Rezvi, Re the Criminal Justice Act 1988

This case raises the question whether the Court should make an order requiring a receiver appointed under Part VI of the Criminal Justice Act 1998 to pay out of the defendant’s assets legal costs incurred by him in an unsuccessful appeal against a confiscation order made under section 71 of that Act. It is submitted on his behalf and on behalf of the CPS that such an order would be inconsistent with, and is precluded by, the provisions of the statute. It is submitted on behalf of Magrath & Co, to whom I shall refer as “the solicitors”, that the court has a discretion to make such an order and should do so in the circumstances of this case, where the CPS agreed for a considerable period that their costs should be paid out of the defendant’s assets, and in view of the importance of enabling defendants to fund appeals against conviction and against the making and amount of a confiscation order.

Section 41(4) of the Proceeds of Crime Act 2002 expressly prohibits provision in a restraint order for legal costs that relate to (in summary) an (alleged) offence on the basis of which the order is made. It does not apply to restraint orders or receivership orders made under the 1988 Act.

In late 1995, the defendant was promoted to the position of assistant financial controller at St Giles Hotel, Bedford Avenue, in London. In February 1999, he was arrested, and in May 1999 he was charged with 14 counts of theft and obtaining monies by deception from the hotel between April 1997 and February 1999. On 30 June 1999, a restraint order was made against him under section 77 of the 1988 act. In October 1999, the defendant pleaded guilty to 2 counts of theft of sums totalling £10,000. Those counts charged offences alleged to have been committed in February 1999. The Crown did not seek convictions on the other counts of the indictment against the defendant. On 10 April 2000, he was sentenced to 15 months imprisonment concurrent on each of the 2 counts of theft. His Honour Judge Ader made a confiscation order in the sum of £214,839, being the lesser of the amount determined as the defendant’s benefit from crime and the value of his realisable property.

On 24 October 2000, Scott Baker J (as he then was) made a further restraint order and a receivership order. The restraint order included an exception permitting the defendant to spend sums on legal advice and representation “in connection with this order and these proceedings”. The receivership order referred to the application of the CPS to appoint a receiver over the assets of the defendant in order to enforce the confiscation order. It appointed the receiver as the receiver of the realisable property of the defendant. It contained no exception relating to any legal fees that might be incurred by the defendant.

The defendant appealed to the Court of Appeal against the confiscation order. His appeal was dismissed on 21 December 2000. He sought and obtained Leave to Appeal to the House of Lords.

On the 26 September 2001, this court made an order with the consent of the defendant and the CPS varying the restraint order of 30 June 1999 so as to permit the defendant to spend money on his legal fees incurred “in the appeal against sentence in respect of the criminal proceedings, to which these proceedings are ancillary, in the Court of Appeal and in the House of Lords”. Curiously, no variation was sought of the receivership order. It is not clear why the restraint order of 30 June 1999 was continued in effect, given that an order had subsequently been made on 24 October 2000.

On 24 January 2002, the House of Lords dismissed the defendant’s appeal against his confiscation order.

The solicitors acted for the defendant on a privately funded basis in his appeal to the Court of Appeal. Their bill of costs totals over £56,000, inclusive of VAT. The defendant approved their bill in writing. The front page of the bill contains a statement that the costs were to be paid out of the realisable property subject to a restraint order, but there is no evidence that the defendant had been advised as to its effect or that he agreed to the costs being so paid.

The assets subject to the receivership order are insufficient to satisfy both the solicitors’ bill of costs and the confiscation order.

On behalf of the defendant, Miss Wicks submitted that to make the order sought by the solicitors would be inconsistent with the provisions of section 82(2) and (6) of the Act. She drew a distinction between the position of a defendant before his conviction and the making of a confiscation order and after. Before conviction and the making of a confiscation order, the defendant is presumed innocent and provision may be made for his legal costs; after conviction and the making of a confiscation order, there is no such presumption, and the statute requires assets subject to a receivership order to be made available solely for satisfaction of the confiscation order.

