X, Re

On the 7^th October 2003 I made, on the application, without notice, of the Claimant, a Restraint Order pursuant to the provisions of section 77 of the Criminal Justice Act 1988 in respect of the assets of an individual whom it is sufficient, for present purposes, to designate as “X”. In addition, a receiver was appointed over the assets of X and also over the assets of a company, controlled by X, which it is sufficient, for present purposes, to designate as “Y Limited”: there appearing to be a sufficient prima facie case that the corporate veil should be lifted or pierced (see re H [1996] 2 All ER 391; Trustor AB v Smallbone [2001 1 WLR 1177). The Restraint Order conferred wide powers on the Receiver. It also gave liberty to any person affected by it to apply to vary or discharge the Restraint Order. No such application has been made by X.

Shortly after his appointment, the Receiver (in his capacity as receiver of Y Limited) was requested by a company, which it is sufficient for present purposes to designate as “Z Limited”, to make payment to Z Limited of the balance of the price said to be due for goods supplied and delivered, pursuant to written orders and written invoices rendered. The sum claimed amounted to £873,972. Payment to a designated bank account at a Swiss bank in Zurich was requested.

The Receiver had in his control sufficient funds to make such payment. He had concerns, however, as to whether it was proper to do so. On the 21^st October 2003 he accordingly issued an application notice seeking the Court’s directions as to whether or not he should make such payment to Z Limited. Shortly thereafter Z Limited itself issued its own application notice, seeking variation of the Restraint Order made on the 7^th October 2003 in order to permit the payment of the sum of £873,972 to Z Limited. After various interlocutory hearings, which it is not necessary further to specify, the application came on for hearing, as it happened before me, during February 2004; and I delivered a judgment orally, dismissing the application of Z Limited and, on the Receiver’s application, directing him to retain the sum until further order of the Court.

The hearing before me took place in private and my judgment was delivered in private. Mr Barnard (with Mr Law) appeared for the Claimant. Mr Huw Davies appeared for Z Limited. The Receiver was not formally represented by counsel, but one of his staff did attend parts of the hearing. X had been notified of the hearing. He was not represented at it but had written a letter, through his solicitors, saying that he supported the application of Z Limited.

The principal reason why the hearing took place in private was because of the existence of criminal proceedings both against X and also against certain other individuals whose names featured prominently in the evidence put in on these applications and who are (so the Claimant asserts) closely connected with Z Limited. Those individuals had, in fact, appeared at previous interlocutory stages of these applications and one had put in witness statements in support of the application of Z Limited. None in the event was represented by solicitors or counsel at the hearing before me. However at the time I delivered my judgment (and at my suggestion) one of them did appear by counsel: who, having heard my judgment, submitted that it should remain a private judgment, for fear of possible prejudice to the various defendants in the criminal proceedings: and letters from solicitors for other defendants in the various criminal proceedings were shown to me, taking the same position. Mr Barnard did not disagree with that approach. It seemed to me that it was right to direct that my judgment should remain a private judgment (until further order) given the circumstances: not least because the facts were very unusual, and indicated with regard to the corporate trading a rather specialised modus operandi: which possibly, if publicised, might (given the allegation in the criminal proceedings) be linked to the various defendants even if their names were anonomysed.

However in the course of the hearing a point of some general importance had arisen. It was and is the position of the Claimant that the trading between Z Limited and Y Limited, giving rise the this claimed debt, was not legitimate or bona fide commercial trading; and thus the requested payment of the £873,872 to Z Limited should not be permitted. But Mr Barnard also took a preliminary point as to jurisdiction. He submitted that the court had no power to vary the Restraint Order of 7^th October 2003 so as to allow such payment to be made.

The point is of importance, since it applies not only to the scope of the court’s powers under the Criminal Justice Act 1988 but also, potentially, to the analogous powers conferred under the various Drug Trafficking statutes. In addition, Mr Barnard suggested that my decision might have a bearing on the court’s jurisdiction under the new Proceeds of Crime Act 2002 (although I stress that that statute was not examined in argument before me). The argument before me also involved a consideration of the correctness of the decision in re W (The Times 15^th November 1990): a decision which, it would appear, has not attracted universal approval.

