Facts
Appellant's case
SOCA's response
Decision
Comment
In proceedings for a civil recovery order,(1) the Serious Organised Crime Agency (SOCA) had obtained a property freezing order under Section 245A of the Proceeds of Crime Act 2002, freezing the defendants' assets and property in the United Kingdom and abroad. The three defendants appealed the freezing order, applying to have it varied to exclude assets and property outside the United Kingdom on the grounds that Part 5 of the act did not enable the recovery of assets abroad. The application was refused. This was an important decision in asserting the courts' authority to make property freezing orders over property situated abroad.
In October 2007 the first appellant, a lawyer, was convicted in Israel of offences arising out of a pension scheme that he had set up. He had allegedly profited by a total of £110 million from fraudulent activities and was fined and sentenced to 12 years' imprisonment in Israel (later reduced to 10 years on appeal). The Israeli authorities had taken no steps to freeze assets or bring the Israeli equivalent of recovery proceedings against any assets belonging to any of the appellants, either in Israel or abroad.
Subsequently, SOCA became aware of funds totalling approximately £14 million that were held in two London bank accounts in the name of the first appellant or members of his family. SOCA applied to the Administrative Court and, pursuant to Section 245A in Part 5 of the act, obtained a worldwide property freezing order which listed properties in London, Tel Aviv, Jerusalem, New York and Villefranche-sur-Mer, as well as bank accounts in England and Wales, antiques and works of art.
The first, second and third defendants appealed on the grounds that the judge had erred as a matter of law in determining that a civil recovery order and a property freezing order under Part 5 of the act could be made in respect of any property in the country or abroad.
The appellants pointed to a number of provisions of Part 5 and the wider legislative scheme, which they asserted showed that it was never intended that civil recovery orders be made in respect of property situated abroad. These provisions included the following:
- Unlike other sections of the act, Part 5 does not make special provision for the enforcement abroad of confiscation orders made in England and Wales. For example, Section 74 in Part 2 of the act, which deals with confiscation orders made by criminal courts following conviction, makes special provision for enforcement abroad. Similar provisions are found in Parts 3 and 4, which deal with confiscation orders that are made by criminal courts following conviction in Scotland and Northern Ireland, respectively.(2) The appellants argued that the absence of a provision in Part 5 shows that Parliament did not intend that civil recovery orders be made in respect of property situated abroad.
- Similarly, the appellants pointed to examples in Parts 2 to 4. Section 443 makes provision for the function of a receiver appointed under Parts 2 to 4 to be exercised in other parts of the United Kingdom; however, no such power for the functions is granted to persons under Part 5 to be exercised in Scotland and Northern Ireland, let alone countries further abroad.
- The appellants pointed to bankruptcy law, which provides a wide extraterritorial reach in relation to foreign property automatically vesting in the trustee for bankruptcy, thereby affecting innocent third parties. The appellants pointed out that this is a necessary consequence in private law in order to amass worldwide assets to be distributed to worldwide creditors. In contrast, they argued, it is a completely different matter to ascribe to Parliament an intention that the enforcement authorities are to have power to confiscate assets anywhere in the world for the benefit of the UK Treasury.
The appellants therefore submitted that the act did not provide for orders in respect of property situated abroad, and it was impossible to ascribe that intention to Parliament.
SOCA denied that specific provision for orders in respect of foreign property was necessary, either in principal or in practice. For example, SOCA produced evidence of the recognition by a Luxembourg court of an unrelated property freezing order made by the High Court in respect of a bank account in Luxembourg. The Luxembourg court referred to the Strasbourg Convention as justification for the recognition.
The question for the court was summarised by Lord Justice Hooper:
"This appeal against the decision of Mitting J [2010] 1 WLR 2761 raises the following issue: does a court in England and Wales have the power under Part 5 of the Proceeds of Crime Act 2002 to make a recovery order in favour of the trustee for civil recovery in respect of recoverable property outside this jurisdiction, whether moveable or immoveable?"
The court held that it does have power to make such an order; however, in the case of property outside the jurisdiction, a civil recovery order gives the trustee for civil recovery a personal right against the person who is the subject of the order to enforce it and such other rights (if any) to which the trustee is or becomes entitled under the law of the jurisdiction in which the property is located. The effect of an order vesting property in the trustee is the same, regardless of whether the property is in the United Kingdom or abroad. The difference is that where the property is abroad, it is unlikely that the law of the jurisdiction in which it is situated will give the trustee the full rights that are given to it by English law.
The court placed importance on the Strasbourg Convention, whose preamble refers to the need to establish a well-functioning system of international cooperation to deprive criminals of the proceeds of crime. The court held that the convention applied to the enforcement of orders made in civil proceedings, and that SOCA could therefore seek to enforce both interim and final Part 5 orders abroad in those countries in which the convention is in force. The fact that no specific provision was made in Part 5 was not considered an obstacle to seeking enforcement.
Although the court has no jurisdiction in relation to the title to foreign land, the bankruptcy cases – as well as cases dealing with worldwide freezing orders – demonstrate that there is no restriction in common law on making orders that relate to immovable property abroad, provided that the court has jurisdiction over the defendant.(3)
The court agreed with the previous decision of Justice Mitting, who said that Part 5 is "by its clear terms" extraterritorial and that "nothing within it prevents it from being so". The court noted that although it has the power to grant a civil recovery order in respect of property abroad, enforcement will be dependent on the laws of the country in which the property is located.
For further information on this topic please contact Natalie Small at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
Endnotes
(3) Dicey, Morris and Collins, The Conflict of Laws, 14th ed (2006) vol 2, pp 1142-1143.