IpsofactoJ.com: International Cases [2005A] Part 6 Case 7 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Capewell

- vs -

Sinclair

(court appointed receiver)

LORD JUSTICE LAWS

LORD JUSTICE LONGMORE

LORD JUSTICE CARNWATH

2 DECEMBER 2004


Judgment

Lord Justice Carnwath

  1. This is an appeal by Mr. Robert Capewell against an order made by Lindsay J on 6 April 2004 on his application for the discharge of a receiver appointed pursuant to section 77(8) of the Criminal Justice Act 1988. The respondents to that application were the Receiver himself, Mr. Nigel Sinclair, and HM Customs & Excise ("Customs"), on whose application he was appointed. They are also the respondents to this appeal, both represented by Mr. Sutherland-Williams.

    BACKGROUND

  2. On 24 September 2002 Mr. Capewell was charged with conspiracy to cheat the public revenue, and conspiracy to contravene the Value Added Tax Act 1994. In paragraph 5 of his first witness statement, Mr. Colin Jones, a Customs solicitor, described the alleged fraud:

    The Defendant is believed to be involved in a fraud concerning the supply of mobile telephones in the UK from other Member States of the European Union. No VAT would be payable at that stage. The mobile telephones are then sold to a number of companies within the UK with VAT being charged on each of the transactions. The importing company disappears without accounting for the VAT and becomes a "missing trader". The mobile telephones are supplied to a chain of UK VAT registered companies until they are exported eventually to another EU company. This train of transactions is referred to as a carousel. The fraud is therefore known as a carousel fraud or Missing Trader fraud. The Defendant is believed to be one of the principals in the fraud. The principals have benefited by the total amount of VAT evaded, estimated at £18,000,000.

  3. On 9 October 2002, on the application of Customs, a restraint order under the 1988 Act was made by Lightman J. Some three months later, Customs applied for the appointment of a receiver, in aid of the restraint order, pursuant to section 77(8). That application was heard by Jackson J on 30th January 2003. He appointed as Receiver Mr. Sinclair, who is a licensed insolvency practitioner and a partner in Kroll Ltd.

  4. In his judgment, Jackson J summarised Customs’ reasons for seeking the order, as explained in Mr. Jones’ statement:

    In that statement, Mr. Jones describes a number of business ventures which the defendant has. These include a firm known as James Ashley Associates of which the defendant is either sole principal or certainly a moving force, and these businesses also include a limited company, Brooklands Number One Limited, and another limited company: Direct Mortgage Solutions Limited. The defendant is a shareholder in both those companies. The Customs and Excise are concerned, says Mr. Jones, because there are a number of indications in documents which Customs and Excise has seen that creditors are pressing for payment and that the defendant is in financial difficulties. In particular, attention is drawn to a bankruptcy petition which has been presented against the defendant and which is due for hearing on 6 March this year.

    Mr. Jones says that Customs and Excise do not have the necessary expertise to ensure that the defendant’s assets are protected from dissipation. However, if a receiver is appointed to take charge and ownership of these assets, he would be able to protect them from dissipation. He would be able to inspect the records and accounts of the firm, James Ashley Associates, to ensure that there is a sustainable business. The Receiver would also be in a position to take a number of steps in relation to Direct Mortgage Solutions Limited and Brooklands Number One Limited. Mr. Jones makes the point that the defendant has a legal claim against a Mr. Bolton or a company called P & D Distribution Limited. The Receiver would be able to assess the strength of the claim and to reach a view as to whether it is worth investing funds as costs in the pursuit of that claim. The defendant is seeking to remortgage the property Harewood Hall, at Cheadle in Staffordshire, in order to reduce outstanding business and personal debts as well as to facilitate business expansion plans; and the Receiver would be able to look into these matters to ensure that the defendant’s assets are being properly managed and that there is no dissipation of assets before such time as a confiscation order is made, if indeed that proves to be the result or one of the results of the criminal proceedings ....

  5. Mr. Capewell (through his counsel, Miss Barber) opposed the appointment of a receiver on a number of grounds, one of which was the potentially substantial costs of the receivership, which would fall on Mr. Capewell even in the event of his acquittal. She also suggested that Customs’ concerns would be met if the restraint order were coupled with an order requiring the supply of information about the business, to be updated on a regular basis. However, Jackson J was not satisfied with that proposal. He said:

    Whilst I appreciate the intentions which underlie Miss Barber’s draft, and I am grateful for the exercise which she has carried out, it seems to me, now that I stand back and look at this proposed order, that it really will not meet the defendant’s concerns. It can be seen from the substantial bundle exhibited by Mr. Jones, through which I will not now go, that there are real concerns about the solvency of the defendant’s various businesses. There are concerns about ongoing disputes arising out of the defendant’s business activities and there are concerns about dissipation of assets. I do not consider that the regular provision of retrospective documents will meet Customs and Excise’s legitimate concerns. It seems to me, essentially for the reasons set out in Mr. Jones’ statement, that there is no alternative to the appointment of a receiver.

  6. The judge’s order included a requirement for the Receiver to act in accordance with a letter of agreement between him and the Customs, and to supply the defendant copies of accounts and reports supplied to Customs pursuant to that agreement. The letter of agreement (dated 21st November 2002) referred to Mr. Capewell’s "extensive portfolio of assets", including business interests in the UK and abroad; the purpose of the receivership was said to be to enable these assets to be "properly managed and preserved". There was a requirement for the Receiver to report to Customs "on all findings and steps taken in the administration of the receivership"; the first report to be made within 28 days of the appointment, and others to follow at quarterly intervals. There was also provision for his remuneration and expenses to be paid out of sums realised; and for him to be indemnified by Customs for costs exceeding the sum realised, but only after giving notice before incurring such costs.