In the circumstances, it seems appropriate (as Mr Barnard suggested) to hand down an open judgment, reproducing my earlier judgment to the extent (and only to the extent) that it dealt with the jurisdiction point: since that section of the judgment can not, with the appropriate use of initials, identify any of the various defendants. The circumstances in which the matter came before me at the hearing are, I think, sufficiently set out in what I have just said to explain the context for my ruling on the jurisdiction point.

On behalf of the Claimants, Mr Barnard submitted that the court simply has no power to order payment of the £873,972 to Z Limited. To explain that particular submission, it is necessary to set out the relevant provisions of the Criminal Justice Act 1988 -- it being common ground before me that the provisions of the Proceeds of Crime Act 2002 do not apply here by reason of the dates of the alleged offences.

By section 74(1) "realisable property" is defined as follows:

Section 78 contains provisions empowering the court to make a Charging Order on realisable property, as defined, securing payment to the Crown. The assets capable of being so charged are then specified and in essence are land, securities or an interest under a trust. Provision is made empowering the court to discharge or vary any Charging Order so made.

Section 82 provides as follows:

Section 84 contains provisions broadly to the effect that, where a person who holds realisable property is subsequently adjudged bankrupt, property for the time being subject to a Restraint Order is excluded from the bankrupt's estate. Conversely, where a person is already a bankrupt, a Restraint Order subsequently made is not to be made in relation to property forming part of the bankrupt's estate.

Finally, for present purposes, section 102 contains a wide definition of the word "property" as used in Part VI of the 1988 Act. Such definition extends to choses in action.

Mr Barnard's first submission was that when a Restraint Order has been made the court is not empowered to pay general creditors in priority over the interests of the Crown which has obtained the Restraint Order. He said that is so by reason of the wording of section 82(2) coupled, if need be, with section 82(6). The purpose of the Act, he submitted, is identified as making available the realisable property (as defined) with a view to satisfying a Confiscation Order, and to permit payment out to general creditors would defeat such statutory purpose.

He further relied, in support of his submission, on the decision of Buckley J in the case of re W (The Times, 15 November 1990) a transcript of which judgment was placed before me, and on certain comments of Otton J in the case of re M [1992] 1 All ER 537. In re W a Restraint Order had been made in respect of the assets of an individual. Subsequently, the applicant obtained judgment for monies owing and applied for a variation of the Restraint Order to permit payment of the judgment debt -- it being common ground that the applicant was a bona fide judgment creditor. Buckley J refused such application. In the course of his judgment, he said this, after setting out the terms of section 82:

In re M, a case under the comparable provisions of the Drug Trafficking Offences Act 1986, Otton J, in the course of his judgment, said this at page 543 of the report:

Put like that, I cannot accept that submission. Section 82(1), in terms, applies equally to the powers conferred on the court by section 77 to section 81, and on receivers appointed under Part VI of the 1988 Act. If Mr Barnard is right, a receiver appointed over assets of a company under Part VI of the 1988 Act would have no power to pay off trade debts with a view to retaining the value of the business of the company. That, as Mr Barnard readily agreed, would be a nonsense. Likewise, if an individual the subject of a Restraint Order owned a valuable commercial leasehold property, it would be a nonsense if payment could not be permitted to be made to a landlord for rent: otherwise the property might become forfeit and therefore its value lost. Yet further, as Mr Barnard also agreed, the court is empowered to sanction payment of debts in the form of living expenses and legal expenses. That is expressly permitted under section 77(2). But section 77(2), in terms, is prefaced by the words "without prejudice to the generality of subsection (1) above". Subsection (1) confers a wide discretion on the court; and it is therefore plain from the wording adopted by the statute that the court is empowered to sanction the payment of creditors over and above the payment of living expenses and legal expenses. It is also plain from the wide wording of section 77(6) and (7) that the court can vary such an Order to achieve that result.

Mr Barnard then advanced an alternative submission as to jurisdiction. He submitted that at all events the court is only empowered to order the payment to creditors where the value of the realisable property, as defined, is not reduced: for example, in the case of the payment of rent in the example given above. He submitted that, unless that is so, the statutory purpose identified in section 82 will be defeated; and section 82(2) requires that a court cannot exercise its powers otherwise than with a view to making available for satisfying a Confiscation Order, or any Confiscation Order that may be made, the value for the time being of the realisable property.

