Serious Organised Crime Agency v Lundon, the Estate of & Ors [2010] EWHC 353 (QB)

[2010] EWHC 353 (QB)

Case No CO/11167/2008

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 2 March 2010

Before

THE HONOURABLE MR JUSTICE BLAKE

Between

THE SERIOUS ORGANISED CRIME AGENCYClaimant

(1) THE ESTATE OF EDWARD JAMES LUNDON (DECEASED)Respondents

(2) PATRICIA ANN LUNDONRespondent

(3) JENNIFER LUNDONRespondent

Jonathan Brettler (instructed by SOCA Legal Department) for Claimant

Nigel Power (instructed by James Benson & Co) for Respondents

Hearing Hearing dates: 15 – 17 December 2009

Judgment

Introduction

[1]This is a claim by the Serious Organised Crime Agency for a civil recovery order pursuant to sections 243 and 266 of the Proceeds of Crime Act 2002. The property claimed as recoverable property consists of four residential properties, cash in bank accounts and some shares. All these assets were acquired with funds provided by Edward Lundon (EL). EL is now dead. He committed suicide on 6 April 2008 by hanging himself whilst he was in prison. He was in prison at that time because on 13 October 2007 he had been convicted of two counts of laundering the proceeds of criminal property and was sentenced to three years imprisonment. Criminal confiscation proceedings relating to those convictions were outstanding at the time he died.

[2]On 31 January 2008 EL was arrested and interviewed about an offence of conspiracy to import drugs. On 20 March 2008 he was charged with offences including conspiracy to supply class A drugs between 1 February 2006 and 5 July 2006. His death brought to an end the criminal confiscation proceedings. On 9 September 2008 all his co-defendants in the drug conspiracy pleaded guilty to the charges and were given substantial terms of imprisonment.

[3]The claimant says that all the property in this application is recoverable property within the meaning of Proceeds of Crime Act 2002 s.304 because it was obtained through, or represents the proceeds of, unlawful conduct. The primary unlawful conduct alleged is money laundering but three other classes of unlawful conduct are identified: drug trafficking, acting as an unlicensed bookmaker and dealing in counterfeit goods.

[4]The second respondent is the widow of EL and is a personal representative of the estate of her late husband. Some of the property claimed is in her name. The third respondent is the adult daughter of EL and two of the residential properties were placed in her name by her late father. Apart from informing the court that the late Mr Lundon was for many years a committed gambler who received substantial sums from bookmakers by way of winnings and kept large assets in cash at the home, neither of the respondents is able to assist as to the precise circumstances in which EL acquired his wealth or is able to seriously dispute the tracing exercise conducted on behalf of the claimant agency. At the time that this application was made in November 2008 the approximate estimated value of all the assets in issue was £1.4m.

The events of 1998

[5]There is a relevant history in this case. In July 1998 both Mr and Mrs Lundon were arrested on suspicion of money laundering as part of a police investigation known as Operation Jaguar. Their home at 112 Southport Road, Bootle was searched and cash in excess of £70,000 was found. A number of other people were also arrested at this time, including a man called Jason Metcalf (Jason). Jason was subsequently convicted in August 1999 of money laundering offences committed in the period March 1996 to January 1997 and sentenced to five years imprisonment. At his trial the prosecution contention was that Jason had been laundering the proceeds of a series of robberies or attempted robberies committed by three men, Hill, Brown and Kennedy, between October 1995 and March 1996. The sum of £1,194,000 was stolen in the two successful robberies. The prosecution alleged that Jason was concerned with recycling the stolen money from these robberies, amongst other possible illicit sources, by placing bets with bookmakers and, when the bets were successful, remitting the proceeds of the stake money to various parties including the robbers themselves.

[6]The Greater Manchester Police suspected that EL was closely connected with Jason in this activity. He was interviewed under caution and denied having any connection with the robbers, disputed any significant connection with Jason and explained his substantial cash assets by indicating that he himself was an unlicensed bookmaker who took bets from unnamed clients and was successful in this activity.

[7]On 2 December 1998 proceedings for money laundering, were discontinued shortly after the holding of an identification parade where a number of witnesses employed in betting shops failed to identify EL in connection with transactions immediately related to payments out to the robbers.

[8]Shortly after the termination of proceedings against EL, Detective Constable Hawkins, then attached to the Greater Manchester Police, together with another officer, attended the matrimonial home of Mr and Mrs Lundon in order to deliver a cheque representing the funds that had been seized. It will be necessary in due course to consider what conversation there was between EL and DC Hawkins on that occasion.

[9]Some time after December 1998, EL, with the encouragement of Mrs Lundon, went to a firm of accountants and sought to regularise his tax affairs with the Inland Revenue. In due course a schedule of assets and earnings was prepared by the accountants Cobham Murphy. This showed an accumulation of assets at the 5th April in each of the following years 1995 1996 1997 1998 1999 Cash: 245,035 618,067 842,967 599,244 293,815 Houses 32,000 32,000 32,000 203,109 203,109 Shares 12,107 101,090 116,075 420,980 601,025 Miscellaneous 37,050 37,050 76,658 202,589 284,602 Other 63,996 59,591 56,631 44,727 75,780 In general it was stated that EL’s capital wealth had increased from £390,158 in April 1995 to £1,468,331 in April 1999.

