Charities and internal investigations
The claimant investors (P) sought declarations under the Proceeds of Crime Act 2002 s.281 that part of a fund which was subject to a freezing order belonged to them.
The defendant (R) had absconded to the Turkish Republic of Northern Cyprus during a drugs trial in 1997. Through his company (G), he embarked on two large property developments which sought investors, principally from the UK, to buy property off plan, initially by paying a deposit.
In 2004/2005, R offered incentive schemes seeking payment in full for a sooner completion. By early 2005, R had received over £3 million from over 150 investors but only a small proportion of the properties were built. He sought to transfer approximately £1.5 million to Thailand but the fund was restrained whilst in London.
P applied under the Act to recover the fund. The court held that the fund was, subject to any third party claims, recoverable property within the meaning of s.304 as R had conspired with G to defraud the investors. It ordered that any third party applications had to be made by a fixed date. P comprised eight of the 71 investors that had applied by that date for declarations under s.281.
The issues were whether:
There were original traceable payments, identifiable in the fund for the rescission trust to attach to: P could each establish a proprietary interest in the fund by tracing their payments through R's account, and that of his lawyer, into the account that held the fund in the UK. For the tracing exercise, it was practically necessary and consistent with the investors' intentions to adopt a pro rata approach.
It was held that the fund was, subject to any third party claims, recoverable property within the meaning of s.304 as R had conspired with G to defraud the investors. The court ordered that any third party applications had to be made by a fixed date. P comprised eight of the 71 investors that had applied by that date for declarations under s.281.
It was noted that the Act should be interpreted so that the State was not able to recover money obtained by a fraud, in part of which victims of the fraud could establish a proprietary interest under s.281, if the victims would suffer loss, irrespective of whether the balance of the fund was in fact derived from their payments or not.
This meant that s. 281 was used as a compensation provision rather than a provision to assist in recognising the victims’ right in respect of the property they lost as a result of a fraudulent activity. Accordingly, the investors’ money was to be treated, for tracing purposes, as having been dissipated before the traceable money of P, who could establish a property interest in part of the fund. That plainly increased the P's interests in the fund but the extent of the increases was yet to be determined.
Written by Kristina Morgan
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