B e f o r e :
LORD JUSTICE LAWS
MR JUSTICE MITTING
MR JUSTICE EDWARDS-STUART
|| The Crown Prosecution Service
||- and -
||The Eastenders Group
||- and -
(as former Court Appointed Receiver)
Mr Michael Parroy QC and Mr Rupert Jones (instructed by the Applicant (CPS)) for the Crown Prosecution Service
Mr Geraint Jones QC and Mr Marc Glover (instructed by Rainer Hughes) for the 1st Respondent
Mr David Perry QC and Mr Martin Evans (instructed by Peters & Peters Solicitors LLP) for 2nd Respondent (former Receiver)
Hearing dates : 18 July 2012
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Laws:
- In form this is an application by the Crown Prosecution Service ("CPS") for permission to appeal against certain orders made by Underhill J in the Central Criminal Court on 8 May 2012. I use the expression "in form" because as will appear there are issues as to the jurisdiction of the court. The case raises important questions as to the right of a receiver, appointed by the Crown Court under s.48(2) of the Proceeds of Crime Act 2002 ("POCA") following the making of a restraint order under s.41(1), to recover his costs and expenses in circumstances where this court later quashes his appointment, concluding that there had been insufficient grounds upon which to treat the assets in respect of which he had been appointed as "realisable property" within the meaning of POCA s.83. I give an account of the material statutory provisions below.
BACKGROUND: THE COURSE OF THE LITIGATION
- On 6 December 2010 the CPS applied ex parte to HHJ Hawkins QC, at the Central Criminal Court, for restraint orders against two persons, Alexander Windsor and Kalwant Singh Hare ("the defendants"), who were suspected of a species of fraud by which the payment of duty on alcohol and tobacco was evaded. Neither of the defendants has been charged with any offence. The applications were made and granted under POCA s.41. The orders were in the same form as respects each defendant; I shall refer in the singular to "the order". In summary, the order had effect to restrain the defendants from dealing with their assets generally, and the assets (notably bank accounts) of most of the members of a group of associated companies to which I may refer compendiously as "Eastenders". According to a judgment of this court delivered on 8 February 2011 to which I will refer further, the defendants between them owned all of the shares in the parent company, Eastenders Cash and Carry plc, but the subsidiaries were not wholly owned by the parent. There are however other accounts of the distribution of the shares, so the position is not entirely clear. At all events the restraint orders were extended to cover Eastenders' assets on the footing that in the circumstances of the case the corporate veil should be lifted and the group's assets be treated as assets of the defendants. The order also appointed Mr Brandon Barnes ("the Receiver") as management receiver over the assets of Eastenders under POCA s.48(2).
- In light of the principal issues in the appeal it is necessary to refer to some of the order's provisions in a little more detail. Paragraph 3 provides:
"The Defendant must not –
(1) remove from England and Wales any of his assets which are in England and Wales; or
(2) in any way dispose of, deal with or diminish the value of any of his assets whether they are in or outside England and Wales."
"Paragraph 3 applies to all the Defendant's assets whether or not the assets are described in this order or are transferred to him after the order is made, are in his own name and whether they are solely or jointly owned. For the purpose of this order the Defendant's assets include any asset which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. The Defendant is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions."
Paragraph 5 then provided: "This prohibition includes the following assets in particular – ", and there followed, under twelve numbered heads, descriptions of various assets including shares in Eastenders Cash and Carry plc (no. 5), the assets of Eastenders Cash and Carry plc including an identified bank account (no. 7) and the assets of five subsidiary companies again including identified bank accounts (nos. 8 – 12). Then paragraphs 6 – 14 inclusive set out prohibitions expressly directed to Eastenders Cash and Carry plc and the subsidiaries and referring to their assets.
- The Receiver was appointed by paragraph 24 of the order, which provided:
"Brandon Barnes of BDO LLP... [is appointed] as Management Receiver ("the Receiver") of all the assets and property identified in paragraphs 3 – 15 herein and the business and undertaking of the companies specified in any of those paragraphs ("the Receivership Property").
Paragraph 25 vested a series of powers in the Receiver, including
"(6) power to realise so much of the receivership property as is necessary to meet the Receiver's remuneration and expenses".
Paragraph 29 then provided:
"The remuneration and expenses of the Receiver shall be paid out of the Receivership property and in accordance with a letter of agreement…"
As the cross-reference in the order made clear, the letter was a letter of engagement sent to the Receiver by the CPS and dated 29 November 2010. Its material terms were as follows:
"6... Your remuneration costs and expenses are to be drawn from the assets of the defendants under your management in accordance with section 49(2)(d) of the Proceeds of Crime Act and the decision of the House of Lords in Capewell v HM Revenue and Customs  UKHL 2. You are reminded that you will have a lien over the defendants' assets for payment of your fees and that the Crown Prosecution Service does not undertake to indemnify you in relation to your fees in the event that there are insufficient assets within the defendant's estate. Your remuneration, costs and expenses are to be paid in accordance with the framework agreement referred to above..."
Paragraph 50 of the order provides:
"Reference to an asset belonging to the Defendant includes any property in which the Defendant has an interest and any property to which the Defendant has a right."
- By paragraph 32 of the order, the power given by paragraph 25(6) (the text has paragraph 24(6), but it must be a typing error) was not to be exercised until further order of the court; such an order was made by HHJ Hawkins on 14 December 2010. On 23 December 2010 applications were made to HHJ Hawkins to discharge both the restraint and management receivership orders, but were dismissed by him.
- The order of 6 December 2010 was appealed to this court ( EWCA Crim 143: Hooper LJ, Openshaw J and Sir Geoffrey Grigson). Giving the judgment of the court on 8 February 2011 Hooper LJ stated at paragraph 11 that it was "implicit" in the order that "the assets of the Eastenders group were realisable property held by the alleged offenders". But the court held (paragraphs 18 and 94) that the assets of Eastenders were not, in fact, realisable property held by the defendants. They quashed the receivership order (as well as the restraint order). They considered (paragraph 103) that as at 6 December 2010, when the ex parte application was made to HHJ Hawkins, there may have been "some force" in the allegation that the proceeds of fraud had been laundered through Eastenders; but by 23 December 2010 when the defendants and Eastenders applied to set aside the order, substantial evidence had been filed tending to show that 95% of Eastenders' business was or may well have been legitimate. At paragraph 109 of the court's judgment Hooper LJ said:
"In these circumstances, I do not think that there was sufficient material before HHJ Hawkins on the application to discharge the orders, for him to decide that there was reasonable cause to believe that these companies are or were just a front, sham, or device (to use but some of the epithets which have been used in similar cases) for a diversion fraud committed by the alleged offenders or that they are sheltering behind the façade or veil of the companies to hide their frauds, or the proceeds of their frauds; indeed the evidence before us suggests that the vast bulk of the companies' business is legitimate..."
- The Receiver proceeded to assert a lien over the assets of Eastenders for the amount of his remuneration and expenses earned and incurred during the currency of the receivership. In that period the Receiver took possession of £774,556.01 cash and paid it into an interest bearing account. After the order was discharged by this court all the assets which had been under his control were returned, save for the cash over which he asserted a lien; I understand that the balance as at 18 July 2012, the date of the hearing before us, was £474,779.43.
