AP U Ltd v Crown Prosecution Service & Anor

These appeals arise out of the provisions of the Proceeds of Crime Act 2002 (POCA) relating to the making of restraint orders in respect of the realisable property of those (be they individuals or companies) in respect of whom there is reasonable cause to believe that they have benefited from criminal conduct. Generally speaking, the provisions have a similar effect to those previously contained in the Criminal Justice Act 1988 and the Drug Trafficking Act 1994. It is not necessary for the purposes of these appeals to go through the provisions of those Acts, or indeed the provisions of POCA in any detail.

The narrow issue which we are asked to determine is whether or not section 41(4) of POCA is compatible with the appellants’ rights under Article 1 of the First Protocol to European Convention on Human Rights. This provides:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one should be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

Section 41 of POCA which empowers the court to make a restraint order provides that such an order may apply to all realisable property held by the person in question. Such an order may by sub-section (3) be made subject to exceptions making provision for reasonable living expenses and reasonable legal expenses, and enabling a person to carry on any trade, business, or profession or occupation. But this is subject to sub-section (4) which provides:

“But an exception to a restraint order must not make provision for any legal expenses which –

(a)

relate to an offence which falls within sub-section (5), and

(b)

are incurred by the defendant or by a recipient of recipient of a tainted gift.”

In both appeals, restraint orders have been made. In each case, application has been made unsuccessfully to vary the restraint order so as to permit the release of funds to meet the appellants’ legal expenses in proceedings relating to the relevant offences.

Subsidiary, or to be more exact, consequential, issues arise as to the effect of section 41(4) of POCA on the appellants’ rights under Article 6 of the European Convention on Human Rights. The provisions of that Article with which we are concerned are as follows:

“(1)

In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law…….

………

(3)

Everyone charged with a criminal offence has the following minimum rights:

…..

(c)

To defend himself in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require;

……”

Before turning to the individual appeals it may be helpful to explain some of the background to s.41(4) of POCA, which is helpfully set out in paragraphs 31 to 34 of the decision of this court in In re S Restraint Order; Release of Assets) [2005] 1WLR 1338, an appeal in which, essentially, the same question as the one with which we are concerned was being considered.

“31.

In Mr Perry’s helpful submissions on behalf of the Customs and Excise he began by inviting us to look at the development of the statutory regime. Prior to the 2002 Act the Criminal Justice Act 1988 gave the High Court power to make a restraint order on the application of a prosecutor. The relevant provisions are in sections 76 to 79 of the 1988 Act. The procedure was governed by CPR Part 50, Sch 1, RSC Ord 115 and Practice Direction 115. There were almost identical provisions in the Drug Trafficking Act 1994: see sections 25 to 29. Both section 82 of the 1988 Act and section 31 of the 1994 Act require the court to exercise its power to make a restraint order with a view to maintaining the value of realisable property so as to satisfy any subsequent confiscation orders. The legislative intention was emphasised by Lord Donaldson of Lymington MR in In re Peters [1988]QB 871, 874 D and by Simon Brown LJ in Re Restraint Order Sale of Assets 2001 WLR 473, 479D.

32.

Under the 1988 and 1994 Acts a defendant was permitted to draw sums from funds subject to a restraint order to pay for legal representation. This was, however, subject to the legislative steer towards preserving the assets to satisfy a confiscation order. However the reality was that unnecessary expenditure on legal fees was seriously diminishing the restrained assets: see the Performance and Innovation Unit’s report of June 2000 entitled “Recovering the Proceeds of Crime”. Parliament’s response was to introduce the Proceeds of Crime Act 2002, an extremely complex and comprehensive piece of legislation in 12 Parts run into 462 sections and 12 Schedules.

33.

Amongst many changes, the 2002 Act introduced three that are of particular significance to the present appeal. First, the ability to make a restraint order is moved back in time to the commencement of a criminal investigation. Previously the defendant had to be charged or at least there had to be a settled intention that he would be charged. Second there is a restriction as regard expenditure on legal expenses, and third, public funding becomes available.