[10]In the course of the interchange between EL and the Revenue it was stated on his behalf that his explanation to the police in interview of unlicensed bookmaking was false, and something that he had invented to secure his wife’s release from custody. The truth was that he had been a skilful and fortunate gambling with various bookmakers and that was the source of his assets. The schedule showed summaries of annual winnings paid by bookmakers from 1995 to 1998 as: £390,158, £315,401, £297,951, and £89,850.

[11]In due course the Revenue were persuaded that no substantial income tax was payable on these assets or the means by which they had been acquired. It appeared therefore to have accepted the representation that EL had not been trading as an unlicensed bookmaker.

Unlawful conduct in 2006-2007

[12]There is a substantial body of evidence that from February 2006 until his arrest later that year EL was engaged in money laundering on a large scale and part at least of the funds that he was laundering was the product of drug trafficking. The evidence gathered by the police revealed amongst other things:- i) There was major drugs conspiracy to import class A drugs from abroad that was operative from at least February 2006. ii) On 10 March 2006 EL was found to have been communicating with the other conspirators and was concerned as to the arrangements to “safeguard his investment”. The context of other intercepted calls suggest that he was regarded by others as a senior player in this conspiracy. iii) On 20 March 2006 two of the conspirators met EL in his home after one had just returned from Amsterdam. iv) On the 5 July 2006 EL was arrested in a motor vehicle on a motorway. He was in possession of $300,000 US professionally concealed in sealed tissue boxes and £7,000 in cash. His home address at 413 Colonnades Albert Dock was searched and a further £41,235 in cash was found. v) On the 19 August 2006 EL was arrested for a second time in his vehicle in the basement car park of his home. He was in possession of 70,000 Euros and a further £17,900 in cash was found at his home. vi) The jury who convicted him of money laundering could not have accepted his explanations of a lawful source for these funds. The account rejected included acquisition of cash by winnings from gambling. In the light of all the evidence connecting him to the drugs conspiracy that would have lead to a criminal trial but for his death, there is a very strong inference that his activities included investing in drug dealing and laundering the proceeds.

The issues relating to 1993 to 1998

[13]The claimant submits that the events of 2006 and following cast fresh light on as to how EL acquired his wealth that was noted in the Cobham Murphy schedule. Its principal witness was Ms Tania Croft, who has pieced together the available material informative as to how the deceased came by his wealth.

[14]The broad and undisputed picture that emerged was that before 1994 Mr and Mrs Lundon had a modest income and lifestyle. Between 1969 and 1991 EL had 17 court appearances recorded against him largely for theft by way of shoplifting. He then worked for the local authority and bought the former matrimonial home in Bootle in 1984. In 1989 EL had acquired a licensed taxi cab that he used to ply for hire in Liverpool or hire out to others. From 1996 to 1998 his declared profit from his taxi business and interest was in the region of £12,067, £6,815, and £12,808 per annum, rising to £28,857 in the year 2003-2004. Statistics suggest that a married couple would need from £16,000 to £19,000 to live on through this period. It is clear that earnings from a taxi business cannot explain the acquisition of large assets noted in the schedule. Neither can Mrs Lundon’s declared earnings from interest, rent and child benefit.

[15]From 1994 very large sums of money entered EL’s bank accounts, some of which he invested in property and some in successful share dealing. It is the origin of these funds that are the heart of the issue in the present trial. The claimant seeks the recovery as criminal property of assets that were in existence by 1998 some eight years before the demonstrable unlawful conduct of 2006 and after. There are no statutory presumptions to be applied. The question is thus to what extent can the court be satisfied on the civil balance of probabilities that EL’s unlawful conduct extended back into the period before 1998?

[16]It is clear that many of the large payments in from 1994 onwards were from the proceeds of betting. Successful gambling has been the general tenor of EL’s response to enquiries as to how he came about his wealth, and as far as is Mrs Lundon is concerned that is what she was told by her husband and the explanation for large amounts of cash being left around the house. There is no doubt that EL did receive very large sums of money from gambling. Apart from the winnings declared in his accountants schedule there was considerable evidence from various bookmakers.

