Szepietowski v Assets Recovery Agency [2006] EWHC 3228 (Admin)

Case No CO/8611/2005[2006] EWHC 3228 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Venue Royal Courts of JusticeDate Tuesday, 28 November 2006
Strand
London WC2
B E F O R E:
MR JUSTICE MITTING
JOHN SZEPIETOWSKI
(CLAIMANT)
-v-
THE DIRECTOR OF THE ASSETS RECOVERY AGENCY
(DEFENDANT)
Computer-Aided Transcript of the Stenograph Notes of
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MR J FISHER QC and MR N VINEALL QC (instructed by Bivonas, London ECV 3ND) appeared on behalf of the CLAIMANT
MR D BARNARD and MR P HARRISON (instructed by the Assets Recovery Agency, London EC4M 7XQ) appeared on behalf of the DEFENDANT
J U D G M E N T
Between
SzepietowskiClaimantAssets Recovery AgencyDefendant
[1]MR JUSTICE MITTING: On 26 October 2005, Stanley Burnton J made an order on the application of the Director of the Assets Recovery Agency under sections 245A and 246 of the Proceeds of Crime Act 2002, freezing and appointing an interim receiver of real and personal property belonging to John Szepietowski and Susan Anne Szepietowski, known as Seery (his wife), the first and Second Respondents. The orders extended, in effect, to all of their, property real and personal. Listed in the real property identified in the order was their matrimonial home, Ashford House, Four Winds Park, Old Avenue, Weybridge, and personal chattels including jewellery and works of art. Not included in the list, but comprised within the terms of the order, was 6 Holland Road, Kensington.[2]The first respondent makes an application for the freezing and receiving orders in relation to the two properties and the chattels to be discharged on the footing that the director has not shown that she has a good arguable case that the property is, or includes, recoverable property as is required by section 245A and 246. The director yesterday served a claim form setting out in summary her case that this and other property is recoverable property under Part 4 of the 2002 Act. She now concedes that the chattels are not recoverable property and consents to the discharge of the order in respect of them. The director's case in relation to Ashford House and 6 Holland Road is summarised in paragraph 5 of the claim form, which states:
"The property set out in Schedule 1 [including the two properties] was obtained by or on behalf of the First and Second Respondents, between January 1991 and July 2005, in whole or part with: 5.1 monies obtained through mortgage fraud; 5.2 the rental income generated from other property obtained through unlawful conduct (namely mortgage fraud); and, 5.3 the proceeds of sale of other property obtained by unlawful conduct (namely mortgage fraud)."
[3]The director has therefore satisfied the requirement identified by Sullivan J as being contained in section 242(2)(b) in R (on the application of the Director of Assets Recovery Agency and Others) v Green and Others [2005] EWHC 3168 of setting out the matters which are alleged to constitute the particular kind, or kinds, of unlawful conduct by which the property was obtained.[4]The report of Sarah Dayman, the interim receiver, of 18 August 2006 sets out most of the material on which the director now relies in support of her claim generally and in relation to two properties. Generally she has unearthed extensive and plausible evidence of multiple applications for advances secured by a first charge on real property, mostly residential, in various names plausibly connected to the first and second respondent in which false representations were made as to the employment and income of the applicant, usually the second respondent.[5]There is clear evidence of offences contrary to section 17 of the Theft Act 1968 and since 15 December 1996, section 15A and if the applications were made by or for the benefit of both of the respondents, as is often the case, of conspiracy to defraud before they married on 25 January 1995. Fraudulent applications were made before and after the purchase of the two properties and before and after 26 October 1993, 12 years before the applications for freezing orders and the order for the appointment of an interim receiver were made.[6]Miss Dayman obtained evidence about the declared and likely actual income of the two respondents and about any capital which may have become available to them as a result of property dealing, including mortgage fraud or other causes. In summary the first respondent earned £84,000 between 1988/89 amd 1991/92 from Fairmile Estates Ltd, a property development company which collapsed in 1991. No other income was traced by Miss Dayman, apart from rental income from mortgage properties. The second respondent was branch manager of Leeds Permanent Building Society from 1987 until 14 April 1993 (a period of six years during which her income was £84,000 gross). The gross rental income from mortgage properties is as follows: 1993/4 £77,000, 1994/5 to 1996/7, a period of three years, £390,000.[7]Examples referred to in the body of Miss Dayman's report for particular years suggest that net rental income after deducting mortgage payments represented approximately 30 per cent of the gross income. The net pre-tax income was therefore approximately £25,000 in 1993/4 and £120,000 in 1994/5 to 1996/7. In addition there is evidence of the obtaining by the second respondent of just under £25,000 by the purchase at a declared price of £60,000 of a house at 9 Culverdon Court, Oaklands Drive, Weybridge on 25 May 1992. The actual purchase price is believed by Miss Dayman, again on plausible grounds, to be £31,000, leaving a balance of £29,000. She has unearthed evidence that a mortgage advance of £55,975 was made by the Leeds Permanent Building Society at a time when the second respondent was a branch manager there, leaving an apparent surplus of just under £25,000. There is therefore evidence in relation to that one transaction alone of the obtaining of a capital sum of £25,000 as a direct result of mortgage fraud.[8]The report also contains plausible evidence about the acquisition of the two properties. Number 6 Holland Road was bought by the first and second respondent on 12 May 1994 in the names of John and Susan Anne Martin for £183,000. The source of funds is set out by Miss Dayman in paragraphs 2.348 and 2.349 of the appendix to her report:
"The following amounts were transferred into the client account of Thornton & Co solicitors: - £9,150.00 was paid in by cheque on 7 April 1994 in respect of the deposit monies. -£173,850.00 was transferred on 9 May 1994 representing the balance of funds to complete the purchase. 2.349 I have not been able to determine the source of the funds used to purchase this property due to the passing of time and the lack of supporting documentation. There was no charge registered against this property, indicating that it was purchased without mortgage financing."
She obtained from the first respondent's accountant, Simon Hathaway, a letter sent by him to the Inland Revenue of 5 September 2005 in connection with the belated disclosure by the first respondent to the Inland Revenue of his income and capital gains in, amongst others, the years with which I am concerned. In paragraph 1 the letter stated:
"I am uncertain as to where Holland Road is and I would be grateful if you could clarify this. With regard to this purchase you show on your schedule a purchase price of £184,000 broken down as £50,000 from Susan's divorce, [a reference to the second respondent] £90,000 from your Mother and £30,000 credit cards. This totals £170,000 and therefore I have rescheduled the financing to read slightly differently. As it is a major starting point it would be useful if you could provide any documentation regarding Susan's divorce and the money from your Mother."
In a "Summary of Property Assets" accompanying the letter, the following was stated:
"In February 1994 Mr and Mrs Szepietowski bought 6 Holland Road [blank] for £184,000. This was financed by: Legacy from Mr J Szepietowski's Mother - £95,000 Mrs Szepietowski's divorce - £60,000, Credit cards and loans - £30,000."
Miss Dayman points out correctly that the first respondent's mother did not die until September 1996, therefore the explanation cannot be correct. Her conclusion was set out in paragraphs 2.373 and 2.374 of the appendix to her report:
"2.373 Without a reasonable explanation to the contrary I have concluded that the purchase of this property would appear to result directly from unlawful conduct/the proceeds of crime, and is recoverable pursuant to Section 305 of the Proceeds of Crime Act 2002. 2.374 The First and Second Respondents have committed the common-law offence of cheating the public revenue through their failure to declare the rental income arising from 6 Holland Road and consequently I believe that this rental income is the proceeds of unlawful conduct."
In paragraph 4.68 of the body of her report under the heading of unlawful conduct it reads:
"I have been unable to identify legitimate sources that would have enabled the First and Second Respondents to acquire this property for £183,000.00. I believe that the total legitimate income of both Respondents during the 12 year period covered by the Order of £76,802.50, being income declared to HM Revenue & Customs by the First Respondent during the period covered by the Order. I do not believe that the First and Second Respondents would have had sufficient legitimate funds to acquire this property after discharging their significant living expenses."
[9]This is a repeated theme in Miss Dayman's report - that the underlying conduct was the crime of cheating the Revenue. The director has taken counsel's opinion upon this proposition and, for the purpose of present proceedings, has expressly abandoned it.[10]Miss Dayman's report also reveals some information about the purchase of Ashford House. It was bought on 8 April 1997 from Mona De Freitas and Gabriel Bivolaru. The purchase price was stated to be £900,000. Mr Bivolaru, as at August 2006, was said to be in prison in Romania for fraud. Miss Dayman has been able to trace just over £505,000 which was applied towards the purchase, £435,051 being the net amount advanced by Investec Bank, Jersey, secured by a first charge and £70,000 from an unknown source.[11]She has not been able to trace the balance of £395,000. She considered two possible alternatives: first that the purchase price was inflated and only £505,000, or some lesser sum, was actually paid, and secondly, that £900,000, or some other larger sum, was paid and the balance was derived from unlawful conduct. She concluded that the second was what had occurred in paragraph 2.563 of the appendix to her report:
"I believe that the First and Second Respondents contributed £450,000.00 to the purchase price. I have been unable to identify legitimate sources of income that would have enabled them to fund this amount, and therefore believe that these funds were the proceeds of unlawful conduct."
[12]The unlawful conduct was identified by her in paragraph 4.86 of the body of her report in the follows terms:
"From 1993/94 to 1996/1997 neither the First nor Second Respondents declared any income to HM Revenue & Customs. I believe that the total legitimate income of both Respondents during the 12 year period covered by the Order is £76,802.50 being income declared to HM Revenue & Customs by the First Respondent during the period covered by the Order. I do not believe that this would have been sufficient for the First and Second Respondents to provide £450,000.00 of funds for the purchase of this property after discharging their living expenses. 4.87 Without a reasonable explanation to the contrary I have concluded that these funds would appear to result directly from unlawful conduct/the proceeds of crime."
Again, and as in the case of 6 Holland Road, the basis upon which Miss Dayman made those assertions, namely that the underlying unlawful conduct was cheating, has been expressly abandoned by the director.[13]In relation to Ashford House Mr Barnard draws my attention to the second paragraph of the letter of Mr Hathaway of 5 September 2005:
"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."
