Executive Jet Support Ltd & Anor v The Serious Organised Crime Agency (SOCA) [2012] EWHC 2737 (QB)

[2012] EWHC 2737 (QB)Case No CO/7040
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Date: 10 th October 12
Before
THE HONOURABLE MR JUSTICE GRIFFITH WILLIAMSIn the Matter of a Case Stated pursuant to Section 111 of theMagistrates Court Act 1980
Between
EXECUTIVE JET SUPPORT LIMITEDFirst AppellantSIMON BROWSESecond Appellantv.AppellantTHE SERIOUS ORGANISED CRIME AGENCYAppellantRespondent
William Clegg QC & David Patience (instructed by Finers Stephens Innocent) for AppellantAndrew Marshall and Mark Mullen (instructed by The Serious Organised Crime Agency Legal) for RepondentHearing Hearing dates: 20 July 2012
Judgment

Introduction

[1]This is an appeal by way of case stated by the appellants, Executive Jet Support Limited and Simon Browse against the decision of District Judge Cooper sitting at Bristol Magistrates Court on 14 April 2011, ordering the forfeiture of £143,472.23 pursuant to the provisions of section 298 of the Proceeds of Crime Act 2002 [“the Act”]. That sum is the sterling equivalent of the value of cash, primarily US dollars seized from the second appellant’s home on 17 May 2007, being the unspent balance of US $310,000 paid to the Second Appellant on or about 6 November 2006 (see paragraph 6 below).[2]On 21 May 2007, the Serious Organised Crime Agency (“the respondent”) applied pursuant to the provisions of section 295 of the Act for the detention of those monies; subsequently, on 14 May 2009, the respondent applied, pursuant to the provisions of section 298 of the Act for forfeiture of those monies. The hearing of that application was delayed until the completion, on 5 March 2010, of Crown Court proceedings against the second appellant – he was acquitted of money laundering offences.[3]For the purposes of this appeal, the facts are agreed – an error in the Statement of Case has been corrected by order of Collins J of 26 January 2012 who also gave leave for the court to consider the terms of the contract and the payments made under the contract.[4]The first appellant is the owner of three Gulfstream G1 aircraft, serial numbers 040, 153 and 020. The second appellant was at all material times the sole director of the first appellant company. By an agreement in writing made on 3 November 2006, the first appellant (“the seller”) agreed to sell and World Turboprop Support Corporation (“the buyer”) agreed to buy the three aircraft for US $700,000 to be paid as follows:• US $260,000 for the aircraft serial number 020 “upon closing in Madrid within 5 days of Thursday 2 November 2006”.• Non-refundable deposits of US $25,000 each for the aircraft serial numbers 040 and 153, within 5 days of 2 November 2006 with the balance to be paid by direct transfer or escrow prior to delivery of the aircraft. The seller also agreed “to supply ferry permit and to pay the cost of ferry permit”. These provisions are in paragraph 2 of the agreement under the heading ‘Consideration’.[5]The sale of the aircraft was to take place at Madrid Barajas airport, but prior to closing, the seller had to have had performed, at its expense, an inspection of the aircraft and components, to ensure that the aircraft were “in fully functional and airworthy condition”. At closing, the seller had to deliver possession of the aircraft to the buyer, together with “a good and sufficient Bill of Sale of the aircraft, free and clear of all liens, claims and encumbrances, in the form of the standard FAA Bill of Sale”. These provisions are in paragraph 3 of the agreement under the heading ‘Closing and Delivery’. It was apparently also agreed between the seller and the buyer that the seller would arrange for ferry pilots to fly the aircraft to Venezuela.[6]By agreement between the parties, the definition of “ferry permit” is as follows:
“a ferry permit is a certificate issued by an appropriately designated inspector certifying sufficient air-worthiness to carry out the flight and permitting the stated journey by the airplane concerned. Ferry permits are designed to ensure that aircraft taking to the skies for single journeys are in air-worthy condition for that flight. They are issued for single flights (the ferry flights) enabling transfer to their new home where they will hopefully be maintained to the necessary standard required by the relevant domestic aviation authorities. Before a ferry permit is issued the aircraft in question must be made airworthy. What passes for air-worthiness is relative to the length of the ferry flight and scruples of the air-worthiness inspector; the more onerous the journey, the better condition of the plane required. Ferry permits are not instruments in the transfer of title to an aircraft between a seller and a buyer”
. The respondent accepts that ferry permits were issued in respect of two of the aircraft.[7]Payments under the agreement were made as follows:• US$310,000 in cash to the second appellant on or about 6 November 2006 in Madrid.• Three wire transfers totalling US$364,958.46 from World Turbo Prop Corporation to the UK bank account of the first appellant on 17 January, 6 March and 23 March 2007. The total paid was accordingly US.$674,958.46 with some US.$25,000 remaining unpaid.. In the Crown Court trial of the second appellant and in the forfeiture proceedings in the Magistrates Court, the Respondent’s case was that the second appellant knew the nature of what he was dealing with; that remains an issue between the respondent and the second appellant. Nonetheless, this appeal proceeded on the basis that the second appellant received the cash in good faith and without notice of its origin.[8]It is agreed between the parties that any transfer of the aircraft became impossible due to the intervention and actions of the US Federal Bureau of Investigations and that the first appellant retains possession of the aircraft.[9]It is agreed by the parties that in respect of the 3 aircraft “no documents instrumental in any transfer from the first appellant (for example a bill of sale, Certificate of Acceptance, receipts, invoices, transfer notification or registration transfer application documents) exist or have ever existed”[10]In the Magistrates Court, it was contended on behalf of the appellants that notwithstanding the failure of the seller to deliver the three aircraft together with a standard FAA bill of sale and the three ferry permits, the payment by the buyer of all but US$25,000 and the payment by the seller of the airworthiness inspection and the purchase by the seller of the ferry permits amounted to executed consideration for the purposes of section 314 (4) of the Act and so the General Exception Provisions in section 308 of the Act apply so that the cash is not recoverable. While other submissions made in the magistrates court were relied upon as grounds of appeal and so are subject of the case stated There was a claim that the appellants had been frustrated in law in their attempts to complete the agreement and that that should be taken into account when determining whether consideration already given was executed consideration. , they were expressly abandoned by Mr Clegg QC and so call for no consideration.[11]It is against the district judge’s conclusion that the conduct of the appellants in preparing the aircraft for transfer amounted to no more than the taking of steps towards the satisfaction by the seller of the contract terms and so was unexecuted consideration within the meaning of section 314(4) of the Act and had not become executed consideration for the purposes of that section that this appeal is brought. Central to the district judge’s conclusions of fact was his interpretation of the phrase “unexecuted consideration” as meaning “That where a party to a contract has further actions to perform in relation to completion of that contract, any consideration already given by that stage including any incurred expenditure incidental to the provision of the contract consideration cannot amount to ‘executed consideration’ for value”.

