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|Judgments - Government of The United States of America v. Montgomery and Another
HOUSE OF LORDS
Lord Hoffmann Lord Cooke of Thorndon Lord Hutton Lord Hobhouse of Wood-borough Lord Scott of Foscote
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
GOVERNMENT OF THE UNITED STATES OF AMERICA
MONTGOMERY AND ANOTHER
ON 25 JANUARY 2001
 UKHL 3
The English proceedings
1. On 5 September 1997 Collins J made restraint orders under section 77 of the Criminal Justice Act 1988 against the appellants Kathleen Montgomery and her husband Lee Edwin Montgomery. The orders restrained them from disposing of various assets and required the disclosure of financial information. They were made in aid of confiscation orders which had been made by a Federal District Court in the United States against Mrs Montgomery and her former husband Larry Barnette, following the conviction of the latter in 1984 for fraud upon the government of the United States. The power to make restraint orders in aid of confiscation orders made in the United States ("external confiscation orders") was conferred upon the High Court with effect from 1 August 1994 by the Criminal Justice Act 1988 (Designated Countries and Territories) Order (SI 1991/2873) ("the DCO") as amended by the Criminal Justice Act 1988 (Designated Countries and Territories) (Amendment) Order 1994 (SI 1994/1639).
2. On 20 February 1998, on the application of Mr and Mrs Montgomery, Latham J discharged the orders. He did so on two grounds. The first was that the powers of the Act could not be used in aid of American confiscation orders made before the DCO was applied to the United States. The second was the orders of the Federal District Court did not qualify as external confiscation orders for the purposes of the DCO.
3. The government of the United States appealed to the Court of Appeal. There, Mr and Mrs Montgomery raised the preliminary objection that the court had no jurisdiction to hear the appeal. They said that jurisdiction was excluded by section 18(1)(a) of the Supreme Court Act 1981 which provides that "no appeal shall lie to the Court of Appeal . . . from any judgment of the High Court in any criminal cause or matter." The Court of Appeal (Stuart-Smith, Aldous and Swinton Thomas LJJ)  1 All ER 84 overruled the objection. They said that enforcement proceedings under the DCO were civil in nature. A restraint order was not a judgment in a criminal cause or matter. They proceeded to hear the appeal and reversed the judge on both points. The restraint orders were accordingly reinstated. Against this decision Mr and Mrs Montgomery appeal to your Lordships' House.
The American proceedings.
4. My Lords, in order to follow the shape of the argument advanced to your Lordships, it is necessary to know something about what one American judge described as the prodigious litigation between the government of the United States and Mr Larry Barnette and his then wife, now Mrs Montgomery, which has been proceeding in the Federal District Court for the Middle District of Florida since 1983. Mr Barnette is an American citizen who controlled companies which, between 1977 and 1982, enjoyed the benefit of profitable contracts to operate laundries constructed by the United States government in Germany to wash the clothes of American servicemen. During this period he defrauded the United States of some $15 million. Mr Barnette also laundered money. Part of the proceeds of the fraud were passed to a Panamanian company which he controlled called Old Dominion SA ("ODSA"). It transferred the money to accounts in its name in such places as Switzerland and Liechtenstein.
5. In August 1983, shortly before he was indicted for the fraud, Mr Barnette transferred 800 of the 900 shares which he held in ODSA to Mrs Barnette (as she then was) and the remaining 100 to his children. After a lengthy trial in 1984, he was convicted on a number of counts of fraud and related offences, including offences under the Racketeer Influenced and Corrupt Organisations Act ("RICO"). On 15 October 1984, under a power contained in RICO, the District Court ordered that he forfeit his interest in the shares or common stock of ODSA. This forfeiture order forms the origin and basis of the confiscation orders which the United States is attempting to enforce in these proceedings. On 2 November 1984 Mr Barnette was sentenced to a term of imprisonment and (under powers contained in another statute) to pay $7 million to the United States by way of restitution. Requested to clarify the relationship between the forfeiture and restitution orders, the judge ruled that the proceeds of the two orders were to be set off against each other, so that Mr Barnette's liability would be limited to $7 million or the value of the ODSA shares, whichever was the greater. In order to enable the value of the shares to be ascertained, Mr Barnette was ordered to provide full information about ODSA's assets and liabilities.
