DTOA 126 of 1990
Re: F Crown Office
15 November 1996
Mr. Justice Harrison
[Draft judgment to be handed down on Friday 29 November 1996 at Confidential to Counsel and their instructing solicitors, but the substance may be communicated to clients not more than one hour before the giving of judgment.]
At the outset of this hearing, there were two main applications before the Court. One application was by the U.S. Government to register a civil forfeiture order made on 27 December 1994 by a Federal District Court in California. The other application was by C Ltd to discharge a restraint order made on 19 November 1990 by Kennedy J. Towards the end of the hearing, the application to discharge the restraint order was withdrawn by Mr Tucker on behalf of C Ltd, it being accepted by both sides that the restraint order would stand or fall dependent on the decision whether or not the forfeiture order should be registered.
The forfeiture order relates to the credit in a bank account at the Clydesdale Bank in London which represents the proceeds of sale of a ranch in California, which in turn is said to represent the proceeds of drug trafficking. C Ltd has legal title to the credit in the bank account. C Ltd is a Liberian registered company incorporated in August 1986 by D, a chartered accountant in London, and sold by him to H, alias B and V, The ranch was purchased in 1984 by S, alias J, JSI Mr JW and, it is said, W. In May 1988 the ranch was sold by S to C Ltd for $294,000, the purchase price being provided by H or by companies controlled by her. In April 1990 the ranch was sold by C Ltd. for $700,000. There was a down payment of $200, 000 and a promissory note for $500,000 which, in November 1990, was sold by C Ltd. to the purchasers at a discount for $421,000. Those proceeds of sale were sent to the Clydesdale bank account in London. In May 1990 F, a convicted drug trafficker and fugitive from justice, was arrested, after which he gave information about this matter to the U.S. authorities which led to the commencement of investigations, On 19 November 1990 the restraint order was made freezing C Ltd's money in the bank account in contemplation of any external confiscation order which may subsequently be made.
Prior to and after the sale of the ranch, there was correspondence about the administration of the ranch and about the sale of the ranch between D and both H and W. H and W both individually wrote letters to D referring to "we" and they also wrote letters purporting to be in their joint names. It is the U.S. Government's case that C Ltd was a mere sham or facade for the activities of H and W who, it is said, were concerned in drug trafficking and/or laundering the proceeds of drug trafficking.
In June 1993 D was acquitted in the Crown Court in London on criminal charges relating to money laundering. His acquittal resulted from a ruling of H.H. Judge Rivlin Q.C, that F's evidence should not be received by the jury because the defence could not properly challenge it due to the inability of the Crown to disclose certain material that may exist in the United States. Following that ruling, the relevant to his evidence. Following that ruling, the prosecution did not proceed further with the case.
Proceedings for the civil forfeiture order were commenced in California in August 1993. The proceedings were proceedings "in rem" directed at the funds in the Clydesdale bank account. They were brought pursuant to Title 21 of the U.S. Code relating to the forfeiture of property traceable to drug trafficking and pursuant to Title 18 relating to the forfeiture of property traceable to money laundering offences. The whereabouts of H and W were unknown, so the proceedings were advertised in newspapers in California and in London. Both C Ltd and D were notified of the proceedings and they appeared by an attorney at the hearing.
The Federal Court had before it evidence in the form of affidavits from Mr Brugnara, a special agent for the U.S. Customs Service. The procedure under U.S. law is that the Government must first show "probable cause" for instituting the forfeiture proceedings. "Probable cause" is generally def ined as reasonable grounds for belief that the property represents the proceeds of an offence. Hearsay evidence is admissible; what is required is less than prima facia proof but more than mere suspicion. Once the government has discharged that initial burden of proof, the burden switches to the claimant, the owner of the asset, to show, on the balance of probabilities, either that there has been no contravening offence or that he is an innocent owner. Hearsay evidence is not admissible in discharging that burden of proof.
In this case, the Federal Court had affidavit evidence from Mr Brugnara showing "probable cause," The Court also had another affidavit from Mr Brugnara in support of the U.S. Government's motion to strike out the claim of D and of C Ltd to what is called "the defendant funds", these being proceedings "in rem." That motion was, in effect, an objection to their locus standi. The reasons given were that D had no proprietary interest in the defendant funds and that C Ltd existed only as a lishelf" company, that is to say, a company that conducted no business and existed solely to conceal the identity of the owners of the defendant funds.
The procedure relating to the motion to strike out is that the U.S. Government must first make out a prima facie case that the claimant is not the owner of the asset and, in doing so, they can have recourse to hearsay evidence. Thereafter, the claimant must show, on the balance of probabilities, that he is the owner of the asset and, in doing so, he may not have recourse to hearsay evidence.