The Law

[12]The relevant provisions of the Act are these: Part 5 CIVIL RECOVERY OF THE PROCEEDS ETC OF UNLAWFUL CONDUCT Chapter 3 RECOVERY OF CASH IN SUMMARY PROCEEDINGS Forfeiture 298Forfeiture (1)While cash is detained under section 295, an application for the forfeiture of the whole or any part of it may be made –(a) to a Magistrates Court… (2)The court… may order the forfeiture of the cash or any part of it is satisfied that the cash or part –(b) is recoverable property. Chapter 4 GENERAL Recoverable property 304 Property obtained through unlawful conduct. (1)Property obtained through unlawful conduct is recoverable property. (2)But if property obtained through unlawful conduct has been disposed of (since it was so obtained) it is recoverable property only if it is held by a person into whose hands it may be followed. (3)Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by – … (a)the person who through the conduct obtained the property, or (b)a person into whose hands it may (by virtue of the sub-section) be followed. 308 General Exceptions (1)If – (a) a person disposes of recoverable property, and (b) the person who obtains in on the disposal does so 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 … (4) A person is only to be treated as having obtained his property for value in a case where he gave unexecuted consideration if the consideration has become executed consideration.”[13]And so Part 5 of the Act makes provision for the recovery in civil proceedings of property which has been obtained through unlawful conduct or which represents property obtained through unlawful conduct, but sections 308 and 314(4) constitute a limitation on the enforcement authority to follow and to trace property obtained through unlawful conduct and which would otherwise be recoverable property. The Appellants’ Submissions[14]On behalf of the appellants, Mr Clegg QC submitted there is no issue both that they acted in good faith and that they sold the aircraft at the market rate. He submitted that the provisions in paragraphs 2 and 3 of the agreement (see paragraphs 4 and 5 above) formed the consideration and as such were divisible obligations so that the payment for the airworthiness inspection and the purchase of the two ferry permits by the first appellant provided executed consideration. He submitted that while the delivery of both the bill of sale and of the aircraft remained to be performed, there had been sufficient performance for there to have been executed consideration and so there should be no forfeiture of the money.[15]Mr Clegg submitted that the term “unexecuted consideration” used in section 314 (4) of the Act should be interpreted synonymously with the term “executory consideration” as defined in Halsbury’s Laws of England Fourth Edition, Volume 9(1) at paragraph 733:
“Consideration is said to be ‘executory’ when it consists of a promise to do or forebear from doing some act in the future; and it is said to be ‘executed’ when it consists in some act or forbearance completed at earliest when the promise becomes binding. Thus, valuable consideration may be provided by either of the following: (1) mutual promises, which will give rise to a bilateral contract; or (2) a promise in return for an act, in which case there will be a unilateral contract. When a promise is performed, it is said to be ‘executed’…”
He submitted there is support for that proposition from the Explanatory Notes to the Act [see paragraphs 22 and 23 below] and from the following passage in paragraph 606 of Halsbury’s Laws of England: “A contract is said to be executory so long as anything remains to be done under it by any party and executed when it has been wholly performed by all parties”.[16]Mr Clegg submitted there was a bilateral contract with the seller and the buyer making mutual promises, the seller agreeing to deliver the aircraft, which had passed airworthiness and function tests carried out at the seller’s expense, together with the provision of ferry permits purchased by the seller and with a FAA bill of sale and the buyer agreeing to pay the purchase price in the manner agreed. He submitted that where consideration given in exchange for property has become at least partly executed, that should be considered sufficient for the provisions of section 314(4) to operate. He argued there is support for this proposition from the following: (i)The sub-section contains no requirement that the consideration should have become “fully” or “completely” executed and on a proper construction such should not be read into it. He submitted Parliament could easily have legislated to make it clear that all parts of the consideration had to be “fully” or “completely” executed and to read such into the sub-section would be to usurp the function of Parliament (ii)Injustice will be caused to the appellants who have incurred the expense of paying for the inspection and ferry permit and who have lost money on the aircraft, whose value has depreciated significantly over the last 6 years. (iii)The sub-section should be interpreted to give effect to the appellants’ Convention rights under Article 1 of the First Protocol to the European Convention of Human Rights. Mr Clegg had relied, in his written grounds upon the general principles of restitution, of partial failure of consideration and of the doctrine of unjust enrichment, submitting they assist because the buyer had paid almost all the purchase price, there has been part performance by the seller and so no total failure of consideration. However, in the course of his oral submissions, he said they were of limited assistance and so he did not develop them - rightly in my judgment because the issue in this appeal is one of statutory construction and not a dispute between parties to a contract.

The Respondent’s Submissions

[17]On behalf of the Respondent, Mr Marshall submitted that in enacting sections 308 and 314 (4) of the Act, Parliament defined the balance been the competing interest of the State in forfeiting the proceeds of unlawful conduct and of the innocent party who acted in good faith, providing consideration amounting to market value; if it were otherwise, the innocent party would be left without both the consideration he had provided and the “recoverable property” which paid for it.[18]Mr Marshall submitted the situation is different where the innocent purchaser’s consideration is unexecuted because there is no public interest in permitting such a contract to proceed to completion and because the contract can be avoided without loss to the innocent purchaser of his consideration. Thus the overriding public interest is satisfied by the removal from circulation of the recoverable property while permitting the innocent party to retain his consideration. That, he submitted, is the purpose and effect of section 314 (4) of the Act.[19]Mr Marshall drew the court’s attention to the Endnote to the judgment in R v. May [2008] UK HL 28. While that case was concerned with issues of confiscation under the Act, Mr Marshall submitted the Endnote is of equal application to issues of forfeiture under the Act. It reads:
“(4) In addressing the questions the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definitions. The language used is not arcane or obscure and any judicial gloss or exegesis should be viewed with caution. Guidance should ordinarily be sought in the statutory language rather than in the proliferating caselaw. ”
[20]He submitted the wording of section 314 (4) of the Act is clear; he agreed that “executory consideration” equates with “unexecuted consideration” [see paragraph 15 above]; he submitted that the literal interpretation of the sub-section “marches with” the purposive approach of the Act which in turn is consistent with the approach identified in the Explanatory Notes to the Act. He submitted that the appellants had not provided “value” as defined in the sub-section since the promised consideration – the delivery of the 3 aircraft – had not become executed consideration and so, without “value” the exceptions in section 308 cannot apply.[21]He submitted that the appellant’s argument amounts to an invitation to read the sub-section as “a person is only to be treated as having obtained his property for value in a case where he gave unexecuted consideration if any consideration became executed consideration”. He submitted the wording of the statutory provisions is clear; and the test provided by Parliament is deliberately one which should be easy to apply to the facts of any case.[22]The Explanatory Note to section 314 (4) reads: “Sub-section (4) is relevant to the protection provided at section 308 (1) for persons who obtain property ‘for value’. It provides that a person obtains property ‘for value’ only when he has given executed consideration for it. That means that if someone obtains property in return for a promise to pay for it or to perform some service in exchange, that will not count as having been ‘obtained for value’ until the payment is actually made or the service performed”.[23]Both parties have drawn the court’s attention to the Explanatory Notes and it is common ground that their value as an aid to construction is that they identify the contextual scene of the statute: see Tarlochan Singh Flora v. Wakom(Heathrow) Ltd [2006] EWCH Civ 1103 at paragraphs 15-17 (Brooke LJ).

