Jersey Unreported Judgments

[2004]JRC069

royal court

(Samedi Division)

 

22^nd April 2004

 

 

 

 

Application by the Representor for leave to discontinue his representation on terms that the Attorney General, failing whom Barclays Private Bank & Trust Limited ("the Trustee") should pay his costs on the grounds that the need for the proceedings has now disappeared - position of customers and financial institutions when there is suspicion of money laundering so that provisions of Article 32 of Proceeds of Crime (Jersey) Law 1999 apply.

 

Advocate O A Blakeley for the Representor;

Advocate M J Thompson for the First Respondent;

Advocate A J Belhomme for the Second Respondent.

 

 

judgment

the DEPUTY bailiff:

1.        This is an application by the Representor for leave to discontinue his representation on terms that the Attorney General, failing whom Barclays Private Bank & Trust Limited ("the Trustee") should pay his costs on the grounds that the need for the proceedings has now disappeared.  The argument has raised some interesting issues as to the position of customers and financial institutions when there is a suspicion of money laundering so that the provisions of Article 32 Proceeds of Crime (Jersey) Law 1999 ("the 1999 Law") are applicable.  It is therefore necessary to set out the background in rather more detail than would normally be required in relation to an application for costs.

Factual background

2.        The case has not been tried.  The background can only therefore be taken from the representation itself and the documents submitted by the parties for the costs hearing. 

3.        Article 32(1) makes it an offence for a person to facilitate the retention or control by another of the proceeds of criminal conduct knowing or suspecting that that other person has been engaged in criminal conduct or has benefited from criminal conduct.   It is however a defence if the person has disclosed to the police his suspicion that the property is derived from criminal conduct and thereafter does any act which would otherwise amount to a contravention of Article 32(1) only with the consent of the police.  This provision gives rise to the now not uncommon situation where, following the development of a suspicion on its part, a financial institution makes a suspicious transaction report to the Financial Investigation Unit of the States of Jersey Police. On occasions the police will thereafter grant consent to the financial institution to continue to deal with the assets in question (particularly if the police do not wish to arouse the suspicion of the customer at that time) but on other occasions the police will not grant their consent.  In these circumstances the financial institution is usually advised by its lawyers not to deal with the funds in question because, having made a suspicious transaction report, it is at risk of committing an offence under Article 32(1) if it makes a payment out of the funds without the consent of the police.  The result is that, both in Jersey and in other financial centres with similar legislation, difficulties arise in cases where the customer requires access to his funds but the financial institution has made a disclosure and is not willing to pay them out without the consent of the police, which is not forthcoming.  There is, in effect, a form of informal or unofficial freezing of the customer's funds by the financial institution without any court order.  That is what occurred in this case.

4.        On 20^th April 1998 the Trustee constituted the Eyo Trust ("the trust") by declaration of trust.  The representor was the settlor.  The trust was a conventional discretionary trust of which the representor and his issue were the beneficiaries.  At some time in 2002, the Trustee made a suspicious transaction report in respect of the trust.  Following this disclosure the police did not grant consent to the Trustee's dealing with the trust assets.  By letter dated 19^th June 2002, written in response to a request by the representor that it should retire as trustee, the Trustee stated that it had been advised by the police that there was an investigation into the trust and that the investigation was focused on the connection between the trust and the affairs of General Abacha, his government and associates.  The letter also advised that the police wished to speak to the representor. 

5.        The representor came to Jersey in order to assist and, with his agreement, he was served with notices issued by the Attorney General under the Investigation of Fraud (Jersey) Law 1991.  These notices required him to attend and answer questions (which he did on 7^th August 2002) and to produce documents about the transactions whereby the initial funds had been contributed to the trust.

