Re Fraser (D)

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 12 December 2005
• Court: Grand Court (Cayman Islands)
• Date: 12 December 2005

Grand Court

(Smellie, C.J.)

IN THE MATTER OF FRASER (D.)

N.M. Sanders, R. Fogerty and J. Cleaver for the receivers;

S. Hall-Jones for the Attorney General;

J. Leabeater for the Cassarina Trust;

R.D. Alberga, Q.C. and B. Ashenheim for Mrs. G. Fraser (observing).

Cases cited:

(1) Andrews, In re, [1999] 1 W.L.R. 1236; [1999] 2 All E.R. 751; [1999] 2 BCLC 442, applied.

(2) Boehm v. Goodall, [1911] 1 Ch. 155, dicta of Warrington J. applied.

(3) Evans v. Clayhope Properties Ltd., [1988] 1 W.L.R. 358; [1988] 1 All E.R. 444; [1988] BCLC 238; [1988] BCC 27, dicta of Nourse, L.J. applied.

(4) Fraser (G.), In re, 2003 CILR 227, referred to.

(5) Gardner v. London Chatham & Dover Ry. Co. (No.1)ELR(1867), L.R. 2 Ch. App. 201, referred to.

(6) Hughes v. Customs & Excise Commrs., [2003] 1 W.L.R. 177; [2002] 4 All E.R. 633; [2002] EWCA Civ 734, applied.

(7) Norris, In re, [2001] 1 W.L.R. 1388; [2001] 3 All E.R. 961; [2001] UKHL 34, dicta of Lord Hobhouse applied.

Legislation construed:

Proceeds of Criminal Conduct Law (2005 Revision), s.3(1): The relevant terms of this sub-section are set out at para. 6.

s.11(1): The relevant terms of this sub-section are set out at para. 6.

s.11(8): The relevant terms of this sub-section are set out at para. 6.

s.12(4): The relevant terms of this sub-section are set out at para. 14.

s.13: The relevant terms of this section are set out at paras. 11 and 12.

s.15: The relevant terms of this section are set out at paras. 13 and 35.

s.19(2): The relevant terms of this sub-section are set out at para. 29.

s.20(2): The relevant terms of this sub-section are set out at para. 33.

Criminal Procedure-proceeds of criminal conduct-restraint order-receivers-fees and expenses-no right of reimbursement from or lien over assets under receivership belonging to innocent third party-policy of Proceeds of Criminal Conduct Law, s.15 to balance preservation and realization of assets against interests of innocent third parties-if no reimbursement, by s.19(2) must then look for compensation to Crown or other party initiating appointment

Criminal Procedure-proceeds of criminal conduct-restraint order-receivers-powers and duties-powers initially to be aimed at preserving assets but may be expanded later by court-assets realized at that stage only exceptionally, e.g. if expenses incurred in management

Criminal Procedure-proceeds of criminal conduct-restraint order-costs-responsibility of acquitted defendant-only entitled under Proceeds of Criminal Conduct Law, s.20(2) to compensation for loss sustained in relation to his property, if ‘serious default’ on part of prosecution

Criminal Procedure-proceeds of criminal conduct-restraint order-receivers-fees and expenses-receiver entitled to reimbursement of reasonable expenditure from defendant”s realizable assets covered by restraint order, whether or not defendant convicted-entitled to lien over assets even if restraint order varied or discharged, subject to further court order

Receivers, appointed after the making of a restraint order under the Proceeds of Criminal Conduct Law, sought to realise assets forming part of the receivership estate to meet their own fees and other costs of the receivership.

A restraint order was made against F in respect of money-laundering offences, restraining all his assets, including the assets of the Cassarina Trust. Receivers were appointed who were given powers, under s.11(8) of the Law, to realise and sell the assets and to draw from them every month such sums as might be required to pay the costs of the receivership. The charges against F were later discontinued and the restraint and receivership provisions of the order were discharged, save that the

receivers retained certain valuable corporate share certificates, which were part of the assets of the Cassarina Trust. As to their true beneficial ownership, F asserted that they belonged to a personal friend on whose behalf he had set up the trust and settled the assets in it, though there was also an allegation that the trust was a sham and that F retained beneficial ownership of its assets.

