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scott_margetts_phLast Summer, the Supreme Court allowed both appeals in Perry & Ors v Serious Organised Crime Agency (“SOCA“).  The case marked the first time that the Supreme Court had considered the extra-territorial effect of certain powers of civil recovery conferred by the Proceeds of Crime Act 2002 (“POCA“).  The Court determined that:

  1. a civil recovery order could only be made under Pt 5 of POCA in respect of property located in England and Wales; and
  2. POCA disclosure orders could only be made in relation to individuals within the UK and accordingly, such disclosure orders could not authorise the sending of information notices to individuals outside England and Wales.

Background

In October 2007, the First Appellant, Mr Perry, was convicted in Israel of fraud in relation to various pension schemes.  Mr Perry was sentenced to 12 years in prison and fined approximately £3m, which fine Mr Perry subsequently paid.  In 2008, Hoare’s Bank in London disclosed to SOCA that Mr Perry and his daughters held a number of accounts at Hoare’s Bank containing substantial amounts of money.  Subsequently, SOCA discovered that Mr Perry and his family members also held accounts in London at Bank J Safra (Gibraltar) Ltd.  Funds belonging to Mr Perry and his family totalling £14m were ultimately located in London by SOCA.

In August 2008, under s 357 in Pt 8 of POCA, SOCA obtained a disclosure order from the High Court on an application without notice (“Disclosure Order“).  Under the terms of the Disclosure Order individuals served with information notices would be required to provide information, documents and answers to questions in relation to property held by or for Mr Perry.  Failure to comply with a disclosure order is a criminal offence. The Court granted the Disclosure Order and notices were served by SOCA on Mr Perry and his daughters by letter to an address in Mayfair which Mr Perry was known to keep, despite SOCA being aware that they did not reside in the UK and were at all times absent from the jurisdiction.

In October 2009, in an application without notice and pursuant to s 245A in Pt 5 of POCA, SOCA obtained a worldwide property freezing order (“Freezing Order“) against Mr Perry and those closely associated with him (including his immediate family).  The Freezing Order froze all of the worldwide assets of the defendants named in the order (save Mr Perry’s wife’s, in relation to which the Freezing Order froze only certain specific assets) wherever they were located.  The Freezing Order also required the defendants to disclose details of all of their assets worldwide.

First Instance and Court of Appeal decisions

In 2009 to 2011 the Appellants applied unsuccessfully to the High Court and then to the Court of Appeal to (i) vary the Freezing Order to exclude all property located outside of England and Wales and to limit the disclosure obligations under the Freezing Order to apply only to assets located in England and Wales; and (ii) set aside the Disclosure Order and the notices served pursuant to it.  The applications were rejected on the grounds that (i) although there was a presumption against giving statutes extra-territorial effect, the language of the relevant provisions of POCA was clear such that plainly they applied to property outside of England and Wales and (ii) the defendants had sufficient presence within the jurisdiction and a valid information notice could be given to a person out of the jurisdiction by posting it to an address within the jurisdiction.

The defendants appealed to the Supreme Court on both points, challenging:

(a) the scope of Freezing Order in so far as it purported to apply to property outside of England and Wales; and

(b) the validity of the information notices issued pursuant to the Disclosure Order.

Supreme Court

The appeal to the Supreme Court was heard by the maximum nine judges: Lady Hale, Lords Phillips, Brown, Kerr, Wilson, Reed, Judge, Clarke and Sir Anthony Hughes.

By a majority decision (7:2), the Supreme Court allowed the appeal against the Freezing Order.  The leading judgment was given by Lord Phillips. The dissenting judgment was given by Lords Judge and Clarke.  The Court was unanimous in allowing the appeal against the Disclosure Order.

(a) Freezing Order appeal

The relevant provisions of Pt 5 of POCA:

  • give SOCA the power to seek a property freezing order where it is empowered to take proceedings for a civil recovery order (s 245A);
  • oblige the courts in certain circumstances to make a civil recovery order in relation to property which is, or represents, property obtained through unlawful conduct; and
  • define property for the purposes of Pt 5 (emphasis added): “Property is all property wherever situated . . .” (s 316(4)).

