Original news

CPS v The Eastenders Group and another [2012] All ER (D) 365 (Nov)

A restraining order was made under the Proceeds of Crime Act 2002 (POCA 2002) and a receiver was appointed to a group of companies, but the orders were subsequently set aside. A judge decided the Crown should pay, amongst other things, the receiver’s remuneration and legal costs. The Court of Appeal decided that to allow the receiver to recover his expenses from the group with no other recourse would violate the group’s right to the peaceful enjoyment of their possessions. It further held there was no power for the court to make such an order against the Crown.

What were the important features of this case?

HHJ Hawkins QC, sitting at the Central Criminal Court, granted restraint orders against the defendants under POCA 2002, s41. Neither defendant had been charged with an offence.

The restraint orders were extended to cover Eastenders’ assets on the basis that the corporate veil should be pierced and the group’s assets treated as assets of the defendants. The orders also appointed a management receiver over the assets of Eastenders under POCA 2002, s 48(2).

The Court of Appeal concluded, on the material presented, there was no reasonable cause to believe the assets of Eastenders, over which the management receiver had been appointed, were recoverable property and that finding was fatal to the applications for the restraint orders and the appointment of a management receiver. The Court of Appeal decided:

‘[there was] insufficient material for the judge to conclude that there was reasonable cause to believe that these companies are or were just a front, sham or device for a diversion fraud committed by the alleged offenders or that they were sheltering behind a façade or veil of the companies to hide their fraud, or the proceeds of their fraud.’

The Court of Appeal confirmed that, before a receivership order can be made under POCA 2002, there must be ‘reasonable cause to believe the alleged offender has benefited from his criminal conduct’ and there must be a good arguable case for treating particular assets as the realisable property of the defendant.

How do restraint and management receivership orders operate in these circumstances?

The crown court is empowered by POCA 2002, s 41 to make an order restraining the assets of individuals and companies being investigated and/or prosecuted, both pre and/or post charge, to preserve the value of assets for possible future confiscation. POCA 2002, s 48, empowers the crown court to appoint a management receiver to take control of the defendant's finances, which can include running companies ‘in relation to any realisable property to which the restraint order applies’. POCA 2002, s 49 provides for the receiver to be remunerated from the defendant’s realisable property under his control under the order.

The management receiver is remunerated in this way, whether or not the defendant is ultimately convicted or acquitted. As management receivership orders can remain in place—in some cases for many years—the costs incurred and paid from the defendant’s assets, can be huge.

Given that the purpose of restraint orders is to preserve the value of assets for possible future confiscation, it is anomalous that restrained funds can be used to pay the often enormous fees and expenses of management receivers, when under POCA 2002 defendants are not allowed access to restrained funds to pay for their legal representation.

There will be few cases in which these types of orders are sought that the prosecution are unable to show a reasonable cause for believing the alleged offender has benefited from his criminal conduct and a good arguable case for treating particular assets as the realisable property of the defendant. Accordingly in many cases, the provisions of this case will not apply.

Importantly however, Laws LJ indicated he wished to ‘reiterate and emphasise’ some of the observations made by Hooper LJ on 8 February 2011 about the hearing before HHJ Hawkins QC on 6 December 2010, (R v Windsor [2011] All ER (D) 91 (Feb)). This is clear guidance for prosecution lawyers that ex parte applications of this nature must be carefully prepared and listed for hearing well in advance of planned arrests of defendants. Such hearings should be conducted properly and with a fair and balanced view of the evidence for both sides.

The provisions of POCA 2002 are draconian and far reaching—with potentially devastating consequences for defendants and their businesses—and prosecutors should regard them as such.

Prosecutors should not assume if they apply the day before the intended arrest that the orders will automatically be granted. These applications are invariably ex parte which means the court holds the heavy responsibility of balancing the public interest against that of the defendant, without the assistance of representations on behalf of the defence.

What should lawyers be aware of and what action should they take in such cases?

This case will be of particular interest where, at a very early stage, a defendant has sufficient information about the case against them to quickly be able to demonstrate there is no reasonable cause to believe they have benefited from criminal conduct or that they have an interest in particular assets.

When presented with a client who has been made the subject of restraint and management receivership orders in future, defence lawyers will be keen to ask certain questions of the prosecution and the court. Firstly, it will be important to obtain a copy of all the papers placed before the court during the ex parte applications. The client’s instructions will then need to be taken both on the allegations contained therein and the details of ownership of property covered by the orders.

If there is any doubt the conditions for the granting of the orders have not been satisfied, the defence team should be giving consideration to making an application at the earliest opportunity to the crown court and, if necessary, the High Court, for the dismissal of the restraint and receivership orders and opposing any request for costs made by the receiver. Such an application to dismiss should be initiated as quickly as possible.

This article was originally published on the Current Awareness service on LexisLibrary on 10 January 2013. Interview conducted by Nicola Laver.