Revenue & Customs Prosecution Office, R (on the application of) v Lloyds TSB Plc [2007] EWHC 2393 (Admin)

Case No DTA/24/2001[2007] EWHC 2393 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Venue Royal Courts of JusticeDate Tuesday, 2 October 2007
Strand
London WC2A 2LL
B e f o r e:
MR JUSTICE McCOMBE
Between
THE QUEEN ON THE APPLICATIONClaimantOFClaimantREVENUE & CUSTOMS PROSECUTION OFFICEClaimantv
Between
RDefendantLLOYDS TSB PlcDefendant
Computer-Aided Transcript of the Stenograph Notes ofWordWave International LimitedA Merrill Communications Company190 Fleet Street  London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838(Official Shorthand Writers to the Court)
Mr Richard de Lacey QC appeared for ClaimantMr Ian Bridge appeared for First DefendantMiss Leena Powell appeared for Second Respondent
J U D G M E N T
[1]1. MR JUSTICE McCOMBE: I have before me an application issued on 24 August 2007, brought by the Revenue and Customs Prosecution Office, against Mr AR and LLoyd's Bank TSB Plc for the punishment of each for an alleged contempt of court in what is contended to have been assisting a breach of an order made by Mr Justice Sullivan on 19 December 2006.[2]1. The context of the application is this. Mr R was initially convicted of an offence of money laundering the proceeds of drugs. Details of the offence are not in issue in these proceedings. Initially that conviction was quashed by the Court of Appeal and a re-trial was ordered. In the context of the first proceedings, assets in the possession of Mr R had been restrained and in the context of the new indictment to be preferred and the re-trial of Mr R, those moneys, being slightly over £2m, had been held in a court funds' account. Pending the re-trial, it was agreed between the prosecuting authority and those advising Mr R that the money should be transferred out of public control and into an account of Mr R's, which had been dormant for a period, held at Lloyds Bank TSB at Silver Street in Halifax. The sum was some £2m odd.[3]1. For the purposes of the preservation of the transferred assets, the original restraining order that had been made by Mr Justice Turner at the outset of the criminal proceedings was varied by Mr Justice Sullivan by the order I have mentioned, that of 19 December 2006 which replaced and varied the original order. The material part of the order was as follows:
"2 Paragraph 1 of the Restraint Order be replaced in its entirety to read a follows: '1 The defendant must not until further order of the court: (a) remove from England and Wales any of his assets which are in England and Wales; or (b) in any way dispose of or deal with or diminish the value of any of his assets whether they are in or outside England and Wales; 2 Paragraph 1 applies to all the Defendant's assets whether or not they are in his own name and whether they are solely or jointly owned. For the purpose of this order the Defendant's assets include any asset which he has the power, directly or indirectly, to dispose of and deal with as if it were his own. The Defendant is to be regarded as having such a power if a third party holds or controls the asset in accordance with his direct or indirect instruction. 3 This prohibition in particular includes account no: 34353468, sort code 77 71 30, in the name of AR held at Lloyds Bank TSB Plc at 2 Silver Street, Halifax.'"