[17]In the period 1993 to 1997 he had been identified by several bookmakers as a high stakes gambler with an idiosyncratic betting style. They accordingly monitored his accounts and betting offices where he was known needed authorisation from central monitoring before accepting any wager from him. By this means information as to his betting practices were recorded and retained and is now available for assessment. It appears that his practice was to bet on sporting events rather than horse races and place large amounts of money on short odds. The evidence may be summarised as follows:- i. Anne Simms the deputy manageress of Coral Racing Ltd Aintree Road Branch was able to state in July 1998 that she had known EL since the end of 1992, and in the intervening six years he had staked a total of £350,213 and won returns of £278,342. In 1997 she became aware of a customer called Jason who employed a similar betting pattern to EL but for smaller and less frequent stakes. He had made a profit of just under £6,000. Both Jason and EL would borrow change for use of the telephone box that was thought odd as they both had mobile phones on them. ii. Kevin Jones, the district supervisor of Ladbrokes for the Liverpool area was able to tell police that in 1997 EL had become a monitored customer along with another customer called Jason. They were both monitored because they both placed bets on short odds sporting events in large sums of cash. They were the only two customers the supervisor had known to bet in this way in his fourteen years experience at Ladbrokes. EL had staked £26,125 and made a profit of £32,932. Jason had staked £187,192 and made a loss of £32,876. Another Ladbrokes employee was able to confirm that on occasion Jason had asked for his winnings to be paid out in a cheque payable to either E or P Lundon, the initials of Mr and Mrs Lundon respectively. iii. There was evidence from a number of employees of the William Hill organisation which showed similar short odd betting by customers known as E. Lundon and Jason. The two customers were linked in a number of ways by staff, including the fact that on occasions Jason’s winnings were paid by cheque payable to E. Lundon, and Jason’s betting account for monitoring purposes was recorded in the name of Lundon. Between April 1996 and April 1998 Lundon staked a total of £899,208 and received winnings of £833,607, making a loss of £65,420. Some of the Lundon winnings were paid out in the form of cheques to people who included P. Lundon and D.Hill. D. Hill was one of the robbers involved in the sequence of robberies that were said to be the source of funds that Jason Metcalfe was convicted of laundering in 1999. William Hill staff thought at the time on the basis of their own inquiries that Jason was a runner for EL. iv. Evidence from other bookmakers in the region identified Jason as someone who would spend large sums of cash in bets on short odds sporting fixtures. v. There was limited further evidence to connect Jason to EL but a betting shop manager employed by Cheshire Racing recalled a man subsequently identified as EL placing a bet in the same manner as Jason used regularly to do and when asked he confirmed he was one of Jason’s mates.

[18]There was independent police evidence to support a social connection between Jason and EL attending Liverpool away games. When interviewed under caution in 1998 he denied any such close connection and suggested that Jason must have been using his name or that of his wife without his consent to launder the proceeds of the robberies and pay some of the betting winnings back to the robbers.

[19]His own account in interview of running an unlicensed book making business was subsequently withdrawn as false. No documentary evidence to support such an arrangement has ever come to light. Coded entries in a diary kept by EL at the time are evidence of suspicious activity, but in my judgment are no more likely to be connected to unlicensed bookmaking than any illicit activity where the telephone number of contacts was to be kept secret. The fact that a number of the entries relate to transport in different ways provides some basis for Ms. Croft’s suspicion that the entries may be connected with arranging the transport of drugs. This was a role with which EL was connected in the 2006 unlawful activity.

[20]The claimant called Michael Hawkins as a witness. He is now a Principal Officer and member of staff of the Serious Organised Crime Agency, but in 1998 he was an officer in the Greater Manchester police and part of the police team investigating the robberies and consequent money laundering offences (Operation Jaguar) as part of which Mr and Mrs Lundon had been arrested. After the prosecution against EL had been discontinued, he had been tasked with the job of returning the proceeds seized from the matrimonial home. He did this by way of a cheque that was for a larger sum than had been seized as the cash had been placed in an interest bearing account in the meantime. He indicated that when the money was returned the deceased spoke quite freely with him and indicated that he now made profits from shares rather than gambling, and that the police had got the origin of the money in question all wrong. He was laughing and said that the money was from all kinds of criminal activity including prostitution and drugs. Mr Hawkins said that at one time during this frank conversation Mrs Lundon came into the room with a cup of tea and told her husband to keep quiet. She was not there throughout the conversation and he could not now be sure precisely what this was a response to. He had kept no notes of these matters as the investigation was concluded. He added that since the return of the money he had received intelligence from a reliable source (whose identity he disclosed) that EL had been identified by a betting shop manager as someone who had offered a successful punter more money than his winnings to buy his ticket off him. His evidence regarding Mrs Lundon’s comment to her husband was not contained in his witness statement prepared for these proceedings, even though she had been identified as a respondent by the time the statement came to be made.

[21]From this core of material the claimant submits that this is a case of substantial and unexplained riches accumulating from 1994 to 2006 by someone who was reasonably suspected of being a money launderer in 1998 and proved to be one in 2007.

[22]In particular it is contended:- a) If his explanations to the police at the time are taken at face value unlicensed bookmaking and trading in counterfeit clothes then his assets are equally the proceeds of unlawful activity as they would be if I were to be satisfied that they were the subject of money laundering. b) It is striking that if the true explanation of this wealth was skill and/or luck in betting he never advanced this as an explanation to the police at the time. c) It is highly improbable that he could have made such massive profits from gambling with legitimate stake money. On the accounts where he was monitored he either made losses or modest gains. It is a notorious fact of life that over a period of time a bookmaker does not lose to the gambler. Where large losses have been incurred the bookmaker takes a keen interest in the identity of the successful punter and the higher echelons of William Hill had not heard of Lundon or Jason as names of highly successful gamblers. d) Whilst it may be that EL operated other accounts in different names to avoid the disadvantages to the client of monitoring, it is improbable that substantial gains would have been made on these other accounts when no substantial gains have been made on the accounts known to the authorities. e) Jason Metcalf has been proved to the jury’s satisfaction to have been using the short odds method as a way of recycling cash that was the product of criminal activity namely robberies. f) The links noted above by the bookmakers between Jason and EL are too substantial to have been mere coincidence or simply the product of false representations by Jason alone. g) It is therefore highly likely in the light of the above that EL was engaged in similar activity to Jason and probably directing him in this activity. h) There are records of his outgoings and returns from betting in the period from 1995 to 1998. If by reason of the above it is concluded that it is more likely than not that the source of the stake money for gambling was unlawful activity, then the same is likely to be true of any earlier period where the records of the gambling are not complete.