The defendant’s motive for objecting to the order sought by his former solicitors is his concern that if his realisable property is used to pay his legal costs, he will be liable to serve the default sentence of 3 years’ imprisonment passed by His Honour Judge Ader. I do not find that consideration convincing. If the realisable property of a defendant is reduced as a result of an order of the High Court on an application such as the present so as to be insufficient to satisfy a confiscation order, it is difficult to envisage that that Court would refuse to grant a certificate of inadequacy under section 83(1) of the Act or that the Crown Court would refuse to reduce the amount of the confiscation order under section 83(3).

The solicitors have every reason to feel aggrieved. They point out that if their application is not granted, it is difficult to see how their fees will be paid. If the defendant’s contentions are well founded, defendants may be unable to obtain legal representation for their appeals against confiscation orders and convictions. In the present case, although the defendant’s appeal was ultimately unsuccessful, it must have been arguable since leave to appeal to the House of Lords was given. Furthermore, over a long period after the defendant’s conviction and the making of the confiscation order the CPS agreed in correspondence to the payment of the solicitors’ costs out of his restrained assets. The solicitors did not however contend that the CPS are estopped or otherwise precluded from opposing their application.

On the question of the effect of section 82 of the Act, Mr Purchase pointed out that it applied to the making of a restraint order and a receivership order before conviction and the making of a confiscation order as well as after. He submitted that it followed that no difference in principle could apply to such orders made before and after the making of a confiscation order.

The CPS adopted the defendant’s submissions. They contended that their representations to the solicitors were irrelevant, since they had no power to vary or to depart from the legislative scheme.

The power to make a restraint order under section 77 of the Act is exercisable at any time after proceedings have been instituted against a person for an offence to which Part VI applies until a confiscation order, if made, is satisfied: see section 76 and the definition of the conclusion of proceedings in section 102(12). Section 77(1) confers power on the High Court to make a restraint order that “prohibits any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order.” Section 77(2) expressly provides that a restraint order may make provision for legal expenses. Section 77(8) confers power to appoint a receiver:

“(8)

Where the High Court has made a restraint order, the court may at any time appoint a receiver—

(a)

to take possession of any realisable property, and

(b)

in accordance with the court's directions, to manage or otherwise deal with any property in respect of which he is appointed,

subject to such exceptions and conditions as may be specified by the court; and may require any person having possession of property in respect of which a receiver is appointed under this section to give possession of it to the receiver.”

Section 80 is headed “Realisation of property”. It confers on the High Court a separate power to appoint a receiver in respect of realisable property after a confiscation order has been made and before it is satisfied, if the order is not subject to appeal. Subsection (3)(b) provides that the Court may empower a receiver so appointed to take possession of realisable property (other than property subject to a charge under section 78) “subject to such conditions or exceptions as may be specified by the court”.

Section 81 provides for the application of the proceeds of realisation:

“(1)

Subject to subsection (2) below, the following sums in the hands of a receiver appointed under this Part of this Act or in pursuance of a charging order, that is—

(a)

the proceeds of the enforcement of any charge imposed under section 78 above;

(b)

the proceeds of the realisation, other than by the enforcement of such a charge, of any property under section 77 or 80 above; and

(c)

any other sums, being property held by the defendant;

shall first be applied in payment of such expenses incurred by a person acting as an insolvency practitioner as are payable under section 87(2) below and then shall, after such payments (if any) as the High Court may direct have been made out of those sums, be applied on the defendant's behalf towards the satisfaction of the confiscation order.”

Section 82 is as follows:

“(1)

This section applies to the powers conferred on the High Court by sections 77 to 81 above or on the Court of Session by sections 90 to 92 below, or on a receiver appointed under this Part of this Act or in pursuance of a charging order.

(2)

Subject to the following provisions of this section, the powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant's case the value for the time being of realisable property held by any person by the realisation of such property.

(3)

In the case of realisable property held by a person to whom the defendant has directly or indirectly made a gift caught by this Part of this Act the powers shall be exercised with a view to realising no more than the value for the time being of the gift.

(4)

The powers shall be exercised with a view to allowing any person other than the defendant or the recipient of any such gift to retain or recover the value of any property held by him.

(5)

An order may be made or other action taken in respect of a debt owed by the Crown.

(6)

In exercising those powers, no account shall be taken of any obligations of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order.