[4]1. The order, as so varied, provided a number of mechanical provisions for the disclosure of information for the payment of certain living expenses and costs. In particular, my attention has been drawn to paragraph 5 (3) of the order which required Mr R to disclose to the prosecutor the names and numbers of all accounts held by or under the control of the defendant, together with the names and addresses of where the account is held and the sums in the account. The provisions of the order are in, essentially, common form in relation to a freezing order of this sort. The funds were duly transferred from the magistrates' court account at which they had been held to the account at Lloyds Bank at the end of December or beginning of January 06-07.[5]1. It seems that - from an explanation now given by bank officials - the arrival of the substantial funds gave them concerns as to how precisely they could ensure that Mr R did not have an excessive access to his account and that the account should be properly policed for the purposes of the enforcement of the order. The relevant bank manager was concerned that the holding of such large sums of money in an ordinary current account might not readily facilitate the appropriate restraint on Mr R. They arranged an appointment with him and discussed how, in practicality, his drawings could be made for living expenses and the like and how, in the meantime, the remaining assets should be protected.[6]1. The bank, from a commercial point of view, not unsensibly, considered that this could be achieved by removing the substantial amounts of these funds into two higher interest-bearing accounts, a term deposit and a tracker account, which would enable the bank to have a more ready control over any attempt by Mr R to withdraw funds. They told Mr R that is what they proposed to do and he did not dissent from that suggestion.[7]1. The problem was that that mechanic, sensible though perhaps it may have been, was never at any stage, until later, revealed to the prosecuting authority or to the court.[8]1. Shortly after those events had taken place at the beginning of February - I think it was 6 February - the criminal proceedings came back before the Crown Court, and Mr R pleaded guilty to the money laundering offence with which he had been charged in the first proceedings. I am not sure of the details of the nature of the plea; perhaps it does not matter. He pleaded guilty certainly to some offences of money laundering and clearly the issue of confiscation arose.[9]1. The restraint provisions that had been imposed, both originally and under the new regime following the transfer of the money to the bank, was under the old statutory arrangements whereby the defendant's reasonable legal costs could be extracted from the frozen funds. There remained in issue, and unascertained, the precise amount of those costs which were not readily capable of assessment. It appears that when the matter came before the Crown Court on the date I have mentioned and Mr R entered his plea, the question of the mechanics of the confiscation proceedings fell to be considered. It was readily apparent that an order could not be made immediately because details of the relevant assets were not available. Indeed, defence counsel informed the court on the transcript that some dealing with the funds had taken place by way of movement to other possibly higher interest-bearing accounts. To all present in court it seemed that that, on the face of it, appeared not an unsensible suggestion. There was no adverse reaction to it from the prosecution. Extracts of the transcript have been helpfully read to me this morning.[10]1. There then followed a delay in assessing the defendant's costs. In mid-May the time was approaching when those costs were being assessed and the matter was due to come back before the court, I think, on 30 May 2007 for either directions or, if it could be agreed, an appropriate confiscation order to be made. At that stage the handling of the case, on the part of the Revenue and Customs Prosecution Office, appears to have changed hands. The new officer was concerned about what the relevant funds were, where they were held and, not unsurprisingly, began to ask questions as to what had occurred and as to what money was available and where it was. Probably - and I make no finding expressly about this – as was technically correct, when inquiry was levelled at the bank as to where the money was and is to what the balances were in the two accounts held, it was met with an answer by the bank that this was covered by client confidentiality and the information was refused. This engendered some degree of adverse reaction from the prosecution authority. They felt that the bank, was not assisting in the obvious intent of the court of making a confiscation order in due course. Although technically, the bank may well have been within its rights in taking the view that it did.[11]1. In the end, in the space of about 14 days, a signed authority was procured from Mr R to disclose the balances on the accounts and where the moneys were held. In due course, on or about 30 May 2007, a confiscation order was made in which the amounts of the accounts is fully set out pursuant to that authority. It appears that - because of the transfers to the accounts which had been mentioned - the amounts available and amenable to confiscation had increased, because of the interest it accrued, to around about £37,000. It had increased by some £37,000 from what was originally available.