Ezz, R (on the application of) v HM Treasury [2016] EWHC 1470 (Admin)

Case No CO/5910/2015[2016] EWHC 1470 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23/06/2016
Before
THE HON. MR JUSTICE CRANSTON
Between
R (on the application of Ahmed Ezz)ClaimantHM TreasuryDefendant
Brian Kennelly QC and Emily Neill (instructed by BCL Burton Copeland) for ClaimantCharles Banner (instructed by Government Legal Department) for DefendantHearing Hearing date: 26 May 2016
Judgment

Introduction

[1]Ahmed Ezz, the claimant, is being tried in Egypt for corruption and is facing a very substantial period of imprisonment. The European Union has frozen his funds throughout Europe under Article 1(1) of the Council Decision 2011/172/CFSP of 21 March 2011, implemented by Council Regulation (EU) No 270/2011 of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (“the EU Regulation”). Mr Ezz is one of those named by these measures. He is presently challenging his designation before the General Court of the European Union.[2]In this judicial review Mr Ezz challenges the rationality of a decision of HM Treasury, which is responsible for the administration of these European Union measures in the United Kingdom. That decision was taken when he applied for the release of moneys from these frozen funds for the payment of his criminal defence lawyers in Egypt. HM Treasury’s decision was to assess the reasonableness of these legal fees by reference to the maximum Senior Courts Costs Office (“SCCO”) guidance for London legal rates, adjusted by the International Monetary Fund’s Purchasing Power Parity conversion rate (“PPP”). A PPP conversion rate is a currency conversion rate designed to reflect differences in the average cost of living in different countries. Mr Ezz contends that PPP is not an appropriate mechanism when he needs to pay for specialist legal services for his defence. The effect of HM Treasury’s decision is to reduce the maximum SCCO London daily rate payable for appearing in court from £15,000 to USD $5,790.98.[3]Permission to proceed with the claim was refused by Mrs Justice Cheema-Grubb on 18 January 2016. The claimant renewed his application for permission on 27 January 2016. By a Consent Order signed on 12 February 2016 the parties agreed to a rolled-up hearing of the claimant’s application for permission to proceed, simultaneously with the substantive claim.

