ADMINISTRATIVE COURT
FAMILY DIVISION
18 April 2002
[2002] EWHC 611 (Admin/Fam)
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Andrew Bird (instructed by the
Solicitor for Customs and Excise) for Customs and Excise and the receiver.
Christopher Hames (instructed by Gosling and Wilkinson) for the wife.
The husband did not appear and was not represented.
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1. Pursuant to directions given by Hooper J on 4 October 2001 and further directions which I gave on 31 October 2001 I have two matters before me. The first, which is proceeding in the Administrative Court (DTA/122/1997), is an application made by Her Majesty's Customs & Excise under the Drug Trafficking Act 1994. It is directed primarily against MCA. His wife, as I shall refer to her although they have now been divorced, is also a respondent. The other matter, which is proceeding in the Family Division (KT97D00297), is an application by the wife against her husband, as I shall refer to him, for ancillary relief.
2. The reason why the DTA proceedings and the ancillary relief proceedings, as I shall refer to them, are being heard together is simple. Customs & Excise seeks to realise the husband's interests in the only matrimonial assets of any value - the matrimonial home and two insurance policies - to satisfy a criminal confiscation order made against him under the 1994 Act following his conviction and imprisonment for drug trafficking offences. The wife, who is wholly innocent of any wrongdoing and who played absolutely no part in her husband's criminal activities, seeks the transfer to her of his interests in those assets in satisfaction of her claims to ancillary relief under the Matrimonial Causes Act 1973. The battle, in which the husband plays no part, is between Customs & Excise and the wife. The reason why the proceedings are being heard by me is because it is desirable that they should if possible be heard by a judge who is both a nominated judge of the Administrative Court and a judge of the Family Division.
3. The essential facts are not in dispute and can be stated fairly shortly.
4. The husband and the wife married on 29 March 1986 having previously lived together for approximately a year. She was born in 1958, he in 1955. There are no children of the marriage but the wife's son by her previous marriage, who I will refer to as J and who was born in 1979, was treated as a child of the family.
5. Initially they all lived in Chertsey. The Chertsey property was held subject to a declaration of trust dated 17 June 1985 whereby the husband and the wife declared that they held the property upon trust for sale as to five thirty-eighths of the gross sale price of the property for the wife and as to the balance of the net proceeds of sale equally. This reflected the fact that it was the wife, using monies she had received on her divorce from her first husband, who provided the deposit on the property and certain other expenses. In July 1989 the Chertsey property was sold and they bought a bungalow in Surrey. The title to the bungalow, which I shall refer to as the house, is registered at Her Majesty's Land Registry, as it happens under two different titles. The husband and the wife are shown as proprietors of the house with title absolute to both titles. The house cost £115,000, of which £63,000 was raised on mortgage. It consists of a through lounge, kitchen, bathroom and three bedrooms, one formed by a loft conversion. In December 1990 the house was re-mortgaged to Halifax Building Society with the support of two endowment policies, which I shall refer to as the policies. By that means they raised an additional £26,000 which was, according to the wife, intended to assist the husband in his business. At all times until his arrest, except only for a short period referred to in paragraph [7] below, the husband maintained the wife and made the mortgage repayments and the payments of premiums due under the policies.
6. On 7 May 1991 the husband and the wife executed a deed of trust declaring that they held the house upon trust for sale as to one-tenth of the gross sale price of the house for the wife and as to the balance of the net proceeds of sale equally.
7. Later that year the husband was threatened with bankruptcy following the failure of his business. He worked as a self-employed kitchen, bedroom and bathroom fitter. The wife worked in the business as a receptionist four days a week. On 22 August 1991 he entered into an individual voluntary arrangement. The Department of Social Security started to make mortgage payments, but only in relation to the original advance. In November 1993 the husband started to make the mortgage payments again.
8. By 1994 the marriage was in difficulties and according to the wife she and her husband were leading separate lives. They finally separated in November 1996 when the husband left the house. He left the wife about £4,000 in cash to tide her over, telling her to use it to meet her living expenses.
9. If not already by that time then very shortly afterwards the husband became involved in drug trafficking. The earliest evidence of his drug trafficking known to Customs & Excise is an incident on 12 December 1996 when he was stopped at Gatwick Airport, although nothing which appeared at that stage to be incriminating was found on him.
10. In February 1997 the husband started paying the wife maintenance of £1,000 per month.
11. On 3 April 1997 the wife filed a petition for divorce in the Kingston-upon-Thames County Court grounded on the husband's alleged adultery. Included in the prayer was a claim for all heads of financial ancillary relief. On 1 May 1997 the husband signed an acknowledgement of service stating that he did not intend to defend the case "save as to ancillary claim" and admitting the adultery. A decree nisi was granted on 20 June 1997.
12. On 2 September 1997 the husband was arrested for drug trafficking. This followed the interception at Stansted Airport on 28 August 1997 of a large consignment of cannabis, though Customs & Excise believe that he had previously been involved in the importation of cannabis in May 1997.
13. On 26 September 1997 Toulson J made a restraint order in standard form (sealed on 30 September 1997) prohibiting the husband from dealing with all his assets, including in particular the house. Although the order was not altogether in satisfactory form (see In the matter of G (restraint order) [2001] EWHC Admin 606) it also prohibited the wife from dealing with the house. The order was protected by inhibitions entered on 15 October 1997 in the proprietorship register of each title and providing that "no disposition or other dealing by the proprietor of the land is to be registered without the consent of any prosecutor acting on behalf of the Crown or under a further order of the Court or of the registrar".
14. Following his arrest in September 1997 the husband stopped making payments to the wife. Since then she has done her best to keep up the mortgage payments on the house and the premiums for the policies. In October 1997 she applied for income support. Starting in November 1997 J also contributed to the mortgage payments. From March 1998 to September 1999 the wife was on benefit and contributions to the mortgage payments were made on her behalf by the Benefits Agency.
15. On 17 February 1998 the wife gave notice in Form A of her intention to proceed with her application for ancillary relief.
16. On 24 March 1998 Hidden J made an order in standard form appointing Richard Long as receiver and manager of three specific assets of the husband: a boat, a car and a bank account.
17. On 9 July 1998 the husband was convicted at the Crown Court at Leeds of being knowingly concerned in the fraudulent evasion of the prohibition on importation of a controlled drug - the cannabis intercepted at Stansted Airport. He was sentenced to five years' imprisonment.
18. On 3 December 1998 the wife served her Form E. The only assets disclosed, apart from one item of jewellery worth £800, were the house, the policies and two bank accounts with modest credit balances.
19. On 4 December 1998 the Crown Court at Leeds issued a confiscation certificate certifying that the value of the husband's proceeds of drug trafficking was £197,639.94. The amount which might be realised was set at £47,868.22. The same day the Crown Court made a confiscation order ordering the husband to pay £47,868.22 (the amount to be confiscated) by 5 November 1999 and setting the term of custody he might be liable to serve in default of payment at 21 months' imprisonment consecutive to his other sentence.
20. On 28 May 1999 the decree nisi was made absolute.
21. In September 1999 the wife decided to discontinue her claim for state benefits. Her agoraphobia (see paragraphs [56]-[57] below) had improved and she felt she could undertake some work. She took an evening job where she is still employed.
22. On 12 October 1999 Hooper J made an order in standard form (sealed on 9 November 1999), discharging the earlier management receivership order made by Hidden J on 24 March 1998 and appointing Mr Long as receiver over all the husband's assets, save for the house and the surrender value of the policies, to enforce the confiscation order made against the husband by the Crown Court. The order conferred on the receiver power, inter alia, to sell the husband's assets, save for the house and the policies, and to apply the net proceeds of sale towards satisfaction of the confiscation order.
23. The wife's evidence, which I see no reason to reject, is that the husband had indicated to her that he would be willing to transfer his interest in the house together with his interest in the policies into her sole name in full and final settlement. Following this, on 26 June 2000 her solicitors wrote to his solicitors inviting him to agree to a 'clean break' settlement on the basis of a transfer to her of all his interests in the house and the policies. Perhaps not surprisingly his solicitors replied on 24 July 2000 saying that he could not relinquish any interest he had in either the house or the policies without putting himself in breach of the restraint orders.
24. By then Customs & Excise had on 20 July 2000 applied for an order that the order made by Hooper J on 12 October 1999 be varied so that the house and the husband's interest in the surrender value of the policies be included in the realisable property over which the receiver is appointed and the receiver be empowered to take possession of and sell the house "for the purpose of realising the [husband's] interest in the net proceeds of sale". This application forms the basis of the DTA proceedings before me.
25. On 15 August 2000 Owen J directed that the extent of the husband's interest in the house and the policies was to be determined as a preliminary point.
26. In September 2000 J left the house.
27. On 11 July 2001 Hooper J made an order (sealed the same day) declaring and valuing, according to formulae set out in schedules to the order, the husband's beneficial interest in the house and his beneficial interest in the policies. So far as concerns the house the order in substance gave effect to the declaration of trust but provided for there to be deducted in calculating the husband's share "the aggregate of all payments of mortgage interest (including arrears) made by or on behalf of [the wife] ... since 11 November 1996". So far as concerns the policies the order treated them as belonging equally to the husband and the wife but similarly provided for there to be deducted in calculating the husband's share "the aggregate of all payments of premiums made by or on behalf of [the wife] ... since 11.11.96". The order further provided that the question of whether or not the house and/or the policies should be the subject of a receivership order was to be heard in October 2001 by Hooper J. The order gave permission to the husband to apply within 14 days of service of the order on him for its terms to be reconsidered by the court. He has not done so.
28. On 4 October 2001 Hooper J gave a short judgment of which I have seen a transcript: Re A [2001] EWHC Admin 773. He made an order (sealed on 10 October 2001) in the DTA proceedings directing the hearing by me of both the DTA proceedings and the ancillary relief proceedings.
29. Importantly for present purposes Hooper J's order provided as follows:
The order appointing a Receiver over the realisable property of [the husband] made on 9th November 2000 (sic) by Mr Justice Hooper be varied in that:
(a) [the house] in the joint names of [the husband and the wife] ("the property"); and
(b) [the husband's] interest in the [policies] in the joint names of [the husband and the wife] ("the policies")
be included within the realisable property over which the Receiver is appointed PROVIDED THAT the Receiver shall not have power to take possession of, realise or seize the property or the policies without further order of the Court.
30. It further provided:
It is intended by this Court that the appointment of a Receiver shall not affect the legal position of [the wife] in these proceedings or in her application for ancillary relief.
31. On 18 October 2001 the wife, in accordance with an undertaking she had given to Hooper J on 4 October 2001, applied to the Kingston-Upon-Thames County Court for the transfer of the ancillary relief proceedings to the Family Division of the High Court.
32. On 22 October 2001 District Judge Henry sitting in the Kingston-Upon-Thames County Court ordered that the ancillary relief proceedings be transferred to the High Court Family Division to be heard with the DTA proceedings.
33. On 31 October 2001 I made 'mirror' orders in both the DTA proceedings and the ancillary relief proceedings giving final directions for the hearing fixed to start before me on 12 November 2001. I did so notwithstanding that there had been no first appointment in the ancillary relief proceedings and that the husband had not filed a Form E. I gave the receiver Mr Long permission to intervene in the ancillary relief proceedings.
34. The hearing of both matters began before me on 12 November 2001. Customs & Excise and Mr Long were represented, as they have been throughout, by Mr Andrew Bird, the wife by Mr Christopher Hames. The hearing finished the following day (13 November 2001) when I reserved judgment. On 9 January 2002 I sent counsel the first draft of what are now paragraphs [1]-[171] of this judgment. I did so for two reasons: first, to enable them to make any submissions they might wish in relation to certain cases mentioned in the judgment which had not been referred to during argument and, secondly, because I wanted further assistance on one particular point (as to which see further paragraph [208] below). They sent me additional written submissions under cover of letters dated 15 and 18 February 2002. I am very grateful to each of them for their submissions, both oral and written, which have been of the very greatest help to me. I now (18 April 2002) hand down this judgment. It is my judgment in both matters.
35. I had before me three affidavits sworn by the wife on 3 December 1998, 5 September 2000 and 2 April 2001. None of her evidence was challenged by Customs & Excise and accordingly I heard no oral evidence.
36. Customs & Excise and Mr Long seek in effect an immediate order for the realisation - sale - of the house and the policies and payment out of the proceeds of sale of sufficient to discharge the balance outstanding under the confiscation order.
37. The wife seeks an outright transfer to her of the husband's interests in both the house and the policies, alternatively a postponement, for example by means of a Mesher or a Martin order (see Mesher v. Mesher and Hall (1973) [1980] 1 All ER 126n and Martin (BH) v. Martin (D) [1978] Fam 12) of any realisation of the husband's interests either until her death or at the least until such time as she voluntarily chooses to vacate the house.
38. The husband was neither present nor represented. Indeed, as I understand it the husband has at no time played any part in either the DTA proceedings or (apart from filing his acknowledgement of service) the ancillary relief proceedings. As I have said he has never filed a Form E.
39. I have seen certain recent correspondence passing between the wife's solicitors and the husband. On 17 October 2001 they wrote to him, telling him what had happened at the hearing on 4 October 2001 and notifying him of the hearing fixed for 12 November 2001; sending him a blank form E to complete; suggesting that he seek independent legal advice and inviting him to agree to the transfer of the house and the policies into the wife's sole name on her undertaking to use her best endeavours to secure his release from the mortgage. Following 'chasers' sent on 29 October 2001 and 6 November 2001, the latter enclosing copies of the orders the wife was seeking at the hearing, the husband telephoned the wife's solicitors on 8 November 2001. Their attendance note includes this:
With regard to his interest in the house, he clearly stated that he had no interest in the former matrimonial home, or the policies, and would be happy to allow his wife to have full interest in these. He stated that his only problem was that he could not be seen to be giving this away as this would renege on his promise in respect of the DTA.
40. On 9 November 2001 the husband's "legal adviser and consultant", a Mr E, who apparently is neither a solicitor nor a barrister, wrote to the wife's solicitors saying that he had received a copy of the letter of 6 November 2001 and its enclosures, that he had been through the draft orders with the husband "and can confirm that he is content for the orders to be made in the terms requested and he understands the effect of the orders".
41. The wife's evidence is that she had no knowledge of the husband's criminal activities, that she never saw anything to alert her to what he was doing and that it all came as an incredible shock to her when he was arrested. Very fairly and properly Customs & Excise, both before Hooper J on 4 October 2001 (see Re A [2001] EWHC Admin 773 para [10]) and again before me, accepted that no part of the equity in either the house or the policies was acquired with the proceeds of drug trafficking and that the couple had separated before the husband had started his drug trafficking activities. Indeed, says Mr Bird, the wife went so far as to assist the authorities by giving the prosecution a statement, though in the event she was not called at the trial. As Hooper J said, the wife:
is not only innocent of any involvement in drug trafficking, but she also lives in a house and enjoys the benefit of policies all untainted by drug trafficking.
42. The confiscation order, as I have said, was in the sum of £47,868.22. Between 24 March 1998 and 10 July 2000 the receiver was able to realise assets belonging to the husband which produced gross receipts of £26,839.19. Net of disbursements which he had to pay, the receiver was able to account for £21,348.04. There accordingly remains a balance of £26,520.18 payable by the husband together with interest under section 10 of the 1994 Act which as at 12 November 2001 amounted to a further £2,840.44 - a total of £29,360.62. At current rates interest continues to accrue at £5.10 per day.