Having considered Mr Brugnara's affidavit evidence on the motion to strike out, and having heard an attorney for C Ltd and D on that issue, and having considered Mr Brugnarals affidavit issue of "probable cause", the Federal Court found in favour of the U,S, Government on both issues, struck out the claims of C Ltd and D and forfeited the defendant funds to the U.S. Government. It is worth reciting the terms of the Court order. It reads as follows:
"Upon consideration of the briefs, arguments of counsel, and the records of this case, and pursuant to the motion of plaintiff, United States of America,, this Court finds that claimant [D] is a nominee, having no proprietary interest in the defendant funds, and further that he has no secured interest in or claim to said funds. The Court further finds that claimant (C Ltd] is a shell (or "shelf", as claimant describes it) corporation, and a nominee for its real parties in interest, [H and WI, and has no independent existence apart from those individuals. Accordingly, the Court finds that neither claimant has standing to contest the forfeiture of the defendant funds.
Further, the Court finds that Plaintiff has provided due notice to all other potential claimants. No other claims have been forthcoming and the time for all such claims has since passed.
Therefore, IT IS HEREBY ORDERED THAT:
1. The claims of claimants [D and C Ltd] are stricken.
2. All right, title and interest in the funds (including interest) located in bank account number [X] at Clydesdale Bank, London are stricken.
3. The United States Customs Service or its duly authorized representative shall dispose of the funds in accordance with law.
IT IS SO ORDERED,"
That is the order which the U.S. Government now seek to register in this country. The application is made pursuant to Section 26A of the Drug Trafficking Offences Act 1986 ("the 1986 Act"), as modified by Schedule 3 of the Drug Trafficking Offences Act 1990 (Designated Countries and Territories) Order 1990 ("the 1990 Order"), The 1990 order was made in exercise of wers 1990 Order"). The 1990 Order was made in exercise of powers conferred by section 26 of the 1986 Act. Paragraph 3(2) of the 1990 order provides that the 1986 Act "shall have effect as set out in Schedule 3 to this Order." Schedule 3 is headed "The Drugs Trafficking Offences Act as Modified." It is common ground that the Schedule can be read and construed as a statute.
Section 26A, as contained in Schedule 3, is headed "Registration of external conf iscation order" and it provides as follows:
"26A. (1) On an application made by or on behalf of the government
of a designated country, the High Court may register an external confiscation
order made there if-
(a) it is satisf ied that at the time of registration the order is in force and no subject to appeal; (b) it is satisfied, whe're the person against whom the order is made did not appear in the proceedings, that he received notice of the proceedings in sufficient time to enable him to defend them; and
(c ) it is of the opinion that enforcing the order in England and Wales would not be contrary to the interests of justice."
There is no dispute that the United States of America is a designated country. An "external confiscation order" is defined in section 1 (1 ) in the following way:
"An order made by a court in a designated country for the purpose of recovering payments or other rewards received in connection with drug trafficking or their value is referred to in this Act as an "external confiscation order."
Paragraph 5 of the 1990 Order provides that a certificate purporting to be issued by the appropriate authority of a designated country stating that an order (however described) made by a court of the designated country has the purpose of recovering payments or other rewards received in connection with drug trafficking shall, in any proceedings in the High Court, be admissible as evidence of the facts so stated.
Such a certificate has been given in this case by Mr. Howden, the attorney acting on behalf of the U.S. Government in the civil proceedings. He certified on 7 November 1996 that the forfeiture order has the purpose of recovering payments or other rewards received in connection with drug trafficking. By virtue of paragraph 5 of the 1990 Order, that certificate is admissible as evidence of those facts. Furthermore, Mr. Howden made a declaration on the same date that the statutory basis and fundamental purpose of the forfeiture order was to recover payments or other rewards received in connection with drug trafficking. The statutory basis of the complaint for forfeiture under Titles 21 and 18 of the U.S. Code relating to property traceable to drug trafficking and to money laundering respectively, is explained in an opinion of Mr Marrero, a specialist counsel in asset forfeiture and money laundering law in Washington. In his Opinion he also explains the procedure of a civil forfeiture order, which I have summarised earlier. In this application for registration of the external confiscation order, the U,S, Goverment rely on Title 21 relating to forfeiture of property traceable to drug trafficking. They submit that it is clear from Mr Howdents certificate and from his declaration, and from Mr Marrerols Opinion, that the forfeiture order is for the purpose of recovering payments and other rewards received in connection with drug trafficking and that it is therefore an "external confiscation order" within the meaning of section 1 as set out in Schedule 3 of the 1990 Order.