The legislative steer is to be found in Section 69(2) of the 2002 Act, which provides:

“the powers [conferred by section 412, 60 and section 62 to 670]

(a)

must be exercised with a view to the value for the time being of realisable property being made available (by the property’s realisation) for satisfying any confiscation order that has been made or may be made against the defendant;

(b)

must be exercised in a case where a confiscation order has not been made, with a view to securing that there is no diminution in the value of realisable property;

(c)

must be exercised without taking account of any obligation that a defendant or a recipient of a tainted gift if the obligation conflicts with the object of satisfying any confiscation order which has been or may be made against the defendant;

(d)

may be exercised in respect of a debt owed by the Crown.”

34.

This steer, he points out is stronger than under the previous legislation. He also referred us to the words of Lord Woolf CJ in R –v- Sekhon [2003] 1WLR 1655, 1658, para 1:

“One of the most successful weapons which can be used to discourage offences that are committed in order to enrich the offenders is to ensure that if the offenders are brought to justice, any profit which they have made from their offending is confiscated. It is therefore not surprising that Parliament has repeatedly enacted legislation designed to enable the courts to confiscate the proceeds of crime.”

……”

With that general overview of the main relevant statutory provisions, we turn to the proceedings with which we are concerned.

AP

In a witness statement dated the 16^th March 2007, made in support of the application for the restraint order to be varied to allow funding for legal representation, an assistant solicitor Jansen Versfeld set out the basis for the appellant’s claim. He pointed out that there was now extensive documentation amounting to some 6,586 pages. Because the Crown was alleging that the appellant had a criminal lifestyle, the appellant was effectively having to justify the movement of all money through his bank accounts which involved, it would appear, some 4,548 individual transactions. The size and complexity of the confiscation hearing had become such that experienced senior counsel would be necessary in order to be able to put the proceedings into a manageable form. The estimated length of the confiscation hearing was said to be six weeks.

The justification for the request for the variation which, prima facie, was precluded by section 41(4) of POCA, was that the representation order had been granted at a time when the funding regime had changed so that the provision of fees for counsel was governed by the graduated fee regime. This restricted payment to counsel to £178.25p per day or £99.50p per half day unless counsel were able to persuade those determining his claim, after the event, that the case required “special preparation”. On the material before us, this could not be guaranteed. The consequence was that no barrister of remotely appropriate experience and ability had been prepared to take on the case from any of the six chambers that the appellant’s solicitors had contacted.

HHJ Mole heard the application to vary the restraint order on the 4^th April 2007. The judge accepted that the proceedings were unusually complex and justified the employment of junior counsel of substantial experience. He was of the view that that was necessary not only for the purpose of enabling the appellant to have proper representation, but also to enable the court to deal with the matter within a reasonable period of time. His conclusion was as follows:

“I would find, as a fact, that it is more likely than not that Mr P will not be able to find counsel of the necessary skill and experience to represent him effectively if that counsel is expected to be paid from public funds by a graduated fee of £178 and some pence per day.

Putting it bluntly; if he must rely on public funding he would not be adequately represented. That is, not adequately represented unless he is able to pay for his own representation because Mr P I am told, is happy, indeed, anxious, to pay his own legal fees and, hence, the application that I amend the restraint order to permit him to do so.

The answer to the application is, indeed, that I cannot do so. That is because of section 41.”

The judge considered that he was bound by the decision of this court in S (supra) which held that the prohibition applied fairly and squarely to restraint proceedings such as the present, and that there was no escape from the prohibition. Mr Shaw QC accepts that in this respect this court is bound by S. He also submits that, on its face, it presents considerable difficulties for his client. In S this court held that legal expenses arising out of the proceedings in relation to the restraint order were expenses relating to the offence under investigation, for the purposes of Section 41(4)(a) of POCA. The court also considered the impact of Article 6 of the European Convention on Human Rights, and Article 1 of the First Protocol. On the facts, the court concluded that there was no breach of Article 6(1) because the appellant had had a full hearing which satisfied the requirements of Article 6. As far as Article 6(3) was concerned, that did not apply to a pre-trial restraint order. As far as Article 1 of the First Protocol was concerned, the Court cited Raimondo –v- Italy (1994) 18 EHRR 237 and held that a restraint order constituted a control of the use of property which was lawful as it served a legitimate aim, namely the preservation of property believed to be the proceeds of crime, for confiscation, so as to deny the offenders their benefit from crime. Mr Shaw submits, however, that the question of incompatibility was not fully explored in that case. His submission is that, precisely because he cannot argue that section 41(4) does not permit him to use the restrained funds for the purposes of legal representation, the section is disproportionate in its effect and accordingly incompatible with this country’s obligations under the Convention. Essentially all that he asked for from us is a declaration of incompatibility pursuant to section 4(4) of the Human Rights Act 1988.

