BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE]

Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Scottish Ministers v Buchanan & Ors [2006] ScotCS CSOH_121 (04 August 2006)
URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_121.html
Cite as: [2006] CSOH 121, 2007 SCLR 301, [2006] ScotCS CSOH_121

[New search] [Help]

 

OUTER HOUSE, COURT OF SESSION

 

[2006] CSOH 121

 

P861/05

 

OPINION OF LORD PENROSE

 

in Petition of

 

THE SCOTTISH MINISTERS

 

Petitioner;

 

against

 

MARIE BUCHANAN AND OTHERS

 

Respondents:

 

for

 

Recovery Order in terms of Section 266 of the Proceeds of Crime Act 2002

­­­­­­­­­­­­­­­­­________________

 

 

 

Petitioner: Cullen, Q.C., Heaney; Scottish Ministers

Respondent: Holmes; Jardines

 

4 August 2006

[1] On 10 March 2006, following preliminary proof, I held that the petitioners had established on a balance of probabilities that from 1987 at the latest Mr George Buchanan had been concerned in the supplying of controlled drugs contrary to section 4 (3)(b) of the Misuse of Drugs Act 1971, and that he had been a significant player in the illicit drugs trade over the whole period on which the petitioners relied in seeking a recovery order in terms of section 266 of the Proceeds of Crime Act 2002 ('the 2002 Act').

[2] As noted in my opinion of 10 March, Mr Holmes had indicated that, in the event of an adverse finding on that issue, he might wish to propose further issues for consideration by the court. The case was duly put out by order to investigate what further procedure, if any, was appropriate. Mr Holmes sought leave to amend the answers for all respondents. He was given leave to lodge a minute of amendment, the petitioners were given an opportunity to answer any amendment proposed, and both parties were ordered to lodge written notes of argument before further consideration of the issues that might be focused in any proposed amendment of the pleadings. In due course a minute of amendment was lodged, the petitioners tendered answers, and both parties lodged notes of argument setting out their respective positions. The procedures adopted have been of considerable assistance in focusing the issues that have now to be determined.

 

THE DEVOLUTION ISSUE

[3] The first issue proposed in the respondents' minute of amendment relates to an alleged breach of section 57(2) of the Scotland Act 1998 ('the 1998 Act'). The respondents seek an opportunity to argue that proceedings under the 2002 Act are criminal in character, and that the adoption of a standard of proof on the balance of probabilities is incompatible with the presumption of innocence to which Mr Buchanan is entitled in terms of Article 6 of the European Convention on Human Rights by imposing on him a burden of proof. A fair trial is said to be impossible on such a basis. It is said that the petitioners' actions are incompatible with Mr Buchanan's Convention rights, and within the prohibition set out in section 57(2) of the 1998 Act.

[4] Two broad questions arise on this branch of the case: (a) whether the respondents should be allowed to introduce a devolution issue at this stage in the proceedings, having previously deleted averments to the same effect prior to the preliminary proof, the waiver question, and (b) whether there is a live issue relating to the compatibility of the 2002 Act with the respondents' Convention rights that requires judicial determination in Scotland.

[5] In respect of the second, and more substantial, question, Mr Holmes argued that the compatibility of the 2002 Act with Mr George Buchanan's Convention rights raised an important, and unresolved, issue in Scotland. He recognised that the Court of Appeal in Northern Ireland had decided that proceedings under Part 5 of the 2002 Act did not involve a criminal charge: Walsh v Director of the Assets Recovery Agency [2005] NICA 6. He recognised that the House of Lords had refused leave to appeal that decision on 7 July 2005. He recognised that the decision had been followed in England and Wales in Director of the Assets Recovery Agency v Commissioners of Customs & Excise and other  [2005] EWCA Civ 334. Further the decision had been followed in Scottish Ministers v McGuffie  [2006] CSOH 34. However, he contended that all of these decisions were wrong. In particular the characterisation of the proceedings as in rem was a fundamental error. They were truly in personam, and operated as a penalty against any person who was shown to have been in breach of the criminal law. The issue was important. There were a number of outstanding cases that depended on an authoritative decision. It was necessary to have the law settled. For the petitioners, Mr Cullen argued that the law was settled, and that the existing decisions of the courts of the three jurisdictions provided a conclusive answer to Mr Holmes.

[6] The decisions of the Courts of Appeal in Northern Ireland and in England and Wales are highly persuasive. The reasoning in Walsh in particular was adopted by Lord Kinclaven in McGuffie. In my opinion the reasoning in Walsh is correct and I consider that Lord Kinclaven reached the right decision in relation to the application of these provisions in Scotland. It follows that there is no substance in the contentions advanced by Mr Holmes in seeking leave to introduce a Devolution issue into the case. It is unnecessary to repeat the analysis of the issues at length. However, it appears to me that there is little mystery about the policy and purpose of the Act, and that, properly understood, it provides mechanisms that are not penal in character on any view. Section 240 of the 2002 Act provides for the recovery of "property which is, or represents, property obtained through unlawful conduct". Parliament was entitled to legislate on the basis that no person should be able to acquire, and to assert in a question with the State a right to, property which he or she has obtained, or to which he or she obtains title, by unlawful conduct of the kind identified in section 241 of the Act or which represents property originally acquired by unlawful conduct. The recovery of such property is not obviously penal: the person obtaining the property by unlawful conduct never had a right to it. He or she may have obtained a title to it or to something that comes to represent it. But, essentially, it was a legitimate policy consideration that the target assets never were property to which the original recipient acquired a right. By definition the assets were acquired unlawfully. It is not obviously penal to take from someone what that person did not have a right to acquire and does not have a right to retain.

