Smith, Re (Ruling - Piggott condition)

I have before me an application by Dr Smith made by an application notice issued on 21 September 2017. By that application notice the order which was sought was in the following terms. Firstly, that the Serious Fraud Office make an application to amend the current restraint order made on 20 May 2005 by Wilkie J against Dr Gerald Smith, as further varied on 23 May 2016 and again on 30 November 2016 by Popplewell J, to include the Sentrum sale proceeds (or tracing proceeds thereof). The relief sought went on to include disclosure provisions.

By virtue of the evidence sworn in support of the application and a skeleton argument filed in the two days before this hearing, the nature and scope of the application has changed somewhat in two respects. Firstly, there was a broadening of the property in respect of which the variation is sought. Apart from the Sentrum sale proceeds (or the tracing proceeds thereof) Dr Smith also seeks to include:

The second change is that the way in which the relief was framed in Dr Smith's third affidavit was for the Court to order that the director of the SFO be invited to vary the restraint order to include the two categories of property I have identified. In the skeleton argument served for this hearing Dr Smith identified that the application was also being made as an application by him pursuant to section 77(7) of the Criminal Justice Act 1988 for a variation in those respects.

As I said during the course of the argument, it is not appropriate for the Court to make orders inviting the SFO or any of its officers to consider making an application to extend the order. Nor can the Court properly order the SFO to seek a restraint order, or to seek an extension of an existing restraint order; that is a matter for the SFO. It follows that the only jurisdiction to make an order of the type sought by Dr Smith arises, if at all, by virtue of his invoking section 77(7) of the Criminal Justice Act.

In the course of his submissions to me and as a result of dialogue with the Court, it became apparent that the scope of the extended restraint which Dr Smith was seeking became narrower and narrower. By the end of the argument it was clear that the application was pursued only in relation to a sum of just under £20 million which was transferred by Legion to Phoenix in December 2012.

Dr Smith's case is that such sum is, at least arguably, realisable property of his and so that sum, or the traceable proceeds of it, fall within the scope of the 1988 Act and the restraint order should be extended to cover that property or its traceable proceeds, in addition to the property which is already the subject matter of the extended restraint order.

The essential steps in Dr Smith's case can be summarised at a relatively high level. They are that under the written agreements in May 2003, which gave rise to the Orb litigation, there was in essence a gift by him to Mr Ruhan, or entities controlled by Mr Ruhan, of the shareholding, amongst other things, in companies owning the three Hyde Park hotels. Dr Smith then argues that the £20 million transferred to Phoenix in December 2012 can be treated as the traceable proceeds of that gift because the proceeds of sale of two of the hotels were used first to assist in the funding of a Qatar project, the proceeds of which project came back to the Arena settlement and were used to fund Sentrum; and when Sentrum was sold, some £150 million of the sale proceeds went to Mr McNally and Mr Cooper's personal account and from there about £92 million went to Legion, a company which was or became owned by Mr Anthony Stevens and out of that sum a figure of almost £20 million went from Legion to Phoenix in December 2012.

There are several insuperable obstacles to the success of this application. The first is that there is no jurisdiction under section 77(7) of the Criminal Justice Act 1988 to use an application for variation of an existing order as a vehicle for the grant of a restraint order over additional property in the hands of a third party at the instance of a defendant. Section 77(7) provides:

It is clear from that wording that the variation must be to a part of an existing order in relation to the aspect of the existing order which affects the person making the application. That construction is supported by section 77(5)(a) which provides that a restraint order may only be made on an application by the prosecutor. If that is so in relation to any initial order which is sought under the Act, it is in my view obvious that that applies equally in relation to the extension of an existing order to cover additional realisable property. Were there jurisdiction to do what Dr Smith asks me to do in this case, it would undermine section 77(5)(a) and indeed undermine the careful structure of Part 6 of the Act, all of which is premised on it being the prosecutor who is responsible for seeking any restraint for the statutory purposes that are there identified. If the prosecutor has taken the view that he or she does not wish to seek a restraint order in respect of particular assets, it is not for the defendant to invoke the machinery of the section, especially where the assets in question are, as they are here, to put it at its lowest, not clearly realisable property.

If a defendant wishes to restrain the use of the property in the hands of a third party, the defendant must invoke private law rights and the jurisdiction of this court to protect private law rights, primarily under section 37 of the Senior Courts Act 1981. That is not what Dr Smith has done in this case. He is acting as a litigant in person and if that were merely a technical matter, I would not regard that as sufficient objection to there being jurisdiction. But it is not a mere technical matter. Where private rights are sought to be protected, there are not only requirements of adequate notice, but the Court has to give careful consideration to criteria which have simply not been addressed on the present application, such as the risk of disposal, the potential interference with rights of third parties and cross-undertakings in damages.