The respondents’ contentions

[23]Mr. Power acting for the respondents point to the long gap between the money laundering conviction in 2007 and the activity in 1995 to 1997 and the first evidence of acquisition of substantial wealth before that. He cautions against an over-readiness to read back later-criminality into earlier events.

[24]He draws attention to the developing judicial learning that, where civil recovery proceedings are brought, the fact that the property is indeed recoverable as the product of criminal activity must be proved and not assumed. It is not sufficient for a claimant to show that the property was acquired by a person with no known source of legitimate income sufficient to acquire it. At least, the broad class of criminal activity concerned needs to be identified: see Hamblen J in SOCA v Pelikanos

[2009] EWHC 2301 (QB)

; Carnwath LJ in Olupitan v Director ARA

[2008] EWCA Civ 104

at [16]; Moore-Bick LJ in Director ARA v Szepietwoski

[2007] EWCA Civ 766

at [106] to [107] as well as Sullivan J in Director ARA v Green

[2005] EWHC 3168 (Admin)

[25]Mr Power explored the bookmakers’ evidence with a number of the witnesses, and established that there was every reason for a legitimate gambler to seek to use means that would avoid him being monitored, including gambling through proxies or in different names. The total winnings that Ladbrokes record as being won by EL may well not be an accurate statement of the totality of winnings he has collected from them.

[26]He stressed the limited evidence of connection between EL and Jason, the dangers of relying on anything Jason may have said in police interviews, the self-serving and therefore unreliable nature of admissions by EL and others as to other supposed unlawful activities such as unlicensed book-keeping, fraudulent trading and pre 2006 drug smuggling.

[27]He invited me to treat with great caution the evidence of Mr Hawkins as to the statements allegedly made by Mr and Mrs Lundon at the end of 1998. No contemporaneous record was made of them. In Mrs Lundon’s case it is striking that there was no reference to any comments by her when he made a witness statement for the present proceedings even though he was aware she was a defendant in those proceedings.

[28]There is no substantial evidence to justify the conclusion that at the relevant period EL was engaged in distinct criminal conduct on his own account. The claimant’s primary hypothesis must therefore be that the property was acquired as a result of the unlawful activity of money laundering, but money laundering itself depends on proof that it is the product of criminal activity.

[29]Mr Power points out that there is cogent evidence of acquisition of substantial wealth by the Lundons before the first of the successful Operation Jaguar robberies in October 1995 that were the focus of the prosecution in the case of Jason Metcalf. Those robberies could not explain the source of those assets. He relies particularly on evidence of successful share-dealing from 1993. There is no or no sufficient evidence to conclude that the assets acquired before the sequence of robberies began were the product of unidentified and un-investigated criminal conduct.

[30]He therefore submits that even if some of the funds that were used to acquire the assets can be shown on balance to be the product of criminal activity not all such funds can be. In the case of mixed funds it is necessary to apportion the percentage of tainted and untainted funds in tracing the history of the assets and only the percentage represented by the tainted funds is recoverable.

[31]Finally he submitted that in respect of the property that was put into the name of Mrs Lundon, the principles developed in matrimonial property cases indicate that such a transfer should be treated as for value, namely the wifely duties performed in pursuance of a long lasting marriage, and should prevent recovery in these proceedings. Conclusions (1): Was the stake money used to win bets in 1995 to 1998 the product of unlawful conduct?

