External Requests For Restraint Orders: King v. Director Of The Serious Fraud Office [2009] Ukhl 17

Introduction

The appeal in King v. Director of the Serious Fraud Office [2009] UKHL 17, concerned the scope of the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005 (SI 2005/3181) ('the Statutory Instrument'), which enables the Crown Court to make a restraint order at the request of a foreign state. The essential issue was whether Part 2 of the Statutory Instrument (articles 6-55) gives the Crown Court the power to make a restraint order prohibiting a person from dealing with property situated outside England and Wales. The Serious Fraud Office contended that the Crown Court does have such a power, whereas Mr. King, the Respondent, contended it does not. The House of Lords decided that the Statutory Instrument provided a scheme to make restraint orders in response to a request from a foreign state only in respect of property in England and Wales. The decision brings clarity to a somewhat technical area of the law and is significant because it highlights the differences between restraint orders in criminal proceedings on the one hand and civil freezing orders on the other.

The Background to the Appeal

On 31^st May 2006, in the Crown Court sitting at Southwark, His Honour Judge Wadsworth Q.C. made a restraint order against Mr. King (and a number of corporate entities) under article 8(1) of the Statutory Instrument and an accompanying disclosure order under article 8(4). The restraint order prohibited Mr. King from dealing with any of his property whether or not it was "in or outside England and Wales." The restraint order was made on the application of the Serious Fraud Office, ex parte and without notice, following a letter of request from the National Prosecuting Authority of the Republic of South Africa ('the NPA'). Restraint orders against Mr. King (and the corporate entities) were also made in Guernsey (on 9^th June 2006) and Scotland (on 29^th June 2006). A subsequent application to discharge the restraint order was dismissed on the basis that, provided that "relevant property" in England and Wales was identified in the letter of request, the Statutory Instrument conferred on the Crown Court the power to restrain any property wherever situated and that accordingly the Crown Court had jurisdiction to make a restraint order with extraterritorial effect. Mr. King appealed to the Court of Appeal (Gage L.J., Simon J. and His Honour Judge Paget Q.C.) and his appeal was allowed. The Court of Appeal concluded that the Crown Court's powers under the Statutory Instrument was confined to property in England and Wales, saying that this was consistent with the fact that the assistance the Crown Court provides by granting a restraint order is ancillary to overseas investigations and proceedings, and that, unlike in proceedings arising from a domestic investigation, the Crown Court is not the primary forum of the litigation. The question of law of general public importance certified by the Court of Appeal was in the following terms:

The Statutory Instrument

Prior to 1^st January 2006 (when the Statutory Instrument came into force) foreign requests for assistance in matters relating to confiscation and restraint were dealt with under different statutory regimes, depending on whether the request related to drug trafficking or other acquisitive crime (the Drug Trafficking Act 1994 (Designated Countries and Territories) Order 1996 (SI 1996/2880) and the Criminal Justice Act 1988 (Designated Countries and Territories) Order 1991 (SI 1991/2873)). (It had never been authoritatively decided whether these earlier schemes enabled the Crown Court to make worldwide restraint orders but it would appear that they did not.) The Statutory Instrument simplified the law by providing a single scheme for the enforcement of foreign confiscation orders and the provision of assistance in obtaining restraint orders. As in the case of domestic proceedings, under the earlier statutory regimes, applications for restraint orders and the enforcement of overseas restraint orders were made to the High Court. Under the Statutory Instrument, as in the case of domestic proceedings, applications are made to the Crown Court.

The Statutory Instrument was made pursuant to sections 444 and 459(2) of the Proceeds of Crime Act 2002. Part 2 (articles 6-55) makes provision for the making of orders in England and Wales. Part 3 (articles 56-92) makes provision for the making of orders in Scotland and Part 4 (93-141) makes provision for the making of orders in Northern Ireland. The schemes in Scotland and Northern Ireland essentially mirror the scheme in England and Wales and the fact that separate provision was made for the three jurisdictions that make up the United Kingdom suggests that Parliament did not intend the Crown Court to make orders having extraterritorial effect.

The general scheme of restraint under Part 2 of the Statutory Instrument is to confer on the Crown Court the power to make a restraint order pursuant to an 'overseas request' that is "a request by an overseas authority to prohibit dealing with relevant property which is identified in the request" (section 447(1) of POCA). An overseas authority is, broadly speaking, a prosecuting or investigating authority in a country or territory outside the United Kingdom (section 447(11)). Property is "relevant property" if there are reasonable grounds to believe that it may be needed to satisfy an external order (viz. a confiscation order made in a country or territory outside the United Kingdom) which has been or which may be made.

