On 8 May 2014, the Supreme Court ordered the CPS to pay the costs and expenses of a receiver appointed over assets, which were not recoverable from a defendant under investigation (Barnes (the former Court Appointed Receiver) v The Eastenders Group and another [2014] UKSC 26).

This will be good news for receivers who until now were left with uncertainty as to who would pay them if orders were made against an innocent third party and non-recoverable assets.  Receivers will want to consider asking, as suggested, for a clause to be included in the order that allows for their costs to be borne by the prosecutor if the property is later found not to be the realisable property of the defendant.

The Judgment also provides further support for challenges to orders granted following short, ex parte hearings in which the Court is asked to effectively rubber stamp an Order.  Complete and accurate disclosure should be required by the Court during any application. 

Background and History

The background to this case is set out in our blog of 4 February 2013.  This case has a long and protracted history:

  • On 6 December 2010, a restraint and receivership order was granted against The Eastenders Group. 
  • On 26 January 2011, the Court of Appeal quashed the orders holding:
    • they should never have been made, and
    • should not be regarded as the defendant’s assets. 
  • The receiver, in accordance with the Receivership Order, applied for his costs and expenses from the funds and assets in the receivership.
  • In May 2012, Mr Justice Underhill, sitting at the Central Criminal Court, concluded that the receiver should be remunerated by the CPS subject to an assessment by the taxing authority. 
  • On 23 November 2012, the Court of Appeal (Criminal Division) reversed this decision holding that:
    • the Receiver could not be remunerated by the CPS; and
    • it would be a breach of The Eastenders Group’s rights under Article 1, Protocol 1 to the European Convention on Human Rights to force them to pay the costs of the receiver. 

Effectively the Receiver was left unremunerated: he appealed.

  • On 8 May 2014, the Supreme Court reversed this decision and ordered the CPS to pay the costs of the receivership.

Remuneration

A management receiver is appointed by the Court at request of a prosecutor and usually remunerated from the sums held within the assets of the company that they are appointed to manage.   However, in this case the receivership order had been discharged as the assets of the company were not the assets of the defendant.  This is wholly distinct from those cases in which individuals are acquitted or no further action is taken in respect of an investigation: in these cases the Court has previously held that receivership assets can be used to pay the receivers costs and disbursements. 

The Supreme Court found themselves in the “invidious position of violating the company’s A1P1 rights if the receiver’s application was allowed and violating the receiver’s A1P1 rights if it was refused.”  Accordingly, they ruled that the receiver was entitled to recover his proper remuneration and expenses from the CPS as the work done and expenses incurred by them was done at the CPS’s request.

Criticisms

Hooper LJ in the Court of Appeal was heavily critical of applications for restraint and receivership orders in complex cases that were served late on judges with limited time.  These criticisms have been adopted by the Supreme Court.  While reminding the prosecution and court of the burden of deciding these ex parte applications, they made the following observations:

  • The Court should be given:
    • as much advance notice as it reasonably can be; and
    • a properly considered time estimate for the pre reading and hearing of the application. 
  • The granting of such an order should never be a rubber stamping exercise. 

The Court recognised the benefits of such orders whilst acknowledging the consequences for third parties and stated, “Where third parties are likely to be affected, even if the statutory conditions for making the order are satisfied, the Court must still consider carefully the potential adverse consequences to them before deciding whether on balance the order should be made and, if so on what conditions.  A judge who is in doubt may always ask for further information and require it to be properly vouched”.

Restraint and management receivership orders impose substantial burdens on both individuals and companies. The decision to fight such an order can be complex and time consuming but practitioners will want to look at the manner in which such orders were granted.

The full judgement from the Supreme Court website can be found here