43. The receiver having thus far been able to realise only part of the amount specified in the confiscation order the husband remains liable to serve the appropriate proportion of the sentence of 21 months, that is 21 x 26,520.18/47,868.22 or a little over 112 months. That sentence, as I understand it, would have to be served without remission.
44. It is agreed between the parties before me, and established by the documents shown to me, that between 11 November 1996 and 12 November 2001 payments of mortgage interest were made totalling £34,792: £3,879 by the Benefits Agency during the period from 6 March 1998 to 17 September 1999; £11,500 by J during the period from 27 November 1997 to 31 October 2000; and the balance of £19,413 by the wife. Likewise it is agreed between the parties before me and established by the documents, that between the same dates the wife paid a total of £9,111 in premiums under the policies.
45. The husband is thought to be living on a houseboat on the River Medway. Who it belongs to and what if any rent he pays I do not know. Apart from his interest in the house and his interest in the policies (both as fixed by Hooper J's order of 11 July 2001) the husband has no other known assets. All his other identified assets have been seized and realised by the receiver. Too much must not be read into this, however, for the husband has never filed a Form E, no-one knows exactly what assets he may have and (except possibly for a small sum in cash - see paragraph [48] below) no part of the actual proceeds of his drug trafficking, so far as I am aware, has ever been recovered. The wife's only assets apart from her interest in the house and her interest in the policies are the piece of jewellery to which I have already referred and the sums of £1,534 and £1,489 respectively in a building society account and a bank account.
46. On the basis of an estate agent's valuation dated 12 October 2001 it is agreed that the house is worth £220,000. The amount required to redeem the mortgage as at 12 November 2001 is £99,144. The costs of sale at 3% would amount to £6,600. The net proceeds of sale accordingly come to £114,256. It is common ground, and I agree, that, applying the formula in the relevant schedule to Hooper J's order of 11 July 2001 (and for this purpose properly crediting the wife with the payments in fact made on her behalf by the Benefits Agency and by J), the net proceeds of sale are divisible as to £28,732 to the husband and £85,524 to the wife.
47. The policies are due to mature in 2014, one on 12 July 2014 targeted to produce £63,000 and the other on 15 November 2014 targeted to produce £26,000. These figures assume an annual rate of return of 7.2%. As of today the policies have a surrender value of £22,227. It is common ground, and I agree, that applying the formula in the relevant schedule to Hooper J's order of 11 July 2001 that sum is divisible as to £6,558 to the husband and £15,669 to the wife.
48. Ignoring for the moment the effect of the confiscation order the net family assets amount to £161,654 and consist of:
| Value | Wife | Husband | |
| The property (net proceeds of sale) | 114,256 | 85,524 | 28,732 |
| The policies | 22,227 | 15,669 | 6,558 |
| Building society | 1,534 | 1,534 | |
| Bank account | 1,489 | 1,489 | |
| Jewellery | 800 | 800 | |
| Total | 140,306 | 105,016 | 35,290 |
| Realised by the receiver: | |||
| Boat (net proceeds of sale) | 15,588 | 15,588 | |
| Motor vehicles (ditto) | 4,396 | 4,396 | |
| Cash and monies | 1,364 | 1,364 | |
| [21,348] | [21,348] | ||
| Total | £161,654 | £105,016 | £56,638 |
49. It will be seen that the husband's remaining share of the assets - £35,290 - is more than enough to meet the balance outstanding under the confiscation order - £29,360.62.
50. The major liabilities are those I have already mentioned: the mortgage debt of £99,144 and the balance of £29,360.62 outstanding under the confiscation order.
51. In addition, of course, there are the costs of the litigation. The receiver's fees, costs and unpaid disbursements (inclusive of VAT) amount to £8,283.48. The costs of Customs & Excise amount to £10,763.63 (inclusive of VAT). The wife's costs (inclusive of VAT) amount to £20,053.36, made up as to £647 for the divorce, £4,873.38 for the ancillary relief proceedings and the balance of £14,532.98 for the DTA proceedings. The wife is publicly funded, so there is a charge to the Legal Services Commission. Although I have not, of course, heard any submissions from the Commission, it would seem that the wife's own share of the house and the policies (neither of which have ever been under attack from either the husband or Customs & Excise) will be immune from the charge. Although the charge will in principle attach to anything she recovers from the husband in the ancillary relief proceedings that charge can in the normal course be rolled over until such time as her home is sold.
52. Apart from these there appear to be no other significant liabilities. The husband's other liabilities, if any, are unknown. The wife has no other significant liabilities.
53. The husband plainly has earning capacity. Whether he is working and if so what he is earning is unknown. Nothing is known of his outgoings.
54. The wife is employed as a sales assistant and currently earns somewhere between £109 and £147 net per week depending upon the amount of overtime she works: her net earnings have averaged about £130 per week in recent weeks. She also earns about £70 per week cleaning and receives rent of £100 per week from a lodger. Very roughly, therefore, her net weekly income is about £300 or some £15,600 per annum.
55. The monthly mortgage payments come to £635 and the premiums under the policies to £149.36, a monthly total of £784.36 or £9,412.32 per annum. A schedule of expenditure which was sent to the husband's solicitors under cover of a letter dated 23 October 1997 showed the wife's monthly living expenses amounting to some £695 or £8,340 per annum. In her Form E dated 3 December 1998 the wife calculated her annual living expenses as coming to some £10,000. If from a net annual income of only £15,600 she has to find no less than £9,412.32 to meet the mortgage payments and the premiums under the policies, it is not altogether clear how from the balance of only some £6,200 she is able to find the money to pay living expenses of well over £8,000. It may be that she is able to get by - just - by scrimping and saving and with continuing help from her son. Get by she can. For the fact is, and this was not challenged by Mr Bird, that the mortgage payments and premiums under the policies are up to date. The wife is thus currently meeting her own housing and income needs. I suspect it is a constant struggle for her. Her fragile domestic economy would, no doubt, collapse were she no longer able to work.
56. The wife's earning capacity is affected by her recurring ill-health, though her current employer, who she knows well, is sympathetic about and accommodating of her problems. She has a long history of agoraphobia, anxiety and depression. At times her illness has prevented her working. I have been shown medical reports from her general practitioner, Dr H, dated 30 July 1998, 24 August 2000 and most recently 25 October 2001. He says that she has in the past been seen by consultant psychiatrists and that for many years she was on Phenelzine, an anti-depressant drug, though she has not in fact been on any medication since April 2001. Dr H's reports show that in the past her illness has been characterised by frequent and on occasion severe relapses. During periods of stress in her life - Dr H, confirming the wife's evidence, gives examples, some of which clearly relate to events in the litigation - she develops a recurrence of anxiety and depression and tends to become more agoraphobic.
57. Dr H's current view is that, although it is difficult to give a clear idea of her prognosis, it is likely that if there were a favourable outcome to the present proceedings the beneficial effect on her mental health would be substantial.
58. I have been shown various estate agents' particulars. These suggest that the very cheapest two-bedroom property in the area will cost at least £110,000. Most such properties seem to cost at least something in the range of £125-130,000 and many upwards of £140,000.
59. At present, as I have said, the wife is able to service a mortgage of £99,000. That is no safe measure of her capacity to obtain the new mortgage which would, as it seems to me, inevitably be required if she had to move. Given her age, her medical condition and her low earning capacity it must be doubtful whether she has any very considerable mortgage capacity. At best, based on net earnings of £130 per week, and assuming a mortgage capacity of earnings x 3, she might be able to raise a maximum of about £19,000. Any move to a smaller property would of course mean the loss of her weekly income of £100 from the lodger.
60. The argument before me has centred on the interaction between two pieces of legislation serving very different and not necessarily easily reconcilable social purposes: the Matrimonial Causes Act 1973 and the Drug Trafficking Act 1994.
61. Part II of the 1973 Act enables the court to make a wide range of orders, including financial provision orders (that is, orders for periodical or lump sum provision) and property adjustment orders, for the purpose of adjusting on divorce the financial position of the parties to a marriage. The court is given a wide range of powers, in particular by sections 23 and 24.
62. So far as material for present purposes section 23 provides as follows:
(1) On granting a decree of divorce ... or at any time thereafter (whether ... before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say:
(a) an order that either party to the marriage shall make to the other such periodical payments, for such term, as may be specified in the order;
(b) an order that either party to the marriage shall secure to the other to the satisfaction of the court such periodical payments, for such term, as may be so specified;
(c) an order that either party to the marriage shall pay to the other such lump sum or sums as may be so specified; ...
(5) ... where an order is made under subsection (1)(a), (b) or (c) above on or after granting a decree of divorce ... , neither the order nor any settlement made in pursuance of the order shall take effect unless the decree has been made absolute.
63. So far as material for present purposes section 24 provides as follows:
(1) On granting a decree of divorce ... or at any time thereafter (whether ... before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say
(a) an order that a party to the marriage shall transfer to the other party ... such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion;
(b) an order that a settlement of such property as may be so specified, being property to which a party to the marriage is so entitled, be made to the satisfaction of the court for the benefit of the other party to the marriage ... ;
(c) an order varying for the benefit of the parties to the marriage ... any ante-nuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage ... ;
(d) an order extinguishing or reducing the interest of either of the parties to the marriage under any such settlement ...
(3) ... where an order is made under this section on or after granting a decree of divorce ... , neither the order nor any settlement made in pursuance of the order shall take effect unless the decree has been made absolute.
64. There is no doubt that under these provisions the court - which for present purposes means the Family Division - has jurisdiction in principle to order the transfer to the wife of the husband's beneficial interests both in the house and in the policies.
65. How that jurisdiction ought to be exercised is indicated by section 25, whose provisions have of course to be read in the light of the guidance given by the House of Lords in Piglowska v. Piglowski [1999] 1 WLR 1360 and White v. White [2001] 1 AC 596. So far as material for present purposes section 25 provides as follows:
(1) It shall be the duty of the court in deciding whether to exercise its powers under section 23 [or] 24, ... above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.
(2) As regards the exercise of the powers of the court under section 23(1)(a), (b) or (c) [or] 24 ... above in relation to a party to the marriage, the court shall in particular have regard to the following matters:
(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) ... the value to each of the parties to the marriage of any benefit which, by reason of the dissolution .. of the marriage, that party will lose the chance of acquiring.
66. The 1994 Act replaced the very similar Drug Trafficking Offences Act 1986. The purpose of the earlier Act was explained by Lord Donaldson of Lymington MR in In re Peters [1988] QB 871 in a passage at p 874D which applies equally to the present Act:
The Act itself is terminologically complex, but the legislative intention and the broad scheme whereby that intention is to be achieved are reasonably clear. The intention is that no one convicted of drug trafficking offences shall be allowed to retain any part of the proceeds of his crime. The broad scheme involves the making of confiscation orders at the time of sentencing and of prior protective orders. The latter are designed to prevent an accused rendering a confiscation order inappropriate or nugatory by disposing of his assets between the time when an information is about to be laid against him and the making of a confiscation order in the event of conviction.
67. As Mr Bird correctly observes the key concept in the 1994 Act for present purposes is that of "realisable property". So far as material for present purposes, this is defined by section 6(2)(a) as meaning:
any property held by the defendant.
"Defendant" is defined by section 63(1) as meaning:
a person against whom proceedings have been instituted ... for a drug trafficking offence (whether or not he has been convicted).
"Property" is defined by section 62(1) as including:
money and all other property, real or personal, heritable or moveable, including things in action and other intangible or incorporeal property.
Section 62(5)(a) provides that for the purposes of the Act:
property is held by any person if he holds any interest in it.
Section 62(3) provides that:
"interest", in relation to property, includes right.
68. It will be appreciated that, consistently with these definitions, not merely is the husband's interest in the house "realisable property"; the house itself is "realisable property". The husband "holds an interest" in the house within the meaning of section 62(5)(a), with the consequence that the house itself is "held" by him within the meaning of section 6(2)(a). The same applies in the case of the policies.
69. Sections 2, 4, 5 and 6 of the Act, the details of which do not matter for present purposes, provide for the amount by which the defendant has been found to have benefited from drug trafficking to be specified in a confiscation certificate and for a confiscation order to be made in that amount or, if less, an amount calculated in accordance with sections 5(3) and 6(1) by reference to the value of the realisable property held by the defendant.
70. The Act confers various powers on the High Court which I should briefly summarise though without going into detail. Section 26(1) empowers the High Court to make a restraint order prohibiting any person from dealing with any realisable property: this was the power exercised in the present case by Toulson J on 26 September 1997. Section 26(7) empowers the High Court, where it has made a restraint order, to appoint a receiver to take possession of any realisable property and to manage or otherwise deal with it as directed by the court: this was the power exercised by Hidden J on 24 March 1998. Section 27(1) empowers the High Court to make a charging order on any interest in realisable property held beneficially by the defendant. That has not been done in the present case.
71. Section 29(1) empowers the High Court, where a confiscation order has been made and is not satisfied, to exercise a variety of powers. These include:
under section 29(2) appointing a receiver in respect of realisable property
under section 29(3)(b) empowering the receiver "in relation to any realisable property ... to take possession of the property subject to such conditions or exceptions as may be specified by the court"
under section 29(4) ordering "any person having possession of realisable property to give possession of it to" the receiver
under section 29(5) empowering the receiver "to realise any realisable property in such manner as the court may direct"
under section 29(6) ordering "any person holding an interest in realisable property to make to the receiver such payment as it may direct in respect of any beneficial interest held by the defendant", whereupon the court may "by order transfer, grant or extinguish any interest in the property".
72. The powers under sections 29 were those exercised by Hooper J on 12 October 1999 and again on 4 October 2001.
73. Section 31, which lies at the heart of the matters I have to decide, is of crucial importance. It applies to the powers conferred on the High Court by sections 26 to 30 or on a receiver appointed under section 26 or 29 of the Act. So far as material it provides as follows:
(2) Subject to the following provisions of this section, the powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant's case, the value for the time being of realisable property held by any person, by means of the realisation of such property.
(4) The powers shall be exercised with a view to allowing any person other than the defendant ... to retain or recover the value of any property held by him.
(5) In exercising the powers, no account shall be taken of any obligations of the defendant ... which conflict with the obligation to satisfy the confiscation order.
74. The "value" of property is defined for this purpose by section 7(1) which provides that:
the value of property ... in relation to any person holding the property is the market value of the property, except that, where any other person holds an interest in the property, the value is -
(a) the market value of the first-mentioned person's beneficial interest in the property, less
(b) the amount required to discharge any incumbrance (other than a charging order) on that interest.
75. Put very shortly the issues which I have to decide are: (i) whether the husband's interests in the house and/or the policies should be transferred to the wife pursuant to section 24 of the 1973 Act, (ii) whether the receiver should be directed to realise the husband's interests in the house and/or the policies in accordance with section 29 of the 1994 Act and/or (iii) whether the court should make either a Mesher or a Martin order or in some other way postpone the realisation of the husband's interests. Central to the resolution of these issues is a crucial question of law going to the true meaning and effect of section 31(4) of the 1994 Act and the interaction between it and section 31(2).