6. On 10 January 1985 Mr Barnette paid $7 million into court in satisfaction of the forfeiture order. Whether he was under any further liability depended upon the value of the ODSA shares. But the government had great difficulty in ascertaining what that value was. He did not comply with the order to provide information or subsequent orders for discovery. He claimed that the shares could not have been forfeited because when the order was made he no longer owned them. But the court ruled that under RICO the government's title to the forfeited property related back to 3 August 1982, the date of the last criminal act of which he had been convicted. It therefore antedated the transfer to Mrs Barnette and the children. Mr Barnette was obliged to surrender the shares or their value whether he still owned them or not. Mr Barnette also claimed that as his wife now controlled ODSA, he could not provide the required information. She had left him in 1983 and taken up citizenship in the Caribbean and residence in England. On 15 December 1992 the court made an order for discovery against Mrs Barnette but she was out of the jurisdiction and did not comply.
7. In January 1995 the U.S. government lawyers had a success when they managed to persuade a Liechtenstein bank, which held $3,758,127.93 in an account in the name of ODSA, that they were entitled to give instructions on behalf of the corporation. They confiscated the money. The government then invited the court to determine the value of the ODSA shares as at 15 October 1984 on the materials available, so that the balance payable under the forfeiture order could be ascertained. It also moved for orders that both Mr and Mrs Barnette were in contempt of court, first, for conspiring with each other to frustrate the original forfeiture order and secondly, for failing to comply with the discovery orders against them.
8. In a judgment dated 18 August 1995 the court found that the value of the ODSA shares as at 15 October 1984 was $11, 217, 833.01. That meant that, after giving credit for the $7 million already paid, Mr Barnette owed the United States $4,217,833.01. The court held that Mr and Mrs Barnette were both in contempt and made an order against both of them for payment of the $4,217,833.01. This is the second of the confiscation orders upon which the US government now relies.
9. Neither side was satisfied with this order and they both invited the court to revise it. Mr Barnette wanted credit for the $3,758,127.93 which the government had seized in Liechtenstein. In addition, the $7,000,000 paid into court had earned $459,705.08 interest. If credit was given for both these sums, the debt to the government would be extinguished. The government, on the other hand, said that the sum of $4,217,833.01 reflected only what should have been paid in 1984. That sum should be increased to reflect the value to Mr and Mrs Barnette of having retained this forfeited property for over 10 years. In addition, the Barnette's should pay the government's legal, investigative and expert fees.
10. In order dated 15 November 1995 the court made an order giving effect to all these adjustments. Mr Barnette was allowed credit for the Liechtenstein money and the interest. On the other hand, the sum to be forfeited was increased from $4,217,835.01 to $11,767,754 by applying US Treasury interest rates from January 1985 to June 1995. $326,275.58 was also ordered to be paid in respect of fees and expenses.
11. The order which the US government seeks to enforce is the revised forfeiture order of 15 November 1995, other than the sum awarded for fees and expenses, which it accepts does not qualify for enforcement under the DCO.
The question of jurisdiction
12. The jurisdiction to make a restraint order under section 77 of the 1988 Act (whether in aid of a domestic or external confiscation order) is conferred upon the High Court. In general, appeals from the High Court lie to the Court of Appeal. Section 16 of the Supreme Court Act 1981 provides that "subject as otherwise provided by this or any other Act . . . the Court of Appeal shall have jurisdiction to hear and determine appeals from any judgment or order of the High Court." The only provision relied upon as excluding this jurisdiction is section 18(1)(a), which excludes appeals "from any judgment of the High Court in any criminal cause or matter."