  7. Miss Barber had also submitted that, in the light of further evidence which Mr. Capewell wished to adduce but which was not presently available, it would become apparent that there was no case for the appointment of a receiver. Jackson J’s order provided that it would remain in force until varied or discharged by the court. Specifically (but without any fixed time limit) it gave Mr. Capewell liberty to apply to discharge the order "when the evidence envisaged in Miss Barber’s skeleton argument of 30th January becomes available"; and it provided a timetable for the Receiver to submit a report following receipt of that evidence. (We observe, in passing, that this form of order seems to have been calculated to cause later confusion; first because of the lack of a fixed time-limit, and, secondly, because of the imprecision of the reference to "evidence envisaged" in the skeleton, a reference which was not made much clearer by the skeleton itself.)

    THE RECEIVER'S FIRST REPORT

  8. In the event, no such application to discharge was made at that time. Nor did the Receiver report within 28 days, as required by the letter of agreement.

  9. His first report was submitted in August 2003. It appears from the introduction that he had been waiting for the evidence in support of an application to discharge, which never came. He commented (p 1):

    To date there has been virtually no information provided to assess JAA future business. Financial information of anything but the most basic and historical level has not been provided and so an application for my discharge in the expected manner has not occurred.

    Dealing with the background of the receivership, he said (p 2):

    My main function was to report to the Court on the viability of the trading of JAA, a business which Mr. Capewell operates as a sole trader in the provision of financial services ....

    He noted that he had received annual accounts showing a substantial drop in profits between 2000 and 2002, but no projections of future operations (p 10). He reported on the various assets and businesses. He also referred to the need for further consideration of Mr. Capewell’s relationship with an Irish company, Ringset Limited, which had apparently awarded him a salary of £150,000 (p 12).

  10. By then, the costs of the receivership were already substantial. Fees of almost £63,000 had already been incurred, equivalent to £9,000 per month. Accordingly, on the assumption that a further year would be needed before the criminal case came to trial, he estimated the future costs at some £108,000 (p 15). The report concluded (p 16):

    The receivership is set to continue because Mr. Capewell has so far been unable to apply for my discharge in the manner anticipated when the order was granted. In view of the many matters arising in respect to Mr. Capewell’s financial affairs and assets I consider the receivership should continue for the time being.

    He added that this would mean a continued accrual of costs some of which might have to be met from real property in the receivership.

  11. Receipt of this report prompted Olliers, solicitors for Mr. Capewell, to write to Customs on 26th September 2003 expressing concern at the size of the Receiver’s bill and offering to provide further information in accordance with a list attached to the letter. There were further inconclusive exchanges during the remainder of the year, in the course of which the Receiver accused Mr. Capewell of continued failure to provide relevant information, and Olliers accused the Receiver of "extravagant waste" and threatened to apply to the High Court for his discharge.

    THE APPLICATION TO DISCHARGE

  12. On 5th February 2004 Mr. Capewell applied for the discharge of the Receiver. The stated grounds were:

    The Receiver has incurred costs which are disproportionate and excessive in relation to the defendant’s assets and do not accord with the judgment of Jackson J or the scheme of the Criminal Justice Act 1988 ....

  13. A supporting affidavit of Mr. Capewell dated 31st January 2004 gave his version of the problems arising from the receivership. He gave a summary of the state of his assets at the commencement of the receivership. He complained that, if the costs of the receivership continued at the present rate, 80% of his estate would have been taken by costs before the trial, with no prospect of recovery even if he is acquitted. He observed

    • that JAA was "simply me trading as a financial adviser ....";

    • that "for an international company such as Kroll’s" the points of concern should have been readily resolvable;

    • that the lack of proper provision in the order for running JAA meant that "financial stranglehold was inevitable ...."; and

    • that his own ability to run the business had been seriously affected by the time taken up by the restraint orders and case preparation.

    A particular problem had been Mr. Capewell’s inability to pay instalments of his liability to the Inland Revenue, with the result that he had been made bankrupt, a matter which "was not only humiliating but undermined my professional credibility". As to Ringset, he accepted that some information had been lacking, but this was due partly to the fact that it had only been trading for a year, so that full accounts were not available. He also drew attention to his lack of the resources and staff necessary to comply with the numerous requests of the Receiver and other official bodies.

  14. In response the Receiver prepared a second report dated 31st March 2004, which was attached to a witness statement dated 1st April. He complained that his task had been made more difficult by Mr. Capewell’s failure "to recognise my office" or "to disclose information of a significant nature to me and to the court." However he proposed to "consider objectively whether there is a need for me to remain in office." (p 2)

  15. Having reviewed in detail the various interests of Mr. Capewell which had been under investigation by him, he noted that his fees had now increased to £112,505 up to 29th February 2004, and that future costs, assuming a period of 13 months, would be £112,502 (p 27). A schedule (appendix 1) to the report was headed "Estimated outcome statement as at 29th February 2004." This indicated the estimated net value of all assets as £733,828 and the estimated costs of the receivership as £342,828, leaving "funds available to meet confiscation order" of £391,008. It should be noted that the assets included on the one hand the whole of the value of the matrimonial home Harewood Hall at £725,000 (in which Mrs Capewell was claiming a half-share), but on the other hand included no value for a number of possible assets including for example a shareholding in Ringset Ltd (which was noted simply as "value to be assessed").

  16. In his conclusions (p 29-30), the Receiver referred to his previous report in which he had recommended that the receivership should continue in view of the many matters arising in respect of Mr. Capewell’s financial affairs. He said:

    My previous view is unchanged though I acknowledge Mr. Capewell’s recent efforts to provide some of the information I have requested, albeit too little and far too late in terms of his application and in the receivership generally.

    He distinguished between the "statutory" and "commercial" considerations. Under the former, he said:

    In view of Mr. Capewell’s behaviour I am not reassured that regular monitoring information could be provided to the Customs in the event of my discharge. Mr. Capewell has consistently failed to provide regular information to me. There have been a number of failures to identify assets and authorised dealings in assets and the court might therefore consider it appropriate if I remain in office to police the assets. I would see these points as being of a ‘statutory’ nature.

    He referred generally to

    other complicating factors such as: Mr. Capewell’s solvency or otherwise,; the risk of dissipation; business accounting and whether the business is sustainable; specific problematic situations such as litigation, e.g. P&D Distribution.

