Proceeds of Crime Bill

HL Deb 13 May 2002 vol 635 cc97-132

8.39 p.m.

House again in Committee.

Clause 251 [Proceedings for recovery orders in England and Wales or Northern Ireland]:

Baroness Buscombe

moved Amendment No. 210: Page 148, line 30, leave out "thinks" and insert "has reasonable grounds to believe The noble Baroness said: Under Part 5 of the Bill an enforcement authority can take civil proceedings to recover property which is or represents property obtained through unlawful conduct and cash which is or represents property obtained through unlawful conduct or intended to be used in unlawful conduct. The defendant to such proceedings may be someone against whom no criminal proceedings have been brought. The civil proceedings may be brought against the widow or executors of the person who obtained the property and they may he entirely innocent of any wrongdoing. Such proceedings will be expensive and may be beyond the means of the defendant. The defendant may be forced to spend a considerable amount of time and money in defending such proceedings. All those who have been involved in any civil proceedings will know what a strain that is.

Therefore, we feel that it is appropriate that such proceedings should not be brought unless the enforcement authority has reasonable grounds to believe that the defendant holds recoverable property. Thinking that the defendant holds recoverable property is not, we suggest, enough. The threshold is far too low. Curiously, it is a test that favours the unintelligent because such a person may well think, quite wrongly, that the defendant holds recoverable property whereas a more intelligent person may not. The commencement of civil proceedings should not, we suggest, depend upon the intelligence of the relevant officer of the enforcement authority. Instead, we believe that a more objective test, which will operate in exactly the same way, is appropriate, whoever makes that decision.

We consider it appropriate for proceedings to be commenced if the relevant officer has reasonable grounds to believe that the defendant holds recoverable property. If there are no such grounds, proceedings must not be taken. That is an objective test that is easily understood both by officers of the relevant enforcement authority and by the defendant. Those grounds can be stated in the claim form and if they do not satisfy the test of reasonableness the proceedings can be struck out before any significant costs have been incurred. We believe that that would be fair to both the enforcement authority and to the defendant.

The enforcement authority should not have the right to take civil proceedings unless there are reasonable grounds. Indeed, the defendant should not suffer the strain of being a defendant in the civil proceedings unless there are reasonable grounds. Neither will be prejudiced if there are no reasonable grounds. By contrast, if an unintelligent enforcement officer thinks, quite wrongly, that a defendant holds recoverable property, there will he a substantial injustice to the defendant who will find himself embroiled in costly and time-consuming proceedings that should never have been commenced. I beg to move.

Lord Goldsmith

I suggest that there is some misunderstanding in relation to this provision. The safeguards that the noble Baroness seeks are to be found elsewhere. Clause 251 introduces a new procedure for civil recovery. It provides for two matters: it gives the enforcement authority the basic power to bring the proceedings and it explains what they are for and who the target is. The expression, against any person who the authority thinks holds recoverable property", identifies the target of the proceedings.

The clause is not intended to introduce a free-standing test of the threshold for proceedings. The reasonableness of the proceedings are safeguarded in an entirely different way, which will depend upon what happens in the proceedings. They could go one of two ways: first, there could be an application for an interim receiving order. If there is such an application, as Clause 254(5) makes clear the order depends upon the court being satisfied that there is a good arguable case. At that stage the court would need to be satisfied that there is a good arguable case to allow it to proceed.

If the director does not seek an interim receiving order, the second route would be for a claim form to be issued, which would set out the basis of the claim. That would have two consequences: first, if it were patently obvious that the claim was without any substance whatever, it could be, as the noble Baroness, Lady Buscombe, said, struck out. Secondly, if there is no interim receiving order—that is to say that the property is not frozen—the matter will go to court, and the court will grant the order only if the director persuades the court, on the standard of proof set out in the Bill, that the property is recoverable property and that all the other conditions are met.

This provision is not in the Bill to set out a threshold. I suggest that it would be unusual in any other kind of civil proceedings to have a preliminary threshold before someone can make an application. Let the court consider the application when it is made. The amendment would create yet a further hurdle and make it possible for there to be a challenge to the proceedings being instigated, perhaps by way of judicial review or something of that kind, simply by considering whether there are reasonable grounds or whether the director has reasonable grounds. That would not be sensible and would simply add another layer to the process. The substance of the claim will be determined in a different way.

I hope that it will be accepted that the director will bring sensible claims and that the director and his staff will be intelligent. I know that the noble Baroness, by her forensic example, was not suggesting otherwise. That is another practical safeguard that will be in place. With that explanation, I hope that the noble Baroness will feel able to withdraw the amendment.

Baroness Buscombe

I thank the Attorney—General for his response to my amendment. I shall read Hansard with care and consider what he has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 211 not moved.]

Clause 251 agreed to.

Clause 252 [Proceedings for recovery orders in Scotland]:

[Amendment No. 212 not moved.]

Clause 252 agreed to.

Clause 253 ["Associated property"]:

Lord Goodhart

moved Amendment No. 213: Page 149, line 21, leave out paragraphs (c) and (d). The noble Lord said: I would like to know why paragraphs (c) and (d) were included in the definition of "associated property" in Clause 253. Clause 253(1) says, 'Associated property' means property … which is not itself the recoverable property—

1. (a) any interest in the recoverable property,
2. (b) any other interest in the property in which the recoverable property subsists".

It goes on to say, (c) if the recoverable property is a tenancy in common, the tenancy of the other tenant". I would have thought that that was plainly another interest in the property in which the recoverable property subsists, so why are paragraph (c) and the corresponding paragraph (d) in relation to Scotland included? They appear to be unnecessary. I beg to move.

Lord Goldsmith

I was expecting an entirely different challenge to that put forward by the noble Lord, Lord Goodhart. The thinking behind the concept of "associated property" is well understood. It is plainly important that the recovery of recoverable property is not precluded by the fact that it is tied up with associated property. The Bill contains a number of safeguards for the owners of the associated property or those whose interests are affected.

Clause 253(1), by listing out the different items, seeks to ensure that all varieties of associated property that might be in issue are covered. In the light of earlier discussions, I would not begin to make any suggestions as to the position in Scotland in relation to paragraph (d) and cannot immediately give a precise answer to the question asked about paragraph (c). Thinking on my feet, it seems to me that it does no harm to ensure that everything is covered. I have no doubt that there was a good reason for taking the view that paragraph (c) was necessary. It may be because of the peculiar rules that relate to tenancies in common; for instance, if the property has been severed where it may be said that there is no interest in the recoverable property.

But I shall not teach chancery points to the noble Lord, Lord Goodhart. If there is a better answer than the one I have given, I shall ensure that the noble Lord receives it.

Lord Goodhart

I am not sure that the Attorney-General is any wiser than I am as to the exact reason why those two paragraphs appear. However, it is clearly not a point of substance. If the draftsman chose to include it, I do not wish to take the point any further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 253 agreed to.

Clause 254 [Application for interim receiving order]:

Lord Goodhart

moved Amendment No. 214: Page 150, line 13, at end insert— () But no interim receiving order may be made in relation to property which is alleged to be associated property unless dealings with that property might substantially prejudice the realisation of reasonable property to which the order relates. The noble Lord said: I now come to a more substantial point which may well raise the issue the Attorney—General was expecting me to raise on the previous amendment.

The definition of "associated property" is plainly one where both the respondent to the claim and some other person have an interest in the property. So the definition of "associated property" is wide enough—this is clearly intentional—to cover both recoverable property in the hands of the respondent, or indeed of some other person, and non—recoverable property, which is nevertheless associated.

I understand why the Government wish to include in the definition of "associated property" property which does not belong to the respondent and is not, itself, in any sense the proceeds of crime. But there are not enough safeguards in place. The definition is too wide and includes property it should not.

The issue is similar to that which I raised in relation to Amendments Nos. 90 and 91. The main example I raised was that of a landlord and tenant. The tenant—I assume he is the respondent in this case—holds a long lease to a house or a flat. That long lease is plainly saleable as a separate asset. The freehold reversion, certainly in the case of the house and possibly in the case of a block of flats, is another interest in the same property and is therefore "associated property". But in such a case the lease can be realised without the sale of the freehold and the freeholder should not potentially be subject to an interim receiving order.