Mr Tucker, on behalf of C Ltd accepted for the purposes of this hearing that the forfeiture order in this case was an external confiscation order within the meaning of section 1 of Schedule 3 of the 1990 Order, although he reserved the right to keep the point open in the event of an appeal.
There is no dispute between the parties that the provisions of section 26A(l) (a) and (b) are satisfied. Section 26(A)(1)(b) refers to "a person against whom the order is made," whereas the U.S. forfeiture order in this case was a judgment "in rem", rather than a judgment "in personam." However, the Court of Appeal in the case of In Re Londono TLR 11 July 1995, held that a restraint order can be made under the 1990 Order when the relevant foreign order is a civil judgment "in rem." Although that case was dealing with a restraint order rather than with an external confiscation order, it can be seen from the transcript of the judgment that reference was made during the course of argument to the wording of Sec. 26 (A) (1 ) (b) . Although the wording of that sub-section does not sit happily with a judgment "in rem," it would be very strange if a restraint order could be made when the external confiscation order, to which it potentially relates and which is a civil judgment "in rem", could not be registered in this country due to the wording of s,26(A)(1)(b), The purpose of making a restraint order is to preserve the asset for the purposes of a potential external confiscation order. If the court had no power to register the external confiscation order because it related to an asset rather than to a person, there would be little purpose in providing the jurisdiction in the 1990 order to make the restraint order. Therefore, having regard to the judgment of the Court of Appeal in In Re Londono, I am prepared to accept that the provisions of section 26(A)(1)(b) are satisfied.
The main area of contention in this case has revolved around section 26 (A)(1)(c), by virtue of which the Court must be of the opinion that enforcing the order in England would not be contrary to the interests of justice.
Mr Tucker, on behalf of C Ltd, argued that it would be contrary to natural justice to register the external confiscation order due to the nature of the proceedings in the U.S. Court in California. He made a large number of submissions which I will attempt to summarise, First, he submitted that the U.S. Court's finding relating to ownership of the bank account was not in accordance with natural justice because there was a lack of opportunity for C Ltd to be heard. It was, in effect, an ex parte application, the parties were unequal before the law, there was no opportunity to examine witnesses and the court only had Mr Brugnara's untested evidence in front of it, which involved hearsay evidence and which, it was said, contained a large number of inaccuracies and omissions, Second, it was said that it was unjust to reverse the burden of proof when dealing with the question of ownership of an asset. Third, it was submitted that the Court's finding on the derivation of the funds was founded on "probable cause", which was something less than a prima facie case and which was less than the English burden of proof but which C Ltd had no opportunity to contest. Fourth, attention was drawn to the evidence of Mr Brugnara relating to the descriptions given by various witnesses of JS. Criticism was made of the way in which Mr Brugnara interpreted that identification evidence, which, it was said, involved a quasi-judicial finding by him and which denied the Judge the opportunity to assess the evidence for himself. For all those reasons, it was submitted that the proceedings had resulted in substantial injustice to C Ltd.
Reliance was placed on Adams v Cape Industries Plc (1990) Ch, 433 in which Slade LJ, giving the judgment of the Court, said at p.564 that breach of procedural natural justice was not restricted to the requirements of due notice and opportunity to put a case but also included a breach of substantial justice. Reference was made in the course of the Court's judgment, at p.570, to the obiter dictum of Bramwell B. in the case of Crawley v Isaacs (1867) 16 L.T. 529 when he said:
"If the proceedings be in accordance with the practice of the foreign court, but that practice is not in accordance with natural justice, this court will not allow itself to be concluded by them..."
It was submitted by Mr Tucker that, for all the reasons he gave, the U.S. Court order was made in breach of the rules of natural justice and that it would be wrong for issue estoppel to apply.
Mr Talbot, on behalf of the U.S. Government, submitted that issue estoppel applied in relation to the U.S. Court's finding that the assets were the proceeds of drug trafficking and that it would be an abuse of process, and contrary to the interests of justice and public policy, for the issues decided by the U.S. Court to be re-determined. He referred me to the case of House of Siprina Gardens Ltd v Waite (1991) 1 QB 241 in which StuartSmith Li said at p, 250:-
"But a foreign judgment that is final and conclusive on its merits and is not impeachable on the ground of fraud (or other grounds that are not material) is conclusive as to any matter thereby adjudicated upon and cannot be impeached for any error of fact or law."
When dealing with the question of abuse of process, Stuart-Smith LJ said at p. 255 that the question was whether it would be in the interests of justice and public policy to allow, in that case, the issue of fraud to be litigated again after it had been determined by a court in Ireland. He concluded that it would be a travesty of justice, and he referred to the risk of inconsistent verdicts being reached, He also referred to the requirement of public policy that there should be an end to litigation and that a litigant should not be vexed more than once in the same cause.
