Mr and Mrs Davies lived together from 1997 to 2009 (marrying just over half way through). They ran a hotel in central London together. The complexity arose because Mr Davies had inherited the hotel from his family. By far the most important matrimonial asset, falling for division on divorce, appears to have been the hotel property itself (worth around £6 million).

Mrs Davies was awarded just under half the value of that asset, based on an assessment of her needs, and also her contribution to the running of the hotel business over a period of 13 years. The senior Court of Appeal judge presiding over the husband’s appeal has said he doesn’t see how needs are relevant in a multi-million pound case. His final judgment will be published imminently.

In an era of international and city hedge fund fortunes, judges regularly base awards for “needs” on prime London housing worth say £3 million, so his remarks might to some appear a little out of date. Judges at the coal face like to deploy “needs” as a yardstick for the division because it gives them certainty in assessing the award. However, in a case like this, that side-steps a true assessment of the “non-matrimonial” financial input from one party.

Judges are grappling with just how to divide assets where there is non-matrimonial wealth. The Davies case has all the elements to present the courts with a headache: assets inherited plus mid length marriage, children, the assets being the income generator (i.e. not simply investments), and, finally, the question of who put what into the business, or was there simply passive growth?

The fundamental problem with non-matrimonial asset arguments is that while the judges grapple with “principles” for the financial division, the cases get bogged down in their own facts (which used to be seen as a strength of the English system of discretion). In the leading Court of Appeal case in this area Jones, from early 2011 – the husband owned an oil sector business before the marriage. The result involved two senior judges between first decision and appeal disagreeing by 50% on the amount the wife should get. Mrs Jones’ award was bumped on appeal up by nearly £3 million.

This won’t be the last word from judges on non-matrimonial assets cases, and the Law Commission is looking at the problem.

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1. Long-arm jurisdiction – extraterritorial application

The Act applies independent from where the bribe took place, if a link with the UK (ie a “close connection”) exists. This can be the case, if a CEE company conducted business in the UK, or British citizens, persons with a normal place of residence in the UK, or a company registered under the law of the UK was involved in the bribe. Interpretations of the “close connection” element could even extend to include the use of a British bank account as being covered by the law.

2. The Framework of the Act

The Act covers four offences: the general offences of paying a bribe (Section 1) and receiving a bribe (Section 2); the bribery of foreign officials (Section 6), and the failure of commercial organizations to prevent bribery (section 7).

It is the offence under section 7 which has the greatest relevance for CEE organisations. This offence is committed by a commercial organization if a person associated with it (“associated person”) pays a bribe specifically to get business, keep business or gain a business advantage for the organization.

Employees, agents and subsidiaries are understood as “associated persons”. Contractors, suppliers and joint ventures are also covered.

3. First conviction under the Act

A former magistrates’ court clerk has become the first person to be sentenced under the new law. He accepted bribes in exchange for omitting to record a traffic offense on a court database and was consequently prosecuted under Section 2 of the Act for requesting and receiving bribes intending to improperly perform his functions. The clerk was accused of receiving at least GBP 20,000 from 53 persons in the course of his actions. He was sentenced to three years imprisonment under the Bribery act and has been handed a six-year sentence for misconduct in public office.

4. Adequate Procedures

The Act provides a commercial organization with a defense if it is able to prove that at the time of the bribery it had in place adequate (internal) procedures designed to prevent bribery. The Ministry of Justice of the United Kingdom released guidance on the Principles considered to be “adequate procedures”:

• Proportionate procedures: Procedures should be proportionate to the risks the organization faces, taking into account the nature, scale and complexity of the business activities. A larger organization or one that operates in places where corruption is commonplace might thus be required to do more to prevent bribery, compared to smaller organizations operating in places, where bribery is not prevalent. In this regard the Corruption Perception Index 2011, released by Transparency International provides useful guidance for CEE organizations.
• Top-level commitment: Top-level management in companies, such as the board of directors or owners, are in the best position to safeguard that their company conducts clean business. By way of Codes of Conduct, implemented by the company’s heads, the top management shall influence the conduct in the middle and low management levels to foster a culture in which bribery is considered unacceptable.
• Risk Assessment: Before setting-up a compliance system, an assessment of the specific risks that the company may come to face should be undertaken. The risk assessment includes in particular potential scenarios in which bribery can take place. The risk assessment should consider driving factors such as the organization’s size, structure, product line up, processes, including licensing procedures, the nature of the business, and its location.
• Due diligence: By way of due diligence of those acting on behalf of the company, bribery risks can be reduced significantly. A Due diligence should there-fore affect those persons, as they are considered as “associated persons” with regard to the company.
• Communication (including training): Anti-bribery policies and procedures shall be communicated and fully implemented throughout the organization. Providing staff with information and training “on the job” further adds to creating a corporate culture with zero-tolerance for corruption.
• Monitoring and Review: The risks a company faces and the effectiveness of the procedures to address them may undergo changes. An organization should therefore keep an eye on the anti-bribery steps it has taken so that it can effectively adapt processes to reflect changes, such as the company’s expansion, its entry into new markets, the introduction of new products, etc.

5. Adequate Procedures

Procedures to prevent bribery are more than just a nice thing to have, but rather represent a prerequisite for doing business in accordance with the new UK legislation. The introduction of the Act thus provides major incentives for commercial organisations in the CEE region to review their current compliance procedures to determine whether they meet the benchmark set by the Act.

