Assets Recovery Agency Director v Szepietowski & Ors [2007] EWCA Civ 766

[2007] EWCA Civ 766Case No C1/2006/2647
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
[2006] EWHC 3228 (Admin)
ON APPEAL FROM Queen's Bench Division, Administrative Court
Mr Justice Mitting
Mr Stanley Burnton
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 24/07/2007
Before
LORD JUSTICE WALLERVice-President of the Court of Appeal, Civil DivisionLORD JUSTICE WALLLORD JUSTICE MOORE-BICK
Between
The Director of the Assets Recovery AgencyAppellantSzepietowski & OrsRespondent
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Jonathan Swift and Piers Harrison (instructed by Assets Recovery Agency Legal Department) for AppellantJonathan Fisher QC and David Povall (instructed by Messrs Devonshires) for RespondentHearing Hearing dates : 26th, 27th June 2007
JudgementLord Justice Waller :
[1]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

[2]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”.[3]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.”[4]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.[5]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.[6]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).[7]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.[8]JS’s application came first before Silber J on 5th 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 28th November 2006.[9]By this stage the ARA had abandoned any reliance on concealment from the Revenue being relevant, unlawful conduct (see their letter of 30th October 2006).[10]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.[11]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.[12]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

[13]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.”[14]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.[15]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.[16]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”.[17]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 application did not come on for hearing at the same time.[18]POCA also contains a retrospective element by providing in section 316(3) that “for the purpose of deciding whether or not property was recoverable at any time (including times before commencement), it is to be assumed that this part was in force at that and any other relevant time”. But by section 288 there is also inserted into the Limitation Act 1980 (and its equivalent in Scotland) a limitation section. The section disapplied time limits in the Limitation Act to civil recovery proceedings under chapter 2 of Part 5 of POCA but by section 27A(2) provided that proceedings for recovery of any recoverable property under that chapter “shall not be brought after the expiration of the period of twelve years from which the Director's cause of action accrued." Section 27A(3) provides that proceedings are brought when either a claim form is issued or an application is made for an interim receiving order. Section 27A(4) provides that the director’s cause of action accrues(a) in respect of property obtained through unlawful conduct when the property is obtained, and then, crucially,(b) “in the case of proceedings for a recovery order in respect of any other recoverable property, when the property obtained through unlawful conduct which it represents is so obtained.”[19]In this case the two properties are both alleged to be properties representing property obtained by unlawful conduct. So, in considering whether there is an arguable case that these properties were recoverable properties, the analysis which needs to be done relates initially to the original property said to have been obtained unlawfully. The analysis has to be as to whether there is a good arguable case as to how that property was obtained through unlawful conduct and thereafter an analysis as to the case made as to how the property sought to be made the subject of the order represents the property originally obtained, or came to represent property that came to represent the property originally obtained.[20]This becomes particularly important when considering limitation because the effect of Section 27A is to exclude property representing the original property obtained unlawfully if the original property obtained unlawfully was itself obtained more than 12 years before commencement of the proceedings, i.e. in this case 25 October 1993.[21]So, to clarify the issues in this case. ARA’s claim to the properties in this case is on the basis that the properties represent original property unlawfully obtained. In the case of a mortgage fraud where the lender was deceived into lending money to purchase the property, the relevant date is the date on which the funds (the original property) were obtained. In so far as it may be said that the property was obtained by using rents from properties obtained by mortgage fraud, the relevant date and transaction is the original obtaining of funds from which the property which produced the rent was purchased.