[12]1. MR BRIDGE: My Lord, I think that does not take into account legal costs on top. It was considerably more than that, I believe.[13]1. MR JUSTICE McCOMBE: That intervention by Mr Bridge, on behalf of Mr R, is, I consider, probably correct. But I do not think I need say anything more in the judgment.[14]1. Suffice it to say, that more money was available in view of what had happened by way of dealings with the accounts than would otherwise have been the case if the money had been left in the specific account. The position was therefore, by that date or shortly thereafter, that a confiscation order was made and money was transferred to meet it from the funds in the Lloyds Bank accounts.[15]1. There then followed the issue of this application for a punishment of the two respondents, Mr R and the bank, for their contempt in effecting or consenting to the dealings that I have mentioned - with the account specified in the order of Mr Justice Sullivan - to remove the funds to a different account at the same bank. The application was made accordingly for the punishment of the respondents.[16]1. In response to that application, witness statements have been provided by the bank officials setting out, in detail, the circumstances - which I have summarised in the early part of this judgment - as to what happened in the early part of this year when moneys were moved from the specified account in Mr Justice Sullivan's order to the two additional accounts.[17]1. The issues that now arise on this application are fairly narrow. The Revenue and Customs authorities accept that, in the light of what has now been explained, I should not be invited to impose any penalty on either respondent. The issue on the application - apart from the interesting question of principle, as to whether what was done was correct or not - is who, if anyone, should be ordered to pay the costs of this application. In that form the matter has been brought before me. The first question, to my mind, is whether there has been a breach of Mr Justice Sullivan's order. Secondly, which may not necessarily be the same question, has there been any contempt of court committed by either of these respondents. Thirdly, even if both those questions are answered in the affirmative, who is it who should be ordered to pay the costs in these proceedings.[18]1. Miss Powell, who has taken the lead between the two respondents on this point, submits that there was, by what happened in January 2007, no breach of Mr Justice Sullivan's order at all. There was no disposal of or dealing with any relevant asset of Mr R's. Her submission in writing - and although it did not need to be repeated orally was taken on board nonetheless - was that the nature of Mr R's asset with the bank was simply a debt owed by the bank to him. That remained the same notwithstanding the different characterisation and identification of the account names and nothing was done either to dispose of or to deal with the asset.[19]1. I do not accept that submission. The relevant order was a freezing order, having the well known objective of rendering the defendant's assets more readily available for enforcement as and when necessary. The restraint on dealing with an asset is a restraint on any action by a defendant which may have the effect of rendering that process more difficult. In drafting such orders, for many years it has been frequently the practice of practitioners and judges to identify particular types of transaction which are to be restrained and of dealing, such as selling, charging, diminishing in value and so forth. The expression "to deal with" is designed to catch any other activity in relation to the frozen assets, which is not otherwise expressly identified.[20]1. It seems to me that there had in this case been manifestly a dealing with this asset in so far as it had removed the identifying characteristic of this debt owed by the bank to Mr R, by being a debt with a clearly identified location and identification with books of the bank to one that was not so readily ascertained. A claimant in a freezing order case is always comforted by the ability to identify particular bank accounts held by the defendant. They are specified in the order for a purpose. They are meant to be assets which will be there and identifiable, and readily identifiable, by that identifying mark throughout the currency of the order.[21]1. The decision on the part of the bank to change that identification without the consent of the person seeking the order, or of the court, was to my mind in clearest breach, by both Mr R and the bank, of the terms of the order. As a matter of its true construction, I have no doubt about that. I am somewhat surprised that the bank should decide that it was safe to embark on these transactions or arrangements, without any reference either to the prosecutor or to the court.