Serious Organised Crime Agency v Szepietowski & Ors

This is my judgment on an application by the first, third and fourth defendants (“the Applicants”) pursuant to section 252 of the Proceeds of Crime Act 2002 (“POCA 2002” or “the 2002 Act”) for further exclusions from the interim receiving order made by Collins J on 27 July 2005 in order to enable them to meet legal expenses. The application is made by an application notice dated 3 December 2008, which first came before me together with a number of other applications on 9 and 10 December. I decided on that occasion to adjourn it until the Applicants had made and filed statements of assets as required by paragraph 7A.2 of the Practice Direction relating to Civil Recovery Proceedings which was published in CPR Update 30 in February 2003 and is to be found in volume 2 of the White Book at pp 1525ff. (“the Practice Direction”). By paragraph 6 of the order which I made on that date, and which was entered on 15 December after its detailed terms had been agreed between the lawyers on each side, I directed each of the Applicants by no later than 4 pm on 31 December 2008 to serve on the claimant, the Serious Organised Crime Agency (“SOCA”), a witness statement verified by a statement of truth containing the information specified in the second schedule to the order. I also directed that further consideration of the application should be adjourned to the first open date after 12 January 2009, with a time estimate of one day.

The background to the application, very briefly, is that SOCA seeks a civil recovery order under the 2002 Act in respect of the property which now represents a sum of US $2.4 million which was remitted to the UK from Turkey in August 1999 by Mr Eddie Sower, also known as Jamie Mitchell (“the Turkish money”). SOCA alleges that the Turkish money had been obtained by unlawful conduct (principally drug trafficking) and was recoverable property within the meaning of section 266 of the 2002 Act. The money was paid into the client account of a small, two partner firm of solicitors with offices in Weybridge and London called De Verney Brooke Taylor. The Weybridge office was run by one of the partners, Mr John Szepietowski, who is the first defendant in the present proceedings and one of the three Applicants.

With the assistance of Mr Szepietowski, an offshore trust and corporate structure was established to hold the Turkish money. The structure took the form of a Manx discretionary trust, which held all the shares in a company incorporated in the British Virgin Islands which itself had nominee directors, but was under the de facto control of Mr Szepietowski. The declaration of trust establishing the Manx trust was executed by Mr Szepietowski as the sole original trustee on 1 September 1999. The settlement was known as the Heritage Investment Trust. The only named beneficiary was Mr Mitchell himself, although the trustees had power to add further beneficiaries. The original trust fund was described as consisting of two shares of one US dollar each in an unnamed BVI company. It is common ground that the company in question was in fact the fourth defendant, Countess Investments Limited (“Countess BVI”).

It appears that approximately two thirds of the Turkish money was lent in or about September 1999 by Countess BVI to a company called Plevna Trade Limited (“Plevna”), another offshore company under the control of a Mr Anthony David Tummond. The purpose of the loan was to enable Plevna to purchase some land at Tredegar in Wales with planning permission for residential development (“the Tredegar land”). The purchase was duly completed, and Countess BVI took a first charge over the Tredegar land to secure its loan.

Some years later, for reasons which I do not need to explain in this judgment, legal title to the Tredegar land was transferred to a company registered in England and Wales also called Countess Investments Limited (“Countess UK”). The precise circumstances in which Countess UK was established are far from clear, but it is certainly Mr Szepietowski’s case that its shares, like those of Countess BVI, are an asset of the Heritage Investment Trust, and he has procured the registration of the shares in the name of the trust itself. I note in passing that the effect of this registration must be doubtful, because the trust lacks legal personality and the registration should therefore have been in the name of Mr Szepietowski as the sole trustee. However, there is no doubt that Countess UK became the registered proprietor of the Tredegar land, and for the purposes of this application at least it is common ground that the Tredegar land and its proceeds of sale are to be treated as the traceable proceeds of part of the Turkish money, and as an indirectly owned asset of the Heritage Investment Trust.

An order for sale of the Tredegar land was made by Owen J as long ago as 28 March 2007. However, the progress of the sale was delayed by a number of matters and disputes, including an intervention by Plevna to halt the sale which eventually proved abortive, and one of the questions which I had to decide in December was whether the land should still be sold to the intending purchaser, a company called Tredegar Estates Limited, even though its market value had fallen enormously and Tredegar Estates Limited had on two occasions failed to complete the purchase after contracts had been exchanged. I decided, with some reluctance, that the Tredegar land should still be sold to Tredegar Estates Limited at the reduced price of £1 million, and in January 2009 the sale was finally completed, although only after service by Countess UK of a notice to complete.

Countess UK is the third defendant, and I will refer to it and Countess BVI together as “the Countess companies”. The Countess companies, and Mr Szepietowski in his capacity as trustee of the Heritage Investment Trust, are the present Applicants. They have throughout the litigation been advised and (subject to what I say below) represented by the same solicitors, Messrs Sonn Macmillan Walker. The exclusion orders which are now sought relate to the legal costs already incurred, or to be incurred in the future, by the Applicants in defending SOCA’s claim that the assets of the Heritage Investment Trust, including in particular the proceeds of sale of the Tredegar land, are recoverable property.