I accept that there are circumstances in which a clause of this kind is necessary. The obvious instance is that of the tenancy in common which we have just been discussing. If two people—a husband and wife or any other two people—own property by virtue of a tenancy in common, a separate tenancy in common is plainly not marketable and I understand why, in that case, the receiving order should apply to the interest of the other tenant in common.

In moving Amendment No. 214 I am speaking also to Amendments Nos. 220C, 223B and 224. Amendment No. 214 applies to the case of the interim receiving order which freezes the property. Amendment No. 224 raises the same point in relation to the eventual realisation and sale of the property in order to satisfy the civil recovery order. Again it seems to me that the associated property should not be subject to a sale if the recoverable property is, in practice, saleable without the realisation of the associated property.

To return to the example of the leasehold interest in the house, the leasehold is plainly realisable without recourse to the freehold. It is true, possibly, that if the freehold and leasehold reversion of the property were sold together, there might be some marriage value and that would increase the price. But that does not seem to be an adequate reason for saying that the freehold reversion should be sold. One ought not to make either an interim receiving order or an order for the eventual sale of associated property in cases where the recoverable property on its own can be efficiently and effectively realised without recourse to the associated property. The power to sell associated property should be restricted on the face of the Bill to cases such as that of a tenancy in common where the recoverable property is essentially unsaleable unless it is sold together with the associated property. I beg to move.

Lord Goldsmith

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

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

9 p.m.

Lord Goodhart

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

Lord Goldsmith

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

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

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

But if the enforcement authority makes an application—we are now considering the receiving order stage—it will be for the court to decide in accordance with its discretion what property is to be covered by the order. I—and, I should think, the noble Lord—would not expect any court to include associated properties in the order unless it saw a case for doing so. But it does not end there, because Clause 260(2) explicitly provides that: The court may vary an interim receiving order so as to exclude from the property to which the order applies any property which is … associated property if the court thinks that the satisfaction of any right of the enforcement authority to recover the property obtained through unlawful conduct will not be prejudiced". I suggest that that entirely meets the noble Lord's point, in the sense that the court can on an application made to vary—which can be issued shortly after the order has been made—the order so as to exclude property if, in the court's view, it will not prejudice the right to recovery. The Bill provides that when an order in relation to associated property is made, the owner of that associated property should receive notice.

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

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

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

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

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

Finally, I turn to Amendment No. 224, which would add a new subsection to Clause 275, to which I have referred. The amendment would include the provision that it was, not reasonably practicable to realise the recoverable property without also realising the associated property". In making provision under Clause 275, the court is already required to have regard to the rights of any person who holds the associated property and the value to him of that property as well as the enforcement authority's interest. If the court makes provision for the disposal of associated property, it will give an order requiring the trustee to pay the holder an appropriate amount and/or compensation. The interests would be well protected at that stage.

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

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

Lord Goodhart

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

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

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

Lord Goldsmith

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

Lord Goodhart

That may be the case, but I would like to see it in the Bill. There is nothing in the wording of the amendments that would create a problem for the enforcement authority in getting an order covering associated property if the circumstances required it.

The noble and learned Lord also referred to Clause 275(3), which obliges the trustee to, pay an amount to the person who holds the associated property when there is a sale. That is not a safeguard: it should go without saying. It would be intolerable if the trustee could take the proceeds of the sale of associated property without paying for it. The associated property is not itself criminal property. The noble and learned Lord might have referred more effectively to Clause 275(1) which says that, the court may make the following provision if … the court thinks it just and equitable to do so". Once again, although the point has some force, I would prefer it to be spelt out in the Bill.

I believe that amendments of the kind I am seeking provide for the interests of the enforcement authority. They specify that if it is necessary to sell the associated property or make it subject to a receiving order so as to be able to realise in the long run the recoverable property at a proper market value, the order can cover the associated property. Therefore I see nothing which damages the proper interests of the enforcement authority.

I accept that the difference between the noble and learned Lord the Attorney—General and myself in this matter is not wide. I shall examine the issue and consider whether we need to return to it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 254 agreed to.

Clause 255 agreed to.

9.15 p.m.

Lord Bassam of Brighton

moved Amendment No. 214A: After Clause 255, insert the following new clause— "REGISTRATION (1) The registration Acts—

1. (a) apply in relation to interim receiving orders as they apply in relation to orders which affect land and are made by the court for the purpose of enforcing judgements or recognisances,
2. (b) apply in relation to applications for interim receiving orders as they apply in relation to other pending land actions.

(2) The registration Acts are—

1. (a) the Land Registration Act 1925 (c. 21),
2. (b) the Land Charges Act 1972 (c. 61), and
3. (c) the Land Registration Act 2002 (c. 9).

(3) But no notice may be entered in the register of title under the Land Registration Act 2002 (c. 9) in respect of an interim receiving order. (4) A person applying for an interim receiving order must be treated for the purposes of section 57 of the Land Registration Act 1925 (c. 21) (inhibitions) as a person interested in relation to any registered land to which—

1. (a) the application relates, or
2. (b) a restraint order made in pursuance of the application relates."

The noble Lord said: This is a set of technical amendments. Amendment No. 214A provides for the registration of interim receiving orders in the Land Registry for England and Wales. That is to ensure that such orders are registered as pending land actions. Amendment No. 292X is consequential. We intend to make similar provision for Northern Ireland at the Report stage.

Amendments Nos. 220D, 220E, 223C and 223D are designed to ensure that interim and final recovery orders are properly registered under Scottish procedure.

As presently drafted, Clause 263(1)(c) requires the interim receiver in civil recovery cases to register an interim administration order in the register of inhibitions and adjudications. There are, however, no further provisions which make it clear what is the effect of such registration.

Amendments Nos. 220D and 220E therefore set out a detailed scheme in relation to the registering of interim administration orders. In effect, it gives public notice that the property in question is subject to an interim administration order and places an inhibition on any dealing in respect of the property until such time as the Court of Session determines the outcome of the case.

Amendments Nos. 223C and 223D make similar provision for Scotland in respect of recovery orders. Clause 271(3)(b) currently places a responsibility on the trustee for civil recovery in Scotland to register the recovery order in the register of inhibitions and adjudications if it is considered necessary. The intention is to give a clear public notice that the recoverable property now vests in the trustee and inhibits anyone else from dealing with the property.

On further consideration, it is thought to be more appropriate for the clerk of the Court of Session rather than the trustee to register the order. That follows the procedure set out in the Bankruptcy (Scotland) Act 1985. Amendment No. 223C therefore removes the responsibility from the trustee and Amendment No. 223D places it on the clerk of the court. I beg to move.

On Question, amendment agreed to.

Schedule 3 [Powers of interim receiver or administrator]:

Lord Kingsland

moved Amendment No. 215: Page 269, line 30, at end insert— () The order shall not permit the interim receiver or administrator to search for, inspect, copy, photograph, make a record of, take possession of or remove items subject to legal privilege. () In this section, "items subject to legal privilege" means—

1. (a) communications between a professional legal adviser and his client; or
2. (b) communications made in connection with or in contemplation of legal proceedings for the purposes of these proceedings,

being communications which would in legal proceedings be protected from disclosure by virtue of any rule of law relating to confidentiality of communications items subject to legal privilege. The noble Lord said: This is another amendment inspired by the Law Society of Scotland. It ensures that the interim receiver or administrator cannot, search for, inspect, copy, photograph, make a record of, take possession of or remove items subject to legal privilege". The noble Earl, Lord Mar and Kellie, might like to note that, on this occasion, the amendment utilises the verb "shall" and not "must".

As the Committee is aware, Article 8 of the European Convention on Human Rights enshrines the right to privacy. The doctrine of legal professional privilege protects the relationship between a solicitor and his or her client. In order to preserve that relationship, we believe that provision should be made on the face of the Bill to the effect that the powers discharged by the interim receiver or administrator under paragraph 3 of Schedule 3 will not extend to the disclosure of information subject to legal privilege.

The amendment also provides for a definition of legal privilege which is consistent with that given in Clause 406 of the Bill. I beg to move.

Lord Bassam of Brighton

I do not know whether it is because the noble Lord, Lord Kingsland, has got the wording right on this occasion, but I have some goodish news for him on this amendment. Because of concerns raised in Committee in the other place, we amended the schedule to make explicit that the duty to disclose information imposed by paragraph 2 of the schedule should not impinge on information subject to legal professional privilege.