The receivers submitted that despite F”s claim that the shares did not belong to him beneficially they were entitled to a lien over them and to realise their value and apply the proceeds towards meeting their own fees and other costs of the receivership-(a) since this claim was based on the terms of the order under which they had been appointed, the relevant provisions of the PCCL and the applicable principles of common law governing the rights of a receiver to satisfy his claim to his fees and the other costs of the receivership out of the assets of the estate under receivership; (b) by failing to apply for the release of the shares from restraint, notwithstanding that this was expressly allowed by the terms of the order and by s.11(7) of the PCCL, the Cassarina Trust had acquiesced in the continued treatment of the assets as forming part of the receivership estate and since the receivers had therefore continued to treat them as being under their control and management, in keeping with the order of the court, they should now be able to look to the shares for recovering their fees and expenses; and (c) the only recourses available to an innocent third party were the limited right to compensation and the right given by s.19(1) of the PCCL to sue a receiver for loss or damage to non-realisable property caused by his negligence-and, however unfortunate, it would simply be a consequence of the public policy of the PCCL if an innocent third party”s assets were diminished by the costs and fees of a receivership appointed over them.

The trustees of the Cassarina Trust submitted that the shares were held for the benefit of their beneficiaries (putatively F”s personal friend and those to take under him), who were entirely innocent third parties and entitled to have their trust assets restored intact.

Held, making the following ruling:

(1) If the shares restrained were shown not to be or never to have been the realisable property of the defendant, but rather the property of an innocent third party, the receiver would have no right of reimbursement from or lien over them, but instead, according to s.19(2) of the PCCL, would have to look for reimbursement to the Crown or other party on whose application he was appointed. The final disposition of the shares would therefore depend on the outcome of an enquiry into the true beneficial ownership of the assets of the Cassarina Trust (paras. 42–43).

(2) Careful consideration should always be given by a court to the wording and scope of the powers vested in a receiver. In the restraint stages of the proceedings, the powers should normally be framed to preserve assets seen as constituting the realisable assets of the defendant-and at that stage it would be unusual for a receiver to need to

realise those assets, except where it was necessary for their management that costs and fees be incurred. As the need arose, the powers of realisation might be expanded by the court. The PCCL”s scheme of restraint, charging and confiscatory provisions was designed to preserve the realisable assets of a defendant to ensure that, upon his conviction, the assets were available to be realised and confiscated. The rights of persons who might be affected, including a convicted defendant, to be heard before property was finally confiscated had to include the right to the preservation of as much as possible of that property until the final determination was made (paras. 9–10; para. 15).

(3) It was, however, not practicable that all the costs of restraint and confiscation of the proceeds of crime be met from public funds whenever a defendant was acquitted; this would fetter the prosecution”s decision whether to institute proceedings and would therefore not, save in exceptional circumstances, be in the public interest. Fees and costs were to borne by an acquitted defendant, and they were only entitled to compensation for loss in consequence of anything done in relation to their property, under s.20(2) of the PCCL, in the event of ‘serious default’ on the part of the prosecution. A receiver appointed by the court was therefore entitled to reimbursement of fees and expenses reasonably incurred in the conduct of the receivership from assets covered by a relevant restraint order as being the realisable property of a defendant, whether or not that defendant was convicted, and was thus entitled to exercise a lien over those assets even though the restraint order was subsequently discharged or varied, subject to any further order the court might make in that regard (para. 25; para. 33; para. 42).

(4) Nevertheless, the PCCL did not provide that receivers were entitled to have their costs paid from assets under their control irrespective of whether they were the realisable property of the defendant or belonged bona fide to an innocent third party. In addition to the rights given to exonerated defendants by s.20(1), s.15 laid down the need to balance the preservation, realisation and ultimate confiscation of the proceeds of crime, against the protection of interests of innocent third parties, making it clear that it was no part of the legislative scheme that the assets of such parties should not be confiscated or their value otherwise diminished. The orders sought would therefore be refused pending inquiry into the beneficial ownership of the assets of the Cassarina Trust (paras. 34–37; paras. 42–43).

1 SMELLIE, C.J.: Donald Fraser was the subject of charges under the Proceeds of Criminal Conduct Law (‘PCCL’) in respect of money laundering offences. On the basis of those charges a restraint order was made on October 25th, 2000 restraining all his then known assets.

2 The order was subsequently amended to include the assets of various trusts and trust companies in respect of which he was said to be the owner...