[7] The position can be contrasted with the imposition, in criminal proceedings, of a monetary penalty such as a fine. In imposing such a penalty one has regard to the offender's means. The object is to take, in money terms, from the offender's available assets an appropriate level of penalty to reflect the culpability of the offence he or she has committed. The exercise is focused on the offender's means and estate, on his 'property' in the widest sense. It is intended to take away part of what belongs to the offender, to deprive him or her of ownership, which is otherwise unquestioned, of something to which he or she has a right of property. For example, in a case of theft of a corporeal moveable such as a motor car, confiscation in criminal proceedings would remove the asset from the offender's possession, if still held by him, on the basis that he had neither right nor title to the stolen asset. If it were appropriate to impose a fine, it would be exacted from his assets, and that fund would be calculated excluding the stolen vehicle.

[8] In these circumstances I refuse to allow the respondents leave to amend their pleadings to introduce a Devolution issue on the ground that there is not a question of substance to try. However, I would in any event have refused leave at this stage in the proceedings. In the answers originally lodged to the petition, each of the respondents made reference to his or her Convention rights including those alleged to arise from Article 6 of the Convention. On 11 November 2005, an issue arose whether in their then form the averments raised a Devolution issue requiring intimation to the Advocate General. Lady Smith decided that such an issue did arise, and granted warrant for intimation. The Advocate General declined to intervene. Following procedure that drew attention to certain deficiencies in the respondents' Answers, and drew the attention of counsel then acting to the existing authorities on the respondents' human rights contentions, a minute of amendment was tendered on 7 December 2005. In substance it replaced the existing answers, and to minimise delay the document was received as substitute answers. These answers omitted the references to Convention rights. The proceedings thereafter were conducted on the basis of the new answers. In particular the preliminary proof was conducted on that basis.

[9] On 7 December 2005 counsel confirmed that he had no other submissions to make on the 2002 Act, or any other issue. By late 2005 there had been considerable delay in the earlier stages of the procedure, and it was essential to achieve a degree of finality in the pleadings. Counsel confirmed that he had no other issues to raise. The observations of the Judicial Committee of the Privy Council in Millar v Dickson 2002 SC PC 30 make it clear that one should avoid attributing knowledge of the law as a basis for waiver of Convention rights on a hypothetical basis. In this case, however, a Devolution issue was introduced, it was intimated to the Advocate General, and it was deleted in the light of counsel's knowledge of the then existing decisions in Walsh, Director of the Assets Recovery Agency v Commissioners of Customs & Excise and others, and Scottish Ministers v McGuffie.

[10] Rule 25A of the Rules of Court provides that it is not competent, without the leave of the court, for a party to introduce a devolution issue otherwise than before any evidence is led. Leave can only be granted on cause shown. Deletion of the existing averments relating to the respondents' Convention rights was, in the circumstances, a deliberate act, carried out in knowledge of the relevant law, and against the background of the relevant provisions of the Rules of Court. Had I considered that there was any merit in the proposed Devolution issue, I would have felt obliged to refuse this aspect of the amendment on the ground that the respondents had waived the Devolution issue.

[11] It is also of some materiality that the respondents' intention to introduce the issue at this stage would undermine the procedure by way of preliminary proof that has already been completed. That proof proceeded on the view that the appropriate standard of proof was balance of probabilities. In engaging in that form of procedure, the respondents acceded to the application of a standard that they now seek to undermine by the contention that only proof beyond reasonable doubt is appropriate to determine the very issue that was dealt with at the preliminary proof. The only cause relied on why the court should entertain this aspect of the amendment was a change of view by counsel currently acting for the respondents. I would not have granted leave in terms of the Rule of Court as a matter of discretion in these circumstances. Civil proceedings must be constrained by a proper exercise of discretion. Nothing in this case favours the respondents' position.

[12] For each of these reasons, I shall refuse the allow the respondents to amend their pleadings to introduce a Devolution issue at this stage.

 

SOURCES OF PROPERTY

[13] In my opinion dated 5 January 2006, I was critical of the averments for the respondents in answer to the petitioners' financial statements. At that stage I considered that if it were established that Mr Buchanan had engaged in unlawful conduct, it would be open to the court to hold that it was an irresistible inference that the property sought to be recovered was obtained and held by him through that unlawful conduct, or was property, obtained through such conduct, that was held by persons into whose hands it might be followed, or represented property obtained through unlawful conduct. The second part of the minute of amendment attempts to meet the criticisms. Mr Holmes has set out in his note of argument submissions in support of the proposition that, if amended as proposed, the respondents' answers would justify remitting the financial aspects of the petition to proof. For the petitioners, Mr Cullen responded that even if the answers were so amended there would remain no rational or cogent explanation sufficient to overcome the inference that the target property is recoverable.