That case dealt with a judgment on the merits. Mr Tucker made the point that,, in that case, both parties were treated equally. There was an opportunity to be heard and there was no unfairness. He made the same point about the House of Lords case of The Sennar (No2) . (1985) 1 WLR 490, to which Mr Talbot referred in order to assist in the meaning of a decision "on the merits". Lord Brandon stated at p.499 that a decision on the merits is a decision which establishes certain facts as proved or not in dispute, states what are the relevant principles of law applicable to such facts and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned. Lord Diplock stated at p. 493: "It is far too late, at this stage of the development of the doctrine, to question that issue estoppel can be created by the judgment of a foreign court if that court is recognised in English private international law as being a court of competent jurisdiction. Issue estoppel operates regardless of whether or not an English court would regard the reasoning of the foreign judgment as open to criticism."
Mr Tucker put before the Court some 400 pages of documents seeking to undermine the Federal Court's finding that the money in the bank account was the proceeds of drug trafficking. It was an attempt to show that the affidavit evidence of Mr Brugnara put before the U.S. Court on the issue of "probable cause" was slanted and contained misrepresentations, inconsistencies and omissions. It was, he said, on that evidence, which C Ltd was unable to contest, that the Federal Court made its findings. Mr Talbot raised the spectre of having to have a full trial with witnesses if issue estoppel did not apply and if the issue had to be litigated again. It was, he said, an abuse of process and not in the interests of justice or public policy, in cases such as these where the underlying scheme is international cooperation to combat drug trafficking and money laundering, for issues decided by the foreign court to be re-opened by the domestic court. He referred me to the case of S.C.F. Finance Ltd v Masri (1987) 2 WLR 81 in which Ralph Gibson Li, in giving the judgment of the Court, said at p. 99 that the decision in Khan v Golechha International Ltd (1980) 1 WLR 1482 made it clear that an order dismissing proceedings is capable of giving rise to issue estoppel even though the court making such an order has not heard argument or evidence directed to the merits. In the Masri case, the estopped party had not taken the opportunity of having the relevant issue tried, but Mr Talbot contended that that was in reality what happened in this case because C Ltd was a facade for the real owners who had not appeared before the U.S. Court.
As part of his answer to Mr Tucker's natural Justice point, Mr Talbot submitted both that the corporate veil of C Ltd should be pierced and that there was, in any event, ample evidence upon which the U. S. Court could conclude that the assets were the proceeds of drug trafficking.
Dealing with the lifting of the corporate veil, Mr Talbot placed reliance on two cases. First, a decision of the Court of Appeal in Re a Company (1985) 1 BCC 99,421 where it was held that a court would use its powers to pierce the corporate veil if it were necessary to achieve justice irrespective of the legal efficacy of the corporate structure under consideration. Second, the case of Hare v Commissioners of Customs and Excise (1996) TLR 121 in which the Court of Appeal, whilst accepting the general principle in Salomen v Salomen (1987) AC 22, namely that a duly formed company is a separate legal entity and should be treated like any other independent person with its own rights and liabilities distinct from those of its shareholders, nevertheless went on to approve the statement of Dankwerts LJ in Merchandise Transport Ltd v British Transport Commission (1962) 2 QB 173 at p. 206 that:
"...where the character of a company, or of the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance."
Mr Talbot submitted that, on the facts of this case, C Ltd was an "off the shelf" corporation which conducted no trade or business except to buy and sell the ranch. It had puppet directors in Sark who had immediately given a power of attorney to H, who gave instructions to D in London who, in turn, danced to the tune of H and W as was evidenced by the letters written to him by them. Mr Talbot said that, although Mr Brugnara's affidavit dealing with the question of locus standi did not rely on evidence showing that the asset represented the proceeds of drug trafficking, there was clear evidence to that effect. He submitted that it was appropriate to look through the corporate veil to see who really owned and controlled the company and to treat those people as the real owners of the asset. The U.S. Government's case is that C Ltd. was merely a facade for H and W, alias J etc, who had every opportunity to come forward and appear in the U.S. proceedings but who chose to hide behind the facade of C Ltd.
Mr Tucker, on the other hand, said that C Ltd was, on the face of it, a real entity which was no different from offshore companies commonly set up for asset protection or for tax planning purposes. Prima facie, the corporate veil should not be lifted unless it was shown after a fair hearing that i was W and that he was the person behind C Ltd. Mr Tucker relied on his natural justice points about the hearsay evidence which C Ltd was unable to contest, the denial of locus standi and the reversal of the burden of proof in support of his submission that the corporate veil should not be lifted. The argument that W did not appear at the U.S. Court assumed both his existence and his involvement in drug trafficking, which were the very points in dispute. There were, said Mr Tucker, a variety of possible reasons why H did not contest the proceedings.