Good arguable case

[22]Before examining the evidence relating to the two properties I should explore a little what is meant by “a good arguable case” that the property is recoverable property. What must the ARA establish and what may they rely on?[23]Both sides made reference to Sullivan J’s decision in Green v Director of Assets Recovery [2005] EWHC 3168 (Admin). Neither challenged its correctness. It dealt with a preliminary issue in the following terms:- “Whether a claim for civil recovery can be determined on the basis of conduct in relation to property without the identification of any particular unlawful conduct, this first question to include whether the claimant can sustain a case for civil recovery in circumstances where a respondent has no identifiable lawful income to warrant the lifestyle and purchases of that respondent.”[24]The answer given by Sullivan J to that question was:- “1. In civil proceedings for recovery under Part 5 of the Act the Director need not allege the commission of any specific criminal offence but must set out the matters that are alleged to constitute the particular kind or kinds of unlawful conduct by or in return for which the property was obtained.”[25]He clarified that answer in these terms in paragraph 50:- “Mr Crow invited me to make it clear that my first answer to the preliminary question meant that the Director need neither allege nor prove the commission of any specific criminal offence, and that she must not merely set out the matters that are alleged to constitute the particular kind or kinds of unlawful conduct, but that she must prove that, on the balance of probabilities, the property was obtained by or in return for a particular kind or one of a number of kinds of unlawful conduct.”[26]Thus the ARA must first establish a good arguable case that a certain kind of unlawful conduct occurred and then a good arguable case that property was obtained though that kind of unlawful conduct. What the ARA is not required to do is to establish a good arguable case that any property was obtained through a specific criminal offence, even of the general kind alleged. As we will see, in my view, the judge may have fallen into error in examining whether property was obtained through the particular offences of mortgage fraud identified by the receiver in her report as opposed to asking himself the questions –(1) have the ARA established an arguable case of extensive mortgage fraud?(2) If so, is there an arguable case that the property sought to be frozen was obtained from extensive mortgage fraud (as opposed to any particular frauds identified)?[27]In considering the second question, a point also arises as to what should be made evidentially of the fact that a respondent has refused to give any explanation and indeed may in some instances have given a false explanation. Sullivan J refers to a number of cases where, in the context of statutory provisions dealing with forfeiture of cash in different contexts, the courts had upheld the drawing of inferences from untruthful explanations. Although Sullivan J distinguished those cases when providing the answer to the preliminary issue in the context of POCA, they do have some relevance to the evidential status of a refusal to answer or an untruth told in the context of providing some explanation. One citation from a judgment of Sedley J (as he then was) in Nevin v Customs and Excise (unreported 3rd November 1995)will make the point:- “While the prescribed civil standard of proof would not, of course, allow the Justices to act without satisfactory evidence on the intended use of the money, they are not required to direct themselves, for example, in relation to lies told by a defendant, as a judge would direct a jury in a criminal trial. That is not to say that they should overlook the possibility that lies may have the purpose of concealing something other than the misconduct presently alleged. But a suspect who gives an account of his reasons for carrying the money which the justices reject as untruthful cannot complain if the justices go on to infer from other relevant evidence that by itself might not have been enough to satisfy them that the true reason was for the use of drug trafficking.”[28]In this case, in considering whether a good arguable case has been established, it will be necessary to examine first whether it is arguable on the evidence that unlawful conduct of the kind asserted by the ARA has taken place i.e. mortgage fraud. Next needs to be considered whether it is arguable that the property sought to be frozen represents property originally obtained through such unlawful conduct, but not necessarily through specific examples of that conduct; and finally, if there is some evidence that property was obtained though unlawful conduct, consideration needs to be given to any untruthful explanation or a lack of explanation where opportunity has been given to provide it. An untruthful explanation or a failure to offer an explanation may add strength to the arguability of the case. Does the evidence disclose an arguable case that the properties are recoverable as representing property obtained through unlawful conduct? 6 Holland Road[29]The case for the ARA has now been pleaded in extensive Particulars of Claim which were not in front of the judge. What the judge had was the receiver’s report plus Mr Barnard’s submissions. I emphasise the latter because the receiver’s report had relied on withholding information from the revenue as the unlawful conduct, and it was only in submissions that it was being suggested clearly that the ARA’s case on 6 Holland Road was that it was the fact that the money came from rental income from other properties obtained by mortgage fraud on which the ARA relied.[30]The pleading however follows the receiver’s report in pleading extensive mortgage frauds prior to the purchasing of this property. It follows the receiver’s report in relation to the extent of the funds said to have been used to purchase this property. It relies on the receiver’s report in asserting the extent of the legitimate income of JS and SS and adopts, thus, the broad proposition of the receiver that the extent of their legitimate income would not have been able to provide the £183,000 needed to purchase without a mortgage 6 Holland Road.[31]It then asserts (as was Mr Barnard’s submission before the judge) that the only sensible explanation for the source of the funds is that they were derived from the proceeds of fraud from other properties obtained by mortgage fraud and then is added “or one or other offences involving dishonesty.” [see para 20.4][32]In the light of Green I would not accept that some catch-all phrase such as that last quoted is sufficient as an allegation of unlawful conduct, and thus it is “mortgage fraud” on which one must concentrate.[33]It seems to me that the judge may have fallen into error by analysing the particular mortgage frauds set out in the receiver’s report, calculating as he does what might have been raised from such frauds (see paragraph 7) and relying on that precise calculation in reaching his conclusion in paragraph 21. What he should have considered was whether there was evidence of extensive mortgage fraud and whether there was an arguable case of funds from an extensive mortgage fraud being used.[34]In the skeleton argument prepared by Mr Barnard for the appeal, details are given in paragraph 24 of 9 properties which the receiver asserts she has discovered as being purchased in false names. From that the argument is not only that those properties would produce a considerable rental income but (and this is important) they establish an extensive fraud. So it is argued, if there is no other explanation or if there is a dishonest explanation as to from where JS and SS obtained the funds, it is right to hold as arguable a case for a further fraud of a similar kind from which funds came.[35]I turn to the details. This property was purchased on 12 May 1994 by JS and SS using the names John and Susan Martin. In his witness statement JS admits the use of the name Martin but provides a reason for the use of false names i.e. that it was to prevent harassment of his first wife and done on the advice of his solicitor.[36]In the context of a substantial body of evidence, that false names were used in the purchase of many properties, the court is entitled to view at the interim stage that explanation with some scepticism.[37]The purchase price was £183,000 and no funds were obtained by mortgage. JS and SS (according to the receiver’s report) had, during the whole 12 year period from 1991, legitimate, i.e. declared, income of only £76,802.50. That could not provide sufficient income in 1994 from which they could have produced £183,000.[38]What explanation has JS given? In his witness statement of 23rd June 2006 JS suggests that “the funds to buy this property were as a result of a sale of previous property and represented the equity in that sale”. JS has refused to be interviewed or supply any chapter and verse for that assertion. He suggests through his counsel Mr Fisher QC that because the receiver has seized his papers it is difficult for him to do so. 6 Holland Road was to be JS’ and SS’ home and it is difficult to accept that some memory of what property was sold and when it was sold would not still be retained. But if it is true that some property has been disposed of, and since the receiver has not been able to identify such a property, it means that as yet there is an unidentified property from which the funds for 6 Holland Road came, and in relation to which there is no information as to how it was purchased or when it was sold. In the context of extensive mortgage frauds which have been identified, it is legitimate to ask whether this was a further mortgage fraud and to ask when it was committed. JS has not provided any answer to those questions.[39]It is right to say there is a problem with JS’s explanation in that amongst the papers obtained by the receiver is a letter from JS’s accountant to JS dated 5th September 2005 written at a time when his accountant was seeking to put together an explanation to the Inland Revenue of JS’s affairs. It contains a completely different explanation for the source of the funds. JS’s explanation to his accountant was that the source of the funds was(a) a legacy from his mother in the sum of £90,000;(b) monies obtained by SS on her divorce in the sum of £50,000;(c) unidentified loans and drawings on credit cards. [See letter of 5 September 2005 page 723][40]The explanation that £90,000 was provided from a legacy could however not be true because his mother did not die until 29th August 1996 – 2 years after the purchase of 6 Holland Road. Furthermore those figures only totalled £170,000 and, according to the letter from the accountant, the accountant simply “rescheduled the financing to read a little differently” producing £95,000 as the legacy, and £60,000 from SS’s divorce.[41]JS has refused to answer questions or provide any further information. It seems to me ( and I will consider limitation separately) if I simply pose the question whether there is a good arguable case that the purchase money for 6 Holland Road came from the proceeds of mortgage fraud, my answer would be ‘yes’. The judge, in forming a different conclusion, appeared to be considering a too narrow issue, i.e. whether the mortgage fraud that could be identified could produce the funds, and thought it was relevant that JS had not lied to the Revenue. Although it may strictly be true that it has not been established that any lie was told to the Revenue, such explanation as JS has given for the source of these moneys is inconsistent, and riddled with suspicion. If JS chooses not to say truthfully where the funds come from, when the allegation is that they come from income produced through an extensive mortgage fraud, and there is some evidence of an extensive mortgage fraud, the court is entitled to conclude (1) no legitimate source of these monies has been identified and there is a good arguable case they were dishonestly obtained; (2), there is evidence of mortgage fraud on a grand scale which is quite possibly more extensive than that so far identified and thus a possible source of the funds; and (3) there is no explanation to demonstrate that mortgage fraud was not the source of the funds, and that lack of explanation if it persisted to trial would provide a basis on which it would be legitimate to draw the inference that mortgage fraud was the source. If that is so, the ARA in my view has established at this stage a good arguable case subject to limitation to which I now turn.

Limitation

[42]There, is in my view, a short answer to this aspect which does not involve consideration of section 32. Once it is recognised that the ARA do not have to establish particular mortgage frauds from which the income can be derived, I do not see how JS can be entitled to argue that the limitation period of 12 years has so clearly expired that he is entitled to summary judgment. If he had provided details of the date of the sale of the property which he says produced the funds or an explanation as to where the funds came from, which could be relied on even if the source was unlawful conduct, there might be a relevant date by reference to which the limitation point could at this interim stage be decided. There is no such date. 6 Holland Road was purchased some months into the relevant period and no decision can at this stage be taken in JS’s favour.[43]That said I ought, because I am doubtful whether Mitting J was right in the view he took on what may well have been more limited arguments, consider the section 32 argument. I will for this purpose assume that the ARA has a good arguable case that extensive mortgage frauds took place, and that the original funds were obtained by a mortgage fraud perpetrated on the lenders. I will also however assume that the evidence shows that the mortgage fraud which produced funds now represented by properties took place before 25 October 1993.[44]Section 32(1) provides as follows:- “Subject to [subsections (3) and (4A)] below, where in the case of any action for which a period of limitation is prescribed by this Act, either –(a) the action is based upon the fraud of the defendant; or(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or(c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be ) or could with reasonable diligence have discovered it.

(c) the action is for relief from the consequences of a mistake;