[14]Durward Mansions was, it seems, for a short time the matrimonial home of the first and second respondents. Percy Road was a property that was inherited by the first respondent and so, on any view, not acquired out of the proceeds of mortgage fraud.[15]Again in the "Summary of Property Assets" there is reference to this property in paragraph 3:
"In May 1996 Mr and Mrs Szepietowski moved from Holland Road and bought 1c Durward Mansions. This was sold in June 1997 when they moved into Ashford House, which was purchased for £700,000 and financed by: Mortgage Investec Bank - £450,000 [Investec Bank was substituted in handwriting for AIB] Residue of re-mortgage on Percy Road - £65,000. Sale proceeds from Durward Mansions - £225,000."
[16]Mr Barnard has also told me the results of Land Registry searches, which are said to reveal that 1c Durward Mansions was bought by a firm called Ingestre Properties Limited for £425,000 on 6 June 1997, and sold in September 1997 for £597,995 to two people, one of whom was Mr Bivolaru.[17]On any view the source of the totality of the funds by which Ashford House was acquired remains obscure. Mr Barnard puts the director's case in relation to the two properties, the subject of this application, in the following way: the first and second respondents can be shown to have been committing extensive mortgage frauds before and after the purchases of the two properties and before and after 26 October 1993. They may well have committed frauds other than those discovered by Miss Dayman.[18]No other explanation for the cash, sufficient to fund the two purchases, has been disclosed by them. The accountant's correspondence demonstrates that it was proposed, at least, that lies be told to the Inland Revenue about the source of the funds used by the properties, as to inheritance in relation to 6 Holland Road, and as to the balance of the funds required to buy Ashford House. Therefore, he submits, I should draw the inference that the purchase price of the two properties, not funded by the Investec advance of £435,000 on Ashford House, is derived from mortgage fraud. It is derived, he submits, from the income receipts from properties acquired before the two properties were purchased, and, perhaps, by the release of capital on properties similarly acquired. It is noteworthy that in the schedule of properties said to have been acquired as a result of mortgage fraud that have been sold and which have been identified, none of the sales took place before either of the two properties was bought. The only capital claimed to have been released, which can be identified, is the £25,000 released by the purchase of 9 Culverdon Court.[19]Mr Fisher QC submits that, first, no lies were told; Secondly, that the proposition that the source of funds is mortgage fraud is purely speculative; and thirdly, that even if some part of the purchase price of either or both properties was derived from mortgage fraud, those frauds were committed before 23 October 1993 and therefore any claim in respect of them, or of property derived from them, is statute barred.[20]As to the first point, in my view Mr Fisher is correct. There is no evidence that lies were actually told to the Inland Revenue and there is a slight indication in the form of a handwritten note of "900" against "£700,000" in the "summary of property assets", already referred to, which suggests that the first respondent, or someone, may have corrected the £700,000 initially proposed as the purchase price by Mr Hathaway. On any view, there is no evidence that a lie was actually told.[21]As to the second proposition, Mr Fisher is also, in my judgment, right. The figures for the cash likely to have been generated by mortgage frauds amount to no more than £50,000 before the purchase of 6 Holland Road, 30 per cent of the rental income for 1993/4 and the cash released on the purchase of 9 Culverdon Court; and £170,000 before the purchase of Ashford House: those sums plus the net income in the succeeding three years.[22]Therefore, even assuming that not a penny was spent on living expenses, the figures do not add up. The evidence obtained by Miss Dayman suggests that the first and second respondents lived "high on the hog". There is evidence of extravagant motorcars, the acquisition of valuable chattels and so forth. It seems to me to be extremely unlikely that the first and second respondents would not have dissipated at least a substantial portion of the sums, which might have been released by mortgage fraud, on living.[23]Mr Fisher's third proposition requires consideration of the law. The point only arose for consideration for the first time this morning, but I am satisfied that it has been as fully researched as is possible, and accordingly it is possible to form, for present purposes, a clear preliminary view about it. The relevant provisions are as follows: first in the Proceeds of Crime Act 2002, section 240(1)(a): (1) This Part has effect for the purposes of- (a) enabling the enforcement authority to recover, in civil proceedings before the High Court … property which is, or represents, property obtained through unlawful conduct." Section 266(1):
"(1) If in proceedings under this Chapter the court is satisfied that any property is recoverable, the court must make a recovery order."
Section 304:
"(1) Property obtained through unlawful conduct is recoverable property."
Section 305: (1) Where property obtained through unlawful conduct ("the original property") is or has been recoverable, property which represents the original property is also recoverable property. (2) If a person enters into a transaction by which- (a) he disposes of recoverable property, whether the original property or property which (by virtue of this Chapter) represents the original property, and. (b) he obtains other property in place of it, the other property represents the original property." Section 306(1):
"(1) Subsection (2) applies if a person's recoverable property is mixed with other property (whether his property or another's) (2) The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct."