- After this court's judgment of 8 February 2011, two applications were made to the Crown Court. The first was by the Receiver, by letter from his solicitors dated 20 April 2011, in effect for an order that his remuneration and expenses should be paid out of Eastenders' retained assets. The second, dated 3 November 2011, was made by Eastenders and sought an order for payment by the CPS of compensation equivalent to whatever sum (if any) was payable to the Receiver out of the assets.
- Both applications were heard by Underhill J on 7 and 8 February 2012. His reserved judgment was delivered on 4 April 2012. The CPS appeared as an Interested Party following directions given by Mackay J on 18 November 2011. Underhill J declined to make any order in favour of the Receiver for payment from Eastenders' assets, on the ground that to do so would violate their rights under Article 1 Protocol 1 of the European Convention on Human Rights ("A1P1"). He made it very clear that in his view the CPS should be liable for the Receiver's remuneration and expenses. There was no formal application to that effect before him; the Receiver's stance had been that he was entitled to exercise his lien over the receivership estate – Eastenders' assets. Accordingly Underhill J made no order on the first application, and in the circumstances the second application (by Eastenders) did not call for determination. The judge adjourned the case for a further hearing at which, after the parties had considered his narrative judgment on the substantive issues, he would decide what consequential orders should be made.
- The resumed hearing took place on 8 May 2012. Underhill J heard submissions and made a series of orders. Those sought to be appealed are (I summarise) that the CPS should pay the Receiver's remuneration and the outstanding legal costs of his receivership, and make interim payments in respect of both; that the CPS' application for a stay of the orders made be refused; that the CPS pay Eastenders' litigation costs of the current applications and make an interim payment in respect of their counsel's fees; and that the CPS should also pay the Receiver's litigation costs of the applications and make an interim payment in respect of those.
- Appeal against these orders is by leave of this court only. Underhill J made it clear on 4 April 2012, in his judgment as to the applicable principles, that he would have granted the CPS permission to appeal had the decision lain with him. The CPS duly applied for leave to appeal to this court, and the application has been referred to the full court by the Registrar.
- I turn to the legislation. POCA s.41(1) empowers the Crown Court to make a restraint order, that is an order "prohibiting any specified person from dealing with any realisable property held by him", if any condition set out in s.40 is satisfied. By s.41(2) a restraint order may provide that it applies "to all realisable property held by the specified person whether or not the property is described in the order". S.48(2) provides:
"The Crown Court may by order appoint a receiver in respect of any realisable property to which the restraint order applies."
S.49 deals with a receiver's powers, and s.49(2)(d) provides that the court may "in relation to any realisable property to which the restraint order applies" confer on the receiver "power to realise so much of the property as is necessary to meet the receiver's remuneration and expenses". S.49(8) confers a right to be heard on third parties before the s.49(2)(d) power is exercised. S.61 provides that a receiver who takes action in relation to property which is not "realisable property", but who reasonably believes he is entitled to take the action, will not be liable to any person suffering loss or damage in consequence except so far as the loss or damage is caused by the receiver's negligence.
- S.62(2) provides that "[t]he receiver may apply to the Crown Court for an order giving directions as to the exercise of his powers". By s.63(1) any person affected by an order under s.48 may apply to the Crown Court to vary or discharge the order. S.65 deals with appeals to this court. Because of the issue (which I shall explain below) relating to the court's jurisdiction, I should set out s.65(5):
"(5) The following persons may appeal to the Court of Appeal against a decision of the court on an application under s.63 -
(a) the person who applied for the order in respect of which the application was made...;
(b) any person affected by the court's decision;
(c) the receiver."
- S.69(3)(a) provides that the receiver's powers "must be exercised with a view to allowing a person other than the defendant… to retain or recover the value of any interest held by him".
- S.72 contains provisions for compensation to be payable to a person holding realisable property in certain circumstances. There are three conditions. The first (s.72(2) and (3)) is that a criminal investigation was started but no proceedings commenced, or the complainant was not convicted or his conviction was quashed (or he was pardoned). The second (s.72(4) and (5)) is that there has been serious default on the part of a person in the police, the CPS, the Serious Fraud Office, or HM Revenue and Customs: the compensation is payable by the body to which the defaulter belongs (s.72(9)).
- S.83 provides:
"Realisable property is –
(a) any free property held by the defendant,
(b) any free property held by the recipient of a tainted gift."
It is unnecessary to describe the definitions of "free property" (s.82) and "tainted gift" (s.77).
- I should also note paragraph 60.6(5) of the Criminal Procedure Rules 2011:
"A receiver appointed under s.48 of [POCA] is to receive his remuneration by realising property in respect of which he is appointed, in accordance with s.49(2)(d)….".
- A1P1 provides:
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
- S.3(1) of the Human Rights Act 1998 provides:
"So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention Rights."
- I turn to the issue of jurisdiction, which has been raised (and notified to counsel) by the Registrar of Criminal Appeals.
- The only relevant statutory appeal to this court is that given by s.65 of POCA. The law knows no right of appeal (as opposed to judicial review) save as provided by statute. The submission of Mr Parroy QC for the CPS, as it was developed before us at the hearing, was that the orders made by Underhill J for payment of the Receiver's remuneration and expenses by the CPS constituted a variation of paragraph 29 of HHJ Hawkins' order of 6 December 2010 which, it will be recalled, provided for the Receiver's remuneration and expenses. The Registrar entertained some doubt as to whether Underhill J's orders could be so understood. If they did constitute variations applied for under POCA s.63(1), there would be a right of appeal under s.65(5). (An alternative was that they might constitute directions given pursuant to an application under s.62: s.65(4) confers a like right of appeal against such directions.) Otherwise there would be no right of appeal. In that case, however, it would have been open to this court to re-constitute itself a Divisional Court of the Queen's Bench Division and proceed to determine the substance of the matters before us by way of judicial review proceedings: the jurisdiction to do so would arise under s.29(3) of the Senior Courts Act 1981, which I need not set out. I would have been prepared to take that course, if, after hearing argument, I had concluded that there was indeed no statutory right of appeal. However, although the decision in Cazmi  EWCA Crim 2707 offers some support for the view that s.65 is to be read relatively narrowly, it seems to me that the orders made by Underhill J against the CPS are properly to be regarded as variations, under s.63, of paragraph 29 of HHJ Hawkins' order. That appears to be how Underhill J himself understood the proceedings before him when he gave judgment on 4 April 2012:
"45... [P]aragraph 29 of [HHJ Hawkins'] order decides the question of liability in principle, and all that is formally before me is an application by the Receiver for a consequential order providing for assessment. But there is no objection to a judge of co-ordinate jurisdiction varying a previous order where there has been a material change of circumstances. The decision of the Court of Appeal discharging the receivership order seems to me to be such a change."
- Accordingly I consider that there is a properly constituted application for permission to appeal before us, and I would grant permission.
THE JUDGMENT BELOW
- I turn to the reasoning of the learned judge below. Underhill J set out in the plainest terms the general thrust of Eastenders' case: since this court had held that the receivership order should never have been made, it was wholly unjust that they should be liable for the Receiver's costs and expenses; either he must bear them himself, or be compensated by the CPS in the equivalent amount. If Eastenders had to pay and had no recourse elsewhere, that would violate their rights under A1P1. The judge agreed with this proposition: judgment paragraph 28.
