JS v R

JS appeals against a decision of HHJ Lambert made on 14 September 2009 to vary a restraint order.

We announced at the conclusion of the hearing that the appeal succeeded. We were asked to hand down a judgment quickly so that it would be available by Wednesday morning and we agreed to do so. We now give our reasons.

On 16 May 2007 a restraint order prohibiting the disposal of assets was made against the appellant. Similar orders were made against a company LS and a co-defendant JR. Paragraph 6 of the restraint order made against the appellant lifted the corporate veil by ordering that the assets of LS were to be treated as the assets of the appellant.

JS and JR are awaiting trial for what is commonly known as a carousel fraud. We were told that the conspiracy covers a period ending in 2005, but that the prosecutor had given the usual warning that if a defendant sought to show that trading before or after the indicted period was honest, then the prosecution reserved the right to refer to trading outside the indicted period.

JR resigned as a director of LS in 2008 but he retains a (frozen) half share in the assets of LS.

The appeal concerns paragraph 9 of the order and, in particular, paragraph 9.2. The paragraph reads (we set it out exactly as it appears in the material before us):

9.

Subject to any further order of the court any information given in compliance with this order shall only be used:-

i.

for the purpose of these proceedings;

ii.

if the Defendant is convicted, for the purposes of any confiscation hearing that may take place; and

iii.

if a confiscation order is made, for the purposes of enforcing that order, including any receivership proceedings.

9.2.

there shall be no disclosure of any material disclosed in compliance with this order to any co-defendant in the criminal proceedings.

9.3.

However, nothing in this paragraph shall make inadmissible any disclosure made by the Defendant in any proceedings for perjury or contempt of court relating to that disclosure.

This paragraph is unhappily worded. There is no “.1” and 9.2 starts after a full stop but in lower case. The origins of paragraph 9 can be found in Re C, a decision of Collins J in the High Court of Justice, Queen’s Bench Division on 4 September 2000 (DTA/7/00). In that the judge approved a draft prepared by both counsel. In the approved draft what is 9.2 in our case was a separate un- numbered paragraph. Collins J. envisaged that there could be circumstances in which the prosecution obtained a variation of the order to enable disclosure to a co-defendant of material exonerating him but not in such a way that the material could be used against the provider of the information to incriminate him.

The purpose of a paragraph like paragraph 9.2 is to provide the defendant with an assurance that information given in response to an order for disclosure cannot and will not be used as evidence to incriminate him. Absent such an assurance the defendant would have the right to refuse to provide the information if it would tend to incriminate him. See In Re O [1991] 2 QB 520, approved by the House of Lords in A.T. and T.Istel Ltd v. Tully and another [1993] AC. Collins J in In re C explains the consequences of the coming into force of the Human Rights Act 1998 in the light of Saunders v. UK (1996) 23 E.H.R.R. 313 (ECHR).

The variation order which the respondent sought and obtained before HHJ Lambert would enable the respondent to disclose to the co-defendant JR material which, under paragraph 9.2, could not be disclosed to JR. The material part of the ordered variation inserts a new paragraph 9.4:

The Crown be permitted to serve upon [J R] and his legal representatives, not before 14.00 on the 17^th September 2009, the following material for the purposes of allowing them to (1) determine whether or not to make any representations in respect of the Receivership application currently pending before the Crown Court sitting at Bristol and (2) make such representations in those proceedings as they deem appropriate:-

1.

The witness statements of Shahzary Mustafa dated the 23^rd July 2009 and Darren Wilkinson dated the 16^th July 2009.

2.

The exhibits referred to within, and attached to, those statements.

b.

The documents referred to in paragraph 9.4a above are to be used solely for the purposes set out in that paragraph and for no other purpose; they are to be disclosed to no other person or used in any other manner without the permission of H.H.J Lambert or the Senior Circuit Judge of the Crown Court sitting at Bristol

The respondent sought the variation order because it is seeking a receivership order and because of the view it takes about the effect of section 49(8) of the Proceeds of Crime Act 2002. The effect of this section is that a court shall not confer on a receiver the power to manage or otherwise deal with restrained realisable property or the power to realise property to meet the receiver’s remuneration and expenses “unless it gives persons holding interests in the property a reasonable opportunity to make representations”. JR has by letter asked to see the material upon which the respondent relies to obtain the receivership order. The respondent would be in breach of paragraph 9.2 if it complied with this request and thus seeks the variation. Counsel for JR did not make any representations to HHJ Lambert. He was ready to do so but the judge (in his absence) varied the order in the way sought thus making it unnecessary to hear from counsel for JR.