Mr Shaw’s argument is simple. He submits that the prohibition must first be rationally connected to the objective of the legislation and, secondly, that it must go no further than necessary to achieve that objective. As to the objective, he has referred us to the decision of the House of Lords in the appeal of Rezvi, reported as R –v- Benjafield and R –v- Rezvi [2003] 1AC 1099, and in particular to paragraph 14 of the speech of Lord Steyn at page 1152, where he said as follows:

“It is a notorious fact that professional and habitual criminals frequently take steps to conceal their profits from crime. Effective but fair powers of confiscating the proceeds of a crime are therefore essential. The provisions of the 1988 Act are aimed at depriving such offenders of the proceeds of their criminal conduct. Its purposes are to punish convicted offenders, to deter the commission of further offences and to reduce the profits available to fund further criminal enterprises. These objectives reflect not only national but also international policy.”

He submits that this general policy was neatly encapsulated by Simon Brown LJ in In re P (Restraint Order: Sale of assets) [2000] 1WLR 473 at page 481 F, where he said in relation to the 1994 Act:

“The Act is designed essentially to impoverish defendants, not to enrich the Crown.”

He submits that Tugendhat J accurately described a confiscation order in paragraph 68 of his judgment in R –v- Gladd [2006] EWCA Crim 605:

“A confiscation order:

i.

Is a penalty, and is a measure to which Article I of Protocol 1 is applicable;

ii.

It is designed to deter those who consider embarking upon criminal conduct;

iii.

It is designed to deprive a person of profits received from criminal conduct and to remove the value of the proceeds received from criminal conduct for possible future use in criminal conduct;

iv.

It is designed essentially to impoverish defendants not to enrich the Crown.”

He acknowledges that section 69(2) of POCA, which sets out the legislative steer and was set out in full in the passage from the judgment in S which we have cited, requires the court as far as it can to ensure that the value of the realisable property shall not be diminished. But, he submits, that has to be viewed in the light of the overall objective of the statutory powers. Whilst using the funds for legal representation would undoubtedly diminish them, the money is not going to the appellant; he would remain deprived of those funds. Any fear of waste can be properly controlled by the court imposing terms upon the release of any funds. Accordingly, the blanket restriction on the use of funds is either not rationally connected to the statutory objective, or alternatively is a disproportionate response to the mischief with which the restraint order was intended to deal.

Finally, so far as S is concerned, the decision was based on the court’s understanding that Parliament deliberately ensured that public funding was available for defendants where restraint orders were applied for, either before criminal proceedings commenced, or as part of the funding related to the criminal proceedings thereafter. The court however recognised that there might be a problem in relation to funding under some scenarios. In paragraph 44 the court said:

“The question the court is unable to answer, and as to which it is in some doubt, is whether there may be some deserving cases where a person is restrained from using all his assets on the one hand and on the other he is for some reason unable to obtain a public funding certificate. As we have said, the question was not raised before the judge for there were no findings of fact about it. In any event the answer to this question does not in our view inform the question of construction.”

Mr Shaw points out that the matter was raised before the judge in the present case; and the judge made clear findings of fact. Whilst he accepts that this does not affect the question of construction of the section, in other words the question of whether or not a prohibition applies to proceedings relating to restraint orders, it means that S cannot be considered as authority for the proposition that section 41(4) is compatible with Article 1 of the First Protocol where a public funding certificate cannot be obtained, or as in the present case is of no practical value in obtaining appropriate representation.

