Confiscation orders after T v B Revenue & Customs Prosecutions Office [2008]

What are the considerations if the Revenue and Customs has an interest in the assets in your case?

Let us look at two recent cases where a distribution or award of the assets was not possible due to confiscation and restraint orders made in favour of the Revenue.

Stodgell v Stodgell [2009]

The husband had been convicted of tax and revenue offences arising from his work as an art dealer and a confiscation order for £900k was made. The fact and amount of the confiscation order were not under appeal and the wife was simply seeking a discretionary order requiring that the husband make financial provision for her.

The wife sought to challenge the decision of Holman J that her application for ancillary relief could not proceed until the confiscation order had been discharged, at which point it would be possible to see whether there were any others assets which she could attack. Prior to the making of Holman J’s decision a number of orders had been made permitting the drawing of money from funds of the husband which had been frozen under a restraint order. Most of those orders were made without objection by the Revenue. Resistance was presented to the last in the series of orders made by Justices Holman and Charles in the court of Appeal on 6 June 2008. The wife’s application for permission to appeal his order was also listed for consideration by Justices Thorpe, Lloyd and Hughes on 12th February 2009.

The facts

The husband and wife began to live together in either 1993 or 1994 and married in 1997. The family consisted of a son, now either 20 or 21 from an earlier relationship of the wife and the parties’ joint son, R, born on 27 August 1997, now 11. The marriage broke down in 2003 although both parties remained initially in the marital home in Torquay. The wife petitioned for divorce in May 2004 and was forced to leave the property under order in May 2004.

The husband traded throughout the marriage as an art dealer. He had been fraudulently evading income tax for several years. The Revenue investigation went back to 1988. He was given the opportunity to remedy his situation by making a certificate of full disclosure and if that declaration had been honest he might well have escaped prosecution. However, it was not. He was charged in 2006 with criminal offences of cheating the Revenue and making false statements and the restraint order was made at that time. He eventually pleaded guilty on 18 June 2007 and was sentenced in September 2007 to three years’ imprisonment. Subsequently on 20 November 2007 the Crown Court made a confiscation order in the sum of £900,453 with 12 months to pay and a term of three years’ imprisonment set in default. In the meantime there had been a receivership order in relation to his assets. At that time a sum of £900,000 was not less than the husband’s assets.

The valuation of the husband’s assets was historically complex. There was a dispute between him and one Sheikh Jafali over the beneficial ownership of £250,000 in a bank. There were disputed valuations of various pieces of artwork. Further the wife asserts that the husband had hidden assets. In the Crown Court, the Crown at that stage asserted hidden assets of about £74,000. But at that stage they were irrelevant to the confiscation proceedings because identifiable assets appeared at that stage to exceed £900,000.

By the time of the hearing before Holman J, the Sheikh’s claim to beneficial ownership of the £250,000 had been upheld in the High Court. After careful analysis of the evidence and the hearing, which had taken five days, Holman J assessed the husband’s assets in the sum of £883,000. By the time the matter came before Justices Thorpe, Lloyd and Hughes on 12th February 2009 the assets were much less and something nearer to £750,000.

Nothing was yet paid under the confiscation order and that meant that the assets were insufficient to meet it. The wife did not assert any proprietary interest in either the former marital home or the husband’s other assets. Her application was for ancillary relief under sections 21 to 25 of the Matrimonial Causes Act 1973. Thus, it was an application for a discretionary order requiring the husband to make financial provision for her. At the time of the judgment Holman J had approached the case by assuming the wife would have care of the child, R, and therefore her housing needs were greater. A subsequent residence order was made in favour of the husband.

The wife was not complicit in the husband’s crime. The wife’s careful argument was that the Judge had failed to distinguish her from the wife in Crown Prosecution Service v Richards [2006] EWCA Civ 849; [2006] 2 FLR 1220, in which the wife know perfectly well about the crime and that the assets derived from the crime. The justices did not find it so. They found that Holman J had directed himself correctly to both Richards and Commissioners of Customs and Excise v A [2003] 2 WLR 210, the latter case establishing that neither an ancillary relief claim nor a confiscation order enjoys automatic priority one over the other.
Outcome

Lord Justice Hughes said:

This case is a good illustration of the fact, that while non complicity in the crime is a necessary condition for the wife to succeed in an ancillary relief claim as a matter of discretion where she is in competition with a confiscation order, such non complicity is not a sufficient condition. She will also fail in a number of other circumstances, including where the husband’s assets are reduced to nil by having to pay now what he ought to have paid years ago.

…Of course it is relevant where assets can be traced to acquisition from the proceeds of crime, but that is not the only case in which justice requires that the confiscation order should be met before there can be any question of allocating the assets between husband and wife. Another such case, of which this is one, is where the domestic economy and the assets accumulated are only of the size they are because the husband has failed to pay the tax due. If this husband had paid his tax and penalties, his assets would be nil rather than either £880,000 or £750,000.

It was not critical in this case that the Devon house and the London flat were not acquired from crime. What was critical was that they could not have been and cannot be preserved without non payment of the tax and penalties. Permission to appeal was refused.

