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[Buy ICLR report:  1 WLR 2560]
[View ICLR summary:  WLR(D) 495]
||Neutral Citation Number:  EWCA Civ 1234
||Case No: A2/2014/3876
IN THE COURT OF APPEAL
ON APPEAL FROM THE ADMINISTRATIVE COURT
(The Honourable Mrs Justice Andrews DBE)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||2nd December 2015
B e f o r e :
THE CHANCELLOR OF THE HIGH COURT
LORD JUSTICE PATTEN
LORD JUSTICE CHRISTOPHER CLARKE
||(formerly Kalsoom Amir)
||NATIONAL CRIME AGENCY
||(formerly the Serious Organised Crime Agency)
Andrew Bodnar (instructed by Messrs Brett Wilson LLP) for the Appellant
Jonathan Hall QC (instructed by NCA Legal) for the Respondent
Hearing dates : 27th October 2015
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Chancellor (Sir Terence Etherton) :
- This is the judgment of the Court.
- This appeal concerns the competing rights of (1) the National Crime Agency ("the NCA") to obtain a civil recovery order ("a CRO") under Part 5 of the Proceeds of Crime Act 2002 ("POCA") in respect of property derived from unlawful conduct and (2) a wholly innocent former wife of the criminal, who would be left without any assets if such an order was made, to resist such an order on the grounds that it would be contrary to her rights under Article 1 of the First Protocol ("A1P1") to the European Convention on Human Rights ("the Convention").
- The appeal is by the second respondent in these proceedings, Mrs Kalsoom Sanam (formerly Kalsoom Amir) from an order dated 30 October 2014 of Mrs Justice Andrews, by which it was ordered, among other things, that the properties at 5 Thurza Court, College Road, Isleworth, TW7 5DG ("Thurza Court"), and 2a Wheatash Road, Addleston, KT15 2ER ("Wheatash Road"), be vested in Jonathan McAlister of the NCA as the trustee for civil recovery pursuant to section 267 of POCA and that he be entitled to be registered as the proprietor of those two properties ("the Properties") at the Land Registry.
- The following facts were found by the Judge in (1) a judgment handed down on 31 July 2014 ( EWHC 2722 (QB)), which led to a CRO dated 24 September 2014 in respect of a number of properties owned by the first respondent to these proceedings, Amir Azam ("Mr Azam"), or held in the names of members of his family, and (2) her judgment handed down on 30 October 2014, leading to the order of the same date which extended the terms of the earlier CRO to Thurza Court and Wheatash Road and which is the subject of this appeal.
- On 14 April 2001 Mrs Sanam married Mr Azam in Pakistan, where she had been living. She was just under 24 years of age. It was an arranged marriage and the wedding day was the first occasion on which they met. Mr Azam was resident in England. Mr Azam already had three children from an earlier relationship. The marriage was arranged at the behest of Mr Azam's father, Mohammed Azam, who was concerned by the fact that the children were growing up without a mother figure.
- Mrs Sanam's family provided her with a dowry. It is a tradition in Islamic marriages that the groom's family will also provide the bride with a substantial wedding gift. The Azam family did not give anything at the time of the wedding but Mrs Sanam's understanding at that time, from what she was told by her father, was that assurances had been given by Mohammed Azam to her father that she would be given something "as security". She did not know what that would be.
- Mrs Sanam believed that Mr Azam's family were well off, and that he was a successful businessman dealing predominantly in property transactions. The NCA's case is that Mr Azam was a career criminal, chiefly a drug dealer and money launderer. The Judge found that the Properties, which are the subject of this appeal, were acquired with the proceeds of Mr Azam's criminal conduct or with funds derived from property acquired with the proceeds of such property.
- Mrs Sanam moved to England in May 2001. On the day she arrived Mr Azam was arrested. He remained in custody on remand until the charges against him were dropped in December 2001. She busied herself in home-making and looking after Mr Azam's three children from his previous relationship and, eventually, their daughter also.
- Thurza Court was transferred by Mohammed Azam to Mrs Sanam on 1 May 2002. It had been bought by Mr Azam but was put by him in his father's name. Mr Azam's father had the legal title to the property but not the beneficial interest. Mrs Sanam did not know any of those matters. She only discovered she was going to get Thurza Court about a week beforehand when she was told by Mohammed Azam that he was giving it to her as a wedding gift and that it was intended not only as a capital asset but as a source of income. Mrs Sanam's only involvement with the transfer of Thurza Court was signing the TR1 form. Mr Azam knew about the transfer of Thurza Court and was actively instrumental in encouraging and procuring the transfer to Mrs Sanam and in creating the impression that she was receiving it as an outright gift. The Judge found that the transfer was not an act of money-laundering and that it was effective to transfer to her the beneficial interest as well as the legal title. Mrs Sanam genuinely believed that Thurza Court was hers to keep as a wedding gift.
- Thurza Court was an investment property and the rental income was paid into Mrs Sanam's bank account. She did not use that money until she was told to do so by Mr Azam in August 2003 for the purpose of contributing to the purchase of the land at Wheatash Road. Some of that money went towards the purchase of the land, and that was why the land on which the house was subsequently built was registered in the joint names of herself and Mr Azam. Like Thurza Court, it was used as an investment property. Mr Azam and Mrs Sanam never lived there. Mrs Sanam had no idea how the money to fund the development of the plot of land was generated. The development was managed entirely by Mr Azam.
- In 2002 Mr Azam and Mrs Sanam began living in Dubai. In 2006 Mr Azam was arrested and held in custody in Sharjah for drug trafficking and money laundering offences, for which he was subsequently convicted and given a custodial sentence. Up to that point, the marriage had been one of mutual tolerance and a degree of respect, but not much more. Following Mr Azam's arrest and imprisonment the relationship deteriorated. In September 2009 she moved back to the United Kingdom with the four children. Mr Azam's elder son moved out to live with his grandmother in 2010.