Discussion

[24]Mr Clegg submitted that the consideration included all those requirements in paragraphs 2 and 3 of the agreement, which were divisible, so that the performance of any part of the consideration was sufficient for there to be executed consideration for the purposes of section 314(4) of the Act. Mr Marshall submitted that an examination does not lead to the identification of any divisible element of the first appellant’s obligation under the contract in respect of which they can say the consideration became executed – no separate price was specified for the permits or the inspection and those terms can hardly stand alone; they are useless to the buyer without delivery of the aircraft themselves and so they might simply be regarded as “part and parcel of an entire obligation to deliver airworthy aircraft”. I agree.[25]In my judgment, as a matter of construction of the agreement, the mutual promises were those specified in paragraph 2 of the agreement (see paragraph 4 above) and the provisions in paragraph 3 of the agreement (see paragraph 5 above) were conditions precedent. In this regard, I differ from the approach of the district judge (see paragraph 11 above). It follows that the steps taken by the seller in accordance with the provisions of paragraph 3 amounted to no more than the preparation of the aircraft for transfer and so formed no part of the consideration. It must have been the intention of the buyer that without evidence of an inspection to ensure the aircraft were airworthy and without a standard FAA bill of sale, there would be no completed contract. On that construction, the mutual promises were the payment of the purchase price by the buyer and the delivery of the aircraft together with three ferry permits by the seller – as the purchase price had not been paid in full and the aircraft were undelivered as at 17 May 2007, the consideration, save for the provision of one ferry permit, remained unexecuted. If Mr Clegg’s construction is the correct one, then the provision of two ferry permits and the carrying out of the airworthiness tests were executed consideration although the delivery of the aircraft together with the provision of a FAA bill of sale remained unexecuted consideration. However, for the reasons given later in this judgment, I have concluded it matters not which construction is to be preferred.[26]Can the sub-section be construed as Mr Clegg contends so that executed consideration includes the performance of some and not necessarily all of the promises? It is important to bear in mind that this is a matter of statutory construction and not of the law of contract. Mr Clegg appeared to acknowledge this when he submitted that although executory/unexecuted consideration is ‘good’ consideration such as to enable a contract to be enforceable under civil law, he accepted that that, of itself, would not avail a person who obtained the recoverable property for value, in good faith and without notice of its origins. I am satisfied it cannot be so construed (see paragraph 29 below).[27]There is no issue as to the meaning of ‘executory’ or ‘unexecuted’ consideration and ‘executed’ consideration [see paragraphs 15 and 20 above] and I did not understand Mr Clegg to submit otherwise. Section 314 (4) has to be read in the context of the provisions of Part 5 of the Act, which is concerned with the civil recovery of the proceeds of unlawful conduct (recoverable property, as defined).[28]The sub-section has to be read with section 308 (1) of the Act which provides protection to the innocent purchaser for value of property obtained through unlawful conduct acting in good faith without notice that it was recoverable property. If the recoverable property is acquired and market value consideration provided there and then, the property ceases to be recoverable but it is different when the innocent purchaser’s consideration is executory. Mr Marshall submitted, and I agree, that there is no public interest in permitting such a contract to proceed to completion since it can be avoided without loss of the innocent purchaser’s consideration. As the overriding public interest is to remove from circulation the recoverable property then it might reasonably be thought that few innocent purchasers would wish to retain the recoverable property in circumstances where they had also retained their consideration.[29]The language of the sub-section could not be clearer – “a person is only to be treated as having obtained his property for value in a case where he gave unexecuted consideration if the consideration has become executed consideration” (emphasis added), that is to say when the contractual promises have ALL been performed – it follows the consideration cannot be regarded as divisible. I am satisfied that Parliament, in section 314 (4) provided the test to be applied to determine whether it would be wrong to forfeit the recoverable property in the hands of an innocent party. The test is whether the innocent party’s consideration has become executed consideration; if it has not, then the innocent party will not be permitted to retain the proceeds of unlawful conduct which he had received but he would retain his consideration. If the innocent party’s consideration has become executed, the innocent party is permitted to retain the proceeds of unlawful conduct. To protect the innocent party and to make these forfeiture provisions clear and certain – it should be born in mind that Parliament intended that these applications can be made in summary proceedings – Parliament used language which is neither arcane or obscure to define the circumstances in which recoverable property ceases to be recoverable. It follows that the protection to the innocent purchaser of the value is only provided when the contract has been completed.[30]If any support is needed for this construction of the sub-section, it is provided by the Endnote in May (see paragraph 19 above) and in the Explanatory Notes to the Act (see paragraph 22 above). It follows that issues of economic loss on the part of the innocent purchaser are irrelevant.