[14] I set out some of the relevant provisions of the 2002 Act in my opinion dated 5 January 2006. But it is appropriate to refer again to the Act, and to consider in more detail the scope of the provisions and their application to the respondents' proposed amendments. In order to obtain a recovery order in Scotland, Scottish Ministers must exercise the powers conferred by Part 5 of the 2002 Act within the limits there prescribed. Section 240(1) provides:

"This Part has effect for the purposes of-

(a) enabling the enforcement authority to recover, in civil proceedings before the ... Court of Session, property which is, or represents, property obtained through unlawful conduct ..."

[15] Section 244 empowers Scottish Ministers to take proceedings against "any person who the authority thinks holds recoverable property". In terms of section 304:

"(1) Property obtained through unlawful conduct is recoverable property.

(2) But if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(3) Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by-

(a) the person who through the conduct obtained the property, or

(b) a person into whose hands it may (by virtue of this subsection) be followed."

[16] Section 304 provides:

"(1) Property obtained through unlawful conduct is recoverable property.

(2) But if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(3) Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by-

the person who through the conduct obtained the property, or

(b) a person into whose hands it may (by virtue of this subsection) be followed."

[17] Section 305 provides:

"(1) Property obtained through unlawful conduct is recoverable property.

(2) But if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(3) Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by-

(a) the person who through the conduct obtained the property, or

(b) a person into whose hands it may (by virtue of this subsection) be followed."

[18] In further amplification of the scope of the Act, section 306 provides:

"(1) Subsection (2) applies if a person's recoverable property is mixed with other property (whether his property or another's).

(2) The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.

(3) Recoverable property is mixed with other property if (for example) it is used-

(a) to increase funds held in a bank account,

(b) in part payment for the acquisition of an asset,

(c) for the restoration or improvement of land,

(d) by a person holding a leasehold interest in the property to acquire the freehold."

[19] Section 307 provides:

"(1) This section applies where a person who has recoverable property obtains further property consisting of profits accruing in respect of the recoverable property.

(2) The further property is to be treated as representing the property obtained through unlawful conduct."

[20] In relation to the person who obtains property through his or her own unlawful conduct, ('the primary respondent', in this case Mr Buchanan), that property is recoverable if it is found in his hands: section 304(1). Any property in that person's hands that represents the original property is also recoverable property: section 305(1). If the primary respondent disposes of the original property and obtains other property in place of it, the replacement property is also recoverable property: section 305(2). Where the unlawful conduct, as in this case, is concern in the unlawful supply of controlled drugs, it might typically be the case that the original property will be cash. If seized in the course of police action, any cash held by the primary respondent will be recoverable. If the cash has been used to purchase an asset which is held by the primary respondent at the relevant time, that asset will be recoverable. And it will be a matter of indifference whether the asset is turned over in the course of successive purchases and sales. In terms of section 306, the mixing of recoverable property with other assets, such as a bank balance in credit, or in part payment for the acquisition of another asset, results in an apportionment to ascertain the amount attributable to the original recoverable property. Section 307 would warrant the recovery of a share of the bank interest accruing on the account in the event of an accumulation of deposits in such a case. In summary, there is a comprehensive scheme for the recovery from the primary respondent of both the original property and property that comes to represent that property, whatever intermediate transactions there may have been, provided that property is found in that person's possession.

[21] Where the primary respondent has disposed of the original property or the property that represents it at the material time to a third party, recovery depends on the application of the tracing provisions, and in particular section 305(2) and (3). These provisions are of considerable width, but are subject to significant restrictions set out in section 308 of the Act, and in provisions relating to the realization and application of property and intended to prevent double recovery. Most of the provisions are irrelevant in this case, at least at the present stage. But it is appropriate to take note of Section 308(1). It provides:

"(1) If-
(a) a person disposes of recoverable property, and

(b) the person who obtains it on the disposal does so in good faith, for value and without notice that it was recoverable property,

the property may not be followed into that person's hands and, accordingly, it ceases to be recoverable."

Thus, where the original property, or property representing it, is passed on to relatives or associates, directly or indirectly, for no consideration or an inadequate consideration, or where consideration passes, but the recipient has notice that the property was obtained from unlawful conduct, section 305(2) and (3) will apply and the property will be recoverable from the transferee.

[22] In order to obtain a recovery order, Scottish Ministers must, in terms of section 244(2) and (3):

"(2) ... serve the application-

(a) on the respondent, and

(b) unless the court dispenses with service, on any other person who the authority thinks holds any associated property which the authority wishes to be subject to a recovery order,

wherever domiciled, resident or present.

(3) If any property which the enforcement authority wishes to be subject to a recovery order is not specified in the application it must be described in the application in general terms; and the application must state whether it is alleged to be recoverable property or associated property."

The provisions relating to associated property are limited by the general provisions already noted, but subject to that are wide and general, though of limited application in this case. Section 245 provides:

"(1) 'Associated property' means property of any of the following descriptions (including property held by the respondent) which is not itself the recoverable property-

(a) any interest in the recoverable property,

(b) any other interest in the property in which the recoverable property subsists,

(c) if the recoverable property is a tenancy in common, the tenancy of the other tenant,

(d) if (in Scotland) the recoverable property is owned in common, the interest of the other owner,

(e) if the recoverable property is part of a larger property, but not a separate part, the remainder of that property.

(2) References to property being associated with recoverable property are to be read accordingly."

