Scottish Ministers v. Stirton & Ors [2006] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2006] CSOH 11

P223/05

OPINION OF LORD MACFADYEN

in the petition of

THE SCOTTISH MINISTERS

Petitioners;

against

RUSSELL STIRTON and OTHERS

Respondents;

for

an interim administration order in terms of the Proceeds of Crime Act 2002 and for warrant for inhibition and arrestment.

________________

Petitioners: Cullen, Q.C., Sheldon; Scottish Executive, Civil Recovery Unit

First and Thirteenth Respondents: Keen, Q.C.; Balfour & Manson

Interim Administrator: Davidson; Harper Macleod LLP

25 January 2006.

Introduction

[1] On 2 February 2005 the petitioners presented this petition under Part 5 and in particular section 256 of the Proceeds of Crime Act 2002 ("the 2002 Act") seeking inter alia an interim administration order. They did so in their capacity as the enforcement authority in terms of section 316(1) of the 2002 Act. Acting through the Civil Recovery Unit ("CRU") they applied by ex parte motion for the appointment of an interim administrator. The following day that application was granted. An order was made in terms of heads (i) to (iv) and (vii) to (xv) of the prayer of the petition. In particular, the court appointed "Louise Rivers, Mallard Associates", with an address in London, as interim administrator.

[2 ] On 4 March 2005 answers to the petition were lodged on behalf of the first respondent, Russell Stirton, and the thirteenth respondent, Alexander Ferguson Anderson. In this Opinion, I shall, unless the context otherwise requires, refer to the first and thirteenth respondents as "the respondents". On 29 March 2005 a motion was enrolled on their behalf for recall of the interim administration order. A hearing on that motion, which was opposed, took place before me on 31 March 2005. On that date, of consent, I pronounced an interlocutor releasing certain funds from the effect of the interim administration order. There was, however, insufficient time to complete the hearing in relation to the motion for recall of the interim administration order as a whole, and consideration of that motion was continued to a date to be afterwards fixed.

[3 ] The continued hearing of the motion took place on 6, 7 and 10 October 2005. Between 31 March and 6 October 2005 other proceedings had taken place in the petition process, and in a related process, and it will be necessary in due course to make reference to aspects of those proceedings.

The restraint orders

[4 ] The current proceedings are not the first proceedings taken against the respondents under the 2002 Act. On 13 January 2004 on the application of the Lord Advocate, acting through the Financial Crime Unit ("FCU"), restraint orders were pronounced under section 120 of the 2002 Act, which affected the property to which the present petition applies. The petitions on which those orders were pronounced referred to allegations of extortion of two sums of money from parties involved in a taxi business. The restraint orders were made on the basis that the first condition specified in section 119(2) of the 2002 Act had been satisfied, namely that a criminal investigation had been instituted and there was reasonable cause to believe that the alleged offenders had benefited from their criminal conduct. On 4 March 2004 the respondents appeared on petition on criminal charges reflecting the two allegations of extortion as well as three charges of money laundering. They were remanded in custody for five days and thereafter liberated on bail. If by 4 March 2005 no indictment was served in respect of those charges, the time bar imposed by section 65(1) of the Criminal Procedure (Scotland) Act 1995 ("the 1995 Act") would have taken effect. No application for extension of time was made under section 65(3) of the 1995 Act. In these circumstances it became necessary for the restraint orders to be recalled (2002 Act, section 121(8) and (9)).

The application for the interim administration order

[5 ] In terms of section 244 of the 2002 Act proceedings for a recovery order may be taken against any person who the enforcement authority thinks holds recoverable property. "Recoverable property" is defined in section 304(1) as "Property obtained through unlawful conduct". "Unlawful conduct" is defined in section 241(1) as including conduct which is unlawful under the criminal law of that part of the United Kingdom in which it occurs. Under section 256 an enforcement authority may seek an interim administration order where it may seek a recovery order. An interim administration order may therefore only be sought where the respondent is thought to hold recoverable property. In terms of section 308(8), however, property is not recoverable while a restraint order applies to it. The existence of the restraint orders pronounced on 13 January 2004 therefore stood in the way of the making of an interim administration order affecting the same property. In that situation the restraint orders required to be recalled before an interim administration order could be granted.

[6 ] In that situation the way in which the authorities proceeded was as follows. First, applications were brought before the Lord Ordinary at the instance of the Lord Advocate for recall of the restraint orders. Those applications were not intimated to the respondents or their solicitors. They were dealt with as unstarred motions, i.e. without appearance. The applications for recall were granted on 3 February 2005. Secondly, later on the same date, the present petition was laid before the same Lord Ordinary and, on an ex parte application made by counsel on behalf of the petitioners, the interim administration order was granted. No intimation of the application was made to the respondents or their solicitors. They learned of the facts that the petition had been presented and that an interim administration order had been made when the interlocutor of 3 February 2005 in this process was intimated to them.