Article 6 provides that the Secretary of State may refer an external request in connection with criminal proceedings or investigations in the country from which the request is made, and which concerns relevant property in England and Wales, to the Director of Public Prosecutions, the Director of Revenue and Customs Prosecutions or, where the request relates to an offence involving serious or complex fraud, the Director of the Serious Fraud Office.

Article 6(7) provides that where a request also concerns relevant property which is in Scotland or Northern Ireland, so much of the request as concerns such property shall be dealt with under Part 3 (Scotland), or, as the case may be, Part 4 (Northern Ireland). Under Article 8, the Crown Court may make a restraint order if either of the two conditions in article 7 is satisfied. The first condition in article 7 is that relevant property in England and Wales is identified in the external request, a criminal investigation has been started in the country from which the external request was made and there is reasonable cause to believe that the defendant named in the request has benefited from his criminal conduct. The second condition is that relevant property has been identified in the external request, proceedings for an offence have been started in the country from which the request was made and there is reasonable cause to believe that the defendant named in the request has benefited from his criminal conduct. Once the conditions are satisfied "the Crown Court may make an order ('a restraint order') prohibiting any specified person from dealing with relevant property which is identified in the external request and specified in the order" (article 8(1)). Article 8(4) provides that if a restraint order is made, the Crown Court "may make such order as it believes is appropriate for the purpose of ensuring that the restraint order is effective." This is the provision which permits the Crown Court to make an order compelling the specified person to disclose information relating to his property.

External Restraint Orders / Domestic Restraint Orders

The scheme of restraint under the Statutory Instrument closely reflects the provisions contained in Part 2 of the Act (sections 6-91). However, the scheme under the Statutory Instrument differs in as much as it is necessary to take account of the fact that it operates in support of investigations and proceedings taking place in overseas territories, rather than investigations and proceedings in England and Wales.

Article 8(1) may be contrasted with the corresponding provision in the Act, namely section 41(1). Article 8(1) provides that an order may be made in respect of "relevant property identified in the external request and specified in the order." On the other hand, section 41(1) provides that an order may be made in respect of "any realisable property" held by a specified person. Moreover, section 41(2)(a) provides that the order may provide that it applies to all property held by a person, "whether or not the property is described in the order." Therefore, under the Act, there is no requirement for the restrained property to be identified, specified or even described. The property which may be restrained under Article 8, however, is limited to the terms of the request. The relevant property must be identified in the request and article 7 makes it clear that the property which must be identified in the external request is property in England and Wales.

Another crucial distinction between the Act and the Statutory Instrument is that section 74 of the Act provides a mechanism designed to secure the enforcement in other jurisdictions of restraint orders made under section 40. Section 74 applies if any of the conditions for making a restraint order under section 41 are satisfied (whether or not an order has been made), and a prosecutor may ask the Secretary of State to forward a request for assistance to a country where he believes that realisable property is situated. In a case where a confiscation order has been made and has not been satisfied, discharged or quashed, a request for assistance is a request to the government of the receiving country to secure that any person is prohibited from dealing with realisable property and that the property is realised. The absence of any power equivalent to section 74 in the Statutory Instrument has a direct bearing on article 46 (the analogue of section 69 in the Act, the so-called 'legislative steer') which provides that the powers conferred on the Crown Court must be exercised with a view to the value for the time being of the realisable property being made available "by the property's realisation for satisfying an external order." However, as property situated overseas cannot be realised under the Statutory Instrument an order restraining such property could not serve the purpose set out in article 46; it would in fact be futile.

The Home Office View

One of the curiosities of the King litigation is that the approach taken to the Statutory Instrument by the Serious Fraud Office was at odds with the view taken by the Home Office. The Explanatory Notes to the Act and the Statutory Instrument and the Explanatory Memorandum to the Statutory Instrument each contained statements to the effect that the Statutory Instrument applies to property situated in England and Wales (or Scotland or Northern Ireland as the case may be).

Civil Proceedings

It is well-established that in civil proceedings there is a power to make a worldwide freezing order and an associated order for disclosure of assets in aid of substantive proceedings taking place abroad. However, the principles to be derived from the case law are as follows:

1. The jurisdiction to make such orders is to be exercised with caution: Credit Suisse Fides Trust SA v. Cuoghi [1998] Q.B. 818, per Millet L.J. at 842H.
2. Where assets are located in England and Wales (even where the defendant is not domiciled here), it may be expedient to make an order in relation to those assets within the jurisdiction, for the simple reason that the order can be effective: Credit Suisse, per Millet L.J. at 827C-D.
3. It is a strong thing to restrain a defendant who is not resident in the jurisdiction from disposing of assets outside the jurisdiction. However, where the defendant is domiciled within the jurisdiction such an order is not to be regarded as exorbitant or as going beyond what is internationally acceptable: Credit Suisse, per Millet L.J. at 827B-C.