[23] The petitioners contend that the recovery provisions, and section 305 in particular, should be construed so as to allow the concept of property representing other property to be widely drawn. In particular they contend:

(1) In circumstances in which unlawful conduct is proved, the petitioners have made out a circumstantial case that the property sought to be recovered at the end of the period under investigation, up to the value of the excess of the sum of the assets valued and the expenditure of the respondents over their income from legitimate sources, was derived from recoverable property rather than from property obtained from legitimate sources.

(2) This inference can be rebutted by the respondents if they satisfy the court that any particular item which they seek to have excluded from the recovery order can be traced back to property from a specific source which is not recoverable property.

(3) In deciding what inferences should be drawn and the specification which should be required before the respondents should be permitted a proof the court should bear in mind, as a general matter, that the respondents should be in possession of information and material from which they can show, in detail, where their income and property came from. The absence of records which would allow specific pleadings and analysis is indicative of income being drawn from unlawful conduct. Specific pleadings should be expected from the respondents.

[24] The respondents contend that, in considering whether or not a rational and cogent explanation of alternative sources of the property might be made out on the basis of the answers as proposed to be amended, the court should consider the petition, the interim administrator's reports, the findings at the preliminary proof, and the contents of the proposed amendment. They contend, generally, that the amended pleadings would allow evidence of a rational and cogent explanation of alternative sources for a significant portion of the property. On the approach to the Act, and section 305 in particular, they contend:

(1) It is necessary to consider what the petitioners must prove in order to link unlawful conduct with property derived therefrom.

(2) When interpreting part 5 of the Act it is necessary to bear in mind that successful and sophisticated criminals are extremely good at distancing themselves from the coalface of crime and in disguising the proceeds of crime. The purpose of the civil recovery regime is to ensure that crime does not and particularly is seen not to pay. The respondents contend however that where legitimate sources of income can be shown, the proceeds of such legitimate income must not be included within any order made in terms of section 266 of the Act.

(3) The respondents contend that the intention of Parliament was to deprive those involved in unlawful conduct of the proceeds of that conduct. The intention of Parliament would be defeated if section 305 were to be so widely interpreted as to include property from all sources, unlawful and legitimate, in the hands of anyone under investigation. Such a wide interpretation would not only deprive those engaged in legitimate activities from the profits thereof, but also impose a burden on those holding all property of proving that such property was derived from a legitimate source. This is not the intention of the 2002 Act.

(4) The averments set out in the minute of amendment would allow evidence that the source of certain assets (particularly the heritable properties) can be traced back to a date prior to the incarceration of Mr Buchanan in 1987. It was conceded by counsel for the petitioners that an appropriate starting date for the assessment of recoverable property would be 1987. The respondents dispute that date since Mr Buchanan, the only party averred to have been involved in unlawful conduct, was imprisoned between 1987 and 1995 and could not therefore have been involved in unlawful conduct of the type specified in the petition. In any event the respondents contend that tracing the sources of those assets to a date prior to the start of the unlawful conduct specified in the petition excludes those assets from the definition of recoverable property. That is the case on the widest possible interpretation of section 305.

[25] In my opinion the clear intention of Parliament was to provide for the recovery of the proceeds of unlawful conduct whether from the primary respondent or from secondary respondents who did not come within the exclusions and restrictions provided for in the 2002 Act. However, before commenting further on the general submissions, it is appropriate to discuss the approach adopted by the petitioners in this case, in order to define more particularly the issues that arise at this stage in the proceedings.

[26] The petitioners aver that the property specified in Part II of the Schedule to the petition is recoverable property within the meaning of the 2002 Act. They state that such property is (i) property obtained through unlawful conduct or (ii) property obtained through unlawful conduct and held by persons into whose hands it may be followed or (iii) represents property obtained through unlawful conduct. A standard security over certain heritable property is said to be associated property within the meaning of section 245. The Schedule sets out details of two heritable asserts situated respectively at 127 Gilberstoun, Edinburgh, and 33/2 Loaning Crescent, Edinburgh. It specifies certain sums at credit of four bank accounts with Lloyds TSB, two bank accounts with the Royal Bank of Scotland, and an account with Dunfermline Building Society, and a Co-operative Insurance Society ISA/PEP all in name of Mrs Marie Buchanan, Mr Buchanan's wife. It lists two sums at credit of one Royal Bank of Scotland and one Bank of Scotland account, and a Co-operative Insurance Society ISA/PEP in name of Liam Buchanan, Mr Buchanan's son. It sets out details of a sum at credit of a Bank of Scotland account in name of Lisa Marie Buchanan, Mr Buchanan's daughter, personally, and one Halifax account in trust for Lewis Buchanan. It lists four sums of money seized from 127 Gilberstoun. And it lists four motor cars, three with private registration numbers. It specifies the associated property as a standard security granted by Mrs Marie Buchanan over 127 Gilberstoun. The petition narrates certain details of the transactions resulting in the acquisition of the property. In paragraph 6 of the petition it is stated in respect of each of the items of property specified that no legitimate sources of funds have been identified. The analysis of the financial movements on which the petitioners rely is set out in the reports of the interim administrator appointed in terms of section 266 of the Act on 17 August 2004.