    From "a purely commercial standpoint", he commented on the prospect of recovery of his costs, noting that:

    1. Mr. Capewell did not now intend to remortgage Harewood Hall; the "consideration of such a borrowing and its serviceability" had been one of the factors initially requiring his involvement. Recovering costs against Harewood Hall would seem "unattractive", since the property "should itself be reasonably secure within restraint".

    2. He was "unconvinced" that he should continue to accrue costs in relation to JAA, because –

    .... it is unlikely to be able to meet my costs in the Receivership and may be unable to sustain itself. Additionally, the economic recovery from my attempting to realise or close JAA would be improbable.

  17. He suggested that, if he were to remain in office, the court should make orders requiring Mr. Capewell’s co-operation in meeting outstanding requirements, and that the matter of discharge should be reconsidered with a further report from the Receiver to be prepared "when I am satisfied I have sufficient information or within four months whichever is the sooner." His recommendation, "taking all of the factors both statutory and commercial into account", was on balance that he remain in office for the time being "that being until my requirements as covered above are met to my satisfaction and within the above timescale".

  18. In a witness statement on behalf of Customs dated 2nd April, Mr. Millington, a senior lawyer, referred to the failure of Mr. Capewell to comply with the receivership. He expressed concern that, a year after his appointment:

    The Receiver is still not in a position to give a conclusive view about the financial viability of JAA, or even present an adequate appraisal of the business, notwithstanding repeated requests by the Receiver for further information in this regard.

    He concluded by supporting the Receiver’s position, adding:

    I believe that the more co-operative any given defendant is, the more likely it will be that costs are kept to a minimum. Clearly if a defendant refuses to co-operate with a receiver, or lets it be known that he intends to ‘go to war’ with the Receiver, costs are likely to increase. By illustration, this application has only added to those costs, and I note that the Receiver is yet to receive any information as to how the defendant is meeting his own costs in relation to his application.

  19. These statements were served shortly before the hearing, and there was no further substantive evidence from Mr. Capewell in reply at that stage.

    THE HEARING BEFORE LINDSAY J

  20. The application for discharge was heard by Lindsay J on 5-6 April 2004. Mr. Capewell was represented (as he has been in the appeal) by leading counsel, Mr. Andrew Mitchell QC, leading Miss Barber. In their skeleton argument, they summarised the case for discharge as follows:

    The Receiver has incurred costs that are disproportionate in relation to the defendant’s assets;

    It was wrong for the Receiver to incur such significant costs without recourse to the court;

    The Receiver was intended to ease cash flow and assess the viability of JAA – the cash flow has been eased and the Receiver could have assessed JAA by now. The Receivership has no further useful function.

    The judge was told that the criminal trial would not come on until January 2005, and was expected to take some four months.

  21. In his judgment, Lindsay J said that the appointment of a receiver had originally been sought by Customs "on a dual basis" (para 6):

    Firstly, there was a need for the ascertainment of and the management of Mr. Capewell’s assets, and secondly there was a risk of dissipation if no receiver was appointed.

    He noted that these grounds had in effect been accepted by Jackson J, although he commented on the delay before the application to appoint a receiver:

    They applied for that officer to be appointed on 24th January 2003. That, one might notice, was some 100 days or so after the making of the restraint order. Had Mr. Capewell been minded evasively to dispose of his assets, one might think he would have done so in that 100 day interval.

    He referred to a schedule submitted by Mr. Mitchell, which showed the receiver’s costs (including remuneration) as in excess of £153,000 by April 2003, and projected to rise to over £332,000 by July 2005, as compared with an estate likely to be worth no more than some £450,000 (taking account of Mrs Capewell’s claim). As the judge summarised Mr. Mitchell’s submission:

    Looking at those figures .... the receivership has already lasted too long; it can only get worse ....; it is exhausting the estate ....; it has already achieved its objects, such as they were, and it is now appropriate that it should be discharged.

  22. The judge noted the submission for Customs that the costs had been inflated by lack of co-operation by Mr. Capewell, but commented:

    .... rather than my spending time on the really quite massive correspondence, which, as Mr. Capewell urges, indicates that the receivership is now in practical terms spent as all information reasonably requested has already been given that can be given, or whether, as Mr. Sutherland-Williams urges, there is still vital information requested but not yet given, I shall look at the other reason given for the receivership, namely, the risk of dissipation of assets.

  23. As to the risk of dissipation he said:

    Jackson J, as will have been seen, found it to exist and nothing before me today disposes of that risk. Mr. Sutherland-Williams asserts that that risk still exists, and I have not understood that to be rebutted or, at any rate, rebutted successfully. Whatever the position might be on the supply of information, I see no reason to suppose that the risk of dissipation referred to by Jackson J has somehow evaporated. So I shall not discharge the receivership on the grounds that its objects have been achieved.

  24. On the ground of disproportionate cost, he said (paragraphs 27 and 28):

    But what about its being discharged as being disproportionately costly? The figures that I have read from Mr. Mitchell's table are undoubtedly very worrying. They are, though, to some extent, open to question. For example, the figure of £449,935 could be as high as £733,828 if the whole value of Mr. Capewell's house, rather than 50 per cent of it, was included as in his estate. The Customs and Excise argue that it will be appropriate that the whole of the house is within the estate, but Mr. Capewell firmly asserts that his wife has a prior interest that is unlikely to be shaken in any way and that therefore only £287,500 should be brought into the estate as representing the value of Mr. Capewell's interest in the house. There is to some extent also the question of how far the figures for 5th August 2004 and 5th July 2005 transpire to be overestimates of costs which, of course, have not yet been incurred.

