Margin of profit

Further costs conundrums arise in the context of confiscation proceedings which may follow from a private prosecution. If we take as a starting point, that a significant number of private prosecutions may be initiated by the victims of fraud or other economic crime, the prosecutors may well have a substantial interest in causing a convicted defendant to disgorge their ill gotten gains.

The question that then arises, is how such proceedings are to be funded, particularly if the defendant has concealed the assets, and any recovery action may prove fruitless, resulting in a paper judgment, as opposed to the recovery of cash.

In particular it should be noted that not only must there be a conviction, there must then be a confiscation order, and then in a sense, the real fun begins as there may be extensive enforcement proceedings, attempting to enforce any confiscation order made.

Very substantial sums may be incurred in seeking to enforce against a non-compliant defendant and his associates, and the question arises as to whether this exercise may be underwritten through the use of central funds, for the benefit of the private prosecutor.

Central to this question is the effect of section 17 of the Prosecution of Offences Act 1985 which provides as follows:

(1)Subject to subsections (2) and (2A) below, the court may—

(a)in any proceedings in respect of an indictable offence; and

(b)in any proceedings before a Divisional Court of the Queen’s Bench Division or the [F2Supreme Court] in respect of a summary offence;

order the payment out of central funds of such amount as the court considers reasonably sufficient to compensate the prosecutor for any expenses properly incurred by him in the proceedings.

(2)No order under this section may be made in favour of—

(a)a public authority; or

(b)a person acting—

(i)on behalf of a public authority; or

(ii)in his capacity as an official appointed by such an authority.

(2A)Where the court considers that there are circumstances that make it inappropriate for the prosecution to recover the full amount mentioned in subsection (1), an order under this section must be for the payment out of central funds of such lesser amount as the court considers just and reasonable.

(2B)When making an order under this section, the court must fix the amount to be paid out of central funds in the order if it considers it appropriate to do so and—

(a)the prosecutor agrees the amount, or

(b)subsection (2A) applies.

(2C)Where the court does not fix the amount to be paid out of central funds in the order—

(a)it must describe in the order any reduction required under subsection (2A), and

(b)the amount must be fixed by means of a determination made by or on behalf of the court in accordance with procedures specified in regulations made by the Lord Chancellor.]

(5)Where the conduct of proceedings to which subsection (1) above applies is taken over by the Crown Prosecution Service, that subsection shall have effect as if it referred to the prosecutor who had the conduct of the proceedings before the intervention of the Service and to expenses incurred by him up to the time of intervention.

(6)In this section “public authority ” means—

(a)a police force within the meaning of section 3 of this Act;

(b)the Crown Prosecution Service or any other government department;

(c)a local authority or other authority or body constituted for purposes of—

(i)the public service or of local government; or

(ii)carrying on under national ownership any industry or undertaking or part of an industry or undertaking; or

(d)any other authority or body whose members are appointed by Her Majesty or by any Minister of the Crown or government department or whose revenues consist wholly or mainly of money provided by Parliament.

In the case of Murli Mirchandani v The Lord Chancellor this provision and its application to the enforcement was considered extensively by a powerfully constituted Court of Appeal. The issues that they had to consider weere framed as follows:

2. In summary, the issues are these:

(1) On the true interpretation of s. 17 of the 1985 Act, may a private prosecutor recover out of central funds costs incurred by him in the enforcement of a confiscation order made in the criminal proceedings?

(2) On the true interpretation of s. 17 of the 1985 Act, may a private prosecutor recover out of central funds costs which the prosecutor has been ordered to pay to a third party in the enforcement proceedings?
The issues thus are jurisdictional. This court has not been concerned with the subsequent question as to how the jurisdiction is to be exercised, if there is such jurisdiction in either situation.

The factual background against which those issues arose was stated succinctly:

5. Mr Mirchandani, the prosecutor, and Mr Somaia, the defendant, were engaged in very substantial business transactions in 1999 and 2000. Subsequently, the prosecutor considered that he had been the victim of a sustained fraud on the part of the defendant, to the tune of several millions of pounds. The details are not important for present purposes.

6. In due course, in 2012 he commenced a private prosecution against the defendant. There were numerous counts of fraud on the indictment. Following a lengthy trial at the Central Criminal Court, the defendant was convicted by the jury on 13 June 2014 of nine offences of fraud. The trial judge, Judge Hone QC, sentenced him to 8 years imprisonment. An appeal against conviction was subsequently rejected by a constitution of the Criminal Division of this court.