[32]I have no doubt that the stake money used to finance EL’s extensive gambling activity in 1995 to 1998 was the product of criminal activity. I reach this conclusion for the following reasons:- i. It is so improbable as to be fanciful that EL could have succeeded in making massive profits against the book makers over this period and thereby generated this wealth legitimately. Bookmakers take a keen interest in gamblers who take large sums of money off them and they did not consider that EL or Jason Metcalfe were persons of concern in that respect. If large winnings were made, even larger sums must have been staked as bets to secure the winnings that were achieved. ii. EL is demonstrably and by his own account an unreliable historian as to how he acquired his wealth. There is no reason to believe his self-serving statement made to the police when arrested that he was engaged in unlicensed bookmaking and that was the source of his profits. The scheme as explained makes little economic sense. There is no independent evidence of it when such evidence would be expected. He has withdrawn the claim as false in his tax statements. iii. The fact that he considered it appropriate to give the police a false account in interview is itself significant. If the true explanation for his wealth was merely exceptional good fortune betting in the manner identified by the bookmakers he could have said this. In fact he told the police in interview that it is well known that bookies always win in the long term. There is no reason to doubt that statement as an accurate and realistic assessment. It is inconsistent with the contentions now made by the respondents. iv. The betting links with Jason Metcalfe were substantial. They included the similarity of methods used by both men and the payment out of some the Jason winnings to either Mr or Mrs Lundon. The inferences to be drawn from the bookmaker staff evidence as a whole indicate that EL and Jason were linked together in the activity that included laundering the proceeds of robberies. The evidence as a whole suggests that EL was the more senior figure in the arrangement and made the greater gains from it, and that Jason was by and large placing bets at his behest. v. The scale of the betting activities that EL was undertaking during this period in conjunction with Jason, is such as to infer that this was his major activity during this period, as opposed to taxi cab driving or any other legitimate source of earning an income. The scale is such as to be suggestive of laundering an even larger pool by way of stake money, rather than successful large scale gambling with a starting point from a pool of assets. vi. EL’s suggestion to the police that Jason was inventing a link with him for his own purposes can be rejected in the light of the subsequent events. Although the prosecution concluded that it could not prove guilt to the criminal standard in 1998, subsequent information has demonstrated first that EL lied on his own admission as to how he acquired his assets. He has demonstrated his unreliability as a source of information about his affairs and his nexus to criminals. Further his proven criminality with respect to money laundering and the strong case of drug trafficking in 2006 demonstrates that he was by then not only a money launderer but a serious and established criminal. vii. The acquisition by EL of wealth before the start period of the robberies is not positive evidence of an untainted source of money. The prosecution opening reveals that it was not its case that the robberies were the sole source of the funds that were laundered by Jason. If he was deploying large sums of cash as stake money in bets before the cash stolen in the robberies became available, it is likely that he had developed a system for laundering money and the robbers were but one of his clients in using that system. viii. I accept Mr Hawkin’s evidence that EL was in jocular mood and unguarded in his conversation with him when the cheque was returned to him. It is of significance in the light of what was subsequently known that in 1998 EL mentioned drugs as one unlawful activity that was the source of the funds. Although such an admission may be considered reckless and imprudent, I conclude that EL must have assumed (accurately as it transpired) that as the prosecution had been terminated he was not at any immediate risk of the investigation being re-opened. ix. It is unlikely that someone with no previous connections to drug trafficking can emerge in 2006 as a major player in a large scale importation of class A drugs. In the light of the later evidence connecting him to drug dealing, weight can be attached to the unguarded admission to Mr. Hawkins that he was laundering the proceeds of crime other than robberies, and such criminal activity included drug dealing. x. By contrast I do not accept that fraudulent trading in counterfeit clothes or prostitution has been shown to be such a source. The unsupported assertions of EL are not a reliable basis on which to form conclusions on the civil balance of probabilities..

Conclusions (2) Is the property claimed the product of unlawful activity?

[33]The claimant asserts that the following properties were acquired by Mr Lundon from the proceeds of unlawful activity. Property Registered Owner Purchase date Purchase Price Estimated Value Flat 1 Colonnades Albert Dock Patricia Lundon 23 May 1997

£200,000

£500,000 56 Allerford Rd, Tuebrook Jennifer Lundon 26 July 1999

£29,000

£70,000 384 South Ferry Quay Jennifer Lundon 8 December 2003

£165,000

£195,000 Terramar Appartment Villajoyosa Alicante Patricia Lundon September 2003 £150,000 (approx.) £170,000

[34]The Colonnades was purchased without a mortgage. The source of the funds was a series of payments into the accounts of the respective solicitors for the purchaser and vendor. The payments were either bookmakers cheques, sums described as cash from bookmakers, or transfers from bank accounts of Mr and Mrs Lundon that themselves had been the recipients of gambling winnings.

[35]Allerford Road was paid for by deposits from bank accounts in the name of Mr and Mrs Lundon. There was insufficient legitimate income in this period to have made these payments. The overall evidence suggests that directly or indirectly the cash in the bank accounts were the product of winnings from gambling stake money.

[36]South Ferry Quay was purchased in 2003 with funds that were the product of EL’s share portfolio with Blankstone Sington. The Terremar Apartment was also funded from the same share portfolio in the same year.

[37]The Blankstone Sington account still holds 175,000 Vodafone shares valued at £272,212, representing the balance of 200,000 shares purchased in 2005. There are cash deposits and ISA accounts held by same firm. Blankstone Sington was also the source of funds: i) In a NatWest bank account, £128,695 was transferred in February 2007 of which £92,156 remained at the commencement of these recovery proceedings; ii) The balance in an HSBC account of £1337 from a transfer of £30,000 in September 2006

[38]Three other bank accounts held in the names of Mrs Lundon or Mr and Mrs Lundon were funded from gambling winnings or sale of shares in Liverpool Football Club in 2006. The shares were purchased in 2005.

[39]In so far as the source of the funds for the residential properties, the bank accounts and the share accounts was gambling winnings from bets placed in the period from 1995 onwards then the first part of my conclusions as to the source of the stake money advanced in that period, leads to the result that the property that represents the proceeds of such tainted winnings is recoverable property. In my judgment all the gambling activity over this period was using tainted money and therefore all the proceeds from this activity is tainted.

[40]The position with share dealing is more complicated. Ms. Croft’s conclusions on the information available suggest that the first of EL’s share acquisitions were made in January 1992 and February 1993 when some 27,365 ASDA shares were purchased for a total of £11,505.95 and sold in July 1995 for £25,323. There is very little information as to Mr Lundon’s activities legitimate or otherwise in 1992 or 1993. The £25,323 achieved on the sale of these shares was part of the source of the purchase price of 74,600 shares in WPP for £101,088 that were sold in two tranches in April 2002 and September 2002 for a total of £411,276.95.

