National Crime Agency v Davies [2019] EWHC 1282
Summary
# National Crime Agency v Davies [2019] EWHC 1282 (QB)
National Crime Agency v Davies [2019] EWHC 1282 (QB), heard before Mr Justice Morris in the Queen’s Bench Division, concerned applications by the first and fourth defendants (Shane Davies and his wife Rhianna Davies) to vary a property freezing order (“PFO”) made under section 245A of the Proceeds of Crime Act 2002 and a management receivership order (“MRO”) made in civil recovery proceedings. The court allowed an exclusion for legal expenses in the substantive civil recovery proceedings, but dismissed applications for alternative accommodation at 23 Argyle Terrace, for weekly living expenses and for legal fees in separate tax proceedings.
The National Crime Agency had obtained the PFO on 16 January 2015 over some 20 properties said to be worth approximately £6 million, prior to issuing civil recovery order proceedings on 15 April 2017. The NCA contended that the properties represented the proceeds of unlawful conduct including drug supply and mortgage fraud, notwithstanding that Mr Davies and Mrs Davies had been acquitted in a 2013 criminal trial. An MRO over 13 of the properties was made on 29 April 2016, appointing a management receiver. The applicants sought three forms of relief by two applications: first, removal of 23 Argyle Terrace from the PFO or MRO to enable the family to live there; secondly, exclusions for living expenses of £250 per week and £8,010 in legal fees for separate First Tier Tribunal tax proceedings; and thirdly, exclusion to fund their legal representation in the civil recovery proceedings themselves, estimated at £85,856.
The applicants explained that they were living in unsuitable conditions at premises known as the Telephone Repeater Station with their two young sons, sharing one bedroom, and that the property lacked functioning heating. They wished to move into 23 Argyle Terrace. The management receiver had previously offered alternative accommodation at 45 Sedgemoor Road, but the applicants declined, citing concerns about the condition of the property, its location on a council estate and proximity to a neighbour who had allegedly threatened the family.
Mr Justice Morris applied the principles set out in Serious Organised Crime Agency v Azam [2013] 1 WLR 3800. Under those principles, it is for the applicant to show that in all the circumstances it is just to permit use of frozen funds, but there is no specific burden to prove the absence of other available assets. The court must first consider whether it is satisfied that there are other available assets; if not, whether it is likely that such assets exist; and if in doubt on likelihood, whether there are specific substantial grounds for suspicion that the applicant has failed to disclose all he could and should about available assets. Where suspicion is not established, previous concealment alone is not sufficient to find current concealment.
On the accommodation issue, the judge found that the applicants were indeed living at the TRS and that conditions there were cramped and had an adverse impact on the family, though the property was not uninhabitable. He rejected the applicants’ objections to 45 Sedgemoor Road as lacking credibility, noting that those objections had only been raised shortly before the hearing despite the applicants having previously indicated willingness to move there as recently as January 2019. The judge accepted the management receiver’s concerns that allowing occupation of 23 Argyle Terrace risked interference by Mr Davies with the receiver’s management of neighbouring properties subject to the MRO, based on incidents in 2016 and 2018. In his discretion, the judge concluded it was not appropriate to vary the MRO to remove 23 Argyle Terrace, but that the applicants remained free to move into 45 Sedgemoor Road if they so chose, in which case that property would be removed from the MRO.
The most substantial issue concerned funds held in accounts in the name of Mrs Rebee Elley, the second applicant’s 87-year-old grandmother, exceeding £500,000. The NCA contended that recent activity on those accounts, including large gifts to family members, gave rise to an inference or at least grounds for suspicion that the funds were available to the applicants. Very shortly before the hearing, Mr Robert Elley, the second applicant’s father, provided a detailed letter explaining each transaction and categorically stating that neither applicant had or would have access to the accounts. At the resumed hearing, a witness statement from Mrs Elley herself was produced confirming she did not agree for her funds to be used for the applicants’ living or legal expenses.
The judge concluded that he was not satisfied the Elley Funds constituted available assets, nor that it was likely they would be available. He rejected the suggestion that the late production of this evidence raised suspicion, noting that it responded to points raised by the NCA only days before the hearing and that there was no evidence Mrs Elley had previously helped with the applicants’ living expenses or debts generally, apart from a specific gift of £2,600 for a family holiday. The inference of familial support was weaker where the family member was a grandmother with a large family, not a spouse. Any residual doubt was allayed by Mrs Elley’s witness statement.
Turning to legal expenses for the civil recovery proceedings, the judge accepted that given the complexity of the issues and a psychological report concerning Mr Davies’s personal difficulties, it was important if not essential that the applicants have legal representation at trial. The NCA conceded that absent the Elley Funds there were no other available assets to cover these expenses. The judge found the applicants had shown it was just to permit use of frozen funds to pay legal expenses for the civil recovery proceedings, and allowed the application in principle with the amount to be determined if not agreed.
