Capewell v. Revenue and Customs & Anor [2007] UKHL 2
House of Lords
Case No SESSION 2006-07
Between
CapewellAppellantRevenue and Customs & AnorRespondent
Before
Lord Nicholls of BirkenheadLord HoffmannLord Rodger of EarlsferryLord Walker of GestingthorpeLord ManceDate 4 December 2006
[1]I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would allow this appeal. LORD HOFFMANN My Lords,[2]I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would allow this appeal.[3]I have had the advantage of reading in draft the speech of my noble and learned friend Lord Walker of Gestingthorpe. For the reasons he gives, with which I agree, I would allow this appeal. My Lords, Introduction[4]In R v Rezvi [2003] 1 AC 1099 , 1146, 1152, Lord Steyn said: Parliament's determination that criminals should not profit from their crimes (and especially not from serious organised crimes) led to the enactment of Part VI of the Criminal Justice Act 1988 ("CJA 1988"), the Drug Trafficking Act 1994 ("DTA 1994"), the Proceeds of Crime Act 1995 ("POCA 1995," heavily amending CJA 1988) and Part III of the Terrorism Act 2000. The relevant provisions of these statutes have been replaced by Part 2 of the Proceeds of Crime Act 2002 ("POCA 2002"), which came into force on 24 March 2003, but the earlier legislation is still relevant to criminal proceedings initiated before that date. This appeal by the Commissioners for HM Revenue and Customs, formerly HM Customs & Excise ("Customs") is concerned with the remuneration of a receiver appointed on 30 January 2003 under a restraint order made on 9 October 2002 in respect of the assets of the respondent, Mr Robert Capewell. The facts[5]Mr Capewell was arrested on 11 April 2002 and on 24 September 2002 he was charged with conspiracy to cheat the public revenue and conspiracy to contravene the Value Added Tax Act 1994. He was charged jointly with thirteen other defendants. The gist of the allegation is what is often called "carousel fraud." The amount of value added tax evaded is said to be of the order of £18m. His criminal trial is at present in progress and is not expected to end for some months. The respondent is of course presumed to be innocent, unless and until he is convicted, of the serious offences with which he is charged.[6]On 9 October 2002 Lightman J made the restraint order already mentioned. This was made under sections 76 and 77 of CJA 1988. On 17 January 2003 Customs applied for the appointment of a receiver in respect of the respondent's assets. The application was opposed but on 30 January 2003 Jackson J made an order appointing Mr Nigel Sinclair of Kroll Buchler Phillips as management receiver of the respondent's realisable property (as defined in section 74 of CJA 1988). This order was made under section 77(8) of CJA 1988. Paragraph (3) of the order provided:[7]The letter in question (dated 21 November 2002, and sent to Mr Sinclair by Mr Colin Jones of Customs' Asset Forfeiture Unit) contained (in para 6, headed "Remuneration") provisions about the Receiver's remuneration and expenses. Para 6(a) was the basic provision: Para 6(d) contained a limited indemnity given to the receiver by Customs. I should perhaps say at once that this letter, and some other documents in the appeal, are far from precise in their use of the expressions "remuneration", "costs" and "expenses". It makes for clarity to confine "remuneration" to professional fees (for the receiver himself and his own staff), to confine "costs" to litigation costs, and to use "expenses" for all other expenditure necessarily or properly incurred by the receiver in the performance of his duties.[8]The respondent's principal assets, so far as within Customs' knowledge, were set out in a schedule to the order appointing the receiver. They were a diverse portfolio: a large country house in Staffordshire, half of which is said to belong to the respondent's wife; some expensive cars and personalised number plates; some bank accounts in this country and elsewhere; and some business assets including an unincorporated financial services business run by the respondent trading as John Ashley Associates. This business seems to have depended largely on the respondent's personal input and contacts, and to have been less profitable in recent years. Indeed the respondent was at the commencement of the receivership involved in some fifty legal actions against clients or former clients. In his first report the receiver stated that the respondent's terms of business entitled him to claim for lost commissions if his clients cancelled policies which they had effected through him, and that he pursued them through the courts, if necessary to bankruptcy.