He submitted, and I agree, that re W is at least authority for that proposition: and that also accords with Otton J's comments in re M. In my view, however, that is not the correct interpretation of the statutory provisions. My reasons are as follows. First, as I have said, section 77(1) is phrased in wide terms and the generality of that subsection is preserved by subsection (2) and by the unfettered discretion to vary conferred by subsection (6). Second, while it is the case that the powers conferred by section 77 are subjected to the terms of section 82, it is to be noted that section 82(2) requires that the powers under section 77 shall be exercised "with a view to" making available for satisfaction of any Confiscation Order the value of the realisable property. I agree with Mr Davies' submission that the words "with a view to making available" are not to be read as though they said "to make available". The phrase "with a view to" in this particular statutory context, in my judgment, introduces a degree of elasticity. Third, section 82(6) provides that no account shall be taken of any obligations of the defendant which conflict with the obligation to satisfy the Confiscation Order. But it is to be noted that subsection (6) does not, unlike subsection (2), include the words "or as the case may be, any confiscation Order that may be made". Thus subsection (6) only applies, and is only designed to apply, where a Confiscation Order has actually been made; not at an earlier stage. Indeed, that has been authoritatively decided by the Court of Appeal in the case of re Peters [1988] 1 QB 871: see in particular the judgment of Lord Donaldson of Lymington MR at page 879 B to C. That, it is true, was a decision on the Drug Trafficking Offences Act 1986, but the wording of the relevant section is the same in the relevant respects as that of section 82 of the Criminal Justice Act 1988 and, in my view, the reasoning is equally applicable.

Mr Barnard submitted that one can discern from the scheme of Part VI of the 1988 Act, quite apart from the provisions of section 82, an intention that the Crown should have priority over general creditors. He cites by way of example the position as set out in section 84(1) with regard to subsequent bankruptcy, and he also cites the power to make a Charging Order -- points, indeed, noted by Buckley J in re W. But as Mr Davies observed, it is also to be noted that Parliament thought it necessary to make such provisions expressly. Indeed, one might query the value of the ability to make a Charging Order (unless it be in the context of notification to third parties) if the effect of making a Restraint Order is of itself as Mr Barnard would have it. In my view, however, what is important to bear in mind is that there is a clear distinction between the position after a Confiscation Order has been made and the position before one has been made. A Confiscation Order is made after conviction. Before conviction there is a presumption of innocence. The person who is the subject of the Restraint Order may be acquitted. It is difficult to think that Parliament could have intended to restrict the court's powers as a matter of jurisdiction in the way now contended for when the consequence might be the bankruptcy or ruin of the individual concerned before he has even been tried. That, indeed, to my mind is one explanation for the distinction between the wording of section 82(2) and section 82(6).

Moreover, I would draw attention to section 82(4). The wording of that section is apt to extend to debts, given the wide definition of the word "property" in section 102. It seems to me that, on its natural reading, subsection (4) in itself indicates that the court is required to have regard to the position of creditors who may be trying to recover the debts owed to them by the person the subject of any Restraint Order. That also seems consistent with what is contemplated in paragraph 6 of the Practice Direction annexed to RSC Order 115.

For these reasons alone I would reject Mr Barnard's submissions on jurisdiction. I appreciate those submissions might give rise to an element of certainty; but there are many occasions when the desideratum of certainty must yield to the desideratum of flexibility and I think this is one of them. The court certainly is required, I accept, to take into account what in re Peters was called a "legislative steer" to the effect that the value of the realisable property should be maintained with a view to making it available to satisfy any Confiscation Order that may be made. That will always, indeed, be a highly material and important consideration. But it is not, in my view, and contrary to Mr Barnard's submissions, a conclusive consideration in all cases.

