Reclaiming Motion The Scottish Ministers Against Steven Macdonald
| Jurisdiction | Scotland |
| Judge | Lord President,Lord Bracadale,Lord Drummond Young |
| Neutral Citation | [2016] CSIH 21 |
| Court | Court of Session |
| Published date | 18 March 2016 |
| Year | 2016 |
| Date | 25 February 2016 |
| Docket Number | P508/14 |
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 21
P508/14 and P1019/14
Lord President
Lord Bracadale
Lord Drummond Young
OPINION OF THE COURT
delivered by LORD CARLOWAY, the LORD PRESIDENT
in the reclaiming motion
THE SCOTTISH MINISTERS
Petitioners and Reclaimers;
against
STEVEN MACDONALD
Respondent:
Act: Dean of Faculty (Wolffe QC), HM Carmichael; Civil Recovery Unit
Alt: Bain QC; Central Court Lawyers, Livingston
25 February 2016
Introduction
[1] This is a reclaiming motion (appeal) from an interlocutor of an Outer House judge dated 22 April 2015, recalling two Prohibitory Property Orders, dated 28 May and 9 October 2014, which covered heritable and moveable property belonging to the respondent. The petitioners maintain that the judge erred in that there was, and remains, a “good arguable case” that the property was obtained by unlawful conduct. The issue in the appeal concerns the meaning of a “good arguable case”; that being the statutory test which requires to be satisfied before a PPO can be made.
Legislation
[2] Part 5 of the Proceeds of Crime Act 2002 provides for the civil recovery of property which is obtained through unlawful conduct. Unlawful conduct is conduct which is criminal (s 241). The enforcement authority may make an application to the Court of Session against any person who holds recoverable property (s 244). There is now a petition for the recovery of the property described in the PPOs, but this did not exist at the time they were made.
[3] The court may make an order where it is satisfied “that there is a good arguable case” that the property is, or includes, relevant property or is associated property (s 255A(4) and (5)). Associated property includes a part of recoverable property; for example where the property is purchased only partly with money obtained from unlawful conduct (s 245). The court may at any time vary or recall a PPO (s 255B). If the court determines that property is neither recoverable nor associated property, it must vary the PPO so as to exclude that property (s 255B(4)). Otherwise, the general discretion applies.
The Petitions
[4] In the first of the two petitions, the petitioners made reference to the respondent’s criminal record. Although it includes convictions for assault, attracting either a prison sentence or a substantial fine, the offences are all over 15 years old. The petitioners made a bald averment that the respondent’s record does not reflect his involvement in crime. Rather, they stated that they have police intelligence that he has been involved for many years in organized crime, including drug supply, human trafficking, money laundering, violence, firearms and pornography.
[5] In his tax returns for the years 1997 to 2000 the respondent declared no income. From 2000 to 2003 he declared an annual income of between £10,000 and £16,000 from Planview Properties Ltd, latterly Speylink Ltd (the predecessor of Diamond Dolls Ltd), and Hooter's Showbar Ltd. From 2003 to 2005 he stated that he earned between £50,000 to £60,000 per annum from Speylink, Hooter's and Big Daddio's Beerhouse Ltd. From 2005 to 2012 the respondent declared income of varying amounts ranging from £4,000 to £130,000 per annum from property and either Diamond Dolls or its successor company, namely Kaagobot Ltd. The figures for 2005/06, 2006/07 and 2007/08 were, respectively, £52,289; £4,035 and £19,620.
[6] In 1998, the respondent bought land in Hen's Nest Road, East Whitburn, for £42,000. He obtained a warrant to build a house on this land. In 2008, the respondent obtained a loan, through the Bank of Scotland, of £552,000. The loan was to be secured over the house, although the funds were required for commercial purposes (infra). In his application, which was produced, the respondent said that he had been self-employed in “retail sales” as Firsaid Trading earning more than £193,000 in 2004/05, £251,000 in 2005/06 and £272,000 in 2006/07. The application form described these amounts as net profit.
[7] It can be seen immediately that the figures from his self-employment are in marked contrast to those in the tax returns. Nevertheless, in a letter, which was produced, dated 13 November, Gilbert Little of RES Associates Ltd., chartered certified accountants, confirmed (as requested by the Bank) that, from the respondent's “books, records, information and explanations”, his income from all sources was as stated in the application. It is averred by the petitioners that, having regard to the figures declared in his tax returns, the loan funds of £550,769.49, received on 3 December 2008, were obtained by fraud; that is to say overstatements of his legitimate income.