Two provisions of the Limitation Act 1980 (as amended) are relevant. Section 27A:
"1 None of the time limits given in the preceding provisions of this Act (the Limitation Act) applies to any proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002, civil recovery of proceeds of unlawful conduct. 2. Proceedings under that chapter for a recovery order in respect of any recoverable property shall not be brought after the expiration of the period of 12 years from the date on which the director's cause of action accrues."
The cause of action is deemed to accrue on, amongst other dates, the date on which an application for a freezing order, or an interim receiving order is made, 23 October 2005.[24]Finally section 32(1)(a) which provides:
"... 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... the period of limitation shall not begin to run until the plaintiff has discovered the fraud ... or could, with reasonable diligence, have discovered it."
[25]Mr Barnard submits that the normal limitation period is 12 years before the application (see 27A(2)) but that the normal period is extended by section 32(1)(a) in a case in which the basis of the director's claim is fraud. Mr Fisher submits that the claim is against property and not against a defendant and is therefore not, in the words of section 32, based on fraud. No Parliamentary material has been submitted to me because Mr Fisher's researches lead him to the conclusion that no reference was made to limitation in any of the material put before Parliament.[26]Mr Barnard's proposition, if correct, would have the surprising consequence that there would be a specially extended limitation period in the case of criminal conduct where that conduct was fraud, but not where it was different, but equally reprehensible: drug dealing, robbery, theft or any of a number of crimes capable of giving rise to pecuniary gain on the part of the perpetrator. I can see no policy reason for such a curious outcome.[27]Do the words of sections 27 and 32 compel it? In my view they do not. The nature of a civil recovery claim is that it is a claim against property: see the general enabling provision in section 241A. The object of the proceedings is to achieve an order under section 266, namely: "a recovery order." As is provided by section 266(2), "a recovery order vests recoverable property in the trustee for civil recovery." These are not proceedings brought against a defendant personally, although of course, he as the apparent owner of property, will be joined in a proceedings as respondent.[28]Parliament has provided for a lengthy limitation period in 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 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.[29]Accordingly, in my view, Mr Fisher is right, the limitation period is that laid down in section 27A and is not, on the facts of this case, capable of being extended so as to apply to any money or property obtained as a result of mortgage frauds committed before 23 October 1993.[30]It follows that Mr Barnard's case is based, to put it at its starkest, on two premises: first, largely undisclosed mortgage frauds and, secondly, mostly committed at a time when any civil recovery proceedings brought in respect of them would be statute barred.[31]Because there are identified funds generated by identified mortgage frauds, it remains a possibility that a fraction of indeterminate size of the purchase prices of 6 Holland Road and Ashford House was derived from mortgage fraud. A smaller fraction may be derived from mortgage fraud committed after 23 October 2003, but it is impossible to say that there is capable of being identified any significant part of the purchase price so derived, or any good arguable case as is required by the statute that either property was so obtained.[32]Mr Fisher's basic point, which is, subject to that minor qualification, in substance correct, is that the director's claim to that effect is speculative. Miss Dayman did not put it in that way in her report. She has discovered nothing beyond the facts that I have recited to indicate that it may be so. In my judgment it is unlikely, though not wholly impossible, that the two properties were obtained as a result of unlawful conduct in the sense that I have explained it.[33]Accordingly, I accede to the first respondent's application in relation to his interest in the two properties, and discharge both the freezing and receiving orders in relation to them.[34]MR FISHER QC: May it please you, my Lord. Thank you for, as my Lord anticipated, clarifying the position. It follows, we would say, that in the light of my Lord's judgment the costs of this application should follow the event and we therefore apply for our costs. The secondary question arises as to whether in those circumstances, in making our application for costs, we do need to re-visit any of the other matters that, of course, we have set out in our skeleton relating to the way in which the orders were obtained and the issues of non-disclosure.[35]MR JUSTICE MITTING: I have formed a preliminary view about that. As Mr Barnard may say, "You should only be liable for a portion of your costs because I have only decided a part of the issue". It may be that both of you would like to hear what those preliminary views are. First of all, I will ask Mr Barnard.[36]MR BARNARD: Your Lordship is asking me whether I would like to hear--[37]MR JUSTICE MITTING: If you concede that the costs of this application should be paid by the director, then there is no need to go into the matter any further. If you claim that part of the expenses have been occasioned by what are now not pursued, or not relevant, accusations of non-disclosure against the director, then either I have to hear that or attempt to short-circuit it by indicating what my preliminary views are. I have read the papers extensively. I have formed my views. I will not tell you what they are if you immediately jump up and say "I have made my mind up" and therefore pre-empting the submissions that you may make, but if you would like to hear them I will gladly tell you them.[38]MR BARNARD: Yes.