13. Mr Mitchell QC, who appeared for the US Government, submitted that whether the restraint order had been made in a criminal cause or matter or not, it was an "order" and not a "judgment" within the meaning of section 18(1)(a). In civil procedure there was a distinction between judgments and orders, which was discussed by Lord Esher MR in Onslow v Commissioners of Inland Revenue (1890) 20 QBD 465. Put shortly, a judgment was a decision obtained in an action. Other decisions of the court were orders. But this distinction is impossible to transpose into criminal procedure. Ever since the phrase "judgment of the High Court in any criminal cause or matter" first appeared in section 47 of the Judicature Act 1873, it has been uniformly interpreted as applying generally to all orders made in a criminal cause or matter: see R v Steel (1876) 2 QBD 37; Ex parte Alice Woodhall (1888) 20 QBD 832. I would therefore reject this submission.
14. Mr Mitchell's alternative submission, which was accepted by the Court of Appeal, was that restraint orders are made in civil proceedings, even though they are made in anticipation of or consequential upon confiscation orders made in criminal proceedings. Mr Alun Jones QC, who appeared for the appellants, said that this gave too narrow a construction to the phrase "in a criminal cause or matter". The authorities showed that it should be given a wide meaning which was apt to embrace the enforcement of a confiscation order as well as the order itself.
15. The leading authority in this House on the meaning of the phrase is Amand v Home Secretary and Minister of Defence of Royal Netherland Government  AC 147, in which an order of the Divisional Court, refusing a writ of habeas corpus to a person who had been arrested with a view to his being handed over to a foreign power for trial on a charge of desertion, was held to have been made in a criminal cause or matter. Viscount Simon LC said, at p 156:
16. In R v Southampton Justices, Ex parte Green  QB 11 the question was whether an order by which magistrates estreated the recognizance of a surety for an accused who failed to answer bail was made in a "criminal cause or matter". Lord Denning MR, at p 15, quoted the second of the two sentences of Viscount Simon LC in Amand which I have cited above and said that if one applied "that test", the application to estreat the recognizance could not result in the trial of the surety or his punishment for any offence. The recognizance was simply a bond giving rise to a civil debt with a special enforcement procedure which was also civil.
17. My Lords, like Lord Bridge of Harwich in In re Smalley  AC 622, 634, I express no view upon the actual decision in R v Southampton Justices, Ex parte Green. But I think, with respect to Lord Denning, that Viscount Simon intended his second sentence to be illustrative of a case in which the "nature and character of the proceedings" were criminal and not an exhaustive definition of such proceedings. If they were, it would be difficult to explain why an order for the taxation of the defendant's costs in a failed prosecution for criminal libel was held to be "in a criminal cause or matter" in R v Steel, 2 QBD 37. Indeed, I would doubt the wisdom of trying to formulate any definition of "criminal cause or matter" to supplement the undefined expression used by Parliament.
18. Most of the cases on the subject concern orders made with a view to a criminal prosecution, such as for extradition (R v Governor of Brixton Prison, Ex parte Levin  AC 741) or the issue of a witness summons (Day v Grant (Note)  QB 972 ) or the production of documents Carr v Atkins  QB 963) or else decisions of superior courts by way of appeal from or judicial review of orders in criminal proceedings. Apart from some problems caused by Lord Denning's "test" in R v Southampton Justices, Ex parte Green  QB 11, 15, to which I have referred above, they have caused little difficulty. The present case, however, concerns the enforcement of an order made in criminal proceedings.
19. My Lords, it may be right, and possibly in most cases would be right, to regard orders made by way of enforcement of orders made or to be made in criminal proceedings as part and parcel of those proceedings. This was certainly the case in R v Steel, 2 QBD 37. But I would not accept what I regard as the extreme proposition of Mr Alun Jones that the nature of the proceedings in which the original order was made will necessarily determine whether the machinery of enforcement through the courts is a criminal cause or matter. Modern legislation, of which Part VI of the 1988 Act is a good example, confers powers upon criminal courts to make orders which may affect rights of property, create civil debts or disqualify people from pursuing occupations or holding office. Such orders may affect the property or obligations not only of the person against whom they are made but of third parties as well. Thus the consequences of an order in criminal proceedings may be a claim or dispute which is essentially civil in character. There is no reason why the nature of the order which gave rise to the claim or dispute should necessarily determine the nature of the proceedings in which the claim is enforced or the dispute determined.