This view, moreover, is reinforced by other legal authorities. In re Peters itself, Mr Peters was made the subject of a Restraint Order under the applicable provisions of the Drug Trafficking Offences Act 1986 on 31 July 1987. A subsequent Order varying the Restraint Order was made by Nolan J permitting payment of, amongst other things, school fees for Mr Peters' son of £2,200 per term and ancillary educational expenses. Later, in matrimonial proceedings the Registrar made an Order for payment by Mr Peters of a lump sum of £25,000 to be expended on the son's school fees, and in due course, the Restraint Order was varied by McNeill J to allow payment to the former wife's solicitors of that lump sum of £25,000 to be applied for that purpose. Subsequently, again, Mr Peters was convicted of the alleged drug trafficking offences. The Court of Appeal set aside McNeill J's Order. It was held that the anticipatory discharge of liabilities was contrary to the terms of the relevant section of the Act (which was, in the relevant respects, in identical terms to that of section 82(2) of the 1988 Act), and contrary to the underlying purpose of that Act. The Order of Nolan J, however, was approved.

In the course of his judgment, Lord Donaldson said this:

Nourse LJ agreed. He too stated that the jurisdiction to make or vary Restraint Orders was "closely analogous" to the Mareva jurisdiction. He said this at page 880E with regard to the statutory power to make a Restraint Order:

Mann LJ, in the course of his judgment, said this:

These statements of principle are not consistent with Mr Barnard's contentions; and the actual conclusion of that case is positively inconsistent with them. For the court expressly approved the order of Nolan J allowing for the termly payments of the son's school fees made prior to any Confiscation Order being made. But, self-evidently, such payments of those term school fees could not maintain the value of Mr Peters' realisable assets. They could only reduce them. Thus such termly payments clearly were permitted as being reasonable, on the footing that that was a proper exercise of an available discretion in circumstances where Mr Peters had not yet been convicted.

That there is such a discretion available (albeit, of course, subject to giving due weight to the underlying statutory purpose behind Restraint Orders) is yet further confirmed by the observations of Simon Brown LJ in the case of re P [2000] 1 WLR 473, a case under the Drugs Trafficking Act 1994. Simon Brown LJ said this at page 481:

The same judge made comments to the like effect in Hughes v Customs and Excise Commissioners [2002] 4 All ER 633 at paragraph 60 of the judgment. He there observed that the court in deciding whether to make or vary a Restraint Order "must weigh up the balance of competing interests with the greatest care".

Mr Barnard nevertheless invited me, whatever doubts I may have as to the correctness of the decision in re W, to apply the doctrine of stare decisis, and accordingly follow the decision in re W.

I decline to do so. In my view, with all respect to Buckley J, re W was incorrectly decided on this point, insofar as it decided that the satisfaction of a Confiscation Order invariably involves in all cases giving priority to the Crown over general creditors -- although I add that, on a consideration of the facts as revealed in the report of the case of re W, the indications are that the decision itself can readily be justified on other grounds. Moreover, that decision is not in this respect consistent with the Court of Appeal authorities which I have mentioned, and it has also not, it would appear, been universally applied or approved. For example, its correctness is doubted in Gee on Mareva Injunctions and Anton Piller Relief, fourth edition at page 411. The decision in re W also is not consistent with the observations made at first instance by Stanley Burnton J as to the general form of Restraint Orders made under the 1988 Act in paragraph 14 of his judgment in the unreported case of re G (Monday 30 July 2001).

Accordingly, I hold that I have jurisdiction to grant the relief sought by Z Limited: and Z Limited itself plainly is entitled to apply as a "person affected" to vary the Restraint Order previously made so as to permit payment of the sum of £873,972. In so holding, I make clear that I express no view as to whether or to what extent the court has jurisdiction to vary a Restraint Order made after a conviction has resulted. That does not arise in this case.

The question then is, having regard to all the circumstances and taking due account of the legislative steer given by section 82 and the underlying purpose of the Act, and also taking due account of the fact that there have been no convictions and no Confiscation Order made, as to whether I should permit this proposed payment.

[Consideration was then given to the evidence that had been filed and the submissions of counsel; reference was made to various cases, including The Angel Bell [1981] QB 65; SCF Finance Company Ltd v Masri (1985 1 WLR 876 and CPS v Crompton [2002] EWCA Civ 1720; and it was concluded that it was not appropriate to vary the Restraint Order so as to permit payment to Z Limited. The application of Z Limited was accordingly dismissed.]