The authorities also show that there are five particular considerations which the Court should bear in mind when considering whether it is inexpedient to grant a worldwide freezing order (under section 25 of the Civil Jurisdiction and Judgments Act 1982): Motorola Credit Corporation v. Uzan and Others [2004] 1 WLR 113, per Potter L.J. (at para. 115):

1. Whether the making of the order will interfere with the management of the case of the primary court, e.g. where the order is inconsistent with an order of that court or overlaps with it.
2. Whether it is the policy in the primary jurisdiction not itself to make worldwide freezing/disclosure orders.
3. Whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person resides or where the assets affected are located.
4. Whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order.
5. Whether in a case where jurisdiction is resisted and disobedience expected, the Court is making an order it cannot enforce.

Given the care with which the High Court is required to exercise its jurisdiction to make worldwide freezing/disclosure orders, and the considerations applicable to the exercise of the discretion, it would have been surprising if Parliament had intended to vest such a jurisdiction in the Crown Court: any scheme administered in the criminal courts must be simple and coherent. Moreover, there is a significant difference between the High Court's power to make a worldwide freezing order and the Crown Court's powers in criminal proceedings. In civil proceedings a freezing order will always contain an undertaking in damages. No such undertaking is available in the criminal sphere, and the only remedy for a defendant who suffers loss is compensation in respect of serious default on the part of the prosecuting or investigating authorities in the United Kingdom.

Comity and Co-operation

While at first sight it may appear curious to prosecutors that the Crown Court does not have power to make a worldwide freezing order in support of an external request, on analysis it makes good sense and pays proper regard to the need for comity in public international law. Suppose D is being prosecuted in country A and has a few pounds in a bank account in London. Country A submits an external request to the United Kingdom. On the approach adopted by the Serious Fraud Office the presence of a few pounds in this jurisdiction provides the basis for a restraint order capturing D's property in countries B-Z. However, comity requires consideration not merely of the relationship between the requesting state and the courts of England and Wales but also between the English courts and any other state within whose territory the relevant assets are actually situated.

The difficulties inherent in such an approach are well illustrated by the facts of Mr. King's case. The relevant order granted by the Crown Court appeared to be inconsistent with the orders made in Guernsey and Scotland and, even more bizarrely, when the South African authorities sought to remove property situated in South Africa from the terms of the restraint order, they had to apply to the Crown Court in London so as to avoid a conflict with an order which was being sought from their own courts (in the course of civil proceedings).

The undoubted principle is that it is only exceptionally and by clear words that Parliament intends legislation to operate extraterritorially. There are two main reasons for this. First, Parliament does not legislate where it has no effective power of enforcement. Secondly, Parliament does not meddle in the affairs of citizens within the jurisdiction of a foreign state (see for example Gold Star Publications Ltd. v. Director of Public Prosecutions [1981] 1 WLR 732 per Lord Simon of Glaisdale).

The Decision of the House of Lords

The decision of the House of Lords (Lord Phillips of Worth Matravers, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood and Lord Mance) was unanimous. Lord Phillips, who delivered the main opinion, considered the provisions of the Statutory Instrument and concluded (at paragraph 36):

It followed that if the restraint order was restricted to property within England and Wales there was no justification for a worldwide disclosure order.

Procedure

In the judgment of the Court of Appeal, Gage L.J. drew attention to the Criminal Procedure Rules (Rule 59.4) which deal with the giving of notice of applications for a restraint order and variation of such orders. He expressed surprise that ex parte applications under POCA are normally dealt with by the Crown Court on paper without the attendance of the party making the application. The Court of Appeal suggested that such applications ought normally to be dealt with at a hearing with a full record of what takes place.

Endpiece

The King litigation in this jurisdiction has at least clarified the scope and effect of the Statutory Instrument and drawn attention to the best practice expected of prosecutors in the Crown Court. It appears likely that the scheme of external restraint orders under the earlier legislation was also limited to property situated in England and Wales but this is now unlikely to be of anything other than historical interest. If there is a moral in this tale it is not novel: prosecutors should be realistic in their objectives and a concession at first instance is better than a case in the House of Lords.

"This article was first published in Issue 3 of the Proceeds of Crime Review in August 2009. The Proceeds of Crime Review is a new bi-annual publication brings together authoritative articles and expert case analysis in relation to the recovery of the proceeds of crime. Published in an easily accessible format, Proceeds of Crime Review provides busy practitioners with the means of keeping up to date with all the latest developments, and is an indispensible reference for anyone working within this fast-moving specialist area."

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