MR JUSTICE MITTING: Are you agreed, Mr Fisher?

[40]MR FISHER QC: Yes.[41]MR JUSTICE MITTING: You really have three points? Can I do it by simply addressing you. First, the director should have drawn attention to the fact that the report of the Tribunal's findings was clearly incomplete. The director says it was a mistake, "I only had up to page 40, not pages 41 and 44". You say that in relation to that it is perfectly obvious. It seems to me that you are right. Anyone reading that document could not possibly have thought it was complete and the director should have obtained the extra pages. I do not think they make a great deal of difference. They certainly exculpate the first respondent, on the facts as found by the tribunal, of dishonesty. They are a clear instance of, albeit innocent, participation in money laundering, evidence of participation in money laundering which, put together with the first interim receiving order claim (the Inheritance Trust), begins to demonstrate a pattern. None of that is relevant to the particular issue that I have decided because it is entirely a separate matter.[42]As regards the disclosure of the Inland Revenue investigation, the director had a difficult task. She had been given the information in confidence or Mr Ross Evans (?) who, if that is his real name, had been given it in confidence. I think he was put in a dilemma. The information was clearly highly relevant as to whether or not a receiving order should have been made, because if the Inland Revenue were about to embark on a detailed investigation, then a freezing order alone would probably have been all that was necessary.[43]On the other hand, the director was quite right not to want to "tip you off" about it. I think, therefore, that some novel form of procedure, such as a PII application, would have had to have been undertaken. This, I think, therefore is a learning curve rather than deliberate misconduct, or anything approaching it, by the director or her staff.[44]As to your final point: the possibility of arguing that there was no identified misconduct here, that, I think, is a question of law and I do not think it takes matters a great deal further. Certainly it was debatable, one would have hoped, if one had heard the application that one would have been alert to it, probably not. In an ideal world the director might have flagged it up as an available argument, but I do not think it adds much to the first two.[45]MR FISHER QC: My Lord will not lose sight of the fact that we have the unusual circumstance here where the second order was obtained certainly in part, if not large part, on the basis of an argument in law which in fact has been conceded as wrong, namely the point about unpaid tax being retained. My Lord will remember I mentioned this morning that we were adding that into the equation.[46]MR JUSTICE MITTING: I have expressed my preliminary views on the issues which have been extensively debated on paper. The conclusions are to be drawn which are a matter for submission now. If you do not agree with them then you will have to argue them tomorrow. If you are willing to accept them and make short submissions on costs now then I can deal with costs now.[47]MR FISHER QC: The answer to that is of course we would. There are a number of matters my Lord has indicated that we would wish to argue, but it may be that in the round they are not going to make any difference to the ultimate determination my Lord has to make in respect of costs. In those circumstances, certainly we would want to be able to have the costs issue determined, if possible, today, rather than having to come back tomorrow. Perhaps you can give me one moment? (pause)