[27] The interim administrator's Management Report dated 23 September 2004 sets out details of the items of property listed in the petition, certain other investments and bank accounts, and certain corporeal movables that have not been valued, together with valuations of those assets for which values were estimated. In summary the sums as presented on 23 September 2004 are:

(a)

Heritable property at market value at August 2004

£340,000.00

(b)

Bank accounts and other investments (net of overdrafts)

20,729.18

(c)

Cash

31,028.12

(d)

Motor cars, including registration numbers

54,750.00

£446,507.30

[28] In the interim administrator's report dated 16 August 2004, on which the petitioners' averments in paragraph 6.1 of the petition were based, a sum of £457,281 was described as the sum of 'income' that the interim administrator could not attribute to any legitimate source of income. That income is said now to be represented by assets worth £381,218. That sum represented, broadly, a gross value for assets of £450,574.72 less the outstanding mortgage on 127 Gilberstoun of £69,356.48. It appears that there are marginal adjustments to values required to bring the petitioners' averments up to date. But they are not of such significance as to affect the outcome of the debate whether the respondents should be allowed to amend.

[29] The approach of the interim administrator to quantification adopted a version of the familiar methodology of analyzing verified sources of income year by year, setting against the annual receipts known and estimated applications of cash, and deriving a deficiency of explained revenue required to fund the respondents' expenditure. The version applied appears to involve considerable simplification of the full version, and, superficially, to favour the respondents. In general terms, the interim administrator has compared the bank lodgements over the period from 1994‑95 to 2004-5 with the respondents' known sources of income subject to a limited number of specified adjustments for transactions in motor vehicles and cash seizures. That approach assumes that all known income was lodged in bank each year and that none was expended as cash without passing through the respondents' bank accounts. Since any cash expenditure that was not funded by a bank withdrawal would necessarily increase the deficiency, the position might be thought to be as favourable to the respondents as it could be.

[30] In my view there is nothing in the petitioners' approach that is inconsistent with the substance of the second and third submissions of the respondents, set out in paragraph [23] above, so far as they are valid. The petitioners' approach, as reflected in the interim administrator's analysis aims to give credit where legitimate sources of income can be shown, and to exclude the proceeds of such legitimate income from the scope of any order made in terms of section 266 of the Act. Section 305 has not been applied in a way that would include in recoverable property assets from all sources, unlawful and legitimate, except to the extent that a comprehensive analysis intended to bring out a deficiency must allow both for legitimate and illegitimate sources if the balance to be accounted for is to be accurate. It is the emergence of an unexplained deficiency that imposes a burden on those holding relevant property, and it is not unreasonable for them to be expected to explain the deficiency. That is a reasonable inference as to the intention of the 2002 Act.

[31] The fourth submission for the respondents proceeds on the view that because Mr Buchanan, the only party averred to have been involved in unlawful conduct, was imprisoned between 1987 and 1995 he could not therefore have been involved in unlawful conduct of the type specified in the petition. That proposition is somewhat surprising in its width. Without further specification it would be impossible to treat it seriously. But in any event it is an averment of fact that has no bearing on the interpretation of the Act and its application generally or in this case. The final part of the fourth submission is that tracing the sources of assets to a date prior to the start of the unlawful conduct specified in the petition excludes assets derived from such earlier periods from the definition of recoverable property. I am inclined to agree with that proposition. But it is irrelevant to the circumstances of this case. Such earlier transactions as are relied on by the respondents are irrelevant, as discussed below. The petitioners' analysis does not seek to include any assets derived from earlier periods.

[32] However, the respondents' first brief contention is, in my view, more substantial. The respondents contend that the petitioners' approach is fundamentally flawed in respect that it fails to define the necessary link between Mr Buchanan's unlawful conduct and the property alleged to be derived therefrom. That there must be a link is, in my opinion, clear from the terms of sections 304 to 306. But the link may be established by circumstantial as readily as by direct evidence. This issue may be tested by reference to the acquisition of the property at 127 Gilberstoun. The interim administrator reports that the property was purchased on 24 July 1998 for £115,000, and that a mortgage was obtained at that time from Alliance & Leicester for £70,000. The property was re-mortgaged on 16 November 2001 with Royal Bank of Scotland for £72,500. The monthly mortgage payments of £346.67 were made to Royal Bank of Scotland from the current account 00645329 in Mrs Marie Buchanan's name with Lloyds TSB. The two elements of the cost of the property have been identified in the reports incorporated into the pleadings, therefore, as the initial payment of the excess of the purchase price over the mortgage, and the mortgage instalment payments. The analysis of the cash movements into the account and the sources of available income to the respondents provide the factual basis of the interim administrator's view, adopted by the petitioners, that income from unlawful conduct was used to inflate the bank accounts, and by inference to fund the payments. If that is established in fact, or held to be admitted for want of a cogent alternative explanation, that, in my opinion, would provide a full and sufficient link for the purposes of the Act.