[9]The receivership led to a great deal of friction between the receiver and the respondent. There is copious documentary evidence before your Lordships in relation to the difficulties that arose, but it is unnecessary to go far into it. The receiver complained of non-cooperation (and possible contempts of court) on the part of the respondent; the respondent complained of the size of the amounts which the receiver claimed, in successive reports to the court, for his remuneration. In round figures the total remuneration claimed (inclusive of value added tax) mounted up as follows:(1) First report (26 April 2003) £74,000(2) Second report (31 March 2004) £132,000(3) Third report (2 June 2004) £182,000 These figures may be compared to the receiver's estimate (in the first appendix to his second report) of an eventual net realisation of less than £400,000 (there is no estimate in his third report, but there are some later figures in paras 22 and 23 of the judgment of Lindsay J mentioned below). The course of the litigation[10]The reason why it is unnecessary to go into any of these contentious issues is because the amount of the receiver's remuneration has not yet been quantified by the court, and is not an issue in this appeal. The point at issue in this appeal is whether the Court of Appeal, exercising its discretion in place of the trial judge, was right to order part of the receiver's remuneration to be paid, not out of assets subject to the receivership, but by Customs.[11]To explain how that issue has emerged I must go back to Jackson J's order of 30 January 2003 appointing the receiver. At that time it was envisaged that an application to discharge the receiver might be made at an early date, as soon as the respondent's counsel had prepared further evidence directed at demonstrating that the receivership was unnecessary (this appears from the part of the order headed "Duration of this Order"). In the event there was no early application. But on 5 February 2004 the respondent applied for the receiver to be discharged on the grounds that his "costs" were disproportionate and excessive. Customs opposed the application. It was dismissed by Lindsay J on 6 April 2004. At the time of his judgment the expected date for the commencement of the criminal trial had slipped from 2004 to 2005; it was to slip again to 2006.[12]Lindsay J's reasons for dismissing the application appear from para 28 of his judgment. After stating that he was not satisfied that the purposes of the receivership had been achieved, he continued: The judge proceeded to give directions as to the quantification of the receiver's remuneration (though the ensuing appeals have delayed that process). His reference to "CPR 69.7" is to paragraph 7 in Part 69 of the Civil Procedure Rules 1998 ("CPR") as inserted by the Civil Procedure (Amendment) Rules 2002 (SI 2002 No. 2058, made under section 2 of the Civil Procedure Act 1997) which came into force on 2 December 2002 (that is, about two months before Mr Sinclair was appointed as a receiver).[13]Lindsay J recognised the existence of CPR 69.7 but did not have occasion to consider how it might apply to this case. CPR 69.7 has become the central issue in this appeal. It is in the following terms:(a) so directs; and(b) specifies the basis on which the receiver is to be remunerated. (a) who is to be responsible for paying the receiver; and (b) the fund or property from which the receiver is to recover his remuneration. (a) the receiver may not recover any remuneration for his services without a determination by the court; and (b) the receiver or any party may apply at any time for such a determination to take place. (a) the time properly given by him and his staff to the receivership; (b) the complexity of the receivership;(c) any responsibility of an exceptional kind or degree which falls on the receiver in consequence of the receivership;(d) the effectiveness with which the receiver appears to be carrying out, or to have carried out, his duties; and(e) the value and nature of the subject matter of the receivership. (5) The court may refer the determination of a receiver's remuneration to a costs judge."[14]While the appeal was pending there was a further first-instance hearing before Davis J, initiated by the receiver's application for directions but overtaken by the respondent's renewed application for the discharge of the receiver. At the hearing on 13 October 2004 neither Customs nor the receiver opposed the ending of the receivership and the judge discharged the receiver for reasons which he gave on the next day. The judge said that the meat of the argument had been over whether the receiver should be entitled to payment on account of his remuneration. Davis J was satisfied that he had power to make an interim award, and he did so in the sum of £100,000. In para 18 of his judgment he observed: In para 29 he observed: At the end of the judgment there was some discussion as to whether the appeal from Lindsay J (in which a hearing was imminent) had become moot, or was still live on questions of costs.[15]The appeal did proceed and in due course the same constitution of the Court of Appeal (Laws, Longmore and Carnwath LJJ) sat on it twice. At the first stage (hearing 26 October 2004; judgment of the Court delivered by Carnwath LJ on 2 December 2004) the Court of Appeal decided that Lindsay J had misdirected himself as to the test for whether the receivership should be continued, and that the receiver should have been discharged at a date which the Court set at 1 June 2004. As he had been discharged by the order of Davis J, made on 13 October, the Court of Appeal made no substantive order on the appeal, but adjourned the matter for further argument on what was described in the order as "the resolution of any consequential orders including costs of the appeal and the hearing at first instance."