Worldwide criminal restraint orders: not available to support foreign proceedings

A recent House of Lords judgment has confirmed the position that a restraint order (i.e. an order preventing dealing with specified property), brought under the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005, SI 2005/3181 (the “SI”) cannot be made in respect of assets outside England & Wales.

The SI gives effect to provisions in the Proceeds of Crime Act 2002 (“POCA”) that enable assistance to be given by our criminal courts to foreign authorities and courts to protect and/or seize property in support of criminal investigations or proceedings in the foreign country.

A restraint order can be granted when a request is made by an overseas authority to prohibit a party from dealing with property specified in the request, if there is reasonable cause to believe that the party has benefited from criminal conduct and proceedings for an offence or a criminal investigation have begun in that country. The House of Lords held that on the wording of the SI it was not possible to make a restraint order in respect of property outside England & Wales. This contrasts with civil proceedings where a worldwide freezing order can be made to preserve property.

Background

In King v Director of the Serious Fraud Office Mr King was charged with fraud by the National Prosecuting Authority of the Republic of South Africa (“NPA”). Following receipt of a Letter of Request from the NPA, the Serious Fraud Office (“SFO”) obtained a restraint order over Mr King’s property (the “Restraint Order”) and a disclosure order requiring him to disclose all of his assets (the “Disclosure Order”) under Article 8 of the SI. Both the Restraint Order and Disclosure Order were stated to apply to any property wherever located in the world.

The Crown Court judge held that while Article 7 of the SI required that relevant property in England and Wales should be identified in the external request, this was just a “gateway” to exercising his jurisdiction, and that once through this gateway Article 8 allowed him to grant the Restraint and Disclosure Orders in respect of all assets identified in the external request, regardless of their location. The court held that the definition of property in Section 447(4) of POCA, as being “all property wherever situated”, indicated that the Letter of Request could refer to property outside England & Wales.

Mr King appealed and the Court of Appeal held that the Restraint Order and Disclosure Order could only apply to assets in England & Wales. The SFO appealed to the House of Lords.

Judgment of the House of Lords

The House of Lords held that the SI clearly only permitted the English courts to restrict parties from dealing with property situated in England or Wales.

Article 6 of the SI allows the English court to make a restraint order when an external request “concerns relevant property in England or Wales”. Article 7 requires the relevant property “in England and Wales” to be “identified in the external request”. Article 8 then provides that a restraint order can be made which prohibits “dealing with relevant property which is identified in the external request”. Article 12 permits seizure of any property that is the subject of a restraint order “to prevent its removal from England and Wales”, while Article 16 permits a receiver to take possession of such property.

These provisions are echoed by those relating to the enforcement of foreign court orders concerning property. External orders, according to Article 18 of the SI, must concern “relevant property in England or Wales”. Enforcement can be achieved by appointing a receiver, whose powers under Article 28 include powers that can only be exercised in England & Wales.

The Law Lords found that this was “a clear and coherent scheme” for the protection of assets located within England or Wales only. Furthermore, the SI provides no machinery to exercise those powers outside England and Wales.

The Court also held that the definition of “property” in section 447(4) of POCA must be read in its context, as the SI itself refers to property in England or Wales. Parliament has made a significant distinction between POCA, which deals with domestic orders, and the SI, which deals with external orders. Section 74 of POCA permits the Secretary of State to make a request for assistance to a foreign government to secure that a party is prohibited from dealing with realisable property situated in that jurisdiction. The court held that if parliament intended the SI to take effect outside the jurisdiction it would have made similar provisions.

The Disclosure Order was made pursuant to Article 8(4) of the SI to ensure the effectiveness of the Restraint Order. The court held, therefore, that if the Restraint Order is restricted to property in England or Wales then so too must be the Disclosure Order.

Comment

Unlike worldwide freezing orders (prohibiting disposal of, or dealing with, assets in any jurisdiction), which are available from the civil courts in support of domestic or foreign civil proceedings, restraint orders obtained under the SI in support of foreign criminal investigations/ proceedings can only restrict use of assets in England or Wales.

In another recent case, United States Securities and Exchange Commission v Manterfield, the Court of Appeal held that a worldwide freezing order could be made by the English civil court in support of proceedings in the US, where the remedies sought in the US proceedings included both penal and non-penal elements (i.e. the disgorgement of the proceeds of fraud and the return of money to investors). The court held that relief could be granted in respect of the non-penal elements. They found that if the claim was “in substance, a claim for damages which in England might have been brought in a civil case, the fact that it is all part of… a criminal case” will not prohibit the court from having jurisdiction, as the public policy against the court enforcing the penal laws of a foreign state would not apply. The civil court was therefore able to continue a worldwide freezing order over Mr Manterfield’s assets.

We are left with the unusual position that the civil courts, when assisting foreign litigation, can prevent dealing with and disposing of assets in any jurisdiction, whereas the criminal courts, when assisting foreign criminal proceedings, only have jurisdiction over assets in England or Wales. Time will tell whether the legislature decides to remove this discrepancy.

Case References

King v Director of the Serious Fraud Office [2009] UKHL 17
United States Securities and Exchange Commission v Manterfield [2009] EWCA Civ 27

Co-contributor: Melanie Burrow, CMS Cameron McKenna