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Lord Goldsmith: The purpose behind the provisions in relation to "associated property", I apprehend, is accepted and acceptable to the noble Lord, Lord Goodhart. It would therefore be common ground between us that there will be cases where the purpose of the process of civil recovery would be frustrated if it were not possible, in the first instance, to freeze by an interim order; and, secondly, perhaps to realise property without at the same time dealing with the interest of somebody other than the person who was alleged to be holding the proceeds of crime.

One can think of many examples, some of which were referred to by the noble Lord, Lord Goodhart, where associated property is tied up with recoverable property, the proceeds of crime, that make it necessary, in the first instance, to freeze and perhaps, in the second instance, to deal with the two together; for example, different interests in real property, leasehold and freehold, and perhaps mortgages in relation to property. There are other examples. I yield to the noble Lord, Lord Goodhart.

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Lord Goodhart: I am grateful to the Minister, but I would have said that freehold and leasehold interests in the same property were a pre-eminent example of a case in which it is unnecessary to realise both assets and where the realisation of one would suffice. A tenancy in common is a different case.

Lord Goldsmith: I am grateful to the noble Lord for his intervention, but the point that I was seeking to make is that there will be many instances, of which only a few have been mentioned today, in which in order to give effect to the process it will be necessary to do something in relation to the associated property either at the interim receiving order stage or at the second stage.

Without going into detail, I want to emphasise that it is of course important—and the Bill so provides—that there are safeguards for those who have the associated property. The Government's difference of opinion with the noble Lord concerning his amendment is simply a question of whether the safeguards already in the Bill, which rely on the discretion of the court, are themselves entirely satisfactory. I suggest that they are.

Let me make clear what I have in mind. First, we would not expect proceedings to be brought in respect of non-recoverable property unless the enforcement authority considered it proportionate to do so, taking into account all the circumstances, including how best to satisfy any right it has to recover the recoverable property. There is no purpose in the enforcement authority proceeding unnecessarily in relation to associated property.

But if the enforcement authority makes an application—we are now considering the receiving order stage—it will be for the court to decide in accordance with its discretion what property is to be covered by the order. I—and, I should think, the noble Lord—would not expect any court to include associated properties in the order unless it saw a case for doing so. But it does not end there, because Clause 260(2) explicitly provides that:

"The court may vary an interim receiving order so as to exclude from the property to which the order applies any property which is . . . associated property if the court thinks that the satisfaction of any right of the enforcement authority to recover the property obtained through unlawful conduct will not be prejudiced".

I suggest that that entirely meets the noble Lord's point, in the sense that the court can on an application made to vary—which can be issued shortly after the order has been made—the order so as to exclude property if, in the court's view, it will not prejudice the right to recovery. The Bill provides that when an order in relation to associated property is made, the owner of that associated property should receive notice.

Our view is therefore that it is unnecessary—indeed, it is inappropriate—to insert in the Bill the specific test proposed by the noble Lord. It is better to leave it to the discretion of the court and the test referred to in Clause 260(2). But I need to go further than that, because it is then necessary to consider the position at the next stage, which is when an order is made in

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relation to recoverable property at the final stage, as it were, of the proceeding, when the court decides that it is recoverable property.

Clauses 274 and 275 are pertinent here. Clause 274 sets out a provision to deal with those cases—we may anticipate that they may be frequent—where there is an agreement between the enforcement authority and the person who holds the associated property about how to go about realising the recoverable property without prejudicing the interests of the associated property. One distinct possibility if the property cannot be divided up or separated will be that one person simply buys the other person out. If there is no agreement, Clause 275 sets out what should be the process, which is then for the court to make an appropriate order. As the Committee will see from Clause 275(3), that could include an order by the court that the trustee—that is, the person who will be executing and in charge of the recovered property—must pay an amount to the person who is the associated owner. Indeed, under subsection (5), there is even the possibility of compensation being payable.

Against that background, I shall deal specifically with the amendments. On Amendment No. 214, it is unnecessary to include a specific provision in the Bill—it can be left to the discretion of the court and, as I said, the interim proceeding order can be varied on application.

Amendments Nos. 220C and 223B would add a new subsection to Clause 260 that would set out in the Bill that the court has power to exclude associated property if it thinks that to include the property would unfairly prejudice the rights of the person to hold the property—if that person is not the respondent in the civil recovery proceedings. Our view is that no such provision is needed in the Bill. The court can be relied on to take into account the rights of holders of associated property and may make exclusions on a variation order.

It will be important—this is why the amendment would be wrong—to have regard to the interests not only of the owner of the associated property but of the enforcement authority. At the interim receiving order stage, the property will be the subject of dispute between the state and the holder of assets, so the court ought to be mindful of the effect of any decision that it takes on the potential outcome. As I have sought to demonstrate, it is when the court comes to make a final order that the interests of the associated owner can fairly be taken into account—either by reason of an agreement to which effect is given under Clause 274 or by reason of the provision under Clause 275 for the court to make orders.

Finally, I turn to Amendment No. 224, which would add a new subsection to Clause 275, to which I have referred. The amendment would include the provision that it was,

"not reasonably practicable to realise the recoverable property without also realising the associated property".

In making provision under Clause 275, the court is already required to have regard to the rights of any person who holds the associated property and the

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value to him of that property as well as the enforcement authority's interest. If the court makes provision for the disposal of associated property, it will give an order requiring the trustee to pay the holder an appropriate amount and/or compensation. The interests would be well protected at that stage.

The key factor is that neither the court nor the enforcement authority will have an interest in applying a recovery order to associated property if the recoverable property could be realised without undue difficulty without realising the associated property. Why should the enforcement authority pay for associated property that it does not need in order to realise the recoverable property?

Those explanations are a little complex, but I hope that they will be of assistance and will lead the noble Lord to the view that the safeguards are adequate and that he may withdraw the amendment.

Lord Goodhart: I am grateful to the noble and learned Lord for his detailed explanation. I accept that there are several safeguards, but I am not entirely satisfied that they go far enough.

The Minister said that the enforcement authority would not ask for an order relating to associated property unless it was necessary to do so. I would not have much confidence in that as a system of protection. In the nature of things, an enforcement authority is likely to ask for an order that covers associated property if it thinks that there is even a remote possibility that that might assist. The enforcement authority has what we might call a professional interest in the matter, and I would not rely on the exercise of discretion by the authority as a safeguard. The position of the court is more important.

I do not see why the owner of the associated property must go to court to ask for a variation of the original interim receiving order. We should make it clear in the Bill that the enforcement authority must make a case explaining why it is necessary for the associated property to be included in the order for the property to be effectively realised.

Lord Goldsmith: I anticipate that the noble Lord will say that he will reflect on the matter. I would expect—I imagine that he would, too—that, without there being anything in the Bill, the enforcement authority, when it asks for an interim receiving order that covers associated property, will want to be satisfied that it makes sense and that there is a good reason for doing so.

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