Serious Fraud Office v Lexi Holdings Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Keene |
| Judgment Date | 10 July 2008 |
| Neutral Citation | [2008] EWCA Crim 1443 |
| Docket Number | Case No: 200703825 D5 |
| Court | Court of Appeal (Criminal Division) |
| Date | 10 July 2008 |
[2008] EWCA Crim 1443
Lord Justice Keene
Mr Justice Davis
Hh Judge Diehl Qc,
Recorder Of Swansea
(sitting As A Judge Of The Court Of Appeal Criminal Division)
Case No: 200703825 D5
RS TO 2006/002
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CENTRAL CRIMINAL
COURT HIS HONOUR JUDGE HONE QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Mitchell QC & Barry Stancombe (instructed by Mr Philip Mobedji, Head of the Assett Recovery Unit, Serious Fraud Office) for the Appellant
Phillip Marshall QC & Ruth Holtham (instructed by DLA Piper UK LLP, London EC2V 7EE) for the First Respondent
Hearing dates: 21 and 22 May 2008
This appeal concerns the approach to be adopted by the courts to restraint orders made under the Proceeds of Crime Act 2002 (“the 2002 Act”) when a third party raises claims which would reduce the amount of the restrained assets. So far as we are aware, it is the first case to reach the Court of Appeal Criminal Division raising such issues since the relevant provisions within the 2002 Act came into effect on 24 March 2003. All members of this court as presently constituted have contributed to this judgment.
This is an appeal from a decision of His Honour Judge Hone QC sitting at the Central Criminal Court on 12 July 2007, whereby he varied a restraint order made under the 2002 Act on 20 April 2006 by His Honour Judge Stephens QC. The restraint order prohibited the Second Respondent, M, from removing, disposing of, dealing with or diminishing the value of any of his assets, including some specifically identified. Those included an account with the United National Bank Limited, 2 Brook Street, London, three accounts with Halifax Bank plc and a property located at Wheathampstead, Hertfordshire. There was provision in the order for up to £250 per week to be spent on M's ordinary living expenses. The order was made on an application by the Director of the Serious Fraud Office.
The background to the restraint order is summarised in a statement of agreed facts, agreed between the Serious Fraud office (“SFO”) and the First Respondent, Lexi Holdings plc (“Lexi”). Paragraphs 4 to 6 of the statement read as follows:
“4. On 15 th March 2006 a criminal investigation was started in England and Wales into an offence of conspiracy to defraud the Cheshire Building Society and money laundering offences against [M].
5. [M] was a chartered surveyor and director of the property services firm Dunlop Haywards. At about the same time as the investigation was commenced, [M] was suspended from his employment with the firm.
6. The SFO's investigation concerns loans made by the Cheshire Building Society in respect of properties valued by Dunlop Haywards. The SFO's investigation into this fraud is continuing, but as of yet, no criminal charges have been brought.”
Lexi is now in administration. It had been engaged in the business of providing bridging finance for the acquisition of properties. Its managing director and guiding force was a man called SL, who is currently serving two years imprisonment for contempt of court committed by him in proceedings brought by Lexi in the Chancery Division. Lexi eventually defaulted on a credit facility arranged by Barclays Bank and was placed into insolvent administration on 5 October 2006. Its Administrators claim that Lexi has been the victim of substantial frauds committed by SL and others, with about £53 million allegedly having been misappropriated from its accounts by him and others, including M.
On 14 November 2006 Lexi began proceedings against a number of individuals and companies. The defendants included M. It was pleaded that SL dishonestly and in breach of the fiduciary duties owed by him to Lexi authorised or permitted the payment by Lexi to M of £625,000, that money going to his accounts at United National Bank Limited and at a bank in Lichtenstein. It was pleaded that M knew that the payments were made in breach of trust and that he held them or their products on constructive trust for Lexi and/or was liable to account for them. There was also a claim for money had and received. The Particulars of Claim sought various forms of relief against M, who was the 6 th Defendant in the proceedings, as follows:
“10) A declaration that the 6 th defendant holds the sum set out at paragraph 7.5 of the particulars of claim or its product on trust for the Company and an Order that he repay the same.