[22]1. Without dissent from Mr de Lacey, I have been taken to authorities in support of the proposition that to amount to a contempt it is necessary for the complaining party to show that the respondent has deliberately done an act which - this is in relation to a third party - does amount to an interference with the due administration of justice or, and this is Mr de Lacey's gloss, tends to interfere with the course of justice.[23]1. In this case I deal with the position of the bank first because that has been the most hotly contested. It seems to me that the bank clearly did a deliberate act in arranging these new account holdings, and it took upon itself the risk that what it did would interfere with the course of justice. To take upon oneself the responsibility for deciding what is a prudent course of action in the light of a carefully drafted court order and to deal with the accounts, as they did, suggests to me that there was an action deliberately done which might tend to interfere with the course of justice.[24]1. I accept that on facts of this case there was no actual interference with justice because the bank was at pains to prevent any loss to the prosecutor or to the Crown from anything that was done. It was designed to protect rather than to hinder the administration of justice. It was done with the best possible motives. The problem is that those motives have masked, to my mind, what was clearly an act which, absent such motives, might have interfered with the course of justice. Parties must not lightly take upon themselves the decision as to how best a Mareva order should be policed. That is what the bank did here. It took the risk, and I find that what it did was a contempt of this court.[25]1. As to Mr R's position, equally, I consider he agreed to this course of action. He knew what the terms of the order were. He was not advised. He obviously did not wish to break this order. He considered he was doing something quite proper. I consider that he did commit a breach of the order and he did so knowing the terms of it, and that he was technically in contempt of this court in so doing.[26]1. The question that follows is what is the appropriate action to take now? Miss Powell, in characteristically helpful submissions, supported by helpful submissions by Mr Bridge, says that this application should never have been brought because by the time it was launched, in August 2007, it was well known to the Revenue authorities that they had lost nothing by what had happened and had made a gain. It was inappropriate to issue such an application.[27]1. Mr de Lacey, on the other hand, submits that this was not simply a case of litigation between private litigants as to how they had or had not benefitted from the litigation. The Revenue had a responsibility to discover, particularly in relation to financial institutions, what had happened in this case and to try to prevent the misunderstandings that had occurred happening again. He says that although it might never have been possible to secure punishment, the only application that the Revenue could issue was for such punishment to secure the appropriate explanation.[28]1. To my mind, it is a very fine line as to the appropriate action that one might have taken in the circumstances. Hindsight is a wonderful thing. I consider that it is not surprising that the Revenue authorities were shocked by what had occurred, without any reference to them, in the earlier part of this year by the changing of these bank accounts. It is not surprising that when it was looked into and funds were not readily ascertainable, even for a fortnight, that they should express concern. Private litigants who were concerned about £2m would have reacted possibly in an even more rigorous way than the Revenue did in this case. No explanation was proffered, even at the end of the day, as to why this had been done and what had happened until this application was issued and full explanation was given in the two witness statements which have been put before me today.[29]1. On the other hand, it is clear that no harm had been done to the Revenue. They had profited by the account arrangements that had been put in place. That was, Miss Powell rightly submits, apparent at the time of the issue of the application. However I consider it is not surprising that the Revenue should be concerned that a bank should have behaved as it did in this case without reference to it. It is not surprising that sleeping dogs were not allowed to lie.[30]1. What does one do in such circumstances? I am convinced that no order should be made in costs against Mr R. Equally I am convinced that he should not have an order in his favour as to costs. He was released from prison very recently. He went into the bank, no doubt blinking like a rabbit blinded by the headlights when faced with the confiscation proceedings for the freezing order. He adopted the bank's suggestion. He did not have legal advice. At the time he agreed to what the bank was proposing and, no doubt, thought the banks did these things properly. However he committed a breach of the order of the court. He is of modest means. The order will be of no benefit to Revenue and Customs even if I were to make it. I consider it is not appropriate to make any order for costs against him.