In addition to that claim, SOCA has also pursued in the same proceedings a separate claim, based on allegations of mortgage fraud and other criminal conduct, against Mr Szepietowski in his personal capacity, his wife Susan Ann Szepietowski (née Seery), who was joined as second defendant, and three further corporate defendants. This further claim was settled by a consent order in Tomlin form dated 16 January 2008. In short, the effect of the compromise was that a number of properties were vested in the trustee for civil recovery, while a number of other properties were released from the interim receiving order, including the Szepietowskis’ matrimonial home, Ashford House, Four Winds Park, Old Avenue, St George’s Hill, Weybridge (“Ashford House”). In relation to that part of the proceedings, Mr and Mrs Szepietowski and the three corporate defendants were represented throughout by a different firm of solicitors, Messrs Devonshires, and on 8 October 2007 they filed a combined defence settled on their behalf by leading and junior counsel (Mr Andrew Mitchell QC and Mr Stephen Hellman), verified by a statement of truth signed by Mr Szepietowski. That defence, so far as Mr Szepietowski was concerned, was expressly pleaded in his personal capacity only, but it did nevertheless deal briefly with some of the allegations made against him in his trustee capacity.

The history of the exclusion orders which have already been made in favour of the Applicants in the present proceedings is briefly as follows.

The action is currently fixed for hearing in a window beginning on 5 May 2009, that is to say in less than three months time. However, SOCA has very recently made two further applications which I need to mention. The first is an application for summary judgment against Mr Szepietowski and the Countess companies, which I have directed to be heard on the first available date after 23 March 2009. The second is an application to set aside the existing exclusion orders, on the basis that Mr Szepietowski and Countess BVI now have property to which the interim receiving order does not apply from which they may meet their legal costs. That application was issued on 10 February 2009, and was made returnable with the hearing of the present application. However, at a preliminary directions hearing held on 11 February I ordered that it should not be heard until after I had determined the present application.

With this introduction, I will now deal with matters in the following order. First, I will describe the exclusion order regime. Secondly, I will examine the question whether the Applicants, and Mr Szepietowski in particular, have property to which the interim receiving order does not apply, and if so what is the nature and value of that property. Thirdly, I will consider the relevant principles of trust law and the relevance (if any) of the fact that the claim against Mr Szepietowski is now only against him in his trustee capacity. Finally, if I conclude that there are available assets, and that they could in principle be used to meet the Applicants’ costs, I will consider whether any further exclusion order should be made, and if so in what amount and on what terms.

Section 252 of POCA 2002, as currently in force, provides as follows:

Subsections (4) and (4A) above, which empower the court to make an exclusion for the purpose of enabling a person to meet legal expenses, were inserted by section 109 of the Serious Organised Crime and Police Act 2005 and came into force on 1 January 2006. Before that amendment, subsection (4) expressly prohibited the making of an exclusion “for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Part”. That prohibition was apparently based on a mistaken assumption by Parliament that a defendant who was subject to an interim receiving order would be able, without difficulty, to obtain community funding for his legal costs. In practice, that was not the case, and proceedings were delayed because of the inability of defendants to obtain funding for their legal representation. One way of circumventing the problem was for the ARA to seek and obtain a freezing order under the court’s ordinary jurisdiction rather than an interim receiving order under the 2002 Act: see Director of the Assets Recovery Agency v Creaven[2005] EWHC 2726 (Admin), [2006] 1 WLR 622, at para 9 per Stanley Burnton J.

I draw attention at this stage to the express requirement in paragraph (a) of subsection (4A) that, in deciding whether to make an exclusion for legal expenses, the court must have regard to the desirability of the person in question being represented. It is only subject to that requirement (and the requirement in paragraph (b) to disregard the possibility of LSC funding) that the court is enjoined by subsection (6) to exercise the power to make exclusions “with a view to ensuring, so far as practicable, that the satisfaction of any right of [SOCA] to recover the property obtained through unlawful conduct is not unduly prejudiced”. There is clearly a balancing exercise to be performed, but one in which primary regard must be had to the desirability of legal representation.

Section 286A empowered the Lord Chancellor to make regulations specifying the required conditions for the purposes of section 252(4), and in exercise of that and other enabling powers in the 2002 Act the Proceeds of Crime Act 2002 (Legal Expenses in Civil Recovery Proceedings) Regulations 2005, SI 2005 No. 3382, (“the 2005 Regulations”) were promulgated and also came into force on 1 January 2006.

Part 2 of the 2005 Regulations specifies the required conditions for the purposes of section 252(4). By virtue of regulation 4, an exclusion must specify the stage or stages in civil recovery proceedings to which it relates, and the maximum amount which may be released in respect of legal expenses for each stage. Regulation 5 obliges the solicitor acting for the relevant person to give notice to SOCA and the court as soon as reasonably practicable if he becomes aware that the person’s legal expenses in respect of any stage in the proceedings have exceeded, or will exceed, the maximum amount specified in the exclusion for that stage, or that the total amount of legal expenses in respect of all the stages covered by the exclusion have exceeded, or will exceed, the total amount authorised for release. Regulation 6 provides that where a person has incurred legal expenses in relation to a specified stage in the proceedings, and while an interim receiving order is in force, a sum may only be released in respect of those expenses in accordance with Part 3 of the Regulations. Where the court ultimately makes a recovery order which provides for the payment of that person’s reasonable legal expenses in respect of the proceedings, the sum payable is to be determined in accordance with Part 4, regardless of whether any sum has already been released under Part 3.

Part 3 of the 2005 Regulations lays down the procedure whereby interim payments may be made. A written request must be made, describing the relevant stage or stages in the proceedings and summarising the work done, and it must be accompanied by all relevant invoices and supporting documents. A request may not be made in respect of legal expenses which have not yet been incurred, nor may a request be made more than once in any two month period. After receipt of the request, SOCA has 21 days within which to agree to the release of the requested sum, or to explain (with reasons) what lesser sum (if any) it agrees may be released. By virtue of regulation 10(1), the sum which may be released is the greater of the amount which SOCA agrees may be released and 65% of the requested sum. The sum may only be released to the solicitor who is instructed to act for the person in question, or who was so instructed when the relevant legal expenses were incurred.