Background

[4]Mr Ezz is a former member of the Egyptian Parliament and a businessman. Following the fall of the Mubarak regime, he was convicted of various charges in the Cairo District Court and the Cairo Economic Court, essentially of misappropriating state funds and money laundering. The charges appear mainly to relate to a company called Al Ezz Dekheila Steel Company (previously Alexandria National Iron and Steel Company) and to other companies Mr Ezz owns indirectly, principally Ezz Steel Rebars and its subsidiaries. Substantial prison sentences and fines were imposed. Mr Ezz’s convictions were overturned by the Court of Cassation, but a number of retrials are pending. Mr Ezz’s position is that the allegations against him are politically motivated and baseless. Pursuant to the EU Regulation in 2011 he was designated as a person “responsible for the misappropriation of Egyptian State funds”. He has been re-designated in 2012, 2013, 2014, 2015 and, most recently, on 18 March 2016: Council Decision (CFSP) 2016/411 of 18 March 2016.[5]In 2013 Mr Ezz instructed Mr Abou Shokka of Abou Shokka Advocates (“ASA”) to represent him in the Egyptian proceedings. The EU Regulation recognises that competent Member State authorities such as HM Treasury may authorise the release of funds intended exclusively for the payment of “reasonable professional fees or the reimbursement of incurred expenses associated with the provision of legal services”. On 11 December 2013 Mr Ezz applied for a licence to access frozen funds to pay the legal fees of ASA. Mr Ezz provided HM Treasury with a record of his agreement with ASA to show that the fee being charged was a lump sum, which was to cover work being undertaken over approximately three years in relation to the criminal proceedings. He has also produced itemised invoices with a narrative of work done.[6]There was correspondence between Mr Binns and HM Treasury relating to the question of what constituted reasonable professional fees. In a letter of 24 January 2014, Mr Binns enclosed a letter from Hazim Rizkana, a partner of Helmy, Hamza & Partners, a member firm of Baker McKenzie International, in which Mr Rizkana stated that the criminal lawyers involved in the business crime cases following the end of the Mubarak regime usually charge lump sum fees in advance. The difficult environment surrounding the prosecutions and the risks associated with them meant that the fees escalated “and we have heard of various fee figures ranging from EGP5 million up to EGP70 million. We have no means to verify these figures… but this is what is being gathered from the market.”[7]An email from the HM Treasury in mid-May 2014 stated that, to date, little had been provided on how to assess reasonable fees, and that only through relative comparisons did it judge the task could be undertaken. In a letter of 21 May 2014, Mr Binns reiterated that ASA charged an upfront fee rather than by the hour or in arrears. HM Treasury’s response on 30 May 2014 asked for the details of other law firms approached and for the fees they quoted, and stated that Mr Ezz needed to engage with the central issue, that of the reasonableness of the fees. In an email following a meeting with Mr Ezz’s London representatives, HM Treasury repeated its request for details of alternative firms approached and for the fees they quoted. In a letter of 13 August 2014, Mr Binns referred to rates that his firm charged and for what it had paid London counsel for work undertaken in Egypt. HM Treasury rejected this as offering any sound basis for deciding the matter. A letter from HM Treasury dated 21 October 2014 repeated the request for information about the basis and level at which Egyptian lawyers were generally remunerated for similar work. In a letter of 10 March HM Treasury wrote that an impasse had been reached. It also raised its concern about Mr Ezz’s access to other funds, in particular how he had been able to pay substantial fines in Egypt.[8]Meanwhile HM Treasury had made inquiries itself to try to assess what were reasonable legal fees within the Egyptian legal market. On its behalf, the Metropolitan Police anti-corruption task force contacted a local judge in Egypt in February 2014 about whether Egyptian lawyers like ASA would earn as much as a London based lawyer, some of whom charged £750 per hour. The judge opined that he would not be surprised if ASA charged even more. HM Treasury also made enquiries through the British Embassy in Cairo, which contacted the senior partner of a law firm in Cairo. He replied in May 2014 that there were no lawyers in Cairo with expertise in assessing legal bills, that lawyers in Egypt, particularly those defending high profile persons associated with the Mubarak regime, were expensive to engage, and that typically in Egypt legal fees were agreed as a total amount at the outset. In January 2015 the British ambassador to Egypt was involved: an inquiry made on his behalf of the Egyptian prosecutors was that defence lawyers would be paid a lump sum and that the amounts mentioned to them did not appear to be unreasonable.[9]While discussions continued relating to the assessment of reasonable professional fees, HM Treasury granted interim licences for Mr Ezz’s legal fees. The funds released were USD $625,000. In February 2015 Mr Ezz sent a further invoice totalling USD $500,000 to HM Treasury and requested a further interim licence.