76. Now whatever may be the precise meaning and effect of section 31(4) it is quite clear that it is on any view intended to safeguard the legitimate rights of third parties in any realisable property: see In re Peters [1988] QB 871 at p 879A, In re K (Restraint Order) [1990] 2 QB 298 at p 306A and Ahmad v. Ahmad [1999] 1 FLR 317 at pp 324B, 325B. True it is that section 31(2) is expressed in mandatory terms ("the powers shall be exercised with a view to ... satisfying the confiscation order"). But section 31(2) is also expressed to be "subject to", inter alia, section 31(4) which is itself in mandatory terms ("the powers shall be exercised with a view to allowing any person other than the defendant ... to retain or recover the value of any property held by him"). Accordingly in the case of conflict the claims of those whose rights are safeguarded by section 31(4) must and will prevail.
77. As Otton J said in In re K (Restraint Order) at p 305C, rejecting submissions put forward by the Crown:
if the Crown is right then the rights of the bank would be severely and fundamentally undermined by the Drug Trafficking Offences Act 1986. The statute would have the effect of depriving a third party, who had acted in good faith and in ignorance of the tainted source of the deposited money, of its right to combine or to set off the indebtedness against the credit balance. In other words, the bank property, be it money or chose in action, would become the subject of the restraint order and the vested rights of the bank would be in peril. There is a presumption that a statute does not alter vested rights.
Having cited passages from Halsbury's Laws of England, he continued:
The Act of 1986 has been described by Lord Donaldson of Lymington MR in In re Peters [1988] QB 871, 874D, as "terminologically complex," but I can find nothing, even in the most draconian provisions, which provides expressly or by implication that the bank's vested rights are extinguished or diminished. Indeed, as Lord Donaldson MR said in In re Peters, at p 879A, the purpose of section 5(4) ... :
appears to be to safeguard the legitimate rights of third parties in property which is held by them, but which, because of an interest of the defendant (either legal or equitable), is capable of being the subject matter of a restraint order.
78. I must return in due course to consider, as a matter of construction of the statute, precisely what third party rights are safeguarded by section 31(4). But before turning to examine the statutory language it is I think helpful to consider the nature of a wife's rights and interests in or in respect of the matrimonial home. In doing so it is necessary to give separate consideration to (i) her rights of occupation as a wife, (ii) her own property rights if, as in the present case, she and her husband are joint owners and (iii) her claim if she has petitioned for divorce to have the husband's equitable interest transferred to her.
79. It is convenient to start with the position at common law as it was following the rejection by the House of Lords in National Provincial Bank Ltd v. Ainsworth [1965] AC 1175 of the doctrine of the deserted wife's equity.
80. I go first to what Lord Denning MR said in Gurasz v. Gurasz [1970] P 11 at p 16B:
Some features of family life are elemental in our society. One is that it is the husband's duty to provide his wife with a roof over her head: and the children too. So long as the wife behaves herself, she is entitled to remain in the matrimonial home. The husband is not at liberty to turn her out of it, neither by virtue of his command, nor by force of his conduct. If he should seek to get rid of her, the court will restrain him. If he should succeed in making her go, the court will restore her. In an extreme case, if his conduct is so outrageous as to make it impossible for them to live together, the court will order him to go out and leave her there. This right is a personal right which belongs to her as a wife. It is not a proprietary right. It is not available against third persons. It is only available against the husband. No matter whether the house is in the wife's name, or in the husband's name, or in the names of both jointly, nevertheless she has this personal right which the court will protect. So long as she has done nothing to forfeit that right, the court will enforce it by making an injunction to restrain the husband from interfering with the exercise of it.
81. Apart from that purely personal right the wife might of course have some interest in the house, for example as a co-owner with her husband either in equity or at law and in equity. In the present case, the wife and her husband are in fact co-owners both at law and in equity.
82. It is convenient first to consider the position in such cases having regard to the law as it was prior to the coming into force on 1 January 1997 of the Trusts of Land and Appointment of Trustees Act 1996.
83. Although the legal title would necessarily be vested in the husband and wife as joint tenants at law, typically and almost always as trustees of either an express or an implied trust for sale, their beneficial interests might be held either as joint tenants or as tenants in common. The differences between tenancy in common and joint tenancy are well known and need no elaborate description here. It suffices for present purposes to observe (see Megarry and Wade, The Law of Real Property [ed 6] paras 9-003, 9-010, 9-011) that joint tenants are seised per my et per tout, so that each joint tenant holds nothing by himself and yet holds the whole together with the other, with the consequence that on the death of one joint tenant his interest passes to the other by right of survivorship. Tenants in common, on the other hand, hold in undivided shares. They have distinct shares in a single property which has not been divided among them, with the consequence that while the tenancy in common lasts no one can say which of them owns any particular parcel of land. There is no right of survivorship. It is common ground in the present case that the husband and the wife are beneficial tenants in common: that is necessarily so given the language of the declaration of trust.
84. A beneficial joint tenancy can of course be severed at any time, whereupon the joint tenants become beneficial tenants in common. There are various means by which a joint tenancy can be severed: see Megarry and Wade paras 9-036 et seq. For present purposes I need only note that, as Mr Hames observed, referring to Harris v. Goddard [1983] 1 WLR 1203, the standard form prayer for ancillary relief in a divorce petition does not effect a severance.
85. Prior to 1997 each beneficial co-owner of land, whether a joint tenant or a tenant in common, enjoyed at common law by reason of his or her interest in the land a right of occupation pending sale. Neither was entitled to exclude the other, whether by acts out of court or even by means of an action for possession. Generally speaking, the only means by which one co-owner could enforce the removal of the other was by an order for sale granted on application made under section 30 of the Law of Property Act 1925.
86. The classic statement of these principles is in Bull v. Bull [1955] 1 QB 234, to which I referred during the argument. As Denning LJ said at p 238:
when there are two equitable tenants in common, then, until the place is sold, each of them is entitled concurrently with the other to the possession of the land and to the use and enjoyment of it in a proper manner; and ... neither of them is entitled to turn out the other.
87. In that case the dispute was between a son and his mother. Denning LJ continued at p 239:
the son, although he is the legal owner of the house, has no right to turn his mother out. She has an equitable interest which entitles her to remain in the house as tenant in common with him until the house is sold. If they fall out the house should be sold and the proceeds divided between them in the proper proportions; but he cannot at his will turn her out into the street. The house cannot be sold with vacant possession unless she consents to it. If she unreasonably refuses her consent, the son, by taking proper steps, can obtain an order for sale from the court and in aid of it the court can order the mother to go; but the court would only make such an order if it was satisfied that it was right and proper to do so and on such terms as to alternative accommodation as it thought right to impose.
88. Bull v. Bull was approved in Williams & Glyn's Bank Ltd v. Boland [1981] AC 487 at pp 507B, 510G, and City of London Building Society v. Flegg [1988] AC 54 at pp 71H, 79E, 81G, and followed in Inland Revenue Commissioners v. Lloyds Private Banking Ltd [1998] 2 FCR 41 at p 49c.
89. The right of each co-owner to use and enjoy the jointly owned land, and his or her right not to be evicted, would be protected by means of an injunction: either a negative injunction to restrain a threatened eviction or, as the case might be, a mandatory injunction to be reinstated following eviction. Immediately after the passage in Gurasz which I have already set out Lord Denning MR continued at p 16E:
If such be the law when the house is in the husband's name alone, or in the wife's name alone, it must also be the law when the house is in joint names. The wife who is joint owner must at least be in as good a position as a wife who is not owner at all.
90. He added at p 17B:
What then is the position in this case? In the first place, the wife has a proprietary right in the house. She is joint owner with her husband. By virtue of her joint ownership, she has a right to occupy the house by herself and her children. The courts can certainly enforce that right by allowing her to re-enter the house and by preventing the husband from interfering with her exercise of that right. It is true, of course, that the husband is also a joint owner, and by virtue thereof, the husband has a right to occupy it. But that is a right which the courts, for the protection of the wife, can restrict: just as it can restrict his right if he were sole owner. Such a power to restrict arises out of her personal right, as a wife, to occupy the house. If his conduct is so outrageous as to make it impossible for them to live together, the court can restrain him from using the house even though he is a joint owner.
91. Since 1997 these matters have been regulated by the 1996 Act. Jointly owned land is now held under a statutory trust of land, rather than as before under a trust for sale, and the right of each co-owner to occupy is now a statutory right: see sections 12 and 13. However, none of this, so far as I can see, makes any difference for present purposes.
92. The principles upon which, prior to 1970, the court exercised its powers under section 30 of the 1925 Act are well known. The classic formulation is to be found in Devlin LJ's judgment in Jones v. Challenger [1961] 1 QB 176. He referred at p 180 to Lord Greene MR's statement in In re Buchanan-Wollaston's Conveyance [1939] Ch 738 that the court must ask itself "whether or not the person applying for execution of the trust for sale is a person whose voice should be allowed to prevail" and at p 181 to "the simple and fundamental principle that in a trust for sale there is a duty to sell and a power to postpone; and, accordingly, one trustee may call upon the others to perform the duty, but all must be agreed if they are to exercise the power." But, he continued:
this simple principle cannot prevail where the trust itself or the circumstances in which it was made show that there was a secondary or collateral object besides that of sale.
93. In a critical passage at p 183 Devlin LJ said:
In the case we have to consider, the house was acquired as the matrimonial home. That was the purpose of the joint tenancy and, for so long as that purpose was still alive, I think that the right test to be applied would be that in In re Buchanan-Wollaston's Conveyance. But with the end of the marriage, that purpose was dissolved and the primacy of the duty to sell was restored. No doubt there is still a discretion. If the husband wanted time to obtain alternative accommodation, the sale could be postponed for that purpose, but he has not asked for that. If he was prepared to buy out the wife's interest, it might be proper to allow it, but he has not accepted a suggestion that terms of that sort should be made. In these circumstances, there is no way in which the discretion can properly be exercised except by an order to sell, because, since they cannot now both enjoy occupation of the property, that is the only way whereby the beneficiaries can derive equal benefit from their investment, which is the primary object of the trust. It is said that it is hard on the husband that he should have to give up the house which it was his wife's choice and not his to abandon. So it is. But wherever there is a joint occupation, whether it is matrimonial or otherwise, and it is brought to an end, it may involve hardship and inconvenience on the person who would have preferred it to go on.
94. He added at p 184:
The test is not what is reasonable. It is reasonable for the husband to want to go on living in the house, and reasonable for the wife to want her share of the trust property in cash. The true question is whether it is inequitable for the wife, once the matrimonial home has gone, to want to realise her investment. Nothing said in the cases which I have cited can be used to suggest that it is, and, in my judgment, it clearly is not. The conversion of the property into a form in which both parties can enjoy their rights equally is the prime object of the trust; the preservation of the house as a home for one of them singly is not an object at all. If the true object of the trust is made paramount, as it should be, there is only one order that can be made.
95. So once the marriage had broken down the husband would normally be able to obtain an order for sale and force the wife to leave.
96. Now that, of course, was before the Family Division, as it now is, had the powers conferred by the Matrimonial Homes Act 1967, the Matrimonial Proceedings and Property Act 1970 and the Matrimonial Causes Act 1973. The position of the wife is now immeasurably strengthened in a number of very significant respects.
97. In the first place a spouse has, qua spouse, statutory rights of occupation in the former matrimonial home going beyond the common law rights recognised in Gurasz. These rights, first granted by the Matrimonial Homes Act 1967 and later by the Matrimonial Homes Act 1983, are now conferred and regulated by Part IV of the Family Law Act 1996. I need say no more about this for it is common ground that her rights under Part IV of the 1996 Act cannot in this case avail the wife as against Customs & Excise.
98. Next, and most fundamental, of course, is the fact that the court now has power under sections 23 and 24 of the Matrimonial Causes Act 1973 to make the wide variety of orders to which I have already referred, including, most importantly for present purposes, property adjustment orders under section 24(1). In this connection it is important to bear in mind section 37 which provides for the avoidance of transactions intended to prevent or reduce financial relief. In addition to its powers to set aside transactions made with the intent of defeating a spouse's claim for financial relief the court is given power by section 37(2)(a):
if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, [to] make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim.
99. An order under 37(2)(a) is of a hybrid or amphibious nature. On the one hand it is not like an order, such as those made in Mediterrania Raffineria Siciliana Petroli SpA v. Mabanaft GmbH [1978] CAT 816 and A v. C (Note) [1981] QB 956, where the purpose of the court's intervention is to preserve in specie an asset in which the claimant asserts that he has an existing beneficial interest. The claimant for ancillary relief is not, as such, asserting an existing beneficial interest. On the contrary, she is asking the court to exercise in her favour its powers under section 24 of adjusting and re-ordering the ownership of the matrimonial assets. Indeed, it is clearly established that the successful claimant for ancillary relief acquires no beneficial interest in the property the subject of a successful application for a section 24 order until, in the case of an order under sections 24(1)(c) or (d), the order is perfected or, in the case of an order under section 24(1)(a), the moment of transfer of the property in accordance with the consequential documentation: Burton v. Burton [1986] 2 FLR 419, Re Mordant, Mordant v. Halls [1996] 1 FLR 334, Omielan v. Omielan [1996] 2 FLR 306, Beer v. Higham [1997] BPIR 349, Harper v. O'Reilly and Harper [1997] 2 FLR 816 and Re Mountney, Mountney v. Treharne (2001) December 21 (Stanley Burnton J - unreported - an appeal is pending as I understand it).
100. On the other hand an order under section 37(2)(a) goes further than a Mareva injunction. A Mareva injunction has no proprietary effect. It merely prevents the dissipation of assets which require to be preserved so as to be available to satisfy by way of execution any future money judgment. One of the purposes of an order under section 37(2)(a), however, is in an appropriate case to preserve in specie, so that they may be transferred to the claimant in specie at the end of the ancillary relief proceedings, assets as to which the claimant asserts no existing beneficial interest but in relation to which she is inviting the court to make orders in her favour under section 24. In that sense an order under section 37(2)(a) has, as it seems to me, a potentially proprietary aspect absent in a Mareva injunction.
101. In Re Mordant, Mordant v. Halls [1996] 1 FLR 334, Sir Donald Nicholls VC, having referred at p 339H to the principle that, where a sum is paid into court by a defendant, either voluntarily under RSC Order 22 in satisfaction of the plaintiff's cause of action, or involuntarily, for instance under RSC Order 14 as a condition of leave to defend, the plaintiff is treated as a secured creditor in the defendant's bankruptcy to the extent of the money paid in, continued at p 340F with this comment about section 37(2)(a):
The words 'or otherwise for protecting the claim' are wide. I can see no justification for cutting them down so as to exclude power to make an order which, when carried out, will have the effect of making property security for the claim in the same way as a sum paid into court under Ord 14 or Ord 22. For instance, the judge may direct that a sum shall be paid into court to await the outcome of a claim for financial provision.
102. Moreover, and quite apart from its powers under section 37(2)(a), the Family Division has wide inherent powers to make orders preserving the family assets in specie so as to protect financial and proprietary remedies which may be awarded in future and to prevent any act which would have the consequence of diminishing or curtailing the court's statutory powers to distribute or redistribute the assets: Harrow London Borough Council v. Johnstone [1997] 1 WLR 459 at p 466H, Bater and Bater v. Greenwich London Borough Council [1999] 2 FLR 993 at p 1002E and Khreino v. Khreino (No 2) (courts power to grant injunctions) [2000] 1 FCR 80 at p 84h. I shall return in due course to consider the implications of these provisions and powers.