Part 4 of the 2005 Regulations specifies the procedure which is to be followed for determining the amount payable in respect of a person’s reasonable legal expenses in the proceedings, where the court makes a recovery order which provides for the payment of such expenses. In other words, this is the procedure which has to be followed at the conclusion of civil recovery proceedings where the court decides to make a recovery order. By virtue of regulation 12, SOCA may agree the relevant expenses, and if it does so the sum payable is the agreed sum. In default of agreement, the expenses have to be assessed in accordance with the provisions of Part 5, and the sum payable is the amount so assessed. Regulation 14 then provides that, where the sum payable exceeds the amount of any interim payments which have been made, the balance is to be paid to the relevant person’s solicitor, while if the sum is less than the interim payments, the relevant person must repay the excess.

Part 5 then sets out “the basis on which the court must assess the amount payable in respect of a person’s reasonable legal expenses of civil recovery proceedings pursuant to provision made in a recovery order” (regulation 15). Pursuant to regulation 16(1), the expenses are to be assessed on the standard basis, but subject to the specified maximum rates of remuneration set out in regulation 17. The expression “the standard basis” has the same meaning as in CPR rule 44.4. By virtue of regulation 16(2), the court conducting the assessment must give effect to

I now turn to the Practice Direction. For present purposes, the relevant provisions are contained in paragraph 7A, as follows:

The most important point to note is that, pursuant to paragraph 7A.4, the court will not make an exclusion if it is satisfied that the relevant person has property to which the interim receiving order does not apply “from which he may meet those costs”. It follows from that wording, in my judgment, that the mere existence of “free” assets is not enough, and the court has to go on to consider whether the person could reasonably be expected to meet his legal costs from them. Clearly it would be wrong for the court to make an exclusion for legal costs from property which is alleged to represent the proceeds of criminal conduct, if the person in question has free assets which can be used to fund his defence. On the other hand, it does not necessarily follow from the absence of such assets that an exclusion will be made. The court has a discretion under section 252 of POCA 2002, which it has to exercise having regard in particular to the desirability of the person being represented in the proceedings, but also with a view to ensuring (so far as practicable) that the right of SOCA to recover property obtained though unlawful conduct “is not unduly prejudiced”: see paragraph 14 above.

Schedule 2 to my order of 10 December 2008 set out the required contents of the statements of assets to be served by each of the Applicants as follows:

Despite the detailed terms of that order, which had been agreed on Mr Szepietowski’s behalf by his own lawyers, the statement of assets which he belatedly made on 5 January 2009 on behalf of all three Applicants was in my judgment a woefully inadequate document. It ran to barely three pages, and not a single document was exhibited to it. In relation to Ashford House, Mr Szepietowski said only this:

In paragraphs 6 to 9 of his statement, Mr Szepietowski purported to give details of his wife’s assets “as it might be suggested that I have some beneficial interest in them”. He referred to:

In paragraph 9 Mr Szepietowski referred to his wife’s share in a group of property companies known as the Cobham companies, saying that they were “part owned” by her and Martin Randerson. He continued:

The statement then concluded as follows:

In response to this evidence, SOCA produced a detailed critique set out in a witness statement dated 5 February 2009 by Mr Ross Evans who is a financial investigator on SOCA’s staff. The points made in this statement included the following:

I now turn to the two valuations of Ashford House obtained by SOCA from Mr Rowe and Mr Pritchard.

Mr Rowe holds a degree in Estate Management and is a Member of the Royal Institution of Chartered Surveyors. He is a member of the staff of Countrywide Surveyors based in Walton-on-Thames. He was instructed by SOCA to undertake an external inspection of Ashford House with a view to providing an indication of value. As he acknowledges, this is an imprecise form of valuation, but it is recognised by the RICS and relevant guidance to valuers is given in the Institution’s “Red Book”. For the last eight years Mr Rowe has been engaged in surveying and valuing residential property of all types in the areas of north east Surrey and south west London covered by his firm’s Walton office. Much of what used to be called the “stockbroker belt” falls within that area, including Weybridge.

In his witness statement dated 5 February 2009, Mr Rowe gives a detailed description of St George’s Hill, describing it as “one of the country’s most attractive, exclusive and valuable private residential estates”, and as “a high quality, low density, up-market and aspirational place to live”. He describes how some of the larger gardens were sold off for development, subject to strict control in local by-laws, including Four Winds Park in which four detached houses were built. One of those properties is Ashford House, served by a private gated cul-de-sac, which is itself approached by a mainly private road called Old Avenue.

On the basis of his own very limited external inspection of the building, and the information provided to him by SOCA, Mr Rowe estimates the floor area of the buildings at Ashford House to lie within the range of 600 to 700 square metres. By way of comparable evidence, he refers to four completed sales of St George’s Hill properties between December 2007 and August 2008, at prices between £4 million and £4.6 million, and to two other agreements for sale at comparable prices. He says that in carrying out valuations on the estate over the last two years he has held discussions with several local agents experienced in handling sales there, and although he personally has not seen any of the properties sold, some of the colleagues with whom he has held discussions have seen some of the properties. He says that he has also taken into account a number of recent sales of “broadly similar houses” at Burwood Park in Walton, which he describes as “another highly regarded private estate where high values are commanded, although the estate is not as interesting as the Hill and it does not have quite the same cachet”. He cites three examples of sales completed between January and June 2008 at prices between £2.75 million and £3.1 million.

