RECEIVER—REMUNERATION—ASSETS OF UNCONVICTED DEFENDANT

House of Lords
Lord Nicholls, Lord Hoffmann, Lord Roger, Lord Walker and Lord Mance
31 January 2007

CPR 69.7 has not made a fundamental change in the general law of receivership, concerning a receiver’s remuneration and expenses; the law
remains as set out in Hughes v Customs and Excise Commissioners; R v Crown Prosecution Service;
Anderson v Customs and Excise Commissioners [2002] EWCA Civ 734, [2002] 4 All ER 633.

David Perry QC, Mark Sutherland Williams and Rupert Jones (instructed by the Revenue and Customs Prosecutions Office) for the commissioners.
Andrew Mitchell QC and Abigail Barber (instructed by Olliers) for the respondent.

The claimant was arrested in 2002 and charged with conspiracy to cheat the public revenue and conspiracy to contravene the Value Added Tax Act 1994. He was charged jointly with 13 other defendants. The allegations related to carousel fraud and was said to involve the evasion of some £18m in VAT. At all material times the proceedings remained outstanding. In October 2002, the High Court made a restraint order in respect of the claimant’s assets. In January 2003, a receiver was appointed pursuant to the restraint order. The order contained a limited indemnity given to the receiver by Customs.

A dispute arose over the receiver’s costs. The claimant applied for the receiver to be discharged, on the grounds that his costs were disproportionate and excessive. The application was dismissed by the trial judge.

Subsequently, the Court of Appeal issued guidelines (reported at [2004] EWCA Civ 1628, [2005] 1 All ER 900) for the appointment of management receivers in similar cases. In the second part of its judgment, it held that CPR 69.7, which came into force on 2 December 2002, had made a significant change in the law and practice relating to receivers, although only in relation to remuneration (as distinguished from expenses). It held that the rule was clearly designed to give the court some discretion in the matter, at least in special circumstances where application of the ordinary rule—namely that a receiver was 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—would cause unfairness or hardship.

Exercising its discretion in place of the trial judge, it ordered part of the receiver’s remuneration to be paid, not out of assets subject to the receivership, but by the defendant commissioners. They appealed.

LORD WALKER:

His Lordship said at once that certain documents in the appeal were far from precise in their use of the expressions ‘remuneration’, ‘costs’ and
‘expenses’. It made for clarity to confine remuneration to professional fees (for the receiver himself and his own staff), to confine costs to litigation costs, and to use expenses for all other expenditure necessarily or properly incurred by the receiver in the performance of his duties.
CPR 69.7, which had become the central issue in the appeal, provided:

“69.7 (1) A receiver may only charge for his services if the court:
(a) so directs; and
(b) specifies the basis on which the receiver is to be remunerated.
(2) The court may specify:
(a) who is to be responsible for paying the receiver; and
(b) the fund or property from which the
receiver is to recover his remuneration…”

His Lordship considered Hughes, that decision stated clearly and correctly the somewhat opaque relationship between the general law of receivership and the detailed provisions of the Criminal Justice Act 1988 (CJA 1988). The real issue on the appeal was not whether Hughes was rightly decided, but whether it was no longer good law as a result of the coming into force of CPR 69.7.

In his Lordship’s opinion, CPR 69.7 had not had that far-reaching and surprising result. The function of CPR 69 was to set out a procedural code applicable to the generality of receiverships of all types. Its text gave 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 did in general apply to such receiverships but they could not override the scheme inherent in the detailed provisions of CJA 1988. That scheme was for the receiver’s remuneration and expenses to be paid out of the receivership assets, but in a way which counted towards satisfaction of any confiscation order, and subject to the statutory long-stop.

If an individual subject to a restraint order was not ultimately convicted and made subject to a confiscation order, CJA 1988, s 89 gave a statutory right to compensation in some circumstances. But Parliament had deliberately framed the right to compensation in narrow terms. That was an
aggrieved individual’s only right to compensation as such. He would not normally have the benefit of an undertaking in damages since a prosecutor could not 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 claimant had done in this case.

There was a similar scheme under the Proceeds of Crime Act 2002 and the Crown Court (Confiscation, Restraint and Receivership) Rules 2003 (SI 2003/421), but in those new provisions it was made perfectly clear that receivership expenses and remuneration were to come out of the assets subject to the receivership.

The Court of Appeal was wrong to suppose that CPR 69.7 had 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.

The appeal would therefore be allowed.
Lord Nicholls, Lord Hoffmann, Lord Roger and Lord Mance delivered concurring opinions.