103. But the existence of these powers has further consequences. In Williams (JW) v. Williams (MA) [1976] Ch 278, Lord Denning MR having referred at p 285C-F to the "old" and "outdated" approach in Jones v. Challenger and Burke v. Burke [1974] 1 WLR 1063, said:
When judges are dealing with the matrimonial home, they nowadays have great regard to the fact that the house is bought as a home in which the family is to be brought up. It is not treated as property to be sold nor as an investment to be realised for cash. That was emphasised by this court in the recent case of Browne (formerly Pritchard) v. Pritchard [1975] 1 WLR 1366. The court, in executing the trust should regard the primary object as being to provide a home and not a sale. Steps should be taken to preserve it as a home for the remaining partner and children, but giving the outgoing partner such compensation, by way of a charge or being bought out, as is reasonable in the circumstances.
104. He continued at p 285H:
The truth is that the approach to these cases has been transformed since the Matrimonial Proceedings and Property Act 1970 and the Matrimonial Causes Act 1973 which have given the power to the court after a divorce to order the transfer of property. In exercising any discretion under section 30 of the Law of Property Act 1925, those Acts must be taken into account (emphasis added).
105. This approach carried in its train an important procedural corollary as Lord Denning explained at p 286B:
I would add this: An application about a matrimonial home should not be restricted to section 30 of the Law of Property Act 1925. In view of the wide powers of transfer and adjustment which are available under the new matrimonial property legislation it seems to me that the applications should be made to the Family Division under the relevant provisions. If taken out in another division, they should be transferred to a judge of the Family Division. In this very case it seems to me that the right course (which the wife's advisers ought to have taken before) is that they should now, and at once, take out the appropriate application under section 24 of the Matrimonial Causes Act 1973 for any necessary orders and so on to be made with regard to the house and the property. That application should be brought on together with an application under section 30.
106. The same procedural approach has subsequently been adopted in other similar situations: for example, in cases where there are pending proceedings in relation to the matrimonial home under both the Matrimonial Causes Act 1973 and the Charging Orders Act 1979 (see Harman v. Glencross [1986] Fam 81 at p 99E) and where there are pending proceedings in relation to the matrimonial home under both the Matrimonial Causes Act 1973 and the Criminal Justice Act 1988 (see Ahmad v. Ahmad [1999] 1 FLR 317 at pp 320F, 325C). So also, as Hooper J recognised in the present case, where there are pending proceedings in relation to the matrimonial home under both the Matrimonial Causes Act 1973 and the Drug Trafficking Act 1994.
107. I should add that Lord Denning's approach in Williams has been followed both by Goff LJ in In re Holliday (A Bankrupt) [1981] Ch 405 at p 418H and by Ormrod LJ in In re Evers Trust [1980] 1 WLR 1327 at p 1332H.
108. The final statutory change I should mention is that effected by the Trusts of Land and Appointment of Trustees Act 1996. The powers previously exercisable by the court under section 30 of the 1925 Act are now exercisable under section 14 of the 1996 Act. Section 15(1) for the first time provides statutory criteria to which the court is to have regard:
The matters to which the court is to have regard in determining an application for an order under section 14 include -
(a) the intentions of the person or persons (if any) who created the trust,
(b) the purposes for which the property subject to the trust is held,
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary.
109. Thus far the position of a wife vis-a-vis her husband or former husband. But before returning to the Drug Trafficking Act 1994 I think it may be helpful to look briefly at two familiar contexts in which a wife finds herself trying to defend the former matrimonial home from claims by creditors of her husband or former husband. The first relates to claims by trustees in bankruptcy or other secured creditors of the husband's interest. The second relates to claims by unsecured creditors seeking charging orders over the husband's interest.
110. Prior to 1997 the position of an innocent spouse faced with an application for sale made by the other spouse's trustee in bankruptcy or by the mortgagee or chargee of the other spouse's beneficial interest was precarious. There was a long line of well known cases culminating in In re Citro (Domenico) (A Bankrupt) [1991] Ch 142 and Lloyds Bank plc v. Byrne & Byrne [1993] 1 FLR 369. The jurisprudence was accurately summarised by Neuberger J in Mortgage Corpn v. Shaire [2001] Ch 743 at p 757D:
The normal rule in such cases was that, save in exceptional circumstances, the wish of the person wanting the sale, be it a trustee in bankruptcy or a chargee, would prevail, and that the interests of children and families in occupation would be unlikely to prevail.
111. However, as Neuberger J went on to point out at p 760E, the law has been changed by section 15 of the 1996 Act:
As a result of section 15, the court has greater flexibility than heretofore, as to how it exercises its jurisdiction on an application for an order for sale on facts such as those in In re Citro and Lloyds Bank plc v. Byrne & Byrne. There are certain factors which must be taken into account: see section 15(1) and, subject to the next point, section 15(3). There may be other factors in a particular case which the court can, indeed should, take into account. Once the relevant factors to be taken into account have been identified, it is a matter for the court as to what weight to give to each factor in a particular case.
112. Earlier at p 758F he had commented that:
while the interest of a chargee is one of the four specified factors to be taken into account in section 15(1)(d), there is no suggestion that it is to be given any more importance than the interests of the children residing in the house: see section 15(1)(c).
113. As Neuberger J recognised at p 759A, this new-found flexibility does not apply where the third party claimant is the husband's trustee in bankruptcy. For section 15(4) provides that section 15 does not apply to an application under section 14 if section 335A of the Insolvency Act 1986 applies to it, that is, if the application is made by the trustee of a bankrupt. In such a case the application under section 14 must be made to the court having jurisdiction in relation to the bankruptcy and that court is required to make such order as it thinks just and reasonable having regard to the factors identified in section 335A(2). These are: (a) the interests of the creditors; (b) where the application is made in respect of land which includes a dwelling house which is, or has been, the home of the bankrupt or the bankrupt's spouse or former spouse, (i) the conduct of the spouse or former spouse in terms of contributing to the bankruptcy, (ii) the needs and financial resources of the spouse or former spouse, and (iii) the needs of any children; and (c) all the circumstances of the case other than the needs of the bankrupt. Further, section 335A(3) provides that:
Where such an application is made after the end of a period of one year beginning with the first vesting ... of the bankrupt's estate in the trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations.
114. Not surprisingly a substantial jurisprudence has emerged as to what are "exceptional" circumstances, many of the cases involving spouses with serious health problems: see for example Judd v. Brown, Re Bankrupts (Nos 9587 and 9588 of 1994) [1998] 2 FLR 360, on appeal Judd v. Brown [1999] 1 FLR 1191, Re Raval (A Bankrupt) [1998] 2 FLR 718, Claughton v. Charalambous [1999] 1 FLR 740 and Re Bremner (A Bankrupt) [1999] 1 FLR 912. The jurisprudence is necessarily illustrative rather than definitive. As Jonathan Parker J said in Claughton v. Charalambous at p 744H:
it would be entirely inappropriate for this court to attempt to lay down what circumstances may be regarded as exceptional in any particular case when Parliament itself has not chosen to do so. What is required of the court in applying s 335A(3) is, in effect, a value judgment. The court must look at all the circumstances and conclude whether or not they are exceptional.
115. Section 15 may have given the court a somewhat greater flexibility except where the application is made by a trustee in bankruptcy but the Court of Appeal's subsequent decision in Bank of Ireland Home Mortgages Ltd v. Bell [2001] 2 FLR 809 shows that it has hardly revolutionised things. As Peter Gibson LJ said at p 816 (para [31]):
Prior to the 1996 Act the courts under s 30 of the Law of Property Act 1925 would order the sale of a matrimonial home at the request of the trustee in bankruptcy of a spouse or at the request of the creditor chargee of a spouse, considering that the creditors' interest should prevail over that of the other spouse and the spouse's family save in exceptional circumstances. The 1996 Act, by requiring the court to have regard to the particular matters specified in s 15, appears to me to have given scope for some change in the court's practice. Nevertheless, a powerful consideration is and ought to be whether the creditor is receiving proper recompense for being kept out of his money, repayment of which is overdue.
116. Earlier at p 815 (para [27]) the Lord Justice had held, in terms strikingly reminiscent of Devlin LJ's judgment in Jones v. Challenger, that the fact that the property had been purchased as a family home was "not a matter to which the judge could properly have regard", for "that purpose ceased to be operative once Mr Bell left the family". At p 816 (para [29]) he acknowledged that Mrs Bell's poor health was something the judge could properly have regard to, but said "it would provide a reason for postponing a sale rather than refusing sale."
117. The leading authority relating to charging orders in this context is Harman v. Glencross [1986] Fam 81. The court's approach was indicated by Balcombe LJ at p 99A:
(1) Where a judgment creditor has obtained a charging order nisi on the husband's share in the matrimonial home and his application to have that order made absolute is heard before the wife has started divorce proceedings, there is, of course, no other court to which the application for the charging order absolute can be transferred, the wife having no competing claim to the husband's share. In those circumstances it is difficult to see why the court should refuse to make the charging order absolute, and the wife's right of occupation should be adequately protected under section 30 of the Law of Property Act 1925: see the analysis of the law by Goff LJ in In re Holliday [1981] Ch 405. (2) Where the charging order nisi has been made after the wife's petition, then on the application for a charging order absolute the court should consider whether the circumstances are such that it is proper to make the charging order absolute, even before the wife's application for ancillary relief has been heard by the Family Division ... (3) Unless it appears to the court hearing the application for the charging order absolute that the circumstances are so clear that it is proper to make the order there and then, the usual practice should be to transfer the application to the Family Division so that it may come on with the wife's application for ancillary relief, and one court can then be in a position to consider all the circumstances of the case. When considering the circumstances, the approach of the court should be to recall the statement of Sir Denys Buckley in the Hegerty case [1985] QB 850, 866, that a judgment creditor is justified in expecting that a charging order over the husband's beneficial interest in the matrimonial home will be made in his favour. The court should first consider whether the value of the equity in the house is sufficient to enable the charging order to be made absolute and realised at once, as in Llewellin v. Llewellin (unreported), even though that may result in the wife and children being housed at a lower standard than they might reasonably have expected had only the husband's interests been taken into account against them. Failing that, the court should make only such order as may be necessary to protect the wife's right to occupy (with the children where appropriate) the matrimonial home. The normal course should then be to postpone the sale of the house for such period only as may be requisite to protect the right of occupation - a Mesher type of order - again bearing in mind that the court is holding the balance, not between the wife and the husband, but between the wife and the judgment creditor. If the judgment creditor asks, even in the alternative to his claim to an immediate order, for a Mesher type of order, then it seems to me that it would require exceptional circumstances before the court should make an order for the outright transfer of the husband's share in the house to the wife, thereby leaving nothing on which the judgment creditor's charging order can bite, even in the future. Finally, the court should consider whether there is any point in denying the judgment creditor his charging order, if the wife's rights of occupation could in any event be defeated by the judgment creditor making the husband bankrupt.
118. At p 103G Fox LJ said:
In theory, a court exercising the jurisdiction under section 24 of the Matrimonial Causes Act 1973, could deliberately frustrate a pending application for a charging order by directing an immediate transfer of the property sought to be charged. But I do not think that would, normally at any rate, be a proper exercise of the section 24 jurisdiction. It seems to me that the court, in deciding in such circumstances as the present, whether to make a charging order, must strike a balance between the normal expectation of the creditor and the hardship to the wife and children if an order is made. Now in this case the wife and children are in a position of great difficulty, since the house is the only family asset of substance and, if it is sold and the husband's share of the proceeds utilised in discharge of the debt pursuant to the charging order, they will have insufficient to purchase another home. Accordingly, I think that, since the court in exercising its discretion, under the Charging Orders Act 1979, is required to consider all the circumstances of the case (which would include the hardship to the wife and children) the court should seek to provide such a degree of security for the wife and children as is consistent with fairness to the creditor. In that latter respect I would not myself, if exercising the discretion on such facts as the present, normally have thought it proper simply to refuse a charging order. That, in effect, extinguishes the debt for the benefit of persons (the family) to whom the creditor owes no obligations at all. The creditor could not then enforce the debt against the husband's share in the house; there is no other property against which he could enforce it, and there is nothing to suggest he could recover it from the husband. I would myself have taken the view on such facts as the present that the charging order should not be discharged, but that its enforcement should be deferred during such period as might reasonably be necessary for the protection of the wife and children.
119. As we have seen (see paragraph [73] above), section 31 of the 1994 Act distinguishes between rights of property and mere obligations. Section 31(4), as I have said (see paragraphs [76]-[77] above), is intended to safeguard the legitimate rights of third parties in any realisable "property", whilst section 31(5) expressly excludes from consideration by the court any "obligations" of the defendant which conflict with his obligation to satisfy the confiscation order. These two contrasting provisions give rise to certain questions of construction which were the subject of debate before me.
120. As Buckley J pointed out in In re W [1990] TLR 726 referring to the Criminal Justice Act 1988, and the same remains true of the 1994 Act, the word "obligations" is given no special meaning in the Act. It is a word of general import with a wide meaning. It plainly includes debts, as Buckley J held. But there is no reason to confine it to debts. In principle it extends to anything which the law (in which expression I include not merely the common law and equity but also the law administered in the Family Division) would in normal parlance treat as an obligation. It would, for example, extend to embrace what Lord Denning MR in Gurasz referred to as "the husband's duty to provide his wife with a roof over her head". The only limitation, as it seems to me, is that provided by section 31(4). In other words, and this is precisely the approach adopted by Buckley J in In re W, an innocent third party cannot rely upon an obligation of the defendant unless he can show that it gives him some right or interest in the relevant property. It was for this reason that in In re W a judgment creditor of the defendant failed to obtain an order permitting the judgment debt to be paid out of monies of the defendant which had been frozen under the 1988 Act. As Buckley J put it, "the applicant did not have an interest in the frozen moneys". Thus, as it is put in Mitchell, Taylor & Talbot on Confiscation and the Proceeds of Crime [ed 2] paras 3-011, 3-047, 3-134, the 1994 Act gives the prosecutor priority over unsecured creditors. Conversely, as Otton J held in In re K (Restraint Order), where the creditor was a bank seeking to exercise its right to combine accounts and a contractual right of set-off or lien.
121. So far so good but what precisely are the rights or interests in property which are safeguarded by section 31(4)? Section 31(4) itself merely refers to "any property held by" the third party but those words have to be construed according to the definitions in sections 62(5)(a) and 62(3). The effect of section 62(5)(a) is that property is held by a third party "if he holds any interest in it", whilst section 62(3) provides that ""interest", in relation to property, includes right". A third party will accordingly bring himself within section 31(4) if he has either an "interest" or a "right" "in" or "in relation to" the relevant property. It is not therefore necessary for a third party to have an "interest" in the relevant property; a "right" will suffice. There was some debate before me as to whether such a "right" has to be a proprietary right or whether, for example, a contractual right can suffice. As In re K (Restraint Order) demonstrates, it is not fatal that the "right" in question is contractual in origin. But whatever the origin of the right it will not fall within the protection of section 31(4) unless it is something that can properly be said to be a right "in" or "in relation to" the property. I see no reason to gloss the statute any further. Indeed it would be wrong to do so.