    But more importantly, as it seems to me, no costs have yet been paid out of the estate and none have yet been approved by the court. It has all along been open to Mr. Capewell, and, indeed, open to the Customs and Excise and the Receiver himself, to seek an assessment of costs, the assessment to be undertaken by the court. There is provision in CPR 69.7 which no one has yet brought into use. It has not been done yet by anyone. How can costs be said to be disproportionate when one does not know what they are? Indeed, a blunt answer to the application notice which seeks discharge on the grounds of excessive costs is that excessive costs are not themselves a ground for discharge, but are a ground, if an argument can be made out, for an assessment downwards of the receiver's bill. So I will not at this stage discharge the receivership on the grounds of disproportionate or excessive costs either, because one does not know yet what the figure that the court would be likely to authorise would be.

  25. Accordingly, he did not accept the case for discharge "at this stage". However, he was not content to "let the matter simply drift". His order included directions, with a timetable: first, for the exchange of questions and answers on the outstanding points in the receivership, following which, within 8 weeks of the order, the Receiver was to prepare a further report with his recommendations; and secondly, for exchange of information and objections on the Receiver’s charges, following which the parties were given liberty to apply to the Court under CPR69. The costs of the Receiver (summarily assessed at £14,886.31) were ordered to be costs in the receivership; Mr. Capewell was ordered to pay the Customs’ costs (assessed at £2283.13).

    SUBSEQUENT EVENTS

  26. On 21st April Mr. Capewell lodged an appeal to the Court of Appeal, for which leave was granted on 8th June.

  27. In the meantime, there had been further correspondence pursuant to Lindsay J’s order. The sequence of events was summarised by the Receiver in a third report, dated 2nd June 2004. This again recorded complaints about Mr. Capewell’s conduct and failure to provide information as envisaged by Lindsay J. As to JAA, he repeated that lack of information from Mr. Capewell meant that he could draw "no firm conclusion about its future prospects"; but he added-

    .... I do not believe JAA has an identifiable net worth that warrants my continued involvement in it. It is in my view too inextricably linked with Mr. Capewell personally and his other business affairs for me to control in isolation.

    He still lacked "key information" about Ringset, but he believed that Mr. Capewell had "dissipated funds from the Ringset bank account and therefore seriously diminished the value of his sole shareholding in Ringset".

  28. He concluded by considering whether the receivership should continue but he made no recommendation. He said:

    I do not think I have sufficient information, particularly in relation to JAA and Ringset, to enable me to do so. However there are a number of unresolved issues and concerns in relation to JAA and Ringset. I believe my views are plainly set out above, but since my involvement is clearly contentious any ongoing involvement will need to be considered by the court ....

    Accordingly, on 23rd June he made a new application to the court for directions, which was listed to be heard on 23rd July 2004. Although the application is not in the papers, we understand that it included a request for a direction permitting sale of various assets to meet his costs, including Harewood Hall, the matrimonial home.

  29. That date was vacated by the court, for reasons which are not entirely clear from the papers. There was an initial request by Olliers to vacate the date on the grounds that Mr. Mitchell was not available, which was opposed. However, on 16th July there was an intervention by solicitors for Mrs Capewell, asserting her beneficial interest in Harewood Hall, and asking for an adjournment to allow time for her to obtain public funding. The adjournment was allowed by the court, apparently (according to Tarlo Lyons’ letter of 23rd July) without the agreement of the Receiver or the Customs.

  30. The last word on these issues fell to Mr. Capewell. In a statement of 27th September 2004, he commented on the practical difficulties of reviewing the Receiver’s costs in detail. He referred to the Receiver’s bill, running to 100 pages and 8,000 items, and relating to 12 people who at various times had worked on the file for Kroll. He had had to spend 1000 hours of his own time on this task, working with a part-time assistant, at a period when he was also having to spend one full day a week giving instructions to his solicitors in the criminal proceedings. On JAA he comments:

    On even the most cursory analysis this was a modest but potentially viable business. In order to assess the viability of this little personal business the Receiver has invested costs of £304,373 in 18 months. Hence a business with an income of £65k per annum has been charged with approximately a quarter of a million pounds per annum by the receiver .... The business cannot pay these costs but the Receiver and the court knew the size of my businesses when they appointed the receiver ....

    JAA’s business had diminished as a direct result of the restraint order and receivership, and his own inability to spend time on it. He denied any intention to erode the assets of Ringset:

    Essentially, the business is a victim of very bad luck combined with my inability to put any real energy or time into running it.

  31. The directions hearing came before Davis J on 13th October. It seems to have been treated by all parties as including a renewed application for the discharge of the Receiver. This was dealt with by Davis J as a preliminary matter.

  32. By this time, the Customs had decided not actively to oppose discharge, a decision which, as Mr. Sutherland-Williams told us, had been made through "gritted teeth". The reasoning was explained in a witness statement by Mr. Kalia (dated 11th October 2004) for the Customs. He referred to the costs of the receivership which by August 2004 had reached approximately £305,000 while the Receiver held only £13,000 in the receivership account. He added

    The Receiver estimates that the defendant has equity in his two properties (Brooklands and Harewood Hall) of about £632,000 (allowing for selling costs). However, if Mrs Capewell can successfully establish her 50% interest in Harewood Hall (which we understand to be the matrimonial home), this may reduce the defendant’s interest in terms of equity to £344,500.

    He observed that having read the defendant’s witness statement he was forced to conclude that:

    The defendant is unlikely, even in the face of a further court order to comply with the Receiver’s requests to the level and detail the Receiver requires by November, or at all.

    He continued

    I am firmly of the view that in principle discharge of receivership should not be made on the grounds of costs alone, particularly where there is evidence to suggest that the defendant has failed to co-operate and/or his behaviour has added to those costs. Such a discharge would lead other defendants to stop co-operating with receivers in the hope that costs would increase, leading to the expectation of the Receiver’s discharge .... However notwithstanding the above I believe that in this case it is appropriate to have regard to the purpose of the Criminal Justice Act 1988, namely the preservation of assets in order to satisfy any confiscation order that may be made. I am forced to concede that that purpose is being eroded, and as a result I believe it is appropriate that this office now adopts the same view as the Receiver in this matter, namely that the matter in terms of discharge should be left to the court to decide ....

