Scottish Court of Session Decisions

The present motion for recall of the interim administration order

"In terms of section 260(3) of the Proceeds of Crime Act 2002. To recall the interim administration order ab initio in that there was a serious default in the petitioners' application ... in that the petitioners knew or ought to have known that the basis of the petition was incompetent."

Section 260(3) provides that the court may at any time vary or recall an interim administration order, though sub-section (4) requires the interim administrator to be given an opportunity to be heard before the court exercises that power. That has been done. I have omitted a reference in the motion to another section of the Act mentioned in the motion which was agreed by all parties before me to be irrelevant. The petitioners lodged grounds of opposition to the motion in the following terms:

"(1) The motion discloses no grounds upon which to recall the interim administration order.

(2) In any event, the interim administration order should not be recalled.

It is explained that the interim administration order was competently granted on 3 February 2005."

When the matter came before the court in August 2007, the respondents sought to support their motion by reference to a few items of correspondence. This was clearly inadequate. Having heard discussion on the point, I allowed the respondents further time within which to lodge affidavits and other material in support of their motion; and I gave the petitioners an opportunity to respond by affidavit or otherwise if they were so minded. After certain other procedure, the continued hearing of the motion took place on 22 and 23 November and 4 December 2007.

Representation at the hearing of the motion

The relevant legislation

The interim administration order

"... to take such steps which the court thinks necessary to establish -

(a) whether or not the property to which the order applies is recoverable property or associated property, [and]

(b) whether or not any other property is recoverable property (in relation to the same unlawful conduct) and, if it is, who holds it."

Again, the focus is on the property, rather than the conduct.

The test: probabilis litigandi causa

"... there is a 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."

The term "associated property" is defined in section 245(1) of the Act, but nothing turns on that for present purposes.

"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."

I accept that the test may readily be understood by practitioners in the field of civil litigation and that it is not exacting. But I would respectfully suggest that it is not only unusual to find a Latin phrase used unexplained in a modern statute; it is also undesirable. Such an approach to drafting makes the law less accessible than it should be to those who may be affected by it; and serves to feed a belief, alien to modern ways of thinking, that the law is the exclusive preserve of lawyers. Mr Heaney helpfully drew my attention to section 246(5) which contains the equivalent provision for England, Wales and Northern Ireland. There, instead of probabilis litigandi causa, the phrase "good arguable case" is deployed. Mr Heaney submitted that a different test cannot have been intended to apply for the exercise of the same power in different parts of the United Kingdom. I agree. The test "good arguable case" has been described as a flexible test susceptible of various shades of meaning: Director of Assets Recovery Agency v Szepietowski [2007] EWCA 766 per Moore-Bick LJ at para.111. In that case the Court of Appeal was considering the meaning of that expression as used in section 246 of the 2002 Act. At para.111, Moore-Bick LJ went on to say this:

"In the context of applications for freezing orders and interim relief of a similar kind it clearly requires something more than a case capable of being taken seriously, but not necessarily much more and does not mean a case which, on the evidence before the court, is more likely to succeed than fail. In cases such as the present, where the claim is based on allegations of fraud or other serious impropriety, it is sufficient in my view for the applicant to show that there is a good prospect of succeeding at trial. A case which is merely speculative, however, will obviously not do."

It seems to me that this accurately describes what a petitioner in Scotland for an order under section 256 requires to show to meet the test of probabilis litigandi causa.

"Thus the ARA [the relevant enforcement authority] must first establish a good arguable case that a certain kind of unlawful conduct occurred and then a good arguable case that property was obtained through that kind of unlawful conduct. What the ARA is not required to do is to establish a good arguable case that any property was obtained through a specific criminal offence, even of the general kind alleged."

I did not understand this to be controversial.

"Although there is a single civil standard of proof on the balance of probabilities, it is flexible in its application. In particular, the more serious the allegation or the more serious the consequences if the allegation is proved, the stronger must be the evidence before a court will find the allegation proved on the balance of probabilities. Thus the flexibility of the standard lies not in any adjustment to the degree of probability required for an allegation to be proved (such that a more serious allegation has to be proved to a higher degree of probability), but in the strength or quality of the evidence that will in practice be required for an allegation to be proved on the balance of probabilities."