With regard to the current decline in the property market, Mr Rowe says this:

Mr Rowe then goes on to state his conclusion on the valuation of Ashford House:

Mr Pritchard is a chartered surveyor and, like Mr Rowe, a member of the RICS. He is an associate director of Currell Chartered Surveyors of 309 Upper Street, London N1. He states in his witness statement dated 3 February 2009 that he was instructed by SOCA to carry out an external inspection of Ashford House and to provide a preliminary estimate of its value. The documents provided to him include the following:

Mr Pritchard records that he had been unable to inspect the property, because it is on a private gated estate. He therefore assumed that it is in a good state of repair, that there are modern fittings throughout together with central heating and double glazing, and that the gardens are well maintained. On the basis of those assumptions, and certain others of a standard nature stated in paragraphs 9 and 10 of his report, Mr Pritchard’s “preliminary estimate of value of the freehold interest” in Ashford House is between £3.8 million and £4.2 million.

Faced with this evidence, Mr Szepietowski responded with a further witness statement which was supplied in draft to SOCA on 13 February 2009, although it was not signed until 17 February, the day before the commencement of the adjourned hearing.

In relation to the value of Ashford House, Mr Szepietowski does not accept the valuations obtained by SOCA and relies on the evidence of Mr Paul Helas of Helas Wolf Estate Agents (see below) valuing the property at between £1.5 million and £1.7 million. He points out that the valuation of Ashford House at £1.9 million referred to by the interim receiver in her report was based on a valuation commissioned by her in October 2005 from DTZ, a well known firm of international property advisers. He also points out that an updated value of £2.3 million was assigned to the property for the purpose of the negotiations leading up to the January 2008 compromise. Mr Szepietowski provides slightly fuller particulars of the borrowing currently secured on Ashford House, although again without anything in the way of supporting documentation. He says that the principal sum owed to The Mortgage Business is now £1,409,447.11, and that there are arrears of £4,678.30. In addition, there is a second charge in favour of the Royal Bank of Scotland securing a shortfall of at least £250,000 on four properties at Claygate in Surrey. Those properties are currently being sold by Mrs Szepietowski, subject to the consent of SOCA, pursuant to the terms of the January 2008 compromise. If (as appears likely) there is a shortfall, the Royal Bank of Scotland will recover it from Mrs Szepietowski, and the purpose of the second charge on Ashford House is to protect the Bank’s interest.

Mr Helas’ advice on the value of Ashford House was originally provided in a letter to Mrs Szepietowski (under her maiden name) dated 13 February 2009, and was subsequently incorporated into a witness statement dated 16 February. Although he does not say so either in the letter or in his statement, it is not disputed that Mr Helas has a long-standing, and continuing, business relationship with the Szepietowskis, and is also a family friend. He does say, however, that he is familiar with the property, having sold it twice in the past; and he also says that he paid a brief visit to the property on 10 February 2009. Helas Wolf are a firm of estate agents and valuers, with offices in Esher, Cobham and Mayfair as well as Weybridge. The firm has had considerable experience of buying and selling properties in St George’s Hill for some 20 years. Mr Helas is the managing director of Helas Wolf, but is not himself a qualified valuer.

In his evidence Mr Helas states that as a result of the current recession the supply of buyers for properties like Ashford House has “all but dried up”. The reason for this is the inability of potential buyers to borrow money “from high street lenders at all or at reasonable margins”. There have been very few sales in St George’s Hill over the last 12 months. Mr Helas goes on to list nine properties in St George’s Hill sold, presumably through his firm, on dates ranging from April 2004 to April 2008 at prices between £1.23 million and £4.35 million. He says that there are 137 homes on Old Avenue, where Ashford House is located, with “an average current value” of £1,363,100. This figure is derived from a valuation website, and is based on 76 transactions in Old Avenue recorded by HM Land Registry since 1 April 2000. He then says:

Mr Helas goes on to criticise Mr Rowe’s valuation on the ground that Mr Rowe assumed Ashford House to have approximately 600 to 700 square metres of accommodation. According to Mr Helas, the correct figure is approximately 450 square metres, and he says that this factor alone would substantially reduce the valuations of both Mr Rowe and Mr Pritchard. He also criticises their valuations on the grounds that:

Mr Helas then states his conclusion as follows:

Reverting to Mr Szepietowski’s second witness statement, I would draw attention to the following further points:

On 17 February Mr Evans made a further witness statement responding to the evidence adduced by the Applicants. At this stage I need only refer to paragraph 9, where he says this:

Mr Parsons is the manager of the Weybridge office of John D Wood, and like Mr Helas he is an estate agent, not a qualified valuer. He is very familiar with the Weybridge area, having lived in the town for many years and having started his career in estate agency locally in 1984. He says that his firm has a good track record of selling property on St George’s Hill, and has the reputation of providing “a high quality service with extensive local knowledge of the housing market”. Like both Mr Rowe and Mr Pritchard, he has been unable to conduct an internal inspection of Ashford House, but has been able to view it externally. He was also supplied with some internal photographs by SOCA.