The amendment raises a similar concern in respect of paragraph 3 of the schedule. As the noble Lord knows, that paragraph provides that the court may authorise the interim receiver or administrator to enter, search, copy, photograph or record anything which is described in the interim receiving or administration order, or to seize evidence in pursuance of the order.

It is our intention that these powers should respect legal privilege. We will need to reflect on some of the points made by the noble Lord in his entirely convincing peroration and consider whether the current drafting of paragraph 3 secures our policy. In the light of those kind comments, perhaps the noble Lord will feel able to withdraw his amendment.

Lord Kingsland

I hasten to do so. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3 agreed to.

Clause 256 agreed to.

Clause 257 [Supervision of interim receiver and variation of order]:

Lord Bassam of Brighton

moved Amendment No. 215A: Page 151, line 13, leave out "the respondent and any other" and insert "any party to the proceedings and any The noble Lord said: Amendments Nos. 215A to 215D are intended to put beyond any reasonable doubt that all persons with an interest in the supervision or variation of an interim receiving order have rights to make an application to the court or to be heard as appropriate. Amendments Nos. 220F to 220J do the same for the Scottish provisions on interim administration orders.

Amendments Nos. 220A and 220B will ensure that where there are other legal proceedings taking place in relation to the same property to which an interim receiving order applies, all parties to both sets of proceedings will have a right to be heard before the court makes a decision. Amendment No. 223A does exactly the same for Scotland.

It was always our intention to ensure that all those with an interest in a court's consideration of an interim receiving order or an interim administration order should have the right to be heard. Having looked again at the provisions in Clauses 257 and 259 and their Scottish equivalents, we were not convinced that we had got this quite right. It is for that simple reason that we have brought forward these amendments. I beg to move.

On Question, amendment agreed to.

Lord Bassam of Brighton

moved Amendments Nos. 215B to 215D: Page 151, line 18, leave out "respondent and any other party" and insert "parties Page 151, line 22, leave out "doing so" and insert "exercising any power under this Chapter to vary or set aside an interim receiving order Page 151, line 22, leave out "respondent and any other party" and insert "parties On Question, amendments agreed to.

Clause 257, as amended, agreed to.

Clause 258 [Restrictions on dealing etc. with property]:

Lord Goodhart

moved Amendment No. 216: Page 151, line 33, leave out "any person" and insert "the respondent The noble Lord said: I can speak to this amendment and Amendment No. 218 very briefly. Clause 258(3) gives a discretionary power to the court to allow an owner of property which is subject to a receiving order to resort to that property for living or business expenses. We accept that that is correct in the case of the respondent. However, where a person having an interest in the property is not the respondent, we believe that the right of that person to be able to have recourse to that property—or his share of that property—to cover living and business expenses should be mandatory, rather than discretionary.

Someone who has his property made subject to a receiving order, simply because it may be desirable to do so in the interests of the realisation of the recoverable property, should not be placed at risk of being unable to pay his living or business expenses— and, thereby, possibly face bankruptcy—because of the nature of some other persons's parallel interest in the same property. I beg to move.

Baroness Buscombe

I support the noble Lord, Lord Goodhart, in Amendment No. 216. In doing so, I shall speak to Amendments Nos. 217 and 219, together with Amendments Nos. 221 and 222, which are consequential.

Under Clause 254 of the Bill, the enforcement authority may apply to the court for an interim receiving order. This is defined as an order for, the detention, custody or preservation of property, and … the appointment of an interim receiver". The interim receiver is given a number of powers that are mainly mentioned in Schedule 3 to the Bill, but he is given the specific power in Clause 256 to, require any person to whose property the order applies", to do anything that he is, reasonably required to do by the interim receiver for the preservation of the property". We suggest that that could be costly; indeed, very costly.

Clause 258 of the Bill allows exclusions to be made when an interim receiving order is made, or on an application to vary an existing order. Subsection (3) provides that an exclusion may, make provision for the purpose of enabling any person … to meet his reasonable living expenses, or … to carry on any trade, business, profession or occupation". However, subsection (3) —and, indeed, the whole of Clause 258—is entirely silent about an exclusion for the purpose of enabling any person to meet the costs of complying with the requirements of the interim receiver for the purpose of preserving the property concerned. The specific exclusions in subsection (3) of the clause do not cover those costs. We believe that such costs should be specifically mentioned in the subsection to avoid any suggestion that those costs should not be the subject of an exclusion under Clause 258. As I have already said, Amendment No. 221 is consequential upon Amendment No. 217.

I turn to Amendment No. 219. Clause 258 allows a court to make exclusions when an interim administration order is made, or on an application to vary the order. Subsection (4) provides that, an exclusion may not be made for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Part". Presumably, that is because the defendant will be able to use his unfrozen assets, or may be able to apply to the community legal service scheme or the legal aid scheme for his legal costs. However, there will be many instances where the unfrozen assets will not be sufficient and the defendant will not qualify for assistance under either of those schemes. In those circumstances, it could be unjust for that person not to have recourse to the property subject to the interim administration order. That is particularly so because such an order can be made simply because there is a good, arguable case for the property to which the application relates being, or including, recoverable property.

It is possible that the property to which the application for the order relates is not recoverable property, and so should be available to meet any legal expenses in respect of proceedings under this part of the Bill. That is particularly so if the defendant would otherwise be unable to afford to defend the proceedings.

If an exclusion cannot be made for the purpose of enabling any person to meet any legal expenses in respect of proceedings under Part 5, there is a serious risk of injustice if he cannot otherwise meet his legal expenses. If he is in that position, it may well be that the enforcement authority succeeds by default, or merely because the representations made on behalf of the defendant are not as good as they otherwise would have been. The result could be that the enforcement authority succeeds when it would not otherwise have succeeded merely because it has obtained an interim administration order which prevents the defendant from funding his defence.

That is a serious defect. We believe that the provision could be in breach of Article 6 of the European Convention on Human Rights, because there would not be a level playing field. The enforcement authority would have all the resources available to it to prosecute the proceedings in as efficient a manner as possible. In contrast, a defendant whose assets were frozen and who had no other available assets to fund his legal expenses would not be able to afford legal representation to defend a claim. In that sense he would not have a fair trial.

Amendment No. 222 is consequential on Amendment No. 219. I beg to move.

9.30 p.m.

Lord Goldsmith

In replying to Amendment No. 216, I shall speak also to the other amendments in the group. The underlying point relates to the provisions that prevent dissipation of property which is subject to an interim receiving order.

It is essential, if property which may ultimately be the subject of an order as recoverable property is subject to the interim procedure, that it should not be dissipated in the mean time if there is a dispute between the state and the respondent as to whether or not the property should come across to the state. However, we recognise that there are exceptions and exclusions. The question raised by these sets of amendments touches on what those exclusions should be.

I shall deal first with Amendments Nos. 216 and 218, in the name of the noble Lord, Lord Goodhart, which go together. Their effect would be to make it mandatory—to use the noble Lord's word—for the court to make provision, to the extent necessary for enabling any person (other than the respondent) … to meet", the expenses described.

I must ask the rhetorical question: in what circumstances would it be "necessary" for the court to make an exclusion when the court would not in the exercise of its discretion make that exclusion in any event? In other words, under the Bill as it stands the court will always weigh the circumstances very carefully as to whether it is appropriate to make an order in favour of the respondent to allow such expenses to be made. If it is necessary to make such an order so that the respondent should meet those particular expenses, presumably that is the order that the court would make under its discretion in any event. So, to introduce an explicit test of necessity seems inappropriate and indeed would introduce an unnecessary degree of rigidity into the process. Again, the court can be left, as a matter of its discretion, to make the order, and particularly in the circumstances envisaged in the noble Lord's amendment.

Amendment No. 217 and the consequential Amendment No. 221, spoken to by the noble Baroness, Lady Buscombe, deal with the costs of anything that a person is reasonably required to do by the interim receiver for the preservation of the property. If the interim receiving order requires a person to do something in relation to the property and its preservation, it will clearly be in the mind of the court that it will be necessary for that person to have access to sufficient funds to comply with that requirement. Whether that required the making of an exclusion would depend on the court's view of all the circumstances, no doubt including what other assets were available to that person, rather than using the property that was subject to the receiving order, which would sometimes be very difficult, because it might require the sale of an asset in order to realise it.