- Giving effect to that view within the terms of POCA was not, however, a straightforward exercise. The judge acknowledged as much (paragraph 33 – "it is not as simple as that"). He rejected the view that the Receiver should not recover his costs at all:
"35... It is in fact plain that, irrespective of whether this course would be open to me having regard to the terms of POCA, to deny the Receiver his remuneration altogether is an unacceptable way of vindicating the companies' rights and would involve remedying one injustice only by creating another."
The judge considered there was "obvious justice" in the prosecutor's having to pay (paragraph 39). However (paragraph 40) the question was whether POCA could be construed so as to enable the court to make an order to that effect. In a passage which the CPS say was entirely correct, he continued as follows:
"41. If POCA is read literally, or indeed according to its natural meaning, it is clear that the answer is that it cannot. It is true that... the language of s.49(2)(d) is in form permissive only. Nevertheless, the Act must be read as a whole; and it is in my view clear that its scheme is that a receiver appointed under Part 2 is to be remunerated, and remunerated only, out of the receivership assets. That has been authoritatively held to be the position under the 1988 Act (subject to the 'stopgap' provision previously in s.88(2)) – see, most obviously, Capewell... – and the situation is clearer still under POCA, both because s.49(2)(d) is more explicit than anything in the 1988 Act and because even the stopgap of s.88(2) has now been (presumably deliberately) removed. What is more, Parliament has given thought to the question of persons adversely affected by the making of restraint orders and has in s.72 provided for a limited remedy by way of compensation."
- The reference to the 1988 Act is to the Criminal Justice Act 1988, a predecessor statute which largely though not precisely pre-figured the relevant provisions of POCA. S.88(2) (the "stopgap") provided for payment of the receiver's remuneration and expenses by the prosecutor if (in effect) there remain insufficient funds got in by the receiver. Capewell is the decision of their Lordships' House in Capewell v RPCO Commissioners  1 WLR 386, to which I will refer further.
- However, for Underhill J that was "not the end of the story". He proceeded to consider whether the provisions of POCA could be "interpreted" so as to empower the court to order the CPS to pay the receiver's expenses. He referred (paragraph 42) to Ghaidan v Godin-Mendoza  2 AC 557 in which their Lordships' House discussed the scope of s.3 of the Human Rights Act 1998. Lord Nicholls said this at paragraph 33:
"Parliament, however, cannot have intended that in the discharge of this extended interpretative function the courts should adopt a meaning inconsistent with a fundamental feature of legislation. That would be to cross the constitutional boundary section 3 seeks to demarcate and preserve. Parliament has retained the right to enact legislation in terms which are not Convention-compliant. The meaning imported by application of section 3 must be compatible with the underlying thrust of the legislation being construed. Words implied must, in the phrase of my noble and learned friend Lord Rodger of Earlsferry, 'go with the grain of the legislation'. Nor can Parliament have intended that section 3 should require courts to make decisions for which they are not equipped. There may be several ways of making a provision Convention-compliant, and the choice may involve issues calling for legislative deliberation."
- Underhill J concluded that POCA could be read down pursuant to s.3 of the HRA, so as to empower the courts to order recovery of the Receiver's expenses from the CPS. He said:
"43… My initial view was that the features which I have enumerated at paragraph 41 above meant that it was indeed a fundamental feature of the statutory scheme that the only source for the receiver's remuneration was the receivership property. But on reflection I have come to the conclusion that that is too crude an approach. In my opinion, what both the draftsman of the statute and the various courts which have analysed its effect (or, strictly, that of the 1988 Act) were contemplating was the situation where a receivership order is made over realisable property. It is indeed a fundamental feature of the legislation that in such a case the receiver is entitled to a lien over the property made subject to the order; and even [if] it could be said that in some circumstances that might involve a breach of the [A1P1] rights of persons with an interest in such property I doubt if s.3 could be invoked to produce any different result. However I do not see that it is a fundamental feature of the statutory scheme that that rule should apply even where the property is not realisable property and has been wrongly included in the order: that is a different situation altogether. Of course, it is not a situation for which the Act expressly provides; but if the problem is only one of failure to include a provision safeguarding Convention rights, rather than of actual contradiction, s.3 is up to the job of supplying the omission. I would accordingly 'interpret' POCA as giving the court the right, in circumstances such as those of the present case, to order that the receiver's remuneration and expenses be paid by the CPS and not by the companies. As was made clear in Ghaidan, it is unnecessary that I formulate the precise terms of a provision to be read into the Act: it is enough that I identify its effect in the present case."
- The broad focus of counsel's skeleton arguments was upon three questions. First, would Eastenders' rights under A1P1 be violated by the Receiver's recovering his expenses out of their assets? Secondly, if so, can the court order their recovery from the CPS? Thirdly, if so, should it do so? At the hearing, however, the focus shifted. There was substantial argument upon a question which is logically prior to any issue concerning A1P1: whether, in the events which have happened, the Receiver has any claim upon the assets of Eastenders in any event – irrespective of the impact of A1P1. I shall address this issue first, and in the course of doing so I will consider the principles which govern the law in this area.
STATUTORY RECEIVERS AND THE COMMON LAW
- A receiver appointed by the court is by the common law the court's officer, and not the agent of the party which sought his appointment: see for example Gardner v London Chatham & Dover Ry Co (No 1) (1867) 2 Ch App 201 per Cairns LJ at 211. Accordingly he is ordinarily to be paid out of assets which the court controls. In Boehm v Goodhall  1 Ch 155 Warrington J said this at 161:
"Such a receiver and manager [that is one appointed by the court] is not the agent of the parties, he is not a trustee for them, and they cannot control him. He may, as far as they are concerned, incur expenses or liabilities without their having a say in the matter. I think it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the assets which are under the control of the court. The court itself cannot indemnify receivers, but it can, and will, do so out of the assets, so far as they extend, for expenses properly incurred; but it cannot go further. It would be an extreme hardship in most cases to parties to an action if they were to be held personally liable for expenses incurred by receivers and managers over which they have no control."
This passage has been cited with approval in later cases, notably by Lord Walker of Gestingthorpe in Capewell. Capewell also demonstrates that the court-appointed receiver's right to be paid out of the receivership assets remains good within the statutory regime established for the recovery of criminal proceeds. The actual point for decision in that case was as to the impact of CPR 69.7, with which we are not concerned. Before addressing that paragraph of the Rules, however, Lord Walker demonstrated the conformity of the common law principle relating to the receiver's remuneration with the regime of POCA's predecessor, the Criminal Justice Act 1988. After setting out what was said by Warrington J in Boehm v Goodhall he continued:
"22 These principles were applied (though with some reluctance) by the Court of Appeal in Re Andrews  1 WLR 1236, a case of alleged VAT and PAYE frauds in which restraint and receivership orders were made against a father (who was eventually acquitted and awarded his costs out of public funds) and a son (who was eventually convicted of fraud)...