- In January 2011 the NCA commenced the present proceedings under CPR Part 8 for a CRO under Part 5 of POCA in respect of several properties and other assets, including Thurza Court and Wheatash Road. When Mrs Sanam saw the NCA's evidence against her husband she began to realise the truth about his criminal activities. Following a heated telephone conversation between them in May 2011, and in accordance with Mr Azam's instructions, his other two children from the former marriage, went to live with his sister. Mrs Sanam has continued to take care of their daughter.
- Mrs Sanam initiated divorce proceedings in Dubai because at the time her husband was in prison in Sharjah and she felt that this was the quickest and easiest way to achieve a divorce. She remained in England, and matters were handled by lawyers instructed by her brother to whom she had given power of attorney. The Sharia Court of First Instance issued a Khula (divorce by relinquishment of marital rights) on 1 August 2012. It appears that the basis on which she sought a divorce was that her husband had been imprisoned for more than six years. Mr Azam refused the Khula and objected to the divorce. He demanded that she should give back, among other things, "all real estate that he registered under her name". The Sharia Court did not accede to his demands and granted the divorce on terms that Mrs Sanam waived her rights to her dowry but each party to the marriage would keep the property registered in their own names.
- On the appeal Mr Azam's lawyer argued that the Khula gave Mrs Sanam the right to half his property according to English law. Mrs Sanam's response was that Thurza Court was a gift from her husband's father and was not included in the Khula, and she had no rights in properties and buildings registered in the name of Mr Azam and he had no right in properties registered in her name. The Sharjah Federal Appeal Court dismissed Mr Azam's appeal. It held that "the Khula includes dowry and alimony only, and [the] parties [are] free with regard to the civilian rights in dispute between them."
- The Judge (at ) described Mrs Sanam as "a complete innocent" caught up in the web of Mr Azam's conduct. The Judge described Mrs Sanam's conduct and position as follows:
"66. … She has done nothing to deserve the situation in which she has found herself. This is not a case of a wife who was happy to live "high on the hog" from the proceeds of crime with no questions asked, turning a blind eye to where the money was coming from. She was a dutiful young woman who entered without question into an arranged marriage and moved to a strange country where she had no friends and family in order to be a mother to her husband's three children by an earlier relationship. She did her best to be a good wife and mother to them and even Mr Azam had to concede that she treated her stepchildren as if they were her own. She followed her husband to Dubai, again without question, and continued to run the household and take care of the children, including their own daughter, whilst he carried on his business.
67. She genuinely believed that Thurza Court was hers to keep as a wedding gift; that was what she was told by both Mohammed and Mr Azam, although it was not in fact the truth. Although the marital relationship does not appear to have been a particularly compatible one, she made the best of it and stood by her husband, believing in his innocence, throughout most of his incarceration in Dubai. She has waived her right to alimony in Dubai and relinquished her dowry (which is among the assets frozen in Dubai). Her chance of obtaining financial provision in respect of the other properties has vanished. …"
- Part 5 of POCA contains provisions enabling the NCA by means of a CRO to recover, in civil proceedings before the High Court, property which is, or represents, property obtained through unlawful conduct.
- Section 241 describes unlawful conduct. It is conduct which is unlawful under the criminal law of the relevant part of the United Kingdom or, if it occurs abroad, both is unlawful under the criminal law of the foreign country and, if it had occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part.
- It is not in dispute that Thurza Court and Wheatash Road represent property obtained through unlawful conduct.
- Section 266 provides as follows, so far as relevant to this appeal:
" (1) If in proceedings under this Chapter the court is satisfied that any property is
recoverable, the court must make a recovery order.
(2) The recovery order must vest the recoverable property in the trustee for civil recovery.
(3) But the court may not make in a recovery order-
a. Any provision in respect of any recoverable property if each of the conditions in subsection 4... is met and it would not be just and equitable to do so.
b. Any provision which is incompatible with any of the Convention rights (within the meaning of the Human Rights Act 1998 (c42)).
(4) In relation to a court in England and Wales... the conditions referred to in subsection 3(a) are that:
a. The respondent obtained the property in good faith,
b. He took steps after obtaining the property that he would not have taken if he had not obtained it or he took steps before obtaining the property which he would not have taken if he had not believed he was going to obtain it,
c. When he took the steps, he had no notice that the property was recoverable,
d. If a recovery order were made in respect of the property, it would, by reason of the steps, be detrimental to him.
(6) In deciding whether it would be just and equitable to make the provision in the recovery order where the conditions in subsection (4).. are met, the court must have regard to
a. The degree of detriment that would be suffered by the respondent if the provision were made,
b. The enforcement authority's interest in receiving the realised proceeds of the recoverable property.
(7) A recovery order may sever any property."
- Section 304(1) provides that property obtained through unlawful conduct is recoverable property.
- A1P1 provides, so far as relevant, as follows:
"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…."
The Judge's judgment
- The Judge said (at  and ) that, if the court had an unfettered discretion as to what should happen to Thurza Court registered in Mrs Sanam's name, there would be much to be said in favour of allowing her to keep it, but the court does not have an unfettered discretion or indeed any discretion at all. She said that section 266 provides the only statutory defence once a finding has been made that the property is recoverable.
- The Judge held that Mrs Sanam could not rely on the defence in sub-section 266(3)(a) because she did not satisfy the requirement in sub-section 266(4)(b) that she took steps after obtaining Thurza Court which she would not have taken if she had not obtained it or that she took steps before obtaining Thurza Court which she would not have taken if she had not believed she was going to obtain it. The Judge said that sub-section 266(4)(d) would also have been problematic for Mrs Sanam because this is not a case where a recovery order would be detrimental to her by reason of any steps she took in the year after her marriage in reliance on the promise of receiving Thurza Court or the unspecified "security". Accordingly, the court's powers under section 266(6) did not come into play.