In response, we have not only heard from the Prosecution, but also from David Farrer, QC on behalf of the Ministry of Justice and the Home Office, the Departments affected by the claim for the declaration of incompatibility. Indeed, it was Mr Farrer who made the main submissions to us in response to those of Mr Shaw. He submits that the only real question is proportionality. The power to make a restraint order is acknowledged to be consequent on a measure which has a proper objective. He submits that that objective is to prevent dissipation of assets which should remain available to meet any confiscation order ultimately made. The steer contained in Section 69(2) of POCA is a clear indication of Parliament’s intent. And Parliament clearly intended, by extending public funding in the way it did, to ensure that public funding replaced the use of the defendant’s own assets. The fact that there might have been other routes which could have been utilised to control the use of those assets does not mean that the means chosen by Parliament was one which it was not entitled to choose in an area of social policy. The fact that there may be harsh results in some cases does not justify the conclusion that the measure is incompatible with Article 1 of the First Protocol, that could only be so if there was such a significant population of those unable to obtain representation that there would be a clear systemic failure to provide the alternative which Parliament had considered appropriate. In any event, where, in individual cases, the potential injustice arises, the court can deal with that, if necessary, under Article 6. But that situation has not yet been reached.

In our view, Mr Farrer is correct. An important point, not dealt with, at least expressly, in any of the cases to which we have been referred, is that a restraint order relates to funds which the prosecution believe could well be the proceeds of crime. To permit, therefore, monies which could well be the proceeds of crime being used to pay lawyers for the benefit of the defendant who is either suspected of being, or has been found to be, a criminal raises a clear social issue. Parliament, it seems to us, is entitled to take the view that funds which may have criminal origins should not be so used. Parliament had to take into account the consequences, namely that other means would have to be provided to enable defendants to have legal representation during restraint and confiscation proceedings. The course adopted was to provide state aid.

As to the adequacy of the aid provided, Mr Farrer points out that the problem in this appellant’s case, arises out of the fact that the level of payment in relation to confiscation proceedings is based on the premise that counsel will have been instructed for the purposes of the criminal trial and so been appropriately remunerated at that stage. Whereas in his case there has in fact been discontinuity in the representation. He asks us to note that the level of fees paid on the grant of representation orders is now substantially greater than the level payable on the representation order granted in the appellant’s case. The problem is not that Parliament has failed to provide, in carrying out the balance to be struck between depriving the defendant of the right to use his own funds, and the provision of State funds, a disproportionate solution; the problem is that in some, atypical cases, the level of funding provided under the state aid scheme does not, on the judge’s findings, attract counsel of the requisite seniority. That issue may have to be addressed when the proceedings are heard, in the light of the appellant’s rights under Article 6.

We agree. The fact that there may be hard cases as a result of a measure does not mean that that measure is incompatible with any Convention rights: see Poplar Housing Association Ltd –v- Donoghue [2002] QB48. The task of the court is best described by Lord Nicholls in R (Wilson)–v- First County Trust Ltd(No 2) [2003] 3WLR 568. That case was concerned with consumer credit and the effects of a failure by a creditor to comply with certain statutory obligations. Having stated that inherent in Article 1 of the First Protocol is the need to hold a fair balance between the public interest and the protection of fundamental rights of, in that case creditors, he continued,

“69.

There must be a reasonable relationship of proportionality between the means employed and the aim sought to be achieved. The means chosen to cure the social mischief must be appropriate and not disproportionate in its adverse impact.

70.

In approaching this issue … courts should bear in mind that theirs is a reviewing role. Parliament is charged with the primary responsibility of deciding whether the means chosen to deal with the social problem is necessary and appropriate. Assessment of the advantages and disadvantages of the various legislative alternatives is primarily a matter for Parliament. The possible existence of alternative solutions does not in itself render the contested legislation unjustified: see The Rent Act case of Mellacher –v- Austria (1989) 12 EHRR 391, 411, para 53. The Court will reach a different conclusion from the legislature only when it is apparent that the legislature has attached insufficient importance to a person’s Convention right. The readiness of a court to depart from the views of the legislature depends upon the circumstances, one of which is the subject matter of the legislation. The more the legislation is concerned with matters of broad social policy the less ready will be a court to intervene.”

The same principle was clearly articulated by Richards LJ in R (Wilson) –v- Wychavon District Council and another [2007] QB 801. He said:

“44.