6.        It appears that approximately US$5 million was originally contributed to the trust in three instalments.  $2.1 million apparently came from the proceeds of a contract of sale whereby, it was alleged, a lorry and two skips (or possibly a few of them) were sold by the representor to the Nigerian government for a total price of over $3 million when the true value of the goods was some £60,000.  The second payment of $2.5 million came from Elf Petroleum (France).  This was said to be part of a payment of $4 million by Elf France to the representor.  The third payment to the trust was a sum of $400,000.  According to the Attorney General his investigation was part of the worldwide investigation into corruption by officials of the government of the late Nigerian dictator General Abacha.  It is claimed that General Abacha stole up to $3 billion from that country's coffers.  The representor's father was the finance minister in that government.

7.        Following the meeting in 2002, the representor appears to have written to the Attorney General on 6^th March 2003 (I have not been shown that letter) complaining that the investigation was taking some time and that, in the meantime, he did not have access to the funds of the trust.  It appears that the representor had been asking for some £300,000 out of the trust but the Trustee had refused to consider such a distribution to him because of the lack of consent on the part of the Jersey police.

8.        Advocate Belhomme replied on 13^th March on behalf of the Attorney General.  He referred to the payment for the lorries and the payment from Elf Petroleum.  He pointed out that the representor had not been able to produce any documents to justify his explanation that the payment from Elf was for helping Elf obtain a Nigerian tax credit of $480 million. 

9.        It would appear that no documents were forthcoming from the representor in response to that letter, but on 25^th June 2003 Advocate Fielding, instructed by the representor, wrote to Advocate Belhomme enclosing a copy of a letter dated 22^nd May 2003 from the Attorney General of Nigeria to the Attorney General stating that the Nigerian government authorities did not contemplate taking any action against the representor and were satisfied with the nature of the transactions undertaken.  Advocate Fielding asked for confirmation that the Attorney General's investigation in Jersey would therefore be dropped. 

10.      Advocate Belhomme replied on 6^th August 2003.  He accepted that, in the light of the letter from the Attorney General of Nigeria, the investigation concerning the lorry transaction could not be taken any further.  However he pointed out that the representor had still not produced any documents to explain the payment from Elf France and that enquiries in this respect were being pursued with the French authorities.  By letter dated 7^th August Advocate Fielding's office queried the need to continue the Elf investigation.  In his reply of 12^th August Advocate Belhomme pointed out certain inconsistencies in the representor's explanations concerning the payment.  He emphasised that the Attorney General was in the hands of the French authorities in relation to the investigation but that he would continue to liaise with those authorities in order to bring the matter to a conclusion.  He also referred to the fact that there was an investigation into the third tranche of initial funds, namely the $400,000 and that that investigation should be concluded by the end of August 2003. 

11.      Advocate Fielding sent a chaser on 11^th September and on 22^nd September Advocate Belhomme informed the representor that investigations would not be continued in respect of the $400,000 as well as the $2.1 million.  That left only the $2.5 million from Elf France which remained under investigation.  On 3^rd October the representor tabled his representation.  I will refer to it in greater detail shortly.   On 8^th October, there was a meeting between representatives of the Attorney General and Advocate Fielding and others advising the representor.  Mr Collingwood Thompson QC, who had been retained by the Attorney General in connection with the Abacha investigation, explained the history of the investigation.  He said that the Trustee had originally been informed by the representor that the funds for the trust were gifted to him by his father.  This had turned out to be untrue in that $2.1 million had come from the proceeds of the lorry sale and $2.5 million had come from Elf France in circumstances where the information provided to the Attorney General by the French investigating magistrate was that a representative of Elf had said that the payment to the representor was a bribe so that he would intercede with his father (the finance minister) in order to sort out an urgent tax problem which Elf had encountered in Nigeria.  Enquiries were ongoing in respect of the Elf payment but Mr Thompson informed Advocate Fielding that the Attorney General should have all the information necessary to reach a decision by the end of November.  In the circumstances it was agreed that the representation, which had convened the Trustee and the Attorney General for 10^th October, would on that date be adjourned until 5^th December 2003. 

12.      On 9^th December 2003 Advocate Belhomme wrote summarising the position and confirming that, in the absence of any further evidence from Nigeria, the Attorney General had decided to close the investigation into the representor.