- The Judge then addressed the argument advanced on behalf of Mrs Sanam that the defence in section 266(3)(b) was satisfied because a CRO in respect of the Properties would preclude a future claim by Mrs Sanam against Mr Azam for financial provision for herself and her daughter under Part III of the Matrimonial and Family Proceedings Act 1984 ("the MFPA"). It was submitted for Mrs Sanam that, even though such a claim had not yet been made and would require the leave of the court, her right to make such a claim was a "possession" within A1P1 and its loss by reason of a CRO would be a disproportionate interference with that possession contrary to A1P1.
- The Judge rejected that argument. She said (at ) that, whilst a "possession" for the purposes of A1P1 may include claims in respect of which a person can argue that he or she has at least a "legitimate expectation" of obtaining effective enjoyment of a property right, the claim must be a currently enforceable claim that is sufficiently established. She said that the "legitimate expectation" must be something of a nature more concrete than a mere hope, and it must be based on a legal provision or a legal act such as a judicial decision. She held (at ) that was not the position with regard to any potential claim by Mrs Sanam under the MFPA because there is no settled domestic case law or statutory provision confirming that a claim to financial relief by a spouse (particularly an unresolved claim for which leave has not been granted) should take precedence over the right of the NCA to recover the proceeds of crime under Part 5 of POCA. The Judge contrasted and distinguished the provisions of Part 2 of POCA.
- The Judge further stated that there was a more fundamental objection to Mrs Sanam's argument under section 266(3)(b) of POCA, namely that her claim to Thurza Court and her half share of Wheatash Road would never derive from any claim for financial relief under Part III of the MFPA because her proprietary interest in those properties is already hers. Her claim would be aimed at Mr Azam's properties or his share of those in joint ownership, that is to say Wheatash Road.
- The Judge said (at ) that, even in relation to a claim for an order directing that Wheatash Road be sold and Mrs Sanam's half share of the proceeds remitted to her, or for an order for half the rentals to be paid to her, Mrs Sanam would still not have a legitimate expectation of effective enjoyment of a property right for the purposes of A1P1 because her prospective claim falls a long way short of meeting the "legitimate expectation" criteria set out in Kopecky v Slovakia (2005) EHRR 43: it is not a currently enforceable claim that has been sufficiently established.
- It is important to note that the Judge did not consider whether the effect of a CRO in respect Thurza Court and Wheatash Road would infringe A1P1 insofar as it would deprive Mrs Sanam of her beneficial ownership of the former and her beneficial half interest in the latter. That was because, during the course of the hearing before her, the Judge had refused an application on behalf of Mrs Sanam to amend her Points of Defence to raise a new case of A1P1 based on Mrs Sanam's beneficial interest in the Properties on the ground that it would necessitate a further hearing and the consideration of many more authorities on the question of "fair balance". She considered that the NCA would be materially prejudiced, and not just by racking up further costs which were unlikely to be recovered. The Judge made the following concluding remarks in her judgment:
"94. It follows that the court is not in a position to accede to Mr Bodnar's submissions that a CRO should not be made in respect of Thurza Court or Wheatash Road. Indeed, the court is obliged to make such an order under s.266(1). Despite the sympathy which the situation of [Mrs Sanam] and her little girl inevitably invokes, it must not be overlooked that these two properties were investments, and that she never lived in either of them. Indeed, apart from writing the cheque in respect of part of the price for the land at Wheatash Road she does not appear to have made much, if any, use of the rentals from Thurza Court until the exclusion from the [Property Freezing Order] which enabled her to use them to fund her legal representation. Even if I am mistaken about this, and she had depended on them as a source of income for a period before the PFO was made, the reality is that she would never have been in a position to enjoy the rentals from either of those properties if her husband had not been a drugs dealer and money launderer.
95. The policy underlying Part 5 of POCA would be frustrated if a CRO were not to be made in a case such as this, even though the impact will be to deprive this most unfortunate lady of the very property that she believed to have been given to her to safeguard her financial position in the event of a divorce from the man she had the great misfortune to marry. As Hughes LJ put it in Stodgell v Stodgell at :
"This is not a case of punishing the wife for the husband's crime. Sadly, if one spouse turns out to be a spendthrift the result may be that the other suffers an absence of assets from which to seek ancillary relief. The same may happen if he turns out to be a criminal".
Those observations are equally true where the result of the application of the statutory scheme under Part 5 of POCA is that the wife is effectively deprived of assets from which to seek financial relief under Part III of the MFPA."
- There was no application for permission to appeal the Judge's decision rejecting Mr Sanam's defence under section 266(3)(a). She also refused permission to appeal her decision disallowing an amendment of Mrs Sanam's Points of Defence to allege an infringement of A1P1 on the ground that a CRO would deprive Mrs Sanam of her beneficial ownership of Thurza Place and her beneficial half share of Wheatash Road. The Judge granted permission to appeal her decision rejecting Mrs Sanam's defence under section 266(3)(b) in respect of an infringement of A1P1 by virtue of the effect of a CRO on a possible claim for ancillary relief. In giving her reasons for the grant of permission to appeal the Judge also made it clear that the permission included the right to argue that section 266(3)(b) required the court to consider Mrs Sanam's A1P1 rights as regards her ownership of Thurza Place and her beneficial half share of Wheatash Road whether or not that was expressly pleaded "and that the Court was therefore obliged to have regard to [that ownership] come what may". No application has been made to the Court of Appeal for permission to appeal on further or wider grounds.
- Mr Andrew Bodnar, Mrs Sanam's counsel, emphasised that it is no part of Mrs Sanam's case that Part 5 of POCA is itself contrary to the Convention.
- The first building block of his submissions was that Mrs Sanam was a completely innocent transferee of the Properties, who had no knowledge of Mr Azam's criminal conduct. The transfers to Mrs Sanam were genuine in that they transferred to her both legal title and a beneficial interest. They were not acts of money-laundering and did not give rise to high living on her part.
- Mr Bodnar submitted that, in such circumstances, if the transferee cannot bring himself or herself within section 266(4), the question the court has to consider is whether a CRO would further any of the legislative aims of Part 5 of POCA; and, if it would not, then it would be disproportionate and would infringe A1P1. If it would further the aims to some extent, the question to be considered would be whether making a CRO would be proportionate to the legislative aims.