122. The safeguard afforded by section 31(4) to a third party is that he is to be allowed "to retain or recover the value of" his right or interest in the relevant property. What do these words mean? As we have seen, "value" is defined by section 7(1) as meaning the market value, in other words a purely monetary value and not, as Mr Hames at one stage suggested, a utility value over and above the monetary value. This being so, does section 31(4) merely entitle a third party to recover the monetary value of his right or interest in the property or does it entitle him in appropriate circumstances to retain it in specie? More precisely, is section 31(4) to be construed, as Mr Bird would have it, as meaning that the third party is to be entitled to retain or recover, as the case may be, only the "value" of his property or, as Mr Hames would have it, that he is to be entitled to retain his property or, as the case may be, to recover the value of his property? On this point, in my judgment, Mr Hames is plainly correct. In principle section 31(4) safeguards the right of a third party to continue to enjoy his property in specie. I say so for three reasons.
123. In the first place, Mr Hames's construction gives, as it seems to me, a more natural and sensible meaning to the statutory language. Moreover, it is a little difficult to see why on Mr Bird's approach the words "retain or" appear at all: section 31(4) could as easily have read "with a view to allowing any person other than the defendant ... to recover the value of [his] property". The third reason is the most compelling.
124. Whilst Mr Bird might perhaps plausibly argue that no great injustice is done by requiring a co-owner of property, such as the wife in this case, to accept merely the monetary value of her interest (for that, it might be said, is merely giving effect to the underlying trust for sale and to the principles expounded by Devlin LJ in Jones v. Challenger and by Peter Gibson LJ in Bank of Ireland Home Mortgages Ltd v. Bell) the argument wholly breaks down where the interests of the defendant and the third party in the relevant property are not concurrent but successive. Let me give a very simple example to which, at the end of the day, Mr Bird really had no answer. (Other similar examples spring readily to mind, for instance where the third party is in possession of the defendant's land as tenant or licensee.) Suppose that the defendant has the reversion to a residential property which is held on a trust under which the third party has a life interest on terms that she is to be allowed to live in the property as long as she wishes and that the property is not to be sold without her consent (cf., In re Herklots Will Trusts [1964] 1 WLR 583). Can it seriously be suggested that the effect of section 31 is to permit the court to evict the life tenant on payment of a monetary sum which, since it is to be the market value of an interest which given the age of the life tenant may not have very long to run, might be modest and indeed wholly inadequate to provide the life tenant with suitable alternative accommodation? Surely not. It would not be safeguarding the legitimate rights of the life tenant, to use Lord Donaldson of Lymington MR's phrase in In re Peters, and it would not be giving effect to the principles expounded by Otton J in the passage from his judgment in In re K (Restraint Order) which I have quoted in paragraph [77] above.
125. It follows that insofar as it is said in Mitchell, Taylor & Talbot para 8-032 that under section 31(4) the court is concerned only with the value of the third party's property interests and not the property itself I cannot with all respect to the learned authors agree. Nor can I agree with them when, in the context of a discussion of the effect of section 31(4), they say of section 31(2) that its provisions "make satisfaction of the confiscation order the overriding objective", for that, as it seems to me, is to overlook, or at least give wholly inadequate weight to, the fact that section 31(2) takes effect subject to section 31(4).
126. It follows, in my judgment, that a wife, however innocent she may be, cannot set up as against those asserting claims under the 1994 Act, that purely personal right against her husband to which Lord Denning MR referred in Gurasz (see paragraph [80] above). Nor, as I have already mentioned (see paragraph [97] above), is there any suggestion that her rights under Part IV of the Family Law Act 1996 can in this case avail the wife as against Customs & Excise. If she is to defeat the claims of Customs & Excise it can only be by reliance upon either (i) her rights as a joint owner of the house and/or (ii) her rights under the Matrimonial Causes Act 1973.
127. So far as concerns her rights as a joint owner of the house (by which I mean the entire bundle of rights as I have described them in paragraphs [83]-[95] and [103]-[105] above) those rights in my judgment are in principle safeguarded by section 31(4) of the 1994 Act. But allowing that this entitles the wife to the full protection not merely of section 31(4) of the 1994 Act but also of section 15 of the 1996 Act, it seems to me that Bank of Ireland Home Mortgages Ltd v. Bell marks the limits beyond which the court cannot properly go.
128. Mr Hames sought to rely upon the use in section 29 of the 1994 Act of such phrases as "subject to such conditions or exceptions as may be specified by the court" (section 29(3)(b)) and "in such manner as the court may direct" (section 29(5)) as conferring on the court general and unlimited power to determine not merely how but when the relevant property is to be realised. In particular, he said, section 29 gives the court power to defer any taking possession of the house by the receiver and any sale of the house until after the wife's death. These provisions alone will not, in my judgment, bear the weight which Mr Hames seeks to place upon them.
129. Section 31(2) requires the court, subject only to section 31(4), to exercise its powers under section 29 "with a view to making available for satisfying the confiscation order ... the value for the time being of realisable property ... by means of the realisation of such property" (emphasis added). Mr Bird accepts that the reference here to "value" is to the value of the defendant's interest in the property. But he points to the words I have emphasised as indicating that, subject only to section 31(4), the court's obligation under section 31(2) is to realise the defendant's interest in the property, that is to turn it into cash, whether by sale of the property or a buy-out of the defendant's interest in it, and, moreover, to do so now rather than later. For, he says, only by a realisation now rather than later can the value "for the time being" of the defendant's interest in the property be made "available" to satisfy the confiscation order. Whilst recognising that sections 29 and 31(2) afford the court a certain degree of flexibility, inter alia, as to the timing of any orders for possession under sections 29(3)(b) and 29(4) or orders for realisation under section 29(5), I think that in principle Mr Bird is correct when he submits that what section 31(2) prima facie requires is realisation now rather than at some time in the more or less distant future. Moreover, I find it difficult to imagine that section 31(2) of the 1994 Act was intended to provide or that it does in fact provide any greater degree of flexibility than section 15 of the 1996 Act, even assuming, which I doubt, that it goes even as far as that.
130. Mr Hames naturally seeks to avoid these difficulties by pointing to section 31(4) and relying upon the wife's rights as co-owner of the house. That, of course, he is entitled to do. But for the reasons I have already given that takes him, as it seems to me, no further than the principles expounded in Bank of Ireland Home Mortgages Ltd v. Bell will permit. Those who are otherwise entitled to look to the husband's share of the house for payment of what he owes are not to be kept indefinitely and without recompense out of their money. The wife's admitted ill-health may provide a reason for postponing a sale, but not normally for refusing a sale. What will be an appropriate period of postponement must in the final analysis be a matter for the exercise of judicial discretion, applying the principles to be found in Bell and, subject to that, having regard to all the circumstances of the particular case. I would only add that unless the case is one to which section 335A(3) of the Insolvency Act 1986 applies there appears to be no reason to treat a postponement of one year as the maximum permissible. On the contrary, section 15 confers a general discretion limited only by the statutory duty to have regard to the specific matters referred to in section 15(1).
131. In these circumstances much of the focus of the very interesting arguments which I have had the pleasure of listening to has been not so much on the wife's rights as co-owner of the house but rather on her rights under the 1973 Act and the priority or other relationship between those rights and the enforcement regime under the 1994 Act. It is to these issues that I must accordingly now turn.
132. At this point I should make clear what this case is and is not about. What I am concerned with is the exercise, and the consequences of the exercise, by the High Court of its powers under sections 26 and 29 of the 1994 Act. I am not concerned with the question of how the Crown Court should exercise its powers when making a confiscation order. The fact is that in this case a confiscation order has been made. There has been no appeal against the making of that order. I have, as it seems to me, to proceed on that basis, though recognising that the wife had of course no opportunity to participate in the proceedings before the Crown Court and is therefore not bound by the Crown Court's decision: see In re Norris [2001] UKHL 34 [2001] 1 WLR 1388 at p 1402A (para [26]). I do so without regret because the wife's interests in both the house and the policies have been very carefully examined and evaluated by Hooper J, from none of whose orders has the wife sought to appeal. There is nothing to suggest that, beyond the mere fact of the making of the confiscation order, anything that was done in the Crown Court has prejudiced her in any way.
133. Mr Hames referred me to Raymond Lee [1996] 1 Cr App R(S) 135, R v. Gregory (1995) Times October 31 and Peter John Taigel [1998] 1 Cr App R(S) 328 as showing, as he would have it, the caution with which the Crown Court should approach the making of a confiscation order in relation to the defendant's share of the equity in the matrimonial home. That may or may not be so. The cases Mr Hames refers to do not, as it seems to me, bear on the subject matter with which I am concerned and do not assist me. I say nothing more about them.
134. On the central matter in issue between Customs & Excise and the wife I was referred to a number of authorities. I shall take them in chronological order.
135. The first is In re Peters, to which reference has already been made. In that case the question was whether McNeill J had been right to vary a restraint order made by Schiemann J under the Drug Trafficking Offences Act 1986 so as to give effect to a consent order made by Mr Registrar Guest in ancillary relief proceedings whereby the defendant agreed to pay a lump sum of £25,000 for his son's future education in final settlement of his son's claims under the 1973 Act. Nolan J had earlier varied the restraint order so as to permit payment of the son's school fees each term. All the orders had been made at an interim stage and prior to the defendant's conviction. The Court of Appeal held that McNeill J had been wrong to vary the restraint order to give effect to the divorce court's order.
136. The main judgment was given by Lord Donaldson of Lymington MR. The heart of his judgment is in the following passage which begins at p 879C:
This leaves subsection (2), which gives general guidance and lies at the heart of this appeal:
the powers [under sections 8 and 9] shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant's case the value for the time being of realisable property held by any person by the realisation of such property.
Mr John Laws, for the commissioners, points out that a court faced with the making or variation of a restraint order or a charging order is not concerned with the making of a confiscation order or a process of execution in satisfaction of such an order. It is concerned solely with the preservation of assets at a time when it cannot know whether the accused will or will not be convicted. Such a jurisdiction is closely analogous to that exercised by the courts in relation to Mareva injunctions and might, not inaccurately, be referred to as a "drugs Act Mareva." Under the Mareva jurisdiction the interest of the potential judgment creditor has to be balanced against those of actual creditors, whether secured or unsecured, and of the defendant himself who may succeed in the action and should be fettered in his dealing with his own property to the least possible extent necessary to ensure that the processes of justice are not frustrated.
Subsection (2) is consistent with such a purpose, subject to what Mr Laws described as a "legislative steer," namely, that, so far as is reasonable taking account of the fact that the accused may be acquitted and that, unlike the position under the Mareva jurisdiction, there is no counter undertaking in damages although there is a discretionary power to award compensation under section 19 of the Act, the value of the realisable property shall be maintained in order that it may be available to satisfy any confiscation order.
The exercise of power to vary the restraint order by Nolan J was entirely consonant with this purpose. Mr Peters, as an unconvicted accused person who might be acquitted, was entitled to ask that his son's education should not be interrupted, that he himself should be adequately clothed and that he should be able to pay for the costs of his defence. But the anticipatory discharge of liabilities which could be expected to arise only after Mr Peters had either been acquitted or convicted and, in the event of conviction, his property had been made subject to a confiscation order is quite another matter and is wholly contrary to section 13(2) and indeed the underlying purpose of the protective provisions of the Act.
In so far as there was a conflict between the court order made in the divorce proceedings and the restraint order made under the Act, it should have been resolved in favour of maintaining the restraint, leaving the son's education to be continued within the limits provided for by the order of Nolan J. But in fact no such conflict should have been allowed to arise. Mr Registrar Guest would not, I apprehend, have made his order, even with consent, if he had thought that Mr Peters had no assets. Mr Peters, of course, had the necessary assets, but they were not available assets and Mr Registrar Guest should have expressly provided in his order that it was only to take effect if and when the restraint order was discharged or varied to such extent as would permit of his order being satisfied. In saying this I must not be taken to be criticising the registrar who may well not have been fully informed of the position.
137. Not surprisingly Mr Bird relies in particular upon the final paragraph in that passage.
138. At p 880G Nourse LJ said:
the jurisdiction to make or vary restraint orders is closely analogous to the jurisdiction to make or vary Mareva injunctions. In both cases the object is to strike a balance at an interlocutory stage between keeping assets available to satisfy a final order, if and when one is made, and meeting the reasonable requirements of their owner in the meantime. If the jurisdiction in the two cases is analogous, so ought the practice to be similar. While accepting that all things are possible if the circumstances are unusual, I cannot think that it would be a correct practice, in granting Mareva injunctions, to allow children's school fees to be capitalized, if their payment as such would or might reduce the value of the defendant's assets below the amount required to meet a final judgment. Everything would point towards their being paid term by term. Similarly, there being no unusual circumstances in the present case, it cannot have been correct for McNeill J to vary the agreed order made by Nolan J so as to allow Mr Peters to make a lump sum payment by way of a capitalization of his son's school fees and expenses.
139. The next case to which I was referred was the unreported decision of Henry J in In re B (1991) May 13, referred to in Mitchell, Taylor & Talbot para 8-032. In that case a receiver's application to sell a matrimonial home which had been made the subject of a restraint order under the Drug Trafficking Offences Act 1986 was met by the wife's claim that she had an interest in the property. In the course of considering that question Henry J said (Transcript p 2E):
This Act, being designed to strip drug barons of the proceeds of their unlawful activities, is a draconian Act. It also can work hardship on the families of the drugs dealers. This is because no special provision is made to protect the rights under matrimonial legislation of the criminal's wife to an interest in the matrimonial home. Contrast the special provisions made under section 366(2) [sic: the correct reference is to section 336(2)] of the Insolvency Act 1986 to protect the rights of a bankrupt [sic: this is a typographical error for "bankrupt's"] spouse under the Matrimonial Homes Act 1983 [now Part IV of the Family Law Act 1996], when the other spouse is adjudged bankrupt.
140. With that I have absolutely no quarrel. In the present case, however, the real question, as it seems to me, is how section 31(4) operates in relation to a wife's claims not under the Family Law Act 1996 but rather under the 1973 Act. Henry J continued (Transcript p 2H):
It is common ground before me that the wife cannot rely under this Act on the rights of the matrimonial home that she would enjoy against her husband in the event, say, of a divorce. In order to upset the confiscation order made, she has to show that she has an interest in the property acquired otherwise than by a gift as defined in the Act; that is to say, an interest acquired by her for good consideration and at full value.
141. In other words the point which has been argued before me went in that case by concession. In the circumstances Henry J's judgment gives me little assistance.
142. The third case is the unreported decision of Mr Michael Horowitz QC, sitting as a Deputy High Court of the Family Division, in James v James (1995) March 15. In that case a confiscation order had been made under the Drug Trafficking Offences Act 1986 on 30 March 1990 followed on 25 May 1990 by a restraint order. On 9 July 1990 the defendant's wife petitioned for divorce. On 7 February 1991 a receiver was appointed. The receiver accepted that she had a 50% beneficial interest in the matrimonial home but in the ancillary relief proceedings the wife sought a transfer outright of the property to her. The receiver sought an order for realisation of the property. The proceedings were ordered to be consolidated and tried in the Family Division. The question for the Deputy Judge (see Transcript pp 10-11) was whether he should determine the wife's ancillary relief proceedings first, postponing the 1986 Act proceedings in the meantime, or whether he should proceed with the receiver's application.