The appellant was required by paragraph 8 of his original order to disclose his assets. He did so and the respondent does not intend to serve any material so disclosed.

In 2007 a variation of the appellant’s restraint order was made which permitted LS to continue trading. The permission was subject to conditions requiring JS to supply monthly to the respondent certain stipulated trading records. JS complied and continues to comply with this obligation subject to some possible exceptions.

The respondent rightly accepts that paragraph 9.2 prevents the respondent from revealing the trading records to JR, unless varied.

In 2009, after JR had ceased being a director and whilst JS was continuing to run the business, the respondent formed the view that JS, using LS, was (or might well be) carrying out a carousel fraud. That view was reached following a detailed examination of the trading records disclosed in accordance with the obligations imposed upon JS and a comparison of that material with material obtained by the respondent from other sources (and not subject therefore to paragraph 9.2).

Although the respondent might well have sought a variation of the order to prevent JS and LS trading, it has not taken that course. It decided, instead, to seek a receivership order. It is said that a receiver would be able to investigate in more detail than the financial investigators “the trading activity of the companies” to “permit and facilitate proper and legitimate trades and to prevent those that cannot be so categorised” (see paragraph 143 of the statement of Darren Wilkinson). We note in passing that the judge on the application for a receivership order will have to consider whether this is a proper justification for having a receiver appointed, having regard, in particular, to section 69 of the Act. By virtue of sub-section (2) the power to make restraint or receivership orders:

(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 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;

The judge in his ruling said that he did not apprehend any breach of the privilege against self-incrimination “or not one that is such that the court cannot countenance in any event”. We do not agree. The co-defendant might wish to show that it was the appellant and not him who committed the fraud, as evidenced by the fact that the fraud continued after he had resigned.

The judge ordered the co-defendant not to disclose the documents to any other person or use them other than for the receivership application without the permission of H.H.J Lambert or the Senior Circuit Judge of the Crown Court sitting at Bristol. We do not believe that this provides the appellant with the safeguards which paragraph 9 gave him.

The judge was in our view wrong to conclude that the order which forbade the respondent from disclosing to the co-defendant material supplied in pursuance of the order could so easily be set aside retrospectively. Paragraph 9 is a very important provision designed to preserve the appellant’s privilege against self incrimination whilst giving the state the pre-trial power to identify and preserve the defendant’s realisable property pending a possible conviction. It is designed to ensure that a defendant tells the truth about his assets and expenditure in the knowledge that what he discloses will not be used (particularly) in the pending criminal proceedings by either the prosecutor or co-defendant.

We do not need to decide whether an order of the kind made in this case could ever properly be made when material has been previously disclosed with the protection afforded by paragraph 9(2) or similar provision. But in our view there was no justification for making the order in this case and it is difficult to imagine a case when such an order would be justified upon an application to appoint a receiver.

The material before the judge did not begin to justify the removal from the appellant of the protection accorded to him by paragraph 9.2 of the Order. JR’s solicitors had not in correspondence put forward any specific reason why they should see the materials. They proceeded on the basis - no doubt reasonable enough if there were no other interests involved - that if they were to be heard on the application they ought to see the evidence adduced in support of it. The Crown's case appears to have proceeded on the basis, and the judge appears to have accepted, that it was self-evident that JR needed to have access to the disclosed materials, or information derived from them, in order to exercise his right under s. 49 (8). We cannot agree. The fact that the evidence in question referred to material whose disclosure was prima facie prohibited by paragraph 9.2 makes a fundamental difference. It was essential that an analysis be done of how access to the materials might assist JR in relation to any relevant submissions that he might realistically wish to make and which it was in the interests of justice that he should have the opportunity to make. If they could not realistically assist him in making such representations there could be no possible justification for depriving the appellant of the protection of paragraph 9.2. JR had no involvement with any of the trading during the relevant period, and it was in the highest degree unlikely that he would have anything to contribute to the issue of whether there was reason to believe that fraudulent trading was continuing: it was fair to proceed on the basis that the Appellant would say all that could properly be said to rebut the Crown's case on that point. Mr Dennison submitted that JR might well wish to make representations about the prejudice to the value of his interest in the business which would be caused by the cost of the receivership; but that is something which he could do in any event. No doubt for that purpose, and generally, he needs to be told the nature of the Crown's case in so far as it is supported by material which can be supplied without infringing paragraph 9.2; but it was not demonstrated either to the judge or to us that he needed the disclosed materials for the purpose of any other proper submission which he might reasonably wish to make. We accept that both the judge and this court did not have the advantage of submissions from JR’s counsel. We considered adjourning the appeal to allow for such representations but it would not have been feasible in the time available.

We allow the appeal and quash the variation.