11) Further or alternatively, a declaration that the 6 th Defendant holds the sum of set out at paragraph 7.5 of the particulars of claim as monies had and received to the claimant's use and an Order that he repay the same.
12) An Order directing enquiries and the taking of accounts into the benefits that the 6 th defendant has received directly or indirectly from the sum paid.
13) An Order that the 5 th defendant (sic) do compensate the Claimant for the loss it has suffered by reason of the payment.”
Various court orders required disclosure by M of his assets and of the whereabouts of the funds received by him from Lexi's account. It is sufficient at this stage to refer to an “unless” order made by Blackburne J on 8 March 2007. When this order was not complied with, Lexi filed a Request for Judgment, and on 19 March 2007 judgment in default was duly entered. The material part of the court order was in the following terms:
“[M] do pay the Claimant [Lexi] the sum of £625,250 plus compound interest at the rate of 4% over six monthly LIBOR in the sum of £62,432.83.”
An interim charging order was subsequently obtained by Lexi against the property at Wheathampstead and third party debt orders against the bank accounts at United National Bank and Halifax.
On 20 June 2007 Lexi made an application to the Central Criminal Court to vary the restraint order which had been made by Judge Stephens, so as to permit M to comply with the default judgment of 19 March 200It sought the variation both on the basis that it had a proprietary claim and as a bona fide judgment creditor. The application was heard by Judge Hone on 10 July 2007 and was opposed by the SFO. By his judgment on 12 July 2007, Judge Hone made the variation sought so as to allow payment to be made to Lexi from M's restrained assets. The SFO now appeals, permission to do so having been granted by the Full Court.
With that summary of the facts, we turn to the statutory regime provided by the 2002 Act. The provisions dealing with restraint orders are to be found in Part 2 of the Act, the part which begins with the sections dealing with confiscation orders. That in itself supports what section 69 set out later in this judgment shows, namely that a restraint order is essentially a means to an end, the end being the satisfaction of a confiscation order which may be or has been made. The role of the restraint order is in that sense an ancillary one, since it seeks to preserve property and its value until the confiscation order has been made or satisfied or alternatively until the criminal proceedings have been concluded without a confiscation order being made, whether that be after conviction or acquittal of the restrainee.
The power to make a restraint order is conferred by section 41(1) of the 2002 Act but only if one of the conditions set out in section 40 is satisfied. There are five such conditions set out in section 40, but it will suffice to quote the terms of the first two, to be found in section 40(2) and (3) respectively:
“(2) The first condition is that –
(a) a criminal investigation has been started in England and Wales with regard to an offence, and
(b) there is reasonable cause to believe that the alleged offender has benefited from his criminal conduct.
(3) The second condition is that –
(a) proceedings for an offence have been started in England and Wales and not concluded, and
(b) there is reasonable cause to believe that the defendant has benefited from his criminal conduct.”
The references to reasonable cause to believe that the alleged offender or defendant has benefited from his criminal conduct echo the wording of section 6 dealing with confiscation orders, where the court decides whether a defendant has benefited from such conduct: see section 6(4) and (5).
Section 41, insofar as material for present purposes, provides:
“ 41 Restraint orders
(1) If any condition set out in section 40 is satisfied the Crown Court may make an order (a restraint order) prohibiting any specified person from dealing with any realisable property held by him.
(2) A restraint order may provide that it applies –
(a) to all realisable property held by the specified person whether or not the property is described in the order;
(b) to realisable property transferred to the specified person after the order is made.
(3) A restraint order may be made subject to exceptions, and an exception may in particular –
(a) make provision for reasonable living expenses and reasonable legal expenses;
(b) make provision for the purpose of enabling any person to carry on any trade, business, profession or occupation;
(c) be made subject to conditions.
(4) But an exception to a restraint order must not make provision for any legal expenses which –
(a) relate to an offence which falls within subsection (5), and
(b) are incurred by the defendant or by a recipient of a tainted gift.
(5) These offences fall within this subsection –
(a) the offence mentioned in section 40( 2) or (3), if the first or second condition (as the case may be) is satisfied;
(b)...
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