[41]The bulk of the money from the share dealing in 1995 and after appears to have been introduced as fresh capital assets and is therefore more probable than not the product of the betting activities with tainted funds. Profits made on share dealing before 1995 does not fall into this category. Assuming , for present purposes that I were to conclude that at least 25% of the purchase price of these shares had come from funds that I could not be satisfied on the civil balance were untainted, this would result in a fund of £102,819 that is subsequently mixed in with other share dealing. It also appears that some shares were acquired without a purchase price (Manweb, Scottish Power, Abbey and Aviva) in the subsequent transactions and cannot therefore have been funded by the proceeds of tainted bets.

[42]The Proceeds of Crime Act 2002 s.304 is concerned with following property obtained by unlawful conduct in the following terms: “(1) Property obtained through unlawful conduct is recoverable property.

(2) But if property obtained through unlawful conduct has been disposed of (since it was obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(a) the person who through the conduct obtained the property, or

[43]Section 305 adds to these provisions the following: “(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 the place of it, the other property represents the original 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 the other property represents the original property”.

[44]s.306(2) deals with cases of mixed property and states:

“the portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct”

[45]Ms Croft calculates at [205] in her witness statement that between January 1992 and July 2006 shares were acquired for £1,949,738 and sold for £2,688, 381 making a profit of £738,642. If the £102,819 derived from the proportion of pre-1995 profits in share dealing is added to the shares obtained without a purchase price a total of £124,861 is reached, which is 16.9% of the £738,642. This 16.9% may be profit generated other than from funds that are the source of gambling winnings from 1995 onwards. There are other shares purchased from 1996 onwards that complicate the picture. It is not possible to perform a precise tracing exercise but, depending on the conclusions finally reached as to the source of funds in 1992 and 1993, I conclude that about 15% of the investment into the Blankstone Sington accounts is untainted by the product of criminally derived betting stake money. On this basis and subject to the respondent’s further submissions, : i. The properties known as the Colonnades and Allerford Road are recoverable property to the totality of their value. ii. An 85% share of South Ferry Quay and the Terramar Apartments is recoverable property. iii. An 85% share of each of the assets in the Blankstone Sington accounts is recoverable property. iv. An 85% share of the sums standing to the credit of the Nat West account and HSBC account no 22246384 is recoverable property. v. 100% of the other bank accounts is recoverable property

Conclusion (3) Was there an exempt transfer to Mrs Lundon of the property?

[46]Mr Power for the respondents submits that even if the stake money used to win the bets and any property derived there from was recoverable property it ceases to be recoverable property within the meaning of the statute once EL transferred property to his wife. He submits that both the payment out of the winnings in the form of a cheque made payable to Mrs Lundon, and putting the residential properties in Liverpool and Spain in her sole name is a transfer.

[47]In order to consider this submission it is necessary to set out further provisions of the statutory scheme:

“308. General exceptions (1) If- (a) a person disposes of recoverable property, and (b) the person who obtains it on the disposal does so in good faith, for value and without notice that it was recoverable property, the property may not be followed into that person’s hands and, accordingly, it ceases to be recoverable.” “314. Obtaining and disposing of property (1) References to a person disposing of his property include a reference- (a) to his disposing of a part of it, or (b) to his granting an interest in it, (or to both); and references to the property disposed of are to any property obtained on the disposal. (2) A person who makes a payment to another is to be treated as making a disposal of his property to the other, whatever form the payment takes.” (1) If- (a) a person disposes of recoverable property, and the property may not be followed into that person’s hands and, accordingly, it ceases to be recoverable.” (a) to his disposing of a part of it, or (b) to his granting an interest in it, (or to both); and references to the property disposed of are to any property obtained on the disposal. (2) A person who makes a payment to another is to be treated as making a disposal of his property to the other, whatever form the payment takes.”

[48]Mr Power submits that when EL transferred property to Mrs Lundon this was not a gift but a disposal in good faith for value and without notice of the tainted origins of the property in question. The basis for that submission is the application of the principle of matrimonial law that parties to a marriage give value by their respective endeavours. The wife who has no income earning job gives value by way of her services as housewife and mother to the children of the marriage. That is the basis of the presumption of beneficial ownership in equal shares in jointly owned matrimonial property. These principles have been reflected in the field of asset recovery.

[49]In the case of Re Marion Gibson

[2007] EWHC 1405 (Admin)

(unreported) Mr Goudie QC sitting as a Deputy High Court Judge had to apply these principles to a third party claim made by a wife for exemption from enforcement of her interests in the matrimonial home in respect of property that had been made subject to a criminal recovery order following the conviction of the applicant’s husband for drug trafficking.

[50]The judge was concerned with the provisions of the Drug Trafficking Act 1994 and had to consider whether any payments made by the husband to the wife or to the mortgage company in discharge of the mortgage on a home in joint names was to be construed as a gift within the meaning of S. 8 of the Drug Trafficking Act. He said this:

“The question, however, is whether there was a gift, constituted by the Defendants’ payments in relation to the Applicant’s interests in addition to his own. I doubt it. There was to my mind consideration from the Applicant by bringing up the children and looking after the home.”

[51]He nevertheless concluded that there was a principle of public policy that precluded the wife obtaining the property because she was aware that it was tainted.