It is useful to note that an argument that the wife may be cast upon the state is a relevant factor – see Customs and Excise v A. However, in this case the judge commented that he was not at all sure how likely it was because the husband has the capacity to earn substantial sums and he had been released from prison. But even if it was a possibility, it could not prevail over the considerations so far set out.

T v B Revenue & Customs Prosecutions Office [2008]

This case concerned an application made by the mother to receive information relating to proceedings under the Proceeds of Crime Act to assist in her Schedule 1 Children Act claim. The mother’s Schedule 1 Act claim had already been before the President and her application suggested that the President should sit as a Crown Court judge to decide the issue of disclosure of information to assist the mother’s claim and whether she should be joined to the Crown Court proceedings for that purpose.

The facts

The mother’s C1 was issued on 17 April 2007 in the PRFD and had a tortuous path owing to the father’s lack of co-operation and reluctance in respect of disclosure. She sought maintenance in the form of periodical payments for the parties’ daughter then aged 5. On the morning of the final hearing on 19 March 2008 the father telephoned the mother’s solicitors to say he would not be attending as he had been the subject of a Restraint Order freezing his assets world-wide.

The restraint order was made in the Crown Court in Nottingham in wide form and included preventing the father from disposing, dealing with or diminishing any of his assets and in particular a specified property in Cheshire where the father’s former wife lives with her children by the father. The order permitted the father, with certain conditions, to spend up to £250 per week towards his ordinary living expenses.

The mother’s application was transferred to the High Court and came before the President on 3 April 2008 when various directions were made and the matter was listed for further consideration on 5 June 2008. By then it was apparent that, in addition to the existence of the restraint order, there were extant ancillary relief proceedings in the Crewe County Court between the father’s former wife and the father, about which there was little information available.

On the 8 October 2008 the matter came before the President again to determine the next steps for the mother. Counsel for the Prosecutor appeared before him with a view to the Prosecution’s intervention in the proceedings. The President made directions that the matter be listed for further consideration and that the parties and any intervener should file and serve position statements and that papers in the proceedings be served on the Prosecutor by 15 October 2008 with leave to the Prosecutor to intervene if so advised. He also directed service of the order upon father’s former wife and granted her liberty to attend the hearing and make such applications as she might think appropriate.

The key legal issue for consideration

The President was invited, at the hearing on 11 November 2008, to sit simultaneously both as a Family Division Judge and as a Judge of the Crown Court pursuant to Section 8 (1) of the Supreme Court Act 1981.

The President’s first observation, in what he considered a novel application, was that the mother was not applying to vary the Restraint Order. She was simply seeking disclosure of information (pursuant to Rule 57.8(2)(b) of the Criminal Procedure Rules) by the Prosecutor for the purposes of assisting her in the conduct of her Schedule 1 application. The application acknowledged that, in relation to the orders for disclosure sought, the President was only entitled to grant them in the capacity of a Crown Court Judge. This was an acknowledgement and recognition of the President’s decision in Webber v Webber [2006] EWHC 2893 (Fam); [2007] 2FLR 116 in which the President made it clear that, since POCA came into force, the sole jurisdiction to deal with all matters of restraint, confiscation and enforcement pursuant to the terms of POCA reside in the Crown Court and that the procedure to be adopted in confiscation proceedings is similarly exclusively a matter for the Crown Court.

Conclusion

The regime of the Children Act and the regime under the POCA are competing but essentially separate regimes. The President commented (although this was not an application in front of him) that it seems questionable whether Section 58 (5) of the POCA (providing that the Crown Court may stay proceedings in relation to property which is the subject of restraint orders) has any application in the case of Schedule 1 proceedings for periodical payments.

The President further observed that there is no express requirement upon the Crown to disclose to anyone affected by the order a copy of the witness statement pursuant to which the order was obtained. The position is simply that a party affected may apply to vary or discharge the order, and that if that is done, then it is likely that the Prosecutor is willing and/or the Court will order that the Prosecutor supply a copy of the witness statement or statements to the applicant.

The President concluded that he could have sat as a Crown Court judge if he felt it appropriate and he had all the material before him but added that:

I do not encourage the making of such an application in the future. The proper place for consideration of restraint orders and the appropriateness of relief to be granted in relation to them on the application of a party affected is the Crown Court where the original order was made.

Accordingly, he refused the applications.

In practice

Consider whether you can argue that the Court can exercise its discretion to make an award on the basis that the applicant has been non-compliant in the offence which has led to confiscation or restraint orders. It is important that a finding of non complicity is sought (this is relevant in both Matrimonial Causes Act claims and Schedule 1 Children Act claims). However this is not enough, you must be able to establish that there are sufficient assets to recover before significant costs are incurred.

Timing is clearly relevant. If the assets are still frozen pending the conclusion of Revenue and/or Crown Court litigation then you need to wait until the conclusion of those proceedings. If the status of those proceedings is unclear then any disclosure application is properly made in the Crown Court.

Cases considered:

Stodgell v Stodgell [2009] EWCA Civ 243
T v B Revenue & Customs Prosecutions Office [2008] EWHC 3000 (Fam)

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.