Section 84 provides for the respective priorities of a bankruptcy order and a restraint or receivership order. If a bankruptcy order is made before a restraint or receivership order, the restraint order or receivership order does not apply to assets comprised in the bankrupt’s estate. Conversely, if a restraint order or receivership order is made before a bankruptcy order, the realisable property subject to a restraint order, and the proceeds of property realised by a receiver appointed under the Act, are excluded from the bankrupt’s estate.

Section 72(7) of the Act in effect gives a compensation order priority over a confiscation order. There is no similar provision in relation to legal costs.

The order sought by the solicitors requires the receiver to pay their costs. It may be contrasted with the normal provision made in a restraint order, which permits the payment of legal costs by way of an exception to the general prohibition against dealing with realisable property. Such an order would not assist the solicitors, since the defendant objects to their payment from his realisable property and there is nothing to suggest that there is any other source (such as a beneficent relative) for the payment of their costs. The order sought is clearly not an “exception” to a restraint order within the meaning of s 77(1) and (8). In my judgment, it is not a “condition” within the meaning of those provisions either.

In effect, the solicitors are seeking to enforce payment of their debt, against the wishes of the defendant debtor. An order enforcing payment of a debt (other than the obligation created by a confiscation order) is not obviously within the scope of the powers conferred by the Act, as is made clear by section 82. The only possible provision conferring power to make such an order is section 81(1), to which I refer below. Moreover, the effect of the order is to convert the solicitors into secured debtors for the short period until payment of their debt. The order would not only give their debt priority over the confiscation order; it would give it priority over all of the unsecured debts of the defendant, in circumstances in which the court has no means of knowing whether there are any such debts and no machinery for ascertaining them, and in which the Act, in section 84, gives the confiscation order priority over unsecured debts of the defendant. This consideration may have less force where the realisable property of the defendant is insufficient to satisfy the confiscation order and it is clear that the amount of the confiscation order will be reduced. In such circumstances, the only loser as a result of making an order of the kind sought by the solicitors is the Crown. Nonetheless, in general it would be anomalous if an unsecured creditor who cannot obtain payment of his debt (or a proportion of it) out of the realisable property of the defendant by obtaining a bankruptcy order could do so by obtaining an order of the kind sought in this case. If he could do so, he would circumvent the provisions of section 84.

Section 81(1) requires sums in the hands of a receiver to be applied first in payment of the expenses of an insolvency practitioner under section 87(2) and secondly towards “such payments (if any) as the High Court may direct”. The insolvency practitioner referred to in section 87(2) is not the receiver appointed by the Court: he is, for example, company liquidator or a trustee in bankruptcy who has incurred expenses in respect of property without knowing that it is subject to a restraint order. The payments envisaged by section 81(1) include sums required to be paid by the receiver, as expenses of his receivership (for example, the rent of premises of which the receiver takes possession held by the defendant under a lease), where the court thinks it inappropriate for the receiver to have to wait to be reimbursed under section 81(5). I do not think that section 81(1) provides machinery available generally for the court to order payment of third party debts where there is no surplus of realisable property over the amount of the confiscation order.

The defendant remains personally liable to pay his solicitors’ costs. They may obtain a civil judgment against him and enforce it against his property or earnings after he has satisfied the confiscation order.

The only basis for an order under section 81(1) is that the defendant and the CPS led the solicitors to believe that the costs would be paid out of the defendant’s restrained property. In my judgment, the Court may order payment of out of the restrained property of a defendant if that is necessary to avoid the receiver and the CPS acting unethically or inequitably: c.f. ex parte James (1874) LR 9 Ch App 609. The basis of this jurisdiction is that the receiver is an officer of the Court and the CPS a public authority: both are subject to the supervisory jurisdiction of the Court. This ground for making an order has not been argued.

The question whether a receivership order made after a confiscation order has been made may permit payment of legal costs in circumstances where it appears that there will be no surplus from the proceeds of the realisable property of the defendant after satisfaction of the confiscation order is a separate question.