When reviewing the legislative provisions pursuant to its obligations under the Human Rights Act 1998, the court accords Parliament a discretionary area of judgment, which is the domestic counterpart of the margin of appreciation accorded at the international level, by the Strasburg Court to the state. The extent or scope of that discretionary area of judgment depends on the circumstances, the subject matter, and the background: cf, in relation to the margin of appreciation Petrovic -v- Austria 33 EHRR 307, para 38 and STEC –v- United Kingdom 12 Apr 2006, para 52. Here, there are factors telling in different directions.

45.

On the one hand a wide margin of appreciation or discretionary area of judgement is usually allowed in relation to matters of social or economic policy ….”

In our judgment Parliament was entitled to make the choice it did, that is to conclude that it would be wrong to permit, until the determination of whether those funds were the result of criminal activity or not, such funds to be used for the purposes of providing legal representation, and that a defendant shall rely on the State instead. That choice could only be outside the parameters of permissible decision making if it could be said the state aid was illusory. In the case of individuals, it seems to us that the mere fact that in difficult cases such as that of this appellant, it may prove difficult to attract a barrister of appropriate standing, does not mean that Parliament was not entitled to make that choice. As we have already said, if the result in truth does mean that the appellant, or someone in his position, cannot have a fair trial in Article 6 terms, that can be dealt with at the appropriate time. There is however, a problem which is highlighted by the appeal of U Ltd, which is that state aid is not available for companies. In the vast majority of cases, it is likely that restraint orders and confiscation proceedings will include individuals who will be entitled to State aid. But it is conceivable that that may not be always the case. Once again, we do not see this as undermining Parliament’s decision; it is again a matter for the court when hearing the proceedings themselves.

We accordingly refuse to make a declaration of incompatibility, and dismiss the appeal.

There are in fact two appeals in these proceedings. The first appeal in point of time is by the Revenue and Customs Prosecution Office which had applied for the restraint orders in question. These orders are against U LTD, and the two directors, Michael McGrath and Douglas Wyatt. That appeal relates to a discrete question to which we will return. The appeal which raises the same issue as that of Mr P is the appeal of U LTD against an order of HH Judge Goymer on the 4^th April 2007, refusing an application by U LTD to vary the restraint order so as to permit it to meet its reasonable legal expenses from the restrained funds. For the purposes of this judgment we propose to call U LTD (and where necessary, Mr McGrath and Mr Wyatt) the appellants.

The story, for the purposes of this judgment, starts in February 2007. The appellant company which describes itself as a money transmitting business, transferred 7m Euros on behalf of clients to the account of a company called Currency Solutions Ltd at the Laiki Bank in the United Kingdom. On the 6^th February 2007, Currency Solutions made a disclosure report to the Serious Organised Crime Agency requesting consent to continue to provide facilities to the appellant company. This consent was granted on the 14^th February. On the 16^th February 2007, Laiki Bank sought permission to continue to provide such facilities. On the 21^st February 2007 that request was refused. The Agency was asked to reconsider that refusal. It refused to do so. On the 1^st March 2007, the appellant company lodged an application for judicial review of both of the Agency’s decisions. The application was refused. The appellant company appealed; on the 15^th March 2007, the Court of Appeal granted leave and ordered the Agency to reconsider the question of consent and adjourned the balance of the application to be heard by the Court of Appeal.

It was against that background that the application by the Crown for a restraint order was made ex-parte on the 20^th March 2007 against the appellants, on the grounds that a condition for the exercise of that power had been satisfied, namely the condition in section 40(2) of POCA. The judge was provided with material to establish that a criminal investigation had been started in England and Wales with regard to offences allegedly committed by the appellants and that there was reasonable cause to believe that the alleged offenders had benefited from their criminal conduct. On the 21^st March 2007 the adjourned hearing took place before the Court of Appeal. The judicial review application was referred to the High Court on the issue of whether the Serious Organised Crime Agency had been justified in its original refusal on the 21^st February 2007. The Agency was ordered to pay the costs of the appeal.

