Director of Assets Recovery Agency & Ors, R (on the application of) v Green & Ors [2005] EWHC 3168 (Admin)

Case No CO/2530/03[2005] EWHC 3168 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Venue Royal Courts of JusticeDate Friday, 16th December 2005
Strand
London WC2
B E F O R E:
MR JUSTICE SULLIVAN
Between
THE QUEEN ON THE APPLICATION OF THE DIRECTOR OF ASSETS RECOVERY AGENCY AND OTHERSClaimant-v-
Between
JEFFREY DAVID GREEN AND OTHERSDefendant
Computer-Aided Transcript of the Stenograph Notes ofSmith Bernal Wordwave Limited190 Fleet Street London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838(Official Shorthand Writers to the Court)
MR J CROW, MR N COX AND MR R COLBY (instructed by the Treasury Solicitor) appeared for Claimant.MR J KITSON appeared for 10th DefendantMR J KROLICK appeared for 6th Defendant.MR D LEWIS appeared for 13th Defendant.MR B DOUGLAS-JONES appeared for 18th Defendant.
J U D G M E N T
[1]MR JUSTICE SULLIVAN: This is the determination of a preliminary issue in proceedings for civil recovery brought by the Director of the Assets Recovery Agency ("the Director") under Part 5 of the Proceeds of Crime Act 2002 ("the Act") against the respondents. The preliminary issue was ordered to be tried by McCombe J and its terms are set out in his order dated 20th July 2005 as follows:
"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."
The Director submits that the answer to both limbs of the question posed in the preliminary issue is in the affirmative. She does not have to identify or prove any specific acts of unlawful conduct, and may simply invite the court to infer that the property in question was obtained through some unidentified unlawful conduct in the absence of a satisfactory explanation from the respondent as to how the property was obtained. The parties are agreed that the issue is one of statutory construction and that there is no need to consider the complex facts of the Director's case against the respondents. The legislative context.[2]It is common ground that the relevant enactments must be considered in the context of the Act as a whole and that the Act as a whole must be considered in its historical context. In R (Quintaville) v Secretary of State for Health [2003] 2 AC 687 (2003) UKHL 13, a case concerned with the interpretation of the Human Fertilisation and Embryology Act 1990, Lord Bingham said:
"8. The basic task of the court is to ascertain and give effect to the true meaning of what Parliament has said in the enactment to be construed. But that is not to say that attention should be confined and a literal interpretation given to the particular provisions which give rise to difficulty. Such an approach not only encourages immense prolixity in drafting, since the draftsman will feel obliged to provide expressly for every contingency which may possibly arise. It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment."
In paragraph 21 of his speech Lord Steyn said:
"21. The adoption of a purposive approach to construction of statutes generally, and the 1990 Act in particular, is amply justified on wider grounds. In Cabell v Markham (1945) 148 F 2d 737,739 learned Hand J explained the merits of a purposive interpretation: 'Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract, or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.' The pendulum has swung towards purposive methods of construction. This change was not initiated by the teleological approach of European Community jurisprudence, and the influence of European legal culture generally, but it has been accelerated by European ideas: see, however, a classic early statement of the purposive approach by Lord Blackburn in River Wear Comrs v Adamson (1877) 2 App Cas 743, 763. In any event, nowadays the shift towards purposive interpretation is not in doubt. The qualification is that the degree of liberality permitted is influenced by the context, eg social welfare legislation and tax statutes may have to be approached somewhat differently."
[3]The Act forms part of a government initiative to tackle increasing crime across the United Kingdom. In his submissions on behalf of the Director, Mr Crow relied upon the following publications in order to identify the particular legislative purposes of the Act and the mischief to which Part 5 of the Act is addressed.(1) The Working Group on Confiscation, Third Report: Criminal Assets published by the Home Office Organised and International Crime Directorate with a foreword by the Home Secretary in November 1998.(2) Recovering the Proceeds of Crime - a policy and innovation unit (PIU) report published in June 2000 with a foreword by the Prime Minister.(3) Criminal Justice: The Way Ahead Cmnd 5074 presented to Parliament by the Home Secretary in February 2001.(4) Proceeds of Crime Bill -- Draft Clauses, Cmnd 506, published with a foreword by the Home Secretary in March 2001.[4]Mr Crow submitted that four relevant points emerge from this pre-statutory material.(1) The previous regime for confiscation and forfeiture was proving to be inadequate because successful and sophisticated criminals were extremely difficult to convict and extremely good at distancing themselves from the coal face of crime and in disguising the proceeds of crime. Hence the need for civil recovery proceedings to make it easier for the state to ensure that crime did not, and was seen not to, pay.(2) The existing powers of confiscation and forfeiture were tied to limited kinds of offences (for example drug trafficking), whereas in reality professional criminals were likely to be engaged in a range of different kinds of criminal activity which might vary over time. It was therefore likely that it would be difficult to establish what property had been derived from which crime or crimes. Accordingly, there was a need for civil recovery to embrace all crimes without discrimination.(3) The purpose of civil recovery proceedings is to recover property which represents the proceeds of crime, not to prove particular criminal guilt in relation to particular acts against particular individuals.(4) In order to ensure that a civil recovery scheme was proportionate it would be necessary to incorporate a number of safeguards, thus, for example, the onus of establishing unlawful conduct to the civil standard of proof should rest upon the Director. The respondents should be entitled to public funding and to compensation in certain circumstances if the court eventually decides that the property sought by the Director is not recoverable. In addition, civil recovery should not be seen as the soft option in place of criminal proceedings.[5]It is unnecessary to cite lengthy passages from these four documents because there is no real dispute as to the legislative purpose of the Act, the mischief to which Part 5 was directed, or the context in which it was enacted. Although the terminology varies, all four documents recognise that "a careful balance has to be struck between the civil rights of the individual and the need to ensure that the State has the tools to protect society by tackling crime effectively": see for example paragraph 5.3 of the PIU report.[6]This preliminary issue is concerned with the detailed manner in which Parliament struck that balance. Mr Crow fairly acknowledged that there was no direct support in the pre-legislative material for his submission that the Director could simply allege that property had been obtained through "unlawful conduct" and was under no obligation to establish any particular kind or kinds of unlawful conduct. I would also sound a note of caution in respect of the three documents which precede the draft clauses. I do not suggest that they are inadmissible for the purpose of establishing the historical context, but the earliest document predates the enactment of the Act on 24th July 2002 by some years, and it is plain that the details of the legislation were continuously evolving: see for example the final sentence of the Home Secretary's foreword to the draft clauses, which states that account will be taken of comments received before finalising the Bill for introduction to Parliament, and paragraph 5.32, which stated that "the clauses reproduced here are still under development and therefore subject to a continuing process of refinement." The remainder of paragraph 5.32 and paragraph 5.33 of the clauses identified a number of matters which were still under consideration at that late stage. See also the final sentence of paragraph 5.25 for a further example of this process of refinement.[7]What matters is Parliament's intention, not the government's intention, but even insofar as the latter is concerned, the draft clauses, since they are the most recent expression of the government's view prior to the introduction of the Bill into Parliament, and deal with each clause individually (by comparison with the broader statements of policy in the earlier documents), are likely to be of greatest assistance.[8]The explanatory notes to clauses 241.(3) and (4) and 241(6)(b) are in these terms:
"5. Clause 2.41(3) and (4) makes the point that the High Court must decide whether any relevant 'unlawful conduct' has taken place to the civil standard of proof (a balance of probabilities) and not the criminal standard (beyond reasonable doubt). This applies to all the components of 'unlawful conduct' -- events, actions, and any mental states. Civil rules of evidence will apply, and it is not to matter, for example, that the person who carried out the conduct might be untraceable, or have died, or have been acquitted on a criminal trial relating to the 'unlawful conduct'. The court in a civil recovery action, in other words, is not concerned to establish criminal guilt. It is concerned with 'unlawful conduct' solely for the purpose of identifying property with a sufficient relationship to that conduct to render it recoverable. 8. Clause 241(6(b) ensures that it will not be necessary for the Director to show that property was obtained through a particular kind of unlawful conduct, so long as he can show it was obtained through unlawful conduct of one kind or another. So it will not matter, for example, that it cannot be established that certain funds are attributable to a person's drug dealing, as opposed to his money laundering or brothel keeping activities, if it can be shown that they were attributable to one or other of these in the alternative, or perhaps some combination."
(emphasis as in the original)[9]The respondents (for simplicity I will not attribute any particular submission to any one of the advocates who appeared on behalf of the 4th, 6th, 10th, 13th and 18th respondents respectively) submitted that if extraneous material was to be considered, then the explanatory notes to the Act would provide a surer guide at least to the Home Office's understanding of Parliament's intention. In R (Westminster City Council) v National Asylum Support Service [2002] 1 WLR 2956 [2002] UKHL 38, Lord Steyn clarified the status of explanatory notes in paragraphs 3 to 6 of his speech. Having set out the manner in which the new system of explanatory notes was introduced and referred to the relevant authorities, he said in paragraphs 5 and 6:
"5. Applied to the subject under consideration the result is as follows. In so far as the Explanatory Notes cast light on the objective setting or contextual scene of the statute, and the mischief at which it is aimed, such materials are therefore always admissible aids to construction. They may be admitted for what logical value they have. Used for this purpose Explanatory Notes will sometimes be more informative and valuable than reports of the Law Commission or advisory committees, Government green or white papers, and the like. After all, the connection of Explanatory Notes with the shape of the proposed legislation is closer than pre-parliamentary aids which in principle are already treated as admissible: see Cross, Statutory Interpretation, 3rd ed (1995), pp 160-161. If used for this purpose the recent reservations in dicta in the House of Lords about the use of Hansard materials in aid of construction are not engaged ..... 6. If exceptionally there is found in Explanatory Notes a clear assurance by the executive to Parliament about the meaning of a clause, or the circumstances in which a power will or will not be used, that assurance may in principle be admitted against the executive in proceedings in which the executive places a contrary contention before a court. This reflects the actual decision in Pepper v Hart [1993] AC 593. What is impermissible is to treat the wishes and desires of the Government about the scope of the statutory language as reflecting the will of Parliament. The aims of the Government in respect of the meaning of clauses as revealed in Explanatory Notes cannot be attributed to Parliament. The object is to see what is the intention expressed by the words enacted."
[10]The passage particularly relied upon by the respondents is paragraph 296, in which the Home Office explained subsection (2)(b) of section 242 in these terms:
"Subsection (2)(b) provides that it is not necessary to show that property was obtained through a particular kind of unlawful conduct, so long as it can be shown to have been obtained through unlawful conduct of one kind or another. So it will not matter, for example, that it cannot be established whether certain funds are attributable to drug dealing, money laundering, brothel-keeping or other unlawful activities, provided it can be shown that they are attributable to one or other of these in the alternative, or perhaps some combination."
(emphasis as in the original).[11]Mr Crow submits that this is not a clear assurance by the Home Office to Parliament about the meaning of section 242(2(b) or an assurance as to the circumstances in which the powers conferred by Part 5 of the Act would be used. I agree, but given the relatively lengthy gestation period for the 2002 Act, I consider that, insofar as the Explanatory Notes cast light on the context in which Part 5 of the Act was enacted and the mischief against which it was aimed, they are more valuable and because directed to particular sections in their final form likely to be more informative, than the earlier documents referred to by Mr Crow. Against that background I turn to the relevant provisions in the Act. The Act.[12]Part 1 of the Act establishes the Assets Recovery Agency and the post of Director. So far as relevant section 2 provides:
"(1) The Director must exercise his functions in the way which he considers is best calculated to contribute to the reduction of crime. (5) In considering under subsection (1) the way which is best calculated to contribute to the reduction of crime the Director must have regard to any guidance given to him by the Secretary of State. (6) The guidance must indicate that the reduction of crime is in general best secured by means of criminal investigation and criminal proceedings."
Pausing there, the Home Secretary's guidance dated 7th February 2005 includes the following:
"3. ... the Secretary of State considers that the Director should, for the purpose of contributing to the reduction of crime: (a) not normally act without a referral from the law enforcement or prosecution authorities; (b) consult the relevant law enforcement or prosecution authority before exercising any of her operational functions, in order to enquire whether doing so would prejudice a criminal investigation or criminal proceedings, and give due weight to any advice so received."
[13]Part 2 of the Act deals with criminal confiscation proceedings and Part 5 with civil recovery of the proceeds of unlawful conduct. The most immediately relevant provisions in Part 5 are as follows. Section 240:
"General purpose of this Part. (1) This Part has the effect for the purposes of - (a) enabling the enforcement authority to recover, in civil proceedings before the High Court or Court of Session, property which is, or represents, property obtained through unlawful conduct. (b) enabling cash which is, or represents, property obtained through unlawful conduct, or which is intended to be used in unlawful conduct, to be forfeited in civil proceedings before a magistrates' court or (in Scotland) the sheriff. (2) The powers conferred by this Part are exercisable in relation to any property (including cash) whether or not any proceedings have been brought for an offence in connection with the property. 241 'Unlawful conduct'. (1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part. (2) Conduct which - (a) occurs in a country outside the United Kingdom and is unlawful under the criminal law of that country, and (b) if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part is also unlawful conduct. (3) The court or sheriff must decide on a balance of probabilities whether it is proved - (a) that any matters alleged to constitute unlawful conduct have occurred, or (b) that any person intended to use any cash in unlawful conduct. 242 'Property obtained through unlawful conduct'. (1) 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. (2) In deciding whether any property was obtained through unlawful conduct - (a) it is immaterial whether or not any money, goods or services were provided in order to put the person in question in a position to carry out the conduct. (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."
Section 243:
"Proceedings for recovery orders in England and Wales or Northern Ireland. (1) Proceedings for a recovery order may be taken by the enforcement authority in the High Court against any person who the authority thinks holds recoverable property. (2) The enforcement authority must serve the claim form - (a) on the respondent, and (b) unless the court dispenses with service, on any other person who the authority thinks holds any associated property which the authority wishes to be subject to a recovery order wherever domiciled, resident or present. (3) If any property which the enforcement authority wishes to be subject to a recovery order is not specified in the claim form it must be described in the form in general terms, and the form must state whether it is alleged to be recoverable property or associated property. (4) The references above to the claim form include the particulars of claim, where they are served subsequently."
Section 266 deals with recovery orders and provides:
"(1) If in proceedings under this Chapter the court is satisfied that any property is recoverable, the court must make a recovery order. (2) The recovery order must vest the recoverable property in the trustee for civil recovery."
The remainder of the section contains safeguards for those who obtain recoverable property in good faith. The Act contains further safeguards, for example, in favour of persons who acquire recoverable property in good faith, for value and without notice that it is recoverable property: See section 308(1).[14]Recoverable property is defined in section 304(1): "Property obtained through unlawful conduct is recoverable property. Subsections (2) and (3) deal with the circumstances in which such property may be followed if it has been disposed of. The meaning of Part 5.[15]As mentioned above, both the Act and Part 5 of the Act must be read as a whole. Whilst individual sections must not be interpreted in isolation, it is necessary for the purposes of exposition to deal sequentially with sections 240-243. Section 240(1) makes it clear that the powers in Part 5 are conferred for the purpose of enabling the Director to recover property which is or represents property obtained through unlawful conduct by way of civil rather than criminal proceedings. No separate code of civil procedure is established for the purposes of Part 5.[16]Subject to any modification effected by the Act, the Director is placed in the position of an ordinary claimant in civil proceedings. Subsection (2) makes it clear that the Director does not have to prove that there has been any criminal charge, much less any criminal conviction for an offence in connection with the property. If one asks the question: what property may the Director seek (in civil proceedings) to recover under Part 5?, the answer, applying the definition of unlawful conduct in section 241(1) and (2) (stripped of detail unnecessary for present purposes), is property obtained through conduct which (1) if it occurred in the United Kingdom was unlawful under United Kingdom criminal law, and (2) if it occurred abroad was unlawful under the criminal law of both the foreign country in question and the United Kingdom, (if the conduct had occurred in the United Kingdom). That answer necessarily poses the further question: how does one know if the conduct which is said to have occurred in the United Kingdom (or abroad) was unlawful under United Kingdom criminal law (or the criminal law of both the foreign country and the United Kingdom) unless one is given some information as to what the conduct is said to have been?[17]I readily accept Mr Crow's submission that sections 240 and 241 are framed so as to make it clear that the Director need not allege the commission of a specific criminal offence or offences. I further accept that Part 5 proceedings are not limited, as were the earlier forfeiture proceedings, to any particular kind or kinds of criminal offence, for example, drug trafficking, money laundering, et cetera, 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. It is possible that more detail might be required if conduct outside the United Kingdom was being relied upon, but that is an inevitable consequence of the Director having to establish that the conduct in question was unlawful in both the foreign country and the United Kingdom.[18]If there was any doubt about what sections 240 and 241 required the Director to prove in a claim under Part 5, it would be resolved by subsection 241(3). Mr Crow submits that Parliament inserted subsection (3) out of an abundance of caution, to make it clear that the civil standard of proof applied in those cases where the Director did allege that certain matters constituting unlawful conduct had occurred. The subsection did not require the Director to identify any matters which were alleged to have constituted unlawful conduct. Absent any such allegation, subsection (3) was of no application, and the normal civil standard of proof would apply by necessary inference from the fact that the proceedings were civil, not criminal: see section 240(1).[19]I do not accept that submission, not least because the draftsman could easily have achieved the objective contended for by Mr Crow by saying in subsection (3) "The court must decide on a balance of probabilities whether it is proved that unlawful conduct has occurred". I do not consider that the words "any matters alleged to constitute" in subsection (3) should be treated as though they were otiose. The interpretation of subsection (3) advanced on behalf of the Director looks at the subsection in isolation. When read in the context of sections 240 and the remainder of 241, 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 (or the criminal law of the United Kingdom and the foreign country in question).[20]That view is reinforced when one turns to consider section 242. Subsection (1) states that a person obtains property through unlawful conduct "if he obtains property by or in return for the conduct" (my emphasis). Again, these words inevitably prompt the question: what conduct? If the answer is simply (unspecified) unlawful conduct, why did the draftsman not say property is obtained "through unlawful conduct" if it is obtained "by or in return for unlawful conduct". He did not do so because Parliament envisaged that the Director would not simply make a general allegation that there had been unlawful conduct, but would set out the matters which were alleged to constitute a particular kind or kinds of unlawful conduct: see paragraph (b) of subsection (2) to section 242. Mr Crow submits that paragraph (b) sets out what the Director need not show. It does not say that she must show that conduct was of any particular kind.[21]I am unable to accept that submission, since the draftsman could have achieved that objective by omitting all the words after "kind" where it first appears in the paragraph, so that subsection (2)(b) simply read:
"in deciding whether any property was obtained through unlawful conduct - (b) it is not necessary to show that the conduct was of a particular kind."
I do not consider that the remaining words in paragraph (b) should be treated as though they were otiose. If the Director is not alleging that the property was obtained by or in return for one of a number of kinds of unlawful conduct, then she has to show that the conduct was a particular kind of unlawful conduct. It is important that paragraph (b) in subsection 242(2) is not considered in isolation but in the context of sections 240 and 241, and in particular subsection 241(3). When the three sections are read together it is plain that the submission on behalf of the Director, that she does not have to allege any matters showing that the unlawful conduct was of any particular kind or kinds, would result in a strained and unnatural interpretation of Part 5.[22]This view is further reinforced by the terms of section 243. As mentioned above, Part 5 of the Act places the Director, when she is seeking to recover in civil proceedings property obtained through unlawful conduct, in the same position as any other claimant seeking to recover property in civil proceedings, save insofar as the Act expressly modifies that position to reflect the particular difficulties faced by the Director. This approach to section 243 is consistent with the draft clauses: see paragraph 60.[23]Any litigant in civil proceedings seeking to recover property upon the basis that it had been obtained by unlawful conduct would be expected to identify (a) the property, and (b) the conduct that was said to be unlawful. The former is an obvious requirement. As far as the latter is concerned, it has long been the position that fraud and illegality must be specifically pleaded. The requirement is now to be found in CPR 16, para 8.2. Subsection (3) in section 243 recognizes the practical difficulties which the Director may face in specifying the property which has been obtained through unlawful conduct and enables the Director to describe the property "in general terms". There is no similar relaxation of the normal rules of pleading in respect of the necessary allegation of unlawful conduct. There does not need to be, since sections 240 to 242 have made it plain that the Director need not allege a specific criminal offence or offences and need only describe (alleged matters which constitute) a particular kind or kinds of unlawful conduct.[24]Mr Crow submitted that section 243 was of no assistance since it dealt with procedural rather than substantive matters, how the Director could plead her case, not what her cause of action was. I agree that section 243 is concerned with procedure and if it had stood alone it would have been of no assistance in determining what the Director has to prove in a claim under Part 5 of the Act, as opposed to how she may plead that which she has to prove. However, the section, and in particular the express relaxation in subsection (3), is consistent with my understanding of the combined effect of sections 240 to 242 as set out above.[25]Although proceedings under Part 5 of the Act are, in rem, directed at the property in question and not at the criminality of any particular individual, form should not be allowed to obscure substance. Part 5 proceedings are not concerned with any property, however obtained. They are concerned only with property which has been obtained through conduct which is unlawful under the criminal law. It would be surprising if a claimant in civil proceedings, who had to allege criminal conduct as a necessary part of his claim in rem, was not required to give the respondent and the court at least some particulars of what that conduct was said to be. The requirement that fraud or illegality should be specifically pleaded is not simply a procedural nicety. Rather, it reflects the requirements of elementary fairness. In my judgment, the Act deliberately steered a careful middle course between, at the one extreme, requiring the Director to prove (on the balance of probabilities) the commission of a specific criminal offence or offences by a particular individual or individuals and, at the other, being able to make a wholly unparticularised allegation of "unlawful conduct" and in effect require a respondent to justify his lifestyle. I say "in effect" because, although Mr Crow emphasised that the burden of proof to the civil standard would rest throughout any proceedings under Part 5 on the Director, he placed considerable reliance upon those cases which demonstrate that facts may be proved by inference, and that the absence of (or an untrue) explanation, where one is called for, may be sufficient to discharge that burden. The forfeiture authorities.[26]Mr Crow relied upon four cases dealing with forfeiture provisions, in the Criminal Justice (International Co-operation) Act 1990 (Bassik & Osborne v Commissioners of Customs & Excise (1993) 161 JP 377), and Nevin v Customs & Excise (unreported, 3rd November 1995), the Drug Trafficking Act 1994 (Butt v Her Majesty's Customs & Excise (2001) 166 JP 173), and section 298 of the Act (Muneka v Commissioners of Customs & Excise, (an unreported decision of Moses J (as he then was) 2nd February [2005] EWHC 495 Admin). The principle that facts may be proved by inference is not in doubt, and the cases cited by Mr Crow are all illustrations of the application of that principle in practice. Thus, in Bassik's case he was stopped by a customs officer when he was passing through Gatwick Airport with a one way airline ticket to Amsterdam and £21,520 of cash in his possession. The money had been supplied by Osborne. When he and Bassik were asked for their explanations, their demeanour was evasive and the magistrate did not believe them. The facts in Nevin were not dissimilar, save that he had been stopped at Dover en route to Amsterdam with £90,745 of English and Scottish banknotes in his possession. In Butt the appellant's nephew was stopped on route to Amsterdam, with a one way ticket and $695,000 (about £410,000) sterling of cash wrapped up in brown paper packages. In Muneka the destination was Tirana in Albania, and the amount of cash in the appellant's possession was £22,760.[27]Section 294 of the Act makes provision for the seizure of cash in certain circumstances:
"(1) An officer of Revenue and Customs or constable may seize any cash if he has reasonable grounds for suspecting that it is - (a) recoverable property, or (b) intended by any person for use in unlawful conduct. (3) This section does not authorise the seizure of an amount of cash if it or, as the case may be, the part to which his suspicion relates, is less than the minimum amount."
The minimum amount is the amount prescribed by an order made under section 303. It was £10,000 but was reduced to £5,000 on 16th March 2004. Section 295 provides for the continued detention of the cash if reasonable grounds for suspicion persist, and section 298 provides for its eventual forfeiture:
"(1) While cash is detained under section 295, an application for the forfeiture of the whole or any part of it may be made - (a) to a magistrates' court by the Commissioners for Her Majesty's Revenue and Customs or a constable. (2) The court may order the forfeiture of the cash or any part of it if satisfied that the cash or part - (a) is recoverable property, or (b) is intended by any person for use in unlawful conduct."
[28]The appellant in Muneka gave one explanation for his possession of the cash to the customs officers who interviewed him and another explanation in the forfeiture proceedings before the district judge. The district judge did not believe his explanation. The other evidence was limited, but it included an explanation from a customs and excise official that there was "no proper explanation in supporting documentation as to the source of the cash or as to why the banking system had not been relied upon." (see paragraph 4 of the judgment).[29]Having referred to the statutory framework, Moses J said this:
"7. The issue for the district judge was whether the Crown had proved that this cash was obtained through unlawful conduct or was intended for use in unlawful conduct. 8. In my judgment, the context of the questions as to whether the property had been obtained through unlawful conduct or was intended for such a purpose, by the Customs officers at the airport, and again the context of resistance to forfeiture proceedings before the district judge, are of significance. The fact that this appellant lied was evidence upon which the district judge was entitled to conclude that the very suggestions put to him were in fact true on the balance of probabilities. The context in which the questions were asked is, in my judgment, important. The district judge was entitled to ask herself: why should this appellant have lied about the source and destination of that cash? He must have appreciated that such lies could have had no reasonable explanation other than that the suggestions made to him as to their source and as to destination were in fact true. 9. In my judgment, in that context the fact that there was no explanation for the source of that money, no reasonable explanation as to why he was taking that cash to Albania, the fact that there were discrepancies in his explanations as to the source of the money and as to its destination, taken together, did establish, both source and intention. At least the district judge was entitled to conclude on the balance of probabilities. 10. The only argument advanced on behalf of [the appellant] was that there was authority in a judgment of the Recorder of Cardiff in the case of Eric Williams v Chief Constable of the South Wales Police, given on 11th August 2004, that it was incumbent upon the prosecution to identify the criminal source of the money or the offence for which it was intended to use that cash (see paragraph 17 of his judgment). I am not sure it would be fair to the Recorder of Cardiff to conclude that he was intending to set out any proposition of law other than commenting on the particular arguments and facts of that case, but insofar as it is suggested that it is incumbent upon the prosecution to identify the criminal activity, the source of the money or the criminal offence for which it is intended to use the money, that, in my judgment, is incorrect. All that has to be shown is that the course of the money was a criminal offence in the United Kingdom and that it was intended for a criminal use either in the United Kingdom or elsewhere. In the instant case there was ample evidence of both and no other reasonable explanation. 