    He added that he had considered with counsel "the potential contempt matters set out in the Receiver’s report" but considered that because proof of such matters would be to the criminal standard, "it would not be possible for this office to pursue those matters without further and considerable expense involving the Receiver".

  33. According to an unapproved note of the judgment of Mr. Justice Davis, he understood that "all the parties agree that the expenditure and sums involved mean it simply does not make sense for the Receiver to continue in office", and that "on pragmatic grounds" the Receiver should be discharged. The judge ordered that Mr. Sinclair be discharged as Receiver as from 13th October 2004. He also gave directions for the detailed assessment of his costs and expenses, which were to be paid out of the defendant’s assets in priority to the discharge of any confiscation order subject to any order to the contrary. He made an order for the payment of £100,000 on account of such accrued costs and expenses, and authorised the sale of one property, Brooklands, for that purpose.

    THE LAW

  34. The appointment of the Receiver in this case was made under Part VI of the Criminal Justice Act 1988 (as amended). The relevant provisions were authoritatively reviewed by this court in Hughes v Customs and Excise Commissioners [2003] 1 WLR 177; [2002] EWCA Civ 734. For present purposes it is sufficient to refer to Simon Brown LJ’s summary of the legislative background (at para 6-7):

    6.

    Section 76 of the CJA provides that the High Court’s powers under sections 77 and 78 are exercisable where proceedings have been instituted against any person for a relevant offence or the court is satisfied that a person is to be charged with such an offence and in either case the court is also satisfied that a confiscation order may result.

    7.

    Section 77 deals with restraint orders and provides that the High Court may by such an order ‘prohibit any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order’. ‘Realisable property’ for these purposes is defined by section 74 to mean ‘any property held by the defendant’ (a definition widened by section 102(7): ‘property is held by any person if he has any interest in it’) and ‘any property held by a person to whom the defendant has directly or indirectly made a [relevant] gift’. Section 77(6)(a) provides that a restraint order may be discharged or varied in relation to any property (section 77(7) providing that such an application may be made by any person affected by the order). Section 77(6)(b) provides that a restraint order shall be discharged on the conclusion of the relevant proceedings (‘conclusion’ being defined by section 102(12) to include the acquittal of a defendant and the satisfaction of any confiscation order made against him).

  35. Section 77(8) provides for the appointment of a receiver:

    Where the High Court has made a restraint order, the court may at any time appoint a receiver -

    (a)

    to take possession of any realisable property; and

    (b)

    in accordance with the court’s directions, to manage or otherwise deal with any property in respect of which he is appointed,

    subject to such exceptions and conditions as may be specified by the court; and may require any person having possession of property in respect of which a receiver is appointed under this section to give possession of it to the receiver.

  36. As Simon Brown LJ made clear (para 50):

    Statutory receivers are to be treated precisely as their common law counterparts save to the extent that the legislation expressly provides otherwise. The statute is not to be regarded as an entirely self-contained code incorporating nothing from the common law.

  37. Section 82 imposes both on the High Court, and on a receiver appointed under Part VI, the duty to exercise the powers so conferred (s 82(2)) –

    .... with a view to making available for satisfying… any confiscation order that may be made in the defendant’s case the value for the time being of realisable property held by any person by the realisation of such property.

  38. In Hughes, this court confirmed that the Receiver appointed under Part VI, before the making of a confiscation order, was entitled to recover his costs from the assets under his control; and that the fact that there was no right to compensation, even for a defendant who was ultimately acquitted, involved no conflict with the human rights of those affected (para 59). However, Simon Brown LJ added a cautionary note (para 60):

    Given that restraint and receivership orders can, as perhaps these very cases show, bear heavily upon the individuals involved and may leave acquitted defendants with substantially depleted assets, the court should, in deciding whether initially to make, and whether thereafter to vary or discharge, such orders, weigh up the balance of competing interests with the greatest care. The Crown’s concern to safeguard an accused’s property against dissipation or removal abroad must always be weighed against the possibility that the price to be paid will fall upon an innocent man. It is important that this legislation continues to be operated to strip criminals of their ill-gotten gains. But it is important too that the court keeps a close control over those it appoints to act as receivers on its behalf and that costs are not too readily incurred, particularly before any confiscation order is made.

  39. Since Hughes, but before the present case, new provision has been made in the Civil Procedure Rules relating to receivers generally. CPR69 came into effect in December 2002. Rule 69.1 provides for the appointment, and termination of appointment, of receivers by the court. Rule 69.6 permits the receiver to apply to the court "at any time" for directions to "assist him in carrying out his function as a receiver". Rule 69.10 allows "a receiver or any party" to apply for the receiver to be discharged "on completion of his duties".

  40. Rule 69.7 deals with the receiver’s remuneration. A receiver may only charge for his services if the court so directs, and specifies the basis on which he is to be remunerated (r 69.7(1)); and the court may specify who is to be responsible for paying the receiver, and the fund or property from which he is to recover his remuneration. Unless otherwise ordered, the court shall award such sum as is "reasonable and proportionate in all the circumstances" and which (r 69.7(4)) -

    takes into account –

    (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.

    Determination of the remuneration may be referred to a costs judge (r 69.7(5)). The Practice Direction provides that a receiver’s application for determination of this remuneration must be supported by written evidence showing on what basis it is claimed, and that is justified and in accordance with Part VI; and by a "certificate" by the receiver that he considers the claim "reasonable and proportionate" (CPR 69PD.9).

    THE ISSUES IN THE APPEAL

  41. The receivership having now been discharged, the appeal has proceeded on the basis that the live issues relate to the receivership costs incurred since the hearing before Lindsay J and the costs of the hearing before Lindsay J. The assumption seemed to be that, if we were to find that Lindsay J ought to have discharged the receivership with immediate effect, then it would follow that the Receiver would have no right to his receivership costs after that time. The costs of the hearing before Lindsay J would also fall to be re-considered, along with the costs of this appeal, in the light of the substantive judgment.

  42. On the merits, the case for Mr. Capewell has been put in a number of different ways. However, as we understand the grounds of appeal and submissions, there are three main points.