[33] The initial cash contribution to the purchase, of £45,000, was paid by bankers' draft funded by a cash lodgement of £45,000 into Mrs Buchanan's bank account three days previously. The cash movements in the relevant period, 1998-9, on which the


petitioners rely (ignoring Mrs Stewart's income) are as follows:

Mr Buchanan's Benefits £4,591.41

Mrs Marie Buchanan's income 10,492.91

15,084.32

Bank lodgments -113,448.55

Cash seizures -72,260.00

Equity in Lochend Road 20,311.15

Deficiencies in legitimate income £150,313.08

Leaving aside issues of fact that arise from the respondents' answers, and in particular the proposed amendment relating to the acquisition of the property, I am of opinion that this approach, if established in fact, or held as admitted for want of a cogent alternative explanation, would provide a full and sufficient link for the purposes of the Act. In my view the attack on the petitioners' approach fails. On a reasonable view of the analysis provided there is sufficient linkage between the unlawful conduct relied on and the resources available to and deployed by the respondents to support the inferences the petitioners invite the court to draw.

[34] It is, however, central to the petitioners' presentation that all sources of income should have been identified and taken into account. Paragraph 3 of the respondents' minute of amendment offers a challenge to the accuracy of the petitioners' presentation. There are several heads that require separate consideration. Mrs Marie Buchanan is said to be employed by Thomson's Travel Agency, and to have been employed previously by Telewest Communications. It is averred that: "She has been in full-time employment for the majority of the past thirty-two years. During that period her average salary has been £20,000 per annum". The interim administrator states that he obtained Mrs Buchanan's salary for PAYE purposes from


the Inland Revenue. The income recorded is:

1994 -95 Avon Cosmetics £7,083.23

1995-96 Avon Cosmetics 10,680.10

1996-97 Telewest Communications 12,945.76

1997-98 Telewest Communications 12,592.23

1998-99 Imminus Ltd 10,492.91

1999-2000 Imminus Ltd 13,863.60

2000-1 Imminus Ltd 15,283.60

SSA Benefits 1,318.33

2001-2 Imminus Ltd 17,296.22

SSA Benefits 986.74

2002-3 Telewest Communications 3,949.77

Tip Top Tresses 1,901.95

SSA Benefits 1,098.82

Telewest Communications

Redundancy payment 7,764.00

2003-4 Tip Top Tresses 368.00

Dunfermline Building Society 650.00

SSA Benefits 4,881.95

2004-5 SSA Benefits 1,918.17

It is against that level of detail and specification that the proposed amendment must be measured. The reference to Thomson's Travel Agency may be a reference to a current employer. But that is pure speculation. In other respects there is a degree of correspondence between the identities of employers. But the income returned for tax purposes, of necessity under the PAYE system, is so inconsistent with the proposed averment that one would have expected specification of the same level as that found in the interim administrator's report. While one might entertain some surprise at the suggestion that Mrs Buchanan earned an average salary of £20,000 per annum over the past 32 years, it is sufficient for present purposes that the proposed averments are so lacking in specification that they cannot be accepted as possibly accurate or candid. It would be an abuse of process to put Scottish Ministers to proof of their averments about Mrs Buchanan's income on this basis.

[35] The next proposed averment is that Mrs Buchanan housed foreign university students over the vacation period for a period of five years receiving £100 per week in respect of this. There is a lack of specification in this. The periods of vacation are not specified, and the suggestion is perhaps the opposite of what one might expect: foreign students typically require lodgings during term time. However, on the view that this might amount to some £5,000 of unreported income over the period in question, there is sufficient specification to entitle the respondents to proof of this matter in isolation.

[36] The third proposed averment relates to a loan of £25,000 received from Marks & Spencer Finance and repaid between 1993 and 1998. This proposed amendment is misconceived. The receipt and repayment of such a loan within the period covered by the interim administrator's statement, and not dealt with in the financial analysis, is at best for the respondents neutral, and at worst increases the deficiency. Neutrality would arise if there were no interest payments. If one accepted the proposed averment at face value, it would reduce the amount of legitimate income available to set against the bank lodgements, and increase the deficiency, as would any interest payments on the loan. There is no attempt to suggest how the transaction might otherwise affect the petitioners' financial analysis. I do not consider that it would be appropriate to allow such an amendment at this stage in these proceedings.

[37] The fourth proposed amendment relates to a loan of £15,000 received from Lloyds TSB in 2004. Proof of the receipt of such a loan could be material if the proceeds were lodged in any of the bank accounts analyzed by the interim administrator. In any other circumstances the receipt would be balanced by an increase in assets which the interim administrator had not taken into account. Potentially this would be adverse to the respondents' interests, not least because it would suggest the existence of further assets that had not previously been uncovered. However, since this transaction should be capable of proof, and its significance for the analysis readily assessed, I would allow this aspect of the amendment on the assumption that the respondents will provide the necessary documentation to trace the loan and the destination of the money borrowed.

[38] The next proposed amendments relate to gifts from relatives. The first refers to a gift from Helen Stewart in or about 1997. The petitioners contend that these averments are fundamentally lacking in specification, in particular in respect that they fail to explain discrepancies between accounts given to the interim administrator and the current proposals. Not least, Ms Stewart was formerly said to have died in 1997, but is now said to have died in 2004. This is not an appropriate stage to assess the truthfulness of the averments. It is, however, legitimate to consider whether the proposed averment meets to any extent the case presented in the interim administrator's report. Subject to the comments in paragraph [39] below, it clearly does not. The year 1996-97 was the last year, on the interim administrator's analysis, in which the legitimate income of Mr and Mrs Buchanan exceeded the bank lodgements. Until then there had consistently been an excess of available income over the lodgements. In 1997-98 lodgements exceeded legitimate income by £5,049.27. Total lodgements amounted to £22,040.75. It is not possible to accommodate receipt of a gift of £24,000 in this analysis without further explanation. Given the degree of specification of the petitioners' case, and the obligation on the respondents in civil proceedings to provide a clear and candid account of their case, it would have been essential, if any sense were to be made of this proposed amendment, to have averments relating the receipt to the cash analysis on which the petition depends.