We are confident that it is not necessary on the face of the Bill to draw to the court's attention that if it makes an order requiring somebody to do something in relation to the property, it needs to consider whether the funds or assets will be available for that to be done. In any event, as the clause stands the court has a discretion as to what exclusions to make. Subsection (3) identifies certain specific exclusions, but it is not an exhaustive list of the exclusions that could be made. The court would be able to make an exclusion for the purpose that the noble Baroness intends if it thought that appropriate. If the amendment were passed, the court would not be obliged to make the exclusion in any event. The amendment does not seem necessary or appropriate.

I hope it is of some comfort to the noble Baroness that under Schedule 3 the interim receiver will have the power to seize and manage the property to which the interim receiving order relates. He will have the power to incur capital expenditure in respect of the property. I envisage that the receiver rather than the property holder will often—I do not say always—incur the main expenditure in relation to the preservation of property. Those are our reasons for resisting Amendment No. 217.

Amendment No. 219 deals with a different point. It is an important point that we have touched on before at Second Reading and, I think, in Committee. It relates to the availability of the proceeds of the property that is frozen for the purpose of meeting legal expenses. I would be the last person to suggest that legal expenses were not a desirable way of spending property, but I also recognise that they can be quite substantial.

The problem—which arises in all applications for freezing orders, and in other areas as well—is whether the property is used to meet the legal costs or whether one looks to other funds. The Government have gone for the option that either the respondents and third parties should meet legal costs from assets that were not subject to the interim receiving order—in other words, that property is not dissipated by legal costs—or, where they have insufficient assets to do that, their legal costs should be publicly funded.

It is appropriate to say a word about the nature of that legal funding. The noble Baroness touched on the legal aid arrangements. Funding will be made available to respondents and third parties in civil recovery proceedings. In order to be granted public funding, they will need to satisfy a means test and a merits test. Parties to civil recovery proceedings will need to meet the standard means test, but the standard merits test will be relaxed to the extent necessary to ensure that everyone has access to legal funding who needs it and who qualifies financially. So there should not be a problem because the legal costs should be met either out of assets which are not subject to the receiving order or through legal aid with the adjustment to the merits test to which I have referred. I hope that that will be welcomed by the Committee.

If the director loses the case, the court will be able to order him to pay the respondent's legal costs. That will be towards the end of the process but it is still a very important procedure. Compensation is also payable under provisions in the Bill to which we shall come later.

I hope that the noble Baroness will accept that her fear that the enforcement authority may be able to win the case simply through preventing the respondent or third party having access to the right lawyers to fight it is not well founded. That has been thought about properly by the Government and the process, including the adjustment to the merits test to which I have referred, will be used to ensure that that does not happen.

Those are my responses to the amendments, which I hope will not be pressed.

Lord Goodhart

I shall consider the noble and learned Lord's remarks. It may be that we shall decide not to press the matter further. However, if the noble Baroness's amendments should come back, particularly Amendment No. 219—we have supported similar amendments in relation to confiscation orders—it may well be that we will support them. But that is not a matter for me. I beg leave to withdraw Amendment No. 216.

Baroness Buscombe

I thank the noble and learned Lord the Attorney-General for his response to Amendments Nos. 217 and 219. With regard to Amendment No. 217, I am not sure that I share his confidence. I heard what he said in regard to the fact that Clause 258(3) is not exhaustive. However, it would be preferable for that to be made clear on the face of the Bill. I shall consider the matter again, along with Schedule 3, and read in Hansard what the noble and learned Lord said.

As to Amendment No. 219, I again heard what the Attorney-General said in regard to the availability of proceeds that are the subject of freezing orders to meet legal expenses in respect of proceedings under Part 5. We have had considerable consultation with both the Bar Council and the Law Society of England and Wales with regard to this matter in Part 5 and also in relation to confiscation orders. It is a matter of some considerable concern. We were not entirely content with the response we were given on similar amendments in respect of confiscation orders. We shall think carefully about whether or not to return to this point at Report stage. I thank the noble Lord, Lord Goodhart, for his support.

Amendment, by leave, withdrawn.

[Amendments Nos. 217 to 219 not moved.]

9.45 p.m.

Baroness Buscombe

moved Amendment No. 220: Page 151, line 39, leave out subsection (5). The noble Baroness said: Clause 258 deals with exclusions from an interim administration order. Subsection (3) provides that an exclusion may make provision for a person to meet his reasonable living expenses or to carry on any trade, business, profession or occupation. Subsection (5) provides that if the excluded property is not specified in the order, it must be described in the order in general terms. There is no suggestion in Clause 258 that any property can be excluded.

Clause 260 deals with the exclusion of specific property if for example the court decides that property to which an interim administration order applies is neither recoverable property nor associated property. We suggest that, logically, subsection (5) should not be included in Clause 260 but should be included in Clause 258. Furthermore, we suggest that it would be quite wrong to describe excluded property in general terms because any interim administration order must be sufficiently clear so that any person reading it must know precisely what he can or cannot do. If he is in breach of the interim administration order, he is guilty of contempt of court. He must therefore know with certainty what property is subject to the interim administration order and what property is excluded from it. We have therefore sought to remove subsection (5) from Clause 258 but have not put it into Clause 260 where it otherwise would go.

Amendment No. 223 is consequential to Amendment No. 220. I beg to move.

Lord Goldsmith

Clause 258 makes a simple and practical provision. Its purpose is to allow property which is excluded to be identified in a sensible way. I agree with the noble Baroness, Lady Buscombe, that it would be inappropriate for an order to be made in such vague or imprecise terms that it was not certain which property was being excluded, for the very reasons that she gave. However, the provision that the property must be described in the order in general terms if it is not specified in the order would not permit the property to be specified in terms that were vague or imprecise and therefore lead to the type of uncertainty that both she and I want to avoid.

"General" does not mean uncertainty. It simply means that the order need not be turned into an unwieldy list, as might otherwise be thought to be the position. We would not want to produce unnecessarily difficult and bureaucratic orders. Therefore, a generic description can be given. Of course it will need to be sufficiently certain and precise. However, it might, for example, allow for the release of a sum of money without having to specify which notes or coins that should entail. That must be sensible. That is the reason for the inclusion of the subsection. We hope that, with that reassurance, the noble Baroness, Lady Buscombe, will feel able to withdraw the amendment.

The noble Baroness also suggested that there should be something more in Clause 260. However, 11 am afraid that I did not follow the point and cannot help her on what is missing and, if so, why it is missing. We think that the substantial point is that, when the interim receiving order is made and if exclusions are made, it should be sufficiently clear what the excluded property is. However, that can be defined in general terms, and there is no need to add anything to Clause 260. However, if I have misunderstood the point, I would be happy to be further illuminated.

Baroness Buscombe

I thank the Attorney-General for his response, and I shall read carefully what he had to say. On that basis, l beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 258 agreed to.

Clause 259 [Restriction on proceedings and remedies]:

Lord Goldsmith

moved Amendments Nos. 220A and 220B: Page 152, line 12, leave out subsection (3). Page 152, line 20, at end insert— () Before exercising any power conferred by this section, the court must (as well as giving the parties to any of the proceedings in question an opportunity to be heard) give such an opportunity to the interim receiver (if appointed) and any person who may be affected by the court's decision.

On Question, amendments agreed to.

Clause 259, as amended, agreed to.

Clause 260 [Exclusion of property which is not recoverable etc.]:

[Amendment No. 220C not moved.]

Clause 260 agreed to.

Clauses 261 and 262 agreed to.

Clause 263 [Functions of interim administrator]:

Lord Goldsmith

moved Amendment No. 220D: Page153, line 42, leave out paragraph (c).

On Question, amendment agreed to.

Clause 263, as amended, agreed to.

Lord Goldsmith

moved Amendment No. 220E: After Clause 263, insert the following new clause— "INHIBITION OF PROPERTY AFFECTED BY ORDER (1) On the application of the enforcement authority, the Court of Session may, in relation to the property mentioned in subsection (2), grant warrant for inhibition against any person specified in an interim administration order. (2) That property is heritable property situated in Scotland to which the interim administration order applies (whether generally or such of it as is specified in the application). (3) The warrant for inhibition—

1. (a) has effect as if granted on the dependence of an action for debt by the enforcement authority against the person and may be executed, recalled, loosed or restricted accordingly, and
2. (b) has the effect of letters of inhibition and must forthwith be registered by the enforcement authority in the register of inhibitions and adjudications.