In Chief Constable of Merseyside Police v Harrison (Secretary of State for the Home Department intervening) [2007] 1QB 79 at para.10, Maurice Kay LJ described that as:

"... a formulation which will serve all future courts well when they have to consider the question of the civil standard of proof and its application."

I respectfully agree with that observation and see no reason why that approach should not apply to civil recovery proceedings under the 2002 Act as to other cases where the matter is to be decided on a balance of probabilities. It seems to me that in assessing whether probabilis litigandi causa has been shown at the stage of the interim application, the court will wish to be satisfied that the material produced in support of the application is of sufficient weight and cogency to show that the applicant has a good prospect of putting forward a case at proof in the civil recovery proceedings of the strength or quality needed to prove the allegations of unlawful conduct upon which the case proceeds.

The requirement for full and frank disclosure

"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."

I would only add that, as is clear from the citation at para.43 of the judgment of McCombe J in Director of Assets Recovery Agency v Singh [2004] EWHC 2335 (Admin), to which Coughlin J refers, that the duty includes a duty to identify the crucial points for and against the application. This is entirely in line with the general duty on any applicant for interim relief affirmed by the Lord Justice-Clerk (Gill) in Bell v Inkersall Investments Ltd. 2006 SC 507 at para.[20] in the following terms:

"I am also of the opinion that those acting for an applicant for interdict have a stringent professional obligation to draw to the attention of the court all relevant circumstances, whether favourable or unfavourable to the application."

The duty, of course, is not only on those acting for the applicant. It is for the applicant himself to do his part to ensure that full disclosure is made by making his legal representatives aware of all circumstances relevant to the application, favourable or unfavourable. Furthermore, it seems to me that it is essential, for the protection and information of the respondent, that all facts put before the court at the time of the application should be put before the court in writing, whether in the petition or note on the basis of which the application is made or, maybe, in an affidavit lodged in process in support of the application. Otherwise neither the respondent nor any court subsequently seised of the matter can know whether or not there has been compliance with the obligation of full disclosure. In some circumstances this may mean that the petition or note requires to be amended at the hearing or some other document lodged in process to reflect something that the court may have been told of relevance to the application. I see no difficulty in this.

Was there a failure to make full and frank disclosure?

5.1 Mr Stirton has convictions dating from 1975 and 1979 for theft by housebreaking.

[In the form in which it came before Lord Brodie on 3 February 2005, this paragraph also alleged that Mr Anderson had been convicted of theft by housebreaking in 1982, of theft and fraud in 1989 and of possession of controlled drugs in 1994. When the matter came before Lord Macfadyen on the respondents' motion for recall, the petitioners accepted that these averments against Mr Anderson were mistaken and in consequence they were deleted by amendment: see para.[26] of Lord Macfadyen's Opinion. I was told that they had been inserted in the petition upon a misapprehension by the petitioners that the thirteenth respondent was in fact a different person with a similar name.]

5.2 This alleges that the second respondent, the wife of the first respondent, has had certain convictions for theft and related offences, the last of which was in 1991. I need say no more about this.

5.3 It is averred that Mr Stirton is reasonably believed to have been involved in the supply of controlled drugs since at least 1983.

[No further specification is given in this paragraph. Mr Heaney explained that the paragraph was not intended as a free-standing allegation intended to be the subject of independent proof, but served merely to introduce the averments made in paragraphs 5.4, 5.6, 5.7 and 5.8. Its force, if any, must depend upon what is in those paragraphs.]

5.4 Mr Stirton was convicted in February 1988 of breach of the peace and offences under the Police (Scotland) Act 1967, section 41(1)(a) and the Bail etc. (Scotland) Act 1980, section 3(1)(B).

[So far, so good, in the sense that these are specific convictions relied upon, though their potential relevance to the recovery orders sought by the petitioners is highly questionable. But this paragraph goes on to say that the indictment on which Mr Stirton went to trial included charges that on a number of occasions between 1983 and 1986 he supplied, or was involved in the supply of, or was otherwise involved in drugs, including class A drugs; and further that he had in his possession a sawn-off shotgun. It is accepted by Mr Heaney for the petitioners, though it is not said in the petition, that he was found not guilty on all those charges. There is no offer to prove on balance of probabilities that he was involved in this unlawful conduct and therefore, as Lord Macfadyen says at para.[29] of his Opinion, these averments "cannot ... be deployed in support of the proposition that there is probabilis causa litigandi that [he] was involved in unlawful conduct".]