13.      I have not referred to it but, during this period, there had been periodic correspondence between the Trustee and the representor (or their respective lawyers) about the desire of the representor for a capital distribution but the Trustee had maintained its stance.  It was not willing to make any payment without the consent of the police.  There had also been correspondence concerning a change of trustee but the attitude of the Trustee in this respect was the same.  I assume - although I have not seen any evidence of it - that the consent of the police was forthcoming shortly after the letter from Advocate Belhomme of 9^th December 2003 or that, in the light of the decision to discontinue the investigation, the Trustee felt safe in proceeding without the consent of the police.

The proceedings

14.      The representor convened both the Trustee and the Attorney General.  However relief was only sought against the Trustee.  The representation referred to the fact that the representor had asked for a capital distribution of £300,000 out of the trust and that the Trustee had refused to exercise its discretion to make such an appointment because of the risk of its thereby committing a criminal offence under Article 32 of the 1999 Law.  The representation also raised an issue concerning an attempt by the representor to appoint a replacement trustee of the Trustee.  In summary at paragraph 13 of the representation, the representor alleged breach of trust by the Trustee in failing to exercise its power to distribute funds.  The representation sought relief only against the Trustee.  The relief sought was an order that the Trustee should pay the trust fund to the representor, a declaration that the Trustee had been removed and replaced as trustee by two persons who had been nominated by the representor, damages (presumably in respect of losses suffered as a result of not having received the £300,000 although this was not specified) and costs.  No relief was sought against the Attorney General.  The only reference to him was to the effect that he was carrying out an investigation and had served notices under the Investigation of Fraud (Jersey) Law 1991. 

15.      At the hearing before me the representor sought leave to amend the representation by including a prayer that the Attorney General should be ordered to pay the costs.  In the interests of ensuring that all matters could be fully ventilated I granted leave to amend.  Initially the representor simply sought an order for costs.  However, during the hearing, it was pointed out to him that, in the absence of some form of final disposition of the representation, there would not appear to be any jurisdiction to make an order that a party should pay the costs of the whole proceedings.   Accordingly Mr Blakeley sought leave, which was not opposed and which I granted, to file a summons seeking leave to withdraw the representation on terms that the Attorney General, failing whom the Trustee, should pay the representor's costs.  Thus the representor's primary claim for costs is against the Attorney General rather than the Trustee.

The parties' contentions

16.      Mr Blakeley's submission was essentially very simple.  The representor had been denied access to trust funds from June 2002 to December 2003.  Investigation into his affairs had been dropped.  He was therefore to be treated as having been cleared of any wrongdoing.  He co-operated with the investigation and no blame was to be laid at his door.  Of the three parties to the litigation, if anyone should be reimbursed his costs, it should be the representor.  Furthermore, when conducting an investigation, the Attorney General was under a duty to do so promptly.  There should be no unreasonable delay in carrying out such an investigation.  He accepted that Article 6 of the European Convention on Human Rights (which requires that, in the determination of a criminal charge against him, a person is entitled to a hearing within a reasonable time) was not directly applicable because there was no criminal charge here, only an investigation.  Nevertheless, he submitted that, by analogy, a person is entitled to have a criminal investigation against him carried out in a timely manner and, if it is not, a costs order may be made to reflect that failure. He submitted that, on the facts of this case, the Attorney General had not acted in a timely manner.  He submitted that, if the representor had not issued the proceedings, the investigation would have continued at an extremely slow pace and might even still have been continuing now.  At times Mr Blakeley's submission appeared to be directed more towards a question of compensation for loss suffered as a result of the unavailability of distributions from the trust fund but, following receipt of instructions, Mr Blakely confirmed that this was not what was intended; the representor was confining his claim to costs.

