Judgments - Capewell (Respondent) v. Her Majesty's Revenue and Customs (Appellants) and another

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    18.  My Lords, in summarising the facts and the rather tortuous course of the litigation, I have made some passing references to some of the relevant statutory provisions, and to the general law of receivership. I must now address these matters more systematically, since (as Simon Brown LJ said in Hughes, para 50):

    "Statutory receivers are to be treated precisely as their common law counterparts save to the extent that the legislation expressly provides otherwise. The statute is not to be regarded as an entirely self-contained code incorporating nothing from the common law. The fact that, unusually (although not uniquely: consider such cases as F Hoffmann-La Roche & Co AG v Secretary of State for Trade & Industry [1975] AC 295 and Attorney General v Wright [1988] 1 WLR 164), the prosecutor cannot be required to give a cross-undertaking in damages (see RSC Ord 115, r 4(1)) does not constitute so fundamental a difference between statutory and common law receivers as to give rise to wholly discrete schemes for their remuneration."

    19.  The Court's power to appoint a receiver, as part of its auxiliary equitable jurisdiction, is of very ancient origin. It was described in Hopkins v Worcester & Birmingham Canal Proprietors (1868) LR 6 Eq 437, 447, as one of the oldest remedies in the Court of Chancery. It was used in a wide variety of situations in which there was a need for the interim protection of property (and the income of property), including disputes about partnerships, sales or mortgages of land, and administration of estates. Receivers could also be appointed by way of equitable execution. The receiver, being appointed by the Court, was an officer of the Court. His duty was to act impartially, and in accordance with the directions of the Court, in administering the property to which the receivership extended.

    20.  In short, the appointment of a receiver was in many cases the most effective way of "holding the ring" between warring litigants until the disputed issues could be finally determined. Because it is a useful procedure, Parliament has from time to time extended the range of situations in which a receiver or manager could be appointed—for instance, in order to enforce the repairing obligations of the absentee landlord of a block of flats (see Landlord and Tenant Act 1987 section 21). The provisions of section 77(8) of CJA 1988, section 26(7) of DTA 1994 and section 48 of POCA 2002 are a further important extension of the situations in which the court has a statutory power to appoint a receiver. Sections 48, 50 and 52 of POCA 2002 provide for three types of receivers (management receivers, enforcement receivers and Director's receivers, the latter appointed by the Director of the Assets Recovery Agency) but it is unnecessary to go into those details on this appeal.

    21.  It has always been a basic principle of receivership that the receiver is entitled to be indemnified in respect of his costs and expenses, and his remuneration if he is entitled to be remunerated, out of the assets in his hands as receiver. Warrington J stated the principle in a well-known passage in Boehm v Goodall [1911] 1 Ch 155, 161:

    "Such a receiver and manager [that is one appointed by the court] is not the agent of the parties, he is not a trustee for them, and they cannot control him. He may, as far as they are concerned, incur expenses or liabilities without their having a say in the matter. I think it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the assets which are under the control of the court. The court itself cannot indemnify receivers, but it can, and will, do so out of the assets, so far as they extend, for expenses properly incurred; but it cannot go further. It would be an extreme hardship in most cases to parties to an action if they were to be held personally liable for expenses incurred by receivers and managers over which they have no control."

    This passage was cited and applied by Vinelott J in Evans v Clayhope Properties Ltd. [1987] 1 WLR 225, 229-230 (upheld by the Court of Appeal [1988] 1 WLR 358, Nourse LJ, at p 363, sharing Vinelott J's doubts as to whether a receiver's remuneration could be recovered as litigation costs).

    22.  These principles were applied (though with some reluctance) by the Court of Appeal in Re Andrews [1999] 1 WLR 1236, a case of alleged VAT and PAYE frauds in which restraint and receivership orders were made against a father (who was eventually acquitted and awarded his costs out of public funds) and a son (who was eventually convicted of fraud). The facts were rather obscure since their business activities were carried on by three different companies, and the degree of control and financial interest enjoyed by different members of the family was uncertain. Ward LJ and Aldous LJ (with both of whom Hirst LJ agreed) said that remuneration and expenses (as such) could be charged only against receivership assets, and could not (under guise of litigation costs) be charged to anyone else on the principle in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, 975.

    23.  Re Andrews was considered and followed by the Court of Appeal in Hughes (one of three appeals by prosecuting authorities concerned with receiverships under CJA 1988 and DTA 1994). Simon Brown LJ set out ([2003] 1WLR 177, para 45) the appellants' argument (which the Court of Appeal accepted):

    "Mr Mitchell's central argument to the contrary focuses, first, on the use of the word 'receiver' to describe the person being appointed under this legislation to conserve, manage and realise assets. A receiver is a recognisable creature of the common law, an officer of the court, someone whose essential rights, powers and duties have been established down the years. It is not apparently disputed that a receiver appointed under the CJA—despite the statute's silence on the matter—will have the right, for example, to bring an action or to sell property. Why then, unless the statute expressly so provides, should he be denied the other ordinary consequences of his receivership, including not least the right (indeed the requirement) to recover the costs of the receivership from the assets under his control?"

    24.  Money payable under a CJA 1988 confiscation order is treated as a fine (section 75(1) and (2) of CJA 1988) and is to be collected by the chief executive of the appropriate justices (section 81(3)). Section 81(5) provides:

    "If the money was paid to the justices' chief executive by a receiver appointed under this Part of this Act or in pursuance of a charging order, the justices' clerk shall next pay the receiver's remuneration and expenses."