23 Re Andrews was considered and followed by the Court of Appeal in Hughes (one of three appeals by prosecuting authorities concerned with receiverships under CJA 1988 and DTA [Drug Trafficking Act] 1994)."
I shall refer further to the decision in Andrews. Lord Walker proceeded to cite at length from Hughes  1 WLR 177, noting that in that case the Court of Appeal accepted the appellant prosecutor's argument that a receiver appointed under the 1988 Act should not "be denied the other ordinary consequences of his receivership, including not least the right (indeed the requirement) to recover the costs of the receivership from the assets under his control" (Hughes, paragraph 45). At paragraph 25 of Capewell Lord Walker stated:
"I have set out the decision in Hughes at some length because it does in my opinion state clearly and correctly the somewhat opaque relationship between the general law of receivership and the detailed provisions of CJA 1988. The real issue in this appeal is not whether Hughes was rightly decided, but whether it is no longer good law as a result of the coming into force of CPR 69.7."
- In a passage in Hughes not cited by Lord Walker, Simon Brown LJ also said this:
"50... Statutory receivers are to be treated precisely as their common law counterparts save to the extent that the legislation expressly provides otherwise. The statute is not to be regarded as an entirely self-contained code incorporating nothing from the common law. The fact that, unusually..., the prosecutor cannot be required to give a cross-undertaking in damages (see RSC Ord 115, r 4(1)) does not constitute so fundamental a difference between statutory and common law receivers as to give rise to wholly discrete schemes for their remuneration."
- These cases addressed the relevant provisions of the 1988 Act. But there is no doubt that the old rule as to payment of the receiver out of the receivership assets applies within the POCA regime as surely as in that of the 1988 Act. It is true that there are some differences between the statutes. Thus POCA has no equivalent to the "long-stop" indemnity to be given by the prosecutor, provided for by s.88(2) of the 1988 Act: I am inclined to agree with the CPS' submission (Mr Parroy's skeleton argument, paragraph 8) that the purpose of the change was to disinhibit prosecutors from seeking restraint and receivership orders in the public interest. POCA s.72 provides for somewhat more generous compensation arrangements for persons holding realisable property than were previously available. None of the differences between the 1988 Act and POCA militates against the application of the old rule as to the receiver's payment in a POCA case, and POCA s.49(2)(d), along with paragraph 60.6(5) of the Criminal Procedure Rules, lends it positive support.
- It is clear, then, that the common law rule for payment of the receiver remains the paradigm arrangement within the POCA regime. Paragraph 41 of Underhill J's judgment, which I have cited, was as Mr Parroy submitted entirely correct.
WHAT IF THE RECEIVER SHOULD NEVER HAVE BEEN APPOINTED?
- What is the reach of the common law rule? Mellor v Mellor  1 WLR 517 was a case where the receiver advanced his claim for remuneration after the receivership had been brought to an end: it was discharged by a consent order made in the High Court to which, however, the receiver was not a party. Mr Michael Hart QC sitting as a deputy judge of the Chancery Division had to confront a submission that the court should disallow all claims for remuneration on the ground that the appointment of the receiver ought never to have been made. He stated:
"I am myself unable to understand the basis on which it is said that the receiver's rights to remuneration in respect of services actually rendered by him during the currency of his appointment can depend in any way on whether the order of appointing him would not have been made had the party applying for it made fuller disclosure to the court than in fact he did. Absent any evidence that the receiver was in some way complicit in the non-disclosure or other impropriety on behalf of the applicant in obtaining the order, the receiver is entitled to act and be remunerated for acting on the footing that his appointment is valid...
The idea that the court may subsequently deprive a receiver of his right to remuneration on the sole ground that the court with hindsight comes to the conclusion that the receivership which it had ordered had better not have been ordered at all, has only to be stated in those terms for its injustice to be apparent."
- Mellor was not a POCA case, nor was the receivership order discharged in appeal proceedings. But it has consistently been approved. One instance was the decision of this court in Re Andrews  1 WLR 1236, which as I have shown was referred to in Hughes and Capewell. Andrews concerned a receiver appointed under the 1988 Act. A father and son were both charged with offences. Restraint and receivership orders were made. The assets covered by the receivership included property belonging to the father and to companies with which he was associated. He was acquitted but his son convicted. The receivership does not seem to have been expressly discharged (though the restraint order against the father was). The receiver retained a sum out of the assets to meet her costs. So much was in fact uncontroversial; the question was whether the sum thus lost to the father might be recovered by him pursuant to an order for costs made in his favour in the 1988 Act proceedings. The court held that it could not. In setting out the legal background Ward LJ, after citing Warrington J in Boehm v Goodall (and its endorsement by Nourse LJ in Evans v Clayhope Properties Ltd  1 WLR 358, 362), stated at 1243:
"That principle was extended by Mr Michael Hart QC, then sitting as a deputy High Court judge in Mellor v Mellor  1 WLR 517, where he held that the receiver's lien over the assets gave him a continuing right to possession even after the discharge of the receivership order and accordingly he was entitled to an order charging all the assets available to him during the currency of his receivership with the amount of his costs and remuneration... So much appears to be settled."
- In Capewell Lord Walker said this at paragraph 27:
"A receiver takes on heavy responsibilities when he accepts appointment, and he is entitled to the security of knowing that the terms of his appointment will not be changed retrospectively—even if an appellate court later decides that the receivership should have been terminated at an earlier date."
- Clearly, where a receiver has been appointed in the confiscation context the later acquittal of the defendant or quashing of the confiscation order (so that in either event the receivership falls to be discharged) will not have effect to deny the receiver payment out of what were the receivership assets. Sinclair v Glatt  1 WLR 1845, another 1988 Act case, is further grist to this particular mill. Longmore LJ said this at paragraph 1:
"It is now settled that such a receiver, like a receiver at common law, is entitled to recover his remuneration, costs and expenses from the assets which he has been appointed to receive ('the receivership assets'). That is so whether or not he ought to have been appointed in the first place or the order appointing him has been discharged: see Mellor v Mellor  1 WLR 517. Even if the defendant, whose assets have been caught by the order appointing the receiver, is subsequently acquitted or has his conviction quashed, the receivership assets must bear the costs of the receivership; this is also the position if, as in the present case, a confiscation order is made but subsequently quashed: see Hughes v Customs and Excise Comrs  1 WLR 177..."
- Mr Jones QC for Eastenders readily accepts the application of this approach to cases of acquitted defendants and quashed confiscation orders, but submits that it makes all the difference if the receiver's claim is to payment out of assets which were not "realisable property". He says that POCA s.41(2) shows that a restraint order only applies to "realisable property"; and a receivership order may likewise only be made in respect of "realisable property": s.48(2). The power of the court to enable the receiver to recover his remuneration and expenses is given by s.49(2)(d) only "in relation to any realisable property to which the restraint order applies" (see also the references to "realisable property" in s.49(5) and (6), and s.64(1)).
- Mr Jones submits that s.61 is all of a piece with this: its premise is that the receiver is not entitled to take action in relation to any property which is not realisable property. In Sinclair v Glatt, however, Longmore LJ expressed the view (paragraph 28) that s.88(1) of the 1988 Act, the predecessor of s.61,
"does show that Parliament did contemplate cases in relation to which the receivership order might cover assets not owned by the defendant..."