17.      Mr Belhomme submitted that the claim for costs against the Attorney General was misconceived.  No relief was sought against the Attorney General in the proceedings.  It was not even clear why he had been convened.  The proceedings involved merely a claim against the Trustee that it should be ordered to pay the trust fund to the representor.  There was no 'lis' or dispute between the representor and the Attorney General; the only 'lis' was between the representor and the Trustee by reason of its refusal to consider distributing trust funds to the representor.  He cited in support of his contention that the claim against the Attorney General was misconceived certain comments of Tomlinson J in Amalgamated Metal Trading Limited -v- City of London Police Financial Investigation Unit and others.  In any event, he said, the Attorney General had pursued the investigation perfectly properly and with reasonable despatch.   Accordingly it would be quite wrong to make an order for costs against him where he was simply fulfilling his duty to investigate alleged criminal offences. 

18.      Mr Thompson, on behalf of the Trustee, submitted that there were no grounds for ordering it to pay the representor's costs.  It was simply caught in the middle.  Having made a suspicious transaction report, it could not safely pay out any monies from the trust fund without the consent of the police.  Such consent had not been forthcoming.  The Trustee had acted reasonably throughout.  It had made regular enquiries of the Attorney General as to the progress of the investigation in order to see if consent could be given.  It was not its fault that the matter was not resolved earlier. 

The claim against the Attorney General

19.      The anti-money laundering legislation both here and in the United Kingdom means that situations such as that which arose in the present case are likely to occur again in future for the reasons set out in paragraph 3.  There is at present no clear guidance from the courts on the appropriate procedure to resolve matters where a customer is denied access to his funds by the bank because of a suspicion of money laundering coupled with a refusal to consent to distributions on the part of the police.  An application for costs is certainly not the occasion upon which to give such general guidance.  But the matters were touched upon in argument and it would seem on the face of it that a customer who wishes to try and break the log-jam by obtaining access to funds which have been informally frozen by his bank, has at least two alternative courses.  Firstly he could institute a public law action against the police seeking an order that their refusal to consent to payments be quashed and that they be ordered to consent.  It is the police, not the Attorney General, who are given the statutory authority to consent and any action would therefore have to be against them rather than the Attorney General. 

20.      Alternatively the customer could institute a conventional private law action against the bank seeking an order that it pays him his funds.  That approach would seem to be consistent with the approach of Tomlinson J in Amalgamated Metal Trading.  In that case AMT reported suspicions about Wavemetsco (W) to the City of London police.  AMT held a credit balance of US$450,000 in favour of W.  The police refused to consent to AMT's transferring those funds to W and accordingly AMT froze that money.  In order to resolve the position, AMT instituted proceedings.  These followed a somewhat tortuous procedural route but for present purposes they can be summarised by stating that AMT sought a declaration against the police (subsequently the SFO who took over the investigation) that the credit balance was not the proceeds of crime.  W was joined as second defendant.  When the matter came before Tomlinson J, the issue was whether the police/SFO were proper parties to the action or should be discharged and whether W should be given permission to institute a counterclaim against AMT seeking payment of the credit balance.  The judge held that the police/SFO should not have been joined to the particular issues raised by AMT and that the proper parties to the dispute were AMT and W. 

21.      The following passages are helpful:-

"27     As to [whether the proceedings were misconceived when launched], it was never in my judgment appropriate for AMT to seek as against the police a declaration that the moneys are not the proceeds of criminal conduct.  It was never an issue between those parties whether the moneys were such proceeds, and there was and is no occasion for the creation of a lis between them directed to determination of that point.  The only question which the police ('the constable' in the language of the statute) were asked was whether they consented to the payment being made.  Had they given their consent, AMT would have a defence under s 93A.  The 1988 Act is, however, silent as to the basis upon which consent is to be given or refused.  The provision would manifestly be unworkable if the constable could only justify the withholding of consent if he could demonstrate his satisfaction, to whatever might be the appropriate standard, that the funds are in fact derived from or used in connection with criminal conduct.  It seems clear from the section as a whole that the existence of a suspicion is sufficient to ground a proper refusal of consent.  It is important to note that there has here been no public law challenge to the propriety of the exercise by the constable of his discretion.  It would surely be odd if a legitimate withholding of consent which can be justified on grounds of suspicion were to lead to the situation in which the police must defend (and perhaps pay the costs of) proceedings directed towards determination of a question wholly different from that which they were asked, viz the ultimate question whether the funds are in fact derived from or used in criminal conduct.  I cannot think that either Parliament or the Court of Appeal envisaged that this would be the procedure to be followed consequent upon a proper withholding of consent.  Such a procedure places an undue and inappropriate burden upon the police, effectively requiring them to litigate at public expense what are in truth private disputes between financial institutions and their customers.  The arising of such disputes is one of the ordinary commercial risks which any financial institution faces.........