    • First, the judge was wrong to hold that the application to discharge on the grounds of disproportionate cost could not properly be considered, until there had been an assessment of the costs under Part 69. He could and should have made a judgment on the basis of the material before him.

    • Secondly, he failed to consider whether, in the light of the level of costs, the Customs’ remaining concerns could not be adequately met by a restraint order, rather than a receivership.

    • Thirdly, it is unfair for the Receiver to seek to justify the level of costs by reference to allegations of non-cooperation by Mr. Capewell, when he has taken no steps to bring the matter back before the court by an application to commit, or otherwise. In this context, Mr. Mitchell relies on Simon Brown LJ’s emphasis in Hughes on the need for "close control" of the Receiver by the courts. If the Receiver considered that the objectives of the receivership were being unreasonably impeded by Mr. Capewell’s conduct, it was his responsibility to bring the matter back to court for appropriate directions.

    DISCUSSION

    Powers of the court

  43. It was common ground before Lindsay J that he had power to discharge the Receiver, and it appears to have been assumed that, apart from the legislative steer set by section 82(2), his discretion was at large.

  44. Although we have not heard argument, this seems to us correct. Jackson J’s order provided expressly for the possibility of discharge by further order, without limitation. Subject to taking account of the special nature and purposes of this form of statutory receivership, there seems no reason why the court’s discretion should be any more confined than under its ordinary equitable jurisdiction (see e.g. Halsbury’s Laws Vol 39(2) para 463ff).

  45. The position in this court, following Davis J’s order, is less clear. When the notice of appeal was lodged, the main substantive issue was whether the judge erred in not ordering discharge. If the appeal had continued in the normal way, and that submission had been accepted by this court, it could have remitted the matter to the judge to re-determine, or itself exercised the power to discharge (CPR 52.10). For that purpose, it would have exercised the discretion on the basis of the up-to-date information, and a subsequent order discharging the Receiver would have been prospective only. It would not have altered the validity or status of the receivership in the period since the judge’s order. However, the receiver’s claim for remuneration during that period would be open to separate challenge under CPR69.7, including consideration of issues of reasonableness and proportionality.

  46. Now that the substantive purpose of the appeal has been achieved by Davis J’s order, it is open to question what more this court can or should do. We are not aware of any power to backdate Davis J’s order, and we have not been asked to do so. It follows that anything we say on the legal merits will leave unaffected the validity of the receivership in the intervening period. Any arguments about his right to recover the costs in that period would normally be a matter for consideration under CPR69.7, and would not necessarily be determined by our decision on the appeal.

  47. That view does not detract from the general importance of the case, or the desirability of a ruling on the correctness of Lindsay J’s decision. It may, however, be relevant to the consequences of such a ruling, and the form of our order. We will return to this point at the end of the judgment.

    Merits

  48. We say at once that we see no force in Mr. Mitchell’s third point, as we have summarised it, relating to the Receiver’s failure to apply to court. The Receiver is of course entitled to seek directions in order to assist the receivership. But whether to do so is a matter of judgment for him, taking into account the costs of doing so and the prospect of securing his objectives by agreement. It may be a difficult balance to draw in many cases, particularly where the defendant is apparently promising co-operation, but failing to deliver. Short of neglect amounting to actual misconduct, we find it difficult to see how his failure to do so can be relied on in support of an application to discharge.

  49. It must also be remembered that the defendant can always seek the aid of the court if he thinks that he is being unfairly treated. In the present case, it was the defendant himself who was originally expected to take the initiative in bringing the matter back to court, and had obtained provision in the order to enable him to do so. His failure to use that opportunity has never been properly explained. For the same reason, the Receiver’s failure to make at least a formal report within 28 days, as required by the order, is not a point from which Mr. Capewell can draw any comfort.

  50. Mr. Mitchell’s other points concern the proportionality of the receiver’s costs, as related to the objectives of the receivership. One of the difficulties facing the judge was that the grounds of the application to discharge were not very precisely or consistently articulated. The application itself gave as the principal ground that the Receiver had incurred "costs which are disproportionate and excessive." We agree with the judge that, if disproportionate cost were the only issue, Part 69 appears to provide a complete answer. Part 69.7 (at least in theory) gives the defendant full protection against having to bear any costs which are found to be unreasonable or disproportionate, taking account of the wide range of matters set out in Part 69.7(4), including the "effectiveness" of the receiver’s performance.

  51. Unfortunately, the emphasis given by the submissions to questions of cost seems to have distorted the issues. On the question of discharge, cost is of course a factor, but it is not the primary issue. The overriding consideration is whether the receivership is still serving a valid purpose, within the overall objective set by section 82. The relevant questions for the court are likely to be:

    1. For what purposes, within the overall objective, was the receivership authorised?

    2. To what extent have those purposes been achieved or overtaken?

    3. To the extent that they have not yet been achieved or overtaken, is the continuation of the receivership (as opposed to a restraint order or some other order) necessary to achieve them?

    4. In any event, having regard both to the overall objective and to fairness to the defendant, is the additional cost of continuing the receivership proportionate to the likely financial gain?

  52. We would add that fairness to the defendant cannot be measured purely in financial terms. Even without accepting all of Mr. Capewell’s evidence, it requires little imagination to understand how a receivership of this kind can seriously interfere with the ordinary business and personal life of those affected and their families. That must be particularly so in relation to a business such as JAA, whose success was almost wholly dependent on the personal efforts of Mr. Capewell. The premise of the 1988 Act is that such a burden may have to be accepted in the public interest. But it is for the court to decide in an individual case where the balance lies, weighing all the benefits and the burdens, both public and private.

  53. If these were the right questions, then in our view the judgment failed to provide the answers. Paragraphs 25 and 26 of the judgment treated the purposes of the receivership as being simply information-gathering and preventing risk of dissipation. The decision rested on the judge’s view that the evidence before him had not shown that the risk, as found by Jackson J, had evaporated. With respect, we think that was too general an approach. Customs’ case for a receivership before Jackson J had been based on more specific concerns, as set out in Mr. Jones’ statement and accepted by the judge. Indeed, had their case rested solely on the need for information and the risk of dissipation, the judge might well have accepted that they could be met by the continuation of the restraint order, supplemented by stringent disclosure orders, as proposed by Miss Barber.

