Martin Evans Success in Supreme Court Case: Barnes (as former Court Appointed Receiver) (Appellant) v The Eastenders Group and another (Respondents)

David Perry QC, Martin Evans and Peters and Peters LLP were instructed to act on behalf a Management Receiver in an appeal to the Supreme Court over the principal issue of whether allowing a court appointed receiver to recover their fees and expenses from property under their receivership following an order under s.48(2) Proceeds of Crime Act 2002 (PoCA), is a breach of the owner’s rights under Article 1 Protocol 1 (A1P1) of the ECHR where the order is subsequently quashed by the Court of Appeal.

Summary of the Facts

A number of people suspected of fraud were to be arrested by police. On 6 December 2010 HHJ Hawkins QC made restraint orders over the assets of the alleged offenders on the (without notice) application of the CPS. He appointed a management receiver over their assets pursuant to s.48(2) of PoCA. The assets of the respondent (Eastenders Cash and Carry) were treated as assets of the alleged offenders and the appellant was appointed by the court as management receiver of the companies. In accordance with s.49(2)(d) PoCA and the terms of the Management Receivership Order and letter of agreement, the appellant was to take his remuneration and expenses from the receivership property. On 8 February 2011 the Court of Appeal discharged the receivership order on the basis that the respondent’s assets did not constitute ‘realisable property’ which is property obtained through criminal conduct in which the offender has an interest. No provision is made for the receiver to be paid through any other means than from the property under his control, however, the Court of Appeal held by a majority that to allow the receiver to use the property in this way would breach the respondent’s A1P1 rights.  Peters & Peters were instructed by the management receiver to recover his remuneration and expenses.

The Supreme Court Hearing 24/25 February 2014

On 24/25 February 2013, the appeal was heard by Lady Hale, Lord Toulson, Lord Hughes, Lord Kerr and Lord Wilson.  The basis of the Receiver’s appeal was that (1) Laws LJ was correct in his dissenting view and the costs of the Receivership should be borne by the companies.  (2) If the previous submission was rejected, the alternative is that the costs be borne by the CPS.

The Judgment 8 May 2014 

In their Judgment, the Lords (Lady Hale, Lord Kerr, Lord Wilson, Lord Hughes and Lord Toulson) held that to allow the costs of the Receivership to be borne from the Companies' assets would be disproportionate, and therefore a breach of A1P1. However, Lord Toulson giving judgment commented:  “To take away that right without compensating [the Receiver] would violate the receiver’s rights under A1P1.  Unless it is within the power of the court to ensure that the receiver receives his recompense for which the lien is a security by some other means, the court will be left in the invidious position of violating the companies’ A1P1 rights if the receiver’s application is allowed and violating the receiver’s A1P1 rights if it is refused.”  The Lords then considered whether it was in their power to Order the CPS to meet the Receiver’s remuneration and expenses.  Lord Toulson agreed with the Court of Appeal “that it is not possible to locate within POCA a power to order the CPS to pay the receiver’s remuneration and expenses", but examined the relationship between the Receiver and the CPS in further detail and in particular the terms of the engagement in which the CPS sought the Receiver to act as the Management Receiver in this matter. The letter of engagement sent by the CPS to the Receiver on 29 November 2010 expressly stated that: “[the receiver’s] remuneration costs and expenses are to be drawn from the assets of the defendants under [his] management in accordance with section 49(2)(d) of the Proceeds of Crime Act  and the decision of the House of Lords in Capewell v HM Revenue & Customs [2007] UKHL 2”

The Lords concluded that as the Receiver was unable to recover his remuneration and expenses from the assets of the Companies (as it would breach the A1P1), there was a total failure of consideration of the Receiver’s rights over the said assets.  Lord Toulson commented that this failure “was fundamental to the basis on which the receiver was requested by the CPS and agreed to act.”  He observed that “Most contracts are entered into with intentions or expectations which may not be fulfilled, and the allocation of the risk of their non-fulfilment is a function of the contract.  But in the present case the expectation that the receiver would have a legal right to recover his remuneration and expenses was not just a motivating factor.  Nobody envisaged that the receiver should provide his services in managing the companies as a volunteer; those services were to be in return for his right to recover his remuneration and expenses from the assets of the companies, such as they might be.  The agreement between the CPS and the receiver so provided, and that provision was incorporated into the order of the court.I would hold that the CPS fulfilled its contractual obligations to the receiver by ensuring that the order appointing him conformed with the terms of the underlying agreement between them, but that the receiver is entitled to recover his proper remuneration and expenses from the CPS because the work done and expenses incurred by the receiver were at the request of the CPS and there has been a failure of the basis on which the receiver was asked and agreed to do so.”

The Supreme Court allowed the Receiver's appeal on point (2) that it should be the CPS who meet the remuneration and expenses of the receivership.

Click here for the judgment.