate deception, then providing there was sufficient reason for reaching it that might well provide a basis for discharging the restraint order, but in the absence of such a conclusion and, if it be reached, consideration whether or no the order should stand on its merits, we are unable to say that the Judge directed himself correctly. The proper course is for the Judge’s decision to discharge the restraint order to be quashed and the application for discharge to be remitted to the Crown Court for re-determination in the light of this judgment. That would have been our order even in the absence of invitation by the applicant SFO to proceed in this way, but its propriety is reinforced by the fact that the Judge expressly left open, as well as any question of Iranian procedures, the issue whether the application failed because the External Requests Order would wrongly be made to act retrospectively. In addition, at a very late stage immediately before the hearing before us, Mr Al Zayat filed evidence intended to be directed to a quite new submission that a restraint order would violate UN sanctions against Iran, which contention the SFO resists on the basis of material filed necessarily even later. There was no question of there being time available for us to consider fresh material on, or hear argument on, this entirely new topic, and its existence provides a further reason why the application to discharge must be reconsidered by the Crown Court. In the light of the issues now raised, if it is possible for the Presiding Judges of the South Eastern Circuit to arrange for its hearing by a High Court Judge, consistently with the other demands upon their limited time, we think that that would be desirable.

This appeal will be allowed. We quash the order discharging the restraint order and remit the application for discharge to the Crown Court for re-hearing. The restraint order is thus still in force and will remain so unless and until discharged.