On the living expenses application, the judge considered the amount sought of £250 per week, representing approximately £6,000 until trial, to be reasonable and not to represent an extravagant lifestyle. He accepted that neither applicant was currently fit to work. However, he found that the applicants received approximately £1,350 per month in universal credit and child benefit, leaving a shortfall of about £550 against their claimed monthly expenses of £1,895. On the evidence, he concluded it was likely there were other available assets to meet both this shortfall and the applicants’ accumulated debts of approximately £7,500. In particular, the second applicant’s parents had been paying for food, heating oil, insurance and petrol, had paid £5,000 in legal fees to the applicants’ solicitors and £4,000 towards a car debt. The judge noted that Mr Robert Elley, who had written eloquently about his mother’s unwillingness to support the applicants, had not made similar statements about his own position, raising at least a suspicion that he and his wife would make funds available. The first applicant’s mother was also likely to provide some support.
As regards the separate application for £8,010 in legal fees for the First Tier Tribunal tax proceedings, the judge noted that those proceedings had previously been stayed pending completion of the civil recovery proceedings. The stay had been lifted at Mr Davies’s behest because he wished to obtain findings adverse to the NCA that he could deploy in the civil recovery proceedings. The judge considered that if the FTT proceedings remained stayed, the legal expenses would not be incurred; if Mr Davies then succeeded in the civil recovery proceedings he would have access to the frozen property to contest the tax appeal subsequently, but if the NCA succeeded he would not be entitled to that property in any event. Further, the judge concluded it was likely the second applicant’s parents, having already paid one legal bill of £5,000, would fund the FTT proceedings if the outcome was believed to benefit the civil recovery proceedings. The judge therefore found Mr Davies had not shown it was just to use frozen funds for these expenses, both because the proceedings were going ahead only at his insistence when they could have remained stayed, and because it was likely there were other available assets.
The judge rejected the NCA’s broader submissions that there were specific grounds for suspicion of non-disclosure of assets. He was not persuaded by allegations concerning a lottery win, transfers between bank accounts or withholding of nursery accounts. Whilst there were question marks about the reliability of Mr Davies’s statements in 2017 concerning his income, this did not establish non-disclosure about assets or that he would be able to produce income in the immediate future. Previous concealment was not by itself sufficient to show current concealment.
In short, the court permitted an exclusion for legal expenses in the civil recovery proceedings themselves on the basis that the substantial funds held by Mrs Elley were not available assets, but dismissed applications for occupation of 23 Argyle Terrace, for weekly living expenses and for legal fees in tax proceedings, finding in respect of the latter two that other family support was likely to be available.
National Crime Agency v Davies [2019] EWHC 1282 (QB), heard before Mr Justice Morris in the Queen’s Bench Division, concerned applications by the first and fourth defendants (Shane Davies and his wife Rhianna Davies) to vary a property freezing order (“PFO”) made under section 245A of the Proceeds of Crime Act 2002 and a management receivership order (“MRO”) made in civil recovery proceedings. The court allowed an exclusion for legal expenses in the substantive civil recovery proceedings, but dismissed applications for alternative accommodation at 23 Argyle Terrace, for weekly living expenses and for legal fees in separate tax proceedings.
The National Crime Agency had obtained the PFO on 16 January 2015 over some 20 properties said to be worth approximately £6 million, prior to issuing civil recovery order proceedings on 15 April 2017. The NCA contended that the properties represented the proceeds of unlawful conduct including drug supply and mortgage fraud, notwithstanding that Mr Davies and Mrs Davies had been acquitted in a 2013 criminal trial. An MRO over 13 of the properties was made on 29 April 2016, appointing a management receiver. The applicants sought three forms of relief by two applications: first, removal of 23 Argyle Terrace from the PFO or MRO to enable the family to live there; secondly, exclusions for living expenses of £250 per week and £8,010 in legal fees for separate First Tier Tribunal tax proceedings; and thirdly, exclusion to fund their legal representation in the civil recovery proceedings themselves, estimated at £85,856.
The applicants explained that they were living in unsuitable conditions at premises known as the Telephone Repeater Station with their two young sons, sharing one bedroom, and that the property lacked functioning heating. They wished to move into 23 Argyle Terrace. The management receiver had previously offered alternative accommodation at 45 Sedgemoor Road, but the applicants declined, citing concerns about the condition of the property, its location on a council estate and proximity to a neighbour who had allegedly threatened the family.
Mr Justice Morris applied the principles set out in Serious Organised Crime Agency v Azam [2013] 1 WLR 3800. Under those principles, it is for the applicant to show that in all the circumstances it is just to permit use of frozen funds, but there is no specific burden to prove the absence of other available assets. The court must first consider whether it is satisfied that there are other available assets; if not, whether it is likely that such assets exist; and if in doubt on likelihood, whether there are specific substantial grounds for suspicion that the applicant has failed to disclose all he could and should about available assets. Where suspicion is not established, previous concealment alone is not sufficient to find current concealment.