Mr Parsons states that Ashford House is “representative of a fairly standard house in the St George’s Hill estate, and there are many other houses in the locality of Ashford House that are comparable”. Prices in the estate range from £1.5 million to £15 million, but the majority fall into the range of £3 - £5 million. He describes Ashford House as being “a substantial Georgian influenced modern house with a pillared porch on a good sized plot of land”, and estimates the accommodation to be approximately 650 square metres. He says he would be surprised if the house was only 450 square metres, as suggested by Helas Wolf, particularly if the swimming pool and annexe are taken into account. He expresses his general agreement with the report prepared by Mr Rowe, and confirms that the comparables given by Mr Rowe and his description of the property “are accurate so far as I can see”. He expresses less confidence in the opinion of Helas Wolf, because they are infrequently asked to market property like Ashford House, and in addition the opinion of Mr Paul Helas is not that of a qualified valuation surveyor. Mr Parsons goes on to say that, should his firm be asked to market Ashford House, they would suggest quoting a guide price in the region of £3.5 to £3.75 million. He emphasises, however, that this is a suggested marketing price, “and should not be construed as a formal valuation for any purpose”.

I have now outlined the main evidence before me on the issue of available assets. I have not referred to all of the evidence, in order to avoid unduly prolonging this judgment, but I have done my best to take it all into account, together with the detailed submissions which were advanced to me during a hearing which lasted almost twice its estimated length of one day. No application was made on either side to cross examine any of the witnesses, so I have had to reach my conclusions without the benefit of any oral evidence and without any probing of the matters in dispute. I should add that an application to cross examine Mr Szepietowski would almost certainly have necessitated a further adjournment, because he was apparently taken ill at the end of last week with chest pains for which he has been referred by his general practitioner to a cardiologist. I was supplied with a letter from his GP, Dr S Mayor, dated 16 February saying that in his opinion Mr Szepietowski is unfit to attend court until the results of the investigations which he is now undergoing are known and the cause of his chest pains has been determined. At one stage counsel for SOCA, Ms Harman, seemed inclined to cast doubt on the genuineness of Mr Szepietowski’s illness, but although I can understand why SOCA may be suspicious I make it clear that I have no reason to doubt what Dr Mayor says in his letter.

I shall begin with the question which is both the most important and the most difficult one, namely the current market value of Ashford House. Looking at the evidence of current, as opposed to historic, value, I have little hesitation in preferring the evidence of SOCA’s witnesses (Mr Rowe, Mr Pritchard and Mr Parsons) to the evidence of Mr Helas. The evidence of Mr Helas appears to me to suffer from three main defects. First, he is not a qualified valuer. Secondly, he has a close business and personal relationship with the Szepietowskis, and for that reason alone I would be unable to place much weight on his evidence without independent corroboration. Thirdly, his view that the accommodation at Ashford House extends to only some 450 square metres is at odds with all the other available evidence, including (importantly) the DTZ valuation commissioned by the receiver in December 2005 when full access to the property was provided. I should say at this point that, although the DTZ valuation is not formally in evidence, reference to it is made (as I have explained) in Mr Pritchard’s report, and at my request (and without objection on either side) a copy of it was provided to the court. The likeliest explanation for Mr Helas’ statement, in my opinion, is that he left out of account the two-story annexe comprising the garages and the two bedroom staff flat above, and probably the covered swimming pool as well. I can find no justification for these omissions, and in my view they must cast considerable doubt on the objectivity of Mr Helas’ report.

It is true that none of SOCA’s witnesses has been able to inspect the property, and it is inevitable that a “drive-by” valuation can do no more than give an indication of value. However, Mr Rowe had these limitations well in mind, and in my judgment they are to a considerable degree offset by his extensive local experience of valuing comparable properties, both on St George’s Hill itself and at Burwood Park. Most of the comparables which he adduces are of sales which were actually completed, and most of them date from 2008. Mr Rowe has been careful to take the recent downturn in the housing market into account, and he expressly recognises in paragraph 25 of his report that current asking prices on St George’s Hill in the region of £3.9 million are probably lower by about £600,000 than they would have been a year ago. He has also assumed (see paragraph 26 of his report) that the accommodation and site of Ashford House “are about as average as it is possible to envisage under the circumstances of the location”. This fits well with Mr Helas’ own view that “Ashford House would be considered an average house in terms of its location, size of house, accommodation and plot size by St George’s Hill standards”.

In all the circumstances, my provisional conclusion on the basis of the current valuation evidence is that the present value of Ashford House is around £3.25 million. I now ask myself whether the historic valuation evidence should cause me to alter my provisional view. If it were not for the DTZ valuation in late 2005, I would have no hesitation in answering this question in the negative. A current value of around £3.25 million seems to me well in line with the mortgage valuation of £3 million in 2002, a valuation which was itself performed by a qualified valuer for a reputable lender, and could in principle have given rise to liability in negligence to Mrs Szepietowski if it had been negligently performed. The problem lies in the DTZ valuation of £1.9 million, which on the face of it seems surprisingly out of line with the other available evidence. The figure of £2.3 million which was subsequently adopted for the purpose of the negotiations leading up to the January 2008 compromise does not take the matter any further, because it is clear from material produced to me at the hearing that this was merely an updated “desk top” valuation and was almost certainly based on the DTZ valuation. The DTZ valuation appears, on its face, to have taken all the relevant accommodation and grounds into account, and it referred to a number of comparables. However, there is no indication that the valuer had any personal knowledge of the district or the St George’s Hill estate, and it is quite possible that he did not, given that DTZ were evidently valuing a wide range of different properties in different locations for the receiver. I am unable to explain the apparent discrepancy between the DTZ valuation and the rest of the available evidence, and (as I say) I find it surprising. However, it seems to me that I should concentrate on the evidence of present values which I have before me, and that it would be unsafe and unwise to attempt to undermine that evidence by extrapolation from an earlier valuation which is already more than three years old. On balance, therefore, I am not persuaded that the DTZ valuation should cause me to alter my provisional conclusion to more than a fairly marginal extent. Taking it into account as best I can, and fully recognising the uncertain nature of the exercise upon which I am engaged, I find on the balance of probabilities that the current market value of Ashford House falls somewhere in the approximate bracket of £2.75 million to £3.25 million, or in other words £3 million plus or minus £250,000.