[16]The Court of Appeal also set out, in an appendix to its first judgment, guidelines (suggested and agreed by counsel) for the appointment of management receivers in this type of case. Those guidelines have been reported ( Capewell v Customs & Excise Commissioners: Note [2005] 1 All ER 900 ). Neither side has raised any criticism of the guidelines before your Lordships.[17]The second stage of the appeal followed in 2005 (hearing 7 July 2005; judgment of Carnwath LJ, concurred in by Laws and Longmore LJJ, 29 July 2005). The Court of Appeal referred extensively to Hughes v Customs & Excise Commissioners [2003] 1 WLR 177 (" Hughes "), which had also been referred to in the Court's earlier judgment, but decided that the introduction of CPR 69.7 had made a significant change in the law and practice relating to receivers, although only in relation to remuneration (as distinguished from expenses). The outcome was summarised in paras 23 and 25 of the judgment of Carnwath LJ: That is the conclusion of which Customs complains in this appeal. There are also consequential issues as to costs. Receivership[18]My Lords,[18]in summarising the facts and the rather tortuous course of the litigation, I have made some passing references to some of the relevant statutory provisions, and to the general law of receivership. I must now address these matters more systematically, since (as Simon Brown LJ said in Hughes, para 50):[19]The Court's power to appoint a receiver, as part of its auxiliary equitable jurisdiction, is of very ancient origin. It was described in Hopkins v Worcester & Birmingham Canal Proprietors (1868) LR 6 Eq 437, 447, as one of the oldest remedies in the Court of Chancery. It was used in a wide variety of situations in which there was a need for the interim protection of property (and the income of property), including disputes about partnerships, sales or mortgages of land, and administration of estates. Receivers could also be appointed by way of equitable execution. The receiver, being appointed by the Court, was an officer of the Court. His duty was to act impartially, and in accordance with the directions of the Court, in administering the property to which the receivership extended.[20]In short, the appointment of a receiver was in many cases the most effective way of "holding the ring" between warring litigants until the disputed issues could be finally determined. Because it is a useful procedure, Parliament has from time to time extended the range of situations in which a receiver or manager could be appointed—for instance, in order to enforce the repairing obligations of the absentee landlord of a block of flats (see Landlord and Tenant Act 1987 section 21). The provisions of section 77(8) of CJA 1988, section 26(7) of DTA 1994 and section 48 of POCA 2002 are a further important extension of the situations in which the court has a statutory power to appoint a receiver. Sections 48, 50 and 52 of POCA 2002 provide for three types of receivers (management receivers, enforcement receivers and Director's receivers, the latter appointed by the Director of the Assets Recovery Agency) but it is unnecessary to go into those details on this appeal.[21]It has always been a basic principle of receivership that the receiver is entitled to be indemnified in respect of his costs and expenses, and his remuneration if he is entitled to be remunerated, out of the assets in his hands as receiver. Warrington J stated the principle in a well-known passage in Boehm v Goodall [1911] 1 Ch 155 , 161: This passage was cited and applied by Vinelott J in Evans v Clayhope Properties Ltd. [1987] 1 WLR 225, 229-230 (upheld by the Court of Appeal [1988] 1 WLR 358, Nourse LJ, at p 363, sharing Vinelott J's doubts as to whether a receiver's remuneration could be recovered as litigation costs).[22]These principles were applied (though with some reluctance) by the Court of Appeal in Re Andrews [1999] 1 WLR 1236 , a case of alleged VAT and PAYE frauds in which restraint and receivership orders were made against a father (who was eventually acquitted and awarded his costs out of public funds) and a son (who was eventually convicted of fraud). The facts were rather obscure since their business activities were carried on by three different companies, and the degree of control and financial interest enjoyed by different members of the family was uncertain. Ward LJ and Aldous LJ (with both of whom Hirst LJ agreed) said that remuneration and expenses (as such) could be charged only against receivership assets, and could not (under guise of litigation costs) be charged to anyone else on the principle in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, 975.