[52]The case went on appeal to the Court of Appeal: Gibson v Revenue and Customs Prosecution Office [2008] RWCA Civ 645 on the second point. The Revenue did not cross appeal on the first (see judgement [11]). In any event Arden LJ thought the judge was right to conclude that the principles in Stack v Dowden

[2007] 2 AC 432

applied to the determination of the nature of transaction in question and that a transfer of property into joint names should not be considered a gift by reason of the presumption of advancement (see paragraphs [26] to [27] ). It was by application of the Stack v Dowden principle that Mr Goudie QC had reached his conclusion noted at [51] above. Wall LJ agreed with her (see paragraph [28]). The Court of Appeal held that public policy did not apply to entitle the Revenue to deprive her of her own property (see May LJ paragraphs [15] to [22]).

[53]Mr Brettler submits that the case of Gibson does not assist because it was concerned with a different point under a different statute and the claimant in the present case makes no concession that the property provided by EL to Mrs Lundon were not gifts. In the context of the 2002 Act he further submits that: i. Mrs Lundon did not receive the property in good faith and without notice of the taint and he relies on the evidence of Mr Hawkins as to what Mrs Lundon said in 1998 on the occasion of the return of the cheque. ii. There was no disposal of recoverable property to Mrs Lundon. The tainted cash from the bets placed with the proceeds of crime were paid direct by the bookmakers’ cheques into bank accounts in her name and conveyancing accounts for the residential property acquired in her name. This was not a case of EL acquiring the property in the form of title or cash in his account and then transferring it by regular allowance, mortgage payments, or variation in legal title. iii. In any event this was not a case of transfer for value within the meaning of the 2002 Act where value is defined as market value.

Good Faith

[54]As to the first of these submissions I am not satisfied that the claimant’s case on absence of good faith or actual knowledge of the taint is made out. There was no attempt to develop such a factual finding in cross-examination of Mrs Lundon. The high point is the remarks she made that were heard by Mr Hawkins. In my judgment this is far too fragile material to support such a serious finding. Knowledge of the tainted source of the property cannot be assumed or lightly inferred. Mrs Lundon was of course aware of the exponential growth in her husband’s wealth and saw substantial sums of loose cash about the house. She thought that they were the proceeds of gambling on which EL made substantial winnings. She was correct about this. He did procure large sums by winning bets.

[55]There is no evidence that she knew how much was needed to stake to make such returns or where the source of the stake money was. She said she did not know much about gambling herself and she had no knowledge that the money had tainted origins, certainly in the period of the 1990’s when this wealth was accumulated.

[56]As to the remarks she is said to have made in 1998 they could only have significance if the context of what she was responding to is clear and the whole exchange between EL and Mr Hawkins had been accurately heard and understood by here. I am not satisfied that this is the case. If Mr Hawkins himself considered this to be important evidence of Mrs Lundon’s knowledge of the source of the tainted funds, it is very difficult to imagine that he would not have mentioned this in his witness statement for the purpose of the proceedings. Mrs Lundon was not present for the whole of EL’s disclosures to Mr Hawkins. It is not possible to know what she was telling him to keep quiet about. If whilst bringing in the tea she heard some jocular remarks about criminal activity her remarks could as easily have been a rebuke to her husband from making a singularly inappropriate joke, given the difficulties into which she had been put by his activities. Both she and Jennifer Lundon gave evidence in a straight forward way. I see no reason to reject it.

Transfer of property

[57]However, I accept the claimant’s submission that on the fact of this case s.308 was not engaged at all, because there was no exempt transfer within the meaning of the Act. Section 308 falls within chapter 4 of the Act. The first section of chapter 4 is s.304 that explains the meaning of property obtained through unlawful conduct and is quoted in full above at [42]. Section 304( 2) provides that “if property obtained through unlawful conduct has been disposed of (since it was so obtained) it is recoverable property only if it held by a person into whose hands it may be followed.” (emphasis supplied)

[58]Sections 305 to 307 go on to explain the particular circumstances when original recoverable property can be followed into different property. Section 308 the terms of which have been noted above is a general exception to the following permitted by the statute, namely where there has been a disposal for value.

[59]The claimant submits that there has been no disposal by EL to Mrs Lundon, since the property acquired from the bookmakers was made directly over to her in the form of cheques paid into bank accounts or acquisition of residential properties in her sole name using entirely tainted funds. The acquisition of recoverable property itself cannot also be said to be a disposal since it was so obtained. Rather this is an application of the basic rule in s.242(1) that a person may obtain property through the unlawful activity of another. Here Mrs Lundon obtained the property through EL’s unlawful activity. It was not being disposed of to her by EL.

[60]If the respondents’ submissions on this point were right there would be a very significant lacunae in the regime of the Act and a person who was entitled to assets obtained by unlawful activity could achieve exemption from recovery under the Act by the simple device of securing that they were paid out direct to an unwitting spouse.

[61]There is nothing in the judgment of Gibson that requires a different construction to be placed on this section. Indeed it is generally impermissible to transpose a judicial conclusion reached in one statutory context to a completely different one.

[62]Further, the facts in Gibson were very different from the present case. In Gibson there was a matrimonial home in joint names that preceded criminal wrongdoing by the husband. The mortgage payments were met by payments from the husband who had a legitimate income throughout the time he was also making profits by unlawful activity. The court was only concerned with who owned the property and whether the wife’s legal interest could be defeated by a public policy presumption. It was not concerned with the statutory regime for tracing property from one disposal to another with an exemption for the purchase for value.