[39] There is next an averment about a gift of £20,000 received from Joseph Stewart in about 2002. The excess lodgements in the period 2001 to 2003 could readily accommodate such a receipt if it were lodged in bank. If it were not, it would be of no assistance to the respondents, since again it would increase the undisclosed assets of the respondents, and be self-cancelling on the petitioners' approach. The same applies to the averments relating to monthly payments by Ms Stewart and Mr Stewart. If they were received in cash or by cheque and lodged in any of the accounts analysed, these sums would affect the interim administrator's computation. In any other circumstances they would be at best irrelevant (being balanced by cash expenditure not taken into account by the interim administrator) or at worst indicative of other accounts not hitherto disclosed. However, these averments, and the associated averments of the income of the Stewarts, are sufficiently specific to permit the interim administrator to make necessary investigations and answer the respondents in evidence, and I would allow them to go forward. It would be appropriate in these circumstances for the interim administrator to be allowed to introduce any evidence relating to the financial affairs of the Stewarts at proof in answer to the new material. It is significant that the financial analysis already includes some such material. If the respondents are to answer the interim administrator's analysis evidence of the financial affairs of the Stewarts, including appropriate documentary evidence, will be required. As with other issues of fact in this case, it is a material consideration that the respondents have had notice of the petitioners' position for up to two years.

[40] The proposed amendments next refer to the position of Liam Buchanan. The interim administrator's information on his position was derived from Inland Revenue sources. What is now averred is in conflict with the petitioners' position. There is a lack of specification of the period covered by the averments. Superficially, if Liam Buchanan has had a consistent income of £30,000 per annum for some time, of which the Revenue have notice of £6,432.33 only in 2004-5, he has more to fear from investigation by Her Majesty's Customs and Inland Revenue (which must now follow) than he has from these proceedings in which bank deposits of less than £10,000 are at stake. However, that is a matter for the respondents. The averments are sufficiently clear to allow the petitioners to make appropriate enquiries and to counter the respondents' case at proof. Very much the same applies to Lisa Marie Buchanan. The averments about her income from Thomson's Travel Agency are approximately the same as the petitioners', as reflected in the interim administrator's analysis. But the additional material disclosing an income of £6,000 per annum that was unknown to the interim administrator, or the Inland Revenue. The property at stake in her case as an individual is £76.56, and as trustee for Lewis Buchanan £2,183.81. The consequences for her of supporting her parents again appear to be potentially disproportionate. But that also is a matter for the respondents. There is sufficient specification to allow the petitioners to prepare for proof and, in particular to recover appropriate documentary evidence.

[41] The remaining averments in this part of the minute of amendment relate to transactions by Mr Buchanan in motor vehicles. These are fundamentally lacking in specification and cannot be allowed at this stage in the proceedings. The period of the transactions is not specified; the turnover is not specified; the profits are not specified; Mr Buchanan has been on benefits for most of the relevant period; and, finally, the transactions are referred to as cash transactions with no attempt made to relate them to movements in the relevant bank accounts. The petitioners do not include any bank account of Mr Buchanan in their computation. If the trade in motor vehicles were to be relevant the profit from it would have to enter relevant bank accounts and contribute to the lodgements on which the computation depends. In the absence of averments disclosing the position candidly, these averments must be rejected.

[42] As already noted, it is accepted by the petitioners that the inferences they invite the court to draw may be rebutted by the respondents demonstrating at a particular item of targeted property can be traced to a source which is not recoverable property. The respondents seek leave to introduce averments aimed at providing material for tracing in this way. The first that requires to be noted relates to 127 Gilberstoun. As mentioned already it is the petitioners' position that the property was bought on 24 July 1998 in part by a cash of £45,000. In Answer 6.3 of the existing answers that is admitted. The amendment now proposed is in these terms:

"At the end of Answer 6.3 by inserting the following: "Explained and averred that each of the heritable properties owned by the first and seventh Respondents, prior to the purchase of Lochend Avenue has been purchased using funds from the sale of the last along with house purchase loans secured over the properties. In or about 1981 a property at 7 Bothwell Street in Edinburgh was bought by the first and seventh Respondents for £11,000. At that time the seventh Respondent was in employment as a hospital porter in Edinburgh Royal Infirmary. The said property was sold for £21,000 in or about 1984. The first and seventh Respondents then purchased a property at 10 Hillside Street in Edinburgh for £12,985. That property was sold in or about 1986 for £30,000. The first and seventh respondents then purchased a property at 93 Gilmerton Dykes Road in Edinburgh for £31,000. That property was sold in or about 1989 for £40,000. In 1987 the seventh Respondent was sentenced to twelve years imprisonment. In 1989, after the sale of the property at Gilmerton Dykes Road, the seventh Respondent moved into a rented local authority house at 56 Lochend Avenue in Edinburgh. In 1992, the first Respondent purchased that property under the rights to purchase legislation at a discount from the local authority. The purchase price of 56 Lochend Avenue was £17,000. In or about 1998 the first Respondent sold the property at 5  Lochend Avenue for £42,000. The proceeds of that sale, along with £24,000 gifted to her by Helen Stewart made up the deposit for the purchase of 127 Gilberstoun. The purchase price was £115,000. The balance was raised by way of a house purchase loan from the Royal Bank of Scotland plc. Loan repayments have been met from legitimate income. Reference is made to Answer 6.2 hereof for details of the first Respondent's income. The property at 127 Gilberstoun does not constitute the proceeds of unlawful activity, or associated property within the meaning of the 2002 Act."