Post the conviction, confiscation proceedings were embarked upon:

7. The prosecutor then commenced confiscation proceedings under the 1988 Act (because of the dates of the frauds alleged, antedating 24 March 2003, the provisions of the Proceeds of Crime Act 2002, “the 2002 Act”, did not, as throughout was common ground, apply). In the result, a confiscation order was made by Judge Hone QC on 12 January 2016 in the amount of £20,434,691. The total benefit had been assessed in that amount. As to available assets, certain assets were identified. As to the balance, the court made a finding of hidden assets and determined the recoverable amount to be not less than the value of the benefit from the relevant criminal conduct, that is £20,434,691. A confiscation order was made accordingly, with a term of 10 years imprisonment imposed in default of payment. In addition, the judge was invited to exercise his power under s. 130 of the Powers of Criminal Courts (Sentencing) Act 2000 and s. 72 (7) of the 1988 Act to make confiscation orders in favour of the prosecutor, Mr Mirchandani, and a Mr Shah. The judge did so, in the amount of £18,220,723 and £200,233 respectively. The balance of the confiscation order represented the remaining assets of the defendant, in circumstances where the criminal lifestyle provisions had been applied. The judge directed, under s.72 (7) of the 1988 Act, that any money realised under the confiscation order should first be paid to satisfy the compensation orders. A subsequent application for leave to appeal against the confiscation order was unsuccessful.

The cheque for £20 million did not arrive in the post however. As the Court of Appeal noted: 

8. The defendant failed to make payment of the confiscation order.

This led to further steps to try to get the monies in:

9. In consequence, the prosecutor sought the appointment of an enforcement receiver over the assets of the defendant. On 12 October 2016 Spencer J, sitting in the Queen’s Bench Division (Administrative Court), appointed Christine Bartlett of HS Alpha Limited receiver over the assets of the defendant, with wide-ranging powers.

10. By that time, one particular point of contention, among others, had been identified. Significant sums had been paid by the defendant into bank accounts in the name of his (by now former) wife, Alka Gheewala. The prosecutor was claiming that these were to be regarded as tainted gifts for the purposes of the 1988 Act. Directions were given by Spencer J for a hearing of that issue. By the time of that hearing, the only extant dispute related to seven transfers of money to Ms Gheewala between April and August 2010.

11. Although the Order of Spencer J appointing Ms Bartlett as receiver had conferred on her the power to bring proceedings against Ms Gheewala (and others) to recover the value of alleged tainted gifts, in the result it was the prosecutor who himself, through lawyers, pursued such proceedings. There was a four day hearing before Jefford J, sitting in the Queen’s Bench Division, in May 2017. At that hearing, each of the prosecutor, the defendant and Ms Gheewala was represented by counsel.

12. By a reserved judgment handed down on 17 October 2017, the judge refused to declare the payments in question to be tainted gifts: [2017] EWHC 2554 (QB). After detailed consideration of the background and the evidence, the judge decided there had been no gifts as such: rather the money in question had beneficially remained the defendant’s money and had been transferred into his wife’s account for his own convenience, primarily out of money legitimately acquired by him as a consequence of a settlement of certain legal proceedings in Kenya.

13. Having so decided, Jefford J in due course on 7 November 2017 among other things directed the prosecutor to pay Ms Gheewala’s costs (including certain reserved costs) on the standard basis, with a payment on account of just over £125,000. By this stage the prosecutor had applied for his costs to be paid out of central funds. As to that application the judge directed written submissions.

14. That application, following detailed written submissions from the parties, was determined by the judge on 25 May 2018. She concluded that the prosecutor was entitled to apply for his costs of the proceedings (including the costs ordered to be paid by him to Ms Gheewala) out of central funds; that she had jurisdiction so to order; and that she should so order. She directed such costs to be the subject of a determination made on behalf of the court by the National Taxing Team.

It will be surprising I think to many, labouring under reporting requirements to legal expense insurers, or third party funders, that the Lord Chancellor had not by this stage had an opportunity to intervene in the costly litigation which was ultimately sought to be underwritten by the state:

15. In due course, the Lord Chancellor was made aware of this Order, given that the use of central funds was involved. (By this stage, the prosecutor had prepared a bill of costs seeking as much as £751,279, including £453,801 for the prosecutor’s own costs and £297,478 for Ms Gheewala’s costs.) The Lord Chancellor raised objections on jurisdictional grounds to the Order of 25 May 2018, as to which he had had no previous opportunity to make representations. He sought to have that Order set aside. The Lord Chancellor was given leave to intervene accordingly. It was the outcome of that intervention that led to the Order of the judge, following a hearing at which the prosecutor and the Lord Chancellor were represented, which is the subject of this present appeal. For Jefford J, in a detailed and careful reserved judgment dated 15 May 2019, decided that her previous decision was wrong and that she should set aside her previous Order of 25 May 2018. The judge’s decision was ultimately reflected in an amended Order sealed on 1 August 2019; and it is against that Order that this appeal is brought by the prosecutor.