That is sufficient to dispose of the application, but I should observe that even if I regarded myself as having jurisdiction, Dr Smith would not have surmounted the first hurdle, which would have been to show a good arguable case that the money in the hands of Phoenix, or those to whom it had then passed, constitutes his realisable property within the meaning of the Act.

Realisable property is defined as property in the hands of the defendant, or a gift from the defendant. Dr Smith argues in this case that there was a gift from him. He identifies two bases for that assertion.

The first is that he says the transfer of the shares in the companies owning the Hyde Park hotels was a gift. That assertion does not bear closer analysis. The transaction documents on their face provided for consideration to be given for the transfer of those shares in the form of loan notes to be issued by Atlantic. On this application Dr Smith has disavowed any reliance on the oral agreements which he alleged in the Orb litigation and founds his claim solely on the written documents. Under those written documents the consideration for the transfer was to be the loan notes issued by Atlantic and those loan notes were issued. Dr Smith's complaint is in substance that Mr Ruhan did a deal with Izodia, given effect to by a creditors' voluntary arrangement, by which Mr Ruhan essentially reacquired the benefit of the loan notes, instead of their being used to fulfil what was Dr Smith's expectation, that they would be used to compensate Izodia for the theft in respect of which he was subsequently convicted and in respect of which the confiscation order was made. However, whatever the merits or demerits of that complaint, those allegations are not sufficient to make the transfer of the shares in the Hyde Park hotels a gift.

The second and alternative way in which Dr Smith says he can establish a good arguable case that the sum of almost £20 million is his realisable property is to rely on the stance which the Serious Fraud Office have taken in its own application for the extension of the receivership order. The SFO's case, Dr Smith argues, on its application, was that the assets of the Arena settlement constituted realisable property. The Sentrum sale proceeds were within the Arena settlement before the distribution and accordingly, if what the SFO say is right in relation to their application, then it must equally follow that he has shown a good arguable case that the sum of almost 20 million which went to Phoenix, coming as it did, he says, from the Sentrum sale proceeds within the Arena agreement, must also be realisable property.

The reasoning, however, is fallacious. The SFO's case is that the nature of the arrangements which were put in place in May of 2003 were what has been characterised as a safekeeping agreement, namely that the assets were to be put into Mr Ruhan's hands for safekeeping and for the time being ostensibly, but in substance they were to be available to Dr Smith on the basis that Mr Ruhan was a trustee or nominee for Dr Smith's benefit. That does not rely on the oral agreements which Dr Smith was averring in the Orb litigation, but it is the characterisation, which I have oversimplified, of the arrangements at the time.

That is not Dr Smith's case or Dr Smith's evidence as to what was happening in 2003. His case now, as I have indicated, is that the written contractual documents reflect the true nature of the transaction. Indeed, in his witness statement dated 27 November of 2011, at paragraph F3(a) he describes the SFO's case that the arrangements concluded during May 2003 were in the form of a safekeeping agreement as "fundamentally incorrect and fundamentally implausible". Accordingly, it is neither his case nor his evidence that the reasoning which applies to the SFO's premise for treating Arena settlement assets as his realisable property is valid.

Moreover, Dr Smith signed, as a party, a confidential settlement deed dated 26 April 2016 as part of the Geneva settlement of the Orb litigation. The terms of that confidential settlement deed contain a clear release and waiver of any claim, including a tracing claim, by him, amongst others, against Phoenix and any part of the sum of almost £92 million which went to Legion, which would include, on his case, the sum of almost £20 million which went from Legion to Phoenix in December 2012.

Dr Smith says to me on this application that that agreement was a sham. In support he says that Mr Justice Mostyn so found in his recent judgment in the matrimonial proceedings between Mr Ruhan and his wife. However, that is not what Mr Justice Mostyn found. Paragraph 76 of his judgment, which contains the relevant finding, found that the confidential settlement deed was a sham insofar as it treated Mr Stevens as acting as a principal rather than as a nominee for Mr Ruhan. Dr Smith's assertion that the whole agreement is a sham comes ill from his mouth as a signatory and without any supporting evidence or indeed explanation as to why he says that is the case. Accordingly, on the current evidence before me, that agreement provides a complete answer to any claim by Dr Smith of a right to trace into these assets of Phoenix.

For those reasons the application will be dismissed.