On the accommodation issue, the judge found that the applicants were indeed living at the TRS and that conditions there were cramped and had an adverse impact on the family, though the property was not uninhabitable. He rejected the applicants’ objections to 45 Sedgemoor Road as lacking credibility, noting that those objections had only been raised shortly before the hearing despite the applicants having previously indicated willingness to move there as recently as January 2019. The judge accepted the management receiver’s concerns that allowing occupation of 23 Argyle Terrace risked interference by Mr Davies with the receiver’s management of neighbouring properties subject to the MRO, based on incidents in 2016 and 2018. In his discretion, the judge concluded it was not appropriate to vary the MRO to remove 23 Argyle Terrace, but that the applicants remained free to move into 45 Sedgemoor Road if they so chose, in which case that property would be removed from the MRO.
The most substantial issue concerned funds held in accounts in the name of Mrs Rebee Elley, the second applicant’s 87-year-old grandmother, exceeding £500,000. The NCA contended that recent activity on those accounts, including large gifts to family members, gave rise to an inference or at least grounds for suspicion that the funds were available to the applicants. Very shortly before the hearing, Mr Robert Elley, the second applicant’s father, provided a detailed letter explaining each transaction and categorically stating that neither applicant had or would have access to the accounts. At the resumed hearing, a witness statement from Mrs Elley herself was produced confirming she did not agree for her funds to be used for the applicants’ living or legal expenses.
The judge concluded that he was not satisfied the Elley Funds constituted available assets, nor that it was likely they would be available. He rejected the suggestion that the late production of this evidence raised suspicion, noting that it responded to points raised by the NCA only days before the hearing and that there was no evidence Mrs Elley had previously helped with the applicants’ living expenses or debts generally, apart from a specific gift of £2,600 for a family holiday. The inference of familial support was weaker where the family member was a grandmother with a large family, not a spouse. Any residual doubt was allayed by Mrs Elley’s witness statement.
Turning to legal expenses for the civil recovery proceedings, the judge accepted that given the complexity of the issues and a psychological report concerning Mr Davies’s personal difficulties, it was important if not essential that the applicants have legal representation at trial. The NCA conceded that absent the Elley Funds there were no other available assets to cover these expenses. The judge found the applicants had shown it was just to permit use of frozen funds to pay legal expenses for the civil recovery proceedings, and allowed the application in principle with the amount to be determined if not agreed.
On the living expenses application, the judge considered the amount sought of £250 per week, representing approximately £6,000 until trial, to be reasonable and not to represent an extravagant lifestyle. He accepted that neither applicant was currently fit to work. However, he found that the applicants received approximately £1,350 per month in universal credit and child benefit, leaving a shortfall of about £550 against their claimed monthly expenses of £1,895. On the evidence, he concluded it was likely there were other available assets to meet both this shortfall and the applicants’ accumulated debts of approximately £7,500. In particular, the second applicant’s parents had been paying for food, heating oil, insurance and petrol, had paid £5,000 in legal fees to the applicants’ solicitors and £4,000 towards a car debt. The judge noted that Mr Robert Elley, who had written eloquently about his mother’s unwillingness to support the applicants, had not made similar statements about his own position, raising at least a suspicion that he and his wife would make funds available. The first applicant’s mother was also likely to provide some support.
As regards the separate application for £8,010 in legal fees for the First Tier Tribunal tax proceedings, the judge noted that those proceedings had previously been stayed pending completion of the civil recovery proceedings. The stay had been lifted at Mr Davies’s behest because he wished to obtain findings adverse to the NCA that he could deploy in the civil recovery proceedings. The judge considered that if the FTT proceedings remained stayed, the legal expenses would not be incurred; if Mr Davies then succeeded in the civil recovery proceedings he would have access to the frozen property to contest the tax appeal subsequently, but if the NCA succeeded he would not be entitled to that property in any event. Further, the judge concluded it was likely the second applicant’s parents, having already paid one legal bill of £5,000, would fund the FTT proceedings if the outcome was believed to benefit the civil recovery proceedings. The judge therefore found Mr Davies had not shown it was just to use frozen funds for these expenses, both because the proceedings were going ahead only at his insistence when they could have remained stayed, and because it was likely there were other available assets.
The judge rejected the NCA’s broader submissions that there were specific grounds for suspicion of non-disclosure of assets. He was not persuaded by allegations concerning a lottery win, transfers between bank accounts or withholding of nursery accounts. Whilst there were question marks about the reliability of Mr Davies’s statements in 2017 concerning his income, this did not establish non-disclosure about assets or that he would be able to produce income in the immediate future. Previous concealment was not by itself sufficient to show current concealment.
In short, the court permitted an exclusion for legal expenses in the civil recovery proceedings themselves on the basis that the substantial funds held by Mrs Elley were not available assets, but dismissed applications for occupation of 23 Argyle Terrace, for weekly living expenses and for legal fees in tax proceedings, finding in respect of the latter two that other family support was likely to be available.
Two applications were made for the variation of a property freezing order and/or from the scope of a management receiver order and to allow for exclusions to fund living expenses and for the funding of legal representation. The relevant proceedings were civil recovery proceedings brought by the NCA. The applications were made under s245C(1)(a), (3)(a) and (5) of POCA and were allowed in part.