    Section 88(2) provides:

    "Any amount due in respect of the remuneration and expenses of a receiver so appointed shall, if no sum is available to be applied in payment of it under section 81(5) above, be paid by the prosecutor or, in a case where proceedings for an offence to which this Part of this Act applies are not instituted, by the person on whose application the receiver was appointed."

    In Hughes Simon Brown LJ explained that neither of these provisions, properly understood, assisted the respondents in the three appeals then before the Court (paras 46 and 47):

    "At first blush one of the respondents' stronger arguments is that section 81(5) really makes little sense if the receiver can in any event deduct his costs from the assets under his control. Why, they ask rhetorically, would he in those circumstances pay over to the justices' clerk a gross sum of money so as to enable the clerk then to pay his remuneration and expenses? Inevitably, he would first deduct them. There is, however, an answer to this question and it provides, perhaps, the key to a proper understanding of the remuneration provisions of the statute. The reason why it is necessary, once a confiscation order has been made, for a receiver (whether appointed initially as a management receiver or only later as an enforcement receiver) thereafter to pay over any sum to the justices' clerk gross of his remuneration and expenses is because, as provided by section 81(3), that sum operates to reduce the amount payable under the confiscation order. In the great majority of cases the amount of the confiscation order is determined not by reference to the calculated benefit of the defendant's criminality, but rather by reference to the substantially lesser value of his realisable property. Once the latter has been established and the confiscation order made, it would clearly be wrong to deplete the value of the defendant's assets by deducting the receiver's costs until such assets have been paid to the justices' clerk and thus reduced the amount payable under the order.

    That is not to say, however, that before any confiscation order is made the receiver cannot in the usual way recover his remuneration and expenses from the assets, and nor is that precluded by section 88(2). Section 88(2) is simply one of two 'supplementary provisions' for receivers and its effect is merely to ensure that if in any case . . . the receiver has not been paid in full, he shall be paid by the prosecutor or whoever else was responsible for his appointment."

    In other words section 88(2) is simply a statutory long-stop, similar in its effect to the long-stop of a contractual indemnity from Customs which Mr Sinclair has under para 6(d) of his agreement letter.

    25.  I have set out the decision in Hughes at some length because it does in my opinion state clearly and correctly the somewhat opaque relationship between the general law of receivership and the detailed provisions of CJA 1988. The real issue in this appeal is not whether Hughes was rightly decided, but whether it is no longer good law as a result of the coming into force of CPR 69.7.

CPR 69.7

    26.  In my opinion CPR 69.7 has not had that far-reaching and surprising result. The function of CPR 69 is to set out a procedural code applicable to the generality of receiverships of all types. Its text gives no indication that its draftsman had particularly in mind the new species of receiverships in support of restraint orders and confiscation orders. No doubt its provisions do in general apply to such receiverships but they cannot override the scheme inherent in the detailed provisions of CJA 1988. That scheme is for the receiver's remuneration and expenses to be paid out of the receivership assets, but in a way which counts towards satisfaction of any confiscation order, and subject to the statutory long-stop already mentioned. If an individual subject to a restraint order is not ultimately convicted and made subject to a confiscation order, section 89 of CJA 1988 gives a statutory right to compensation in some circumstances. But Parliament has deliberately framed the right to compensation in narrow terms. That is an aggrieved individual's only right to compensation as such. He would not normally have the benefit of an undertaking in damages since (as Simon Brown LJ observed in Hughes at para 50) a prosecutor cannot be required to give an undertaking in damages as a condition of obtaining the appointment of a receiver. An aggrieved individual's only other recourse would be to challenge the amount of the receiver's remuneration, as the respondent has done in this case. There is a similar scheme under POCA 2002 and the Crown Court (Confiscation, Restraint and Receivership) Rules 2003 (SI 2003/421) made under that Act, but in these new provisions it is made perfectly clear that receivership expenses and remuneration are to come out of the assets subject to the receivership.

    27.  The Court of Appeal was in my opinion wrong to suppose that CPR 69.7 has made (or could have made) a fundamental change either in the general law of receivership, or in the position of receiverships under CJA 1988 and the other comparable statutory powers. I would allow this appeal on that ground. There is also a further, narrower ground for concluding that the order of the Court of Appeal cannot be upheld. In the original order appointing Mr Sinclair as receiver, Jackson J directed that "the costs of the receivership" (which in the context must mean expenses and remuneration) were to be paid in accordance with the agreement letter of 21 November 2002. That order was not appealed at the time (although it was contemplated that an early application would be made for discharge of the receiver) nor has there been any subsequent application for permission to appeal from it out of time. A receiver takes on heavy responsibilities when he accepts appointment, and he is entitled to the security of knowing that the terms of his appointment will not be changed retrospectively—even if an appellate court later decides that the receivership should have been terminated at an earlier date. Before Davis J the respondent's counsel more or less abandoned any point on CPR 69.7. Before the Court of Appeal, Customs seem not to have objected strongly to the point being reventilated, possibly because of the general importance of getting the point decided.

    28.  For these reasons I would allow the appeal and set aside paragraph 4 of the Court of Appeal's order of 29 July 2005. As to paras 1, 2 and 3 of that order (relating to the costs below) and as to the costs of this appeal I would invite written submissions from the parties within 14 days.


My Lords,

    29.  I have had the advantage of reading in draft the opinion prepared by my noble and learned friend Lord Walker of Gestingthorpe, with which I am in full agreement. I therefore agree that the appeal should be allowed.


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