143. Having referred briefly to Henry J's judgment in Re B, which he treated (see Transcript p 13, l 3) as not saying anything about priorities as between the 1986 Act and the exercise of the ancillary relief jurisdiction under the 1973 Act, the Deputy Judge turned to consider In re Peters. He continued (Transcript p 14, l 20):
It is abundantly plain, in my judgment, that the principle exemplified in Re Peters is established and not new and that it cannot be appropriate for this Division to steal a march on the 1986 Act structure and take assets away that are otherwise available to satisfy the draconian powers granted by Parliament to punish those concerned in drug trafficking.
144. Having then referred to the exercise mandated by section 25(2)(a) of the 1973 Act, that is, the duty of the court to have regard to the defendant's income, earning capacity, property and other financial resources, the Deputy Judge continued (Transcript p 15, l 6):
If that exercise is to be performed objectively and [not] artificially, in having a look at what the resources are one has to look at the negative resources. This husband would come before any court dealing with ancillary relief with a negative resource of his vulnerability to further implementation of the confiscation order. It is wholly artificial first to exercise the jurisdiction to delete a debt and then to consider adjustment of assets. So it is abundantly plain on authority and on principle that the Drug Trafficking Offences Act exercise must logically, as a matter of law, come first.
One has a degree of sympathy with the wife. ... What in truth she has lost is the loss of an illusory claim against the greatly expanded assets of the husband that were the proceeds of crime. If he had remained nothing more than a panel beater and paint sprayer, I apprehend that there would not have been more to look at than the matrimonial home and perhaps some small savings; and in any such claim, absent criminal proceedings, the husband would have made a plausible claim to have recovered either half or some substantial share of the matrimonial home to re-house himself. Thus it is not immediately and ineluctably true that the wife has lost the prospect of some larger compensation. It is the shadow of such larger compensation represented by sums derived, it would appear, entirely from criminal offences and either confiscated or spent.
145. Accordingly the Deputy Judge dismissed the wife's application to adjourn the 1986 Act proceedings and directed a sale of the property.
146. Now there are obvious factual differences between that case and the case I am concerned with. In that case the confiscation and restraint orders preceded the divorce petition whereas in this case the petition preceded the orders (cf., Harman v. Glencross). In that case the assets appear to have been the proceeds of crime whereas in this it is accepted they are untainted. Moreover, I have some difficulty in accepting the whole of the Deputy Judge's reasoning. All that said, his judgment plainly provides strong support for Mr Bird's case. Perhaps not surprisingly one sees the authors of Mitchell, Taylor & Talbot treating In re Peters and James v. James at para 8-033 as authority for the proposition that "where there are ancillary relief proceedings before the family courts and restraint/receivership proceedings before the High Court, the restraint/receivership proceedings take priority."
147. The final case is the vitally important decision of the Court of Appeal in Ahmad v. Ahmad [1999] 1 FLR 317. In that case the wife had petitioned for divorce two days before a restraint order was made under the Criminal Justice Act 1988, the relevant provisions of which mirror those of the 1994 Act. The wife then issued complementary proceedings against the husband under section 17 of the Married Women's Property Act 1882. Those proceedings and her claims for ancillary relief were subsequently compromised. After the husband's trial had started but before he was convicted the wife applied on 11 April 1997 for a variation of the restraint order to enable the compromise to be implemented. That application and the wife's applications in the matrimonial proceedings, including a further application on 30 June 1997 seeking the court's approval of the compromise, were consolidated and came before Johnson J in the Family Division. By then the husband had been convicted. Johnson J dismissed the wife's application of 11 April 1997 and made no order on her application of 30 June 1997.
148. By a majority (Lord Woolf MR and Thorpe LJ, Hobhouse LJ dissenting) the Court of Appeal allowed the wife's appeal.
149. Giving the first judgment Thorpe LJ at p 320C said:
Can the order of Johnson J dismissing the application of 11 April 1997 stand? In my opinion it cannot. First, the wife was entitled to have the charging order varied to remove from its sphere her separate property. ... Secondly, she was entitled to seek a determination of her share of the family assets upon the application of the criteria in s 25 of the Matrimonial Causes Act 1973. As between herself and her husband the extent of that share had been compromised in proceedings to which the Customs and Excise had not been joined as interveners in order to enable them to protect their legitimate interest; that is, to ensure that the bargain was bona fide and not a device to extract assets out of the confiscatory regime to the advantage of the former wife and children. However, Mr Mitchell relies on the case of Re Peters [1988] 1 QB 871. That authority directly prioritises the confiscatory regime above the anticipatory discharge of future maintenance liabilities. But here the wife's claim rested on the past and not on the future. She relied on 22 years of very hard work in a quasi-partnership endeavour that ended for her 3 years before the husband commenced his criminal activities.
150. Hobhouse LJ took a very different view. In order to understand exactly what it was the majority decided it will, I think, assist to examine Hobhouse LJ's dissenting judgment. He recognised that the legislation protected third party rights. As he said at p 324B:
It must also be borne in mind that it is part of the scheme of this legislation that the legitimate third party property rights are to be recognised. This is both the scheme of s 78 itself and it is also included in s 82. The third party property rights, provided they are bona fide and exist at the appropriate time and have not been designed to defeat the effect of the legislation, are to be given effect to.
151. But he took a restrictive view of what could qualify for this purpose as a third party property right. At p 322G he said:
In my judgment it follows from what was said in Re Peters [1988] QB 879 that a wife would not be entitled to such an order unless she was prepared to establish her property rights, be they equitable or legal, under a procedure such as that under the Married Women's Property Act, s 17, or under one of the procedures made available to her under the Criminal Justice Act 1988. She did not appear to be willing to undertake that task, and she was seeking simply an order which would give effect to an agreement which she had made with her husband.
152. He added at p 323D:
[T]he wife was asking for too much. She was asking for a variation which would recognise rights which she had not established. Insofar as they did not arise from property rights, legal or equitable, which were existing at the relevant time, she also was asking for more than she was entitled to, particularly on the basis of the case of Re Peters.
153. In other words, it was Hobhouse LJ's view that the only rights which could qualify were pre-existing property rights in the strict sense, whether legal or equitable, and not rights arising only pursuant to a future exercise by the court of its powers under the 1973 Act. This is clear enough from the very plain words which he used. But it is put beyond argument, as it seems to me, by his reference to the establishment of such rights in accordance with section 17 of the 1882 Act. For it is elementary that section 17 is a procedural provision only, which gives the court power to determine the parties' existing proprietary rights insofar as they arise under the general law but no power to create or vary the proprietary rights of husband and wife in family assets: Pettitt v. Pettitt [1970] AC 777. Accordingly (see at p 324H) Hobhouse LJ would have dismissed the wife's appeal.
154. Lord Woolf MR made it clear at p 325A that on this point he agreed with Thorpe LJ and disagreed with Hobhouse LJ. He recognised in common with Hobhouse LJ that the legislation protects third party rights. Thus at p 325B he said:
The position so far as the Criminal Justice Act 1988 is concerned, is that the legislation fully protects the rights of third parties. It enables third parties, if necessary, to make applications for their rights to be recognised by the court. The provisions of s 78(7) and (8) of the Criminal Justice Act 1988 are among the provisions which achieve this result. In this situation the wife was fully entitled to make an application to have her rights in the properties, which were the subject of the charging order, protected as the Act envisages.
155. But he plainly took a wider view than Hobhouse LJ of the kind of rights that could be protected for he continued (p 325C):
It was to enable that to be done in the most sensible and practical way that Sedley J made the order referring the matter to the Family Division judge, so that he could deal with not only her application to vary, but also the application which she made for relief in the matrimonial proceedings.
156. It is clear in my judgment that Lord Woolf envisaged the protection extending not merely to the wife's pre-existing proprietary rights in the strict sense but also to her rights as subsequently determined in accordance with the 1973 Act. For at p 325D he said:
The issues were the extent to which the interests of the wife in the former matrimonial home were to be given priority over those of the Customs and Excise under the charging order. Insofar as those rights were pre-existing at the time of the making of the charging order, then the position would be virtually automatic. Insofar as those rights were subsequent under the Criminal Justice Act, the matter was for the determination of the judge dealing with the application. What is clear is that the Customs and Excise were not bound by the agreement which had been reached between the husband and the wife. They were perfectly entitled, particularly because of the background considerations to which reference has been made by my Lords, to require the wife to establish the true nature of her interests in the property. That would involve an investigation of the facts.
157. Both Lord Woolf MR and Thorpe LJ were considering the effect of the 1973 Act in terms of the priority of the wife's claim under that Act vis-a-vis what Thorpe LJ referred to as the confiscatory regime under the 1988 Act. Both refer in terms to the concept of priority. Both in my judgment make it clear that in principle a wife's claim under the 1973 Act can take effect in priority to the prosecutor's claim under the 1988 Act. The same must go for the 1994 Act. In other words, Ahmad v Ahmad is as it seems to me authority for the proposition that a wife's pending but as yet unadjudicated claims under section 24 of the 1973 Act can amount to rights in or in relation to property within the meaning of section 31(4) of the 1994 Act.
158. That is not, I have to say, a proposition that causes me any particular surprise or concern. It seems to me to be entirely consistent with the particular and to some extent peculiar nature of proceedings under the 1973 Act (see paragraphs [98]-[102] above) and to the principles which underlie the relationship between sections 31(2) and 31(4) of the 1994 Act (see paragraphs [76]-[77] and [121]-[125] above).
159. Now that of course leaves open the question of how, in the exercise of its discretion, the Family Division should exercise its powers under the 1973 Act. For unless the Family Division is persuaded to exercise its powers in favour of the wife in such a way as to impinge upon the defendant's ability to meet a confiscation order there will in fact be no conflict between the wife's claim under the 1973 Act and the prosecutor's claim under the 1994 Act. In the first place, of course, the court has to consider the matter having regard to the factors referred to in section 25 of the 1973 Act. But the court has to consider the matter not only as between the wife and the defendant but also as between the wife and the prosecutor. For there is potentially not merely a conflict between the private rights of the wife and the private rights of the defendant but also between the private rights of the wife and the public interest as represented by the prosecutor's claim.
160. Whilst I should not want to be understood as saying that the principles in that case are directly applicable in this somewhat different context it does nonetheless seem to me that Harman v. Glencross provides an illuminating and (at least partly) helpful analogy. In at least two respects the principles there referred to may be of relevance when the conflict arises under the 1994 Act. In the first place there may be an important difference between cases, such as Ahmad v. Ahmad and this case, where the divorce proceedings were commenced before the proceedings under the 1994 Act and cases, such as James v. James, where the divorce proceedings came later. Secondly, there may be arguments (analogous to those canvassed both in Harman v. Glencross and in Bank of Ireland Home Mortgages Ltd v. Bell) for doubting whether it will very often be appropriate to order an outright transfer of the defendant's property to the wife if that is going to leave him with nothing with which to meet the confiscation order, even in the future, and correspondingly leave the prosecutor unable to recover that which the Crown Court has determined should be recovered and the defendant exposed to possibly drastic penal consequences.
161. Mr Hames submits correctly that the 1994 Act must be construed and given effect, so far as it is possible to do so, in a way which is compatible with rights under the European Convention for the Protection of Human Rights and Fundamental Freedoms. He submits that the wife's Convention rights are implicated in two different ways: first insofar as Article 8 guarantees respect for her private life and her home and secondly insofar as Article 1 of Protocol No 1 entitles her to the peaceful enjoyment of her possessions. He says that any sale of the house would interfere with her rights to respect for and peaceful enjoyment of her home. He submits that such interference with her rights can be justified under Article 8(2) only if it is, in the Convention sense, necessary for the prevention of crime and under Article 1 of the Protocol only if it is in the public interest. So, he says, the court should only exercise its powers under section 29 of the 1994 Act where it is necessary to do so either to prevent crime or in the public interest. There is no such necessity here he says, for although it is necessary in order to prevent crime to stop drug dealers from enjoying the actual or potential benefits of their drug dealing it does not matter for this purpose whether the assets which the husband loses go to the wife or to Customs & Excise. The fight against crime, he says, does not require that Customs & Excise should benefit at the wife's expense nor require that she should be prevented from making her rightful claim for ancillary relief. Finally he says it is not in the public interest for the wife to lose her home.
162. In support of his submissions Mr Hames referred me to James v. United Kingdom (1986) 8 EHRR 123 at pp 139, 142, 144 (paras [37], [46], [50]), in particular where it was said that Article 1 requires a "fair balance" to be struck between private right and public interest and that the requisite balance will not be found if the individual has had to bear "an individual and excessive burden", and to Buckley v. United Kingdom (1996) 23 EHRR 101 at p 129 (paras [74]-[77]), where it was said that the rights of the community have to be balanced against the individual's right to respect for her home.
163. Mr Bird points out, however, that the husband also has Convention rights which cannot be ignored: his right to liberty under Article 5 (likely, says Mr Bird, to be imperilled if he is not permitted to use his assets to satisfy the confiscation order) and his rights under Article 1 of the Protocol (and recognised by Article 8(2)) to use his assets to discharge his liabilities. As Mr Bird correctly submits, the court must act in such a way as to give effect so far as possible to both the wife's and the husband's Convention rights. The court has to strike a balance between the competing interests of the prosecutor, representing the public interest, the husband and the wife. Where those rights come into conflict the conflict has to be resolved according to the general Convention principles of necessity and proportionality.
164. So far as concerns the wife's claim based on Article 1 of the Protocol Mr Bird points out by reference to what is said in Lester & Pannick, Human Rights Law and Practice para 4.19.3 that Article 1 protects only the wife's existing interest in the house and not anything she might hope to acquire in future from the husband pursuant to her claim under the 1973 Act. So says Mr Bird, and I agree, the wife has no Convention right under Article 1 to protection from the prosecutor's claim to the husband's interest in the house. Not only is it the husband's possession, and not hers, but Article 1 dictates that he is entitled to make use of it, and not her. So far as concerns her interest in the house, that says Mr Bird is adequately protected by section 31(4). Furthermore, and in any event, as Mr Bird points out, there are many situations where a house has to be sold in order to satisfy the debts or liabilities of one of the co-owners. So long as the innocent co-owner's interest is respected there is no unlawful interference with her possessions. It is often the case, even in family proceedings, that the only way to respect both co-owners' interests and needs is by an order for sale. That, as Mr Bird observes, is a necessary incidence of co-ownership of property.
165. So far as concerns Article 1 of the Protocol I agree with Mr Bird. It adds nothing to the protections already afforded to the wife under domestic law.
166. Article 8, as Mr Bird concedes, stands in somewhat different stead. Properly he accepts that the protection afforded to the "home" under Article 8 may be broader than the protection to "property" or "possessions" under Article 1 of the Protocol. Specifically he concedes - correctly, in my judgment - that the sale of the house against the wife's wishes would be an interference with respect for her home and thus something which engages her rights under Article 8.