[31]1. So far as the bank is concerned, I consider it did act wrongly in keeping what it did below the parapet and not telling it to Customs at the time of making the arrangements. It is the easist thing in the world, I would have thought the most natural thing in the world, for the bank to talk to the prosecuting authority. On the other hand, I see force in Miss Powell's submission that by the time August came along, it was clear that no loss had been incurred. Both these organisations are large organisations, one public and one playing an important financial role in the administration of justice. If benefit has been achieved in this case by identifying something that, with the best will in the world, went wrong and all parties were trying to do their best, both in the interests of justice and in the interests of the public in what they did, I do not think it is right to visit any order for costs against either of these parties in the circumstances of this case. It has been a helpful exercise in considering what had happened. I hope that such confusions do not occur in the future.[32]1. I decline to make any order for costs against either party.[33]1. MISS POWELL: There was also a without prejudice order in respect of costs as to attendance on this hearing. I put before you the bank did make a without prejudice - - - - -[34]1. MR JUSTICE McCOMBE: A Calderbank-type letter it used to be called.[35]1. MISS POWELL: It is not strictly a Calderbank letter. It is an offer. I hand - - - - -[36]1. MR JUSTICE McCOMBE: Without prejudice letter as to costs.[37]1. MISS POWELL: Indeed. If I can hand up the letter.[38]1. MR JUSTICE McCOMBE: Yes. Do you know what Miss Powell is talking about, Mr de Lacey?[39]1. MR de LACEY: Yes.[40]1. MR JUSTICE McCOMBE: This is 14 September - - 28th now.[41]1. MISS POWELL: On 28 September - - we offer a "drop-hands" settlement.[42]1. MR JUSTICE McCOMBE: You are saying "drop-hands" settlement, that is what I have effectively decided.[43]1. MISS POWELL: That is right, and no order as to costs.[44]1. MR JUSTICE McCOMBE: You are asking for the costs of this application after 30 September.[45]1. MISS POWELL: Costs of my attendance today.[46]1. MR JUSTICE McCOMBE: Costs of your attendance?[47]1. MISS POWELL: And my - - - - -[48]1. MR JUSTICE McCOMBE: Costs of attendance on your side today?[49]1. MISS POWELL: Indeed, costs of this application which is not terribly much.[50]1. MR de LACEY: It is a public/private matter. Your Lordship equates the bank with the Revenue. The question is was the Revenue acting responsibly in asking it to make a determination. We have won on the substantive issues - - - - -[51]1. MR JUSTICE McCOMBE: There was a breach.[52]1. MR de LACEY: That was the fundamental issue. If the bank had said in response to our letter, yes, we accept there was a contempt, we are sorry it happened, there would have been no - - the matter would have ended last Thursday and there would have been no brief to counsel at all. Counsel's brief must have been delivered on Friday. That was the day - - that was why they put the letter you have there in those terms.[53]1. MR JUSTICE McCOMBE: 28th is what day?[54]1. MR de LACEY: Last Friday. The affidavit was only served on the 25th.[55]1. MISS POWELL: The offer that was being made to us was not to drop hands but to pay their costs.[56]1. MR JUSTICE McCOMBE: You were offering a "drop-hands".[57]1. MISS POWELL: That is right.[58]1. MR JUSTICE McCOMBE: I have given a judgment indicating that in the unusual circumstances of this case, other things apart, I would not be minded to make any order for costs in favour of any party. That being my decision, there has been put before me by Miss Powell correspondence from her instructing solicitors dated 28 September - last Friday, today being Tuesday - offering to the Revenue authorities a "drop-hands" settlement, as it was called, ie, this case should be disposed of on the basis that no order should be made which is precisely the order I have made.[59]1. In the light of that letter without prejudice as to costs, Miss Powell applies that she should have the costs of attendance on her part and her instructing solicitors of today. In my view that submission is correct.[60]1. I consider that she should have the costs of her attendance today. I think it is clear at last an explanation had been given by the time of this letter. All the circumstances were laid bare. Although Mr de Lacey says he has won on the issue of principle as to whether there was a contempt, I am not satisfied that this was a matter that needed to be pursued beyond last Friday. Miss Powell can have costs of the attendance today.[61]1. MR BRIDGE: I need to ask; Mr R has representation.[62]1. MR JUSTICE McCOMBE: Legal aid assessment of your costs.[63]1. MR BRIDGE: Yes.[64]1. MR JUSTICE McCOMBE: Thank you all for your assistance. I am sorry that my reaction to this case was slightly impaired at the beginning. I did not have all the documents.[65]1. MR de LACEY: My experience has been the same as your Lordship's.[66]1. MR JUSTICE McCOMBE: Things get given to the judges with these identification things on. If you put in something later than those, we do not get them. You have to ask what is the bundle the judge needs. Tell the judge's clerk what the bundle is the judge needs. If the answers you get are not satisfactory, make sure what the judge needs is before him.

Cited in 1 later judgment