- But whatever the niceties of s.61 and its predecessor, there is no doubt that the power of the court to appoint a receiver under s.48(2) arises only in respect of realisable property. In this case, as we have seen, this court held on 8 February 2011 "that the assets of the Eastenders Group were not in any event realisable property held by the two alleged offenders and it followed that the order appointing a receiver in relation to the assets of the group had also to be quashed". (Hooper LJ, paragraph 18). In those circumstances, Mr Jones submits, the Receiver can enjoy no entitlement to take his remuneration and expenses from the assets of Eastenders since they are not, and never were, "realisable property".
- Whether Mr Jones is right plainly depends upon the impact of this court's judgment on 8 February 2011, set against the background of the common law rule as to the remuneration of receivers. But it is important to be clear how far his argument goes. There are two possibilities. First, it might be contended that the judgment had retroactive effect so that Eastenders' assets never had been realisable property within the meaning of POCA ss.48(2) and 83, even during the receivership's currency; in that case, presumably, every action taken by the Receiver in the course of dealing with the assets would fall to be condemned as unlawful. Secondly, it might more modestly be argued that although the Receiver was entitled to rely on HHJ Hawkins' order until it was set aside, he could not do so thereafter; in that case, the Receiver's actions during the receivership's currency would be authorised under the POCA powers, but once this court had spoken on 8 February 2011 he could not rely on the December order to justify any claim for payment from Eastenders' assets.
- Both of these possibilities imply that the appointment of a POCA receiver is conditional. In the first case, every action he takes as receiver is conditional on his appointment not being later set aside. In the second, the conditional effect is less drastic: it goes only to his entitlement afterwards to be paid out of the receivership assets. It was not entirely clear, either from his skeleton argument or his submissions at the hearing, whether Mr Jones distinctly contended for the first possibility, and of course he did not need to go so far. He submitted that on 6 December 2010, given that the proceedings in the Central Criminal Court on that day were interlocutory, HHJ Hawkins had to be satisfied only that there was "a good arguable case" that Eastenders' assets were realisable property. That is correct (see CPS v Compton  EWCA Civ 1720 per Simon Brown LJ at paragraph 38, on the indistinguishable wording of provisions in the Drug Trafficking Act 1994), but it is consistent with both possibilities.
- The correct approach to the effect of this court's decision of 8 February 2011 critically depends, in my judgment, on the status of the order of 6 December 2010.
STATUS OF THE CROWN COURT ORDER
- The Crown Court is a superior court of record: Senior Courts Act 1981 s.45(1). No order it makes can properly be described as a nullity. In R v Cain  AC 46 Lord Scarman said this at 55:
"But you cannot describe as a nullity an order made by a superior court of record, which is what the Crown Court is: section 4(1) of the Courts Act 1971. Nor is the question really one of jurisdiction: it is a question whether the court has exceeded its power. An order of the Crown Court, once made, may be in excess of its statutory power or otherwise irregular. But it is not a nullity. And it would undermine the authority of the criminal law if orders made by the highest court of trial in criminal matters could be disregarded as nullities. The order of the Crown Court stands unless and until set aside by the court itself upon application or, if appeal lies, by the appellate tribunal to which the appeal is taken."
The fact that an order of the Crown Court is never a nullity reflects a general characteristic of superior courts of record, namely that their orders are presumed to be within jurisdiction. In R v Chancellor of St. Edmundsbury and Ipswich Diocese, ex p. White  1 KB 195 Wrottesley LJ said this at 206:
"But there is another test, well recognized by lawyers, by which to distinguish a superior from an inferior court, namely, whether in its proceedings, and in particular in its judgments, it must appear that the court was acting within its jurisdiction. This is the characteristic of an inferior court, whereas in the proceedings of a superior court it will be presumed that it acted within its jurisdiction unless the contrary should appear either on the face of the proceedings or aliunde..."
- The Crown Court's order is therefore good until set aside; and this is so whatever the basis on which it is set aside. That disposes of the first possibility I have described, that the judgment of 8 February 2011 had retroactive effect so that Eastenders' assets never had been realisable property within the meaning of POCA. But what of the second possibility? The Crown Court's order is good until set aside; but once it has been set aside, may the Receiver then recover his charges incurred during the receivership's currency from what had been the receivership property? Clearly he can recover nothing for any act done after the receivership has been brought to an end. But the Receiver's claim relates, of course, to things done by him before then.
- Mr Jones' argument has an attractive simplicity. It rests on the straightforward proposition that "realisable property" in ss.41(2), 48(2) and 49(2)(d) means what it says. As a matter of construction the proposition is correct. But the breath is taken out of it by the fact that the first of our two possibilities cannot run. Where a POCA receivership has come to an end because the defendant has been acquitted, or the confiscation order set aside, the receiver may still recover his charges ex post facto from what had been the receivership property. In such a case the second of our two possibilities has no more currency than the first. Mr Jones has therefore to submit that where by contrast the receivership order has been set aside (as here) because this court concludes that the assets which it covered were not, in truth, realisable property, the second possibility will run even if the first does not. The submission has to be based on Mr Jones' strict construction argument – "realisable property" means what it says. But if that argument cannot prevail to make good the first possibility, it cannot support the weight of the second: for the question now is not what is meant by "realisable property", but whether the Receiver can rely on the force of the Crown Court order to justify his claim for charges incurred while the order was good, though the claim is brought after it was set aside.
- And in my judgment he can, as surely in a case like the present as in a case of an acquitted defendant or a quashed confiscation order. The order made by this court on 8 February 2011 speaks from its date; but it does not extinguish the Receiver's right to recover his charges earlier incurred. This conclusion reflects the status of the Crown Court's order, and it vindicates the general common law rule as to the recovery of a receiver's charges from the receivership property, given effect by the proposition (Mellor, Andrews) that a receiver's lien survives discharge of the receivership.
- I would accordingly reject Mr Jones' submission that in this case, in contrast to the cases of acquitted defendants and quashed confiscation orders, the Crown Court order's being set aside deprives the Receiver of the right thereafter to claim his remuneration from what had been the receivership property.
THE TERMS OF THE RECEIVER'S APPOINTMENT
- But that is not the end of the story. A receiver's right to be paid out of the receivership property cannot of course prevail over the terms of his appointment, if they are inconsistent with such a right. There is a question – again to be considered before I address the impact of A1P1 – whether that arises in this case so as to defeat the Receiver's claim. After the close of argument on 18 July 2012 the court formed the view that this question had not been sufficiently exposed at the hearing, and we sought further submissions in writing. These were duly supplied and we are indebted to counsel for the assistance we have derived from them.
- It is convenient first to recall paragraph 29 of the order of 6 December 2010:
"The remuneration and expenses of the Receiver shall be paid out of the Receivership property and in accordance with a letter of agreement…"
And the letter of agreement:
"6... Your remuneration costs and expenses are to be drawn from the assets of the defendants under your management in accordance with section 49(2)(d) of the Proceeds of Crime Act and the decision of the House of Lords in Capewell v HM Revenue and Customs  UKHL 2..."