[45]Mr Swift for the ARA relied first on section 32(1)(a) arguing that in such circumstances the action of ARA would be based on fraud. He submits that Green requires the unlawful conduct relied on to be identified. He submits that mortgage fraud is the unlawful conduct relied on and therefore “fraud” is an essential fact which needs to be established in order for the ARA to succeed.[46]I have read in draft the judgment of Moore Bick LJ and follow the way in which he would suggest that section 32(1) (a) applies. I have some doubt as to whether he is right for two reasons. First it seems to me very arguable that the subsection is dealing with a fraud on the claimant bringing the action and in this instance no fraud was committed against the ARA. Second, although mortgage fraud defines generically the unlawful conduct relied on, it is as the ARA’s pleading demonstrates, made up of a number of related criminal offences e.g. theft, and false accounting. The ARA did not go so far as to submit that all criminal offences in which there was dishonesty are cases of “fraud” and indeed in the light of such cases as Beaman v ARTS Limited [1947] 1 K.B.550could not do so. In my view therefore the ARA may not be able to rely on section 32(1)(a).[47]If the ARA cannot rely on section 32(1)(a) they will rely on section 32(1)(b) and in my view they are on stronger ground in so doing, albeit the point is on any view a difficult one. In this context it must again be emphasised that this case is at an interim stage. We are considering whether there is a good arguable case or whether as a matter of discretion an interim order in relation to two properties should be maintained. In such a situation clearly a complete defence can be relied on to demonstrate a lack of a good arguable case but it is doubtful whether the interim stage is the right moment to consider difficult points of law without findings of fact against which to consider the difficult points.[48]I will however wrestle with the point and express some view in the light of the decision of the judge which may be sought to be applied in other situations. In this context two aspects of concealment are relied on; first what may be termed concealment from the outset, by the use of fictitious names and other dishonest conduct, and second concealment from the ARA once they began their investigation. In the latter context, for example, JS and SS have produced statements of assets but not included properties that the ARA say were theirs obtained through mortgage fraud. They have in any event made statements, e.g. that the finance for the purchase of 6 Holland Road was from the equity produced by the sale of a property, not revealing and it could be said “deliberately concealing” what that property was or how it had been obtained. I do not know what possible acts of concealment the ARA could rely on but one can see it may be possible for them to say things were deliberately concealed from them.[49]The question is whether the ARA can arguably rely on either or both forms of concealment with the effect of the 12 year limitation only commencing when the true facts are revealed.[50]I will start with possible concealment from the ARA once it commenced its investigation, since in these proceedings the ARA are the claimants and it must be strongly arguable that the subsection should apply to a deliberate concealment from the ARA as compared with a deliberate concealment from persons who are not claimants, e.g. lenders under the mortgage frauds. In this case that investigation commenced more than 12 years after certain of the properties now said to have been obtained by mortgage fraud had been obtained and thus more than 12 years after the funds to obtain those properties had been obtained. At first sight one might think that concealment, once the limitation period has expired, could not lead to a recommencement and extension of the limitation period but it is not so straightforward.[51]I admit to the inclination that it cannot have been parliament’s intention to allow a period of limitation which has apparently expired to commence at some date after its expiry, but as I read the speeches of Lord Nicholls and Lord Keith in Sheldon v Outhwaite [1996] 1 A.C. 102, in reaching the conclusion they did in that case they accepted that the logic was to bring about that result.[52]In Sheldon the facts were that names at Lloyds were alleging negligence occurring in 1981 and deliberate concealment having occurred in 1984. They issued a writ in 1992 having discovered the facts less than six years prior to the issue of the writ. The argument for the defendants was that section 32(1)(b) was concerned with concealment existing at the time when the cause of action arose. The argument was that since the section provided that the limitation period would not “begin to run” until the plaintiff had discovered the concealment, and that since the period had already begun to run in 1981, section 32(1)(b) had no application. The House of Lords, by a majority, held that Section 1 of the Act made clear that the ordinary time limits in Part 1 were subject to extension in accordance with the provisions of part 2, and held that it was not a question of time having begun to run, it was simply that section 32(1)(b) provided for an extended limitation period where there was concealment whenever the concealment took place. The case was of course concerned with a situation in which the concealment had taken place before the expiry of any other period in part 1. But Lord Nicholls addressed the question as to whether concealment post expiry of a limitation period would produce the result that an accrued limitation defence would be lost. Having described the unsatisfactory consequences on which the plaintiff in that case was relying, i.e. that a defendant who did not conceal from the outset but chose to conceal later would gain an undeserved advantage said this at page 152G-H:- “The plaintiffs’ contention avoids this absurdity but it leads to an absurdity of its own. According to this contention, the provision that time “shall not begin to run” is to be taken as literally in the case of subsequent concealment, where time has already started to run in the defendant’s favour, as in the case of initial concealment, where it has not. In both cases the limitation clock will only start ticking when the plaintiff discovers the concealment or could with reasonable diligence have done so. In the case of subsequent concealment the clock is turned back to zero. It is turned back to zero even if the defendant had already acquired a limitation defence before the concealment took place.”[53]That he meant what he said is evident from the way he put the two competing results neither of which he thought parliament could have intended saying at 154A-B “The other argument has Parliament legislating so as to deprive a defendant of a defence of limitation which has accrued before the concealment took place. That also cannot have been the intention of the legislature.” But having explored whether there might not be a middle way he decided that there was not and forced to make a choice took the choice which had the consequence he had described.[54]Lord Keith too addressed the problem in these terms at page 141D-E:
“It is suggested that this construction produces an absurd result, in that a concealment taking place five years and eleven months after accrual of the cause of action could result in an almost indefinite extension of the limitation period. But on the contrary construction a concealment occurring one month, or even one day, after the accrual would afford the plaintiff no protection at all. Perhaps a more cogent argument against the construction is that if it is correct even a concealment taking place more than six years after accrual of the cause of action would bring section 32(1) into play. But that is not a realistic objection, since it is not conceivable that a potential defendant would set out to conceal facts relevant to a cause of action when more than six years had elapsed since its accrual.”
[55]Thus if section 32(1) (b) applies to actions brought by the ARA, even if the concealment on which the ARA can rely was at a time when the 12 year period from the obtaining of the property through unlawful conduct had elapsed, that act of concealment may at the very least arguably give rise to the limitation period only commencing once the concealment is discovered or could have been discovered with reasonable diligence.[56]That leads to the question whether it can be said that section 27A is not a provision to which section 32 applies. The argument, which I accept has force if one were searching for parliamentary intention, is that the statute was given some retrospective effect by section 316(3), and it should be presumed that the 12 year limitation was inserted to limit that retrospectivity. If section 32 applies in the way suggested the retrospectivity may be very great indeed. But in Lord Nicholls speech in Sheldon he recognised that his construction may not have been in accordance with parliament’s intention, but favoured it rather than an alternative also not in accordance with Parliament’s intention.[57]In this instance if one were to hold that section 32 concealment had no application to section 27A that would mean that even deliberate concealment from the ARA within the 12 year period would not extend the period of limitation. That, it seems to me, is very unlikely to have been parliament’s intention. Furthermore, unless section 32 in some respects applies to section 27A, it is difficult to see why, having regard to section 1 of the 1980 Act, section 27A was placed within part 1 at all.[58]Thus I think it arguable that concealment from the ARA during their investigations will lead to the limitation period recommencing once the concealment is discovered or with reasonable diligence could have been discovered.[59]There is also a further point. So far I have been considering deliberate concealment from the ARA once they commenced their investigations which obviously could not occur prior to their coming into existence in 2003. What, however, is the effect of section 316(3), the retrospectivity section, on deliberate acts of concealment which have taken place before the ARA came into existence and which were originally acts of concealment from, in the mortgage fraud context, the lenders? If it is to be assumed (as section 316(3) requires) that Part 5 was in force at times prior to commencement for the purpose of deciding whether or not property was recoverable, that must assume the existence of the ARA with a cause of action to which prima facie the limitation would apply. If that is so, deliberate acts to conceal participation in any unlawful conduct must also be assumed to be acts of concealment from the ARA. In the case of the mortgage frauds alleged in this case it seems to me arguable that the use of false names was a deliberate act of concealment of participation in those mortgage frauds from the ARA. Those acts took place within 12 years from the obtaining of property indeed contemporaneously with the obtaining of the property. That arguably extends the period to 12 years from the date of discovery or the date when with reasonable diligence the concealment could have been discovered.[60]In short it seems to me that it cannot be said, at this interim stage, that limitation will provide a clear answer. It also follows that in considering the question whether the funds for 6 Holland Road were obtained from the proceeds of mortgage fraud, in order to assess the arguability of the ARA’s case, one is entitled to take account of a much greater period of time during which mortgage frauds very likely occurred but the facts relating to which may have been deliberately concealed.