[7 ] Before turning to consider the grounds on which the respondents sought recall of the interim administration order, it is convenient to take note of the statutory requirements which must be satisfied before such an order can be made. It is sufficient to quote section 256(3), (4), (5), and (7). Those provisions are in the following terms:

"(3) An application for an interim administration order may be made without notice if the circumstances are such that notice of the application would prejudice any right of the enforcement authority to obtain a recovery order in respect of any property.

(4) The court may make an interim administration order on the application if it is satisfied that the conditions in subsections (5) and, where applicable, (6) are met.

(5) The first condition is that there is probabilis causa litigandi ―

(a) that the property to which the application for the order relates is or includes recoverable property, and

(b) that, if any of it is not recoverable property, it is associated property.

(7) In its application for an interim administration order, the enforcement authority must nominate a suitably qualified person for appointment as interim administrator, but the nominee may not be a member of the staff of the Scottish Administration."

Article 1 of the First Protocol of the European Convention on Human Rights

[8 ] At the hearing on the motion for recall on 31 March 2005, Mr Keen on behalf of the respondents advanced an argument to the effect that the interim administration order, by reason of lack of proportionality, contravened the rights of the respondents under Article 1 of the First Protocol to the European Convention on Human Rights (protection of property). At the continued hearing, Mr Keen departed from that argument, except to the extent that Article 1 of the First Protocol provides the background against which the recovery provisions of the 2002 Act are to be viewed. In these circumstances it is therefore unnecessary for me to deal with the argument as originally formulated.

The ex parte order and non-disclosure

(a) The respondents' submissions

[9 ] Mr Keen attacked the propriety of the procedure adopted by the petitioners in making the application for the interim administration order in two respects. First, he said that there was no justification for making the application ex parte. During the currency of the restraint orders, negotiations had taken place between the respondents' solicitors and the FCU (then the Criminal Confiscation Unit), as a result of which arrangements had been made for the sale of a petrol station, and for the release to the respondents of certain funds. The restraint orders had remained in place on the date on which the application for the interim administration order was made. Their continuation would have afforded sufficient protection against dissipation or disposal of the relevant property, and they could have been kept in place until an inter partes hearing of the motion for an interim administration order had taken place. The criteria laid down in section 256(3) for the making of an application for an interim administration order without notice had therefore not been satisfied.

[10 ] Secondly, Mr Keen submitted that in connection with the ex parte application there had been a material failure of disclosure on the part of the petitioners, in respect that there was no mention in the petition, and the court was not informed, of the fact that there had been restraint orders in place from 13 January 2004 and that the respondents had been placed on petition on criminal charges. The effect of that non-disclosure, Mr Keen submitted, was that the interim administration order should be recalled.

(b) The petitioners' submissions

[11 ] In response, Mr Cullen, for the petitioners, set out in some detail the sequence of events. At the outset, however, he explained the distinct identities of the FCU and the CRU by reference to a Memorandum of Understanding, which was dated 7 and 12 April 2005, but was said to repeat in substantially unaltered form an earlier version. It provided inter alia as follows:

"1. The Financial Crime Unit (FCU) is part of the Crown Office and Procurator Fiscal Service (COPFS) and has a remit which includes the pursuit of Criminal Confiscation Orders in Scotland under the Proceeds of Crime Act 2002 (POCA). The Civil Recovery Unit (CRU) is a Unit created by the Scottish Ministers as represented by the Lord Advocate to operate the civil recovery provisions of POCA (including cash seizures). ...

3. FCU will have responsibility for referring cases to CRU. FCU will refer appropriate cases to the CRU for consideration of the exercise of the powers of civil recovery under Part 5 of POCA in the following circumstances:

(b) Criminal proceedings have been commenced but concluded because of a decision by either Crown Counsel or the local Procurator Fiscal to take no further proceedings."

[12 ] The sequence of events began with the initial police report of the case against the respondents in 2003, which identified the extortion and money laundering allegations that were said to emerge from the police investigation. The case was then designated by the Criminal Confiscation Unit (now the FCU) as a live money laundering investigation. There followed the making of the restraint orders, and the petition proceedings against the respondents. There were several variations of the restraint orders. Investigation of the case by the FCU continued and the precognition was completed by 19 January 2005. There then followed consideration of the position by Crown Counsel and Law Officers, and the conclusion was reached that the respondents should not be indicted. Mr Cullen explained the circumstances which led to that conclusion, but I do not consider it appropriate to set these out in detail here. The result of that decision was, however, that in terms of paragraph 3(b) of the Memorandum of Understanding the case fell to be transferred to the CRU. The CRU became involved for the first time on 28 January 2005.