11. If authority was needed in support of the proposition that lies in a particular context may establish a positive case as to the source of the money, such authority is to be found in the many cases where this court has had to consider the proceeds of drug trafficking. I was referred to a number of them, but the proposition that an account, once rejected by the fact-finding tribunal, may itself provide a basis for concluding that the source was criminal activity is to be found in the [judgments in Bassick, Nevin and Butt]. 12. It is important, in my view, to bear in mind that Parliament has specifically dictated that the standard of proof is one on the balance of probabilities. That has important consequences as to the way the court should direct itself. The lies in the context of the issue may well establish that the source of the money is criminal activity. Nowhere was that better put, if I may say so, than in the short judgment of Sedley J in Nevin, to which I have already referred, where he said: '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.' Those comments apply with added force in the context of a case where it is not necessary to identify any criminal activity such as drug trafficking; all that has to be identified is that the source was criminal activity or the intended destination was use for criminal activity. A lie in that context may well entitle the fact-finding body to infer what the source or intention for which the cash was to be used was in reality on the balance of probabilities. 13. In those circumstances, there is, in my judgment, nothing in this appeal. The district judge was entitled to reach the factual conclusions she did. She asked herself a number of questions, only the first of which is really relevant to this case: 'Was I wrong in law to find on the evidence that the cash was recoverable property or intended for use in unlawful conduct and that a forfeiture order should be made.' The answer is 'no'. None of the other issues were pursued, but I should say for the sake of clarity that in answer to the question in relation to the reverse burden of proof, although it was not argued before me, it is plain that there was no reverse burden of proof properly so-called; all that happened on the facts was that the facts were so startling that they called for an explanation. No truthful explanation was given. That does not amount to a shift in any burden of proof."
[30]Mr Crow submits that this is persuasive authority for the proposition that the Director in civil recovery proceedings under Part 5 need not identify the particular kind of unlawful conduct by or in return for which the property was obtained. He points to the fact that both sections 266(1) and (2) and 294(1)(a) are concerned with "recoverable property"; that is to say, with property obtained from unlawful conduct: see section 304(1) of the Act. Although not in issue in these proceedings, sections 240(1)(b) and 241(3)(b) enable cash which is or represents property obtained through unlawful conduct or which is intended to be used in unlawful conduct to be forfeited in summary proceedings.[31]In my view, great caution should be exercised when attempting to read across from those sections in Chapter 3 of Part 5 of the Act, which deal with recovery of cash in summary proceedings, to those sections in Chapter 2 of Part 5 which deal with civil recovery proceedings. Proceedings under Chapter 3 in Part 5, which provide for initial seizure upon reasonable grounds for suspicion, and thereafter forfeiture after a summary process, are confined to a particular type of property, cash. For the purposes of the Act cash means: "(a) notes and coins in any currency. (b) postal orders. (c) cheques of any kind, including travellers' cheques. (d) bankers' drafts. (e) bearer bonds and bearer shares. found at any place in the United Kingdom. (7) Cash also includes any kind of monetary instrument which is found at any place in the United Kingdom, if the instrument is specified by the Secretary of State by an order made after consultation with the Scottish Ministers." see section 289(6) and (7) and 316(1).[32]Although "cash" is given this extended meaning for the purposes of Part 5 of the Act, all of the cases cited by Mr Crow have been concerned with "cash" in the narrow or popular sense of the word, i.e. banknotes. The decisions are no more than a reflection of the fact that in today's "cashless society", the ordinary law abiding citizen does not normally have any need to keep large numbers of banknotes in his possession. It will almost always be safer (bearing in mind the risk of loss through accident or crime), more profitable (bearing in mind the opportunity to earn interest), and more convenient (bearing in mind the many other ways of paying for lawful goods and services) not to be in possession of a large sum of money in the form of banknotes. The other characteristic shared by all of the forms of cash listed in subsection 289(6) is that cash is readily negotiable and unless seized promptly has a tendency to disappear without trace.[33]Just as the law-abiding citizen normally has no need to keep large amounts of banknotes in his possession, so the criminal will find property in that particular form convenient as an untraceable means of funding crime. It is against that background that the cases cited by Mr Crow must be considered. Moses J emphasised in his judgment the importance of context (see paragraph 8). The four decisions do no more than recognize that conduct consisting in the mere fact of having a very large sum of cash in the form of banknotes in one's possession in certain circumstances (eg at an airport) may well provide reasonable grounds for suspicion and demand an answer. By contrast, conduct consisting of the mere fact of being in possession of other types of property, expensive jewellery, houses, cars and so forth, or the mere fact of having a lavish lifestyle or of living beyond one's apparent means, do not, without anything more, provide reasonable grounds for suspicion demanding an explanation.[34]Since there is a "reasonable suspicion" threshold before cash may lawfully be seized, there is invariably more to the defendant's conduct than the mere fact of being in possession of a large sum of cash. As the cases cited by Mr Crow demonstrate, the circumstances in which the cash is found may well be sufficient to require an explanation because, for example, absent any explanation, the large amount of cash is being unnecessarily exposed to the risks necessarily inherent in transit and/or is being transported to a particular destination and/or is being transported in a particular manner. It is one thing to require an individual carrying some £400,000 worth of cash wrapped in brown paper packets en route to Amsterdam on a one way ticket to explain his conduct; it is another to require an individual living a lavish lifestyle to explain his conduct upon the basis of a general allegation that he obtained his property through "unlawful conduct".[35]Moreover, it must be remembered that section 298 enables cash to be forfeited if the magistrates are satisfied that it is recoverable property or that it is intended by any person for use in unlawful conduct. Section 240(1)(b) is in similar terms, and the enactments which were considered in the Bassick, Nevin and Butt cases also contain similar provisions, save that in those cases the magistrates had to be satisfied that the cash was either the proceeds of or was intended for use in drug trafficking. The question does not arise in the present case, but it does not follow that the obvious difficulties inherent in identifying a particular kind of intended unlawful conduct mean that there is no need to show that past unlawful conduct was of a particular kind or kinds. Other things being equal, it may well be more difficult to establish what is intended in the future than what has happened in the past. In practice, that difficulty has proved to be illusory, given the circumstances in which the cash was seized in the cases referred to by Mr Crow, for example en route to Amsterdam. In the four cases relied upon the court did not need to distinguish between the two bases upon which forfeiture might be ordered. There was no need to do so since, having regard to all of the circumstances, it was plain that, whatever the provenance of the cash in the first three cases, it was intended to be used for drug trafficking. Muneka comes closest to supporting Mr Crow's submissions, because neither the criminal source nor the criminal destination of the cash were identified, but, again, it was unnecessary for the court to distinguish between paragraphs (a) and (b) in section 298(2) because the appellant was found to have lied both as to the source and as to the intended destination of the cash: see paragraph 8 of the judgment.[36]Although relevant property may include cash, because of the particular characteristics of cash and the problems it poses in connection with criminal activity, Parliament has thought it necessary to establish a particular statutory regime to deal with its forfeiture. Since Muneka was decided in the context of summary proceedings for forfeiture of cash, it is not surprising that Moses J was not asked to, and did not, consider what would have had to be proved by the Director in civil recovery proceedings for property other than cash. Other Authorities.[37]Mr Crow also referred to a number of other authorities which were concerned with Part 5 of the Act. Taking them in chronological order, they were Director of Assets Recovery Agency v Walsh [2004] NIQB 21, Director of Assets Recovery Agency v Jia Jin He and Dan Dan Chen [2004] EWHC 3021 (Admin), the Walsh case on appeal to the Court of Appeal in Northern Ireland (2005) NICA 6, and The Director of Assets Recovery Agency v Warnock [2005] NIQB 16. Whilst those cases are useful by way of background, the courts were not being asked to consider the questions raised by the preliminary issue in the present case. In the Walsh case the submission made on behalf of the respondent, both at first instance and before the Court of Appeal, was that Part 5 proceedings should be classified as criminal rather than civil for the purposes of article 6 of the ECHR, so that the Director was required to establish her case to the criminal standard; that is to say, beyond a reasonable doubt. That argument was rejected at first instance and by the Court of Appeal. The Court of Appeal's decision in Walsh was followed in Warnock, in which the evidence of criminality was so extensive that it is not surprising that Girvan J felt able to say that it pointed to the "overwhelming conclusion" that the money was the proceeds of crime and recoverable property. In the He and Chen case Collins J rejected a submission made on behalf of the respondents that, since unlawful activity was involved, a higher or more exacting civil standard of proof should be applied, and concluded that there was no need to place any gloss upon the statute: see paragraph 66 of the judgment.[38]Those matters are not in issue before me and I do not consider that it would be helpful to cite extracts from judgments which were given in response to particular arguments, and then treat them as though they were intended to be enactments of general application. It suffices to say that there is nothing in the other cases cited by Mr Crow to gainsay the proposition that, while the Director need not allege the commission of any specific criminal offence, she must set out the matters which are alleged to constitute the particular kind or kinds of unlawful conduct by or in return for which the property (which can be described in general terms: see 243(3)) was obtained. Practical consequences.[39]Mr Crow submitted that the more specific the Director had to be about the nature of the underlying unlawful conduct the more difficult civil recovery proceedings would become. At one extreme they would "collapse into the trial in a civil court of criminal allegations," thus replicating all of the existing difficulties, save for the standard of proof and less stringent rules of evidence.[40]It is undeniable that requiring the Director to be more specific will make her task harder, just as relieving her of any obligation to be specific will make it more difficult for a respondent to defend himself in civil proceedings. A balance has to be struck between the two interests, and the question is, how did Parliament strike that balance? There is ample evidence in the pre-legislative material referred to by Mr Crow and the Explanatory Notes referred to by the respondents to establish the proposition that, requiring the Director to prove the commission of a specific criminal offence of offences would have adverse consequences, so that such an interpretation of Part 5 of the Act should be avoided if at all possible: see, for example, the extract from the draft clauses and the Explanatory Notes set out above and this passage in paragraph 5.5 of the draft clauses explaining the role of civil recovery:
"5.5 There is in the Government's view a gap in the resources available to the state for recovering criminal proceeds. This gap arises because criminal confiscation, by definition, cannot attack the proceeds of crime otherwise than by a prosecution and conviction. The proceeds of crime are therefore immune from confiscation where the precondition of a conviction cannot be fulfilled because, for example: rules of criminal procedure or evidence, having no bearing on the issue of the attribution of assets to criminal conduct, protect a respondent from conviction, with the result that no prosecution ensues or that the case results in an acquittal; there may be convincing evidence that particular property was obtained through criminal conduct, but insufficient evidence to establish which of a group of identified individuals were involved in the crime, with the result that no prosecution has proved possible; the respondent is wholly beyond the reach of prosecution, perhaps because he is abroad in circumstances in which he cannot be extradited, or because he has died; the crime in question was committed abroad in circumstances where there is no extra-territorial jurisdiction to prosecute. 5.6 The Government believes that a means of recovery of the proceeds of crime, focusing not primarily on the criminality of an identified individual but on the characterisation of the property itself, is required in order to fill that gap."
[41]However, none of the material referred to by Mr Crow supports the proposition that requiring the Director to establish a particular kind or kinds of unlawful conduct would place an undue burden upon her, or that the difficulty of showing that the property was obtained through criminal conduct of a particular kind or kinds was part of the mischief that was aimed at by Part 5 of the Act. Mr Crow submitted that there were safeguards in the Act, so that it was unnecessary for the court to impose further safeguards. I agree. The court is concerned to ascertain what safeguards for respondents Parliament has provided in Part 5 of the Act. One of the safeguards, the need to have regard to the Secretary of State's guidance under section 2(6) and the content of that guidance, cuts both ways. Since the Director will not normally act without a referral from the law enforcement or prosecution authorities, it is difficult to envisage a case in which, despite close liaison with those authorities, the Director will be unable to establish, even to the civil standard of proof, any particular kind of criminal conduct and will be unable to do any more than make a general allegation of "unlawful conduct" upon the basis that the respondent enjoys a lifestyle without obvious legal means of support. Certainly the Director has not been so constrained on the facts of the present case, consideration of which has been unnecessary for the purposes of answering the preliminary issue.[42]Mr Crow posed the rhetorical question: if the Director has satisfied the court that the property in question represents the proceeds of (unspecified) unlawful conduct, what purpose would be served by preventing her recovering that property simply because she is unable to show any particular kind or kinds of unlawful conduct in relation to that property? That begs the question, since one of the purposes of the Act was to strike a fair balance between the interests of the state and society in general and the civil rights of the individual. If Parliament had wished the Director to be able to recover property by simply alleging, and thereafter persuading the court, that, on the balance of probabilities, it had been obtained by or in return for some unspecified unlawful conduct, it could have said so, but it did not. Other matters.[43]The respondents referred to the European Convention on Human Rights, in particular to article 6 and article 1 in the First Protocol to the Convention. For present purposes the Convention adds nothing of substance to the well established common law principle that property rights should not be interfered with except under clear authority of law: "An Act should not, therefore, be construed so as to interfere with or prejudice established private rights under contracts or the title to property unless it is clearly intended to do so." (see volume 44(1) of Halsbury's Laws of England 4th Edn, para 1464). Mr Crow submitted that many of the authorities cited in support of this proposition were concerned with whether a statutory provision was intended to have expropriatory effect and that could not be in doubt in the present case. He further submitted that the presumption was not readily applicable to a situation where the state was authorising the recovery of property which was not lawfully owned by the person holding it.[44]The latter proposition puts the cart before the horse. Until the court gives its judgment in the civil proceedings under Part 5, it will not have been established whether the person holding the property is or is not the lawful owner. I can see no reason why the rule against doubtful penalisation should not apply both to the principle whether an enactment is intended to have expropriatory effect and to the procedure whereby expropriation is to be effected. The fact that Part 5 proceedings are not penal provisions for the purposes of article 6 of the Convention does not oust the rule, since they undoubtedly deprive individuals of property which they are entitled to retain unless and until deprived of it by a recovery order.[45]For the reasons set out above, I do not consider that there is any lack of clarity in the relevant sections of Part 5 of the Act. If there had been I would have applied the rule against the doubtful penalisation and resolved the uncertainty in favour of the respondents. Conclusions.[46]All of the respondents submitted that the two questions in the preliminary issue should be answered in the negative. Although the respondents' submissions were put in a variety of ways, there was considerable common ground between them. I intend no discourtesy in not rehearsing the various arguments advanced on behalf of the respondents. To the extent that I have accepted them, they are incorporated in the judgment as set out above. Although I have said that the respondents submitted that the question should be answered in the negative, it was common ground between the parties at the hearing that answering the questions posed in the preliminary issue with a simple 'yes' or 'no' would be unhelpful. To do so would still leave open the question, what was meant by "particular unlawful conduct"? Did it mean a specific criminal offence or a particular kind of unlawful conduct? Moreover, the question was based upon the implicit premise that there was some "conduct in relation to the property", and in that context the second question did not make it sufficiently clear that the Director was asking whether she could sustain (i.e. succeed in) a case for civil recovery solely upon the basis that the respondent had no identifiable lawful income to warrant his lifestyle. I should add that the preliminary issue was drafted by counsel previously instructed by the Director, not by Mr Crow.[47]In an attempt to establish the extent of common ground between the respondents, I indicated, having heard Mr Crow's submissions, that I was provisionally minded to answer the preliminary question as follows:
"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."
All counsel for the respondents were content with that formulation. I should place it on record that there was no submission that the Director had to allege and prove the commission of a specific criminal offence or offences in Part 5 proceedings.[48]In answering the preliminary issue in this way, I have sought to use the language of the Act so far as possible and have therefore referred to the particular kind or kinds of unlawful conduct, rather than placing a gloss on the statute and referring to, eg "particular categories of crime". Inevitably there will be disputes as to whether the matters alleged contain sufficient information to enable the court to decide whether there has been any kind or kinds of unlawful conduct by or in return for which the property was obtained, but it is neither sensible nor necessary to resolve such hypothetical questions as: "what is a kind of criminal conduct?" or "how detailed does a description of a particular kind of criminal conduct have to be?" in these proceedings, which have been conducted without regard to the facts of the present case.[49]The Civil Procedure Rules are sufficiently robust to enable such issues to be resolved by the court not on some abstract basis, but in a practical way that will ensure fairness to both the claimant and the respondent in accordance with the overriding objective having regard to the factual context of any particular case.[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.[52]MR JUSTICE SULLIVAN: Mr Colby, I indicated that I would be happy to consider any application for permission to appeal in writing. If you are minded to take up that offer I will not try to dissuade you.[53]MR COLBY: The Director has not yet made any decision about whether to seek to trouble the Court of Appeal. Since the practice requires me to make an application to you in relation to leave to appeal, it seems sensible to do so now in any event. I have two applications to make in relation to permission to appeal. The first is made irrespective of whether you see fit to grant permission or not. That is to ask you to extend the date for service of the appellant's notice. The position is that, unless extended by you, the Director has to put in a notice of appeal to the Court of Appeal within 14 days. If you have not given permission that will include an application for permission as well. I ask for a formal extension of time to save us going back to the Court of Appeal or to you. There is the Christmas holiday and the Director's position as a public body.