(4) Section 155 of the Titles to Land Consolidation (Scotland) Act 1868 (c. 101) (effective date of inhibition) applies in relation to an inhibition for which warrant is granted under subsection (1) as it applies to an inhibition by separate letters or contained in a summons. (5) The execution of an inhibition under this section in respect of property does not prejudice the exercise of an interim administrator's powers under or for the purposes of this Part in respect of that property. (6) An inhibition executed under this section ceases to have effect when, or in so far as, the interim administration order ceases to apply in respect of the property in relation to which the warrant for inhibition was granted. (7) If an inhibition ceases to have effect to any extent by virtue of subsection (6) the enforcement authority must—

1. (a) apply for the recall or, as the case may be, the restriction of the inhibition, and
2. (b) ensure that the recall or restriction is reflected in the register of inhibitions and adjudications."

On Question, amendment agreed to.

Clause 264 agreed to.

Clause 265 [Supervision of interim administrator and variation of order]:

Lord Goldsmith

moved Amendments Nos. 220F to 220J: Page 154, line 32, leave out "the respondent and any other" and insert "any party to the proceedings and any Page 154, line 37, leave out "respondent and any other party" and insert "parties Page 154, line 41, leave out "doing so" and insert "exercising any power under this Chapter to vary or set aside an interim administration order Page 154, line 41, leave out "respondent and any other party" and insert "parties On Question, amendments agreed to.

Clause 265, as amended, agreed to.

Clause 266 [Restrictions on dealing etc. with property]:

[Amendments Nos. 221 to 223 not moved.]

Clause 266 agreed to.

Clause 267 [Restriction on proceedings and remedies]:

Lord Goldsmith

moved Amendment No. 223A: Page 155, line 29, leave out subsection (3) and insert— (3) Before exercising any power conferred by this section, the court must (as well as giving the parties to any of the proceedings in question an opportunity to be heard) give such an opportunity to the interim administrator (if appointed) and any person who may be affected by the court's decision. On Question, amendment agreed to.

Clause 267, as amended, agreed to.

Clause 268 [Exclusion of property which is not recoverable etc.]:

[Amendment No. 223B not moved.]

Clause 268 agreed to.

Clauses 269 and 270 agreed to.

Clause 271 [Functions of the trustee for civil recovery]:

Lord Goldsmith

moved Amendment No. 223C: Page 157, line 16, leave out paragraph (b). On Question, amendment agreed to.

Clause 271, as amended, agreed to.

Lord Goldsmith

moved Amendment No. 223D: After Clause 271, insert the following new clause— "RECORDING OF RECOVERY ORDER: SCOTLAND (1) The clerk of the court shall immediately after the making of a recovery order which relates to heritable property situated in Scotland send a certified copy of it to the keeper of the register of inhibitions and adjudications for recording in that register. (2) Recording under subsection (1) shall have the effect, as from the date of the recovery order, of an inhibition at the instance of the trustee for civil recovery against the person in whom the heritable property was vest prior to that date. On Question, amendment agreed to.

Schedule 4 agreed to.

Clause 272 [Rights of pre-emption, etc.]:

Lord Goldsmith

moved Amendment No. 223E: Page 157, line 40, at end insert— () References to rights in subsections (2) and (3) do not include any rights in respect of which the recovery order was made. The noble and learned Lord said: This amendment proposes a minor clarification to Clause 272. The clause makes certain provisions to ensure that a recovery order will have effect even if it conflicts with other proprietary rights that would prevent, penalise or restrict the vesting of the property concerned. It sets out certain protections in respect of such rights.

The amendment makes clear that the protections provided for any such right do not apply if the right itself is the subject of a recovery order. I beg to move.

On Question, amendment agreed to.

Clause 272, as amended, agreed to.

Clauses 273 and 274 agreed to.

Clause 275 [Associated and joint property: default of agreement]:

[Amendment No. 224 not moved.]

Clause 275 agreed to.

Clauses 276 to 284 agreed to.

Clause 285 [Other exemptions]:

[Amendment No. 224A not moved.]

Clause 285 agreed to.

Clause 286 [Compensation]:

[Amendment No. 225 not moved.]

Baroness Buscombe

moved Amendment No. 226: Page 166, line 40, at end insert "unless within that period the enforcement authority appeals against the decision, in which case the application for compensation must be made within the period of three months beginning with the date on which the appeal is determined or otherwise disposed of The noble Baroness said: Clause 286 provides for the payment of compensation to a person whose property is subject to an interim receiving order or an interim administration order, and it turns out that the property is not recoverable property or associated property. Such a person has a right to apply for compensation if he suffers loss as a consequence of the interim receiving order or the interim administration order. However, if he wants to be paid compensation, he must apply within a very short period. He has only three months from the decision of the court that no recovery order should be made in respect of the property. That is a very short period because the person applying for compensation may well be an innocent third party; but we can live with that.

However, if the enforcement authority appeals the decision that no recovery order should be made in respect of the property, it is not entirely clear whether the period of three months runs from the date of the decision of the court of first instance or from the date of decision of any appeal court. It may well be that in relation to the person who makes the application, the period of three months runs from the decision of the appellate court. That would make sense. However, if the appeal is dismissed, it is arguable that the three-month period ran from the date of the original decision, which would still stand because the appeal was dismissed. The person who makes the application would therefore have lost his right to compensation because he acted sensibly in not making the application until the appeal had been dismissed.

In order to avoid that injustice, we feel that subsection (3) should make it clear that where there is an appeal, the three—month period runs from the decision of the appellate court and not from the decision at first instance. I beg to move.

Lord Goldsmith

Of course we accept that the time should not run out while an appeal is taking place; it should run from the time when the appeal is determined. There is nothing between the noble Baroness and us on that. The question is whether the amendment is necessary in order to achieve that, having regard to the words that are already used. I propose, if I may, that we take the proposal away. I accept that similar wording to that which she proposed is used in certain legislative provisions. We shall consider whether it would be sensible to put that issue beyond doubt, notwithstanding the existing wording. I hope that the noble Baroness will accept that gift at 10 o'clock in the evening!

Baroness Buscombe

I thank the noble and learned Lord the Attorney-General. I hope that he will respond positively—he has already begun to—not least because the amendment was suggested to me by a very experienced member of the Chancery Bar. I suggest that it makes sense that the matter should be made clear beyond doubt in the Bill. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

10 p.m.

Lord Kingsland

moved Amendment No. 227: Page 167, line 13, at end insert— () If any person other than the person referred to in subsection (1) has suffered loss as a result of any interim receiving order or interim administration order, that other person may make an application to the court for compensation. () If the court is satisfied that such other person has suffered loss as a result of the interim receiving order or interim administration order, it may, if it thinks fit, require the enforcement authority to pay compensation to him. The noble Lord said: Clause 286 gives a right to a person whose property is subject to an interim receiving order or interim administration order to apply to the court for compensation in the event that the court decides that the property is not recoverable property or associated property. As many Members of the Committee will recognise, that approach is based on the usual undertakings to damages normally given as a condition of a grant of an interim order in the civil courts. In brief, if a person applies for an interim order but should not have been granted that order, he should have to pay compensation to whoever has suffered loss as a consequence of the order. It is the fair quid pro quo for the order being granted without going into the facts of the case at a trial.

However, in the standard freezing order, it is usual to give an undertaking to pay the costs of any third party who has suffered loss if the court decides that the third party should be compensated for that loss. That is a standard undertaking extracted from an applicant for a freezing order in a civil court.

An interim receiving order or an interim administration order is a more drastic remedy than a freezing order. We believe that, at the very least, there should be a similar provision for compensation as regards innocent third parties who have suffered loss as a result of an interim receiving order or an interim administration order.

I emphasise that the right to compensation should not be automatic. Innocent third parties may suffer loss as a result of interim receiving orders or interim administration orders; but not all of them should be entitled to compensation regardless of the circumstances. They may be the authors of their own misfortune, and it would be wrong to impose an unlimited liability on an enforcement authority carrying out a public duty regardless of the circumstances. Compensation should be payable only where the court thinks fit. That is why the amendment is worded in the way that it is. I beg to move.

Lord Thomas of Gresford

In supporting Amendment No. 227, moved by the noble Lord, Lord Kingsland, I wish to speak also to Amendment No. 228, which raises the question of compensation in perhaps a narrower way. This issue was raised by my noble friend Lord Goodhart during debate on an earlier part of the Bill, but we return to it. The answer given at that time was that an unsecured creditor takes many risks upon himself whenever he enters into a contractual arrangement with another person. Of course, such a person is normally competing with other interests—sometimes with secured creditors; sometimes with other unsecured creditors—and he receives his share of the pot only if there is a pot available at the end of that time.