The Decision

[10]In a letter dated 20 July 2015 HM Treasury wrote to Mr Binns setting out “the basis on which we intend to licence the payment of ASA’s fees”. It acknowledged the gravity of the criminal proceedings Mr Ezz was facing. It recounted the correspondence and then set out its “[p]roposed approach” for the calculation of reasonable professional fees. The onus was on Mr Ezz, HM Treasury said, and it was not satisfied with the answers provided by him and was left with no other option but to consider London legal rates as a comparison. Egyptian lawyers acted as both barrister and solicitor. Thus from the SCCO hourly rates it would adopt the maximum day hearing rate for QCs of £15,000 for attendance in court and the hourly rate of £409 for a grade A solicitor. Since ASA’s services were being provided in Egypt, it would convert those rates into Egyptian Pounds using the International Monetary Fund’s PPP conversion rate and then convert them from Egyptian Pounds into US Dollars.[11]In a letter dated 5 August 2015, Mr Binns accepted the day hearing and hourly rates proposed, but raised concerns about adjusting these through the PPP conversion rate. This was the first time PPP had been raised, he wrote, and it was principally based on living costs. Even if legal costs were included in the PPP calculation, he added, the other cost data would dilute their impact. Further, Egyptian legal costs were unlikely to be subject to the same market conditions as other living costs; the advocates Mr Ezz had selected were entitled to charge higher fees than other lawyers; and the PPP conversion rate that HM Treasury mentioned was dated and otherwise inappropriate.[12]In a letter of 18 August 2015, HM Treasury wrote to Mr Binns stating that it considered eight, not ten, chargeable hours a day as reasonable. It noted the objections to the use of PPP. It explained that it had been engaging in correspondence since December 2013 to find what was reasonable in the Egyptian legal market and a rate “which was appropriate for Egyptian economic circumstances”. However, HM Treasury had decided to adopt the PPP, and at a UK/Egypt ratio of 1:3.021. It had been using PPP for other licensing decisions, and referred to a permission decision of Mr Justice Mitting on 6 February 2012, in which Mr Binns had been involved, and where the PPP conversion rate had been approved: R (Abla Salam) v. HM Treasury, CO/11592/2011. As regards Mr Ezz’s right to select leading lawyers, who were entitled to charge higher fees than average, that was already factored in by use of the top rates in the SCCO guidance. Taking the maximum London day hearing rate of £15,000, the reasonable day hearing rate which would be licensed was USD $5,790.98.[13]Following the decision, Mr Binns obtained a report from Mr Robert Patton, deputy director of NERA Economic Consulting. Dated 25 November 2015, it explains that the PPP conversion rate is used to help minimise misleading comparisons based on market exchange rates and to reflect the difference in living costs between countries. It attempts to capture what an amount in one currency would achieve in the currency of another country were the money to be spent in that other country. The PPP conversion rate can be used to convert the amount from British to Egyptian pounds to reflect the fact that the general cost of living in Egypt is lower than that in the United Kingdom, and therefore an amount in English pounds will purchase more by way of typical goods and services if it is spent in Egypt.[14]Mr Patton explains that the PPP conversion rate is based on the price of comparable and representative products and services in the various countries whose currencies are converted using it. It uses goods and services which are representative of consumption and prices, weighted by the proportions of spending on those goods and services in the economies being compared. It is not necessarily applicable when purchasing any particular good or service. With individual products and services the PPP ratio may differ substantially from the general PPP conversion rate ratio based on the full basket of goods and services. The Economist magazine demonstrated that with the cost of a “Big Mac” and its Big Mac index. Taking the cost of that product in the United States and using the general PPP ratio would not produce enough in the local currency of many countries to purchase one.[15]As regards legal fees, Mr Patton states, they appear to be only a very small fraction of the total index once other goods and services are accounted for. The type of service Mr Ezz is purchasing, the defence of high profile economic crime, is not likely to be included in PPP calculations. On the assumption that such legal services are more expensive than the exchange rate would imply, Mr Patton opines that the PPP conversion rate ratio would be a particularly inappropriate tool to convert currencies to pay for such services. He thus concludes that the use of PPP as a tool for assessing the reasonable level of fees for this type of legal services in Egypt would appear inappropriate.[16]Mr Binns has also obtained a statement dated 24 November 2015 from Hazim Rizkana, the partner of the member firm of Baker McKenzie International referred to earlier. He states that the criminal charges which Mr Ezz faces relate to a specialised legal area. The legal service which Mr Ezz requires is the defence of complex and high-profile allegations of financial crime, in a controversial political context following the fall of the Mubarak regime. The complexity of the allegations makes the cases against Mr Ezz very different from the majority of criminal cases in Egypt. More paperwork is involved, the subject matter is a set of complex commercial transactions, and the law involved is unusual. In additional to penal law the case requires the application of public funds law, money laundering law, banking law, capital markets law, corporate law, competition law, illicit gains law and tax law. The subset of Egyptian criminal lawyers who are able to handle cases of this kind is very small.[17]In his statement, Mr Rizkana adds that the nature of the case means that the lawyers defending Mr Ezz need to be capable of dealing with the politics and publicity involved in representing a high profile individual in a controversial political context. Many lawyers who may be technically capable of representing defendants like Mr Ezz, who have also been charged, are unwilling to do so given this context. As a result there is a very limited pool of lawyers available to people in the position of Mr Ezz and the fees charged are higher than they would otherwise be. Mr Rizkana understands that the lawyers undertaking the work invoice in US dollars. He repeats what he said in his January 2014 letter, that his knowledge of the market is limited.