- Mr Bodnar submitted that the overriding legislative aim of POCA is to be found in section 2A(1), namely the reduction of crime. Adopting the approach of Lord Steyn in R v Benjafield; R v Rezvi  UKHL 2,  1 AC 1099, at  Mr Bodnar sub-divided that into the following three aims: (1) to punish the wrongdoer; (2) to deter criminal wrongdoing by others; and (3) to remove criminal assets from circulation. He said that the first of those, that is to say punishment for criminal conduct, is not applicable to civil recovery under Part 5 because criminal proceedings are not a requirement of Part 5. As regards the second, he said that the Supreme Court in R v Waya  UKSC 51, 1 AC 294, has now made clear that deterrence is not the essence of the legislation. He submitted that the primary purpose of Part 5 is the third of the statutory aims suggested by Lord Steyn, namely to take out of circulation property obtained through crime.
- Mr Bodnar submitted that, on the facts of the present case, a CRO would not further that aim because its effect would be to deprive a wholly innocent transferee of properties, which were transferred pursuant to genuine and lawful transactions effective to pass the legal and beneficial interest, and would have the consequence of leaving her destitute. He added that there is no prospect of any of the Properties or any benefit derived from them finding a way back to Mr Azam.
- Mr Bodnar submitted that, even if a CRO would advance the aims of the legislation to some extent, the facts of the present case and the impact of a CRO on Mrs Sanam lead to the conclusion that a CRO would be disproportionate. The Properties are only a small part of all the assets obtained by Mr Azam's criminal conduct, and their forfeiture to the State would leave Mrs Sanam with nothing.
- Mr Bodnar examined and contrasted the provisions of Part 2 of POCA. He said that there is a fundamental difference between Part 2 and Part 5 in that recovery under Part 2 is achieved by an in personam order whereas recovery under Part 5 is directed to an order in respect of specific property acquired directly or indirectly by unlawful conduct. That is why, under Part 2, the rights of third parties in the situation of Mrs Sanam are considered at the enforcement stage.
- Mr Bodnar referred to Customs and Excise Commissioners v A  EWCA Civ 1039,  Fam 55, in which the question was whether the court was precluded from making a property adjustment order under section 24 of the Matrimonial Causes Act 1973 ("the MCA 1973") in favour of the wife when the property in question (being the husband's interest in the former matrimonial home owned jointly by himself and his wife, and two life insurance policies securing the mortgage on the property) was also the subject or proceedings by HM Customs and Excise to enforce a criminal confiscation order made against the husband under the Drug Trafficking Act 1994 ("the DTA 1994") (the relevant provisions of which are now reflected in Part 2 of POCA), following his conviction and imprisonment for drug trafficking offences. The wife had no knowledge of the husband's criminal activities and no part of the equity in the house had been acquired with the proceeds of drug trafficking. The Court of Appeal held that the court was not required to hold that the provisions of either the MCA 1973 or the DTA 1994 Act take priority over the other when the provisions of each were involved in relation to the same property, and it dismissed the appeal from the order of the first instance judge under section 25 of the MCA 1973 that the house and policies be transferred to the wife.
- Mr Bodnar also referred to Richards v Richards, CPS v Richards  EWCA Civ 849,  2 FCR 452, in which the Court again had to consider the inter-relationship between the confiscation and restraint regime of the DTA 1994 and Part 2 of POCA and the claims of the wife of the criminal for ancillary relief under the MCA 1973 for herself and the child of the family. Mr Bodnar relied on that case for the proposition that, in such a situation, if the wife knows that the husband's property was the proceeds of crime, such knowledge is dispositive in the refusal of her claim for any share of the husband's property by way of ancillary relief. Mr Bodnar contrasted that situation with Mrs Sanam's complete ignorance of the criminal activities of Mr Azam until after his arrest in Dubai.
- Mr Bodnar submitted that the Judge should have taken into account A1P1 in respect of the effect of a CRO on Mrs Sanam's beneficial interest in the Properties irrespective of whether or not that was expressly raised in her Points of Defence. He pointed out that the proceedings were under CPR Part 8 and, even though the parties proceeded as if they were CPR Part 7 proceedings (with Points of Claim and Points of Defence), there had never been an order to proceed under CPR Part 7. He relied upon the unqualified language of section 266(3)(b) and submitted that incompatibility with the Convention goes to the jurisdiction of the court to make a CRO under Part 5.
- On the question whether Mrs Sanam's right to apply for ancillary relief under the MFPA is a possession for the purposes of A1P1, Mr Bodnar referred to Kopecky, Re T&N Ltd  EWHC 2870 (Ch),  1 WLR 1728, and Public and Commerical Services Union v Minister for the Civil Service  EWHC 2041 (Admin),  1 All ER 985. He submitted that Mrs Sanam's claim to ancillary relief satisfied the criteria for a "possession" within A1P1 because the claim is a clearly defined and predictable cause of action specified by statute. He relied on the Judge's statement (in  of her judgment) that Mrs Sanam would meet the jurisdictional requirements under section 15 of the MFPA for seeking relief because she has been domiciled in England since her return from Dubai in 2009. On any footing, Mr Bodnar argued, Mrs Sanam would be permitted in such proceedings to retain her beneficial interest in the two Properties and Mr Azam's beneficial half share of Wheatash Road would also be available to satisfy her claim.
- Mrs Sanam's case is that for all those reasons the Judge should not have made a CRO at all in respect of the Properties but, if that is wrong, then she should certainly have tailored the order so as to protect Mrs Sanam's A1P1 rights.
- The Judge explained, when granting permission to appeal, that she considered there was a need for the Court of Appeal to examine the relationship between Part 2 and part 5 of POCA "and the way in which an entirely blameless respondent facing the deprivation of his or her own property is to be treated under the two regimes".
