The Scottish Ministers V Russell Stirton And Alexander Anderson's Executor
| Jurisdiction | Scotland |
| Judge | Lord Justice Clerk,Lord Menzies,Lord Brodie |
| Neutral Citation | [2014] CSIH 92 |
| Court | Court of Session |
| Published date | 07 November 2014 |
| Year | 2014 |
| Docket Number | P1801/05 |
| Date | 07 November 2014 |
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
[2014] CSIH 92
P1801/05
Lord Justice Clerk
Lord Menzies
Lord Brodie
OPINION OF THE COURT
delivered by LORD CARLOWAY, the LORD JUSTICE CLERK
in the reclaiming motion
in the petition of
THE SCOTTISH MINISTERS
Petitioners and Respondents;
against
RUSSELL STIRTON
First Respondent and Reclaimer;
and
ALEXANDER ANDERSON’S EXECUTOR
Third Respondent and Reclaimer:
for a Recovery Order in terms of Section 266 of the Proceeds of Crime Act 2002
Act: Crawford QC, Heaney; the Crown Agent (Civil Recovery Unit) (Petitioners and Respondents)
Alt: Weir QC, CC Wilson; The Glasgow Law Practice (First Respondent and Reclaimer)
Alt: MacNeill QC, SM McCall; Ian Moir & Co (Third Respondent and Reclaimer)
7 October 2014
Introduction
[1] These proceedings concern the civil recovery of the proceeds of unlawful conduct, notably money laundering, extortion and mortgage fraud, in terms of section 266 of the Proceeds of Crime Act 2002. On 14 February 2012, a recovery order was granted against the reclaimers. This included a property owned by the first reclaimer at 3 Kelvin Road, Milngavie. The order was granted following 130 days of proof, between 2009 and 2011, and an Opinion of the Lord Ordinary extending to some 300 pages ([2012] CSOH 15). The Lord Ordinary dealt with expenses in a separate Opinion ([2012] CSOH 166).
[2] The reclaiming motion was heard in two tranches. At a Summar Roll hearing on 2 July 2013, the reclaimers made submissions restricted to those grounds of appeal (grounds 1 to 5, 6(v) and 14 for the first reclaimer; grounds 1 to 6 for the third reclaimer) that could be advanced without recourse to any transcription of the evidence. The court having rejected those grounds ([2013] CSIH 81), the remaining grounds arose for consideration (ibid, para 35).
[3] At a By Order hearing on 23 September 2014, the reclaimers abandoned certain of the remaining grounds (grounds 6(i) – (iv), 7 to 11 and 13 for the first reclaimer; grounds 7 to 15 for the third reclaimer). Accordingly, only ground 12 and “further” grounds 1 and 2 for the first reclaimer (now argued as “consolidated” grounds 1 to 3), and ground 16 for the third reclaimer, remained to be addressed. These were debated at a Summar Roll hearing which took place on 7 October 2014.
[4] The first reclaimer’s substantive ground (ground 12) was that there had been insufficient evidence to justify the conclusion that the property at 3 Kelvin Road had been acquired by unlawful conduct (consolidated ground 1). The remaining grounds concerned expenses. Both reclaimers contended that the award of expenses in favour of the respondents ought not to have been made on the agent and client, client paying, scale (consolidated ground 2 for the first reclaimer; ground 16 for the third reclaimer). The first reclaimer argued, in addition, that his liability ought to have been modified to nil, standing his status as an assisted person (consolidated ground 3).
Proceedings before the Lord Ordinary
3 Kelvin Road
[5] The recovery order was sought on the basis that the reclaimers had incurred expenditure, and acquired cash and assets, which could not be attributed to legitimate sources of income. The respondents averred that the first reclaimer’s property at 3 Kelvin Road, had been bought for £40,000 in December 1993. The first reclaimer had obtained a loan of £36,000 from the Bradford & Bingley Building Society. The source of the balance of £4,000 was unknown. In his loan application, the first reclaimer had declared a gross income of £14,000 from employment as an auto electrician. This was inconsistent with other accounts of the first reclaimer’s income and employment in 1993. The first reclaimer had no legitimate source of income at the relevant time. He had obtained the loan, and hence the property, by fraud. The first reclaimer answered that he had been employed by West Coast Auto Electrics. He denied the fraud.
[6] The Lord Ordinary heard evidence from a forensic accountant, Neill Thomson, who had analysed the reclaimers’ bank accounts and some of their business books. Mr Thomson spoke to his report, which contained an analysis of the source of funding of assets identified as recoverable. The narrative contained in Mr Thomson’s report in respect of 3 Kelvin Road was not disputed. Mr Thomson had had sight of the Bradford & Bingley mortgage file. The first reclaimer had claimed to be employed as an auto electrician with West of Scotland (cf West Coast, supra) Auto Electrics, Paisley, earning £14,000 per annum. However, there was no evidence that that business had existed. If it had, Mr Thomson would have expected to find annual tax returns. There was no record of the first reclaimer’s employment amongst his personal tax records.