This is a different situation. In this situation, the state steps in and recovers money or property by way of a punishment with the prospect of terms of imprisonment in default. Presumably the property recovered by the state goes to the state's coffers and not to the unsecured creditor, who, by definition under the terms of the amendment, is a completely innocent party. The unsecured creditor here is the one to whom the debt is owed. Again, by definition in the amendment, the debt was incurred when the applicant had no reason to believe that a recovery order could be made against the respondent. He is an innocent party. I fail to see the logic of the tradesman or the person who is engaged in business in an innocent manner losing out while the state gains all the property that is recoverable. It may be that the unsecured creditor takes risks, but that is one risk that he ought not to take.

Lord Goldsmith

This matter has been the subject of previous discussion. The position remains that the Government do not support the principle behind the amendment. There is a difference between us. The view of the Government is that the effect would be highly prejudicial to civil recovery proceedings. I shall explain both of those points.

It is appropriate to distinguish between different categories of people who may, in theory, be affected by an order that is made. The position of a respondent is covered by the Bill as it stands and a secured creditor will be protected because associated property will be protected like any other associated property, as we have discussed. The Bill also recognises the third category, which is the prior claims of preferential debts. They receive priority over civil recovery. Those categories are dealt with.

The remaining issue is that of unsecured creditors. The proposal behind the amendment is that unsecured creditors also should take priority over the settlement of the recovery order. The Government's view is that they should not. That is the effect of the amendment.

We note that the director will seek to recover the proceeds of unlawful conduct to prevent and to disrupt organised crime. The director will be acting on behalf of the state in cases where there may be no identifiable victim. The underlying principle is that the person in possession of the proceeds of unlawful conduct should not be able to retain that wealth on the basis that it never properly belonged to him. The unsecured lender inevitably exposes him or herself to a wide range of risks. I respectfully differ from the noble Lord, Lord Thomas of Gresford. The fact that the borrower may be subject to a recovery order is but one of those risks to which an unsecured lender puts himself. The borrower or the recipient of goods or services may turn out to be insolvent; he may die without leaving an adequate estate; or he may simply default.

The amendment also overlooks the fact that the making of the recovery order does not absolve the respondent of the obligation to pay his debts. They remain payable out of other property. It will probably be relatively unusual to have a case where the civil recovery results in insolvency of the respondent. The fact that the unsecured lender may lose out is simply a consequence of the fact that he has provided services on credit to someone who turns out not to be sufficiently solvent.

The second point is that this amendment would have an adverse effect in practical terms on the operation of an effective civil recovery system; it would simply invite claims from bogus creditors who, in reality, were associates of the respondent. We are entirely unpersuaded by suggestions previously made in relation to Part 2 that it would be easy to differentiate bogus compensation claims from legitimate claims. For practical reasons, therefore, and also for reasons of principle, the amendment is opposed.

Amendment No. 227 raises some of the same issues as Amendment No. 228. It deals particularly with losses arising out of the making of an interim receiving order rather than the making of a final recovery order. Again, it would clearly bite on the position of unsecured creditors who might try to show that they had suffered a loss as the result of the making of an interim receiving order. But it would potentially go further. It would be open to any person to allege loss and that may include anyone who tried to argue that a proposed joint venture, for example, had been prevented by the interim receiving order.

I also beg to differ from the noble Lord, Lord Kingsland, in suggesting that it is common place that an undertaking in ordinary civil proceedings is given by someone who obtains an injunction in favour of all third parties. My recollection—I am always ready to stand corrected about this—is that the normal order is that the undertaking as to damages is given in favour of the respondent. In the short time since the noble Lord made the point I managed to obtain a copy of the practitioner's bible, which appears to set out the specimen order for an interim injunction and which includes an undertaking in these terms: If the court later finds this order has caused loss to a respondent and decides that the respondent should be compensated for that loss, the applicant will comply with any order the court may make". If that is right, that appears to limit it, as is my recollection, to the position of the respondent and not of third parties generally. But whether or not that be right, for the reasons I have given we oppose the amendments and hope that they will not be pressed.

Lord Thomas of Gresford

Before the noble Lord, Lord Kingsland, replies to his amendment, perhaps I may say that our Amendment No. 228 envisages, in Clause 2(a), that the respondent is wholly or in part unable to repay the debt. So it is taken as a condition that he cannot pay out of other property, which deals with the first point made by the noble and learned Lord.

Secondly, I find it extraordinary that the noble and learned Lord comes to the conclusion that the court cannot decide an issue as to whether or not a claim is made fraudulently. That is what courts are for.

Lord Goldsmith

Would the noble Lord agree that the problem with this sort of claim is that the only two people who would know the truth would be the person against whom the recovery order had been made and the person claiming to be a creditor? If there is collusion between them, it would be extremely hard for anyone else to discover that fact.

Lord Thomas of Gresford

I am afraid the courts are making decisions on the credibility of witnesses who come before them day after day in every sort of case. That is what their job is.

I come to my third point. Suppose a criminal uses the funds he has accumulated to build a house. He employs a reputable builder to do that, an architect, solicitors and so on, to whom he owes various fees and costs. Along comes the state and takes the building that has been constructed. Anybody who has quite innocently been involved in the construction of that building, in whatever way, can whistle for his money. It is a question of principle; whether the state should simply add to its coffers or whether people who have genuine claims should be able to recover them where the respondent is wholly or in part unable to repay the money that is owed.

This is a matter to which we shall return because it is a question of principle.

Lord Kingsland

Far be it from me to engage the noble and learned Lord on the subject of civil remedies in general and interim injunctions in particular. But, in my submission, I made a distinction between "the" interim injunction generally and freezing orders in particular, which are a subclass of that category. I shall go away and refresh my memory from the White Book. I shall probably return to the matter on Report but, meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 286 agreed to.

[Amendment No. 228 not moved.]

Clauses 287 to 290 agreed to.

Clause 291 [Searches]:

Baroness Buscombe

moved Amendment No. 229: Page 170, line 27, leave out "which The noble Baroness said: I shall be extremely brief in moving Amendment No. 229 and in speaking to Amendment No. 230. Simply put—it concerns a small, technical point—we believe that the word "which" is in the wrong place. We suggest that the noble and learned Lord considers subsection (1), where it is in the correct place. I beg to move.

Lord Goldsmith

A hit, a very palpable hit. I recommend that the Committee accepts the amendment.

On Question, amendment agreed to.

Baroness Buscombe

moved Amendment No. 230: Page 170, line 28, at beginning insert "which On Question, amendment agreed to.

Clause 291, as amended, agreed to.

Clause 292 [Prior approval]:

Lord Kingsland

moved Amendment No. 231: Page 171, line 20, leave out from "officer" to end of line 21. The noble Lord said: This is a further amendment inspired by the Law Society of Scotland. It would ensure that the powers conferred by Clause 291 could be exercised only with the prior approval of a judicial officer. The amendment is designed to ensure that the provisions of Chapter 3 of Part 5 are compliant with the European Convention on Human Rights. Clause 292, as drafted, would allow a judicial officer or a specified senior officer to grant approval for the searches referred to in Clause 291.

Article 8 of the European Convention on Human Rights makes specific provision for the right to privacy and sets out the occasions on which interference with that right can be justified. In the case of searches of property by officials for the purposes of detection and prosecution of serious crime, the European Court of Human Rights has held that in order to satisfy the test of being, necessary in a democratic society", so as to justify the exception under Article 8(2) of the ECHR, prior authorisation by a judge would normally be required. A French law that lacked a safeguard of that type was condemned by the court in the case of Funke v France because it allowed the authorities exclusive competence to determine the scale, the frequency and length of searches in each case.

The powers under Clause 291 are being invoked not for the purposes of detection or prosecution of crime but rather for civil proceedings. While the use of such powers could be justified on the basis of another exception contained in Article 8(2), there may be merit in ensuring that the appropriate approval is given by a judicial officer only and not by a senior officer as currently provided by the Bill. That may assist in ensuring that a challenge on that basis would be avoided in subsequent proceedings. I beg to move.