MR JUSTICE MITTING: Yes.

[49]MR FISHER QC: We have, if, my Lord, you are agreeable to this, a division of labour between myself and Mr Vineall, who is in fact better equipped to deal with the costs issue. Perhaps at this point, having indicated what I have said to my Lord, my learned friend, Mr Vineall, can proceed with the costs issue?[50]MR JUSTICE MITTING: Mr Vineall, I am not inviting submissions on quantum at the moment. It seems to me that the amounts claimed are such, and the lack of breakdown of counsel's fees are such, that there would have to be a detailed assessment here, in any event.[51]MR VINEALL: I was going to invite the court to put it for a detailed assessment, albeit interim payment on account. There is the question of principle before then. I think I can take it very quickly. It may be that the Assets Recovery Agency will invite your Lordship to issue a based costs order. If so, there would be, I think, five issues. The first is the cross-admissibility of evidence on IRO1 and IR02, that is the point we lost before Silber J. The second is the revenue fraud point and the question of principle, which was conceded at a late stage. The third is the non-disclosure point. On the basis of your Lordship's indications I suppose that might be described as "a score draw", and probably not worth delving into it to any great extent than that.

MR JUSTICE MITTING: That is a very fair summary.

[53]MR VINEALL: The fourth, and always going to be the critical point, which is the substantive point and the first point on the application notice: was there sufficient evidence either now or at the time when the order was made? On both limbs we have won 100 per cent on the specified properties. The fifth point, the point which (inaudible) point the specification, which we have also been successful.

MR JUSTICE MITTING: That is actually comprised in the fourth.

[55]MR VINEALL: It is a sub-part of the fourth point. One short point on the properties on my client's case: the properties which your Lordship has dealt with today, the chattels, Holland Place and Ashford Place are the only properties in which he has an interest.

MR JUSTICE MITTING: That is debatable.

[57]MR VINEALL: It is because we can see that there is an arguable case put forward by ARA in relation to other property, that we are not pressing the court to set aside this order in its entirety. The sensible way forward, when my client says "These are my properties" and has succeeded in relation to them, in a sense it hardly lies to this side of the court to say "you must express (inaudible). The substantive point is that he has been successful in relation to all of his property on his case. In other words, the difference between setting aside overall.[58]MR JUSTICE MITTING: He has got what he has applied for. I do not think it is necessary to go beyond that, nor from your point of view is it worthwhile because examination of the accountant's correspondence might reveal a different answer.[59]MR VINEALL: I am grateful. On that basis we say it would be preferable to make a straight costs order. I think I have to accept that the court in its discretion could make an issue based costs order. It could make an order in favour of the Assets Recovery Agency on the short cross-admissibility point that was made last time. We would urge you not to make an issue based order. This was one interlocutory application, it is not like a trial. There is very much a sense in which all the issues raised go together to what is, at the end of the day, an exercise of discretion. In the final result we have been successful. If your Lordship were minded to make an issue based costs order, as your Lordship knows the rules encourage the court to make a percentage rather than simply make separate orders. We would invite the court to do that and the per cent against us should be modest because the only point on which we were unsuccessful was dealt with very quickly when the matter came before Silber J. The costs of the adjournment were entirely caused by the Assets Recovery Agency not being willing to argue the point they have now conceded, so that taken in the round the points on which we lost only went to, in effect, counsel costs. There was no evidence and there was no investigation of the evidence necessary. There was a short point of law and it will shortly be dealt with. We would urge upon the court to take an overall view, given it is a single interlocutory application, and reverse the costs.[60]MR BARNARD: There are, in my submission, six issues to be considered. Can I ask your Lordship for a second to just look at the core bundle at tab 1. You will see the application notice. In the application notice the original application raised three points. Firstly, and this is dated 8 June 2006, there is insufficient evidence to establish that the agency had a good arguable claim over any of the assets of the first respondent. Pausing there, as your Lordship appreciates Miss Dayman did not report until 18 August. At that stage that application notice was an application which related to the evidence before Stanley Burnton J in October. Issue number 1, as I identify it, is: was there sufficient evidence in October 2005? The second issue, that has never been argued.

MR JUSTICE MITTING: I based a large part of my factual assessment on the report of 18 August 2005.

[62]MR BARNARD: It was 2006, my Lord.

MR JUSTICE MITTING: The index says it is 2005.

[64]MR BARNARD: It is wrong. The second issue is: the agency was not entitled to rely on the evidence which had been obtained by the receiver under IRO1. That is paragraph 2 of the application notice. On that issue the matter was heard before--

MR JUSTICE MITTING: You won that.