The Court of Appeal noted the context of private prosecutions in these terms:

43. The context here, of course, is that of a private prosecution. Private prosecutions have received something of a mixed press, as it were, over the years. For example, in Jones v Whalley [2006] UKHL 41, [2007] 1 AC 63 Lord Bingham alluded (at paragraph 9) to commentaries to the effect that the surviving right of private prosecution was of little or no value; and he himself indicated some doubts as to whether it constituted an important constitutional safeguard. Lord Mance in the same case, on the other hand, indicated the view that it was an important safeguard. The latter viewpoint was favoured by Lord Wilson in the subsequent case of R (Gujra) v Crown Prosecution Service [2012] UKSC 52, [2013] 1 AC 484.

44. A number of organisations (such as, for example, the RSPCA or copyright protection associations) regularly undertake private prosecutions. Moreover, it is the declared policy of a number of large corporations in, for example, the leisure and travel and retail industries to undertake prosecutions where the police themselves are either disinclined to bring charges or content to accept a caution in, say, cases of an assault on an employee or of relatively minor dishonesty. There are increasingly, also, instances of complex fraud prosecutions nowadays being successfully undertaken by way of private prosecution where the police or Serious Fraud Office have lacked the inclination or resources (or both) to pursue a criminal investigation or have considered it appropriate to leave the matter to be litigated in the Civil Courts: see, for example, Zinga [2014] EWCA Crim 52, [2014] 1 WLR 2228 at paragraphs 15-16 and 57 of the judgment; D Ltd v A and others [2017] EWCA Crim 1172.

45. The fact remains that the right to institute private prosecutions has been preserved by s. 6 of the 1985 Act. Important safeguards exist in that, for example, the Director of Public Prosecutions has the right to take over a private prosecution and then discontinue; and in that the Crown Court itself, where the circumstances may, exceptionally, justify such a step, can stay such a prosecution as an abuse of process. Another important safeguard, in this respect, is that the prosecutor in a private prosecution, even though doubtless in part motivated by personal considerations, is required to act with the impartiality and objectivity appropriate to a public prosecutor: see the discussion in Zinga (cited above).

46. Zinga in fact affirms, following the decision of the House of Lords in Rezvi [2002] UKHL 1, [2003] 1 AC 1099, that confiscation proceedings are part of the sentencing process and thus, on any view, are part of the criminal proceedings. It is also authority for the proposition that, being part of criminal proceedings for the purposes of s. 6 of the 1985 Act and serving as they do the public interest, confiscation proceedings may be instituted by a private prosecutor; and the power to institute such proceedings thus is not confined to the Crown Prosecution Service or other state prosecutors. As I have said, these points were, rightly, conceded before us on behalf of the respondent.

The appeal was ultimately successful.

On the first issue, the essence of the Lord Chancellor’s case was that as this particular vintage of enforcement proceedings constituted civil proceedings, rather than criminal proceedings, section 17 simply did not provide a jurisdictional base to allow costs out of central funds in civil proceedings. This was rejected by the Court of Appeal:

78. Mr Cohen was insistent, however, that s. 17 (1) (a) was only to be taken as extending to criminal proceedings as such. Absent authority, I see no sufficient basis for so reading that sub-section. It is quite true that in s. 6 the preservation of the right to institute and conduct private prosecutions is in terms geared to “criminal proceedings”. But that, if anything, tells against his argument. Section 17 (1) (a) could, for example, readily have been restricted expressly to criminal proceedings if that was what was intended. But it is not: on the contrary, it in terms relates to any (emphasis added) proceedings in respect of an indictable offence. Moreover, that is to be contrasted with s. 17 (1) (b). That sub-section, in the context of summary offences, is limited to the Divisional Court or the House of Lords. But s. 17 (1) (a), by way of contrast, is not limited by its terms to any particular court.