- The "defendants" there referred to are Messrs Hare and Windsor: both are identified in the interpretation provisions of the order as "defendant". The Eastender companies are included in the list of "restrained persons", not defendants. Paragraph 50 of the order refers to "an asset belonging to the defendant" as including any property in which the defendant has an interest, mirroring POCA s.84(2)(a) of the 2002 Act. The provision in the letter that remuneration, costs and expenses were to be drawn "in accordance with section 49(2)(d)" might be said to reinforce the focus on the defendants' assets: only assets in which the defendants had an interest were "realisable property".
- The argument is that these considerations compel the conclusion that the order, cross-referring as it does to the letter of appointment, restricts the property to which the Receiver might have recourse for his remuneration to "the assets of the defendants": assets in which the defendants had an interest.
- While of course such an arrangement might be arrived at by order of the court, it would I think be a surprising outcome. It would involve a striking mismatch between the receivership property on the one hand (which plainly includes Eastenders' assets – see paragraph 24 of the order, cited earlier: "all the assets and property identified in paragraphs 3 – 15 herein... ('the Receivership Property')"), and on the other the property available to meet the Receiver's remuneration: a mismatch entirely at odds with the ordinary incidents of the common law rule. However in my judgment the documents do not bear so unexpected a construction.
- Plainly the order and the letter of appointment must be read together. One would therefore expect the phrase in paragraph 29 of the order "the Receivership property" to be consistent with the reference in the letter to "the assets of the defendants under your management". And so it is, at any rate to the following extent. The provision made by paragraph 5 – "[t]his prohibition includes the following assets" – is clearly a cross-reference to paragraph 3, and in my judgment brings the subject-matter of paragraph 5 (the list of Eastenders' assets) within the meaning of "any of [the defendant's] assets" in paragraph 3. To this extent the order and the letter of appointment are consistent and there is no mismatch. Paragraph 50 is nothing to the contrary; it offers no exhaustive definition of "an asset belonging to the defendant".
- However, the list at paragraph 5 of the order includes the assets of some, but not all, of the Eastenders companies. Even so Mr Parroy and Mr Perry QC for the Receiver submit that on a proper construction of the order and the letter the Receiver is entitled to look to all of them. The assets of those companies not mentioned in paragraph 5 of the order are referred to in paragraphs 6 – 14: "[X Co] must not remove... any of its assets". It is submitted, rightly, that these all fall within the meaning of "Receivership assets" provided for by paragraph 24. That being so, it is said that they are likewise all covered by the provision for payment in paragraph 29.
- At this point I part company with Mr Parroy and Mr Perry. The core of the case for a mismatch between the order and the letter is the limitation, in paragraph 6 of the letter, of the Receiver's right to payment out of "the assets of the defendants under your management". The Eastenders assets listed in paragraph 5 of the order are brought within this rubric for reasons I have given; but not, as it seems to me, those listed in paragraphs 6 – 14. In these circumstances, subject to A1P1, the Receiver is in my judgment entitled to look to Eastenders' assets for his remuneration, but only those listed in paragraph 5 of the order. He is not barred from so doing either by the effect of this court's judgment of 8 February 2011, or by the terms on which he was appointed; but his claim cannot extend to assets not so listed. A broader reading might well, I accept, reflect what the CPS had in mind in seeking the order; but there is every reason to construe the documents strictly.
- On this issue I have reached a different conclusion from that of my Lords, who hold that to allow the Receiver to recover his expenses from Eastenders with no other recourse for the latter would violate their rights guaranteed by A1P1.
- A1P1 has been considered more than once in the cases on receiverships under the 1988 Act. In Hughes Simon Brown LJ referred (paragraph 53) to well known Strasbourg authority – Sporrong & Lonnroth v Sweden (1982) 5 EHRR 35 and Lithgow v United Kingdom (1986) 8 EHRR 329 – supporting the need to "achieve a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's right". He continued at paragraph 55:
"I entirely accept that an acquitted (or indeed unconvicted) defendant must for these purposes be treated as an innocent person... I cannot accept, however, that for this reason it must be regarded as disproportionate, still less arbitrary..., to leave the defendant against whom restraint and receivership orders have been made uncompensated for such loss as they may have caused him - unless, of course, by establishing 'some serious fault' on the prosecutor's part he can bring himself within the strict requirements of Section 89."
(S.89 of the 1988 Act was the predecessor of POCA s.72.)
- In Sinclair v Glatt Longmore LJ stated at paragraph 25:
"Simon Brown LJ then considered [in Hughes] whether Article 1 of the First Protocol of the European Convention on Human Rights had any impact and concluded that the statutory measures in relation to the receiver's costs were in the public interest, appropriate for achieving their aim, proportionate and achieved a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's right. (para 53) The same considerations apply in the present case although Mr Mitchell recognised that in an extreme case (for example where a party wholly unconnected with the defendant stood to lose an entire asset because it was eaten up by the receiver's costs) [A1P1] might have a part to play when the court came to decide how much the receiver was entitled to claim and from which asset that amount was payable..."
Elias LJ said this in the same case:
"39 It is plainly established that the receivers can recover their costs and expenses from the receivership assets: see Capewell... The effect of this is that the receiver may be entitled to recover his costs from innocent third parties who have the misfortune to have their assets tied up in some way with the defendant. These assets cannot be used to satisfy the confiscation order itself, but they can be used to meet the costs and expenses...
42 Given the potential injustice of the operation of this principle, I would not rule out the possibility that in an appropriate case Article 1 of the First Protocol of the European Convention on Human Rights could limit the costs and expenses recoverable from an innocent third party, and I do not read the judgment of the Court of Appeal in Hughes... as excluding that possibility."
- My Lords have concluded that the Receiver's claim if upheld would violate Eastenders' A1P1 rights on the ground that such a deprivation of property would not be "subject to the conditions provided for by law" (see the judgment of Mitting and Edwards-Stuart JJ, paragraph 77). This is so because by force of this court's judgment of 8 February 2012 (a) there was not "reasonable cause to believe that the alleged offender has benefited from his criminal conduct" (POCA s.40(2)(b)), and (b) there was not, after 23 December 2010, "a good arguable case… for treating particular assets as the realisable property of the defendant" (CPS v. Compton at paragraph 38) (Mitting and Edwards-Stuart JJ, paragraphs 79-81).
- With great respect to my Lords' contrary view, it seems to me that "the conditions provided for by law" are soundly constituted in this case by four factors. The first is the material provisions of POCA. The second is the order made by HHJ Hawkins QC at the Central Criminal Court on 6 December 2010. The third is the common law rule that the orders of a superior court of record are good until set aside; the rule is to be understood and applied as I have explained at paragraphs 43 – 46. The fourth is the common law rule that a receiver is entitled to be paid his remuneration and expenses out of the assets he is appointed to receive and manage: this gives a long-standing historic context to the order's effect and accordingly goes to vindicate the principle of legal certainty. "[T]he conditions provided for by law" are not, in this jurisdiction, necessarily limited to the black-letter provisions of the relevant statutory scheme, as might be the case with a codified regime uncoloured by judicial decision. The insights of the common law have no less a part to play, as my Lords recognise by their reference to the Compton case.
