Szepietowski v Assets Recovery Agency
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,Lord Justice Wall,Lord Justice Moore-Bick |
| Judgment Date | 24 July 2007 |
| Neutral Citation | [2007] EWCA Civ 766 |
| Docket Number | Case No: C1/2006/2647 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 July 2007 |
[2007] EWCA Civ 766
Lord Justice Waller
Vice-President of the Court of Appeal, Civil Division
Lord Justice Wall and
Lord Justice Moore-Bick
Case No: C1/2006/2647
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Queen's Bench Division, Administrative Court
Mr Justice Mitting
Mr Stanley Burnton
Jonathan Swift and Piers Harrison (instructed by Assets Recovery Agency Legal Department) for the Appellant
Jonathan Fisher QC and David Povall (instructed by Messrs Devonshires) for the Respondent
Hearing dates: 26th, 27th June 2007
Judgement
This is an appeal from a decision of Mitting J raising points relating to what constitutes an arguable case on an application for an interim receiving order under the Proceeds of Crime Act 2002 ( POCA), the proper approach to the 12 year period of limitation for the recovery of property obtained by unlawful conduct on such an application, and the effect of section 32 of the Limitation Act 1980 (extension of limitation periods when actions are based on fraud or relevant facts are concealed) on that 12 year period of limitation.
Background
In October 2005 the receiver, under an interim receiver order previously granted and not the subject of these proceedings and relating to quite different property, reported discovery of an extensive portfolio of properties held by the First and Second Respondents (hereafter referred to as JS and his wife SS), or companies under their control. On 26 October 2005 Stanley Burnton J made an interim receiving order against, among others, JS and SS. That order, made under POCA, related to those properties which the Director of the Assets Recovery Agency (the ARA) asserted had been obtained by unlawful conduct or represented property so obtained. The unlawful conduct relied on in obtaining the order initially included allegations not now relied on save to the extent that one aspect of the unlawful conduct was said to be that “the funds used to purchase the properties had been obtained by fraud”.
The order empowered the Receiver to require the respondents to answer questions and provide “such information and documents relating to acquisition of such property and the source of funds used for such acquisition as the Receiver so requires.”
On 8 June 2006 JS applied to set aside the interim order in respect of properties in which JS accepted he had a beneficial interest (at this stage three, ultimately for reasons which do not concern us later reduced to two). The application was made on various grounds, (i) that there was insufficient evidence to establish a good arguable claim (ii) that the ARA were not entitled to use evidence obtained under a previous interim receivership and (iii) delay.
Before proceeding with its claim the ARA wanted a report from the interim receiver and during 2006 an extensive investigation was being carried out by her. During that investigation she asked JS and SS if they were prepared to be interviewed. JS was not and SS was, only subject to conditions. In the result JS and SS put in statements as to their assets which did not reveal the full extent of what the receiver was ultimately to suggest were assets, and neither assisted the receiver before compilation of her report.
On 18 August 2006 the receiver produced an extensive report backed by extensive folders of evidence. That report identified 33 properties which the receiver suggested had, between 1991 and 2005, been vested in the names of JS or SS or in false names on their behalf. The receiver stated that “it is my belief that this portfolio of properties was acquired and maintained with the proceeds of unlawful conduct, being fraudulently obtained mortgage finance and income concealed from HM Revenue and Customs.” (para 1.24).
The receiver was aware of Section 27A of the Limitation Act which (putting it shortly for the present) imposes a limitation period of 12 years from the date when the cause of action accrued. The receiver took the view that where property had been unlawfully obtained prior to 25 October 1993 it would fall outside any claim by the ARA. However the receiver also took the view that much of the equity in the properties obtained (as was being alleged) by mortgage fraud had been obtained by concealing the matter from the Revenue and suggested that such equity was recoverable property on that basis.
JS's application came first before Silber J on 5 th September 2006. In the skeleton argument produced for that occasion JS's advisors raised an additional point on non-disclosure. Silber J dealt with only one point, the evidence point, and disposed of that in the ARA's favour. The matter then came on before Mitting J on 28 th November 2006.
By this stage the ARA had abandoned any reliance on concealment from the Revenue being relevant, unlawful conduct (see their letter of 30 th October 2006).
It seems that Mitting J expressed a preliminary view that on the basis of Jennings v Crown Prosecution Service [2006] 1 WLR 182 it was unlikely that he would set aside the interim order on the grounds of non-disclosure, but he said that having read all the papers he wanted to hear argument on the question whether the evidence revealed that two properties, Ashford House and 6 Holland Road, had been obtained using funds obtained through unlawful conduct. It was that argument that he then heard. In the course of that argument, a point of some general importance arose as to the application of section 27A of the Limitation Act and whether the provisions of section 32 of the Limitation Act applied.
Mr Barnard, then representing the ARA, did not accept that it could be said on this application to set aside part of an interim order that the 12 year limitation applied so as to defeat the ARA's claim, and in any event argued that, since the ARA's claim was based on fraud, section 32 applied so as to postpone the commencement of the 12 year period to a date when the ARA discovered “the fraud”. It seems that before the judge section 32(1) (b) “concealment of relevant facts” was not relied on.
Mitting J held that there was not sufficient evidence that the two properties had been obtained by the use of funds obtained through unlawful conduct. He also held that section 32 did not apply so as to allow the ARA to argue that the limitation period only commenced once they discovered “the fraud”.
The legislation
For both points it is important to be clear how the legislation works. By section 240 of POCA it is provided that Part 5 of POCA has effect for the purpose of enabling the ARA to recover in civil proceedings property obtained through unlawful conduct. Unlawful conduct is conduct unlawful under the criminal law of any part of the United Kingdom where the conduct takes place (S241(1)) or if it takes place abroad is criminal by that place and would be criminal if it had taken place within the United Kingdom (S241(2)). By section 242 “a person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct.” By section 242(2)(b) “it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct.”
Part 5 Chapter 4 of POCA deals with what is recoverable property. Section 304 provides the basic rule that “property obtained through unlawful conduct is recoverable property”. Section 305(1) is important, providing that where property obtained through unlawful conduct (“the original property”) is or has been recoverable, property which represents the original property is also recoverable property. Section 305(2) takes that further still by providing that if a person enters into a transaction by which he disposes of recoverable property whether the original or property which represents the original and obtains other property in place of it, that property represents the original.
Section 306 deals with mixing and provides by section 306(2) that the portion attributable to the recoverable property represents the property obtained through unlawful conduct.
By section 246 the ARA may apply to the court for an interim receiving order, and by section 246(4) the court may make such an order if certain conditions are met, the first condition being “there is a good arguable case—(a) that the property to which the application for the order relates is or includes recoverable property”.
Although no argument was addressed to it, I note that this first condition adds and “(b) that if any of it is not recoverable property, it is associated property”. By section 245 “associated property” is defined as property including property held by the respondent which is not itself recoverable property and includes for example (a) “any interest in the recoverable property” and (c) “if the recoverable property is a tenancy in common, the tenancy of the other tenant” and (e) “if the recoverable property is part of a larger property, but not a separate part, the remainder of the property”. No argument, as I say, was addressed to these provisions but they might have relevance if JS's argument was that he was entitled to dispose of his equity in one or other of the properties released even if his wife was not. It indeed seems to make it very unsatisfactory that if SS is (as it appears she intends to) to make an application similar to that of JS her...
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