Lord Goldsmith

This is the first amendment arising from Chapter 3. It relates to the two search powers provided. The first is the power to search premises for cash. It does not include a new power of entry; the customs officer or constable must be on the premises lawfully in the first instance. There is also the power to search persons.

The noble Lord, Lord Kingsland, referred to the approvals necessary before those powers can be exercised. It is right to note, first of all, that the powers can be exercised only in certain conditions set out in Clause 291. For example, the powers must be exercised, only so far as reasonably required for the purpose of finding cash and are exercisable by a customs officer only if he has reasonable grounds for suspecting that the unlawful conduct in question relates to an assigned matter". There are other requirements, including those in Clause 291(2) that the customs officer or constable must have, reasonable grounds for suspecting that a person … is carrying cash which is recoverable property and, is not less than the minimum amount". There are safeguards already built in.

The normal situation would be that if it were practicable to obtain judicial approval before exercising the powers, that is what would happen. Clause 292 provides for that. The powers may be exercised only with the "appropriate approval", unless it is not practicable to obtain that approval in the circumstances. The "appropriate approval" means the approval of a judicial officer or—only if that is not practicable—the approval of a senior officer.

It would be only in circumstances where it was not practicable to obtain approval from a judicial officer that the other route would be taken. One can envisage a situation in which officers are lawfully on premises and it comes to their attention that there may be cash that is recoverable property—the proceeds of unlawful conduct or cash to be used for unlawful conduct—on those premises. There may simply not be time for the officers to leave the premises, go before a magistrate and obtain an order. The officers' purpose would be frustrated if that delay were to take place. The cash would not be there by the time that the order had been obtained.

The Bill provides that, in such circumstances, the approval of a senior officer may be sought. It is right to say that there is the possibility that even that may not be practicable, although one envisages that that would be an unusual situation. Normally, a telephone call to the senior officer would achieve the purpose. Although senior officer approval is, of course, not judicial approval, it provides an operational safeguard in the majority of cases in which it is not practicable to get such judicial approval, as noble Lords will agree. Indeed, it will provide an operational safeguard in all cases in which it is not possible to get judicial approval but in which the approval of the senior officer is sought.

It does not stop there. If the power is exercised, the consequence will be either that cash will be detained or it will not. If it is, the matter must come before the magistrates whether approval was sought in advance or not. The magistrates will be in a position to examine the circumstances in which the order was obtained. If they are unhappy and think that judicial approval could have been obtained but was not, they will, at the very least, have something to say about that.

We have also envisaged a situation in which cash is not detained. To ensure that, even in that case, there is a further safeguard, there is an obligation set out in Clause 292. Subsection (6) provides that if no cash is seized, or if it is not detained for more than 48 hours making it unnecessary to go to a magistrate, the person who exercised the powers must give a written report to the "appointed person". That is a senior and independent person who will receive a report and will under Clause 293 be under an obligation to submit a report each year on, according to subsection (2), his opinion as to the circumstances and manner in which the powers conferred by section 291 are being exercised in cases where the customs officer or constable who exercised them is required to give a report". In circumstances in which it is not practicable to obtain judicial approval, that is a very good set of safeguards which come as close as one can to the problem. It is a senior officer and either the matter goes before the court because of detention or there must be a report to the appointed officer. The appointed officer will then make an annual report. I hope that the noble Lord will agree that that provides a strong measure of operational safeguard against abuse of the powers. I also hope that with that explanation and reassurance the noble Lord will feel able to withdraw the amendment.

Lord Kingsland

I thank the noble and learned Lord the Attorney-General for that full explanation of the thinking which lies behind Clause 292. I accept from what he said that the Government have been alive to the issue I have raised. Bearing in mind the practical difficulties which might sometimes arise in locating a judicial officer, the Government have probably done the best they can to provide a series of substitute procedures. In those circumstances, I shall not be raising the matter at Report stage, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 232 not moved.]

Clause 292 agreed to

Clause 293 agreed to.

Clauses 294 to 299 agreed to.

Clause 300 [Forfeiture]:

[Amendments Nos. 233 to 235 not moved.]

Lord Goodhart

moved Amendment No. 236: Page 175, line 35, leave out "or sheriff The noble Lord said: For reasons which are not entirely clear to me, the noble Lord, Lord Rooker, has put his name to the amendment. Therefore, perhaps I had better move it and hear what the noble and learned Lord has to say. I beg to move.

Lord Goldsmith

I received a note earlier in the evening indicating the hope that this would not have been noticed! My noble friend's name appears on the amendment as a result of an error. At one stage, another, substantive, amendment was being proposed and this amendment was part of it. I am afraid that I must disappoint the noble Lord and say that I resist the amendment, notwithstanding the existence of my noble friend's name to it.

Lord Goodhart

In that case, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

10.30 p.m.

Lord Goodhart

moved Amendment No. 236A: Page 175, line 35, at end insert— () The court of sheriff shall state the reason for making or refusing to make an order or an application under this section. The noble Lord said: Amendment No. 236A does not appear in the list of groupings, but that must be as a result of an oversight. It has not been debated previously and it raises a brief point.

Earlier today I spoke to a large group of amendments, the purpose of which was to transfer the forfeiture jurisdiction relating to cash only from the magistrates' court, or in Scotland, the sheriff's court, to the High Court or the Court of Session. That proposal was not accepted. Amendment No. 236A is tabled on the assumption that those amendments were not going to be accepted and did not form part of the Bill. The effect of the amendment is to require the magistrates' court or the sheriff's court, when it receives an application for forfeiture, to give its reasons for making or refusing to make the order. It seems to me that should be done.

Had the jurisdiction been transferred to the High Court or the Court of Session, then it would have followed as a matter of course that, certainly in the case of the High Court, reasons would have been given. Except for certain interlocutory decisions the High Court always gives reasons. That is not the case with magistrates' courts. I cannot speak as to what the case may be with sheriffs' courts in Scotland. Magistrates' courts are relatively unaccustomed to giving reasons, but it is essential that they should do so in cases of this kind where it is more than likely that very large sums of money are involved. It would be appropriate that the court which hears the appeal from the magistrates should know why the court reached its decision. I beg to move.

Lord Goldsmith

The amendment would place on the face of the Bill an obligation on the court to state its reasons for making a decision on a forfeiture hearing. I suggest that a court these days would state its reasons and it would be expected to do so. Under the current cash recovery scheme in the Drug Trafficking Act 1994 where this has arisen—we have discussed it before this evening—the court, I am told, retires and returns with reasons for its decision. Indeed, I am told that they are written reasons, but I do not believe that the substance is the question of whether the decision is written, but the fact that reasons are given. We anticipate that procedures under the new scheme would be no different.

One of the consequences of the Human Rights Act has been that the giving of reasons by many courts and magistrates' courts has become much more common. I expect that the Committee will agree that that is a good thing. It is right that people should know the decisions which have been made and which affect them. The position without the need for any amendment at all is, in the Government's view, that such reasons would be given. To spell out in this provision a specific requirement might cast doubt on what might be the more general obligation in other cases. For those reasons I invite the noble Lord to withdraw his amendment.

Lord Goodhart

I welcome what the noble and learned Lord has said. It is clearly essential that reasons should be given. If it is clear that they must be given, even though that is not on the face of the Bill, the position would be sufficiently covered. I take it that what the noble and learned Lord has said would be very clear guidance to magistrates' courts and that they would be obliged to do what is required. In those circumstances I am happy to ask the leave of the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 300 agreed to.

Clause 301 [Appeal against forfeiture]:

[Amendments Nos. 237 to 239 not moved.]

Clause 301 agreed to.

Clause 302 [Application of forfeited cash]:

[Amendments Nos. 240 and 241 not moved.]

Clause 302 agreed to.

Clause 303 [Victims and other owners]:

[Amendments Nos. 242 to 247 not moved.]

Clause 303 agreed to.

Clause 304 [Compensation]:

[Amendments Nos. 248 to 253 not moved.]

Lord Goldsmith

moved Amendment No. 253A: Page 177, line 43, leave out subsection (9). The noble and learned Lord said: As originally drafted, the intention of the Bill was that victims should be able to obtain return of their money, but no additional compensation. The reason for this was that the loss suffered by a victim in these cases would have arisen from the original unlawful conduct, not the operation of the cash recovery scheme. Clause 304(9), as it now stands, would have achieved that result.