- It must be acknowledged that there are important differences between Part 2 and Part 5 of POCA. On the other hand, it would be wrong, in the context of the facts of the present case, to see either the aims or the outcome of the legislation as materially different. It is not necessary, for this purpose, to undertake a detailed analysis of the two Parts. The following brief comparison, which deliberately omits a great deal of the legislation's complexity and comprehensiveness, is sufficient for the purpose of this appeal.
- Part 2, whose legislative origins can in many respects be traced back to the provisions of the DTA 1994 and the Criminal Justice Act 1988, is concerned with the making of a confiscation order where, among other things and simplifying greatly, the defendant has been convicted of an offence, and either has had a criminal lifestyle and has benefited from his or her general criminal conduct or has not had a criminal lifestyle but has benefited from his or her particular criminal conduct. In such a case, the court must make a confiscation order requiring the defendant to pay an amount equal to the defendant's benefit from the conduct concerned (limited to the amount available). The confiscation order, therefore, specifies an amount and not particular property.
- If the confiscation order is not satisfied, the court can appoint a receiver of "realisable property", that is to say any free property held by the defendant and any free property held by the recipient of a "tainted gift". If the defendant has a criminal lifestyle, a tainted gift is one made by the defendant at any time after the date six years before the commencement of proceedings against the defendant for the offence concerned or was a gift made at any time by the defendant of property which was either obtained by the defendant as a result of or in connection with the defendant's general criminal conduct or represented such property in the defendant's hands. If the defendant does not have a criminal lifestyle, a tainted gift is one made by the defendant at any time after the date on which the offence was committed. Again, it is important to note that the receiver is not limited to recovery of the specific property comprised in the tainted gift but can exercise the powers conferred by the court order, such as taking possession of any of the recipient's free property and realising it up to the value of the gift. The court must not, however, confer power on the receiver to deal with or realise realisable property without first giving persons holding interests in the property a reasonable opportunity to make representations to it. The Crown Court can make a restraint order to prevent the dissipation or disposal of realisable property.
- Part 5 of POCA, which is concerned with civil proceedings for the recovery of the proceeds of crime, is structured quite differently. Unlike Part 2, it was a novel statutory regime introduced by POCA. Rather than fixing a sum representing the defendant's benefit from his or her criminal conduct, which the confiscation order under Part 2 requires the defendant to pay, Part 5 is directed at the recovery of specific identified property which has been obtained by the defendant through unlawful conduct. The basic statutory principle in Part 5 is that such property is recoverable property and the court must make a recovery order in respect of it. The recovery order vests the recoverable property in the trustee for civil recovery, who acts on behalf of the NCA, and whose functions are to secure the property and realise its value for the benefit of the NCA.
- Bearing in mind the purpose of Part 5, it is unsurprising that Part 5 provides for recoverable property to include property which was originally obtained through unlawful conduct but has then been disposed of to another person. Such property may be followed into the hands of the transferee or a person who acquired the property from that transferee. There is also provision for tracing property obtained through unlawful conduct into property which represents it, either in the hands of the person who obtained it through unlawful conduct or a person to whom it was then transferred.
- Part 5 contains a number of provisions to protect third parties to whom recoverable property has been transferred. Such property ceases to be recoverable, for example, when the person to whom the property has been disposed obtained it in good faith, for value and without notice that it was recoverable property. There are various statutory exemptions, such as for persons of a prescribed description or property which is prescribed or if property has been disposed of pursuant to a prescribed enactment or an enactment of a prescribed description, and in a variety of other circumstances specified in Part 5. There are provisions dealing with associated and joint property and with property consisting of rights under a pension scheme, and provisions to prevent double recovery and for the restoration of property to persons who can satisfy the court that it was wrongly taken from and belongs to them. In addition, of course, there are the defences under section 266.
- Although, as that very brief and simplified account shows, Part 2 and Part 5 of POCA are structured very differently, there is nothing in them which compels a different outcome for someone in Mrs Sanam's unfortunate position depending on which of those Parts applies. Under Part 2 third party interests in property held by the defendant may be determined at the stage of making the confiscation order when, pursuant to section 10A of POCA, the court is determining the extent of the defendant's interest in property held by him or her and such a third party interest may exist. A wife or former wife in the position of Mrs Sanam is, however, primarily concerned to assert her rights at the enforcement stage (after the defendant has failed to pay) and a receiver has been appointed to take possession and realise the value of property which was a tainted gift to her or which is owned by the husband and in respect of which she wishes to make a claim for ancillary relief.
- The starting point in such a situation is that, where assets are the proceeds of crime and are subject to confiscation, they should ordinarily, as a matter of justice and public policy, be recovered and realised by the receiver: Richards v Richards at . There can be no doubt, however, that this is subject to A1P1, even though the protection of Convention rights is not expressly mentioned in Part 2.
- R v Waya was concerned with the application of the Convention, and in particular A1P1, at the stage of making the confiscation order. Lord Walker and Lord Justice Hughes, with whom Lord Judge, Baroness Hale, Lord Kerr, Lord Clarke and Lord Wilson agreed, accepted (at ) as "plainly correct" the general proposition that "POCA must be read and given effect in a manner which avoids a violation of A1P1". That principle applies just as much to the grant and exercise of the powers conferred on a receiver appointed by the Court under Part 2 as to the terms of the confiscation order itself.
- In Customs and Excise Commissioners v A and Richards v Richards the Court of Appeal considered the competing rights of a wife to ancillary relief under the MCA 1973 and of the relevant state authorities under the confiscation provisions of the DTA 1994 and (in the Richards case) Part 2 of POCA. Although Munby J had said at first instance in Customs and Excise Commissioners v A that the court must consider the competing rights of the wife and of the prosecutor and the exercise the court's powers having regard to Convention principles, and the appeal from his decision was dismissed, the members of the Court of Appeal in that case did not refer to the Convention at all. The specific question they addressed was whether, as a matter of statutory interpretation and public policy, the exercise of the jurisdiction under the MCA 1973 was effectively ousted by and must take second place to proceedings to enforce orders made under the DTA 1994. They answered that question in the negative.