If this conclusion is correct, it follows that there is equity in Ashford House of between about £1.1 and £1.6 million, to half of which Mr Szepietowski is beneficially entitled. In the absence of evidence to the contrary, I am certainly not willing to assume that Mr Szepietowski would be unable to raise money to pay his legal costs on the security of a beneficial interest in prime real property of this order of magnitude. It may well be that, in the current financial climate, he would not be able to borrow from a high street lender. However, there are many other possible sources of finance, and there may well also be business associates or family members or friends who would be prepared to lend the necessary money to Mr Szepietowski on the strength of this security. After all, his Greek cousin was apparently willing to lend him €100,000, interest free, when his assets were frozen. The court would know nothing about this if Mr Evans had not mentioned the Alpha Bank account in his first witness statement. Furthermore, Mr Szepietowski has been careful to give only an incomplete, and almost wholly unparticularised, account of his wife’s assets. He now claims that the present proceedings have taken their toll on his marriage, and that “our marriage has all but broken down”. I think I am entitled to treat this bare assertion with some scepticism, as there is no suggestion to this effect in Mr Szepietowski’s first witness statement, and the material exhibited by Mr Evans includes an email sent by him to the trustee for civil recovery on 12 November 2008 on behalf of his wife, complaining about the delay in transferring three properties into her name under the terms of the consent order.

The conclusions which I have already reached would alone be enough to satisfy me that Mr Szepietowski has substantial available assets, in the shape of his half share in the equity in Ashford House, from which it would be reasonable to expect him to raise the necessary money, in one way or another, to meet both his legal costs to date, in so far as they exceed the existing exclusion orders, and his further legal costs at least down to and including the forthcoming summary judgment application. It is therefore unnecessary for me to consider the question whether he has other available assets in the same detail as I have examined the position in relation to Ashford House. I will, however, briefly state my conclusions in relation to some of the other categories of asset which are in dispute.

The jewellery and works of art at Ashford House were valued by Marriott & Co for the interim receiver in November 2005, and as I have already said their market value was estimated at £87,485. I was supplied with a copy of this valuation in the course of Mr Sonn’s submissions in reply on behalf of the Applicants, from which it appears that the works of art and jewellery were examined and valued by Orringe Consulting, a professionally qualified general (but not specialist) valuer with 17 years’ experience in the antiques market. The valuation is therefore neither detailed nor specialised, but the inventory of items, and the comments made by the valuer, are enough to suggest that there are at least some individual pieces of considerable value. For example, the jewellery includes a gold and diamond bracelet, with the comment that a valuation at £18,000 from South Africa had been seen, and the pictures include a watercolour by Gainsborough purchased from Spink for £3,400 and insured for £11,000, and a 19^th century picture of a girl in a landscape by C D Langley bought from Phillips for £1,100 and insured for £7,500. It is undisputed that Mr Szepietowski has a half share in the chattels, and that they are unencumbered. I am certainly not prepared to assume, without evidence, that their value today is significantly less than it was in late 2005. I also consider that Mr Szepietowski could reasonably be expected to raise money on the security of his beneficial interest in at least some of the more valuable items. However, I accept that this might be difficult to arrange without his wife’s co-operation, and in any event the amounts involved, on the available evidence, are relatively small in comparison with the equity which I have found to be available in Ashford House.

I now turn to the assets owned directly, or indirectly, by Mrs Szepietowski. Mr Sonn accepted in the course of his reply that before their assets were frozen the Szepietowskis had been engaged in a joint property enterprise, both investing and dealing in land. This general picture tallies with the view expressed by Mr Evans in his first statement that “their complex property assets, dealings and business affairs have been wholly intertwined for a number of years”. Mr Sonn was careful not to concede that the assets acquired by them both in the course of their joint property enterprise were jointly owned, and he stressed that all the assets of the unfrozen property business today are vested in the name of Mrs Szepietowski or companies controlled by her. It seems to me, however, that given the background of an admitted joint enterprise in the years leading up to the interim receiving order, there is a rebuttable factual presumption that Mr Szepietowski has at least a 50% beneficial interest in business assets acquired before that date, or which today represent the traceable proceeds of such assets. To put the same point another way, if such assets can be identified today, and if they are now free from the receiving order, there is in my judgment an evidential burden on Mr Szepietowski to satisfy the court that he has no beneficial interest in them.