At first instance and in the Court of Appeal, the court concluded that the clear meaning of the relevant provisions of Pt 5 of POCA, in particular the wide definition of ‘property’ was that a civil recovery order could be made in respect of property wherever in the world that property was situated.

In the leading judgment in the Supreme Court, in broad summary, Lord Phillips analysed the position as follows:

  • In the previous decisions the courts had placed undue weight on the definition of ‘property’.  POCA contained many references to ‘property’ and whether or not it applied to property wherever situated in any case depended upon the context in which it appeared.
  • There was a well-established presumption under English law that a statute would not have extraterritorial effect.
  •  However, confiscation of the proceeds of crime was an area where that presumption had been displaced to an extent by the co-operation framework set out in the Strasbourg Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (“Strasbourg Convention“).  Analysis of the language of POCA therefore had to be interpreted in the context of the Strasbourg Convention.
  • S 2 of Chapter III of the Strasbourg Convention sets out the mutual assistance provisions when States were trying to identify and trace property liable to confiscation.  S 3 provides for provisional measures such as property freezing orders or the seizure of property which may become subject to confiscation.
  • ” . . . it would seem that the Convention applies to (i) a confiscation order in rem made by party A after conviction of a defendant within its territory in respect of property owned by the defendant situated within the territory of party B; (ii) a confiscation order in rem made by party A in respect of property situated within its territory after conviction of the owner of that property in the territory of party B …. One thing is plain beyond doubt. The Strasbourg Convention envisages the courts in one state making an order confiscating property situated in another state.  There would thus appear to be established, in respect of the proceeds of crime, an exception to the principle stated by Lord Diplock in R v Cuthbertson ….  I believe however, that the exorbitant in rem confiscation order that the Strasbourg Convention envisages is one where the jurisdiction to make an order is an in personam jurisdiction founded on the conviction of the owner of the property by the court of the state making the order.” (emphasis added)
  • Pts 2 to 4 of POCA make provision for a criminal court to make an order for a defendant to make a money payment equivalent to the benefit (including in relation to property outside the jurisdiction) they have obtained through their criminal conduct.  That order is in personam, against a defendant within the jurisdiction and made as part of the criminal process.  That is consistent with the Strasbourg Convention.
  • The provisions of Pts 2 to 4 also permit a criminal court to make a restraint order prohibiting a person from dealing with any realisable property held by him.  That restraint order takes effect in personam and is of worldwide effect, but the provisions that relate to securing and realising property apply to activities within England and Wales – no power is granted to the authorities within the UK to secure or realise property that is situated outside the jurisdictions.  S 74 of POCA deals with enforcement abroad in relation to securing and realising property and makes express reference to requests for assistance to other States.  This is also consistent with the scheme of the Strasbourg Convention.
  • The purpose of Pt 5 of POCA is the recovery in civil proceedings of property obtained through unlawful conduct.  It is “of very different effect” to Pts 2 to 4 which impose personal liability on defendants convicted of criminal conduct in the UK.  Pt 5 is focused on the property itself rather than the person who has obtained it – it is not necessary that the person holding the property is guilty of criminal conduct.
  • “. . . apart from the definition of property in section 316(4), and the enigmatic section 286 [a provision which relates only to Scotland] there is nothing in Part 5, from first to last, that suggests that its application extends to property outside England and Wales, Scotland and Northern Ireland.  Many of its provisions clearly relate to property within those jurisdictions … giving the words of Part 5 their natural meaning, and ignoring section 286, I would conclude that the provisions that they make in relation to an order for civil recovery apply only within the United Kingdom”.
  • There is also a lack of enforcement provisions in Pt 5 which expressly deal with property outside the UK in contrast to s 74 in relation to Pts 2 to 4.  This is explainable on the basis that Parliament had no intention for Pt 5 to have extra-territorial effect.  The “natural course” in circumstances where SOCA becomes aware of property in another jurisdiction it believes is the proceeds of crime is, with reference to the Strasbourg Convention, to seek the assistance of/provide information to the appropriate authorities in that jurisdiction.
  • With reference to a scenario referred to by Hooper LJ in the Court of Appeal, the appropriate course in respect of land or other property bought in Spain with the proceeds of crimes committed in England by a person resident in England would be to (a) obtain an order under Pts 2 to 4 of POCA and then (b) make a request of assistance in accordance with s 74.
  • In conclusion, the High Court had no jurisdiction under Pt 5 of POCA to make a civil recovery order in relation to property outside of England and Wales and therefore no jurisdiction to make a worldwide property freezing order in the form of the Freezing Order.  The Freezing Order therefore needed to be redrawn to apply only to property within the jurisdiction of the court.