On the face of it, section 82(2) precludes the Court from exercising the powers conferred by sections 77 to 81 so as to allow realisable assets to be used for the payment of the defendant’s legal costs. However, section 82 must be read subject to the express provision in respect of such costs in section 77(2). An exception to a restraint order made under section 77(1) permitting payment of legal costs may similarly be made in a receivership order made under section 77(8): the exceptions and conditions referred to in those subsections must be capable of having a similar content. Section 80 does not include the equivalent of section 77(2), but given that that subsection is expressed to be without prejudice to the generality of section 77(1), it is difficult to see that the payment of legal expenses is not capable of being the subject of an exception within the general words of section 80(3)(b). Furthermore, the only power to make a restraint order under the Act is that contained in section 77, which applies both before and after conviction and the making of a confiscation order. If a restraint order made after a confiscation order may include provision for payment of legal costs, notwithstanding section 82(2), it is not easy to see the logic for a prohibition of a similar provision in a receivership order. I do not think that the general wording of section 82(2) precludes the making of such a provision by way of an exception to a receivership order. Nor do I think that section 84, which applies only on an insolvency, requires me to come to a different conclusion as to the powers of the court that may be exercised, at least where the defendant has not been made bankrupt.

Section 82(6), like section 82(2), must be read in the light of section 77(2), to which it applies. Section 82(6) must, I think, be read as relating to pre-existing obligations to third parties, and not to obligations to meet expenses arising during the period of a restraint order the payment of which is permitted by an exception to that order. Put otherwise, section 82(6) does not require the Court to take no account of an exception in a restraint order permitting payment of legal expenses (or living expenses).

In my judgment, therefore the Court has power to make an order permitting payment of legal costs both before and after the making of a confiscation order, including costs incurred in appealing such an order.

After the hearing of this application, Mr Purchase brought to my attention the judgment of the Court of Appeal in Commissioners of Customs and Excise v Norris [1991] 2 All ER 395, in which it allowed an appeal by a defendant so as to enable him to apply assets subject to a restraint order to pay legal costs incurred in his appeals against conviction and the confiscation order that had been made against him. It is binding authority for the conclusion I had already provisionally reached.

This conclusion avoids the anomaly that would result from acceptance of the submissions of Miss Wicks, namely that a solicitor may be paid out of realisable property immediately before a confiscation order is made (by reason of an exception under section 77(1)), but, if his client does not actually make payment of his legal costs before the confiscation order is made, payment of the same costs out of the same property must be prohibited. It is a further objection to her submission that section 80 applies not after the making of a confiscation order, but only after the order is not subject to appeal. The provisions of the Act therefore do not expressly draw a distinction between the circumstances before and after the making of a confiscation order, but between the period before and after the exhaustion of appeals against the order. Again, it is difficult to see any logic or principle in a prohibition of the application of realisable property towards the payment of legal costs coming into effect only after appeals have been exhausted, when necessarily the costs have already been incurred and there are no further relevant legal costs to be incurred.

This conclusion is not inconsistent with the judgment of the Court of Appeal in Re Peters [1988] 1 QB 871, which concerned the (indistinguishable) provisions of the Drug Trafficking Offences Act 1986. The order set aside by the Court of Appeal in that case permitted the anticipatory discharge by the defendant of his obligations to his family, not the discharge of current liabilities. Indeed, the Court permitted the defendant in that case to continue to meet those liabilities out of his realisable property. In Re P and W [1990] TLR 299, the Court of Appeal upheld variations in restraint orders that permitted payment of legal costs and provided for taxation of those costs after conclusion of the trial (i.e., after conviction if there was one). It does not appear from the brief report whether the costs were to be paid only after taxation, but if they were, I cannot think that the variation would have been impermissible.

This is a conclusion that I am happy to reach. It is important that defendants have access to legal advice and representation in relation to criminal proceedings, including proceedings that may result in a confiscation order, and in circumstances in which public funding of their legal costs was not necessarily available, the only realistic source for the payment of legal costs is the realisable property of the defendant. If public funding is not available, provisions that preclude the payment of legal costs may lead to an infringement of Article 6 of the European Convention on Human Rights.

I think that the solicitors should have the opportunity to make further submissions in the light of my judgment, and I shall arrange a short hearing immediately after this judgment is handed down so that they can do so and counsel for the defendant and the CPS can respond to them.