18 IN PRACTICE
www.lawgazette.co.uk LEGAL UPDATE: RESTRAINT ORDERS Management receivership orders
but why should they suffer in cir- cumstances where the MROs were quashed? If not the companies, then who should pay? Would the receiver be left high and dry? Should the CPS compensate?
Emma Jarvis Peters & Peters
Caveat emptor CPS – the Supreme Court brings MROs back from the brink
» Following the decision in Crown Prosecution Service v The Eastenders
Group & Anor [2012] EWCA Crim 2436, we could have been forgiven for thinking that the future of management receivership orders (MROs) was in jeopardy. However, the Supreme Court judgment on 8 May ([2014] UKSC 26) relieved any such concern.
The receivership order/discharge On 6 December 2010, following an ex parte hearing before His Honour Judge Hawkins QC, restraint orders were made over the assets of two indi- viduals suspected of fraud. The judge appointed a management receiver over their assets pursuant to section 48(2) of the Proceeds of Crime Act (POCA). The assets of nine companies (the com- panies) were treated in accordance with section 49 as the ‘real- isable property’ of the individuals. In accor- dance with section 49(2)(d), the terms of the MROs and let- ter of agreement, the receiver would take his remuneration and expenses from that property. On 8 February 2011 the Court of Appeal discharged the MROs on the basis that the respondent’s assets did not consti- tute ‘realisable property’. No provision was made for the receiver to be paid by any other means. Section 49(2)(d) provided that the receiver could look to the companies,
First instance The receiver applied for his expenses and fees to be met from company property. The companies argued that it would breach their right to peaceful enjoyment of property under Article 1, Protocol 1 (A1P1) of the European Con- vention on Human Rights. Underhill J (as he then was) was persuaded by this argument. He did not want to leave the receiver without compensation but considered it ‘an unacceptable way of vindicating the companies’ rights’. Underhill J examined the similarities between a restraint order and a civil freezing order, in which there would be a cross-undertaking in damages by the claimant (and by analogy the CPS). Underhill J ordered that the CPS pay.
The Court of Appeal The CPS appealed and the matter was heard in July 2012. In November 2013, the Court of
orders is an important weapon in the battle against crime but if used when the evidence on objective analysis is tenuous or speculative, it is capable of causing harm rather than preventing it
The power to impose restraint and receivership
Appeal found against the CPS by a 2:1 majority (Laws LJ dissenting). The court held that it would infringe the companies’ A1P1 rights to pay the receiver. However, Laws LJ and the majority allowed the CPS appeal against the part of the order of Underhill J which obliged them to pay on the basis that no express provision of POCA allows them to order such recov- ery against the CPS. So no one was liable. It was acknowl-
edged by the court that the outcome of the appeal would be
‘unsatisfactory’ to a receiver who had undertaken work in the expectation that he would be rewarded and com- pensated out of assets identified for him by the CPS. There was therefore an obvious and immediate concern for management receivers everywhere. Who would risk such an appointment? The receiver appealed to the Supreme Court.
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The Supreme Court hearing In February 2014, the appeal was heard by Lady Hale, and lords Toul- son, Hughes, Kerr and Wilson. The justices held that to allow the costs to be borne by the assets would be dis- proportionate and a breach of A1P1. However, the court would be left in the invidious position of violating the companies’ A1P1 rights if the receiver’s application was allowed and violating the receiver’s A1P1 rights if it were refused. Lord Toulson giving judgment
considered that ‘it [was] not possi- ble to locate within POCA a power to order the CPS to pay the receiver’s remuneration and expenses’, but he examined the appointment of the receiver as a contractual relationship with the CPS. The terms of engage- ment provided that ‘[the receiver’s] remuneration costs and expenses are to be drawn from the assets of the defendants under [his] man- agement in accordance with section 49(2)(d) [POCA] and the decision of the House of Lords in Capewell v HM Revenue & Customs [2007] UKHL 2’. As the receiver was unable to recover from the assets of the companies, there was a ‘total failure of consideration’ of his rights, and this ‘was fundamental to the basis on which the receiver was requested by the CPS and agreed to act’. The receiver was entitled to recover his proper remuneration and expenses from the CPS because the work done and expenses incurred by the receiver were at the request of the CPS, and there has been a failure of the basis on which the receiver was asked and agreed to do so. The court ruled that the CPS should
pay.
The future How can this be avoided? One of the matters considered by the Supreme Court was the complexity of appli- cations for restraint and receiver- ship orders. Absent the comfort of a cross-undertaking in damages (as would exist in the civil context), there is a particular need for detailed con- sideration by the court of all papers in support of the application. There must be time to conduct a full hear- ing of the application. It was noted by the Supreme Court that ‘the fact that such applications are made ex parte, and the potential seriousness of the consequences for defendants (at this stage presumed to be innocent) and for potential third parties, mean that there is a special burden both on the prosecution and on the court’. The ‘power to impose restraint and receivership orders is an important weapon in the battle against crime but if used when the evidence on objective analysis is tenuous or speculative, it is capable of causing harm rather than preventing it’. The future should see greater care
being taken by the CPS when applying for these types of orders and ensuring that the original court asked to grant the restraint order has a proper esti- mate of pre-reading time and adequate time for a thorough ex parte hearing.
Emma Jarvis is an associate in the civil fraud, commercial litigation and asset recovery department at Peters & Peters Solicitors. Keith Oliver, Emma Jarvis and Lee Quickenden (of Peters & Peters) acted for BDO LLP in Barnes (as former court appointed receiver) (appellant) v The Eastenders Group & Anor (respondents) 8 May [2014] UKSC 26
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