[43] Much of this is patently irrelevant. I have already dealt with the statements about Mrs Marie Buchanan's income. The proposed averments about house transactions down to 1989 are irrelevant for two particular reasons. In the first place they do not disclose the amounts of loans that the general averments indicate were used in house purchase transactions, so that the equity released by sale cannot be identified. In the second place, and more particularly, they end with a departure from the housing market in 1989 that subsisted until 1992 when 56 Lochend Avenue was purchased. That house was purchased on a loan, and the equity released on its sale in 1998 has been taken into account by the petitioners in the interim administrator's cash analysis. The other element of the cash contribution, the alleged gift, would have two competing sources in the pleadings as they would be as amended: gifts from Mr and Ms Stewart. Dealing with the amendment in its own terms, however, the averment proposed is inconsistent with the earlier proposed amendment to the effect that the gift was in 1997. There is no proposed averment dealing with the management of the money in the interim. Apart from one matter that arises incidentally, and is not pleaded as such, the proposed averments are irrelevant.

[44] There is one feature of the exchange that gives rise to a concern about the petitioners' position. If it can be established, or if it is accepted, that the equity realised from the sale of 56 Lochend Avenue was used in part purchase of 127 Gilberstoun, the earlier purchase having been funded by loan, it appears to be open to inference that the purchase of the Gilberstoun house must be treated as a mixed acquisition of which part was funded by legitimate loan capital. There would be a question about the source of mortgage repayments. But on the terms of section 306 apportionment might be required to determine what was recoverable in respect of this house.

[45] The second item of heritable property targeted by the petitioners is at 33/2 Loaning Crescent Edinburgh. There is a core of agreed facts relating to this transaction, though expressed in different language at various places in the documents. Mrs Marie Buchanan's uncle, Mr Stewart, was tenant of the house under a local authority tenancy. On or about 27 July 1999, the house was purchased from the local authority under the 'Right to Buy' legislation for £11,400. In the existing answers it is admitted that the house was bought by Mr Stewart. The petitioners aver that the purchase price was paid by Mrs Buchanan, and that in 2002 the property was transferred to Liam Buchanan. Those averments are presently denied, and it is stated that Mr Stewart 'paid for the purchase of said property'. It is proposed to amend as follows:

"By inserting the following at the end of Answer 6.4 "Explained and averred that funds for the purchase were provided by the first Respondent and repayments were made to her in cash by the said Joseph Stewart. In or about 1994 the said Joseph Stewart suffered a stroke. A standard security was granted over the property at 33 Loaning Crescent in favour of the first Respondent. This was done as it was the intention of the said Joseph Stewart to bequeath the property to the first Respondent, in order to avoid liability for care costs should the said Joseph Stewart require residential care."

[46] There is a degree of confusion about this transaction. In the interim administrator's report dated 23 September 2004, the property is said to have been registered in name of Mrs Marie Buchanan. In the petition it is said to have been transferred to Liam Buchanan. That apart, it appears now to be agreed that Mrs Marie Buchanan did provide the purchase price. In the year 1999-2000, when the bank withdrawal occurred, there was a deficiency of available income of £24,279.46, on the interim administrator's analysis. The source of the price remains unexplained, notwithstanding the comments in my opinion dated 5 January 2006, paragraph [40]. The proposed amendment deals with a standard security, without specifying its date, and fails to deal with the current state of the title. It suggests a pattern of repayment by Mr Stewart without specification. The relationship between the scheme to avoid care costs, which is intelligible if of questionable legality in itself, and the substantive transactions is obscure in the extreme. In my view this amendment does not indicate an answer to any of the questions arising from the petitioners' analysis and is irrelevant.

[47] An amendment is proposed to Answer 6.5, indicating that a sum of £24,517 seized in March 2003 formed part of a larger sum held by Mr Buchanan for Abdul Gafour, with a bald assertion that the sum was not the proceeds of unlawful activity or associated property within the meaning of the Act. There is a fundamental lack of specification about the relationship between Mr Buchanan and Mr Gafour. This amendment cannot be allowed. In any event, it would add little to what the respondents aver already, and that is lacking in specification.

[48] The remaining proposed amendments are inconsequential in relation to the further progress of this petition, and I shall allow them. Having regard to the representations in the petitioners' note of argument, however, I should note that this is without prejudice to the views I have already expressed in refusing the amendment relating to alleged motor trading activities of Mr Buchanan.

[49] The case will be put out by order, (a) to adjust the minute of amendment and answers in the light of this opinion, and (b) to consider further procedure.

 

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_121.html