5.6-5.8 It is averred that in December 1997 Mr Stirton travelled on a cross-channel ferry with AH. Travelling on the same ferry was one MH, the driver of a heavy goods vehicle which the police suspected of containing controlled drugs. AH was seen in conversation with MH and Mr Stirton was observed paying attention to what was going on. After his conversation with MH, AH greeted Mr Stirton with a "high five" gesture and they both appeared happy. A few days earlier Mr Stirton had been seen in the company of one RD at a motorway service station. On the day following the incident on the cross-channel ferry law enforcement officers discovered a large quantity of drugs and a handgun in the heavy goods vehicle which had been on the cross-channel ferry. Subsequently MH and RD were convicted of offences relating to the misuse of drugs.

[There is no averment that Mr Stirton was charged or convicted along with MH and RD. At the hearing before me Mr Stirton said that he had not even been questioned, let alone charged; and Mr Heaney, having taken instructions on the point, confirmed that this was correct. Nor do the petitioners offer to prove that Mr Stirton was involved in any unlawful conduct, whether drugs or firearms offences or otherwise, relating to the events described. Accordingly these paragraphs too must be disregarded from the point of view of the petitioners' ability to show probabilis causa litigandi.]

5.9 This paragraph contains an allegation that the fourteenth respondent (Mr Anderson's partner) made a false declaration on a mortgage application as to the amount and source of her available funds. The mortgage application was in respect of property 3 in Part II of the Schedule to the petition. There is no allegation against either Mr Stirton or Mr Anderson.

5.10 It is alleged that Mr Anderson was sequestrated at Glasgow Sheriff Court in May 1997 and that, contrary to the Bankruptcy (Scotland) Act 1985, section 67(2) he concealed income to the extent of over £200,000.

(It is difficult to see any link between this and any recoverable property listed in the Schedule to the petition.)

5.11 It is alleged that in May 2000 Mr Stirton, acting with his wife, purchased a property (property 2 in Part II of the Schedule to the petition) with a loan from a building society of £220,000, which loan was obtained by fraud.

5.12 It is alleged that between 1 March 2001 and 30 April 2004 Mr Stirton and Mr Anderson extorted about £473,000 from two individuals, AG and KM who were operating a taxi business. It is said they did this by requiring payments to be made to a company run by them known as RS.

5.13 It is alleged that between 1 January 2002 and 31 May 2004 Mr Stirton and Mr Anderson extorted a further £338,000 from the same individuals, carrying on the same taxi business, by requiring payments to be made to another company (AS).

5.14 - 5.16 It is alleged that between 24 March 2003 and 30 April 2004 Mr Stirton and Mr Anderson disguised criminal property as legitimate income, converted some of it into business assets and transferred other amounts between different bank accounts.

[I was told by Mr Heaney that these allegations amount, in effect, to allegations concerning the subsequent use or disposal of the money allegedly extorted from AG and KM and the taxi firm.]

"they were based on evidence gathered by police and HM Revenue and

Customs during their investigations into the respondents' business and alleged criminal activities during the relevant period. They were based upon investigations by police and HM Customs into the business entities associated with the respondents including [here she names certain businesses]. They were based upon statements made among others by the witnesses [KM] and [AG] to police officers and officers of HM Revenue and Customs between August and December 2003. Those statements were to the effect that money paid by [the taxi firm] for management services was for "protection" and that no management or other services had in fact been provided. The witnesses [KM] and [AG] withdrew their earlier statements when formally precognosed on 4^th October 2004. Their position at that time was that they had made the statements under pressure from the police. The police officers who interviewed them formed the view that they had withdrawn their statements under pressure from the respondents. None of the statements from other individuals on which the averments were based have been withdrawn."

In para.3 of the Affidavit she says that the averments in the petition were also based upon documentation recovered in searches at certain properties, on documents recovered as a result of production orders and upon financial analysis of the documents recovered. I take this to refer to the averments made in para.6 of the petition. The material described in para.3 is likely to have provided information relevant to tracing monies into the properties and other assets listed in Part II of the Schedule to the petition. I did not understand Mr Heaney to suggest that it supported the case of extortion made in paras.5.12 and 5.13 of the petition.