MR JUSTICE SULLIVAN: 14 days from the start of next term.

[55]MR COLBY: I was going to ask for 31st January as the starting point. That is the date by which we will have put in an appellant's notice. There are two grounds, whether there is a reasonable prospect of success or a compelling reason. Given that you did not call on the respondents to respond, I recognize the mountain I have to climb to persuade your Lordship to grant permission on the basis that there is a real prospect of success. The judgment was given on the basis that the extreme position that the Director argued before you would not be likely to succeed. I ask you to recognize that there is a real prospect that the Court of Appeal might alight on an intermediate determination. I would emphasize the importance of the matter.

MR JUSTICE SULLIVAN: It might alight even further down the slope from the Director's point of view.

[57]MR COLBY: Your Lordship mentioned two matters in the judgment which I would ask you to consider in relation to permission to appeal. The first is in connection with the legitimacy of reading across from the forfeiture provisions to civil recovery. That is a new area which was not canvassed in particular detail. Secondly, you put emphasis on a reserved issue, as it were, in relation to the ECHR, article 1. You indicated that if you were wrong about that stage, you would nevertheless decide the same way because of the ECHR point. Your Lordship recognized that this is not a penal statute. That may be a matter on which it may be appropriate to try and interest the Court of Appeal later on. Those are the grounds on which I ask you to grant permission under the first limb.[58]Under the second limb, the relatively new territory of the Act. There are questions that have arisen that are of more public importance. That is my submission, compelling reasons, to grant permission. Those are my submissions in relation to permission to appeal.[59]MR JUSTICE SULLIVAN: Does anyone wish to submit that there are no other compelling reasons, given the wider significance of this Act and the fact that there is not a great deal of guidance from the Court of Appeal as to how Part 5 ought to be dealt with, that there are not compelling reasons? Absent any submissions I shall give permission to appeal, not on the first limb, that there is a real prospect of success, but on the second limb, that there are other compelling circumstances.[60]MR KITSON: I have a very short submission. If your Lordship grants permission to appeal, you should do so on condition that the claimant in this case does pay the costs of the appeal incurred by the respondents. My reason for making the submission is that this is a matter of public importance and the interpretation of a relatively new statute where there is little case law. I further base the submission on the fact that this preliminary issue has not delved into the facts of this case. It stands on its own which is of enormous benefit to the Director, inasmuch as it is important to determine the limits of Part 5. It is not unusual, in cases where there is a matter of public importance which is being pursued by the claimant in these circumstances, for the respondent to be protected in some way in going to the Court of Appeal. Permission to appeal should be conditional on the applicant paying the respondents' costs of the appeal. I do not have a case to support this approach being adopted. I read a small section from the White Book. It is paragraph 44.3.2:
"In an appeal where the point of law arising was of some importance but the cost of the repair works in issue was small and less than the legal costs involved and bearing in mind the proportionality element of the overriding objective the Court of Appeal granted permission to appeal on condition that the appellant should pay all the costs in the Court of Appeal irrespective of the outcome of the proceedings."
That case was Morris v Wrexham County Borough Council [2001] EWCA Admin 697. I submit that there should be this condition imposed.[61]MR JUSTICE SULLIVAN: Mr Kitson, it is of course always open to the Court of Appeal if, suppose, for example, it allows the appeal but does so in a way that materially helps the Director -- as a matter of principle it would not make a halfpence worth of difference in your client's case -- the Court of Appeal can make appropriate orders dealing with respondents' costs. Even if I do not say anything it is not closed to you.[62]MR KITSON: I accept that. What such an order would do would focus the mind of the claimant in pursuing an appeal if they consider it to be of such importance as a stand alone issue.[63]MR DOUGLAS-JONES: I would try to dissuade your Lordship from giving permission. There is an issue of public importance in this case. Nonetheless, I would say that your judgment has been given unequivocally, without hesitation and without the respondents being called upon. It is clear what the language of this statute means, as you have found. There will be little benefit to anyone, including the Director, of giving permission at this stage. If I am wrong on that, it is open to the Director to go to a single Lord Justice and permission would be given if the Court of Appeal were interested in the point. For you to give permission opens up the possibility of a hopeless appeal which will delay these proceedings. The request for six weeks rather than the usual two made by Mr Cox to make up has mind and draft the document gives an indication that the Director intends to pursue this in a leisurely manner. One can see the constraints and the politics behind it. One has to have regard to the interests of the respondents. I say that the six weeks sought is excessive. No one is going to be so mean as to ruin the Director's Christmas. I would suggest a fortnight into the New Year. Everybody would have started working by 4th January. Why cannot this be settled by 18th January? Whatever your Lordship decides on permission, I would say it be restricted to about the 18th so that this litigation can move ahead.[64]MR KROLICK: I have a number of matters. If you were to grant permission to appeal, in relation to the question of the costs of the appeal I do believe that your Lordship has the jurisdiction to order that the respondents to the appeal -- I am sorry, the appellant -- should not seek to recover their costs from the respondents; in other words, not to expose the respondents to the risk of having to subsidise the Director. The only reason you would grant permission to appeal is because of the great public interest which affects cases beyond this one. The respondents should not be asked to subsidise that should the claimant succeed on her appeal. That is the first matter. The second matter concerns permission to serve the respondent's notice, if I need it. My argument was that there is an obligation upon any claimant to plead an allegation ----[65]MR JUSTICE SULLIVAN: You would not need permission from me. That would be dealt with under the procedure rules. If the Director appealed, then the procedure would kick in for what respondents may or may not do.[66]MR KROLICK: There was a matter that fell from your Lordship on the last day of the last hearing. That concerns the final part of the preliminary issue. It may be that I did not hear it in your judgment, the reference to lack of any explanation for funds being regarded as sufficient for the purposes of proving conduct. You ought to find that that in itself could not be the sole evidence relied upon by the Director.