Ashford House

[61]I can deal with this property much more quickly. It was purchased on 8th April 1997 and for this property a mortgage was obtained from Investec Bank (Jersey) Limited in the sum of £450,000. That bank loaned money on the basis that the purchase price of the property was £900,000, and indeed such formal documents as are still in existence record the price as £900,000.[62]There is not available the original application for a loan from the bank but there is available an application for a further loan to be raised on the property dating from December 1997. This document was apparently not drawn to the attention of the judge. But it contained what Mr Fisher, for JS, was bound to accept were false representations. It represented that SS had sources of funds to make repayments from a portfolio of six properties inherited from her father and it then identified the properties. In fact the properties were properties which in four instances had been purchased in false names. In three instances the false names had been used to obtain loans with which to purchase the properties. There was no question of any of them being inherited from SS’ father. It is submitted on behalf of the ARA that it should be inferred that similar falsehoods were made when the original mortgage application was made. There is force at this summary stage in that submission because at the original stage the bank would wish to know how SS was to be able to finance the mortgage of £450,000 and she and JS did not have legitimate income from which she could have done so. The high likelihood is that they would have misrepresented the position to the bank as to income from property to obtain the loan they did.[63]A further point is made in relation to the price paid for Ashford House. The receiver in her report suggested that there was no reason not to accept that £900,000 was the price. But Mr Swift for the ARA suggests that there are reasons for suggesting that £900,000 was a false price. First the client account of JL shows only £500,000 being used in the purchase, £435,051 paid to the previous mortgagees’ solicitors and £121,369 being paid to Mr Bradley [see receiver’s report paras 2.512 to 2.522]. Furthermore in the letter from his accountant to JS dated 5 September 2005 appears the following extraordinary paragraph:- “Purchase of Ashford House This property was purchased for £900,000 of which you state £450,000 was injected by yourselves. The only available proceeds that I have, is in respect of the sale of Durward Mansions totalling £225,000 and the residue of the remortgage of Percy Road, which is some £60,000 available, having paid the deposit on Monument Green. You will note in my schedule that I have treated the purchase of Ashford house as £700,000 which then tallies with the figures you have provided me. I would be grateful if you could confirm that my figures are acceptable or can you please clarify where the other £200,000 came from.”[64]Apart from a willingness simply to record a price of £700,000, the explanation for the source of the funds in excess of those borrowed is it would appear false. Funds could not have been obtained from Percy Road since no funds were obtained on security of Percy Road until 1st August 1997 after the purchase of Ashford House; the flat at Durward House had not been purchased until after the acquisition of Ashford House and was not sold until October 1997.[65]As for formal documents recording the price of £900,000, there is evidence that the persons from whom Ashford House was purchased were business associates of JS and that one of them is currently serving a sentence of imprisonment in Romania for fraud.[66]In my view there is an arguable case that the funds obtained to purchase Ashford House were obtained by fraudulent misrepresentation including fraudulent misrepresentation of the price.[67]Even if the price were £900,000 the evidence from the receiver supports the view that neither JS nor SS had a legitimate source of income from which to fund the balance of the purchase price. The ARA’s case on that basis is as with 6 Holland Road that the source of funds would be income from extensive mortgage fraud. In relation to that argument the judge once again may, as I have already indicated when dealing with 6 Holland Road, have taken too narrow view as to what the ARA had to establish by concentrating in his calculation of possible proceeds only on properties which could be identified as being obtained by mortgage fraud. He, also for the reasons I have already given in relation to 6 Holland Road, wrongly failed to appreciate that it was not possible to say at the summary judgment stage that limitation was an answer to the ARA’s claim.

Conclusion

[68]For the reasons I have given I would allow the appeal and re-impose the interim order on the two properties.

Lord Justice Wall:

[69]I have had the advantage of reading in draft the judgments of both Waller and Moore-Bick LJJ. We are agreed that the appeal should be allowed, and that the interim order on both properties (which I shall, following Waller LJ’s lead, describe, respectively, as “6 Holland Road” and “Ashford House”) should be re-imposed. I add a short judgment of my own largely because we have reached a different conclusion to that reached by the judge, but also because it would seem that we have reached the same conclusion by slightly different routes.[70]In fairness to the judge, it seems plain that he dealt with the matter under some pressure of time. He appears to have read the voluminous papers, heard argument and concluded his extempore judgment all within a working day, sitting until late in the afternoon of 28 November 2006 in order to do so. Furthermore, he did not have the advantage of seeing how the Director of the ARA pleaded her case in the action. In contrast, we have not only had more than a day’s full argument, but we have been able to reserve judgment, and thus consider the case at relatively greater leisure.[71]The application appears to have proceeded both before the judge and before this court on the basis that (adopting Waller LJ’s anonymisation of the Respondents to this appeal) JS has an equal beneficial interest with SS in both 6 Holland Road and Ashford House. What was released by Mitting J from Stanley Burnton J’s order of 26 October 2005 was thus, according to the order under appeal as drafted by counsel, “any interest” that JS held in both properties. Since the former was in joint (albeit false) names and was let; and since the latter was the parties’ matrimonial home in which they were still living, I could not, initially, understand the purpose behind JS’s application. However, Mr Swift, for the appellant, pointed out that in our papers was another application – this time by SS - for the release of a number of properties (including both 6 Holland Road and Ashford House) from the order of 26 October 2005. This application - for which Mr. Swift accepted the designation “pincer movement” - had been adjourned pending the outcome of the current appeal, no doubt with the view (if the appeal was dismissed) of using any ruling made by this court in support of SS’s application.[72]I respectfully agree with Waller LJ’s observation (see paragraph 17 of his judgment) that it would have been far more satisfactory if SS’s application had been heard by the judge at the same time as that made by JS. Furthermore, whilst I can fully understand the argument that the matrimonial home of SS and JS falls to be regarded as belonging, beneficially, to them both equally, I find it somewhat strange (and unexplained) that it was apparently acquired, during the subsistence of the marriage, by SS in her sole and maiden name .[73]I also have some difficulty with the beneficial ownership of 6 Holland Road, since this was acquired by JS and SS in false names and at a time, as I understand the chronology, when JS was the subject of an individual voluntary arrangement with his creditors, whereby he undertook to pay them 50% of any income above £25,000. Not only does the ARA assert that no payments were made under this agreement; there is no evidence before us that JS declared a beneficial half interest in 6 Holland Road, purchased without the assistance of a mortgage, as part of his assets at that time.[74]However, although these considerations add to the miasmatic atmosphere surrounding the acquisition and ownership of both properties, I propose to put them on one side, since they form no part of my thinking in coming to the conclusion that the judge, with all respect to him, was wrong to accede to JS’s application to discharge his interest in both 6 Holland Road and Ashford House from the interim receiving order of 26 October 2005.[75]I propose in this short judgment to concentrate on 6 Holland Road, since I cannot add anything to Waller LJ’s analysis in paragraphs 61 to 67 of his judgment in relation to Ashford House save to say that I fully agree with it.[76]In relation to both properties, the judge accepted the three arguments put to him by Mr Jonathan Fisher QC for JS, which he records in paragraph 19 of his judgment. These were:(1) that no lies were told to the Inland Revenue by JS;(2) that the proposition that the source of the funds to purchase the properties was mortgage fraud was purely speculative; and(3) that any claim in relation to both properties was statute barred.[77]In my judgment (as is now accepted by the ARA) the proposition that no lies were told to the Inland Revenue is irrelevant. On point (2) the judge, in my judgment, is simply wrong. When one examines the facts of the case, and applies Waller LJ’s analysis to them, it is clear to me that the Director’s case is plainly arguable.[78]Critical to the argument, however, is point (3). On this point the judge effectively held that the relevant period of limitation was that laid down in section 27A of the Limitation Act 1980 (the 1980 Act), and that section 27A was not capable, on the facts of this case, of being extended so as to apply to any money or property obtained as a result of mortgage frauds committed before 23 October 2003. This is a conclusion with which I am unable to agree.[79]The reasoning on which the judge’s conclusion on limitation is based appears at paragraph 28 of the judgment, and is in the following terms: - Parliament has provided for a lengthy period is section 27A, although the words of section 27A do not expressly exclude the possibility of extending the normal limitation period under section 32. In my judgment, Parliament did not legislate that in the ordinary case where fraud is the crime, or one of the crimes, alleged to give rise to the obtaining of property, section 32 should be available to extend the limitation period. I do not, in making that observation, preclude the theoretical possibility that fraud, in connection with the proceedings brought by the Director, like deliberate concealment, might lead to an extension. My judgment is confined only to fraud as a criminal conduct which gives rise to the claim for a civil recovery order.[80]In order to test the judge’s reasoning, it is in my judgment necessary to examine section 32 of the 1980 Act, which Waller LJ has set out in paragraph 44 of his judgment. I am in no doubt at all that the section applies. For present purposes, however, I would prefer to express no concluded opinion on the applicability of section 32(1)(a), since the application of this sub-section is not necessary for my conclusion.[81]This leaves section 32(1)(b) which, for ease of reference, I will set out as it applies in the instant case: - ……. where in the case of any action for which a period of limitation is prescribed by this Act….. (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant … the period of limitation shall not begin to run until the plaintiff has discovered the ….. concealment ….. or could with reasonable diligence have discovered it.[82]Although it may be, as I recognise, a somewhat simplistic approach, it seems to me that as a matter of plain statutory construction, the claim by the Director of the ARA in the instant case is clearly “an action for which a period of limitation is prescribed by this Act” within section 32(1)(b) of the 1980 Act. The period of limitation prescribed by the Act is that contained in section 27A. It must therefore follow, both as a matter of statutory construction and as a matter of logic, that section 32(1)(b) is not subsumed in section 27A, but adds something to it. What it adds, in my judgment, is an extension of the period of limitation where section 32(1)(b) applies.[83]Does section 32(1)(b) apply here? In my judgment, it does. In my judgment, if facts relevant to the ARA’s right of action in relation to both 6 Holland Road and Ashford House have been deliberately concealed from the ARA by JS, section 32(1)(b) establishes that the limitation period does not begin to run against the ARA until it has discovered the concealment or could with reasonable diligence have discovered it.[84]In my judgment, this construction of the section 32(1)(b) makes sense. Were it otherwise, the defendant to an action brought by the ARA under Part 5 of POCA could conceal facts relevant to the ARA’s right of action for an indefinite period and then, when the facts were timeously discovered by the ARA, rely on section 27A to assert that it was too late for the ARA to do anything about it. Such a result, in my judgment, is not consistent with the intention of Parliament when enacting Part 5 of POCA.[85]I have less difficulty than Moore-Bick LJ in reaching the conclusion that JS has concealed from ARA the source of the funds used to buy 6 Holland Road. In so far as he has provided an explanation for the funds used in the purchase, it is either demonstrably false (see the schedule attached to the accountant’s letter of 5 September 2005) or inconsistent (see paragraph 67 of the statement 23 June 2006) in the manner which Waller LJ has described at paragraphs 38 to 40 of his judgment. There is also the fact that the property was acquired in false names (Mr and Mrs Martin). It is, furthermore, in my judgment, plainly arguable that 6 Holland Road was purchased with the rents and profits from other properties which were themselves purchased by means of mortgage fraud.[86]For all these reasons, the claim by the ARA in relation to 6 Holland Road is not, in my judgment, statute barred.[87]I test these propositions by going to the Particulars of Claim filed by the Director of the ARA. As Waller LJ has pointed out, and as I have already stated, it is the case that the Particulars of Claim in the action, which run to some 90 pages, are dated 4 April 2007, and thus were not before the judge when he heard the application on 28 November 2006. However, they do not contain anything which could be said to take JS or SS by surprise. Indeed, they appear in our papers as part of the Respondent’s bundle of documents. The Particulars of Claim, moreover, follow and adopt the findings made in the “recoverable property report” dated 18 August 2006 by Sarah Dayman, the receiver appointed pursuant to the interim receiving order made by Stanley Burnton J on 26 October 2005.[88]The only material difference between the report and the Particulars of Claim is that the latter abandon any reliance by the ARA on concealment of material facts from the Inland Revenue. The salient part of the pleading relating to 6 Holland Road is at paragraphs 20.1 to 20.10 of the Particulars of Claim. These paragraphs set out the facts identified by Waller LJ (including the false and inconsistent evidence relating to the acquisition of the property). I need not, accordingly, repeat those parts of the pleading. The essential allegations, for present purposes, are contained in paragraphs 20.4 to 20.6, 20.9 and 20.10 of the pleading. They read as follows: - 20.4 The receiver has not been able to identify the source of funds paid to the solicitors acting for ‘Mr and Mrs Martin’ in the purchase, other than that the £9,150 deposit was paid by cheque and the £176,498.47 balance was received from the client. The Director contents that in this case (absent any truthful information from (JS)) there is no sensible explanation for the source of funds used in the acquisition of 6 Holland Road other than that they were derived from the proceeds of mortgage fraud on other properties owned by (JS and / or SS) or one or more other offences involving dishonesty. 20.5 In his witness statement dated 23rd June 2006, (JS) states (at paragraph 67) that this property “was acquired in about 1993 and was purchased for about £180,000. The funds to buy this property were as a result of a sale of a previous property and represented the equity in that sale”. The Director requests pursuant to CPR 18.1 that (JS) serves, within 14 days of the receipt of this pleading, full details of the previous property sale referred to, identifying the property, the date of acquisition, the identity in which the property was registered, the date of sale and the amount of the proceeds of sale. 20.6 The Director will rely on the instances of mortgage fraud set out at paragraph 3-12 in support of her contention that the most likely source of these funds was earlier instances of mortgage fraud or other dishonesty. Until disclosure the Agency is not able to identify all the properties which (JS and SS) acquired using false names in the period ending with the purchase of 6 Holland Road……. 20.9 Further, the property at 6 Holland Road has been let to tenants and the rents paid are profits accruing from the property and therefore recoverable which may be traced into other property obtained with or representing such rental income. The Director claims that an account should be taken of all rent and other profits accruing from the property as set out at paragraph 10.6 above. 20.10 The Director will rely at the trial on the evidence set out at pages 175 and 178 of the Recoverable Property Report of the interim receiver dated 18th August 2006.[89]JS has until September 2007 to file a defence to the action, and there was no evidence before us of any response to the request made in paragraph 20.5 of the Particulars of Claim. In my judgment, on the facts both as contained in the report of the interim receiver and as pleaded in the Particulars of Claim, and in the absence of any plausible explanation by JS or SS as to the source of the funds used to purchase 6 Holland Road, it is clearly arguable that the money to acquire that property was derived (in whole or in part) from the rents / profits obtained from other properties purchased earlier by means of mortgage fraud. Since the ARA was only in a position to discover the true source of the funds to purchase 6 Holland Road when the interim receiver provided her report, it follows, if section 32(1)(b) of the 1980 Act applies, that ARA’s claim against 6 Holland Road is not Statute barred.[90]The judge found that the Director had “unearthed extensive and plausible evidence of multiple applications for advances” (paragraph 4 of his judgment) and clear evidence of offences against the Theft Act. Although he records the ARA’s argument about rental income, and whilst he expresses his belief that JS and SS “would not have had sufficient legitimate funds” to acquire 6 Holland Road, the judge does address the ARA’s rental / tracing argument, save to comment, as I have already related, that “the proposition that the source of the funds was mortgage fraud was purely speculative”. As I have already made clear, that is not a proposition which, on the evidence placed before us, I am able to accept.[91]Mr Fisher made the point that JS was under no statutory obligation to explain the circumstances in which he and SS acquired 6 Holland Road. As a matter of law, that may be correct. I also accept that JS was entitled to apply to the court to discharge the interim receiving order in relation to 6 Holland Road by arguing that, as a matter of law, the ARA’s claim against him in relation to that property was statute barred. That, however, strikes me as a high risk strategy. If, as has occurred in this court, he fails, all that the court is left with – absent any plausible explanation from him or from SS – is that fact that the Director has an arguable case. That, after all, is the only test we have to apply at this stage.[92]Thus the absence of a credible explanation from either JS or SS leaves nothing to weigh in the scales in JS’s favour if, as a matter of discretion as opposed to a matter of law, the court is asked to discharge the interim receiving order in relation to 6 Holland Road.[93]For these reasons, which, I think, largely adopt and supplement those given by Waller LJ, I would allow this appeal in relation to both properties.