[13 ] Looking first at the recall of the restraint orders, Mr Cullen stressed that the decision what to do about them was a matter for the Lord Advocate, acting through the FCU. The view was taken that the applications for recall should be made as soon as was practicable after the decision to take no further steps in the criminal proceedings was made. The minutes for recall were prepared on 1 February with a view to their being presented to the court on 3 February. Turning to the application for the interim administration order, that was a matter for a separate authority, the CRU. There was a legitimate concern to avoid a hiatus during which, to the respondents' knowledge, the property in question was free of the restraint orders, but not yet subject to an interim administration order, and during which that property might thus be vulnerable to dissipation. The decision of the FCU to have the restraint orders recalled placed the CRU under pressure of time to present the application for an interim administration order. The petition was prepared and presented on 2 February.

[14 ] Mr Cullen submitted that the petitioners were entirely justified in seeking the interim administration order ex parte. The policy of the legislation plainly contemplated that the enforcement authority should be allowed to proceed in such a way as to avoid any prejudice to their ability to recover recoverable property. Once the FCU had decided to seek recall of the restraint orders, the CRU could not rely on them to protect the position pending service of the present petition, the intimation of the motion for the interim administration order and the holding of an inter partes hearing on that application. The CRU, who were not in control of the process for recall of the restraint orders, were motivated, in making their application ex parte, by the desire to avoid the risk of dissipation that would have existed had there been a gap between the recall of the restraint orders and the hearing of the application for the interim administration order, during which the respondents were aware that one form of restraint had come to an end but the other had not yet been put in place. Moreover, it was the interim administrator's duty to investigate and report on the recoverability of property (section 257(2)). In pursuance of that duty the interim administrator would present herself at the home or business premises of a respondent and conduct a search there. That process would be prejudiced by the giving of advance notice of the application, particularly if it was evident from the terms of the petition that, as might often be the case where it was prepared as a matter of urgency, items of recoverable property had not yet been identified.

[15 ] Turning to the question of disclosure, Mr Cullen first pointed out that although the petition did not mention the restraint orders and the criminal proceedings, the same Lord Ordinary who granted the interim administration order had, earlier the same day, recalled the restraint orders, and was thus aware of that aspect of the history of the case. In any event, the submissions made on behalf of the respondents required to be considered against the background of the purpose of an interim administration order, namely the preservation of assets pending investigation of whether they constituted recoverable or associated property and whether there was any further such property. Up to the point at which the application for an interim administration order came before the court the authorities had had only a limited opportunity to investigate the existence of recoverable or associated property. The criminal investigation had a different focus, and was conducted by a different authority. It was entirely legitimate for the enforcement authority to seek an interim administration order before proceeding to apply for a recovery order (sections 256 and 257). That order of events was understandable, because the overriding concern was that proceeds of crime were at serious risk of dissipation. That was a risk which ordinarily spoke for itself (J v Crown Prosecution Service [2005] EWCA Civ 746, per Laws LJ at paragraph 55).

[16 ] Mr Cullen submitted that there was no need for disclosure of the criminal proceedings or the restraint orders proceedings in the petition for an interim administration order. Those proceedings and their outcome were immaterial to the question whether the interim administration order should be granted on an ex parte application. They were different processes brought by different authorities for different purposes.

[17 ] In any event, Mr Cullen submitted, if the fact that criminal proceeding had been brought but were not to be insisted upon was material to the ex parte application, the failure to disclose them was innocent, not malicious. In that context he referred to Director of the Assets Recovery Unit v Keenan and Others (High Court of Justice in Northern Ireland, Coughlin J, unreported). That case concerned an application under section 246 of the 2002 Act for an interim receiving order. Coughlin J held that there was a clear obligation on those seeking an ex parte order to ensure full and fair disclosure of all material facts, which duty was not limited to facts known to the applicant but extended to facts that the applicant ought to have known after making proper inquiries (paragraph [13]). On the material before him, Coughlin J held that the non-disclosure of a fact which he held to be material was attributable to an innocent lack of knowledge, and that it would therefore be disproportionate to discharge the interim receiving order (paragraph [14]). He went on to indicate in the alternative that if he was wrong in exercising his discretion in that manner, he would have been prepared to grant a second order forthwith on the material then before him. In the latter respect he relied on Lloyds Bowmaker Ltd v Britannia Arrow Holdings plc [1988] 1 WLR 1337, per Glidewell LJ at 1343H-1344A.

[18 ] In considering the propriety of the steps taken by the petitioners, Mr Cullen submitted, it was necessary to have regard to the level of urgency attaching to the application. The application for an interim administration order was the only measure available to the petitioners in the circumstances to secure the identification and detention of the recoverable property. It was inherent in the nature of an interim administration order that it was made at an early stage when the investigation was incomplete. In the present case the information passed from the FCU to the CRU strongly indicated that the respondents were engaged in money laundering operations. In such circumstances the CRU were obliged to move quickly to prevent the dissipation of recoverable property, the continued use of the proceeds of unlawful conduct and the continued process of money laundering.