Legal framework

[18]In its recitals the EU Regulation explains that Decision 2011/172/CFSP provides for the freezing of funds and economic resources of certain persons identified as responsible for the misappropriation of Egyptian State funds, who are thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy there. It also states that it respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. That includes Article 47 of the Charter, which protects the right to an effective remedy and a fair trial.[19]Article2.1 of the EU Regulation provides for the freezing of the “funds and economic resources belonging to, or owned, held or controlled by, persons” referred to in the Decision, identified as being responsible for the misappropriation of Egyptian State funds, and “natural or legal persons, entities and bodies associated with them”. Article2.2 provides that no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities or bodies listed in Annex 1. Article2.3 prohibits the participation, knowingly and intentionally, in activities the object or effect of which is, directly or indirectly, to circumvent the measures referred to in paragraphs 1 and 2. Mr Ezz is listed along with eighteen others in the Annex to both the EU Regulation and the Decision.[20]Article 4 contains a derogation from the effect of Article 2 as follows:
“1. By way of derogation from Article 2, the competent authorities of the Member States, as indicated on the websites listed in Annex II, may authorise the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources, under such conditions as they deem appropriate, after having determined that the funds or economic resources are: (a) necessary to satisfy the basic needs of natural persons listed in Annex 1 and their dependent family members, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums and public utility charges; (b) intended exclusively for the payment of reasonable professional fees or the reimbursement of incurred expenses associated with the provision of legal services…” (a) necessary to satisfy the basic needs of natural persons listed in Annex 1 and their dependent family members, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums and public utility charges; (b) intended exclusively for the payment of reasonable professional fees or the reimbursement of incurred expenses associated with the provision of legal services…”
[21]For the UK, the Egypt (Asset) Freezing Regulations 2011, 2011 SI No 887 (“the 2011 Regulations”) make provision in relation to the asset freezing regime prescribed by the EU Regulation. They prohibit a wide-range of conduct in relation to the assets of persons listed in Annex I to the EU Regulation: regulations 3-7. Regulation 9 provides that the prohibitions in regulations 3-7 do not apply to anything done under the authority of a licence granted by HM Treasury. The Explanatory Note to the Regulations explains that they give effect to the EU Regulation.

Delay

[22]In refusing permission to apply for judicial review, Mrs Justice Cheema-Grubb decided that the claim was out of time. That was because HM Treasury’s decision was contained in the letter of 20 July 2015, while the claim for judicial review was commenced on 18 November 2015, well over the three-month longstop time limit in CPR 54.5. HM Treasury has defended her decision. It is clear from a fair reading of its 20 July 2015 letter as a whole, Mr Banner submitted, that it was informing Mr Ezz that a decision had been taken on how the issue of what level of fees was reasonable would be determined. It was not merely setting out a potential way forward, subject to any further representations.[23]The difficulty with this submission is that the letter of 20 July 2015 is somewhat ambiguous in its expression. First, the letter refers to the fact that a number of issues had been resolved between the parties in correspondence but that there remained two outstanding issues, one being the calculation of the reasonable rate. Secondly, use of the PPP conversion rate is set out under the heading “Proposed Approach”. Thirdly, after many months of correspondence between HM Treasury and Mr Binns, this was the first time the PPP conversion rate was used with regard to Mr Ezz’s license application. Fourthly, the letter does not apply the PPP conversion rate to produce a specific sum.[24]Arguably the letter of 20 July 2015 might be understood not as a final decision to use the PPP conversion rate but as a further proposal in the course of continued discussions between the parties. In other words, HM Treasury’s legally reviewable decision to use the PPP conversion rate was made when communicated in the letter of 18 August 2015, once it had considered Mr Ezz’s objections. Given my conclusion on the substantive issue, however, there is no need for me to reach a concluded view on whether HM Treasury’s decision was contained in the letter of 20 July 2015 or that of 18 August 2015.[25]As a footnote, however, I should comment that reference to a Ministerial Submission of 6 July 2015 about the contents of the 20 July 2015 letter is of no assistance one way or the other in resolving the issue. That is because the purpose behind the letter of 20 July 2015 is irrelevant. The issue is what on a fair reading the letter objectively conveyed: was it a proposal for comment or a final decision?