On the 4^th April 2007, the appellants applied to set aside the restraint order, alternatively for a variation permitting them to make payments from the restrained funds for the purposes of legal proceedings, that is the proceedings relating to the restraint order and the judicial review proceedings. The judge ruled that no funds could be released in relation to the restraint order as that was precluded by Section 41(4) of the POCA; he ruled, however, that money could be released from the fund in relation to the judicial review proceedings. He adjourned the application to discharge the restraint order; at the adjourned hearing, on the 12^th April 2007, he dismissed that application. The appellants then appealed to this court against the order refusing to discharge the restraint order, and against the refusal to allow the restrained funds to be used for legal expenses relating to the restraint order. This Court dismissed the appeal against the refusal to discharge the restraint order on the 8^th August 2007, and adjourned the appeal against the refusal to vary. The Crown appealed against the variation permitting the use of funds for the legal expenses relating to the judicial review. That appeal was also adjourned on the 8^th August 2007. It is those two adjourned appeals with which we are concerned.

Mr Downes on behalf of the appellants, makes a bolder submission in relation to section 41(4) of POCA than Mr Shaw. He submits that in re S was wrongly decided in the light of the decision of this court in Bowman –v- Fels [2005] 1WLR 3083. That was a case involving civil litigation. The court was concerned, inter alia, with the extent to which lawyers carrying on the ordinary business of litigation on behalf of their clients could be said to have been concerned in any arrangement relating to the use or control of criminal property by reason of the fact only that they were acting in that litigation. The court held that the paramountcy of the right of access to the court under Article 6(1) meant that Parliament would have to use clear terminology if it was to be held that any provision was intended to inhibit that right.

As we understand it, Mr Downes submission’ is that if the effect of section 41(4) of POCA is to result in a litigant being prevented from having access to the courts, that result could only be justified by express words. Where, therefore, the effect of section 41(4) as construed in S would be to preclude a litigant subject to such an order from access to the court, that construction must be incorrect. Either the sub-section must be construed so as to permit money to be made available in such circumstances; or, alternatively the subsection is incompatible with the litigant’s rights under Article 6(1). As we understand it, this is intended by Mr Downes’ to be an additional argument to the argument of Mr Shaw as to incompatibility, which he, generally, embraces.

We accept that Article 6(1) is engaged. But it is to be noticed that the rights of access guaranteed by Article 6(1) are significantly less stringent than those required under Article 6(3). The question is whether or not the litigant has effectively been prevented from being able to present his or her case. Whilst we were provided with detailed submissions upon this right, together with the effect of the concept of “equality of arms”, the fact is that the appellant’s have been able to exercise their rights under Article 6(1) fully in the litigation up until now. Bearing in mind, however, the fact that, as we noted in AP’s appeal, state aid will not be available to the appellant company, questions may arise in the future as to whether or not the proceedings may have to be stayed because of potential unfairness. That situation has not yet arisen. The appellants appeal is dismissed.

We then turn, finally, to the appeal of the Crown in relation to the judge’s variation of the restraint order permitting release of money out of the fund in relation to the judicial review proceedings. The question raised is one of statutory construction of section 41(4)(a) of POCA. Did the judicial review proceedings “relate to an offence” that is an offence in relation to which a criminal investigation had been started, which was the condition which had to be met for the court to be entitled to impose the restraint order. The Crown’s case is simply that the events in February 2007, that is the circumstances surrounding the disclosure reports, were all matters connected with money laundering which, in general terms, was the offence into which the criminal investigation had been started, as disclosed in the witness statement relied upon by the Crown before the Judge applying for the restraint order. Mr Downes has valiantly attempted to persuade us that there is no proper connection between the events of February 2007 and the offence or offences into which the criminal investigation began. In particular he pointed to the fact that no money laundering offences were committed if consent was given for the transaction disclosed. But that fails to grapple with the Crown’s argument. Consent may relieve the bank of any criminal responsibility for a transaction in question; but that does not mean that in relation to others involved in the transaction, it may not amount to or form part of a dishonest money laundering scheme. The Crown’s case is that the disclosure reports were triggered by transactions which were suspected of being part of such a scheme. That being so, it seems to us that there is a sufficiently clear connection between the offence or offences into which there was the investigation to mean that the judicial review proceedings “related to” that offence or offences.

We accordingly allow the appeal by the Crown so that the appellant’s application to vary the restraint order is refused.