- Their approach in relation to the actual exercise of the court's discretion conferred by each statute (that is, to make financial provision for the wife and to confer particular powers on the receiver following an unsatisfied confiscation order) was that it was necessary to balance the public interest represented by the DTA 1994 with the public interest in the protection of the rights of spouses under Part II of the MCA 1973 in the light of the particular facts of each case. Schiemann LJ, with whom Wall LJ agreed, said (at ) that the court must plainly have regard to the extent to which the assets of the parties were the product of drug trafficking; and the extent to which their standard of living and respective financial contributions to the marriage derived from drug trafficking. He said (at ) that it was not difficult to envisage cases in which it would be appropriate to decline to exercise the discretion under section 25 of the MCA 1973 to make a property adjustment order under section 24 and to allow the DTA 1994 to be enforced where the matrimonial assets were the fruits of drug dealing in which both parties were engaged or complicit.
- The critical facts in Customs and Excise Commissioners v A, which justified the order of Munby J under section 25 of the 1973 Act that the matrimonial home be transferred to the wife as well as the husband's beneficial interest in two life insurance policies securing the mortgage on the property, were that the wife already owned part of the beneficial interest in the property and had no knowledge of the husband's criminal activities, and no part of the equity in the properties had been acquired with the proceeds of drug trafficking. Furthermore, she was not in good health and had only modest employment.
- The Court of Appeal reached a different result in Richards v Richards. The Court of Appeal set aside an order for a lump sum payment in favour of a wife, whose husband had been convicted in Holland for drug dealing and given a custodial sentence. At the time of the hearing of the wife's application for ancillary relief under the MCA 1973 for herself and the four year old child of the family confiscation proceedings remained outstanding in Holland and there was a pending application in the Administrative Court for a restraint order under the DTA 1994 covering the whole of the husband's assets (any Dutch confiscation order being capable of enforcement against all the husband's assets in England). As in Customs and Excise Commissioners v A, the Court of Appeal did not rely upon, or even refer to, the Convention but it did apply the same approach endorsed in the earlier case of balancing the competing public interests in the light of the facts of the case.
- The decisive facts in Richards were that all the family assets, other than the wife's part ownership of the beneficial interest in the former matrimonial home which had been funded by a gift from her parents, were the proceeds of drug trafficking and that the wife knew from the outset that the husband was involved in criminal activities. Thorpe LJ, giving the judgment of the Court of Appeal, said (at ) that, in most cases and certainly in Richards itself, the fact that the assets are tainted is the decisive factor in any balance. He said that the error of the first instance judge was in thinking that the requirement to conduct a balancing exercise meant that in every case all factors are relevant. He continued, "in cases such as this the knowledge of the wife, throughout her married life, that the lifestyle and the assets she enjoyed were derived from drug trafficking is dispositive".
- As I have said, it is now clear from R v Waya that Part 2 of POCA must be read and given effect in a manner which is compliant with the Convention, including, most relevantly, A1P1. There is no reason to think that the decisions in Customs and Excise Commissioners v A and Richards v Richards would have been approached or decided differently if the Court of Appeal in those cases had conducted its analysis by express reference to the Convention.
- In Axa General Insurance Ltd v HM Advocate  UKSC 46,  1 AC 868 Lord Hope and Lord Reed, with both of whom Lord Mance, Lord Kerr, Lord Clarke and Lord Dyson agreed, stated (at , , , , , , , ,  and ) the following principles regarding A1P1 in the light of the jurisprudence of the European Court of Human Rights ("the ECrtHR"), most notably in Sporrong and Lönnroth v Sweeden (1982) 5 EHRR 35, James v United Kingdom (1986) 8 EHRR 123, Pressos Cia Naviera SA v Belgium (1995) 21 EHRR 301 and National & Provincial Building Society v United Kingdom (1997) 25 EHRR 127. (1) A1P1, which in substance guarantees the right of property, comprises three distinct rules. The first is a rule of a general nature, set out in the first sentence of the first paragraph, which states the principle of the peaceful enjoyment of property. The second is the rule contained in the second sentence of the first paragraph, which covers deprivation of possessions and subjects it to certain conditions. The third rule, which is set out in the second paragraph, recognises that contracting states are entitled, among other things, to control the use of property in accordance with the general interest. (2) The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property. Accordingly, they should be interpreted in the light of the general principle of the first rule, and the importance of classification should not be exaggerated. (3) Assessment of whether there has been a violation of A1P1 involves consideration of whether a "possession" exists, whether there has been an interference with the possession, and, if so, the nature of the interference. (4) Whichever of the three rules the interference is categorised as falling under, the test is in substance the same. For there to be no violation of A1P1 it must be shown that the interference complies with the principle of lawfulness (viz. lawful under domestic law and compatible with the rule of law) and pursues a legitimate aim by means that are reasonably proportionate to the aim sought to be achieved. (5) This turns on whether a fair balance has been struck between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights. (6) A fair balance does not exist if the person concerned has to bear an individual and excessive burden. (7) In that regard a margin of appreciation is left to the national authorities, and that margin is a wide one in the implementation of social and economic policies. (8) At the domestic level, courts must be similarly circumspect since social and economic policies are properly a responsibility of the legislature and policy making of this nature is amenable to judicial scrutiny only to a limited degree. (9) The assessment of proportionality requires careful consideration of the particular facts.
- As I have said, the Court of Appeal in Customs and Excise Commissioners v A and Richards v Richards approached the competing claims of the state to a confiscation order and of the wife to ancillary relief as turning on public policy, statutory interpretation and the exercise of discretion under the relevant statutory provisions rather than interference with the wife's Convention rights. The Court of Appeal did not, therefore, consider whether the wife's claim to ancillary relief was a "possession" within A1P1. The Court of Appeal nevertheless effectively carried out precisely the assessment of proportionality and the balancing test required under A1P1 if the wife's claim to ancillary relief was a possession within A1P1.