Lord Justice Moore-Bick :

[94]The circumstances which have given rise to this appeal and the relevant provisions of the Proceeds of Crime Act 2002 (“the Act”) and the Limitation Act 1980 are set out in the judgment of Waller L.J. which I gratefully adopt and need not repeat. I agree that the appeal should be allowed, but because we are differing from the learned judge, and because my views on the operation of section 32 of the Limitation Act 1980 differ in some minor respects from those of Waller and Wall L.JJ., I propose to give my reasons in my own words.[95]The appeal concerns two properties, 6 Holland Road, London and Ashford House, Weybridge, which are currently the subject of an interim receiving order made by Stanley Burnton J under section 246 of the Act on 26th October 2005. The registered owners of 6 Holland Road are John Martin and Susan Martin, those being names assumed by the first respondent, Mr John Szepietowski, and his wife, Mrs Susan Szepietowski for the purpose. On the face of it, therefore, Mr Szepietowski owns a half share in the property. The registered owner of Ashford House is Susan Anne Seery, that being the maiden name of Mrs Szepietowski. Mr Szepietowski says that he has a half interest in that property as well, but there is little or no evidence of that, other than his own assertion.[96]Section 246 of the Act provides that the court may make such an order on the application of the relevant enforcement authority (in this case the Director of the Assets Recovery Agency) if it is satisfied that there is a good arguable case that the property is or includes recoverable property. By virtue of sections 304 and 241 property obtained through conduct which is unlawful under the criminal law of any part of the United Kingdom in which it takes place is recoverable property. Moreover, by section 305, where property obtained through unlawful conduct is or has been recoverable, property which represents that original property is also recoverable.[97]In her interim report the receiver, Miss Dayman, identified 33 properties which she concluded had been acquired by Mr. and Mrs. Szepietowski in assumed names between 1991 and 2005 by means of fraud practised on various banks and building societies. In my view her report and its supporting documents are sufficient in the absence of persuasive evidence to the contrary, to give rise to a good arguable case that those properties were acquired by fraud on the part of Mr and Mrs Szepietowski. That, as I understand it, is not really in dispute. What is in issue is whether the evidence before the court is sufficient to establish a good arguable case that the two properties to which the appeal relates are recoverable property and, if they are, whether the Director’s cause of action is barred by operation of the Limitation Act 1980.[98]Before turning to consider the evidence in relation to each property it is necessary to say something about nature of the Director’s cause of action. Section 242 of the Act provides that a person obtains property through unlawful conduct if he obtains property by or in return for such conduct. By virtue of subsection (2) it is sufficient for the Director to show that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful. It is sufficient, therefore, to establish, for example, that the property was obtained either by fraud or by simple theft without having to show that one was more likely than the other. However, that does not by itself tell one whether the Director must establish that the property was obtained by the commission of a specific offence or by the commission of one or other of a number of specific offences.[99]In R (Director of Assets Recovery Agency) v Green [2005] EWHC 3168 (Admin) (unreported) the court was asked to determine a preliminary issue of law in the following terms:
“Whether a claim for civil recovery can be determined on the basis of conduct in relation to property without the identification of any particular unlawful conduct, this first question to include whether the claimant can sustain a case for civil recovery in circumstances where a respondent has no identifiable lawful income to warrant the lifestyle and purchases of that respondent.”
[100]Although I do not think that the issue was as clearly framed as it might have been, I think there is little doubt that it was intended to raise the question to which I have just referred. The Director argued that she did not have to identify or prove any specific acts of unlawful conduct, but could simply invite the court, in the absence of a satisfactory explanation from the respondent as to how the property in question had been obtained, to infer that it had been obtained through some unidentified unlawful conduct. In paragraph 17 of his judgment Sullivan J. accepted that Director need not allege the commission of a specific criminal offence or offences and continued:
“ . . . . but it does not follow that the Director is not under any obligation to describe the conduct which is alleged to have occurred in such terms as will enable the court to reach a conclusion as to whether that conduct so described is properly described as unlawful conduct. For the purposes of sections 240 and 241(1) and (2) a description of the conduct in relatively general terms should suffice, “importing and supplying controlled drugs”, “trafficking women for the purpose of prostitution”, “brothel keeping”, “money laundering” are all examples of conduct which, if it occurs in the United Kingdom is unlawful under the criminal law”
[101]Later, in paragraph 19 he said:
“ . . . . . it is plain that Parliament envisaged that in civil recovery proceedings the Director would identify the matters alleged to constitute unlawful conduct in sufficient detail to enable the court, not to decide whether a particular crime had been committed by a particular individual, but to decide whether the conduct so described was unlawful under the criminal law of the United Kingdom . . . . . ”
[102]This and much of what is contained in the following paragraphs of his judgment is directed in part to what the Director must set out in her pleadings. The judge made the point that in ordinary civil proceedings fraud and illegality must be specifically pleaded with reasonable particularity and went on to express the view in paragraph 25 that it would be surprising if a claimant in civil proceedings who had to allege criminal conduct as a necessary part of his claim was not required to give the respondent and the court at least some particulars of what that conduct was said to be. He concluded that Parliament had deliberately steered a careful course between requiring the Director to prove the commission of a specific criminal offence or offences by a particular individual or individuals and allowing her to make wholly unparticularised allegations of “unlawful conduct” of the kind that would require a respondent to justify his lifestyle. I agree. It seems to me that it is essential if there is to be a fair trial that the respondent should know the case against him in sufficient detail to enable him to prepare properly to meet it.

The judge answered the questions raised by the issue as follows in paragraph 47:

“1. In civil proceedings for recovery under Part 5 of the Act the Director need not allege the commission of any specific criminal offence but must set out the matters that are alleged to constitute the particular kind or kinds of unlawful conduct by or in return for which the property was obtained. 2. A claim for civil recovery cannot be sustained solely upon the basis that a respondent has no identifiable lawful income to warrant his lifestyle.”
[104]At the request of counsel he later clarified his first answer as follows:
“50. Mr Crow invited me to make it clear that my first answer to the preliminary question meant that the Director need neither allege nor prove the commission of any specific criminal offence, and that she must not merely set out the matters that are alleged to constitute the particular kind or kinds of unlawful conduct, but that she must prove that, on the balance of probabilities, the property was obtained by or in return for a particular kind or one of a number of kinds of unlawful conduct. 51. For avoidance of doubt I confirm that is a correct understanding of my first answer to the preliminary issue.”
[105]As can be seem from the passages in the judgment to which I have referred, the judge directed himself partly to what the Director must set out in her pleadings and partly to what she must prove at trial to make good her claim. In principle these should not differ significantly, but in the context of the present case I think it is particularly important to keep in mind the distinction between what must be proved in order to succeed at trial and what evidence is sufficient to establish a good arguable case for the purpose of an interim receiving order. Since the present case concerns an interim receiving order we are concerned with what must be proved at trial only to the extent that it provides the yardstick by reference to which one must decide whether the evidence discloses a good arguable case.[106]As Waller L.J. has observed, neither party took issue with the conclusions reached by Sullivan J in R (Director of Assets Recovery Agency) v Green, but in my view that should not deter us from considering them with a critical eye. When deciding what the Director must prove it important to bear in mind that the right to recover property does not depend on the commission of unlawful conduct by the current holder. All that is required is that the property itself be tainted because it, or other property which it represents, was obtained by unlawful conduct. Section 304 allows property to be followed into different hands and although section 308(1) of the Act protects a bona fide purchaser for value without notice, it is not difficult to think of circumstances in which property might be recoverable from someone who is himself entirely innocent. It is important, therefore, that the Director should be required to establish clearly that the property which she seeks to recover, or other property which it represents, was indeed obtained by unlawful conduct.[107]In order to do that it is sufficient, in my view, for the Director to prove that a criminal offence was committed, even if it is impossible to identify precisely when or by whom or in what circumstances, and that the property was obtained by or in return for it. In my view Sullivan J. was right, therefore, to hold that in order to succeed the Director need not prove the commission of any specific criminal offence, in the sense of proving that a particular person committed a particular offence on a particular occasion. Nonetheless, I think it is necessary for her to prove that specific property was obtained by or in return for a criminal offence of an identifiable kind (robbery, theft, fraud or whatever) or, if she relies on section 242(2), by or in return for one or other of a number of offences of an identifiable kind. If, as I think, that is what the judge meant in paragraph 50 of his judgment, I respectfully agree with him.[108]With that introduction I can turn to consider the position in relation to each of the properties in issue on the appeal. 6 Holland Road[109]We have the advantage, which the judge did not, of seeing the Director’s particulars of claim and so we are able to see rather more clearly how she puts her case. In paragraph 20 she makes the following allegations (among others) in relation to 6 Holland Road: i) that the property was purchased by Mr. and Mrs. Szepietowski in May 1994 in the names of John and Susan Martin at a price of £183,000; ii) that no funds were obtained by way of mortgage advance; iii) that Mr. and Mrs. Szepietowski derived their income entirely from renting other properties; iv) that, having regard to the other instances of mortgage fraud alleged to have been committed by Mr. and Mrs. Szepietowski (as set out earlier in the particulars of claim), there is no sensible explanation for the source of the funds used to acquire the property other than that [i.e. it is to be inferred that] they were derived from the proceeds of mortgage fraud relating to other properties, or one or more other offences involving dishonesty.[110]The evidence on which the Director relied before the judge was mainly contained in the receiver’s report. She had been unable to identify the source of the funds used for the purchase of 6 Holland Road as a result of the passage of time and the absence of documentation. She had been able to ascertain, however, that Mr. Szepietowski had apparently given his accountant information about their source which was demonstrably untrue. She had also ascertained that Mr. and Mrs. Szepietowski had been involved in the purchase of several properties on mortgage in assumed names and in circumstances suggestive of fraud and that their combined income for the years covered by the receiving order (1991-2003) amounted to only £76,802.50. On the basis of that evidence the Director submitted that there was a strong inference that the funds used to purchase 6 Holland Road had been obtained through mortgage fraud. The judge was not persuaded by that argument. He accepted the submission of Mr. Fisher Q.C. that the inference he was being invited to draw was nothing more than speculation.[111]For the purposes of disposing of the application before him the judge only had to decide whether the Director had a good arguable case, not whether she would ultimately succeed at trial or even whether it was more likely than not that she would do so. The expression “good arguable case” is found in many different contexts; as Waller L.J. observed in another context in Canada Trust v Stolzenberg [1998] 1 W.L.R. 545, it is a flexible test and one that is susceptible of various shades of meaning. In the context of applications for freezing orders and interim relief of a similar kind it clearly requires something more than a case capable of being taken seriously, but not necessarily much more and does not mean a case which, on the evidence before the court, is more likely to succeed than to fail. In cases such as the present, where the claim is based on allegations of fraud or other serious impropriety, it is sufficient in my view for the applicant to show that there is a good prospect of succeeding at trial. A case which is merely speculative, however, will obviously not do.[112]In my view the judge was wrong to regard the Director’s case as merely speculative. He appears to have taken that view because he confined himself to looking at the consequences of the various mortgage frauds, of which the Director had positive evidence in the shape of the receiver’s report, and the rental income derived from the properties purchased by the respondents by means of those frauds, while failing to take account of the broader picture. In addition to the evidence that strongly suggested that Mr. and Mrs. Szepietowski had been involved in several mortgage frauds, there was the evidence that their legitimate income fell far short of what was required to pay for the property, that in addition they were enjoying an extravagant lifestyle, that Mr. Szepietowski had lied to his accountant about the source of at least part of the funds and that neither of them had explained satisfactorily where the money needed to finance the purchase had come from. All Mr. Szepietowski had said about that was that it had been obtained from the sale of a previous (unidentified) property. In my view the evidence, taken as a whole, is sufficient to support a strong inference that the funds used to buy 6 Holland Road had been obtained by unlawful conduct of some kind, probably, though not necessarily, one or more other mortgage frauds committed by Mr. and Mrs. Szepietowski. That was sufficient in my view to give rise to a good arguable case that the funds used to finance the purchase had been obtained by unlawful conduct. Whether it would be sufficient for the Director to plead her case in those terms and whether the evidence currently before the court will be sufficient on its own to establish her case at trial are not matters which arise on the present application. I am satisfied, therefore, that the evidence is sufficient to establish a good arguable case that 6 Holland Road is recoverable property within the meaning of section 301(1) of the Act. Limitation[113]This brings me to the question of limitation. Before the judge Mr. Fisher submitted that in the exercise of its discretion the court should set aside the order in relation to both 6 Holland Road and Ashford House because the Director’s claim in respect of each of those properties was statute-barred. This issue arose for the first time at the hearing and the judge therefore had less time to consider it than he might have wished. He was aware that the mortgage frauds identified by the receiver had all been committed before 23rd October 1993 and that there was no positive evidence that any frauds had been committed after that date. In the light of that evidence he found it impossible to identify any significant part of the purchase price that had been obtained by frauds committed after that date and accordingly he held that the 12 year limitation period applicable to such claims under section 27A of the Limitation Act 1980 had expired by the time the Director made her application (that being the date on which proceedings are deemed to have been commenced). He also held that section 32 of the Limitation Act has no application to the limitation period provided by section 27A, even in cases where the very crime on which the Director bases her claim involves fraud, and that accordingly her claim to recover the two properties was statute-barred.[114]Perhaps the first point to mention in this context is that it is for a defendant to plead and prove a limitation defence. On an application of this kind, therefore, the burden was on Mr. Szepietowski to persuade the court that a limitation defence had such good prospects of success that it fatally undermined the Director’s case. Anything less would simply mean that the issue would have to be resolved at trial.[115]In the present case 6 Holland Road was purchased in May 1994, comfortably within the 12 year limitation period. If one starts from the position that the director has a good arguable case that it was acquired with funds obtained by unlawful conduct at some unidentified time, it is necessary in order for Mr. Szepietowski to succeed in a limitation defence for him to show that those funds were obtained prior to 23rd October 1993. That he cannot do. In his witness statement he says that the funds came from the sale of a previous property, but since he does not identify that property or the date of the sale, that does not take him very far. If the Director had identified the unlawful conduct on which she relies with greater particularity, it might have been possible for him to argue that the funds were obtained before 23rd October 1993, but she has not yet done so and it is therefore impossible for him at this stage to show that on her own case the claim is statute-barred. Accordingly, as Waller L.J. has pointed out, Mr. Szepietowski cannot establish the facts necessary to enable him to rely on the Limitation Act.