20. A striking feature of the provisions of section 77 and the following sections of the 1988 Act is that the powers which they create are not given to the Crown Court or magistrates' court which made the confiscation order but to the High Court. Furthermore, those powers either mirror or are expressly by reference to the jurisdiction of the High Court in civil proceedings for the recovery of debts or the determination of proprietary disputes. The restraint order under section 77 is no more than a specialised form of the freezing order used in ordinary civil proceedings. The Act likewise applies the civil procedures for execution by charging orders over property and the appointment of receivers.
21. Furthermore, under Part VI, a confiscation order is enforceable against "realisable property", which is defined to include property in which the defendant has any interest (see sections 74(1)(a) and 102(7)). It will therefore include property held by a nominee on trust for the defendant. It will also include property held beneficially by a person to whom the defendant has made a gift caught by the Act: see sections 74(1)(b) and (10). It was presumably in reliance on these provisions that the restraint order was made against Mr Montgomery as well as Mrs Montgomery. But such provisions obviously give rise to the possibility of proprietary disputes involving third parties. The Act contains provisions for giving notice by registration under the Land Charges Act 1972 or the Land Registration Act 1925 and for the resolution of third party claims as well as the determination of priorities in bankruptcy or winding-up.
22. In my opinion, therefore, the jurisdiction conferred upon the High Court under Part VI is a civil jurisdiction, notwithstanding that that jurisdiction exists to enforce or determine disputes over the debts or proprietary rights created or consequent upon a confiscation order made by a criminal court. This was the view of the Court of Appeal in In re O (Restraint Order: Disclosure of Assets)  2 QB 521. If that is correct, then the same must be true of the use of the provisions of Part VI which the DCO applies to external confiscation orders. Mr Alun Jones accepted that his submission that the criminal nature of the proceedings in Florida was determinative of whether the restraint order had been made in a criminal cause or matter was inconsistent with In re O (Restraint Order: Disclosure of Assets)  2 QB 521. He submitted that it was wrongly decided. But for the reasons I have given, I respectfully think that it was right.
23. I should add that it seems to me very improbable that Parliament intended that there should be no right of appeal from orders made in the High Court under Part VI. Mr Alun Jones said that restraint orders were merely interlocutory and that Parliament might well have regarded a right of appeal as unnecessary. But there is no general rule that interlocutory decisions are not subject to appeal (apart from rulings in the course of a criminal trial, which involve special policy considerations) and orders under Part VI may have important consequences for the prosecution, the defendant and third parties. It seems clear to me that Parliament made no special provision for appeals because it considered that there was an appeal under the general jurisdiction of the Court of Appeal to hear appeals from the High Court. Of course Parliament may have been under a misapprehension, but this conclusion would produce such an unfortunate result that I would not accept it unless I felt compelled to do so.
24. It will be recalled that one of the reasons why Latham J. discharged the restraint orders was that in his opinion the DCO did not apply retrospectively to external confiscation orders which had been made before it was applied to the United States on 1 August 1994. The Court of Appeal said that even if this was the case, the relevant confiscation orders were those made against Mrs Montgomery on 18 August 1995 and 15 November 1995. Both were made after the relevant date.
25. Mr Alun Jones said that the later orders were no more than attempts to enforce the original forfeiture order of 15 October 1984. If that would not have been enforceable under the DCO, the ancillary orders against Mrs Montgomery should not be enforceable either. There seems to me some merit in this submission and although I do not disagree with the Court of Appeal, I would feel uneasy about the result if I did not think that the 1984 order would also have been enforceable.