- I see every reason why the Strasbourg court should respect the force of these factors as going to satisfy the requirement of legality. The court insists, as is well known, on objective standards of legality of the kind given by the principle of legal certainty; but within these limits, which are by no means exceeded here, the court will acknowledge and give place to the contracting State's account of its own laws.
- The thrust of Mr Jones' argument on A1P1, however, went not to the principle of legality but rather to the requirement of proportionality, to which I will now turn. As Raimondo v Italy (1994) 18 EHRR 237 shows, statutory regimes of seizure and confiscation by the State may very well be justified under A1P1 for the prevention of crime. The Strasbourg court will concentrate on the particular circumstances, as it always does; it will also allow a margin of appreciation to the State in question.
- It is, of course, possible that Parliament might have chosen to enact a less draconian regime than that found in the restraint and receivership measures contained in POCA. It may also be possible that innocent third parties, who find their property caught in a POCA receivership, could be protected by a measure of the kind adverted to by Rix LJ in Lamb  EWCA Civ 285:
"54 In any event, and despite the decision in Capewell, it may be possible, as my Lord, Lord Justice Wilson remarked in the course of argument, in an appropriate case, for a management receivership order to be made subject to a special term that, if it should be shown in due course that property subject to the order is after all not 'realisable property' but wholly in the legal and beneficial ownership of a third party, then the costs of the management receivership should be borne, not by the property, but, in the absence of any other source, by the RCPO. It seems to me to be at any rate arguable that such a special term could be imposed by the court pursuant to section 77(8) [sc. of the 1988 Act]..."
- Against that, there may be strong public interest considerations why a prosecutor might reasonably decline to undertake the risk of its transpiring that property bound by a receivership order sought by him is not realisable property. It cannot in my judgment be argued, certainly on the present facts, that the absence of such a special term puts the United Kingdom in violation of Eastenders' A1P1 rights.
- The POCA regime constitutes the judgment of Parliament as to how "a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's right" should be struck in this area. It is a judgment which leans heavily towards the general interest; though there are careful, but limited, protections for the individual, notably in ss.61 and 72. There can be no argument as to the regime's legitimate aim, to preserve property for the satisfaction of confiscation orders made to strip convicted criminals of the fruits of their crime.
- Plainly, property belonging to Eastenders will be taken if the Receiver is allowed to make good his lien. Hence the question, whether his doing so produces disproportionate effects given the regime's legitimate aim. Certainly the case possesses some distinctive features: the separation (as it appeared to this court in February 2011) of Eastenders' assets from the property of the defendants; the large six-figure sum sought by the Receiver. But it is in the nature of the statutory regime that restraint and receivership orders will be made on a provisional basis which turns out to be factually inapt: not only where there is a later acquittal or a confiscation order quashed, but also, as here, where it turns out that the receivership assets should not have been treated as realisable property. Given the respect that is owed (here and in Strasbourg) to Parliament's judgment as to how the balance between general interest and private right is to be struck, I consider that A1P1 will only very rarely be violated on proportionality grounds by the effects of a receivership order: what Longmore LJ in Sinclair v Glatt called an extreme case. In my judgment this is not such a case.
- Accordingly I consider with respect that Underhill J's conclusion at paragraph 28 that "it would be a breach of [Eastenders'] rights under [A1P1] if they had ultimately to bear the burden of the Receiver's costs and expenses" is erroneous. I would therefore have allowed the CPS' appeal.
- On my view of the case the question whether the court is empowered by POCA to order recovery of the Receiver's expenses from the CPS is moot. But given the conclusion of my Lords in the majority, I should address it.
IS THE COURT EMPOWERED BY POCA TO ORDER RECOVERY OF THE RECEIVER'S EXPENSES AGAINST THE CPS?
- No express provision of POCA so empowers the court. Underhill J recognised as much at paragraph 41. The question is whether s.3(1) of the Human Rights Act allows the court to interpret or "read down" the statute so as to find such a power. As I have shown Underhill J concluded at paragraph 43 that that was an available recourse, but only "where the property is not realisable property and has been wrongly included in the order": that would be a "different situation altogether" from one where the receivership order had been made over what was indeed realisable property.
- Leaving aside the fact (itself in my view striking) that Underhill J was unable to identify any particular provision of POCA which might be amenable to the s.3 process of interpretation, this reasoning cannot in my judgment withstand my earlier conclusion that the receivership order is good until set aside as surely and to the same extent in a case like the present as in one where the defendant has been acquitted or the confiscation order quashed. The policy of the statute is that the receiver's right to recover his expenses from the receivership property applies in every instance (unless, no doubt, different arrangements are made by contract). That being so, Underhill J's reasoning at paragraph 43 offends Lord Nicholls' conclusion in Ghaidan, which I have already set out:
"Parliament, however, cannot have intended that in the discharge of this extended interpretative function the courts should adopt a meaning inconsistent with a fundamental feature of legislation. That would be to cross the constitutional boundary section 3 seeks to demarcate and preserve..."
- In those circumstances there is in my judgment no power in the court to make an order against the CPS.
- I should note that there was at the hearing some discussion as to the proper scope of the appeal. Mr Jones observed that the Receiver had not appealed the discharge of his lien ordered by Underhill J on 22 June 2012 (after receiving further written submissions from the parties). But Mr Perry was plainly right to submit, and Underhill J himself stated on 22 June, that the existence or otherwise of the lien was the effective subject-matter of the dispute. It is inherent in what I have said on the substance of the case that in my opinion the lien is good.
- Giving this court's judgment on 8 February 2011, Hooper LJ observed that on 6 December 2010 HHJ Hawkins was conducting a murder trial when the CPS' applications came before him. At paragraphs 56 – 59 he stated:
"56 At this stage I express our concerns that HHJ Hawkins was being tasked with the responsibility to decide whether to grant restraint and receivership orders during a complex jury trial. As I have said, the hearing before him lasted only 40 minutes and that compares with the time it took us to determine only this issue, namely a day and a half following two days' preparation for the hearing...
57 An application of this complexity should be listed before a judge with sufficient time to read and absorb the papers and with sufficient time to conduct a proper hearing. It would, in our view, be preferable to list applications of this complexity before a High Court Judge sitting in the Crown Court with experience of complex frauds or a Circuit Judge with similar experience.
58 I also express our concerns that HHJ Hawkins was being faced with having to make a decision in the knowledge that all the arrangements had been made for the arrests and the execution of the search warrants to occur the next day. I was told that the papers for the application arrived in the Central Criminal Court only the day before. In an application of this complexity the hearing should have been listed some days before the day on which the arrests were to occur.
59 Given that applications of this kind are made ex parte and given the draconian consequences of restraint orders and receivership orders, it is vitally important, in the interests of the absent alleged offenders, that the hearing is as fair as is possible in the circumstances. Giving those affected an early opportunity to apply to set aside or vary the restraint orders and receivership orders (whilst important) is not a substitute for a fair ex parte hearing."
- I wish to reiterate and emphasise those observations.