The rationality issue

[26]On Mr Ezz’s behalf, Mr Kennelly QC contended the that use of a PPP conversion rate to assess the reasonableness of Mr Ezz’s legal fees is an irrational exercise of HM Treasury’s powers under regulation 9 of the 2011 Regulations. A PPP conversion rate is designed to determine the difference in living costs between the United Kingdom and Egypt. Mr Ezz’s application does not seek the release of funds for living costs under Article 4(1)(a) of the Regulation. That was the context of Mr Justice Mitting’s permission decision of 6 February 2012 in R (Alba Salama) v. HM Treasury. Rather, Mr Kennelly submitted, Mr Ezz is applying under Article 4(1)(b) for the release of reasonable professional fees associated with the provision of legal services.[27]Mr Kennelly developed the argument by reference to the expert evidence of Mr Patton, that the aim of the PPP conversion ratio is to reflect how far a sum of money will go if spent in Egypt. The proportion of legal services within the basket used to construct the PPP conversion ratio is low, the legal services are likely to be of a commonplace nature, and the proportion of other goods and services within the basket is likely to dilute considerably the impact of those services. Where, as here, the service being purchased in Egypt is not subject to the same market conditions as those which govern general living costs in Egypt, the application of a PPP conversion rate will not indicate correctly the comparative cost of that service between the United Kingdom and Egypt.[28]Building on this, Mr Kennelly submitted that the market factors which make living costs lower in Egypt do not apply to the legal services which Mr Ezz requires, namely, the defence of corruption charges by a high profile individual in a controversial political context following regime change. There is a limited pool of lawyers available to undertake this work. Consequently they can charge fees which are higher than fees charged for typical legal work in Egypt, indeed, higher than the typical rates in the United Kingdom. Applying the PPP conversion rate in these circumstances will be, as Mr Patton put it, particularly inappropriate.[29]In legal terms, Mr Kennelly contended that the use of a PPP conversion rate in determining reasonable legal fees in this context achieved a perverse result. It was irrational to use a PPP conversion rate when the circumstances were such that the methodology defeated its very purpose. He cited Collins J in R (Gordon-Jones) v. Secretary of State for Justice [2014] EWHC 3997 (Admin) at [38], referring to that principle in Padfield v. Minister of Agriculture, Fisheries and Food [1968] AC 997. HM Treasury’s stated reason for using a PPP conversion rate was to reflect the rate appropriate for Egyptian economic circumstances, but since the legal services being purchased by Mr Ezz in Egypt are not subject to the same market conditions as the Egyptian living costs at the base of a PPP conversion rate, the use of the ratio does not reflect the economic circumstances in Egypt. Use of a PPP conversion rate ignores the true economic circumstances which apply to the supply of those legal services in Egypt. It is irrational for HM Treasury to adopt a methodology in circumstances in which its use defeats the very purpose which HM Treasury aims to achieve.[30]The answer to these submissions lies first in the legal instruments being applied, primarily the EU Regulation. At the outset one starts with the words of Article 4.1(b). Under it, HM Treasury’s task is to release frozen funds to the extent that it determines that they relate to reasonable legal fees. There are some obvious points about that formulation. First, reasonable legal fees are not necessarily the highest legal fees payable. Secondly, there can be differing views on what constitutes reasonable legal fees without those views being unreasonable. Thirdly, and crucially in this case, the issue is not what ASA quoted as its fees, or their bona fides, but what were reasonable fees for the purposes of Article 4.1(b).