Case Update: National Crime Agency v Azam (No.2) Civil Recovery, Spouses, Assets and Matrimonial Relief

An innocent owner of property subject to a civil recovery order had a high hurdle to overcome for a defence under the Proceeds of Crime Act 2002 s.266(3) to be successful. Public interest demanded the recovery of proceeds of crime even where it meant that the spouse of a person who had benefited from unlawful conduct was deprived of assets from which to seek financial relief in matrimonial proceedings.

Abstract: The court heard the second part of the trial of proceedings by the claimant agency for a civil recovery order against the first defendant (H). The agency sought to recover assets owned by H and/or held in the name of the second defendant (W), who was H's wife. It was accepted that W was unaware of, and had not participated in, H's unlawful conduct. In anticipation of divorce, W applied for assets to be excluded from the recovery order. A consent order resulted, which directed that the agency's claim would be tried in two parts. The first part was to establish which assets were recoverable property. By the time of that hearing, W had divorced H in Dubai. Properties, including one in W's sole name (Thurza), and another in the joint names of H and W (Wheatash), were found to be recoverable property. All recoverable properties except Thurza and Wheatash became vested in a recovery trustee. The instant hearing was to determine W's defence and any interests she might have in the properties for the purposes of a claim under the Matrimonial and Family Proceedings Act 1984. W believed that Thurza had been gifted to her by her father-in-law as part of an agreement made by the couple's parents prior to their marriage. She had never been told that it was not hers to deal with as she pleased. She also believed that she partly owned Wheatash because the rentals from Thurza had contributed to its purchase. W submitted that the purchase of Thurza satisfied the requirements of the Proceeds of Crime Act 2002 s.266(3) and s.266(4) and that it was not just and equitable under s.266(6) to make a recovery order; (2) treating Wheatash as recoverable property would breach s.266(3)(b) because she had had a legitimate expectation of obtaining effective enjoyment of the property in the form of financial relief.

Judgment for claimant. (1) W did not satisfy the requirements of s.266(4) of the 2002 Act so s.266(6) did not come into play. The court was therefore obliged under s.266(1) to make a civil recovery order in respect of Thurza and Wheatash. An innocent owner of property had a high hurdle to overcome for a defence under s.266(3) to be successful. While W had "obtained the recoverable property" within the meaning of s.266(4)(a), she could not demonstrate that she had taken the steps described in s.266(4)(b), as she had not known until shortly before the transfer that she would receive the property. Section 266(4)(d) was also problematic for her: the properties were investment properties which she had neither lived in nor depended upon as a source of income, which made it impossible for her to establish detriment. The loss of property was not enough in itself to justify interfering with the public interest in recovering the proceeds of crime. W's beliefs as to ownership were genuine, and the court had sympathy for her situation. However, the policy underlying Pt 5 of the 2002 Act would be frustrated if a recovery order was not made, Stodgell v Stodgell [2009] EWCA Civ 243, [2009] 2 F.L.R. 244 applied. That was so even where the consequence was to deprive a wife of assets from which to seek financial relief in matrimonial proceedings (see paras 70-80, 94-96 of judgment). (2) Depriving an innocent person of a property acquired with the proceeds of crime when they were unaware of its criminal provenance was not an automatic human rights violation. No legitimate expectation could arise where there was a dispute about the correct application of domestic law. In the instant case, the dispute was about the interaction between Pt III of the 1984 Act and Pt 5 of the 2002 Act. There was no settled domestic case law or statutory provision confirming that a claim to financial relief by a spouse should take precedence over recovering the proceeds of crime. Nor could a spouse support such a claim by seeking to rely on any analogy between Pt.2 and Pt5 of the 2002 Act, as there was none. The most compelling objection to W's contention was that her claim to the properties would never derive from a claim for financial relief because the properties were already hers (paras 25, 81-93). (3) A further obstacle to W's argument was that her financial relief claim was unresolved and leave to bring it had not been granted under s.16 of the 1984 Act. If it gave leave, the court would have to consider the factors in s.18 of the 1984 Act, especially the welfare of the couple's 11-year-old daughter. Hardship was not a necessary prerequisite for the exercise of the jurisdiction, but it was a relevant factor. That would also be the appropriate stage for the court to hear argument about whether to give precedence to the financial relief claim over the civil recovery proceedings. W had not applied for leave to make such a claim, partly because of her limited resources. It had therefore been sensible to wait and see whether any of the claimed properties belonging to H were found not to be recoverable property (paras 23-28, 92).