[116]That makes it unnecessary to decide whether in this case section 32 operates to extend the limitation period set out in section 27A, a question which in my view would in any event be better determined at trial in the light of whatever findings of fact are then made. However, since the matter was the subject of argument it may be of assistance to the parties for me to say something about it.[117]Section 1 of the Limitation Act 1980 is of general application; it provides that the time limits set out in Part I are ordinary time limits which are subject to extension or exclusion in accordance with the provisions of Part II. No exception is made for section 27A which is contained in Part I. Likewise, the opening words of section 32(1) itself are of general application, subject only to the provisions of subsections (3) and (4A). Subsection (4A) specifically excludes subsection 11A(3), which provides an overriding 10 year limitation period for actions for damages brought by virtue of any provision of Part I of the Consumer Protection Act 1987, from the operation of section 32(1), but there is no comparable exclusion of section 27A. In the light of those provisions I think that the provisions of section 32 were intended to apply to the time limit prescribed in that section where the facts are such as to bring the case within them. I have reached the clear view, therefore, that Mitting J. was wrong to hold that section 32 has no application to the limitation period prescribed by section 27A.[118]How section 32 operates, if at all, in the circumstances of this case is more difficult and such views as I have formed on that question so far should be taken as no more than provisional. Mr. Swift submitted that the Director’s claim in this case is “based on the fraud of the defendant” within the meaning of section 32(1)(a). Whether a claim is of that kind depends not on what the pleader has chosen to allege, but on the nature of the cause of action itself: see Beaman v A.R.T.S. Ltd [1949] 1 K.B. 550, in which a claim in conversion was held not to be claim based on fraud, despite the fact that the pleader had alleged that the conversion had been committed “fraudulently”. The Director has a statutory cause of action to recover property obtained by unlawful (i.e. criminal) conduct. Fraud is not an essential ingredient of unlawful conduct, but nor is anything else, other than criminality. In the light of that Mr. Fisher submitted that the Director’s claim is not “based on fraud” because fraud is not a necessary element of the cause of action.[119]Although I see the force of that argument, I do not find it altogether persuasive. Section 32 is directed to the essential nature of the claim and naturally invites attention to the particular cause of action on which it is based. That does not give rise to too much difficulty in the case of recognised causes of action at common law or in equity: either proof of fraud is required or it is not. The Director’s statutory cause of action, however, is so broadly defined that in some cases it will be essential for her to prove fraud and in others it will be unnecessary and irrelevant. Moreover, as Waller L.J. has pointed out, many criminal activities involve multiple offences and in some cases the Director may be able to identify two or more unrelated offences, by one or other of which the property in question was obtained, and so will seek to rely on the provisions of section 242(2)(b). If a claimant has concurrent causes of action, he can choose which to pursue and if one of them is a cause of action for deceit, he can sue on it and claim the benefit of section 32, if the facts entitle him to do so. I incline to the view that, if and insofar as the Director’s claim is based on a specific allegation of fraud on the part of the respondent or any person through whom he claims, her claim is based on fraud and that in those circumstances she is entitled to the benefit of the extended limitation period for which section 32(1) provides, if she can otherwise bring herself within the section.[120]I do not think that should cause any surprise. Fraud by its very nature conceals its own wrongdoing and may not come to light until a considerable time after the event. I have little doubt that section 32(1) was primarily intended to cover the case where the defendant himself has defrauded the claimant, but it is not limited to that situation, as the final sentence shows. Moreover, the language of subsection (1)(a) is quite broad and capable of extending to any case in which the claimant sues on a cause of action of which fraud is an essential ingredient. If, in the course of her investigations, the Director discovers that a fraud has been committed more than 12 years earlier and has since remained undetected, the truth has in the meantime remained hidden from her as well as the original victim. I can see no reason in principle or policy why in those circumstances time should not begin to run against the Director from the date of her discovery of the fraud. It is true that that would involve an extension to what is already a long limitation period, but section 32 does not distinguish between the different limitation periods provided for in Part I.[121]I can see even less reason to think that subsection (1)(b) does not apply to a claim under section 27A. If the respondent deliberately conceals from the Director a fact relevant to her right of action it is consistent with the principle underlying this subsection that time should not begin to run until the concealment has been, or could with reasonable diligence have been, discovered. This ground of extension only operates where “any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant” – in other words where a defendant who knows he has committed a wrongful act has deliberately taken some step to conceal the fact from the claimant: see Cave v Robinson Jarvis & Rolfe [2003] 1 A.C. 384, per Lord Scott at page 403. By subsection (2) a deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty. Obtaining a loan by fraud would normally fall into that category, but fraud is already covered by subsection (1)(a). However, if, as Waller L.J. suggests, the Director is unable to take advantage of section 32(1)(a), I can see quite a strong argument for saying that she may be able to bring herself within the scope of this subsection.[122]However, even then I do not think the position is entirely straightforward. For example, I am doubtful whether by giving false information to his accountant Mr. Szepietowski can be said to have been deliberately concealing facts from the Director, although it might be said that it was part of a course of conduct intended to conceal the truth from the world at large and thereby also from the her. It is true that Mr. Szepietowski has failed to identify the property which he says was sold to produce the funds used to purchase 6 Holland Road and that in doing so he might in one sense be said to be concealing their source, but I doubt whether a failure to volunteer information which one is under no legal duty to disclose can amount to deliberate concealment for these purposes. Failure to include properties currently held in a statement of assets served pursuant to an order of the court would, I think, amount to deliberate concealment, but, although the Director has a good arguable case that there were other mortgage frauds, it is not clear at the moment that the properties in question were held by Mr. Szepietowski at the time his statement of assets was served. Indeed, to the extent that the court is asked to draw the inference that the equity in those properties provided the funds used to purchase 6 Holland Road, the inference must also be that they were sold in order to release the funds. Such questions will need to be resolved before any firm conclusion can be reached on the application of section 32(1)(b).[123]I should perhaps add, for what it is worth, that I incline to the view that action taken before the creation of the Assets Recoveries Agency to conceal unlawful conduct from the world at large which does in fact have the effect of concealing its existence from the Director falls within section 32(1)(b), so that once she has discovered the concealment the Director can take advantage of the extension of the limitation period. I do so, not because I think that section 316(3) requires one to assume the existence of the Agency itself before its creation (the subsection deals only with recoverability, which is determined by the circumstances in which property was obtained – see section 304), but simply because I think that there is a strong argument that such action is intended to conceal the truth from anyone who might be interested in discovering it and continues to have that effect in relation to the Director until she discovers the true position.[124]However, all that is beside the point. Whether or not Mr. Szepietowski took deliberate action to conceal from the Director the existence of the frauds which, it is to be inferred, he had been engaged in, I have reached the conclusion for the reasons given earlier that the prospects of his being able to rely on a limitation defence at trial are not sufficient to undermine the Director’s case that she is entitled to recover 6 Holland Road. Ashford House[125]In paragraph 24 of the particulars of claim the Director makes the following (among other) allegations in relation to Ashford House: i) that the property was purchased by Mr. and Mrs. Szepietowski in April 1997 from two business associates, one of whom is of doubtful honesty, the purchase price shown on the transfer being £900,000; ii) that the property was conveyed into the sole name of Susan Ann Seery; iii) that of the total purchase price (whatever that may have been) £435,051 was provided by way of a loan from a bank secured by a charge on the property; iv) that Mrs. Szepietowski obtained the loan by falsely representing to the bank that the purchase price was £900,000, that she was providing a 50% deposit and that she had inherited a portfolio of properties which provided a stream of rental income of £19,785 a month.[126]These allegations also reflect and are supported by findings of the receiver. Moreover, there is evidence in the form of a document created by the bank, albeit only in 1999 when Mrs. Szepietowski was applying for an additional loan, which suggests that she had knowingly made false representations to the bank in connection with negotiations for the original loan. Mr. Fisher submitted that that document would not bear the weight that Mr. Swift sought to put upon it because it should properly be read as relating to the negotiations for the additional loan, but that is a matter for trial. It may be that in due course Mrs. Szepietowski will be able to provide a satisfactory explanation for that document, but she has not done so as yet and in my view it is sufficient to give rise to a good arguable case that the funds were obtained by a fraud on the bank. No question of limitation arises in relation to this property.[127]For these reasons I agree that the appeal should be allowed and that the order of Stanley Burnton J relating to these two properties should be restored.

Cited in 14 later judgments

and 5 more of the most senior