In my judgment this approach may legitimately be applied to the properties at 62 High Street and 23 Muirfield, which were purchased (as I have explained) in May 2008 by a company controlled by Mrs Szepietowski for an aggregate purchase price of £285,000 borrowed on the security of her property at 35 Baker Street, Weybridge. According to Mr Evans, the Baker Street property had been owned in the name of Sandra Coleman, who was said by the Szepietowskis to be Mrs Szepietowski’s sister-in-law, since 1991. SOCA assert, however, that this was an alias used by the Szepietowskis, and they point out that Ms Coleman never asserted any claim to the property throughout the interim receivership. Against this background, I proceed on the footing that the Baker Street property should rebuttably be regarded as part of the Szepietowskis joint property enterprise, and that 62 High Street and 23 Muirfield should be regarded in the same way because they were bought with funds raised upon mortgage of the Baker Street property. It is now clear that the two latter properties are unencumbered, and they are used by the Szepietowskis as income-producing assets. In my judgment Mr Szepietowski’s evidence does not rebut the presumption that he has a beneficial interest in the properties, and I therefore conclude on the balance of probabilities that half of their value (amounting, on the available evidence, to approximately £140,000) should be treated as available assets. The same goes, too, for one half of any existing equity in 35 Baker Street, although on the present evidence it is impossible to quantify it.

A similar analysis should in my view be applied, at least in principle, to Mrs Szepietowski’s 50% share in the properties held by the Cobham companies which have now been transferred, in mysterious circumstances, to Mr Randerson. As I understand it, the relevant properties were originally acquired before the interim receiving order was made, and that is indeed why they were frozen until the January 2008 compromise. Mrs Szepietowski’s half share in the properties should therefore be regarded, presumptively, as property in which Mr Szepietowski has a beneficial interest. If that is right, I am not satisfied on the available evidence that Mr Randerson should be regarded as a bona fide purchaser for value, and unless and until the contrary is established by cogent evidence I would continue to regard Mr Szepietowski as having the same beneficial interest in them as he had before the transfer to Mr Randerson. The identity, nature and value of the properties is wholly uncertain on the evidence before me. The court is therefore left in the dark. Nobody apart from Mr Szepietowski can be blamed for this absence of evidence, and if it were necessary for me to do so I would be prepared to infer that here, too, he has substantial undeclared assets available to him which in one way or another he could reasonably be expected to turn to account in order to meet his legal costs.

The argument on this part of the case on behalf of Mr Szepietowski was divided between Mr Sonn and Mr Daniel Hochberg of counsel, the latter of whom dealt with the position as a matter of trust law.

Mr Hochberg helpfully reminded me of some of the general principles which the courts apply in relation to legal costs incurred by a trustee who either brings or defends litigation in that capacity. The starting point, says Mr Hochberg, is that trustees are entitled, as between themselves and the beneficiaries, to be indemnified out of the trust property in respect of costs and expenses which they have properly incurred in connection with the administration of the trust assets, including the costs of litigation: see, for example, Re Grimthorpe, deceased[1958] Ch 615 at 623 per Danckwerts J, and compare the general rule now enshrined in CPR Rule 48.4 that a person who is party to any proceedings in the capacity of trustee is entitled to be paid the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the relevant trust fund, and to have those costs assessed on the indemnity basis. I comment that, while this proposition is undoubtedly true as a general rule, it is not an absolute one, and it applies only to costs which are properly incurred. As the Practice Direction to CPR Part 48 makes clear, the question whether costs have been properly incurred by a trustee depends on all the circumstances of the case, including whether the trustee has obtained directions from the court before bringing or defending the proceedings, whether he has acted in the interests of the fund or in substance for his own benefit, and whether he has acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings: see paragraph 50A.2.

Another important principle is that a trustee is not bound, as a matter of trust law, to institute or defend proceedings at his own expense where there are no trust funds available for the purpose. See Lewin on Trusts, 18^th edition, para 34-21 and Tudball v Medlicott(1888) 59 LT 370 at 373-4 per Kekewich J. The words of Kekewich J at 374 are emphatic:

In cases where the trust does have funds, and it would not be necessary for the trustee to litigate at his own expense, it is always open to the trustee to seek directions from the court if there is any doubt as to the propriety of so doing: see generally Re Beddoe[1893] 1 Ch 547 (CA). A particular difficulty arises, however, where the claimant seeks to recover the entirety of the trust fund, and the position is such that, if the claim succeeds, there will on the face of it be no trust fund out of which the trustee can indemnify himself for the costs of defending the action. In cases of that nature, the trustee may again apply to the court for directions, and in a suitable case an order may be made authorising the trustee to defend the action and to recover his costs out of the fund, win or lose: see the decision of Sir Robert Megarry V.-C. in In re Dallaway, deceased[1982] 1 WLR 756 at 759-62, and compare the subsequent decision of the Court of Appeal in In re Evans, deceased[1986] 1 WLR 101, where the court emphasised that it was a matter for the discretion of the court on the facts of each case whether such an order should be made.

Finally, in McDonald v Horn[1995] 1 All ER 961 it was emphasised by Hoffmann LJ, giving the leading judgment in the Court of Appeal, that pre-emptive orders for the payment of costs out of the fund in dispute should not in general be made unless it is clear that the trial judge would in due course order those costs to be paid out of the fund. Otherwise the order might fetter the discretion of the trial judge under what is now CPR Part 44. As Hoffmann LJ said at 971j:

The principles referred to above are well-established in the context of ordinary trust litigation, but it remains to consider whether they can apply in the context of the exclusion order regime set out in section 252 of POCA 2002, the 2005 Regulations and the Practice Direction. Mr Hochberg made no submissions on this question, but accepted, in answer to a question from myself, that the general principles could well be ousted if I took the view that the exclusion order regime was intended by Parliament to be exhaustive. Mr Sonn, for his part, submitted that the regime was not exhaustive, that the court should apply the general principles so far as it could consistently with the express provisions of the regime, and that the correct approach was to treat Mr Szepietowski as having no available assets in the trustee capacity in which he is now sued. He submitted that Parliament could not have intended to put a trustee defendant to civil recovery proceedings in the invidious position of either having to fund the defence from assets available to him in his personal capacity, or not defending the proceedings at all.