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Summary

The Supreme Court ruled that there is no jurisdiction under the Proceeds of Crime Act 2002 (“POCA”) to grant a civil recovery and subsequent freezing order over property outside of the UK. Further, it held that the Serious Organised Crime Agency (“SOCA”) does not have authority to serve notices requesting information under POCA disclosure orders on individuals outside of the UK. This considerably narrows powers in civil recovery proceedings to freeze and recover property outside of the jurisdiction.

Background

On 24 October 2007 Mr Perry was convicted in Israel of various fraud offences. He was sentenced to ten years’ imprisonment and fined approximately £3 million.

Knowing that Mr Perry and his family held funds and property in the UK, SOCA obtained disclosure orders under which notices, containing penal warnings, were served on Mr Perry, his wife and daughters at Mr Perry’s UK address. SOCA then obtained a worldwide property freezing order against Mr Perry, his family members and associated businesses. Mrs Perry and their daughters resided outside of the UK, in Israel.

Mr Perry appealed the orders in the High Court and Court of Appeal but the appeals were dismissed.

Issues

Nine judges in the Supreme Court, the maximum number to decide any appeal, considered the wording of POCA to determine whether Parliament had intended to grant jurisdiction to make a civil recovery order or a freezing order in support of it in respect of property worldwide and whether it sanctioned the service of disclosure orders on those outside the UK.

Decision

The Supreme Court found in Mr Perry’s favour by narrowing the scope of the extra-territorial application of POCA.

The court held that Parts 2, 3 and 4 of POCA impose a personal obligation in respect of property worldwide; provide measures to secure and release property within the UK; and provide a process whereby requests can be made to other states to take such measures in respect of property located in their territory. Whereas, Part 5 enables recovery in civil proceedings in the UK of property which is or represents property obtained through unlawful conduct. The right is over the property rather than the individual and refers only to UK property.

Lord Phillips, who delivered the main judgment, held that this construction of POCA accorded with arrangements made by the same Act for giving effect to requests from other states in relation to the confiscation of the proceeds of crime. It also accorded with the requirements of a coherent international scheme for confiscation of the proceeds of crime and with principles of public international law.

Sir Anthony Hughes agreed that the appeals should be allowed but added that if it had been possible to construe POCA so as to provide for limited extra-territorial effect for Part 5, he would have done so. He commented that it would make sense for the English courts to have jurisdiction to make a civil recovery order where there was a sufficient link between the UK and the proceeds of crime – for example, where the crime was committed here or the offender is resident here. However, he agreed with Lord Phillips, that was simply not what POCA said.

It was therefore held that there is no jurisdiction under Part 5 of POCA to order recovery of property outside the UK in civil recovery proceedings. It was also held, in relation to the disclosure orders, to be contrary to international law for country A to purport to criminalise conduct which takes place in a different country where the individuals involved are not citizens of country A. It was therefore held that a positive obligation to provide information could not be imposed on persons outside of the UK.

Comment

The judgment provides valuable guidance on the widely drafted provisions of POCA and limits powers in civil recovery proceedings in England and Wales to freeze and recover property outside of the UK.

What the judgment did not address was the extra-territorial effect of the primary money laundering offences under POCA which remain untested.

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The facts

HMRC alleged a conspiracy by a number of defendants to deprive HMRC to deprive HMRC of millions of pounds of VAT. HMRC’s pleading alleged that in various transaction chains between August 2004 and January 2006, each of the defendants fraudulently conspired with various persons involved in the claims and with each other to divert monies that were properly payable to HMRC, to the first defendant company (‘Sunico’) and later to a number of the other defendants, with the object of inflicting harm on HMRC as an end in itself or as a means to another end, to injure HMRC by unlawful means. HMRC amended their particulars of claim and alleged that the defendants had been involved in the negotiation of a ‘commission agreement’ on behalf of PT Naina Limited, which it was alleged was used as a vehicle for dividing the proceeds of the fraud and that they had been involved in certain arrangements which had not been bona fide commercial arrangements. HMRC did not expressly allege that the commission agreement was a sham. The amended particulars of claim did not indicate which of the conspirators was ultimately to share in the proceeds of the fraud, or what shares. The defendants contended that the pleadings in respect of each of them was inadequate and applied to the court under CPR 24, for summary judgment dismissing the claims against them. HMRC sought an order from the Court to re-amend their amended particulars of claim.

The issues before the Court were whether an arguable case had been established against the defendants and whether HMRC ought to be granted permission to amend their particulars of claim.

The Court’s decision

The Court confirmed that it was a settled principle that there are two separate aspects to the requirements relating to the pleading of fraud, namely:

1. there had to be an express allegation of fraud; and
2. a defendant was entitled to know from the pleadings the fraud which he was alleged to have perpetrated and the allegations of fact which were made against him in order to establish the fraud alleged as knowledge was of the essence of fraud.

Usually the knowledge of a defendant was to be inferred from all of the facts and accordingly, a plea of fraud was not to be struck out if the pleading alleged:

1. fraud or dishonesty;
2. the primary facts relied on to found an inference; and
3. the extent of the knowledge of the fraud which it was said was to be inferred.

In the instant case, the Court was of the view that the evidence before it was insufficient to support the allegation that the defendants had negotiated the commission agreement on behalf of PT Naina Limited. As that allegation was the only allegation pleaded in support of the fraud claim, the inferences sought to be drawn by HMRC was unsustainable. Further, nothing had been pleaded by HMRC on which reliance was placed to demonstrate that the defendants had been a party to a conspiracy or in any other way dishonest. The Court concluded that, in all the circumstances, HMRC should not be allowed to amend their case. Accordingly, in relation to the conspiracy claim as pleaded by HMRC in the amended statement of claim, the defendants were entitled to summary judgment against HMRC and HMRC’s application to re-amend their particulars of claim was dismissed.

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