Clause 303, which originally applied only to victims, was amended in the other place so as to include certain other owners. Such owners had previously been unable to apply for release of detained cash, but had been able to apply for compensation. Allowing such owners to apply for release of cash under Clause 303 unintentionally brought them within the ambit of Clause 304(9). The amendment now before the Committee will rectify that error.

I should point out that the amendment also goes further. Having reconsidered the position of victims, the Government now accept that there could be circumstances in which a victim has suffered loss as a result of the proceedings, which he would not have done if the cash had been returned at an earlier stage. The framework in Clause 304 already requires the court to consider loss incurred only as a result of the proceedings under Chapter 3. Therefore, the Government are content to leave it to the courts' discretion to consider the circumstances of individual cases, and to order the payment of compensation if the circumstances warrant it. Noble Lords may wish to read my response in Hansard. I beg to move.

On Question, amendment agreed to.

[Amendment No. 254 not moved.]

Clause 304, as amended, agreed to.

Clauses 305 to 309 agreed to.

Clause 310 [General exceptions]:

Lord Goodhart

moved Amendment No. 254A: Page 179, line 28, leave out paragraph (b). The noble Lord said: As the Bill stands, under Clause 310(3)(b), where a judgment has been given in civil proceedings but the claimant recovers property on the basis of the defendant's unlawful conduct, the property ceases to be recoverable. However, it remains the case that, because the three conditions in paragraphs (a), (b) and (c) in Clause 310(3) are cumulative, the property remains recoverable if the claimant's claim is not based on the defendant's unlawful conduct.

This is, frankly, an extraordinary situation: where judgment has been obtained against the defendant, any payment made under that judgment remains recoverable property unless the claim is based on the specific unlawful conduct of the defendant. Unless there is something in the clause that I have not understood, it seems to me that the consequences of that are extraordinary. Plainly, a payment under a court order should be final and should not be capable of being overridden, except where there is some evidence that the judgment has been obtained as part of collusion to defeat the effect of a civil recovery order. Unless there is some evidence of collusion, surely payments made as a result of a civil judgment should stand and should not be recoverable from the person who obtained the judgment. I beg to move.

Lord Goldsmith

Clause 310 attempts to ensure that the schemes are proportionate and fair. If property has been transferred as a result of proceedings which are broadly akin in their function to civil recovery proceedings—that is to say that they have the equivalent effect of ensuring the property obtained through unlawful conduct cannot be peacefully enjoyed—it would cease to be appropriate for it to be the subject of a recovery order. It is important in that context that the provision in Clause 310(3)(b) remains. It is that feature which ties the property in question to similar sorts of proceedings to the recovery process.

Perhaps I may explain the matter in this way. Without paragraph (b), which is what the amendment proposes to delete, a number of examples could arise which would fit the conditions in paragraphs (a) and (c) but which would simply be inappropriate to be excluded from the general provisions of this part. For example, if property was transferred from one spouse to another as the result of divorce proceedings, that would put it beyond the reach of the director no matter how collusive the proceedings may have been, or indeed how deliberately evasive the arrangement. It would be a payment made to the claimant or property obtained in pursuance of a judgment in civil proceedings.

Let us take another example. The criminal owner of recoverable real property could obtain the rents from that property, which otherwise would fall to be part of the recoverable property, by suing the tenant. That would be a civil judgment as a result of which the property had been received by him. The amendment would take that outside the effect of the section.

10.45 p.m.

Lord Goodhart

I take the noble and learned Lord's first example, relating to a spouse, but, with great respect, surely the example of the tenant is wrong. In that case, the defendant is the person who receives the payment, not the person who makes it under the judgment. Nothing in the amendment would prevent the rents becoming recoverable property, whether they were obtained without a judgment or as a result of a judgment.

Lord Goldsmith

I shall reflect on whether the noble Lord is right to criticise that example. If he is, I unreservedly withdraw it. However, it was simply an example. He has accepted that the other example is good and I am confident that there are others that would not meet his objections and in which, without the link provided by subsection (3)(b), one would not achieve the objective of excluding from the process proceedings that are similar in effect and purpose to the civil recovery proceedings, but not in fact the same.

There are other reasons why recoverable property that has been transferred as a result of civil proceedings may cease to be recoverable. For example, a successful litigant who has no reason to suspect the recoverable nature of the property that he receives will have the benefit of subsection (1), which covers a person who obtains recoverable property in good faith for value and without notice that it was recoverable property.

Without a requirement that tied the particular civil proceedings into the defendant's unlawful conduct, the claimant in civil proceedings would, for no compelling reason that we can see, be in a better position than any other person who had received money or property from the defendant. What matters is the basis for the transfer, not just the fact that there has been a civil process. I invite the noble Lord to withdraw the amendment.

Lord Thomas of Gresford

With the greatest respect to the noble and learned Lord, the clause needs to be looked at again. For example, if an impoverished claimant sues tycoon X for libel and receives damages into his hands, it can hardly be said that tycoon X has disposed of the property; he has had a judgment entered against him and had to hand it over. That is not caught by subsection (1). It appears that if tycoon X is subsequently pursued, the libel damages obtained by the impoverished plaintiff would have to be handed over. Is that right?

Lord Goldsmith

Even at this hour of the evening, I do not immediately see why paying the libel judgment is not a disposal of property by the tycoon. One assumes that otherwise that property in the hands of the tycoon would be recoverable. If the poor person who had been libelled obtained it in good faith for value and without notice that it was recoverable property—the value would seem to be the fact that it was compensation for a wrong that he had suffered—it would not be followed into his hands. I do not immediately see the objection that the noble Lord raises.

Lord Goodhart

I am not satisfied with the noble and learned Lord's response. The provision needs to be looked at again. Subsection (1) is plainly concerned with contracts and with property being disposed of in good faith and for value. It seems wholly inappropriate, for example, to cover the question of damages for personal injury, let alone libel. I accept that there must be some guard against, in particular, a collusive claim, or possibly even a non—collusive claim, to settlement of money as part of a divorce case.

The Government must look at this issue again because it is a potential elephant trap. They need to look at the matter very carefully, consider what it is that they are trying to prevent, consider what this clause may do which could be unfair and a potential cause of real injustice, and come back with amendments to draw the clause much more tightly.

While obviously I shall ask for leave to withdraw the amendment on this occasion, unless some progress is made on this issue we shall certainly want to come back to it at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 310 agreed to.

Clauses 311 to 315 agreed to.

Clause 316 [General interpretation]:

[Amendment No. 255 not moved.]

Clause 316 agreed to.

Clauses 317 to 322 agreed to.

Clause 323 [Functions]:

Lord Goldsmith

moved Amendment No. 255A: Page 188, line 36, at end insert— (fa) statutory paternity pay; (fb) statutory adoption pay; The noble and learned Lord said: This group of amendments concerns the taxation provisions in Part 6 of the Bill. They would enable the director to administer statutory paternity pay and statutory adoption pay alongside his other taxation functions. These will become relevant once the Employment Bill, which is currently before the House, becomes law.

The Employment Bill does not extend to Northern Ireland, but the Northern Ireland Assembly will replicate the United Kingdom legislation and regulations once the Employment Bill achieves Royal Assent. The amendments to this Bill take that into account.

Clause 323, to which the amendments relate, clarifies the functions which are included within general revenue functions and the inheritance tax functions which the director is permitted to exercise. It sets out those functions 'which are specifically included and those which are excluded. It is necessary for certain statutory payment scheme functions to be included as it is difficult to separate those from the PAYE process.

The amendments serve only to add the two new statutory payment schemes caused by the introduction of new legislation to those statutory payment schemes already listed—that is, statutory paternity pay and statutory adoption pay. I beg to move.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendments Nos. 255B and 255C: Page 189, line 16, at end insert— (ca) "statutory paternity pay" must be construed in accordance with section 171ZA of that Act; (cb) "statutory adoption pay" must be construed in accordance with section 171ZL of that Act; Page 189, line 26, at end insert (ca) "statutory paternity pay" must be construed in accordance with any Northern Ireland legislation which corresponds to Part 12ZA of the Social `Security Contributions and Benefits Act 1992; (cb) "statutory adoption pay" must be construed in accordance with any Northern Ireland legislation which corresponds to Part 12ZB of that Act; On Question, amendments agreed to.

Clause 323, as amended, agreed to.

Clauses 324 and 325 agreed to.

Schedule 5 agreed to.

Clause 326 agreed to.

Lord Davies of Oldham

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at five minutes before eleven o'clock.