What are the consequences of that failure?

"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.'"

That test was originally formulated in the context of Mareva injunctions (now freezing orders) in England. However, it has been applied in the context of interim orders under the 2002 Act, including interim administration orders, for example by Coughlin J in Director of Assets Recovery v Keenan. Mr Heaney argued, under reference to a supplementary written submission, that a slightly different approach should be taken in the context of an interim administration order if the court finds that there has been a failure in the duty of disclosure. He submitted that the court should put itself in the shoes of the court hearing the ex parte application and ask: what difference would the material have made? He said that this was the approach taken in Jennings v CPS [2006] 1 WLR 182 at paras.52-57.

"In the circumstances I am quite unable to hold that the failure was such as to require the court to discharge the restraint order, and then consider as a separate exercise whether to impose a fresh order."

The two stage exercise there described, which Laws LJ appears to assume would have been triggered had he found there to have been material non-disclosure, is entirely consistent with the approach in Lloyds Bowmaker.

"It seems to me that there are two factors which might point towards a different approach being taken ...; but they pull in opposite directions. First, the application is necessarily brought (assuming of course that it is brought in good faith) in the public interest. ... Here is the first factor: the court should be more concerned to fulfil this public interest, if that is what on the facts the restraint order would do, than to discipline the applicant - the Crown - for delay or failure of disclosure. But secondly, precisely because the applicant is the Crown, the court must be alert to see that its jurisdiction is not being conscripted to the service of any arbitrary or unfair action by the state, and so should particularly insist on strict compliance with its rules and standards, not least the duty of disclosure."

He concluded that the court should have both these considerations in mind, but that they did not promote some distinct and separate test. Longmore LJ (with whose remarks on this point Laws LJ concurred - see para.54) addressed the same point in this way at para.64:

"The fact that the Crown acts in the public interest does, in my view, militate against the sanction of discharging an order if, after consideration of all the evidence, the court thinks that an order is appropriate. That is not to say that there could never be a case where the crown's failure might be so appalling that the ultimate sanction of discharge would be justified."

These remarks confirm that there may be a failure to make full and proper disclosure which is so serious - one need not be too concerned about the particular epithet to apply to it - that the only proper response to it would be to discharge the interim order even though, on all the evidence now available to the court, the test of good arguable case or probabilis causa litigandi is now met. Without such sanction there would be nothing to prevent an applicant - whether that be, in proceedings under the 2002 Act, the enforcement authority or, in any other civil proceedings, the pursuer or petitioner as the case may be - coming to court to obtain an ex parte order without making full disclosure, safe in the knowledge that the order will not be discharged if, at the stage it is sought to be set aside for non-disclosure, he can then demonstrate, on the facts then belatedly put before the court, that his case passes the arguability test. The public interest cuts both ways, as Laws LJ explains, and the enforcement authority should not assume that its failures will be treated either more tolerantly or more severely than those of other litigants. The only difference is that there are additional factors to be brought into account in arriving at any decision, one of which is the public interest which the order obtained ex parte is designed to protect.

"A first order in the petition for a recovery order was granted on 1 September 2005. A copy of that petition was appended to this report. The petition for a recovery order is based on the same information as that which formed the basis for the petition for an interim administration order, together with further information gathered as a result of the interim administrator's investigations and analysis. Inventories of productions and a list of witnesses will be intimated in the normal way when dates for a proof in relation to that petition have been fixed."

Mr Heaney showed me averments in the recovery order petition which, so he told me, were not derived from investigations carried out under the authority of the ex parte order but were part of the material available to the petitioners before it was made. Those averments, he submitted, went into some detail and fleshed out the statements which the petitioners would seek to prove had been made by KM and AG before being retracted by them; showed the lack of any business reasons for the taxi business making payments to the respondents; showed inconsistencies in the explanations given by KM and AG for the payments that were made; and cast doubt upon the validity of a leasing deal under cover of which some of the payments were made. Taken together, he argued, they showed probabilis causa litigandi for the averments of extortion, notwithstanding the retraction by KM and AG and their refusal to support the petitioners' case.

Disposal