[66]MR BARNARD: We won that. The next issue which is raised is delay.[67]MR JUSTICE MITTING: Delay is not a live issue. It has not been followed.[68]MR BARNARD: Delay, in my submission, was a hopeless application because it involved saying the agency should issue a claim form and particular--[69]MR JUSTICE MITTING: No time or effort has been spent on it. It is irrelevant.[70]MR BARNARD: Number 4 is the non-disclosure. On non-disclosure it is, in my submission, obvious that those who decide to put forward this application (this is put forward by way of skeleton and is a point I am not taking you to) could not have known of the case of Jennings. It would have been referred to in the authorities. Jennings, in my submission, means that application was at least, to the extent it was an application, discharging the order and was doomed to failure.[71]MR JUSTICE MITTING: Yes, but as in the case of Jennings it could have been met by a costs order on the basis that you did not disclose as you should have done.[72]MR BARNARD: It could have been met but, bearing in mind the indication your Lordship has given, in my submission it is unlikely. One does not know. It has not been argued, I would say, on point 4.[73]MR JUSTICE MITTING: There is no way in which I would have discharged the order for non-disclosure, but I have made qualified criticisms of the actions of the director.[74]MR BARNARD: My Lord, one would have then considered what costs, if any, should be made. I would say on non-disclosure it is really a matter which should not be argued. The fifth point where Mr Szepietowski has won is that in the light of the receiver's report in August 2006 the properties: Holland Road, Ashford House and the chattels are excluded from the receivership order.[75]The last point is the revenue point. This was a distinct point which was raised in the skeleton argument. I think, my Lord, the argument before Silber J was on a Tuesday. It was raised, I think, at the end of the last week. This question was an important point to the agency of whether or not the proceeds of Revenue fraud can equal property which can be subject to a Part 5 claim. The point we made to Silber J (and he agreed without arguing) was that it was a sufficiently important point that we wanted to consider it fully. That is why there was the adjournment of that issue. When we had considered it fully we indicated we were not seeking that point, nevertheless, for reasons which I understand, the respondents then sought to argue the matter in their skeleton argument.[76]MR JUSTICE MITTING: If we look at the timing, your concession and the skeleton argument coincide in point of time. The skeleton argument was prepared before the concession.[77]MR BARNARD: Once we made the concession and there was that skeleton argument we then wanted to be able to prepare the case to deal with that issue. The argument was put to us, we were told, that that point was alive and was going to be pursued today. Indeed I understand, and will confirm, that he did intend to pursue that argument today. Where does one come down to? In my submission one looks at (forgive me for citing it) CPR 44.3. The real guidance is paragraph 2, which is the general rule. In particular, I would say at paragraph 4:
"In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including- ... (b) whether a party has succeeded on part of his case..."
[78]I would say that this is a case application even if you have not been wholly successful. What I would say is that a great deal of material, which has had to be prepared, has not been argued on one substantial issue, which was a challenge to the receiver's powers, the court found me out of favour (?) and your Lordship knows that is now a reported case. We have finally today an order for costs. I would respectfully submit your Lordship could make two possible ones: one is costs on those two issues but it may be fairer to look at it in the round and say there should simply be no order as to costs except that costs should be in the case.[79]MR VINEALL: Just one point in reply. The first time at which the revenue point is made is paragraph 56 of Mr Szepietowski's statement of 23 June 2006 where he says This:
"Pending the outcome of the Code 9 investigation I am prepared to accept that I may have retained monies as a result of my failure to declare income and chargeable gains to HMRC. However no failure by me to disclose income or gains to HMRC has resulted in my obtaining (as opposed to retaining) any monies."
[80]MR JUSTICE MITTING: In my view the nub of this case always was the application for substantive relief. It is true that it has changed over time, but it has changed over time in response to a change over time in the director's case. In my view neither change is in any way to be criticised. Both respond realistically to alterations in underlying evidence about the facts, and sensibly altered or reconsidered perceptions about the law, as they apply to it. I attribute about 60 per cent of the total work undertaken on this application to that aspect of the claim.[81]The director has succeeded in one important matter, namely the cross-admissibility of evidence obtained by the receiver, but I am told, without opposition, that that did not take a great deal of time before Silber J when it was determined. Although it is an important issue, in my view it cannot account for more than at most 20 per cent of the overall cost of the application.[82]As to the remaining matters, the director's concession of reliance simply on cheating the Revenue was not available to her as an underlying basis for her claim. It was made relatively late in the day. It generated a certain amount of legal argument, but no sensible investigations into the facts because the facts are plain. In my view that accounts for about 10 per cent of the totality of the work on the case.[83]As far as non-disclosure is concerned, that too accounts for a good deal of legal exchange, but no great investigation of evidence, and likewise accounts for about 10 per cent of the totality. That is accurately described by Mr Vineall as a "score draw".[84]Accordingly, I am left with about 20 per cent of the costs attributable to an issue on which the director has succeeded, and about 70 per cent of the costs attributable to an issue on which the first respondent has succeeded. I therefore order that the director pay 50 per cent of the first respondent's costs of this application to be the subject of a detailed assessment, if not agreed. If there is to be an application for an interim payment I invite it in a few sentences now.[85]MR VINEALL: Your Lordship has seen the schedule submitted on our behalf. The number of hours spent by my instructing solicitor is almost exactly the same as the number of hours spent on the other side. I tottered them up.[86]MR JUSTICE MITTING: I have only seen your schedule. I have not seen the director's.[87]MR BARNARD: Can I ask your Lordship to take a short cut: we do not object to an interim payment.

MR JUSTICE MITTING: The figure?