79. Yet further, such an interpretation – to my way of thinking, the natural interpretation – is surely very strongly supported by purposive considerations. The judge in her first judgment had clearly thought that such considerations ultimately were determinative of the point: see her powerful observations in paragraph 12 of her first judgment. In her second judgment, the one now under appeal, this point understandably continued to occupy her mind: see paragraph 47 (i) of that judgment. As she observed, confiscation orders are “toothless” in the absence of adequate enforcement proceedings. There can, as I see it, be no rhyme or reason in permitting a private prosecutor’s costs of confiscation proceedings to be paid out of central funds but then prohibiting such an outcome for enforcement proceedings with regard to the confiscation order so obtained. Indeed, it can also be said that such an outcome would be contrary to the perceived public interest. Parliament has decided that, in appropriate cases, private prosecutions serve a public interest. Parliament has further decided that confiscation proceedings, designed to require a criminal to disgorge the proceeds of his criminality, also serve a public interest. Yet if a private prosecutor can never get any costs of enforcement proceedings out of central funds that would operate as a very substantial deterrent to initiating confiscation proceedings in the first place. It is very difficult to think that that would accord with the presumed Parliamentary intention.

80. That point, in fact, has particular focus in the present case. It will be recalled that by the confiscation order made by Judge Hone QC in the Crown Court, the judge had directed that compensation to the victims of the fraud (Mr Shah, as well as the private prosecutor) should first be paid out of the sums recovered out of the confiscated amount. It is a further aspect of the public interest, under the legislative scheme, that where practicable victims should be compensated for the fraud (or other related criminality) inflicted on them. Indeed, such an order remains under the purview of the Crown Court throughout. But, as pointed out by the President of the Queen’s Bench Division in argument, that further public interest would also stand to be undermined if the prosecutor is not able to recover costs of enforcement proceedings out of central funds. Given the practical realities of defendants in such cases claiming to be without assets and not co-operating in the (necessary) enforcement process, it is a hollow argument indeed to say that the remedy, where the enforcement proceedings are successful, is to be left solely to an order for recovery of costs from the defendant himself pursuant to Civil Procedure Rules Part 44.

On the second issue, section 17 was also found to be sufficiently widely drawn that the costs payable to the former wife of the defendant could also in principle, be sought from central funds as part of the prosecutor’s expenses though whether they would be recoverable in this particular case, was remitted to the High Court for a further hearing:

98. I see no reason why such word should not, in principle, be capable also of extending to the legal costs ordered to be paid by the prosecutor to a successful third party in the enforcement proceedings. That is, on a natural reading of the section, an “expense” incurred in proceedings in respect of an indictable offence. I can also see nothing in the 1986 Regulations which would tell against such a conclusion. Such a conclusion, moreover, would also align with the position of a public prosecutor: who will, directly or indirectly, be able to have recourse to public funds to meet any liability in costs to a third party.

99. With respect, many of Mr Cohen’s arguments on this issue really seemed to come down to arguing that it was not fair or reasonable for Ms Gheewala’s costs to come out of public funds. He noted, by way of example, that the statutory provisions and the order of appointment of the enforcement receiver in the present case would have permitted Ms Bartlett, as enforcement receiver, herself to have pursued the enforcement proceedings. However, under the legislative scheme the yardstick for recovery is reasonableness, not success. It is, of course, a very important qualification to the recovery of such costs out of central funds that they be appropriately and reasonably incurred. But that is a separate issue from the issue of whether the court has any power (in the sense of jurisdiction) to make such an order at all. If it does – and my view is that it does – then it was common ground before us that this court is not itself in a position to make such a determination. Mr Cohen’s points of this nature can thus be left for consideration at that further stage.

The case illustrates graphically how very substantial costs in pursuing a private prosecution, through to confiscation orders and enforcement proceedings, can potentially be underwritten by central funds, in the way that an action for fraud in the civil courts cannot be. I do not foresee however, a stampede to increase the number of private prosecutions simply because of the potential existence of a costs indemnity potentially provided by the state however.

Where compensation orders are made on conviction, the purpose of the confiscation orders, is that they will be used to fund the payment of the compensation. This can be a practical incentive to take criminal proceedings. But it is not that simple.

The difficulty for any private prosecutor and the remaining attractiveness of an action for fraud in the civil courts, is the difficulty of proving guilt to the criminal standard and the remaining strictures on the admissibility of evidence, which distinguish the approach of the civil courts: where proof is required on the balance of probabilities and evidential restrictions are few and far between now. The costs “tail” should never wag the substantive litigation “dog”.

 

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