MR JUSTICE SULLIVAN: I think that is the second limb.

[68]MR KROLICK: In taking down your judgment, it may be that I overlooked ---

MR JUSTICE SULLIVAN: I included the second limb.

[70]MR KROLICK: I endorse Mr Kitson's submission in relation to his suggested condition of permission. If you are not minded to go along with that I suggest that you do have the power to do as Mr Crow suggested. You will find reference to that at page 1461-463 of the first volume of the White Book. The reference is to the case of Lloyd Jones(?) [2003] EWCA Civ 1162, paragraph 26. One reason for imposing the condition was that the appellant was a large corporation which incurred substantial costs on the appeal, whereas the respondents were a group of individual objectors. I say that that is an analogous situation.[71]MR JUSTICE SULLIVAN: I do not think I need to trouble you. I give permission to appeal, not on the first limb that there is a real prospect of success, but on the second limb, other compelling reasons; that is to say, this would be an opportunity for the Court of Appeal to consider certain issues of principle in relation to Part 5. I do not impose any condition as to costs, notwithstanding the fact that I am giving permission on the second limb, because it seems to me that it would be open to the Court of Appeal to make an appropriate order if it concludes that the Director has pursued the matter as an issue of principle, which really will not have much effect on the particular facts of the individual cases. I am not in a position, since we have not looked at the facts of the individual cases, to take a view about that. The other matter that I have borne in mind is that I appreciate that this means that there is the potential for the case hanging over the respondents for a longer period. In reality, since, if I refuse permission and the Director considers the public interest is sufficiently compelling, she will go to the Court of Appeal and ask its permission, the end result would probably be the same. The mere fact that I have given permission does not mean that the Director is compelled to appeal. I am sure that she will consider the position and whether an appeal would be justified. I think that she should be given sufficient time to do that. I am minded to give 14 days from the 10th January, not quite to the end of January. It is partly the fact that there is the Christmas vacation, but also the fact that I am sure that an appeal will not be a kneejerk reaction from the Director. There will have to be careful consideration as to whether it is justified and in the public interest. It is sensible to give time for that to be done rather than requiring her to be rushed. For those reasons I give permission to appeal. I extend the time for putting in the appellant's notice to 14 days from the beginning of term from 10th January. Are there any other applications that people wish to make?[72]MR KITSON: I and all other counsel will all be seeking our costs of the application. I turn to the indemnity basis. I do not do it on the usual ground that the other party's conduct is open to criticism. It is on the basis that this is test litigation for the Director, who has a legitimate public interest in determining the extent to which a statute helps her in exercising the public function. I would say that she or those who advised her have asked what is a misconceived question. Each of the respondents is being drawn into litigation which is costly for it. Each will get some benefit in respect of their own cases. That is limited.[73]MR JUSTICE SULLIVAN: Part of the difficulty is that you would be on stronger ground if that had been apparent from the various respondents when the preliminary question was drafted, saying:
"That is a completely pointless question on the facts of my case. Why do you want to ask this question on the facts of my case?"
That could have been said. That did not happen.[74]MR KITSON: Perhaps I should relive the circumstances. My recollection is that in the summer the matter came up in dialogue between leading counsel for the Director and McCombe J. A question was floated in the course of the morning. The court rose at lunch time. Leading counsel indicated that he would come back with a question, and the judge more or less was going to accept whatever question he was asked. He decided to sit at 2.30. I recall getting back to court at 2.30, not having had any e-mail of the question, but leading counsel telling me that he was not coming back for another hour. When he did arrive it was presented as a fait accompli. There was little debate. There was a suggestion that subsidiary questions would be served. They were not. My instructing solicitor never received those questions. Mr Cox faxed them to me. My client was never given the opportunity to comment on them.

MR JUSTICE SULLIVAN: Yes.

[76]MR KITSON: That is how they emerged.

MR JUSTICE SULLIVAN: Can the Director resist costs?