[7] Mr Thomson identified two further, and differing, accounts of the first reclaimer’s income and employment in 1993. First, there was an application for a Pearl Assurance endowment policy, which declared that he was a mechanic earning £16,000 per year. There was no vouching for this or any identification of the garage where he might have worked. Secondly, there was a Nationwide Building Society loan application in respect of another property, in Strathblane, which said that he was a self-employed builder earning an annual net profit of £51,479. However, in 2002, the first reclaimer had informed HM Revenue and Customs that he had not begun trading until 1996, and that he had not worked or claimed benefits previously. Mr Thomson concluded that the first reclaimer’s statement of earnings as a self-employed builder was likely to have been fabricated.
[8] The first reclaimer gave evidence that he had indeed been employed by West of Scotland Auto Electrics in 1993. His salary had been about £10,000 per annum at first, increasing to £14,000 plus overtime. The tax records were simply wrong. A Mr Giffin was adduced in support of the first reclaimer’s position. He said that he had worked with the first reclaimer at West of Scotland Auto Electrics in 1993. Mr Giffin had been a part-time bookkeeper. Workers were paid a basic £10,000 plus overtime. By the time he had left, in February 1994, the basic wage had increased to about £14,000 per year.
[9] Mr Robert Thomson gave evidence. He had also worked with the first reclaimer in 1993. Mr Thomson’s net weekly wage, as an engineer, was usually between £230 and £250, including overtime. The first reclaimer might have been paid more.
[10] In 2002, Mr Macfie, an inspector of taxes, had dealt with a request, from the reclaimers’ accountant, to accept late tax returns on behalf of the first reclaimer. The accountant, namely a Mr Yousaf, did not give evidence. Mr Macfie received tax returns on behalf of the first reclaimer on a “lifestyle” basis for the periods 1996/7 and 2000/01. He had been prepared to agree that tax and penalties in the order of £100,000 would be paid. However, no information had been produced to vouch the income and employment declared in the first reclaimer’s loan applications.
[11] The third reclaimer gave evidence that the first reclaimer had worked as a mechanic in a garage in the west end of Glasgow. He had provided information to HMRC on his behalf, but the figures had been estimates and he could not explain them.
[12] The Lord Ordinary did not accept that the first reclaimer had been employed as an auto electrician at a salary of £14,000 per annum. She accepted that he had done some work for West of Scotland Auto Electrics, but she was not prepared to find that he had been employed at that or any other salary. She said that she had heard no credible evidence about the source of the £4,000 balance. Accordingly, she concluded that the property had been acquired with funds obtained by unlawful conduct.
[13] The Lord Ordinary’s conclusions were based on her acceptance of the reasoning contained in the report of Mr Thomson (supra). The first reclaimer had not suggested that any parts of Mr Thomson’s report were wrong, or that the report had omitted matters that ought to have been included. In any event, there were no positive averments of any alternative employment history. The Lord Ordinary noted the inconsistencies between the first reclaimer’s declared income and employment in his loan applications for 3 Kelvin Road and the Strathblane property. As he had not given notice of any legitimate alternative source of income, she found that the £4,000 deposit was unaccounted for.
[14] Because of the lack of any evidence of payments of income tax and national insurance, and his own varied claims as to his earnings, the Lord Ordinary found that the first reclaimer had made fraudulent claims to the lenders and obtained the loans by declaring income which he could not vouch. In addition to the fraud in respect of 3 Kelvin Road, the Lord Ordinary found that the loans for the Strathblane property and another property in Milngavie had also been obtained by fraud. These findings were not ultimately challenged.
Expenses
[15] The respondents had sought an award of expenses on the agent and client, client paying, scale on the basis of the conduct of the proof. When the motion was finally heard, following a two day adjournment because of lack of preparedness, the first reclaimer’s counsel said that “he was not able to make adequate or substantive replies to the submissions made [on behalf of the respondents]. He had not had time to prepare.” He moved to have the first reclaimer’s expenses modified (Legal Aid (Scotland) Act 1986, s 18(2)) on the basis that the first reclaimer had no assets, relied on members of his family for support, and did not claim any benefits. “Counsel had nothing further to say”. The third reclaimer accepted that expenses should follow success, but submitted that liability should be restricted to the first seven weeks of the proof, being the original estimate of time given by the respondents.
[16] The Lord Ordinary granted the...
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