- The present case falls within the very different structure of Part 5 of POCA but the policy issues are essentially the same as for Part 2. The overall purpose of both Part 2 and Part 5 is stated in section 2A of POCA as the reduction of crime. As was acknowledged by the Supreme Court R v Waya (at ), the legislature has provided the means for that to be achieved by the forfeiture to the state of property obtained through crime. Just as the starting point under Part 2, as stated in Richards (at ), is that the proceeds of crime which are subject to confiscation should ordinarily be recovered and realised by the receiver, so in the case of Part 5 the basic statutory principle (stated in section 266(1)) is that the court should make a recovery order in respect of property obtained through unlawful conduct.
- The legislature has laid down an elaborate series of provisions in Part 5 specifically addressing the position of third parties to whom unlawfully obtained property has been transferred, in some cases allowing recovery from them and in other cases precluding it. They are summarised in very general terms in paragraphs 47 and 48 above. None of the statutory provisions precluding recovery from a third party applies in the case of Mrs Sanam. Two of them merit particular mention.
- Section 308 provides that, where recoverable property has been disposed of to a person acting in good faith, for value and without notice that it was recoverable property, the property ceases to be recoverable property. That does not apply to Mrs Sanam's beneficial interest in the Properties because Mrs Sanam received that as a gift. In that respect, she is in the same position as the recipient of a tainted gift under Part 2 of POCA.
- Section 266(3)(a) and (4) provide a defence for a person who obtained the recoverable property in good faith, and, without notice that the property was recoverable, took steps after or before obtaining it which he would not have taken if he had not obtained it or (as the case may be) if he had not believed he was going to obtain it, and a recovery order would be detrimental to him by reason of those steps, and it would not be just and equitable to make such an order. Section 266(6) provides that, in deciding whether it would be just and equitable to make a recovery order in such circumstances, the court must have regard, on the one hand, to the degree of detriment that would be suffered by the defendant if the order was made and, on the other hand, to the NCA's interest in receiving the realised proceeds of the recoverable property. That is precisely the type of balancing exercise required under A1P1.
- The defence in section 266(3)(a) and (4) is in substance a type of statutory proprietary estoppel defence. The Judge found that Mrs Sanam cannot satisfy its requirements because she never acted to her detriment by taking steps before or after receiving her beneficial interest in the Properties which she would not have taken if she had not obtained that interest or believed she was going to obtain it. There is no appeal against that finding. The Properties have always been investment properties. All she has ever done in relation to them has been to receive income generated by them. She has benefited from them but never acted to her detriment in reliance on or anticipation of her beneficial interest in them.
- The policy and intention of Parliament enshrined in Part 5 of POCA is that in such circumstances, subject only to any rights of Mrs Sanam under A1P1 which would otherwise be violated, the Properties should be included in a recovery order. It follows from R v Waya that the qualification in relation to any violation of Mrs Sanam's rights under A1P1 would in any event be implicit even in the absence of the express provision in section 266(3)(b) that the court cannot include in a recovery order any provision which is incompatible with any of the Convention rights.
- It is necessary at this point to address the issue, for which the Judge granted permission to appeal, as to whether the Judge should have considered a defence by Mrs Sanam under A1P1 in respect of her ownership of Thurza Court and her beneficial half share of Wheatash Road even though the Judge had refused permission to amend Mrs Sanam's Points of Defence. We consider that, for the reasons which follow, it was wrong in principle of her not to do so. The Judge wrongly confined her assessment of A1P1 to Mrs Sanam's potential claim for ancillary relief under Part III of the MFPA. The object of such a claim would have been to obtain a transfer to Mrs Sanam of Mr Azam's beneficial half share of Wheatash Road.
- Section 266(3)(b) expressly prohibited the Judge from making a recovery order which would be incompatible with any of Mrs Sanam's Convention rights. Once the issue of a potential defence under A1P1 was raised as regards Mrs Sanam's beneficial interests in the Properties the Judge was bound to give Mrs Sanam a reasonable opportunity of advancing that defence. In considering what would have been reasonable it must be borne in mind that what was at issue was the forfeiture of her valuable property for no compensation. If she could have been given that reasonable opportunity without a denial of the NCA's right (under Article 6 of the Convention and at common law) to a fair hearing within a reasonable time and without any other unfair detriment to the NCA, then it should have been.
- The NCA's claim for a recovery order had been issued as long ago as January 2011 and so there had been a substantial period of delay before the hearing before the Judge on 27 October 2014. Mrs Sanam's Points of Defence had themselves been served as long ago as August 2011 but there was no indication that Mrs Sanam would run a defence under A1P1 in respect of Mrs Sanam's beneficial interest in the Properties until the Judge herself raised the point in the course of the hearing before her. The Judge took the view that a full argument on the merits of such a defence would require a further hearing and the consideration of many more authorities on the question of "fair balance" and that there would be further costs incurred by the NCA, which would be unlikely to be recoverable. She considered that the NCA would be materially prejudiced and it would not be in accordance with the Overriding Objective. Those were the reasons why, as a matter of case management, the Judge refused permission to amend Mrs Sanam's Points of Defence.
- There is, as we have said, no permission to appeal against that decision, but it remains relevant to the issue now under consideration (viz. whether the Judge should have permitted an A1P1 defence to be run as regards the Properties even though it was not expressly pleaded) that no reasons have been given to us as to why the hearing before the Judge could not have continued the following day, permitting the parties over night to prepare such research and written and oral submissions as were possible. The new defence did not necessitate any new findings of fact. The only need was, at most, for some further consideration of the law. That short delay would not have prejudiced the NCA in any material way. Further, the Judge was overly influenced by the issue of costs. If the NCA lost on the new A1P1 defence it would not have been entitled in any event to the costs of any further hearing or part of the hearing devoted to the new defence. If the NCA won on the new defence, the costs would have paled into insignificance in relation to the total value of Mrs Sanam's beneficial interests in the Properties. In short, if the potential prejudice to the NCA by allowing the new defence to be run was compared with the loss to Mrs Sanam of her beneficial interest in the Properties for no compensation and proper weight was given to section 266(3)(b), the only proper exercise of the court's power was to permit the new defence to be run with minimal, if any, delay.