30   The situation is now, however, transformed by Wavesmetco's application to introduce a counterclaim seeking payment of the money by AMT.  If I grant permission for that counterclaim to be introduced then at last issue will be joined between the two parties in contention.........

31    I should indicate, insofar as it is not already apparent, that I reject as wholly inappropriate Wavesmetco's suggestion that I should now make a final declaration to the effect that the moneys are not the proceeds of criminal conduct.  For the reasons I have already given that is an order of a type which the court could only consider making after trial of the issue.  Furthermore Wavesmetco has done nothing whatever to rebut the inferences which can be drawn from the material placed before the court by the liquidators.  If anything, its conspicuous failure to grapple with the issues has made the inferences more compelling.  In any event the issue now is not whether there should be made a declaration that the moneys are not the proceeds of criminal conduct but rather whether Wavesmetco has an enforceable claim to payment by AMT.  In that regard I would merely remind Wavesmetco of Lord Woolf CJ's observations in the Bank of Scotland case.  He there observed ([2001] 1 All ER (Comm) 1023 at [41]:

           'The commencement of proceedings [against the bank] would no doubt be closely followed by an application for summary judgment under Pt 24.2.  Under Pt 24.2, the court will only give judgment to a claimant if the bank has no real prospect of successfully defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial.  Where the circumstances are as suspicious as they were in this case they could well provide very good reason for the court not being prepared to grant summary judgment.' (Tomlinson's J's emphasis)

32    As I have indicated above I am not unsympathetic to the dilemma in which AMT finds itself.  I recognise that financial institutions do not wish to have judgments entered against them.  There are also increasing regulatory constraints upon their action.  However, there will be circumstances, as envisaged by the Court of Appeal in the Bank of Scotland case, in which the court simply cannot assist, and the bank will have to take a commercial decision whether to contest proceedings or not.  It is to my mind inconceivable that there could be criminal proceedings brought under s 93A against a bank or other financial institution which has taken such steps as are reasonable in all the circumstances to resist proceedings but has nonetheless been ordered by the court to pay over money which subsequently is proved to be the proceeds of criminal conduct.  Consultation and liaison with the police is obviously always prudent.  Every case will depend upon its own facts, but I cannot think that the court will require financial institutions to run defences which in the view of the their responsible legal advisers are unsustainable on the basis of the evidence reasonably available to them"

22.      A public law challenge to the refusal to consent by the police would be a conventional application for judicial review but it would clearly face certain difficulties in succeeding.  As Tomlinson J made clear, the issue would not be whether the monies were in fact derived from or used in criminal conduct.  The issue would be whether the decision of the police to refuse consent was liable to be quashed on the usual grounds for judicial review e.g. that such refusal was a decision to which no reasonable police officer could have come.  Nevertheless that is clearly one option available to customers whose funds have been informally frozen by their bank

23.      A better solution, as envisaged both in Amalgamated Metal Trading and in Governor & Company of the Bank of Scotland -v- A Limited (2001) 1 WLR 751 might be for the customer to institute proceedings against the financial institution seeking payment of the monies.  At the trial of the issue the customer would have the opportunity of producing detailed evidence as to the provenance of the funds with a view to proving that the funds were not derived from or used in criminal conduct.  .