[19 ] Mr Cullen further submitted that, even if I were satisfied that there should have, but had not, been disclosure of the criminal proceedings and the restraint orders, I should be slow to recall the interim administration order. He gave a number of reasons for that submission, including the investigative challenge which the interim administration proceedings presented; the innocence of the non-disclosure; the fact that the application was made in pursuance of a public duty and statutory responsibility; the public policy interest in ensuring that property derived from unlawful conduct was removed from the possession of those who held it; the desirability of not setting such a high procedural standard as to deter the CRU from pursuing its statutory duties; the fact that, in the event of a recovery order not in due course being granted, any material non-disclosure could be treated as an aggravating factor in a compensation claim under section 283 (section 283(9) - "other relevant circumstances"); and the fact that to discharge the interim administration order would be to impose a "punishment' for procedural irregularity which was out of proportion to the seriousness of the irregularity.

(c) The respondents' reply

[20 ] In response to those submissions Mr Keen acknowledged the public interest in seeing the CRU employing their powers to recover the proceeds of crime. It was, however, he submitted, also in the public interest that those powers should be employed in the manner which Parliament intended, in accordance with the law and the applicable legal procedures. That was so irrespective of the merits or demerits of the individual case for recovery. If the statutory powers were exercised otherwise than in accordance with the law, it was no answer to a challenge to the validity of the exercise of the powers to say that the investigation was at an early stage, or that the case was a serious one, or that the procedures adopted by the CRU were not as well developed as they might be. However laudable the end, that did not justify the use of unlawful means. Notwithstanding the fact that the objective was one supported by the public interest, it was legitimate to examine the propriety and validity of the procedure adopted. It could not be said that the availability of damages could be relied on as a remedy for procedural impropriety; the remedy under section 283 was discretionary (section 283(5) - "may"). The phrase "other relevant circumstances" in section 283(9) would not cover the considerations that Mr Cullen suggested it would.

[21 ] Mr Keen emphasised the importance of non-disclosure in the context of an ex parte application. He pointed out that Mr Cullen had sought to justify the ex parte application by reference to a risk of dissipation of assets and destruction of records. While there was authority for such a risk justifying an ex parte application (Laws LJ in J v Crown Prosecution Service at paragraph 54, quoting Glidewell LJ), this case was distinguishable from J, which was concerned with a restraint order. The situation was different when the application was for an interim administration order and there had already been a restraint order in force. In the course of the criminal investigation the police had recovered the business records of the respondents, and these had ultimately been passed to the interim administrator. At the date of the ex parte application, there were restraint orders in place. Those orders protected property and documents from dissipation or destruction as effectively as an interim administration order or a recovery order. The CRU could have made the application for the interim administration order while the restraint orders were still in force. In that situation the motion could have been intimated without risk and an inter partes hearing could have taken place. The recall of the restraint orders required by section 121(8) could have been moved after argument had been heard but before the interim administration order was made, thus avoiding the obstacle created by section 303(8).

[22 ] Mr Keen submitted further that the fact that the Lord Ordinary who granted the interim administration order had the same day recalled the restraint orders did not amount to disclosure. The test of materiality was in any event not whether the interim administration order would probably have been granted even if the Lord Ordinary had known of the criminal proceedings. The fact that the respondents were able to apply for recall did not elide the materiality of the information about the criminal proceedings, because intimation of the appointment of the interim administrator was likely to (a) be destructive of the respondents' personal and business reputations and (b) deprived them of the means of instructing lawyers. It was not possible, Mr Keen submitted, to justify the making of the ex parte application for the interim administration order simply by reference to the fact that the authorities had chosen to recall the restraint orders in advance of making that application. That involved engineering a basis for the ex parte application.

(d) Discussion

[24 ] Turning to the question of disclosure, I accept at once that there is an obligation of disclosure incumbent on a party making an ex parte application for an order such as an interim administration order. I am content to adopt the formulation cited to me from the judgment of Coughlin J in Director of the Assets Recovery Agency v Keenan and Others at paragraph [13]:

"There is a clear obligation imposed upon those seeking to make ex-parte applications to ensure that a full and fair disclosure of all material facts is made to the court. This duty is not limited to facts known to the applicant but extends to facts that the applicant ought to have known after making proper inquiries. The material facts are those which it is material for the court to know for the purpose of dealing properly and fairly with the application, materiality being an issue to be decided by the court not the applicant."

In the event, however, I am not persuaded that the fact that there had been restraint orders in force, the fact that there had been criminal proceedings against the respondents, which had been discontinued, and the fact that the restraint orders had been recalled were material to the proper and fair consideration of the application for an interim administration order. None of these facts seem to me to disclose a potential line of defence to the making of the interim administration order which the respondents might have deployed had the application been heard inter partes. It may be that the position would have been different if, as Mr Keen contended, the petitioners had by suppressing the procedural history engineered an ex parte hearing to which they were not properly entitled, but for the reasons which I have already explained, I do not consider that they did that. In all the circumstances I am of opinion that there was no failure on the part of the petitioners to disclose material facts in making the ex parte application.