It is a striking feature of the exclusion order regime that it says nothing about persons who are sued in a trustee or other fiduciary capacity. In my judgment this omission is not accidental, and Parliament must be taken to have intended the regime to apply to all persons in whom recoverable property is allegedly vested. This may, admittedly, cause difficulties for a trustee defendant who has available personal assets. There is no question, however, of such a person being compelled to defend the proceedings at his own expense. That would not be the position as a matter of general trust law (see paragraph 58 above), and there is nothing in the exclusion regime which modifies that important principle. It is only that the availability of personal assets will disqualify the trustee from obtaining an exclusion, and may in an extreme case force him to choose between funding the defence, at least in the first instance, at his own expense, and abandoning the defence.

It is important to note, however, that the former option will in the majority of cases involve no more than a temporary funding of the defence by the trustee. If the defence succeeds, an order for costs would in the normal way be made against SOCA, and to the extent that the trustee was unable to recover all of his expenditure pursuant to such a costs order he would be able to exercise his ordinary right of indemnity out of the trust fund, which on this hypothesis would not have been held to be recoverable property. Conversely, if the defence fails, and the trust fund is held to be recoverable property, the court will still have a discretion to provide for payment of the trustee’s costs out of the fund: see section 266(8A) of POCA 2002, which says that a recovery order may provide for payment of “reasonable legal expenses that a person has reasonably incurred, or may reasonably incur” in respect of recovery proceedings. I see no reason why such an order should not, in an appropriate case, permit a trustee defendant who has acted reasonably throughout to recover his costs on the indemnity basis, and in that event the court assessing the costs would be obliged to give effect to the direction by virtue of regulation 16(2)(a) of the 2005 Regulations. Alternatively, the court might think it appropriate to allow the trustee to recover his costs on the standard basis only, in which case the amount of those costs would be assessed pursuant to the provisions of regulations 16 and 17 of the 2005 Regulations. It is only if the trustee had acted unreasonably in defending the proceedings that the court would be likely to refuse to make a costs order in his favour.

In my judgment a regime which operates in the way which I have described cannot be stigmatised as unreasonable or unduly onerous for trustee defendants, bearing in mind the very strong public interest that property representing the proceeds of crime should be recovered with as few deductions made from it as possible. A trustee who acts reasonably, and has available personal assets, will not be able to obtain an exclusion order while the litigation is in progress, but should still be able to recover all or most of his costs at the conclusion of the case in one of the ways which I have described. A trustee defendant who does not have available personal assets can of course obtain an exclusion in the same way as a non-trustee defendant, subject to satisfying the court that it is appropriate to exercise the power to do so. If the statutory regime encourages trustees to ask probing questions about the origins of the trust fund before accepting office, and to exercise due diligence, that can in my judgment only be a good thing.

For these reasons I consider that the statutory exclusion regime, as supplemented by the Practice Direction, is intended to be self-contained and exhaustive. There is no scope, in my judgment, for reading into the scheme an exception for trustees which would confine attention to assets which are vested in them in a fiduciary capacity, and would leave out of account their personal assets. Accordingly I do not think it is open to me to adopt the course urged by Mr Sonn and to disregard the assets which I have found to be available to Mr Szepietowski.

I would only add that if, contrary to the view which I have just expressed, I did have a discretion to leave Mr Szepietowski’s personal assets out of account, I would not consider it appropriate in the circumstances of the present case to do so. The Heritage Investment Trust could hardly be more shadowy, and there is no evidence before me that Mr Szepietowski ever properly exercised any of the functions or duties of a trustee in the years between the establishment of the trust in 1999 and the 2008 consent order (which provided for Mr Szepietowski to retire as trustee, although in the event SOCA has been unable to find anybody willing to replace him).

No trust accounts of any description have ever been produced, and the only named beneficiary is Mr Mitchell, who disappeared in unexplained circumstances in April 2001. No steps have been taken by Mr Szepietowski to add any further beneficiaries. Nor has he taken any steps to appoint a co-trustee, even though the trust deed requires there to be at least two individual trustees, and provides that “no individual shall act as a sole trustee hereof other than in the appointment of an additional trustee forthwith” (clause 13(iii)). Nor has he ever made any application for directions or guidance to the Manx court. Furthermore, in his second witness statement in the present application Mr Szepietowski says that the facility fee and advance interest payments, together totalling £102,500, which were retained out of the £900,000 lent by Countess BVI to Plevna in 1999 was subsequently disbursed “in accordance with instructions” received from Mr Mitchell. On Mr Szepietowski’s own case, this money formed part of the assets of the Heritage Investment Trust, but there is no indication that he gave any thought to his fiduciary obligations as a trustee before doing what Mr Mitchell told him.

In short, there appear to me to be strong prima facie grounds for suspecting that the whole trust arrangement was a sham, and at all material times Mr Szepietowski held the purported trust property as Mr Mitchell’s nominee. If he wishes to be treated as a bona fide trustee today, it seems to me that it is incumbent on him to dispel that suspicion and to produce solid evidence that he has in the past behaved as a real trustee of real trust property.

For the reasons which I have already given, it will be apparent that I do not consider the conditions for the making of any further exclusion orders in favour of the Applicants to be satisfied. No distinction has been drawn in argument between the position of Mr Szepietowski on the one hand and the Countess companies on the other hand, and it has been common ground that the applications of all three should stand or fall together. This application will therefore be dismissed.