24.      Although the representation did not plead the matter very fully, it is nevertheless consistent with the latter approach referred to above.  In other words it is a private law action against the Trustee seeking payment of the funds in question.  It therefore concerns a dispute between the representor and the Trustee over the Trustee's refusal to consider distributing the funds.  There is no allegation against the Attorney General, even in the amended representation.  The only mention of the Attorney General is in relation to his carrying out an investigation and in the prayer for costs.  There is accordingly no lis or dispute between the representor and the Attorney General as disclosed in the pleading.  In the circumstances I agree with Mr Belhomme that the application for costs against the Attorney General is misconceived.  In my judgment it would not be a proper exercise of discretion to order the Attorney General to pay the costs of proceedings which are not directed towards him and in which no substantive relief is sought against him.

25.      Even if I am wrong in my principal ground for refusing an order for costs against the Attorney General, I would also decline to make such an order on the basis that I do not consider that the Attorney General has behaved in such a manner as to justify the making of an order.  I agree that Article 6 of the European Convention has no application.  No criminal charge has been brought in this case.  Even assuming, without deciding, that if the Attorney General were to be extremely dilatory and unreasonable in the manner in which he pursued an investigation, he could be ordered to pay the costs of some proceedings to which he was properly a party,  I do not consider that that is the situation here.  He and the police were carrying out their duty to investigate alleged large scale money laundering.  The investigation formed part of the very substantial worldwide investigation into the affairs of General Abacha.  Following receipt of the letter of 22^nd May 2003 from the Attorney General of Nigeria, the Attorney General discontinued investigation into the lorry transaction in early August.  By the end of September he had also discontinued the investigation into the $400,000.  Accordingly, by the time the representor instituted his proceedings, there remained only the investigation into the Elf France transaction where the Attorney General was awaiting information from France and possibly Nigeria.  He informed the representor that he would reach a decision by December 2003.  When information to justify continuation of the investigation was not forthcoming by December, the Attorney General decided to take the matter no further and the Trustee was thereafter free to deal with the trust funds.  Furthermore, the representor did not assist his own cause.  He was asked in August 2002 to produce documents concerning the contribution of initial funds to the trust.  In March 2003, Advocate Belhomme pointed out to him that he had still not provided documents to justify his explanation that the payment from Elf was for helping Elf obtain a Nigerian tax credit of $480 million.  This point was made again by Advocate Belhomme in his letter of 6^th August.  Yet no documents were ever produced.

26.      In the light of this failure on the part of the Representor, it is hardly surprising that the Attorney General maintained his suspicion and continued the investigation into this transaction.  I see no grounds for criticism of the Attorney General or his officers in the way in which they carried out their duty to investigate allegations of money laundering.  I do not find that they did not act in a timely manner.  I consider that it would be quite wrong to penalise the Attorney General in costs for pursuing an investigation in a reasonable manner into serious allegations of money laundering simply because the investigation has not matured into a prosecution. 

The claim against the Trustee

27.      As a fallback the representor claims costs against the Trustee.  I see no reason why I should make such an order.  There is no suggestion that the Trustee acted unreasonably in making a suspicious transaction report.  Once the suspicion had arisen, it was clearly reasonable for the Trustee not to distribute funds in the face of a refusal by the police to give their consent.  The action by the representor against the Trustee has not been pursued to a conclusion; it is no longer necessary because of the termination of the investigation.  Accordingly there has been no winner or loser in the action and I see no grounds upon which it would be proper to penalise the Trustee in costs. 

28.      In my judgment the only fair order to be made in this case is that the representor be given leave to discontinue the proceedings on terms that each party bears its own costs. 

Authorities.

Proceeds of Crime (Jersey) Law 1999: Article 32.

Investigation of Fraud (Jersey) Law 1991.

Amalgamated Metal Trading Limited -v- City of London Police Financial Investigation Unit and others.  (2003) 4 All ER 1225.

Governor & Company of the Bank of Scotland -v- A Limited (2001) 1 WLR 751.