[25 ] On that view of the matter, a number of issues touched on in argument do not arise, but I should perhaps give a brief indication of my views on them. First, I do not consider that, if the procedural history had been material, and disclosure of it had therefore been required, that the fact that the recall of the restraint orders had been dealt with the same day by the same Lord Ordinary would necessarily have been sufficient to satisfy the obligation of disclosure. It might well, I think, have done so if there had been clear information that the Lord Ordinary, in dealing with the application for the interim administration order, had been expressly reminded of what he had earlier done by way of recall of the restraint orders. But I do not understand that that was done. When the recall applications were dealt with by unopposed unstarred motion, it is in my view going too far to assume, in the absence of clear information, that the Lord Ordinary definitely recognised that the later ex parte application dealt with the same parties and property, although of course he may well have done. Secondly, I do not consider that, if the procedural history was material and should have been disclosed, the petitioners have made out the proposition that the non-disclosure should be regarded as innocent. Failure to disclose is innocent, if it results from lack of knowledge which remains despite proper inquiries (Director of the Assets Recovery Agency v Keenan and Others, per Coughlin J at paragraph [13] and [14]). If the procedural history was material (which is a matter for the court to determine), I do not see how the petitioners (who were aware of it) can claim innocence. But the point does not arise on the view I have taken of materiality. Thirdly, if I had held that there was non-disclosure of material facts at the stage of the ex parte application, I would not have been inclined to recall the interim administration order without considering whether, on the information before me, including the ex hypothesi now-disclosed material facts, the order appeared to be justified. I find persuasive and practical the observations of Dillon LJ in Lloyds Bowmaker at 1350, where he said:

"I find it a cumbrous procedure that the court should be bound instead of itself granting a fresh injunction, to discharge the existing injunction and stay the discharge until a fresh application is made, possibly in another court, and that the court which is asked to discharge the injunction, it (sic) should not simply, as a matter of discretion in an appropriate case, refuse to discharge it if it feels that it would be appropriate to grant a fresh injunction."

As I have said, however, these points do not arise, since I have held that there has been no failure to disclose material facts.

Probabilis Causa Litigandi

(a) The respondents' submissions

[26 ] For an interim administration order to be made, the petitioners must show probabilis causa litigandi that the property to which the application relates is or includes recoverable property (section 256(5)(a)). Recoverable property is property obtained through unlawful conduct (section 304(1)). For the respondents, therefore, Mr Keen submitted that the averments in the petition had to disclose probabilis causa litigandi (a) that the respondents had been involved in unlawful conduct, and (b) that they held property obtained through that unlawful conduct. The property, he submitted, had to be linked to the unlawful conduct. In support of the general submission that the averments did not satisfy that test, Mr Keen examined various aspects of the averments in the petition. Article 5.1 contained averments as to the respondents' previous convictions. So far as they referred to the first petitioner, they related to convictions in the 1970s. So far as they referred to the thirteenth petitioner, they were mistaken. The latter point was accepted by Mr Cullen, and he was granted leave in the course of the hearing to amend to delete the erroneous averments. Article 5.3 was a very inspecific averment that the first respondent was reasonably believed to have been involved in the supply of controlled drugs since at least 1983. Article 5.4 narrated a conviction of the first respondent in 1988 for breach of the peace, contravention of section 41(1)(a) of the Police (Scotland) Act 1967 and bail offences. The article then narrated various drugs charges and a firearms charge which were also on the indictment, but of which the first respondent was not convicted. Mr Keen submitted that these were improper averments in the absence of any offer to prove to the civil standard that the first respondent had committed the offences. Articles 5.6, 5.7 and 5.8 narrated various occasions in which the first respondent was said to have been seen in association with persons involved in drug dealing. Articles 5.9 and 5.11 contain allegations of fraud. Article 5.10 briefly narrates an offence on the thirteenth respondent's part under the Bankruptcy (Scotland) Act 1985. Articles 5.12 and 5.13 contain allegations of extortion on the part of the first and thirteenth respondents involving very large sums of money. Articles 5.14, 5.15 and 5.16 contain allegations of money laundering on their part. The various paragraphs of article 6 of the statement of facts in the petition set out the circumstances from which the petitioners seek to have the court draw the inference that the property set out in Schedule 2 is recoverable property. They set out circumstances relating to the first respondent's tax affairs, a series of property transactions, and reference to various bank accounts and savings policies. In relation to the property transactions, Mr Keen submitted that the narrative wholly failed to address the possibility of the legitimate build up of capital through a number of property transactions over time. In relation to the bank accounts and savings policies, Mr Keen criticised the fact that each article merely averred "The petitioners have reasonable grounds to suspect that this account has been used to launder the proceeds of the first respondent's unlawful conduct", without attempting to identify what the reasonable grounds were. There was no attempt to relate particular property to particular allegations of unlawful conduct. Fairly viewed, the averments in the petition did not disclose a case of probabilis causa litigandi as required by section 256(5)(a).