[31]Next is the fact that, on its face, Article 4.1(b) of the EU Regulation is a derogation to Article 2, by which funds are otherwise frozen. Accordingly, in line with the general principles for interpreting EU law, Article 4.1(b) must be interpreted restrictively and in the light of the aims being pursued: Case C-481/99 Heininger [2001] E.C.R. I-9945; Case C-412/82 Group Josi Reinsurance Co. [2000] E.C.R. I-5925, paragraphs [49], [70]; Case C-387/96 Sjoberg [1998] E.C.R. I-1225, paragraph [14]; C-241/99 CIG [2001] ECR I-5139, paragraph [29]. Here the aim of the EU Regulation, as suggested in the Recitals, is to recover misappropriated state funds for the benefit of the Egyptian people, albeit recognising the fair trial rights of those accused of being responsible for the misappropriation. A successful application will have a direct consequence of depleting those funds. To my mind both the words and aims of the EU Regulation demand that, when faced with an application to release frozen funds, HM Treasury must not simply take assertions at face value but needs to scrutinize with care claims that particular figures are reasonable.[32]Moreover, I cannot accept Mr Kennelly’s narrow focus on the rationality of HM Treasury’s use of the PPP ratio to the exclusion of its decision on Mr Ezz’s application as a whole. Use of the PPP ratio must in my view be seen in context. One aspect of the context is that despite requests over a period of 18 months, Mr Ezz was unable to provide evidence about where ASA’s fees stood in relation to the usual rates in Egypt for lawyers defending corporate crime. The onus after all is on the person applying to access frozen funds to make the case. The highest Mr Ezz’s evidence on the issue went was what Mr Rizkana’s said, but Mr Rizkana’s earlier letter and later statement contained generalised assertions and no hard figures to support the reasonableness of the rates ASA claimed. Evidence was no doubt hard to come by, and HM Treasury’s own enquiries bore little fruit. But the fact is that despite a number of requests Mr Ezz produced no evidence about his approaches to other lawyers.[33]Another aspect of context is that HM Treasury’s use of the PPP ratio followed the starting point of the decision, which was its adoption of the maximum SCCO London legal rates as a benchmark. That was a generous recognition of the importance from Mr Ezz’s standpoint of the criminal proceedings in which he was involved. Unsurprisingly, Mr Kennelly raised no objection to this. But the corollary was that since one was starting with legal rates in this jurisdiction, one would normally expect an adjustment since what was at issue was the cost of legal services in Egypt. It was not unreasonable to make a conversion when, as already mentioned, evidence about the rates charged by the type of lawyers which it would be reasonable for Mr Ezz to employ in his criminal defence was distinctly lacking. It was with this background that HM Treasury used the internationally accepted PPP conversion ratio.[34]In these circumstances it was not beyond the range of reasonable responses for HM Treasury to adjust the SCCO maximum London legal rates by reference to the PPP conversion ratio as a means of arriving at a figure for reasonable legal costs within the Egyptian market. Asserting that the application of a PPP rate is perverse because the service being purchased in Egypt is not subject to the same market conditions governing general living costs there is to no avail when the best evidence of this would be to produce the fees quoted by lawyers other than ASA for the services desired. Given that shortage of direct evidence on reasonable legal costs in the Egyptian legal market for this type of service, using the PPP conversion ratio cannot be said to be irrational.

Conclusion

[35]For the reasons I have given, I grant permission but dismiss this claim for judicial review.

Cited in 1 later judgment