[23]Re Andrews was considered and followed by the Court of Appeal in Hughes (one of three appeals by prosecuting authorities concerned with receiverships under CJA 1988 and DTA 1994). Simon Brown LJ set out ( [2003] 1WLR 177 , para 45) the appellants' argument (which the Court of Appeal accepted):[24]Money payable under a CJA 1988 confiscation order is treated as a fine (section 75(1) and (2) of CJA 1988) and is to be collected by the chief executive of the appropriate justices (section 81(3)). Section 81(5) provides: Section 88(2) provides: In Hughes Simon Brown LJ explained that neither of these provisions, properly understood, assisted the respondents in the three appeals then before the Court (paras 46 and 47): In other words section 88(2) is simply a statutory long-stop, similar in its effect to the long-stop of a contractual indemnity from Customs which Mr Sinclair has under para 6(d) of his agreement letter.[25]I have set out the decision in Hughes at some length because it does in my opinion state clearly and correctly the somewhat opaque relationship between the general law of receivership and the detailed provisions of CJA 1988. The real issue in this appeal is not whether Hughes was rightly decided, but whether it is no longer good law as a result of the coming into force of CPR 69.7. CPR 69.7[26]In my opinion CPR 69.7 has not had that far-reaching and surprising result. The function of CPR 69 is to set out a procedural code applicable to the generality of receiverships of all types. Its text gives no indication that its draftsman had particularly in mind the new species of receiverships in support of restraint orders and confiscation orders. No doubt its provisions do in general apply to such receiverships but they cannot override the scheme inherent in the detailed provisions of CJA 1988. That scheme is for the receiver's remuneration and expenses to be paid out of the receivership assets, but in a way which counts towards satisfaction of any confiscation order, and subject to the statutory long-stop already mentioned. If an individual subject to a restraint order is not ultimately convicted and made subject to a confiscation order, section 89 of CJA 1988 gives a statutory right to compensation in some circumstances. But Parliament has deliberately framed the right to compensation in narrow terms. That is an aggrieved individual's only right to compensation as such. He would not normally have the benefit of an undertaking in damages since (as Simon Brown LJ observed in Hughes at para 50) a prosecutor cannot be required to give an undertaking in damages as a condition of obtaining the appointment of a receiver. An aggrieved individual's only other recourse would be to challenge the amount of the receiver's remuneration, as the respondent has done in this case. There is a similar scheme under POCA 2002 and the Crown Court (Confiscation, Restraint and Receivership) Rules 2003 (SI 2003/421) made under that Act, but in these new provisions it is made perfectly clear that receivership expenses and remuneration are to come out of the assets subject to the receivership.[27]The Court of Appeal was in my opinion wrong to suppose that CPR 69.7 has made (or could have made) a fundamental change either in the general law of receivership, or in the position of receiverships under CJA 1988 and the other comparable statutory powers. I would allow this appeal on that ground. There is also a further, narrower ground for concluding that the order of the Court of Appeal cannot be upheld. In the original order appointing Mr Sinclair as receiver, Jackson J directed that "the costs of the receivership" (which in the context must mean expenses and remuneration) were to be paid in accordance with the agreement letter of 21 November 2002. That order was not appealed at the time (although it was contemplated that an early application would be made for discharge of the receiver) nor has there been any subsequent application for permission to appeal from it out of time. A receiver takes on heavy responsibilities when he accepts appointment, and he is entitled to the security of knowing that the terms of his appointment will not be changed retrospectively—even if an appellate court later decides that the receivership should have been terminated at an earlier date. Before Davis J the respondent's counsel more or less abandoned any point on CPR 69.7. Before the Court of Appeal, Customs seem not to have objected strongly to the point being reventilated, possibly because of the general importance of getting the point decided.[28]For these reasons I would allow the appeal and set aside paragraph 4 of the Court of Appeal's order of 29 July 2005. As to paras 1, 2 and 3 of that order (relating to the costs below) and as to the costs of this appeal I would invite written submissions from the parties within 14 days. My Lords,[29]I have had the advantage of reading in draft the opinion prepared by my noble and learned friend Lord Walker of Gestingthorpe, with which I am in full agreement. I therefore agree that the appeal should be allowed.