(b) The petitioners' submission

[27 ] Mr Cullen began his submissions on this chapter of the case by examining the meaning of the phrase "probabilis causa litigandi". He cited C v Scottish Legal Aid Board 1999 SLT (Sh Ct) 48 where Sheriff Bell, in the context of the Legal Aid legislation, expressed the following view (at 49):

"A probabilis causa litigandi is defined in Trayner's Latin Maxims (4^th ed), at p 487, as 'A probable or plausible ground of action'. I consider that a 'plausible ground of action' is a better translation of the Latin phrase. 'Plausible' in this context simply means reasonable."

Mr Cullen also cited Black's Law Dictionary (7^th ed), and Burton's Legal Thesaurus. He submitted that the phrase did not set an exacting test. The averments in the petition manifestly passed the test. Dealing with the various articles of the statement of facts, he acknowledged that Article 5.3 was, if viewed on its own, lacking in specification. He characterised it, however, as an introduction to what followed. He attempted faintly to justify the averments in Article 5.4 about the charges of which the first respondent was acquitted, but ultimately accepted the difficulty in placing any real weight on those averments. Articles 5.6 to 5.8 were all part of the picture of involvement in unlawful conduct. Article 5.9 was, he said, a clear allegation of fraud, as was Article 5.11. Articles 5.12 and 5.13 contained allegations of serious unlawful conduct from which substantial sums of cash had been obtained in recent years. It was entirely legitimate to ask the court to hold that the scheduled property was in whole or in part obtained by that activity. The inference that the property was obtained from the unlawful activity could be drawn without averments expressly linking particular property to particular unlawful activity. In the course of his submissions, Mr Cullen also made references to the fuller averments contained in the petition for a recovery order in terms of section 266 which the petitioners presented in October 2005, and to the contents of the interim administrator's Interim Recoverable Property Report (No. 13 of process). For reasons which I will explain, I do not consider it necessary for me to record these submissions in detail.

(c) Discussion

[28 ] I do not consider that there is any real difficulty in understanding what is meant by "probabilis causa litigandi" in section 256(5)(a). It is perhaps unusual to find a Latin phrase used unexplained in a modern statute, but it is not unprecedented (cf Legal Aid (Scotland) Act 1986, section 14). Before the introduction of civil legal aid, the same phrase was the criterion for eligibility for the benefit of the poor's roll (see Trayner's Latin Maxims sv "probabilis causa litigandi"). It therefore has a long history. It is my impression that, whatever words are used to translate the Latin into English, as to which I agree with Sheriff Bell, practitioners in the field of civil litigation in Scotland have a sound understanding of the practical operation of the test. Mr Cullen was in my opinion right to submit that the test is not exacting.

[29 ] One aspect of Mr Keen's criticism of the averments in the petition is in my opinion clearly well founded. The averments in Article 5.4 about the charges of which the first respondent was not convicted cannot in my view be deployed in support of the proposition that there is probabilis causa litigandi that the first respondent was involved in unlawful conduct. The position might have been different if the petitioners had offered to prove by the civil standard of proof that, although he was not convicted in the criminal proceedings, he had been involved in unlawful conduct. No such averments are made, however. In that situation I am of opinion that Article 5.4 adds nothing to the petitioner's case.

[30 ] There may also in my view ultimately turn out to be force in the respondents' contention that the averments concerning the series of property transactions fail to make adequate allowance for legitimate growth of capital. I do not consider, however, that that is a matter that can be resolved at the stage of a motion for recall of the interim administration order. As matters stand, on the averments considered by the Lord Ordinary at the time of granting the order, I am satisfied that there was probabilis causa litigandi as required by section 256(5)(a). There were clear averments of serious unlawful conduct yielding substantial sums of money. I refer in particular to Articles 5.12 and 5.13. There were averments identifying the property which was claimed to have been obtained by unlawful conduct. I accept Mr Cullen's submission that probabilis causa litigandi can be inferred from the averments of unlawful conduct and of the possession of an appreciable amount of property. I reject Mr Keen's submission that there require to be averments linking specific property to specific unlawful conduct.

[31 ] I have reached the conclusion that the petition discloses probabilis causa litigandi, and that the interim administration order should therefore not be recalled on the ground that that test is not passed, without considering the terms of the averments in the section 266 petition or of the interim administrator's report (No. 13 of process). That being so, and in the context of my decisions on the other aspects of the case, I do not consider that any useful purpose would be served by my going into those matters. It seems to me that possibly difficult issues may arise if an attempt is made to justify the refusal of recall of an interim administration order by reference to material not available when the order was granted, particularly if the new material emerges from the investigations carried out by the interim administrator, whose appointment is under challenge in the motion for recall.