Value

[63]My conclusion on the second of the claimant’s submission under this issue, is sufficient to dismiss the respondents’ case on this point since all the qualifying conditions of s.308 must be made out before an exempt disposal arises. However given the proximity between the second and third submissions, and in case I am wrong on the second submission I will set out my conclusions on the third.

[64]The claimant points out that value means market value (see s.316 (1)) and Parliament cannot there have intended that wifely duties over a long-marriage could be said to be market value within the context of the section. The section is merely concerned with the innocent purchaser for full market value.

[65]I accept that it is not usual in most relationships to find that the parties have put a purely financial value on the services that one spouse provides another in a marriage or recognised partnership. There is, however, no particular reason in law to prevent such services having an assessed value, or to preclude the activity of the non-employed party in such a relationship from constituting real economic value for the purpose of constituting consideration for the grant of an interest in property. I am not prepared to accede to the generality of the claimant’s submissions that transfers of property to spouses in a family context are incapable of ever being a disposal for value within the meaning of s.308. Such a sweeping submission would appear to be inconsistent with the Court of Appeal’s decision in Gibson, in so far as it upheld the judge’s conclusions that the husband’s contributions to the value of the wife’s interest in the matrimonial home were not to be construed as gifts by reference to the presumption of advancement. In my judgment, in her observations at [24] and [26] and [27] Arden LJ was indicating that even in the absence of a prosecution concession, the judge was right to conclude that the wife acquired an interest in the property other than by way of gift.

[66]However, in the particular context of this case, I can find no evidence that EL was seeking to compensate his wife for her activities during the marriage. This was not a case of tainted contributions to a mortgage or housekeeping or other allowance made to the wife. Nor was it a transfer of property made on divorce or in response to particular family events that might have made redistribution of assets appropriate: death, separation, estate planning, or something similar.

[67]The former matrimonial home is not property that the claimant seeks to recover, neither are the payments made by EL to pay off his parents in law’s mortgage. What is sought to be recovered is an asset wholly acquired with tainted funds when the family lifestyle and asset acquisitions dramatically exceeded any legitimate income that may have been available to the couple. There is nothing in the Gibson judgment to indicate that as a matter of law every time a husband puts property in a wife’s name that is a transfer for market value within the meaning of the Proceeds of Crime Act. In my judgment, the act of putting the Colonnades and the Terramar Apartment in Mrs Lundon’s name was neither a disposal of property by EL, nor, in the particular circumstances of this case, was it a disposal for value. Conclusions (4): Am I satisfied that it is more probable than not that assets acquired in 1993 were obtained as a result of criminal conduct ?

[68]I have accepted the claimant’s case that EL was engaged in money laundering and other serious criminal activity in 2006 and was engaged in laundering the proceeds of serious criminal activity in 1995 to 1998 by which time most of the wealth of which recovery is sought had been brought into existence. Profits made legitimately from assets that are themselves recoverable are to be treated as recoverable (see s.307 POCA). It has not been necessary to examine EL’s activities between 1998 and 2006.

[69]However, if the claimant is to succeed in recovering the totality of the assets claimed, including the 15% that in my judgment were not derived from tainted bets in the period 1995 to 1998, it would be necessary to make a further inference that the unlawful activity that EL was engaged in during that period must have been engaged in earlier.

[70]However, by contrast with the 1995 period onwards there is virtually no information as to EL’s activities in 1993 when he first started acquiring shares for much more modest sums than the subsequent acquisitions. I recognise that there must be suspicion that because of his subsequent conduct he was probably up to no good in the earlier period. However, although propositions of fact can be demonstrated by inference from primary facts there must be a body of primary facts from which the inferences can legitimately be drawn. As the case law shows mere absence of evidence of legitimate earnings is not sufficient to draw the conclusion that assets were illegitimately acquired through offending of a particular class.

[71]In Sweeney v Cote

[1907] 1 AC 221

was a case where the House of Lords was concerned with whether a civil conspiracy could be established by inference from uncontested facts. Lord Loreburn observed at p.222 :

“Now, a conclusion of that kind is not to be arrived at by a light conjecture; it must be plainly established. It may, like other conclusions, be established as a matter of inference from proved facts, but the point is not whether you can draw that particular inference, but whether the facts are such that they cannot fairly admit of any other inference being drawn from them.”

[72]I am not satisfied that I can exclude lawful explanations for EL’s assets obtained before 1994. He may have turned to gambling as a means of money laundering because he had some success as a gambler with lawfully acquired assets. He seems to have had some skills in investment in the stock market, and the absence of any earlier information about his bank accounts and the link I cannot exclude the realistic possibility that the purchase price of the acquisitions of shares in 1992 and 1993 were not profits made from earlier transactions. Proof by inference is not to be degraded into mere speculation.

[73]The position is not entirely clear in 1994, but this seems to have been a time when he was observed more often in bookmaker’s shops and the start of the high stakes period, where tainted money was used. In any event I am unaware of any acquisition of shares or other capital assets in 1994 that may be said to have contributed to the wealth accumulating in 1995 to 1998. I accordingly conclude that the 15% of the property that I decided in Conclusions (2) above did not derive from gambling winnings in the period 1995 to 1998 is not recoverable property.

Outcome

[74]For these reasons I am satisfied that this claim succeeds to the extent indicated above in this judgment. I shall invite counsel to draw up an order reflecting these conclusions.