26. For the purposes of this part of the argument, it is necessary to refer to some of the relevant statutory provisions. The DCO was made under powers conferred by section 96 of the 1988 Act:
27. Section 76 of the Act as modified and applied by the DCO provides:
28. There is nothing in the language of conditions (a) or (c) to confine them to proceedings instituted or external confiscations orders made since the commencement of the DCO. In the case of condition (a), there is an indication that the condition was definitely not intended to be so confined. Section 102(4) of the Act expressly provided that the powers of Part VI could not be used in connection with English domestic proceedings instituted before the commencement of the Act. But this provision was omitted, and no equivalent provision included, in the Act as applied to external confiscation orders. This suggests that Her Majesty in Council intended the DCO to apply to proceedings which had been instituted before it came into force. And if this was intended to be the effect of condition (a) there seems no reason why condition (c) should be limited to orders made after it came into force.
29. Mr Alun Jones had two answers to this reasoning. First, he said that the omission of a provision equivalent to section 102(4) was ultra vires the powers conferred on Her Majesty in Council by section 96. The words "nothing in this Part of this Act confers any power on any court in connection with proceedings against a person for an offence instituted before the commencement of this Part of this Act" meant that section 96 conferred no power upon Her Majesty in Council to apply the DCO to external confiscation orders in such a way as to confer upon an English court any power in connection with proceedings instituted in the foreign court before the commencement of the DCO. But this is not what section 102(4) says. The words refer to the institution of English proceedings in respect of offences under English law to which the Act applies. Whether an equivalent provision should be included in the Act as it applies to foreign proceedings was a matter for Her Majesty in Council, which decided to omit section 102(4) under its general power to modify the provisions of the Act in its application to external confiscation orders.
30. The second answer was that the power should be limited by the general presumption against retrospective legislation. This was the basis upon which Latham J held that the DCO did not apply to the 1984 Florida order. In the case of the imposition of a confiscation order by the criminal court, I can see that there are strong arguments for applying the presumption so as to limit the power to offences committed after the legislation came into force: see In re Barretto  QB 392. Indeed, in Welch v United Kingdom (1995) EHHR 76 the European Court of Human Rights decided that the application of the power to make a confiscation order in respect of an offence committed before Part VI came into force offended against the prohibition on retrospective penalties in article 7 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. But, as Lord Mustill said in L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd  1 AC 486, 525, "the basis of the rule is no more than simple fairness". There is no suggestion that the Florida confiscation order was imposed in respect of an offence committed before the power conferred by RICO came into force. It was made under existing powers in respect of property which Larry Barnette had obtained by a fraud upon the United States. In my opinion the enforcement in this country of rights conferred upon the United States by an order made before the DCO came into force is a very different matter from the retrospective imposition of a penalty. Even if there was nothing which the United States government could have done before 1 August 1994 to recover its assets from Mr or Mrs Montgomery by proceedings in this country, I see no unfairness in it now being allowed to do so.
The interest element
31. Mr Alun Jones finally submitted that so far as the confiscation order had been increased in amount by the addition of interest in November 1995, it was not an "external confiscation order" capable of enforcement under the DCO. The interest element had been added to punish the defendants for their contempt in not complying with the 1984 order at the proper time. It was not for the purpose of recovering the value of property obtained in connection with criminal conduct. That value had been determined in August 1995 and the debt in respect of the full amount had been discharged. This was the second ground upon which Latham J discharged the restraint orders.
32. My Lords, I agree with the Court of Appeal that the interest element was also part of an order for recovering from the defendants the value of property obtained as a result of the criminal conduct of Larry Barnette or, alternatively, for depriving them of a pecuniary advantage so obtained. The legislation is concerned with the value of the property to the wrongdoer and this value consists not merely in its capital value at a given point of time but also in the value of the retention of the property, which gave the defendants the opportunity to profit by its use. The defendants' acquisition of the assets which gave value to the ODSA shares was as a result of or in connection with criminal conduct of Larry Barnette and their continuing retention of those shares was likewise a result of the same conduct. Alternatively, if one looks at the pecuniary advantage which the defendants received, section 71(4) of the Act as applied by the DCO requires the defendants to be treated as if they had received "a sum of money equal to the value of the pecuniary advantage", i.e. the ODSA shares. The retention of such a sum for ten years is in itself a pecuniary advantage even if the whole of the original capital is repaid. In my opinion, therefore, an order which deprives the defendants of that further advantage is within the definition of an external confiscation order.