The identity of the interim administrator

(a) The procedural history of the issue

[32 ] In terms of section 256(7) the enforcement authority must nominate a suitably qualified person for appointment as interim administrator. The only restriction is that the nominee must not be a member of the staff of the Scottish Administration. The averments in article 7 of the petition set out that Louise Rivers, Mallard Associates, is a suitably qualified person for appointment as interim administrator, that she is not a member of staff of the Scottish Executive (sic) and that she has accepted the jurisdiction of the Scottish Courts. No further detail is averred.

[33 ] When the ex parte application for an interim administration order came before the Lord Ordinary on 3 February 2005, counsel did not elaborate on the averments about the person nominated for appointment as interim administrator. In particular, nothing was said to alert the Lord Ordinary to the fact that "Louise Rivers" was a name assumed by the person in question for the limited purposes of offering herself for such appointment, and carrying out her duties in that office, if appointed.

[34 ] When the motion for recall first came before me on 31 March 2005 the only point taken as to the identity of the interim administrator was that her address was in London. It was submitted that it was inappropriate to appoint an interim administrator who did not carry on business within the jurisdiction of this court. Reference was made in that connection to the interim administrator's powers to take possession of property. By the time of the continued hearing on 6 October 2005, the point had become much more complex. That was partly as a consequence of procedure which had taken place between the two hearings on the motion for recall.

[35 ] On 12 September 2005 the respondents enrolled a motion to have the interim administrator ordained "to advise the Court whether or not her designation in the process is true and correct and, if not, to disclose her true and correct identity. On 14 September, the motion came before Lord Johnston. In the event, no interlocutor was pronounced dealing with the substance of the motion. Instead, a note in the following terms was recorded in the minute of proceedings:

"Mr Keen addressed the Court, and there being no opposition by the other parties requested the Court to record in the Minute of Proceedings that in the petition at article 7 it is submitted that Louise Rivers, Mallard Associates, [address in London] is a suitably qualified person for appointment as interim administrator. That this name and designation is a pseudonym and that the Court was not advised of this at the time when it was invited to make the original appointment. Mr Keen further advised that his motion dated 12 September 2005 is not insisted upon.

There followed a note relating to a motion for an order under section 4(2) of the Contempt of Court Act 1981, and an interlocutor making such an order was pronounced.

(b) The respondents' submissions

[36 ] In these circumstances, Mr Keen submitted, the appointment of Louise Rivers as the interim administrator was fundamentally invalid. He submitted that an interim administrator was an officer of the court. He maintained his original submission that a person whose address was outwith the jurisdiction of the Scottish courts could not be a suitable person for appointment, given the extent of the interim administrator's powers under Schedule 6, including her powers to ingather property and take possession of it, and to require the respondents to answer questions. Her powers were backed up by statutory sanctions. He explained further that the respondents became concerned when it appeared that the interim administrator was not an accountant. Who, they wondered, was it who was requiring them to answer questions? Anyone could present herself and maintain that she was Louise Rivers, the interim administrator. It was in these circumstances that the motion of 12 September 2005 was enrolled. The respondents no longer sought disclosure of the identity of the interim administrator, but they founded on the circumstances disclosed in the minute of proceedings of 14 September as undermining the validity of the appointment. The fact that "Louise Rivers" was a pseudonym was now acknowledged by the petitioners. At the time of the appointment, however, that was not disclosed to the court. While it was accepted that according to Scots law a person was entitled to choose a name by which to be known, provided the choice was not fraudulent, here the issue was as to the identity of a person appointed as an officer of court on averments that she was a suitable person to be appointed as interim administrator. Having regard to the scope of an interim administrator's powers, the court could not be satisfied as to her suitability without being put in possession of true information as to her identity. Reference was also made to the circumstances in which the interim administrator might be held liable in damages (section 257(3)). How, for example, was that remedy to be enforced when the interim administrator was appointed under a pseudonym? In these circumstances the appointment was fundamentally invalid, and should be recalled.

(c) The petitioners' submissions

[37 ] Mr Cullen explained that the interim administrator used the name "Louise Rivers" and the firm name "Mallard Associates" in carrying on her practice as an interim administrator. It was an alternative identity adopted by her in that particular context. Her use of that identity was well established in appointments which had been made by the courts in Scotland. She has considerable technical expertise and experience. There was good reason for her adopting an assumed name for the purpose of appointment to offices such as interim administrator. There was real concern that it would put at risk her own safety and that of her staff if she practised under her own name.

[38 ] Mr Cullen submitted that as a matter of law the name by which a person was known was a matter of usage. The debate was skewed by the use of the term "pseudonym". The interim administrator was entitled to use any name she chose, provided the name she adopted was not adopted for fraudulent purposes (Clive on Husband and Wife, 4^th ed, paragraphs 11.019 to 11.024, and 25.120 to 25 121; reference was also made to Cowley v Cowley [1901] AC 450 and In re T [1963] Ch 228). The use of a pseudonym by a financial investigator had been permitted in Northern Ireland (In re Devine [1999] NIQB 7, per Coughlin J at paragraphs 13, 21, 24 and 28).