167. But he says that the sale of the house, and the consequential interference with the wife's rights under Article 8 can be justified on two grounds:
(i) First, that it is necessary in a democratic society for the prevention of crime, the protection of health and the protection of the rights and freedoms of potential victims whose health would suffer from consumption of drugs, that drug-traffickers should be deterred by the threat of draconian sanctions. This, he submits, referring to cases such as Dalia v. France (1998) February 19 (para [54]), Caglar v. Germany (2000) December 7 and Samaroo v. Secretary of State for the Home Department [2001] EWCA Civ 1139 paras [21]-[22], [37]-[38], is reflected in the acceptance both by the European Court of Human Rights and by domestic courts that the deportation of convicted drug traffickers is nonetheless justifiable under Article 8 even though the effects on innocent members of their families may be very serious indeed and inflict on them very considerable hardship. If they are to be an effective deterrent such sanctions must have and be seen to have teeth. Court orders imposing such sanctions must be and be seen to be effective, not least against those, like the husband in this case, who have the resources to comply. Such sanctions, he says, can properly include, as permitted by the 1994 Act, an order for a convicted drug trafficker to pay a sum equivalent to his proceeds from trafficking insofar as he has - as the husband has in this case - the realisable assets to do so.
(ii) Secondly, that it is necessary to protect the rights and freedom of the husband: his right to use his assets to pay a debt which is properly due as a result of a lawful order of the Crown Court and his right not to face imprisonment for non-compliance with the confiscation order.
168. The task for the court, says Mr Bird, and I agree, is to strike a proper balance (the phrase used by Sedley LJ in Douglas v. Hello! Ltd [2001] QB 967 at p 1004G (para [135])) between the competing interests of the prosecutor, the husband and the wife. The solution he says, and I agree, has to be proportionate. Where those rights come into conflict the conflict has to be resolved according to the general Convention principles of necessity and proportionality, balancing the competing rights and interests in a manner which is consistent with the true intention of the Convention taken as a whole. That, as it seems to me, involves an exercise in judicial judgment, a more complex process than merely using the scales: see Clibbery v. Allan [2001] 2 FLR 819 at p 873 (para [145]), affirmed [2002] EWCA Civ 45, [2002] 1 FCR 385 at p 414 (para [82]).
169. Where he and Mr Hames differ, of course, is in how they say the balance should be struck. Mr Hames's submissions on the point I have summarised in paragraph [161] above. He says that the balance is properly struck by making the order the wife seeks. Mr Bird, for his part, says that the balance is properly struck by ordering a sale. Such an outcome would be proportionate, he says, given that (i) the wife's existing financial interests would be wholly respected, (ii) the wife would be given an opportunity to buy out enough of the husband's interest to enable the confiscation order to be satisfied, (iii) the husband would not have to go back to prison, (iv) the Crown Court's order would be satisfied and (v) the husband and drug traffickers generally would be deterred.
170. There is, in my judgment, nothing to indicate any incompatibility between the Convention and the relevant provisions of any of the legislation with which I am concerned. Nor, indeed, did Mr Hames suggest the contrary. Nor, in my judgment, is there any real divergence between the approach which the Convention requires the court to adopt and the kind of approach hitherto adopted by the court in cases such as Harman v. Glencross, Mortgage Corpn v. Shaire and Bank of Ireland Home Mortgages Ltd v. Bell. The process is familiar if some of the language, at least until recently, was not. I ought to add that in saying this I have not overlooked the interlocutory views expressed by the Court of Appeal in Jackson v. Bell [2001] EWCA Civ 387 [2001] BPIR 612: the substantive appeal, as I understand it, was subsequently settled.
171. I can therefore summarise my conclusions as follows:
(i) Section 31(2) of the 1994 Act takes effect subject to section 31(4). Accordingly, in the case of conflict the effect of the 1994 Act is to protect the claims of those whose rights are safeguarded by section 31(4) against the operation of the confiscatory regime. Section 31(2) does not make satisfaction of the confiscation order the overriding objective.
(ii) In principle section 31(4) safeguards the right of a third party to continue to enjoy his property in specie.
(iii) A third party will bring himself within section 31(4) if he has either an "interest" or a "right" "in" or "in relation to" the relevant property. It is not necessary for a third party to have an "interest" in the relevant property; a "right" will suffice. But whatever the origin of the right it will not fall within the protection of section 31(4) unless it is something that can properly be said to be a right "in" or "in relation to" the property.
(iv) The rights of a co-owner of property are in principle safeguarded by section 31(4). Save where the defendant is bankrupt the protection includes that conferred by section 15 of the 1996 Act. The conflicting claims of the co-owner and the prosecutor are to be determined in accordance with section 15, in the light of the principles referred to in Bank of Ireland Home Mortgages Ltd v. Bell and having regard to Convention principles.
(v) A wife's claims under section 24 of the 1973 Act can amount to rights in or in relation to property within the meaning of section 31(4) of the 1994 Act. The wife's claim to relief must be evaluated having regard to the provisions of section 25 of the 1973 Act. Conflicting claims of the wife and the prosecutor are to be considered having regard to Convention principles. The court must have regard to the possible penal consequences for the defendant if because of the court's order he is unable to pay the amount to be confiscated.
(vi) The court must exercise its powers, whether under the 1994 Act or the 1996 Act, in a way which is compatible with the Convention and having regard to a number of potentially conflicting rights and interests: the wife's right to respect for her private life and her home under Article 8 (Article 1 of the Protocol adds nothing to the protections already afforded to her under domestic law); the husband's right to liberty under Article 5 and his right under Article 1 of the Protocol (recognised by Article 8(2)) to use his assets to discharge his liabilities; and the interests of the prosecutor, representing the public's interest (also recognised by Article 8(2)) in the prevention of crime, the protection of health and the protection of the rights and freedoms of potential victims of drug traffickers.
(vii) The court has to strike a proper balance between the competing interests of the prosecutor, the husband and the wife. The conflict has to be resolved according to the general Convention principles of necessity and proportionality, balancing the competing rights and interests in a manner which is consistent with the true intention of the Convention taken as a whole.
172. I return at last to the facts of the present case. How in the light of the relevant principles are the conflicting claims of the wife, the husband and Customs & Excise to be reconciled?
173. I propose to consider first how matters might have stood had the husband not been convicted and if there had, in consequence, been no confiscation order.
174. At the end of the day, of course, the ultimate objective of the court, applying section 25 of the 1973 Act, must be to achieve what Lord Nicholls of Birkenhead in White v. White [2001] 1 AC 596 at p 604H called a "fair outcome".
175. In the present case that task has been more difficult than usual not merely because the husband has, as I have said, never taken any part in the proceedings or filed a Form E (see paragraphs [27], [33], [38] above) but also, paradoxically, because he has for a long time accepted that the wife should have what she claims (paragraphs [23], [39], [40] above) - something which makes it all the more difficult to come to a dispassionate view and to hold the balance fairly not just between the wife and the husband but also between Customs & Excise and the wife.
176. Section 25(2) of the 1973 Act does not rank the various particular matters to which I must have regard in any kind of hierarchy. Which of them will carry most weight must depend upon the facts of the particular case: see Piglowska v. Piglowski [1999] 1 WLR 1360, per Lord Hoffmann at pp 1370H, 1373A, and White v White per Lord Nicholls of Birkenhead at p 608D.
177. In the latter case in the Court of Appeal, White v. White [1999] Fam 304, Thorpe LJ had observed at p 315A that:
It has often been said, and cannot be too often repeated, that each case depends on its own unique facts and those facts must determine which of the [statutory] factors is to be given particular prominence in determination.
178. Earlier, at p 314C, he had commented that:
Although there is no ranking of the criteria to be found in the statute, there is as it were a magnetism that draws the individual case to attach to one, two or several factors as having decisive influence on its determination.
179. I do not read the House of Lords decision in the same case as having thrown any doubt on these passages in Thorpe LJ's judgment.
180. I have already summarised the history of the marriage (paragraphs [4]-[11] above) - there are, of course, no minor children of the family - and, more specifically, the matters to which section 25(2) directs attention (paragraphs [44]-[59] above). I have of course had regard not merely to all those matters but, as required by section 25(1), to "all the circumstances of the case".
181. That said, there are, as it seems to me, a number of particularly telling factors in this case which together carry very considerable weight in determining the outcome. These are (ranking them in no particular order):
(i) The significance of the wife's financial contribution to the acquisition of successive matrimonial homes - a contribution which the husband himself recognised by his signature of the trust documents (paragraphs [5], [6] above). The fact is that it was the wife and not the husband who, perhaps rather unusually, provided the deposit. She also, of course, worked in the husband's business (paragraph [7]).
(ii) The state of the wife's health and the very deleterious effect there would, I do not doubt, be on her health if she was forced to move from her present home (paragraphs [56], [57] above).
(iii) The financial impracticability of any move by the wife into a smaller property (paragraphs [55], [58], [59] above). The wife needs to be able to retain the practical value to her of the existing mortgage - a mortgage which, given her limited earning capacity, she is not going to be able to replace with a remotely comparable mortgage if she has to move.
(iv) The utter financial impossibility - with all respect to Mr Bird (see paragraph [169] above) - of the wife ever being in a position, as he puts it, to buy out enough of the husband's interest to enable the confiscation order to be satisfied.
182. A number of other factors are also significant:
(i) The husband is accommodated - his housing needs are being met and he has not suggested otherwise (paragraph [45] above).
(ii) The husband has made no contribution either to the mortgage or to the premiums for the policies, and has paid the wife no maintenance, since 1997 (paragraph [14] above). Whether or not in a position to do so, he plainly does not plan to pay in future, notwithstanding his earning capacity. The wife has struggled hard - and successfully - to keep the house from being repossessed.
(iii) It is undesirable, if this can properly be avoided, to realise the policies at a time when their true 'locked-in' value is not available - though this, as it seems to me, is a factor of only marginal weight.
183. One other factor must be mentioned. The husband's failure to file a Form E means that both the court and the wife have had to proceed somewhat in the dark. As I have said, no-one knows exactly what assets the husband may have and no significant part of the actual proceeds of his drug trafficking has ever been recovered. In saying this I do not, of course, overlook the two points powerfully made by Mr Bird: in the first place, the figure of £197,639 certified by the Crown Court (see paragraph [19] above) is not confined to what one might call the 'profit' element in the husband's drug trafficking and certainly bears no relation to the value of his assets; secondly, if the Crown Court had considered that the husband had hidden assets it would have certified a higher figure than £47,868. So there is no secure evidential basis for a finding that the husband has undisclosed assets - and I decline to make any such assumption. But his failure to file a Form E must disincline the court to make any particular assumptions in his favour. If in consequence I err in favour of the wife, then as Thorpe J said in F v. F (Divorce: Insolvency: Annulment of Bankruptcy Order) [1994] 1 FLR 359 at p 367D, the husband has to realise that this is a consequence he has brought on himself by the way in which he has chosen to involve himself - or rather not to involve himself - in these proceedings.
184. Taking everything into account, this is a case in which, had the husband not been convicted and if there had, in consequence, been no confiscation order, the order I would have made would have provided for the transfer to the wife of the husband's interests in both the house and the policies - on the basis of the usual undertaking by the wife to use her best endeavours to obtain the release of the husband from and to indemnify him against his liabilities under the mortgage. This would not, in my judgment, have been a case for either a Mesher or a Martin order.
185. There is, in my judgment, a compelling case for making such order as will allow the wife to go on living indefinitely - and, if she wishes, for the rest of her life - in the house. Only that will give her the domestic security and peace of mind which she needs if her health is not to be put at risk. To achieve that she requires a transfer not merely of the husband's interest in the house but also his interest in the policies, because (i) unless the policies are kept in place the house will be at risk of repossession and (ii) without the policies she will not be able to pay off the mortgage in 2014.
186. The effect of such an order would on this hypothesis have been (see paragraph [48] above) to leave the husband, in addition to his accommodation, with net assets worth £21,348 out of total net family assets of £161,654. That is some 13% of the net assets. Would such an order have been "fair"? In my judgment it would, in the light, in particular, of the matters referred to in paragraphs [181] and [182] above.
187. For what it is worth, I repeat that this form of order is not in fact opposed by the husband. I say 'for what it is worth' because the husband's attitude is no doubt motivated in part by a combination of the feelings of guilt which he probably has in relation to the wife and a worldly-wise appreciation that if the wife does not get the assets then they will in all probability end up with Customs & Excise.
188. But the actuality is different. As matters stand, Customs & Excise has an outstanding claim for £26,520.18 plus interest (paragraph [42] above); the husband's £21,348-worth of assets has gone; and if Customs & Excise is not paid he risks a little short of a further year in prison (paragraph [43] above).
189. How in these circumstances is the balance properly to be held? I shall deal first with the balance between the private interest of the wife and the public interest as represented by Customs & Excise.
190. I do not want to be understood as in any way seeking to water down the imperative need to deter drug trafficking. I recognise that condign punishment of drug traffickers is of the first importance. I recognise also that the indirect effects on the innocent of the punishments quite rightly inflicted on drug traffickers can be immensely serious: incarceration of a husband beyond a wife's child bearing years may deprive her of that most fundamental right - the right to bear children and found a family: cf R (Mellor) v. Secretary of State for the Home Department [2001] EWCA Civ 472 [2002] QB 13. The deportation of a drug trafficker may inflict almost incalculable harm on his wife and children: cf Samaroo. That is the price which, quite consistently with the Convention, the innocent may have to suffer. But the imperative need to inflict deterrent sanctions - and sanctions with real teeth - upon which Mr Bird properly places emphasis must nonetheless be kept within bounds. There is - and section 31(4) of the 1994 Act is witness to this - no place in our law and no room within the Convention for the pernicious doctrine of sippenhaft. And there is, as it seems to me, a difference between the kind of indirect harm, however grave, suffered by the innocent as a result of some punishment inflicted on the wrongdoer and the kind of damage here sought to be inflicted directly on the wife by Customs & Excise.
191. The facts here are very striking. This case is exceptional - a word that Mr Bird very properly and very fairly did not shrink from using in his skeleton argument:
(i) The wife launched her divorce proceedings at a time when she was not merely wholly innocent of any personal wrongdoing but also wholly ignorant of the husband's criminal activities and long before the enforcement procedures under the 1994 Act were first invoked (paragraphs [2], [11], [12], [13], [41] above). She assisted the prosecution (paragraph [41] above).
(ii) The assets in question (the house and the policies) are wholly untainted by drug trafficking (paragraph [41] above). This is, as it seems to me, a very important factor, not least bearing in mind (a) that a confiscation order in the final analysis is tied not to the value of the defendant's assets but rather to the value of his proceeds of drug trafficking (see paragraphs [19], [69] above) and (b) the fact that the prime purpose of the legislation (see, for example, what Lord Donaldson said in In re Peters in the passage cited in paragraph [66] above) is to not to strip drug traffickers of their assets - this is not forfeiture as that doctrine operated down to 1870 - but rather of the proceeds of their crimes.
(iii) The present point arises in circumstances where I have already held that, absent the husband's conviction and the consequential proceedings under the 1994 Act, the proper order to be made between the husband and the wife under the 1973 Act would be for the transfer to the wife of the husband's interests in the relevant assets - assets which, I repeat, are not and do not represent the proceeds of crime but are, on the contrary, as has been conceded throughout by Customs & Excise, untainted by drug trafficking or any other kind of criminality. What Customs & Excise is seeking to do here is not to take away the husband's assets in circumstances where that will have an indirect - a 'knock on' - effect on the wife: the reality here, as it seems to me, is that Customs & Excise is seeking to take away from the wife assets which the court is saying ought in principle, as between the husband and the wife, to be the wife's.