- We have had full argument on the application of A1P1 in relation to the claim for a recovery order in respect of Mrs Sanam's beneficial interest in the Properties and so there is no need to remit that issue for a further hearing. Despite Mr Bodnar's able submissions to the contrary, there is no proper basis for concluding that on the facts of the present case a recovery order in respect of the Properties would violate Mrs Sanam's A1P1 rights. Such an order would not be disproportionate to the legislative aim. It would not produce an unfair balance between the general interest of the community and the protection of Mrs Sanam's fundamental rights or cast on her an excessive burden.
- Unlike the situation in Customs and Excise Commissioners v A, the Properties were acquired by or at the direction of Mr Azam with the proceeds of crime. No part of the purchase price for them was funded otherwise than through crime. Mrs Sanam has had the advantage of beneficial ownership of Thurza Court and of a beneficial half share of Wheatash Road and of the right to income from them as a result of gifts directly or indirectly from Mr Azam. She has not acted to her detriment in any respect in reliance on those gifts or the prospect of them such that it would be unjust and inequitable to deprive her of them. She does not fall within any of the exceptions, exemptions or other defences specifically provided by Parliament in Part 5 of POCA for the protection of third party recipients of property obtained through unlawful conduct. Parliament could have provided, but chose not to provide, a defence for such third parties if a recovery order would leave them dependent on state benefits. Parliament could have provided a defence crafted to meet the situation of a spouse in the situation of Mrs Sanam but it did not do so.
- We have no hesitation in rejecting the argument that the result of the social policy of Parliament to require the making of a recovery order in those circumstances is disproportionate and casts an excessive burden on Mrs Sanam when balanced against the public interest in the reduction of crime by the forfeiture of property obtained through criminal conduct.
- Support for that conclusion can be found in the decision of the ECrtHR in Veits v Estonia (Application No. 12951/11) (15 January 2015). The facts in that case were that in 1996 an Estonian national, Ms Anneli Veits, who was then aged about 6, was given a gift of an apartment at 9 Mahtra Street, Tallin, by her grandmother N. In April 2003 Ms Veits' mother, V, fraudulently induced Zh, who was suffering from paranoid schizophrenia, to grant her a power of attorney to sell his apartment at 33 Punane Street, Tallinn. N sold the apartment to V. In August 2003, V, by making false statements, obtained the approval of the social security service of the local municipality to the sale of 9 Mahtra Street on behalf of Ms Veits, who was then 13 years of age. The apartment at Mahtra Street was sold. V gave the apartment at Punane Street to Ms Veits. Ms Veits reached the age of 18 in April 2008. In 2010 N and V were convicted of, among other things, fraud in relation to the apartment at 33 Punane Street and (in the case of N) the murder of Zh. The court held that the apartment at 33 Punane Street was liable to be confiscated. Ms Veits did not remember the details of the purchase of that property because she was still a young child in 2003 and she was not capable of understanding the transaction. There was no suggestion that she was in any way involved in the fraud.
- The ECrtHR held that confiscation of the apartment at Punane Street did not give rise to any violation of A1P1. The Court said (at ) that it would follow its constant approach that confiscation, while it involves deprivation of possessions, also constitutes control of the use of property within the meaning of the second paragraph of A1P1. It said the following at paragraph :
"The Court considers that confiscation in criminal proceedings is in line with the general interest of the community, because the forfeiture of money or assets obtained through illegal activities or paid for with the proceeds of crime is a necessary and effective means of combating criminal activities (see Raimondo v. Italy, 22 February 1994, § 30, Series A no. 281-A). Confiscation in this context is therefore in keeping with the goals of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, which requires State Parties to introduce confiscation of instrumentalities and the proceeds of crime in respect of serious offences. Thus, a confiscation order in respect of criminally acquired property operates in the general interest as a deterrent to those considering engaging in criminal activities, and also guarantees that crime does not pay (see Denisova and Moiseyeva v. Russia, no. 16903/03, § 58, 1 April 2010, with further references to Phillips v. the United Kingdom, no. 41087/98, § 52, ECHR 2001-VII, and Dassa Foundation and Others v. Liechtenstein (dec.), no. 696/05, 10 July 2007)."
- Turning to the facts of the case, the ECrtHR noted that under the domestic legislation a court might confiscate the object of an intentional offence if it belonged to a third person at the time of the making of the judgment and the person had acquired it as a gift from the offender. The Court then went on to consider whether a fair balance was struck between the legitimate aim of the legislation and Ms Veits' fundamental rights. The court held that it was because, even though Ms Veits was a minor at the time of the commission of the offences, the apartment had been acquired by N and V through crime and had been transferred to Ms Veits free of charge. The court said (at ) that it considered that "the domestic rules according to which in such circumstances the property could be confiscated and its acquirer could not rely on bona fide ownership did not amount to a disproportionate interference with Ms Veits' property rights".
- It inevitably follows from our rejection of a defence under A1P1 in respect of Mrs Sanam's own beneficial interest in the Properties that an A1P1 defence must fail in respect of the loss (by virtue of a recovery order) of any ability of Mrs Sanam to seek a transfer of Mr Azam's beneficial half share of Wheatash Road by way of financial provision under Part III of the MFPA. That potential claim to financial provision does not amount to a "possession" within A1P1 because it cannot satisfy the requirement set out in Kopecky of a legitimate expectation of obtaining any order in her favour. She has not yet made any such claim some 3 years after the issue of a Khula in Dubai and some 2 years and 9 months after the dismissal of Mr Azam's appeal. The application for financial provision would require leave under section 13 of the MFPA and that can only be given if there is substantial ground for the making of the application. Bearing in mind our conclusion that Mrs Sanam's own beneficial interest in the Properties should be the subject of a recovery order, it would be impossible for her to establish on any application under Part III of the MFPA that her claim to a share of Mr Azam's beneficial interest in Wheatash Road should take priority over the public interest in making a recovery order.
- For the reasons above we dismiss the appeal.
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