  54. At the end of his skeleton argument Mr. Mitchell referred back to the purposes identified before Jackson J, and submitted:

    All of the concerns which were expressed by (Customs) have been tackled either by the Receiver or by the defendant. The bankruptcy has been annulled; the defendant does not at this stage seek to pursue the remortgage; the litigation against Peter Boulton is on hold as is the litigation against business debtors; the defendants’ expenses have been renegotiated and the cash flow has been eased; JAA is functioning again albeit in a more limited fashion ....

    [1st April 2004, para 17]

    That may have been too limited a list of "concerns", since other matters had emerged during the receivership (for example, the position of Ringset). However, in principle it was the right approach. Because of the unduly general view he took of the purposes of the receivership, the judge failed in our view to address the first three questions on the correct basis: that is, by reference to the specific considerations put forward as justifying a receivership, rather than a lesser order.

  55. The fourth question does bring in questions of cost. The judge was right to treat the figures before him as provisional, to the extent that they might be reduced on assessment. However, in our view, he was wrong to regard this as a reason for not considering discharge until an assessment of the costs under Part 69. Quite apart from the delay and the cost inherent in such an exercise, the requirement was unnecessary in our view, and paid insufficient regard to the special position of the receiver, as an officer of the court.

  56. As has been seen, in this statutory context the duty under section 82 is shared by the court and the receiver. The "close control" referred to in Hughes can only in practice be achieved if the court is able to rely on the Receiver to provide a balanced and reliable assessment of all the relevant factors, including cost. It follows, in our view, that in providing its own answer to the fourth question, the court is entitled to start from the assumption that the costs put forward in the Receiver’s reports are those which he considers reasonable to achieve the identified purposes, and to judge him accordingly.

  57. It is apparent from the Receiver’s own reports in this case that he understood his duty in this respect. In particular, in his second report which immediately preceded the hearing before Lindsay J, he endeavoured to provide an "objective" consideration of the detailed points relevant to whether the receivership should continue, including his estimate of the costs involved. Understandably, it was not part of his case, or that of Customs, that proportionality should be judged on any other basis.

  58. We confess that, in reading those reports (particularly the thirty pages of closely-packed text in the second report), we have not found it altogether too easy to differentiate the wood from the trees. After more than a year of investigation, one would have hoped that the Receiver would have been in a position, in relation to each of the interests or groups of interests set out in his schedule, to give a succinct and realistic assessment of the prospects of significant recovery, and the likely costs of achieving it, and to explain why a receivership (rather than a restraint order) was needed to do so. Such an approach would have helped to provide the necessary focus for the response by the defendant, and for the debate before the judge.

  59. As it was, on the state of the evidence before him, we doubt whether it would have been possible for the judge to provide complete answers to the four questions, without further investigation, possibly including oral examination of Mr. Capewell and of the Receiver. It must be accepted that "close control" may require the court to adopt a more interventionist role than is normal in other contexts, and to give the directions necessary to ensure that it has the evidence it requires.

  60. However, even limited study of the reports, taken together with the Receiver’s schedule, gave considerable ammunition for Mr. Mitchell’s submissions. For example:

    1. The Receiver himself, in his first report, had identified the main purpose of the receivership as being to report on the viability of JAA. In his April 2004 report, after more than a year of the receivership, his conclusions were at best equivocal as to the prospects of any recovery from JAA. By the time of his third report in June 2004, he had formed the view that JAA did not have "an identifiable net worth that warrants my continued involvement in it". Even accepting that Mr. Capewell was not fully co-operative, it seems surprising that it took almost a year and a half for an experienced receiver to reach this conclusion, in relation to what Mr. Capewell fairly describes as "a little personal business".

    2. By far the most substantial single asset on this list was the matrimonial home at Harewood Hall, valued at £725,000. As the Receiver recognised, now that there was no proposal to remortgage it, it was likely to be adequately protected by a restraint order on its own.

    3. The pending bankruptcy petition, which had been identified as a concern by Mr. Jones in 2003, had long since ceased to be an issue.

    4. Although other potential assets (including foreign bank accounts, retirement annuities etc) were listed in the schedule, there appeared to be no indication that, after more than a year of investigation, the Receiver regarded the prospect of significant recovery from them as other than speculative.

    5. Taken at face value, the schedule showed the prospect of almost half the estimated assets being taken up by the Receiver’s costs. Even this result was heavily dependent on the value of Harewood Hall, half of which was subject to an apparently credible claim by the wife. If that were established, the receiver’s costs were likely to absorb most of Mr. Capewell’s available assets.

  61. It is difficult, and of doubtful relevance, for this court to attempt to assess how matters would have proceeded if the judge had asked the correct questions, and given directions to ensure that he had the information necessary to answer them. We would have expected him at least to have required the Receiver to identify the specific purposes on which he was now seeking to rely to justify continuing in office; to have identified the outstanding issues in relation to each such purpose; and to have given directions to enable them to be resolved within a short timetable.

  62. We now know that by September, the Receiver and Customs had formed the view that the application for discharge could not be resisted. We must be careful not to abuse the advantage of hindsight. However, it seems likely that, with the stimulus of appropriate directions and a tight time-table set by the judge, the teeth of Customs would have been "gritted" with rather more urgency, and certainly before the hearing date fixed for 23rd July.

    CONCLUSIONS

  63. For the reasons we have given, we consider that the judge asked himself the wrong questions, and that he was wrong to postpone consideration of the question of discharge until assessment of the Receiver’s costs. Since the Receiver has now been discharged, it is unnecessary for us to make any order in that respect.