192. In emphasising these matters I have not, of course, overlooked Mr Bird's submission that it would be wrong for the matrimonial court to ignore the husband's obligation to meet the confiscation order. I entirely agree. As he correctly says, it is a liability to be taken into account - or, to be more precise, to which I must "have regard" - in accordance with section 25(2)(b) of the 1973 Act.
193. In these circumstances, as I have said, Mr Hames submits that the fight against crime does not require that Customs & Excise - the public - should benefit at the expense of the wife, nor require that her rightful claim under the 1973 Act be frustrated. Mr Hames puts the point crisply: All the circumstances of the case stack up, he says, against the court granting Customs & Excise's application. For his part, Mr Bird, as part of his argument, submits that this is a burden properly to be borne by the wife at least in part in order that drug traffickers in general may be deterred. The fact that the liability is not a private debt but a public liability does not, says Mr Bird, give it any lesser status.
194. I have some difficulty with Mr Bird's theory of deterrence in these circumstances. How are criminals to be deterred by the knowledge that assets already in reality lost to them because of an estranged wife's ancillary relief claim are going to be stripped from the wife in circumstances where, since the point only arises after divorce, the marriage has by definition come to an end?
195. I should add in this context - though I emphasise again this is not such a case - that the court should, and no doubt will, be astute to guard itself and the public interest against collusive divorces designed to circumvent the 1994 Act.
196. It may be - it is not impossible though it is perhaps unlikely - that further proceedings whose outcome could be the further imprisonment of the husband will induce him to disclose the existence of further assets sufficient to meet his liability to Customs & Excise. If so there will be no problem.
197. But even if no further assets are disclosed - either because the husband prefers not to disclose their existence or because he has in fact dissipated the proceeds of his drug trafficking or (which might be thought the least likely) because he never in fact received anything for his drug trafficking beyond the small amount of money seized by the receiver - it does not in my judgment follow that the public interest, as represented by Customs & Excise and as articulated by Mr Bird, justifies, let alone requires, the order against the wife sought by Customs & Excise.
198. In all the circumstances of the case, and bearing in mind in particular the matters to which I have referred in paragraphs [181], [191] and [192] above, it would in my judgment be disproportionate to any legitimate public interest to make an order the practical effect of which would be to throw on this wholly innocent wife the burden of meeting, from assets which are wholly untainted by criminality and which would otherwise be treated by the court as hers and not the husband's, the burden of discharging those liabilities to which the husband has by his drug trafficking exposed himself. Such an order, in my judgment, is not, in the sense in which these words are used in the Strasbourg jurisprudence, necessary in the interests of a democratic society, powerful indeed though the interests of such a society must be in taking every legitimate measure open to it to stamp out the evils of drug trafficking. To make the order sought here by Customs & Excise would, in my assessment, be to throw a quite disproportionate burden on wife. The detriment to the wife, were I to make such an order, would be disproportionate to the public's legitimate interest in the various matters identified by Mr Bird, in particular in paragraph [167] above.
199. As between the wife's interests and the public interest, a proper balancing of the interests referred to in paragraph [171(vi)] above requires, in my judgment, that the interests of the wife take priority to those of Customs & Excise. The public interest alone cannot justify an order the practical effect of which will be to force the wife to leave the house - her home - with the consequences I have already mentioned.
200. Does the public interest nonetheless justify or require an order which would have the practical effect of postponing enforcement either until the wife for whatever reason chose to sell the house or alternatively until after her death? The former would in my judgment plainly not be acceptable: the wife's future domestic circumstances and her frail domestic economy should not be exposed to the risk of having to meet the claim at some uncertain future date during her lifetime and at a time when her personal circumstances are more than usually difficult to predict. I repeat in this context what I have already said: it is not going to be financially possible for the wife ever to buy out enough of the husband's interest to enable the confiscation order to be satisfied.
201. The more difficult question is whether any provision should be made for payment of the outstanding sum after her death. I have concluded not. It would in practical terms require a charge (transferable from property to property) on the house and any future property the wife might buy. Such a charge would in effect prevent the wife ever having recourse to that part of the capital, for example to fund residential or nursing care in old age. In determining how to balance the public interest against the wife's interests I take into account in this context, in particular, (i) the wife's likely expectation of life - realistically one is talking about postponement for a very long time, (ii) the potential hardship which she might suffer - not perhaps in the near future but in the longer term - were she to be deprived of access to this part of the capital and (iii) the likely effects on her peace of mind and health of being 'locked in' to such a continuing relationship with Customs & Excise.
202. The public interest alone cannot justify the relief which Customs & Excise seeks.
203. The last, and I think more difficult, question is determining how the balance is properly to be held between the interests of the wife and those of the husband.
204. Mr Bird, as I have mentioned, identifies two particular interests of the husband which, I entirely accept, are important in this context: his interest in being able to use his assets to satisfy the confiscation order and his interest in thereby avoiding further imprisonment.
205. Mr Hames, in addition to all the points he relies upon in support of his case against Customs & Excise, makes a number of further points focussing on the husband's position and conduct:
(i) If the husband is to seek to set up as against the wife the fact that he may be returned to prison, then she is entitled to set up as against him, as "conduct" which, within the meaning of section 25(2)(g) of the 1973 Act, it would be "inequitable" for me to disregard, not merely the fact of his criminality and the fact of his conviction but also the fact that in consequence this wholly innocent and blameless wife - to the damage of her health (see paragraph [56] above) - has been subjected to all the stresses of this litigation with Customs & Excise.
(ii) There is no real reason, he says, for the husband to fear that he will in fact be imprisoned if the order the wife seeks is made. The simple fact, says Mr Hames, is that it will be through no fault of his own that he has been deprived of the assets without which he cannot meet the confiscation order. (Assuming this in fact to be the case - for, as I have already observed more than once, no-one knows exactly what assets the husband may have and no significant part of the actual proceeds of his drug trafficking has ever been recovered.) Mr Hames goes so far as to assert that the husband ought in this way to be successful in extinguishing any remaining obligations he would otherwise have under the 1994 Act.
(iii) In this connection Mr Hames observes that the husband can apply to the High Court under section 17 of the 1994 Act for a 'certificate of inadequacy' which will in turn enable him to apply to the Crown Court to vary the original confiscation order. Mr Hames concedes, as he must in the light of Gokal v. SFO [2001] EWCA Civ 368, that this procedure cannot be used by the husband in effect to 'appeal' the original decision of the Crown Court. But that he says, as it seems to me with considerable force, is not what the husband would here be doing were he now to apply for such a certificate: his application would be based upon events which at least in part have taken place since the original hearing in the Crown Court.
(iv) It is unfair that the wife should be penalised by or in consequence of an order made in the Crown Court on 4 December 1998 (see paragraph [19] above) when that hearing took place (a) after she had already begun the ancillary relief proceedings and (b) in circumstances where she could neither participate in the Crown Court proceedings nor appeal against its order (see paragraph [132] above).
(v) It is unfair that the wife should be penalised by or in consequence of the order made in the Crown Court when the husband has not chosen either (a) to challenge on appeal the Crown Court's finding that the proceeds of his drug trafficking amounted to £197,639 or its finding (despite the pendency of the ancillary relief proceedings and the decision in Ahmad) that his realisable assets included his interests in the house and the policies or (b) to apply for a certificate of inadequacy. As against the wife it simply does not lie in the husband's mouth, says Mr Hames, to complain that the effect of my order may be to send him back to prison, when he has, for whatever reasons, failed to take any of the steps open to him to avoid or minimise that risk.
206. These, if I may say so, are powerful arguments.
207. Mr Bird, for his part, in addition to all the other points that he has made, repeats that it would be wrong for the matrimonial court to ignore the husband's obligation to meet the confiscation order, that it is a liability to which I must have regard in accordance with section 25(2)(b) of the 1973 Act and that the fact it is not a private debt but a public liability does not give it any lesser status. He adds that, if anything, it is a particularly important liability inasmuch as the husband may - Mr Bird goes so far as to say may well - lose his liberty if it is not paid. He also points out, correctly, that so far as "conduct" is concerned I need to bear in mind that the husband and the wife had separated before he embarked upon his drug trafficking, so it did not contribute to the breakdown of the marriage, and that the husband has already been punished severely by the Crown Court.
208. I wrote to Mr Bird and Mr Hames on 9 January 2002 seeking their further assistance on certain issues arising under s 17 of the 1994 Act. There was a very substantial measure of agreement between them. The most important questions and (expressing the matter very shortly indeed) their answers were as follows:
(i) Can the court issue a certificate in the absence of an application by either the defendant or the receiver? Answer - No.
(ii) Can the court by analogy with Dart v. Dart [1996] 2 FLR 286 at pp 292F-293D treat there as being before the court an application by the husband even if he has not made an application himself? Answer - No.
(iii) Can the court either direct or invite the receiver or the wife to make an application in the name of the husband? Answer - No.
209. Given their answers to these questions, and given that - perfectly understandably in the circumstances - neither Mr Hames nor Mr Bird said anything whatever to encourage me to pursue this line of inquiry any further, I see no useful purpose in doing so. Indeed there might be potential for future embarrassment or worse were I at this stage to express any views on a matter which although not at present might yet come before the court.
210. I should, however, add this. As both Mr Bird and Mr Hames pointed out:
(i) The court cannot issue a certificate of inadequacy unless it is "satisfied that the realisable property is inadequate".
(ii) The court cannot be so satisfied in the absence of proper evidence to that effect.
(iii) In the nature of things the husband is the only person likely to be in a position to give the court such evidence.
(iv) So the court could only be so satisfied if it heard and accepted evidence to that effect from the husband.
(v) Neither Customs & Excise nor Mr Long, nor for that matter the wife, is prepared to concede at this stage - and why should they, indeed how could either Customs & Excise or Mr Long properly concede? - that the realisable property is inadequate even if I were to make an order transferring the house and the policies outright to the wife. No-one knows exactly what assets the husband may have.
(vi) The practical consequence of all this is that, as Mr Hames put it, the husband will have to be an active participant in such an application.
211. In particular I think it would be wholly inappropriate for me to express any view as to how the court might exercise its powers under section 17 were there to be an application by the husband. Quite apart from anything else I simply do not know. At the end of the day much - probably everything - would depend upon the husband's evidence and, crucially, on whether his evidence was believed. As Mr Bird says, it might well be that the court simply would not believe him were he to deny the existence of other realisable assets. He would have to take his chances.
212. How in these circumstances is the balance to be held?
213. The starting point, as it seems to me, is this: His conviction and the confiscation order apart, the husband ought to transfer to the wife outright his interests in both the house and the policies. Why should the fact that he has chosen to engage in criminality prejudice his wholly innocent wife? Not forgetting the other matters referred to in paragraph [207] above, the only two possible answers are those suggested by Mr Bird. The first - the husband's interest in being able to use his assets to satisfy the confiscation order - seems to me in the circumstances to carry little weight. If, as I have concluded, the public interest in this liability being paid is insufficient to justify prejudicing the wife why should the husband's private interest in paying it carry any greater weight? The real difficulty - and it is a difficulty - lies in the potentially penal consequences for the husband if the liability is not paid.
214. There is, as has been seen, a difference of view between counsel as to the likelihood of the husband actually being sent back to prison. Mr Hames submits that the husband, if need be applying for a certificate of inadequacy, will be able to avoid further incarceration; Mr Bird suggests, on the other hand, that he may well be returned to prison. I cannot possibly resolve that dispute. I have to proceed on the footing that it is by no means impossible - there is, I think, a real if unquantifiable risk though not a certainty - that the husband will be returned to prison if his share in the house and the policies are not available to discharge the confiscation order.
215. Recognising this, I do not, however, think that it is sufficient to deprive the wife of that which would otherwise be the appropriate form of relief. Balancing the wife's interests against the husband's she can point to the fact that the award which I would otherwise make is what I have found to be fair absent the husband's criminal conviction. Quite apart from the points made by Mr Hames there is the simple question of fairness: Why should this wholly innocent wife be financially prejudiced in order to keep her criminal husband out of prison? It is, after all, a penalty imposed on him - not on her - and imposed because of his - not her - wrongdoing. But the matter does not, of course, end there. There are all the other matters which I have referred to in paragraphs [181] and [191] above as well as the powerful points made by Mr Hames which I have summarised in paragraphs [205(i)], [205(iv)] and [205(v)] above.
216. What can the husband put in the balance against all that? The risk - the very real risk, but not the certainty - that he will have to go back to prison for a little short of one year. Now without in any way seeking to minimise the undoubted unpleasantness of his fate if he is in fact returned to prison, I have to say that this is not, in my judgment, a sufficiently compelling factor to justify the detriment which the wife will suffer if I make the order which Mr Bird seeks. It is not irrelevant in this context to remember that, although incarceration in a prison at the hands of the state is, I am prepared to assume, a more unpleasant fate than to be incarcerated in one's own home due to agoraphobia, the worst that the husband can expect is a sentence of a little short of a year, whilst the wife is looking to the rest of her life.
217. A proper balancing of their interests requires, in my judgment, that the interests of the wife take priority over those of the husband. The husband's interests - not even his compelling interest in avoiding further imprisonment - cannot alone, in my judgment, justify an order which will force the wife to sell the house.
218. Thus far I have been considering the interests of the wife when balanced separately against the interests of Customs & Excise and the interests of the husband. At the end of the day, however, I have to look at the case in the round, and having regard to all the relevant circumstances. I have to strike a proper balance between the competing interests of the prosecutor, the husband and the wife. The conflict - and it is an acute conflict - has to be resolved according to the general Convention principles of necessity and proportionality, balancing the competing rights and interests in a manner which is consistent with the true intention of the Convention taken as a whole.
219. How are all these competing rights and interests to be balanced? The answer, in my judgment, is - in the particular, unusual and indeed exceptional circumstances of this case - by making an order in the terms which would have been appropriate if the husband had never been convicted and there had never been a confiscation order.
220. Is such an order "fair", not least bearing in mind that its consequence may be to send the husband back to prison? In my judgment it is. It is, after all, the husband who is a convicted criminal, not the wife. She is completely innocent. The assets in question are wholly untainted by drug trafficking. Why should the wife's finances, and indeed her health, be prejudiced by requiring such assets to be made available in order to meet what is, after all, the husband's liability and in order to keep him out of prison?
221. For all these reasons I have concluded that the wife succeeds in her claim. The application by Customs & Excise must be dismissed. The husband, as Mr Bird put it, will have to take his chance - whether in this court or in the Crown Court being a matter for him.
222. Subject to any further submissions from counsel it seems to me that the appropriate way of giving effect to my decision is for there to be:
(i) An order in the DTA proceedings directing that so far as concerns the house and the policies (a) Toulson J's order of 30 September 1997 be discharged, (b) Mr Long be discharged as receiver and (c) the remaining part of Customs & Excise's application dated 20 July 2000 be dismissed.
(ii) A 'clean break' order in usual form in the ancillary relief proceedings providing that upon the wife undertaking in the terms mentioned in paragraph [184] above the husband transfer to the wife forthwith his entire legal and beneficial interest in both the house and the policies.
223. I should be grateful if Mr Hames and Mr Bird could agree the appropriate forms of order.