[39 ] Notwithstanding those submissions, Mr Cullen indicated that it was the normal practice of the petitioners to explain to the court, when submitting that the interim administrator was a suitably qualified person for appointment, that "Louise Rivers" and "Mallard Associates" were assumed names. That was thought appropriate as a matter of proper candour. In the present case that had not been done. That was a matter of innocent oversight. "Louise Rivers" had been appointed by the court on a number of occasions following disclosure to the court that the name was an assumed one. The omission to explain the position in the present case fell far short of ground for holding the appointment fundamentally invalid.

(d) The respondents' reply

[40 ] Mr Keen submitted in response that Mr Cullen's position moved uncomfortably between acceptance that "Louise Rivers" was a pseudonym, as acknowledged in the entry in the minute of proceedings, and was thus designed to conceal the interim administrator's true identity, and that it was a designation legitimately adopted for the purpose of carrying on the business of interim administrator. In truth, "Louise Rivers" was not the identity of the interim administrator, but a means of concealing her identity. In re Devine was not in point, because there the pseudonym had been disclosed to the court, and the validity of the appointment was not under challenge. The real difficulty was that the court could not tell whether the interim administrator was suitable for appointment. Mr Keen, however, very properly accepted that he did not impugn the good faith of the petitioners or question that there were good and proper reasons for protecting the interim administrator from improper pressure.

(e) Discussion

[41 ] I deal first with the respondents' original submission that it is inappropriate to appoint an interim administrator whose place of business is outwith the jurisdiction of the Scottish courts. That is plainly a matter which the court may wish to consider when deciding whether the nominated person is suitable for appointment. It is, at least in part, met by the averment (made in the present case) that the nominated person has accepted the jurisdiction of the Scottish courts. Such acceptance would, in any event, in my view, be implicit in acceptance of such an appointment. It remains, however, an issue on which the court may require reassurance before the appointment is made. It is not, however, in my view, a matter that goes to the validity of the appointment.

[42 ] There seem to me to be grounds for concern in connection with the appointment of an interim administrator under an assumed name. For example, it might be thought that the respondents had an interest in knowing who it was that had acquired the extensive powers of the interim administrator to take possession of property and to require them to answer questions. The enforceability of a claim for damages under section 257(3) might be thought to require knowledge of the true identity of the interim administrator. It seems to me that these are matters to be taken into account by the court in deciding whether to make the appointment. But problems would only arise if there were reason to doubt the good faith of the nominee and her willingness to be held to account, if the need arose, in this court. In the context of a nomination made by a responsible public authority, it seems to me that the court would be entitled to rely on the good faith of the petitioners. The concern does not, in my view, go to the validity of the appointment.

[43 ] Where, as the petitioners say is usual, the matter is disclosed to the court at the time of appointment, I am of opinion that the court is entitled to make an appointment under an assumed name if satisfied that there is good ground for doing so. The concerns for the safety of the interim administrator and her staff explained by Mr Cullen seem to me to be capable of being accepted by the court as constituting good ground. Mr Keen did not impugn the good faith of the petitioners in putting forward that reason for making an appointment under an assumed name, or that there was good reason for concern about the safety of the interim administrator. I therefore consider that the Lord Ordinary would have been entitled, if the matter had been explained to him, to make the appointment of Louise Rivers under that name.

[44 ] The question which remains is whether the accidental failure to explain the position to the Lord Ordinary undermines the validity of the appointment. I do not consider that it does. It is a matter for the court to decide what it requires to satisfy it of the suitability of the nominee for appointment. The court is entitled to rely on the good faith and responsible conduct of a public authority such as the petitioners. There is no reason to suppose that the Lord Ordinary would have declined to appoint the interim administrator if the position about her name had been explained to him. She has been appointed on other occasions upon such an explanation being tendered. In these circumstances, I do not consider that the oversight of counsel in failing to explain the matter of the interim administrator's assumed identity, can be regarded as rendering her appointment fundamentally invalid.

Result

[45 ] For the reasons that I have set out, I am not persuaded that any of the grounds on which recall of the appointment of the interim administrator is sought is well founded. I am therefore minded to refuse the respondents' motion for such recall. In the course of the hearing, it was suggested that in certain circumstances I should put the case out By Order before pronouncing an interlocutor giving effect to my decision. I do not think that any of these circumstances has arisen, but lest I be mistaken about that, I shall put the matter out By Order to enable parties to make such submissions as to future procedure to give effect to the substance of my decision as they think fit.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Scottish Ministers v. Stirton & Ors [2006] ScotCS CSOH_11 (26 January 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_11.html Cite as: [2006] ScotCS CSOH_11, [2006] CSOH 11

Scottish Court of Session Decisions