  64. It remains to consider whether we can or should make any order in relation to the costs of the receivership since the judgment. For the reasons we have given, this would not be on the footing that the judge should have immediately ordered discharge of the receivership in April. On the other hand, it is reasonable, in our view, to infer that the date would have been likely to have been brought forward by a number of months. If required to fix a precise date, doing the best we can, we would set it at 1st June 2004. We have not heard submissions as to what order we can or should make in the light of that conclusion. It may be said to be a matter for the assessment under Part 69.7, when it takes place. However, that rule is arguably wide enough, at least with the consent of the parties, to enable this court to make a more specific order, and it may save costs if we do so.

  65. For those reason, we would invite further submissions by the parties as to what if any order they wish us to make in the light of this judgment.

    POSTSCRIPT

  66. Finally, we record Mr. Mitchell’s invitation to the court to set out some guidance for prosecuting authorities, receivers and the courts in future cases under the 1988 Act and similar jurisdictions. At our invitation he and Miss Barber prepared a set of guidelines, which were amended by Mr. Sutherland Williams, and agreed by Mr. Mitchell. The guidelines (in the form as amended) are appended to this judgment. Since we have not heard detailed discussion on them, and they go beyond the facts of the case before us, we do no more than commend them as a useful checklist for those concerned in future cases.

    A P P E N D I X

    COUNSELS' SUGGESTED GUIDELINES FOR APPOINTMENT OF RECEIVERS

 

(1)

Application by the Prosecutor

Within the witness statement in support of the application to appoint a management receiver, the prosecutor should set out the reasons the prosecutor seeks the appointment of a receiver; and what purpose the prosecutor believes the receivership will serve.

(2)

The witness statement in support of the application should also give an indication of the type of work that it is envisaged the receiver may need to undertake, based on the facts known to the prosecutor at the time of the appointment.

(3)

The witness statement should specifically draw to the Court’s attention the proposition that the assets over which the receiver is appointed will be used to pay the costs, disbursements and other expenses of the receivership (even if the defendant is acquitted or the receivership is subsequently discharged).

(4)

The letter of acceptance of appointment from the receiver, which must be exhibited to the applicant’s witness statement, should contain the time charging rates of the staff the receiver anticipates he may need to deploy.

(5)

In appropriate cases, where it is possible, and this will not be in every case, the receiver should give in his letter of acceptance an estimate as to how much the receivership is likely to cost.

(6)

The prosecutor’s witness statement in support of the application should inform the Court of the nature of the assets and their approximate value (if known), and the income the assets might produce (if known).

(7)

If the prosecutor or receiver is unable to comply with any of the above requirements the prosecutor should explain the reasons for the failure in the prosecutor’s application to the court, and the matter will be left at the discretion of the court.

Upon appointment

(8)

Upon the appointment of a receiver, the Judge should consider whether it is appropriate, in all the circumstances, to reserve any future applications to himself, with a view to minimising costs.

(9)

Upon the appointment of a receiver, the Judge should consider whether it is appropriate, in all the circumstances, to set a return date, balancing the need for such a hearing with the interests of the defendant, who ultimately will bear the costs of such a hearing.

(10)

The receiver should inform the parties by written report as soon as reasonably practicable, if it appears to him that any initial costs estimate will be exceeded, or receivership costs are increasing, or are likely to increase to a disproportionate level. Such a report should also be filed with the Court. In such circumstances the parties and the receiver shall be at liberty to seek directions from the Court.

Reporting requirements

(11)

Unless the Court directs otherwise, the receiver should report 28 days after his appointment and quarterly thereafter.

(12)

Unless the Court directs otherwise, the report should be served on the prosecutor and the defendant and filed with the Court.

(13)

Every report should set out: the costs incurred to date; the work done; the projected costs until the next report; a summary of how those costs attach to the matters that led to the appointment or to the matters that may have arisen; and, where appropriate, an estimated final outcome statement.

(14)

Every report should contain a statement that the receiver believes that his costs are reasonable and proportionate in all the circumstances.

(15)

If the receiver is unable to fulfil any of the above reporting requirements, he should give, as soon as reasonably practicable, an explanation, by way of written report to be filed at Court and served on the parties, of why this is the case, and those parties shall be at liberty to seek directions from the Court.

Lawyers and other agents

(16)

The parties should always be told that lawyers or other agents have been instructed unless it is not practicable or in the interests of justice to do so (for example, to make an urgent without notice application to secure assets).

(17)

If lawyers or other agents are instructed the receiver should ask for monthly bills or fee-notes. The receiver should endeavour to keep a close control on such fees and satisfy himself that the costs being incurred are reasonable and proportionate in all the circumstances.

(18)

The receiver should notify the parties as soon as reasonably practicable, if it appears to him that any lawyers or other agents’ costs are rising to a disproportionate level, and those parties shall be at liberty to apply to the Court for directions.

General

(19)

Nothing in these guidelines should be read as supplanting the appropriate rules of court, particularly CPR 69, and the relevant statutory provisions.

(20)

Judges appointing receivers should always bear in mind that the costs of the receivership may fall on an innocent man. They should also bear in mind that the interests of justice dictate that receiverships are a necessary and essential tool of the criminal justice process for preserving and managing assets to satisfy confiscation orders if the defendant is convicted.

(21)

Management receivership orders should be endorsed with the appropriate penal notice. It will be a term of most orders that defendants should cooperate with and comply with, as soon as possible and forthwith, directions and requests of the receiver, so as to enable the receiver to efficiently and cost-effectively carry out the duties, functions and obligations of his office. It is therefore in the defendant’s interest to avoid, as far as possible, the need for the receiver to return to Court for further orders or directions, the cost of which ultimately fall on the defendant’s estate.


Cases

Hughes v Customs and Excise Commissioners [2003] 1 WLR 177; [2002] EWCA Civ 734

Legislations

Criminal Justice Act 1988: s.77, s.82

CPR69

Authors and other references

Halsbury’s Laws Vol 39(2) 

Representations

Andrew Mitchell QC and Abigail Barber (instructed by Olliers for the Appellant.

Mark Sutherland Williams (instructed by HM Customs and Excise and Tarlo Lyons Solicitors) for the Respondents.


all rights reserved