Lord Reed and Sir Anthony Hughes agreed with Lord Phillips for the reasons set out in his judgment but Sir Anthony commented that he would have wished for Pt 5 of POCA to apply to a limited extent extra-territorially were that possible without “illegitimately re-writing the statute”.

The joint dissenting judgment of Lords Clarke and Judge relies heavily upon the definition of property under POCA to justify the application of Pt 5 extra-territorially:

“With respect to those who take a contrary view, it seems to us that the language unequivocally describes not only the whereabouts of the property encompassed within Part 5, but also the nature and type of property covered by it.”

Lords Judge and Clarke say that their conclusion that Pt 5 applied extra-territorially is consistent with the construction of POCA.  Where Part 5 is intended to only apply to property within the jurisdiction it is expressly worded in such a manner, for example to provide a constable with the power to seize property “to prevent its removal from England and Wales”.  In support of this position Lords Judge and Clarke referred to the Court’s power, when making a civil recovery order under Pt 5 of POCA, to direct that any attempt to enforce the order outside the jurisdiction should be made in accordance with legal procedure in the foreign jurisdiction.  In this way they said that Pt 5 didn’t offend the sovereignty principle.  They also assert that s 286 (which relates only to Scotland and purports to give jurisdiction to the Court of Session to make an order in respect of property outside Scotland where the property holder is resident or present in Scotland or where the relevant unlawful conduct took place in Scotland), assists in the construction of the definition of ‘property’ for broad application to POCA, that it does actually apply to property wherever situated.

(b) Disclosure Order appeal

The Disclosure Order was issued under Pt 8 of POCA.  Notices pursuant to the Disclosure Order were served by SOCA on Mr Perry and his daughters by letter to an address in Mayfair which Mr Perry was known to keep, despite SOCA being aware that they did not reside in the UK and were at all times absent from the jurisdiction.

Failure to comply with a disclosure order carries a penal sanction (maximum sentence of 6 months in prison on summary conviction).  In relation to Pt 5, a disclosure order can only be made where the property specified in the order is subject to a civil recovery investigation.

In his judgment Lord Phillips:

  1. referred to his reasoning in the Freezing Order appeal to conclude that in so far as the Court of Appeal had relied on the extra-territorial effect of Pt 5 in reaching the conclusion that the information notices issued under the Disclosure Order were valid, they had proceeded on a false premise; and
  2. concluded “Subject to limited exceptions, it is contrary to international law for country A to purport to make criminal, conduct in country B committed by persons who are not citizens of country A.  Section 357 . . . confers on a UK public authority the power to impose on persons positive obligations to provide information subject to criminal sanction in the event of non-compliance.  To confer such authority in respect of persons outside the jurisdiction would be a particularly startling breach of international law.  For this reason alone I consider that the authority given under section 357 can only be exercised in respect of persons who are within the jurisdiction”.

The Court was unanimous in allowing the appeal against the Disclosure Order.

Comment

This case provides a close analysis of the bounds of the statutory regime set out in POCA in relation to the investigation into, and confiscation of, property which has been obtained through illegal means.

The division of opinion between the Supreme Court judges and the fact that SOCA had been successful before judges in relation to the granting of the Freezing Order and the granting of the Disclosure Order, appeals in relation to both orders to the High Court and then to Court of Appeal is notable.  While the competing views of the various judges all rely on the matter being ‘clear’ based on their respective interpretations of the statute, the issues raised in these appeals are undoubtedly complex and significant – hence no doubt the reason for the nine-judge Supreme Court panel that heard the appeals.

There remains the unexplained issue of s 286 of POCA – is it an ‘enigma’ or is it of assistance in construction of the intended objectives of Pt 5?

Whether POCA has been deprived of some intended teeth or the unintended consequences of the poorly drafted statute have been avoided remains open to debate, but the only route now for a change to the interpretation of POCA on the issues dealt with in this appeal will be further legislation.