[8] On 19 December 2008 the respondent bought 33 and 39 Mitchell Street, Glasgow for respectively £150,000 and £625,000. Both purchases were financed by a bank transfer from the respondent's account into which the loan funds had been paid. The petitioners aver accordingly that the Mitchell Street properties are recoverable (see Director of the Assets Recovery Agency v Olupitan [2008] Lloyd’s Rep FC 253). The balance of the purchase prices was paid from an account held by the respondent at Barclays Bank. That in turn had been funded by a payment of £303,000 in late October from the account of Diamond Dolls, which was itself provided from an unknown account in August, in turn funded by another Diamond Dolls’ account into which a deposit of £240,000 had been paid in July.
[9] Rent in respect of 39 Mitchell Street, from which Diamond Dolls operated a lap dancing club, amounting to £111,000 was paid to the respondent in 2009/10. From May 2010, rent of £1,500 per week was paid to him. This rent is said by the petitioners to be profits accruing from recoverable property. The respondent controls Giorico Properties Ltd, which bought 2 Laurieston Street, Edinburgh for £215,000 in July 2010. This is another lap dancing club. The money was paid from the respondent's accounts or those of Diamond Dolls or Kaagobot. The title to the property was thereafter transferred into the respondent's name.
[10] It is upon this basis that the petitioners maintain that they have a good arguable case that the properties at Mitchell Street and Laurieston Street, along with amounts in one of the respondent’s bank accounts, are recoverable.
[11] In the second petition, the petitioners aver that, in November 2013, the respondent bought Club Earth, Livingston for £225,000. The money for this was paid from the respondent's bank account, into which money had been paid by, amongst others, M & D Edinburgh Ltd, a company then controlled in part by the respondent. The balance came from rental income from the Tingle Shooter Bar and Café, which operates from 33 Mitchell Street, and Kaagobot. On this basis the petitioners aver that they have a good arguable case that Club Earth is recoverable property.
The Response
[12] Rule of Court 76.36 provides the framework for civil recovery proceedings. It provides (76.36(7)) that applications for variation and recall are to be made by motion. At the hearing of the motion, the court can make an order for the application to proceed by way of a Note and Answers. Although this matter was raised by parties, there was no order made for a Note when the case called initially on 16 April 2015 or at the hearing 6 days later. The motion itself was in very general terms. The reasons given for seeking recall were that the averments about involvement in organized crime were no longer to be insisted upon and there was no good arguable case justifying the PPOs. Reference was made, inter alia, to a report from a forensic accountant, David Bell, and an affidavit from the respondent. Further affidavits were to be produced. However, there was no written pleading (ie a Note) setting out the respondent’s position on the detailed loan transaction averments in the petition. This was unfortunate and may have resulted in the time (1½ days) which the judge took to hear the motion which was based on a number of different documents said to demonstrate the lack of an arguable case when compared with these averments.
[13] At the core of the respondent’s case was the accountant’s report, which purported to contain opinion rather than fact. The accountant states that he was asked to report on “the income streams” of the respondent at, and prior to, the loan application. The conclusions of the report contain a statement that:
“7.3 Having carried out a review of [the respondent’s] tax returns the figures included in the [loan] application letter are not a reflection of his own personal income.
7.4 … the income available to [the respondent] appears to be in excess of the income declared … in the letter to the bank.”
The accountant noted various things said by Mr Little, who wrote the letter. He produced a table recording, in partial form, the turnover of Speylink, a company called Trilink and Diamond Dolls over the relevant period. He concludes that:
“The … table highlights what funds [the respondent] had at his disposal, both in terms of personal income and business income, across the years …”.
He then expresses an opinion that the respondent “does not appear to have attempted to defraud, trick or mislead anyone in his dealings with the Bank”. He points to the respondent’s use of independent advisers in support of this contention.
[14] An affidavit from Mr Little explains that he:
“… was involved in certifying to the Bank of Scotland that [the respondent] had sufficient income to repay the mortgage (sic) … what we did was we agreed a form of words with the bank which were designed to satisfy others that he had sufficient funds to repay the money. Because it was a hybrid personal and business loan, the generic income declaration could not be used as it did not accurately reflect the position.
… In terms of [the respondent’s] income, the tax returns were correct because he had not yet crystallised the income as a...
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