[89]MR BARNARD: That is different. Your Lordship does need to compare the two schedules.[90]MR JUSTICE MITTING: Can you give me, in headline terms, the number of hours spent on each side on this?[91]MR VINEALL: Yes, ARA's solicitors 79 hours, my solicitors 84 hours, counsel, Mr Barnard, 50 hours and Mr Harrison 35 hours, that is a total of 85 hours. On our side the figures are 122 hours and 93 hours. They are very much higher on our side, but I make this important point, first of all: we are the applicants and had to make the running. Perhaps more significantly what of course one does not see from our schedule, which is no criticism, is all the work done by the interim receiver. Most of the work on our side is the work which goes into putting together the evidence and putting together the reports. I think it is a safe presumption that the receiver has expended vast quantities of money on this case. When your Lordship comes to look at those costs I very much urge that point on the court. We do not have someone fulfilling that function. Fifty per cent of the grant total would be £60,000. Obviously if your Lordship makes a payment on account, an interim payment will reduce that. It is a matter for discretion. I do not think it is helpful for me to suggest a figure.[92]MR BARNARD: There is only one point, as your Lordship will know well in restraint jurisdiction having a receiver that costs are payable out of the assets restrained. That does not apply in this type of case. The receiver's costs are borne by the agency. I must mention that because.[93]MR JUSTICE MITTING: In restraint cases the receiver's costs are paid out of the assets restrained. In civil recovery proceedings they form part of the litigation costs. They are awarded in the event if successful.[94]MR BARNARD: The point which is made is that the receiver's cost would be substantial I am sure that is right but they are going to be borne by the agency.

MR JUSTICE MITTING: Subject to an order for costs being made against the respondent.

[96]MR BARNARD: I agree it is a matter for your Lordship's discretion.[97]MR JUSTICE MITTING: I make an order for interim payment of £30,000 plus VAT towards the respondent's costs.[98]MR BARNARD: Before your Lordship rises there is the question of permission to appeal? There is one point of law which is of some significance. Your Lordship may say it is absolutely clear beyond doubt, but I would ask, on behalf of the agency, for permission to appeal.[99]MR JUSTICE MITTING: I refuse your application not because I think the question is not arguable, as I think it is arguable, although I am clear in my own mind what the answer is, but simply because it only arises on an application. As I said in my judgment, I have enough argument and material on which to form a preliminary view, but it does not bind the judge who tries this case ultimately and it is surely better that these matters are determined on facts found.[100]MR VINEALL: There is one further matter. In the case under part 5 obviously there is the question of costs inter partes, but also the question of costs: solicitor and client. We have had difficulty persuading the Assets Recovery Agency that out of my client's assets our costs should be discharged. I do not know what line the Assets Recovery Agency will take on the costs which have been incurred, but the schedule shown here asserts, and I can assure the court it is right, that those hours have been spent and those costs have been incurred. We would invite the court, at any rate, to indicate, in terms, allowing them to be paid from assets that have been released for that purpose. It is appropriate that they should be discharged because without that, putting it bluntly, those sitting both behind me and in front of me do not get paid.[101]MR JUSTICE MITTING: I anticipate there will have to be a detailed assessment any way, will there not, not only as between parties but also as between what used to be called "solicitor known client"?[102]MR VINEALL: There can be in some circumstances.

MR JUSTICE MITTING: I am not clear at the moment what it is you are asking me to do?

[104]MR VINEALL: There is no point taken as between our client and his legal team. ARA can, if so minded, force us to what your Lordship described as "a detailed assessment". It may be that in relation to some particular items there will be a particular argument. I appreciate I cannot invite the court today to resolve that, but if the court can give any indication as to the line they may take, that would be very helpful.[105]MR JUSTICE MITTING: I have not encountered yet a costs provision under the new regime. It used to be that you could not get any costs and you were thrown entirely onto public funds. That caused a lot of problems and I assume that is why the regime has changed to avoid Article 1, first protocol, and Article 6. I simply do not know the statutory regime which now obtains, nor what, if any, part I can play in it.[106]MR VINEALL: It is at this stage, I appreciate we cannot ask your Lordship to rule on it today, it would be very disappointing if the position taken by ARA is as unhelpful as it has been in the past in relation to the costs incurred.

MR JUSTICE MITTING: Let us see what Mr Barnard's position is.

[108]MR BARNARD: I am not sure, and I may be making a great mistake in as much as your Lordship has released two substantial properties from the receivership order, but it seems to me that there could not be objection to those properties being used for the purposes of the disclosed "solicitor known client" costs or funds being raised. I think the point is that probably in the matrimonial home it is an attractive proposition. The more important point is this: as your Lordship says there is a new regime. There is a question whether the new regime applies to proceedings brought before the Statutory Instrument came into effect, which is January this year. These proceedings were begun --[109]MR JUSTICE MITTING: Forgive me for interrupting you. All I want is an answer from you if you can give one.[110]MR BARNARD: The answer is we would like to think about it. We have heard what my learned friend has said but we do not wish to argue that point.[111]MR JUSTICE MITTING: Mr Vineall, I am frankly unwilling to enter into a debate on a basis, which I do not fully understand, either as to fact or law. I am afraid I will have to leave it with that unsatisfactory position taken.[112]MR VINEALL: If we have to come back to court we will come back to court. I am grateful.

MR JUSTICE MITTING: Is there Anything else?

[114]MR FISHER QC: Can I thank my Lord for taking the case and dealing with it and sitting late this afternoon.[115]MR JUSTICE MITTING: Would the parties please prepare a minute of the order rather than leaving it to the court to draw up.

Cited in 1 later judgment