The appellants’ C onvention rights

[31]Mr Clegg submitted that pursuant to section 3 of the Human Rights Act 1998 the Court has an obligation to interpret primary legislation in a way which is compatible with the rights of the appellants under the European Convention of Human Rights. He relied in particular upon Article 1 of the First Protocol which provides:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties”
. Mr Clegg submitted that to deprive the appellants of their peaceful enjoyment of monies received in circumstances to which the provisions of section 308 of the Act apply would breach their Convention right. He submitted it cannot be in the public interest for the appellants to be deprived of the monies..[32]On behalf of the respondent, Mr Marshall referred the Court to Butler –v- United Kingdom (27 June 2002) in which the European Court of Human Rights considered the earlier forfeiture provisions of the Drug Trafficking Act 1994 and concluded, not only that the forfeiture provisions in that Act were not a disproportionate interference with the applicant’s property rights but also that the complaint was “manifestly ill-founded”.[33]I have had regard also to Allgemeine Gold- und Silberscheideanstalt AG (Agosi) –v- United Kingdom [1987] EHRR 1. The Court held, (paragraph 48) that Article 1 comprises three distinct rules; the first is the principle of the peaceful enjoyment of property, the second covers the deprivation of property subject to conditions, the third recognises that the Contracting States are entitled among other things to control the use of property in accordance with the general interest. In Saccoccia –v- Austria [2010] 50 EHHR 11 the Court referred to the established case law on the structure of Article 1 and the manner in which the three rules are to be applied. (paragraph 86). Importantly, the Court emphasised (paragraphs 89):
“… the proceedings at issue must afford the individual a reasonable opportunity of putting his or her case to the relevant authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. In ascertaining whether this condition has been satisfied, the Court takes a comprehensive view” “Moreover, bearing in mind the respondent State’s wide margin of appreciation in this area, the Court finds that the execution of the forfeiture order does not disclose a failure to strike a fair balance between the respect for the applicant’s rights under art 1 of Protocol No 1 and the general interests of the community”
[34]I am satisfied there is nothing arbitrary about the provisions in Part 5 of the Act. Mr Marshall submitted correctly that the Act addresses the legitimate aim of the removal from circulation of criminal property, the intended consequential inhibition on the laundering of criminal monies and the commission of crimes producing such monies. The provisions strike a fair balance between the general interest that the proceeds of Class A drug trafficking should be forfeited and the interests of the appellants, who have not been deprived of their consideration. Importantly, the appellants have had every opportunity throughout these proceedings to challenge the measures.[35]I am not persuaded that the forfeiture order was in any way incompatible with the appellants’ Convention rights.

Conclusions

[36]I am satisfied that the consideration promised by the second appellant on behalf of the first appellant , whether it was that provided for in paragraph 2 or in paragraphs 2 and 3 of the agreement (see paragraphs 4 and 5 above) was indivisible for the purposes of section 314(4) of the Act and so would only have become executed consideration when all were performed. It follows that the consideration remained executory or unexecuted consideration within the meaning of section 314(4) of the Act and had not become executed consideration for the purposes of that section. It must follow that the second appellant had not obtained the recoverable property for value and so the property had not ceased to be recoverable for the purposes of section 308(1)(b) of the Act.[37]I am satisfied also that the district judge directed himself correctly (see paragraph 11 above) that where consideration remains to be fulfilled, the performance of any consideration already given or performed cannot amount to executed consideration for the purposes of section 314(4) of the Act.

Decision

[38]The appeals are dismissed.[39]By consent, and pursuant to the Court’s powers under section 28A (3) of the Senior Courts Act 1981, it is ordered that the appellants do, within 28 days of this Order pay the respondent’s costs in this matter in the sum of £20,550.