[78]MR COLBY: Yes. In relation to the principle who should pay, the appropriate order that the court should make is that the costs of this hearing be reserved. My reasons for that are as follows. This is a preliminary question of law ordered by the court to be determined as part of his case management function. It was decided that it was a necessary and appropriate matter to be resolved at a preliminary stage. This judgment is not dispositive of any issue, properly so- called, in the case.[79]MR JUSTICE SULLIVAN: I am bound to say that that is one of the reasons why I asked myself why I was doing it.[80]MR COLBY: The reason is because, as discussions progressed before McCombe J in July, it was determined -- for good or bad reasons does not matter -- that it was important to isolate this issue as a matter of law first, so that it could be decided what needs to be done by way of managing the trial ahead. That is what it was about. It is not dispositive of the event. It is usual that costs follow the event. The event in this case is whether or not the Director makes out her claim to the particular items of property she claims.[81]MR JUSTICE SULLIVAN: If it is open to the Director to come along to court and say to me: "Look, it is pointless answering this question. It is not going to help in resolving this case. I do not need to know as a preliminary issue whether I am entitled to rely on someone's lifestyle", and the Director insisted in pursuing an argument on which she has failed, I cannot see why she should not pay the costs of doing that. If she wants to argue points of law that may be of no assistance to her, that is her privilege. But why should she not pay for it?[82]MR COLBY: You cannot say that the answer you have given is going to be dispositive of the issue against one or other of the issues. That is the next stage of our thinking on the case. My submission is that in that context it is premature for this court to exercise its costs discretion. That question is best left to the trial judge's discretion. He can award or apportion costs in the light of the action as a whole, taking into account all the conduct that has taken place from day 1. That is the appropriate stage at which the discretion overall should be exercised. If that judge takes the view that this portion of the action should be something the costs of which should be visited on the Director, her costs may be reduced by that amount. That is the appropriate approach to take. It is 44.3.6 of the White Book. It is not directly on the point. It begins:
"It is open to a judge where a split trial has been ordered to reserve the question of costs of the trial on liability until after the determination of the remaining issues. The Court of Appeal stated that there was much to be said for the view that the incidence of costs should be the same whether or not there has been an order for a split trial. Where there is a split trial and it remains uncertain whether the claimant will recover more than nominal damages it may be proper for the trial judge to defer making any order for the costs of the liability trial until the final outcome is known."
The case is not directly in point. We have not got a split trial. That makes my point the more powerful. We are not even at the stage of having determined liability in any particular case against the Director on this. For that reason I say that the appropriate order is to reserve costs. If you are not with me on that it should be that the respondents' costs of the hearing be costs in the case. The advantage of that is that it retains the maximum amount of discretion in the trial judge. The Director had agreed before the hearing before you with counsel for the 17th, 22th and 23rd respondents, who did not appear, that their costs of the application would be reserved in any event. We have an exchange of e-mails. If you are with me on the question of reserving costs, that is all you need order. If you make some other kind of order you will need to make provision for that.[83]MR JUSTICE SULLIVAN: Yes. It is 7, 17, 22 and 23. I do not think I need trouble you on standard or indemnity. As far as principle I do not trouble the respondents. The Director wished to litigate an issue of principle. She has failed. She should pay the costs of it. I do not think that there is a good analogy with the split trial. I am far from satisfied that deciding this issue will help the Director who has put her argument on principle and has failed. She should pay the costs of doing so. Costs should be on a standard basis. The only question is whether costs should be costs in the case.[84]MR COLBY: My fallback, if you are not with me on principle, is that the costs should be costs in the case. The intention is to reserve as much discretion to the trial judge as possible.[85]MR KROLICK: The situation is that I have an application that there should be payment on account. The Director has applied for a freezing order. My instructing solicitors had to apply to have the order varied to enable them to secure the costs of meeting these proceedings. It is clear that if these costs are to be dealt with some time hence -- we are speaking not only at some future stage when these proceedings are over. Do you recall that at the end of one of the sessions I raised the question of the claim form itself. I do not believe the claim form used the words "unlawful conduct", never mind specifying specific offences. This is a discrete point. In my submission, there is no reason why the respondents to this point should have to wait until the outcome of these proceedings in many, many months time to recover their costs which are they are entitled to now.[86]MR JUSTICE SULLIVAN: I am not persuaded that the costs should be costs in the case. It might be appropriate if I thought that this application or issue was tied to the facts of one of the cases. It has been pursued as a point of principle. Costs should follow the event after the determination of that point of principle has been determined against the Director. She should pay the costs. I order it. I am not persuaded that they should be on an indemnity basis.[87]MR KROLICK: I ask that there should be a payment on account pending detailed assessment of the costs. You have the power to make that order. My solicitors had to apply to have the freezing order in relation to the 6th defendant to be varied to enable payment to them from his own money.[88]MR JUSTICE SULLIVAN: It is a Friday afternoon. I do wonder whether it is necessary to get into this. The sensible course, having resolved the preliminary issue and having ordered that the Director pay the respondents costs to be taxed if not agreed, I can put in liberty to apply. I would have thought that questions about payment on account, it may be they could be particularised since there is outstanding the question whether the Director will wish to take up the permission to appeal in any event. Even if I had not given permission the question whether or not she should ask the Court of Appeal would be a live issue. Those are matters best dealt with in post hearing discussion and correspondence and brought back to the court if essential.[89]MR KITSON: Can I try and change your mind? I take on board what you say, that these things might be better dealt with outside the court. My experience in this case is that the Treasury Solicitor has not made it easy for any respondent to have recourse to public funds to obtain funds from seized assets. In respect of my client, if no order is made for an interim payment it is unlikely that there will be sufficient left in the kitty to provide representation all the way through a long trial. My client will be seriously prejudiced by having incurred the costs of this hearing if it cannot get a substantial proportion of those costs from the Treasury Solicitor. One could bring it back to court but it seems unsatisfactory.

MR JUSTICE SULLIVAN: You have liberty to apply.

[91]MR KROLICK: It is most unsatisfactory to deal with these applications on a generalized basis. My client will be placed in difficulty.[92]MR JUSTICE SULLIVAN: I have no figures. I have no background information in relation to the individual cases. If I am going to be asked to make orders like that against a government department, who on any basis is going to be good for the money in the end, I would need to be persuaded that there was a particular reason to do so. It may be that there is good reason but I need detail and I need material, and that is why I suggest the better course is to see if matters can be resolved out of court. If they cannot you can make the appropriate application backed by the material. The court can decide on the basis of firm information whether it is fair to make a particular order. As it is we are flashing around in the dark.[93]MR KROLICK: I can give you a broad figure of the amount of costs incurred in respect of this application. You are not going to allow the full amount. I would ask you to make an educated guess as to what the minimum that could possibly be recovered on an inter partes assessment is and give the assistance to the party seeking the payment of allowing that amount.[94]MR JUSTICE SULLIVAN: Since I do not have the starting point, which is the amount incurred, one cannot bandy figures around. I am not prepared to do it on that basis. I am prepared to consider it if the material is set out in an acceptable form, even in an exchange of letters:
"Here is our bill. We need XYZ to carry on."
Then one can respond to that. I would have thought that you were covered by a liberty to apply in the case. I am not declining to order interim payment of the costs. I am giving liberty to apply on the basis that at the moment I do not have the material to decide whether it would be right or wrong to make an order. It is not as though you have been refused. You can come back and put your best foot forward if you think it right to do so. I do not think that 4 o'clock on Friday afternoon, with no supporting information, is the best way of dealing with the application. Mr Colby, there is nothing further you need do in relation to further directions. MR COLBY: In McCombe J's order on 18th November the parties are at liberty to restore the case for a further CMC. I have discussed it with my learned friends. You do not need to make any further procedural directions today. It is hoped we can all make sensible accommodation.

Cited in 31 later judgments

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