Mr Justice Mitting and Mr Justice Edwards-Stuart:
- We gratefully adopt the exposition of the statutory and factual background to this appeal set out by Lord Justice Laws in paragraphs 1 to 27 of his judgment and agree that permission to appeal should be granted to the CPS. We also agree with his analysis of the principles governing the rights of court appointed receivers at common law and the application of these principles to statutory receivers in paragraphs 29 to 36; and with his conclusions about the meaning of the order of 6th December 2010 and the limitation of its reach set out in paragraphs 48 to 55 and with his postscript (2). We part company with him on his analysis of the impact on Article 1 of the First Protocol to the European Convention of Human Rights for the reasons set out below; and, so, on the ultimate disposal of part of this appeal.
- A1P1 provides,
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payments of taxes or other contributions or penalties."
- It is settled law in Strasbourg that A1P1 comprises "three distinct rules": Sporrong and Lönnroth v. Sweden (1982) 5 EHRR 35 § 61. We are concerned only with the second, contained in the second sentence of Article 1: the principle that the deprivation of possession of property must be in the public interest and subject to the conditions provided for by law (the general principles of international law are irrelevant for present purposes). The facts of this case do not raise any issue about public interest. Nor is there any issue about possessions or deprivation: as legal persons, the companies have a proprietary interest in the credit balances in the bank accounts operated by the receiver which represent physical or other assets realised by the receiver to produce that credit balance. The critical and only question under A1P1 is whether or not payment of the receiver's remuneration and expenses out of those credit balances would be subject to the conditions provided for by law – i.e. lawful. This is the first and most important requirement of A1P1: Hutten-Czapska v. Poland  45 EHRR 4 § 163.
- Before assets can be made the subject of a receivership order, two conditions must be satisfied. The first is established by section 40(2)(b) of the Proceeds of Crime Act 2002: there must be "reasonable cause to believe that the alleged offender has benefitted from his criminal conduct." The second is established by case law: on the documents presented to the court, there must be "a good arguable case… for treating particular assets as the realisable property of the defendant" – CPS v. Compton  EWCA Civ 1720 § 38. For the purpose of the 2002 Act, the latter concept has an extended meaning. It includes any property in which a defendant has an interest, even a bare legal title: section 84(2)(a) and 83(a) of the 2002 Act and Sinclair v. Glatt  1 WLR 1845. The law does not permit the making of a restraint order under section 41 or the appointment of a receiver under section 48 over property when there is no reasonable cause to believe that the offender has benefitted from criminal conduct and when there is not on the documents a good arguable case that the offender has an interest in it.
- As to the first condition, the Court of Appeal concluded that the critical question was whether or not the CPS had shown that there was reasonable cause to believe that 925 consignments of dutiable goods were fraudulently diverted into the UK. It concluded, on the material presented to the court on 6th December 2010, that there was no reasonable cause to believe that they were and that that was fatal to the applications for the restraint order and the appointment of a receiver:  EWCA Crim 143 § 13 and 93. The Court of Appeal nevertheless suspended their own order giving effect to that conclusion, insofar as it concerned the Defendants (but not the companies), to permit the CPS to make a speedy fresh application to a judge sitting in the Crown Court. An application was made, but dismissed by Mackay J on 22nd February 2011. It is, accordingly, unnecessary for us to decide what the position would be if the first condition was satisfied, albeit retrospectively. On the facts of this case, it was not.
- As to the second condition, the CPS case was that the court should lift the corporate veil and treat the assets of the companies as assets in which one of the alleged offenders had an interest; and that the companies were "the wholesale and retail arm" of an organised criminal group operated by the alleged offenders. The Court of Appeal concluded that "there may have been some force" in these propositions on the material considered by the court on 6th December 2010; but that by 23rd December 2010, there was insufficient material for the judge to decide "that there was reasonable cause to believe that these companies are or were just a front, sham, or device…for a diversion fraud committed by the alleged offenders or that they are sheltering behind the façade or veil of the companies to hide their frauds, or the proceeds of their frauds": § 103 and 109.
- On those findings, which bind us, the first condition required by law was not satisfied on either 6th or 23rd December 2010 and the second was not satisfied on 23rd December 2010.
- In a superficial sense, deprivation of the companies' property to pay the remuneration and expenses of the receiver was authorised by law: it is a settled principle of receivership law in civil proceedings that a receiver is entitled to be paid his remuneration and expenses out of the assets he is appointed to receive and manage. In an ordinary civil case, adequate provision is made for compensation of a person whose assets have been wrongly made the subject of a receivership order by the undertaking in damages given by the person upon whose application the order is made. The fact that no such undertaking is given when a receiver is appointed under the 2002 Act does not, by itself, affect the lawfulness of the appointment: per Simon Brown LJ in Hughes v. Customs and Excise Commissioners  1 WLR 177 at § 50. That proposition is, however, subject to an important caveat: the conditions upon which a restraint order may be made and a receiver appointed must first be satisfied. If they are not, there is no lawful basis for the appointment of a receiver in respect of property belonging to an alleged offender, still less belonging to a third person. It must be to the underlying lawfulness of the receiver's appointment that a court must look to determine, for the purpose of the second principle established by A1P1, whether the receiver can, at the behest of the state, deprive the true owner of the property in respect of which he is appointed of all or part of it, to satisfy his remuneration and expenses.
- It is very unlikely that the Strasbourg Court would conclude that the mere fact that the receiver was appointed by order of a court sufficed to authorise that deprivation. In Frizen v. Russia Application No. 582 54/00 24th March 2005, the first section of the court had to consider the confiscation of a motor car on hire purchase to the wife of a convicted defendant pursuant to an order of a Russian criminal court. Her husband had been convicted of large scale fraud. The civil and criminal codes of the Russian federation authorised confiscation of property without compensation by way of punishment for the commission of a crime. The applicant challenged the decision of the criminal court to forfeit the car in the civil courts. They rejected her claim, at first instance and on appeal. Russia did not assist its cause in the Strasbourg Court by failing to identify a legal provision which could be construed as the basis for the forfeiture of the car: § 36. The court held, in the circumstances, that the assertion that the interference in question satisfied the requirement of lawfulness and was not arbitrary had not been established. It was therefore unnecessary to examine whether a fair balance had been struck between the demands of the general interest and the requirements of protection of the applicant's fundamental rights: § 33 and 36. It did not occur to the Strasbourg Court that the mere fact that an order had been made by a Russian criminal court and upheld in civil proceedings by Russian Civil Courts sufficed to establish that forfeiture was subject to the conditions provided for by law. It would have been surprising if it had: their focus was upon the underlying provisions of Russian codified law. A similar focus is required here.
- For those reasons, we would dismiss the appeal of the CPS against that part of the order of Underhill J by which he declined to order that the receiver be entitled to be paid his remuneration and expenses out of the assets of the companies. We do, however agree with the reasoning and conclusion of Lord Justice Laws about that part of the order which required the CPS to pay the receiver's remuneration and expenses, for the reasons which he gives at paragraphs 69 to 71 of his judgment and would allow the CPS's appeal against that part of the order. We acknowledge that the outcome of this appeal will be clearly unsatisfactory to a receiver who has undertaken work and incurred expenses in the expectation that he would be both rewarded and recompensed out of assets identified for him by the CPS. Our judgment does not exclude the possibility that he may have a common law remedy against those who sought his appointment. All that it does is to establish that he cannot be paid out of the companies' assets in circumstances in which the legal basis for such provision is absent.