Both Mr Tucker and Mr Talbot made detailed reference to the documents dealing with the sufficiency of the evidence to show that the restrained assets were the proceeds of drug trafficking. It would be inappropriate to refer in this judgment to the mass of detail to which I was referred by the parties, Suffice it to say that Mr Tucker submitted that Mr Brugnarals affidavit dealing with that aspect of the matter failed to disclose relevant facts, misrepresented facts and was selective so as to give a distorted picture of an overall pattern of guilt. Mr Tucker's main point was that there was no evidence to link J to W. Mr Talbot, on the other hand, relied, inter alia, on the H/W letters to D, the evidence of the caretakers of the ranch that J, alias S, was a drug trafficker, the evidence of FC, who was the caretaker after C Ltd. acquired the ranch, relating to such matters as pager numbers linking i to JW who bought art for a company owned by H under the alias of V, and various other matters from which, it was said, it could be inferred that J and W were the same person.
Mr Tucker also submitted that the U. S. Court order was ultra vires, but that argument was really more closely related to his natural justice point insofar as it depended on the lack of a fair hearing and on the reversal of the onus of proof in relation to an unconvicted defendant which, it was said, was outside the scope and scheme of the 1986 Act. My attention was drawn, for instance, to the provisions of the Drug Trafficking Act 1994, which was not in force at the time of the relevant events in this case but which does not reverse the burden of proof in the case of a defendant who has absconded and who has therefore not been convicted.
Mr Talbot, however, submitted that there were two distinct statutory frameworks, one dealing with domestic drug trafficking orders and another dealing with external or foreign drug trafficking orders, and that each were to be construed by reference to its own provisions. That was held to be the position by Judge J, in In Re Londono at first instance (The Times, 4 May 1994). Mr Talbot said that different countries must be expected to have different systems for dealing with drug trafficking, which may not include the necessity for prior conviction. Judge J. had held in the Londono case that the 1990 Order contemplates civil proceedings. Mr Talbot pointed out that English confiscation orders can be more draconian than U.S, forfeiture orders in that they can attach to legitimately acquired property, whereas U,S, Orders can only attach to dirty money which might have been dissipated, and that an English order can be made, after conviction, with no evidence being required from the Crown before the burden is put on the defendant to show the legitimacy of his assets.
It will be appreciated from what I have said that there have been a myriad of submissions made dealing with natural justice, issue estoppel, abuse of process, lifting the corporate veil and ultra vires. It has been necessary to summarise them together because they are, in reality, all geared to the criterion in section 26(A)(1)(C), namely whether the Court is of the opinion that enforcing the U.S. Court order would not be contrary to the interests of justice. There are, however, two further main submissions that were made by Mr Tucker. The first was that it would be an abuse of process to register the U.S. Court order, and the second was that the U. S. Court order should not be recognised because it was contrary to the English concept of conflict of laws. The first of those two points can be said to be relevant to the issue of the interests of justice, whilst the second is really a jurisdiction point. However, it would be convenient to summarise the competing submissions relating to those two points first before proceeding to deal with all the issues that have been raised.
Mr Tucker's submission on abuse of process was put on three separate bases. First, it was said that it was an abuse of process for the U.S. Court to make a civil forfeiture order based on part on the evidence which had been found by H.H. Judge Rivlin Q.C. to be inadequate for a fair criminal trial of D in London. Mr Talbot's reply was that the issue in the criminal proceedings against D related to his mens rea, which related to his knowledge of a telephone call to him by F about a cash payment in London for the ranch and which was only part of the evidence relied on by the U.S. Government in the forfeiture proceedings. The criminal proceedings expressly left open whether the forfeited asset represented the proceeds of drug traf f icking. Second, it was said that accusing H now of being a drug trafficker six years after the restraint order was an abuse of process. Mr Talbot explained that what was being said was that H was involved in the laundering of assets in which there was an inference that W had an interest. Third, it was said that the misrepresentation by Detective Sergeant Baxter in the restraint order proceedings, about what H.H. Judge Rivlin Q.C, had said in the criminal proceedings about being satisfied about the derivation of the funds if F had given evidence, constituted an abuse of process, Mr Talbot submitted that, although Detective Sergeant Baxter had not correctly summarised what H.H. Judge Rivlin Q.C. had said, there was so much other material provided by Detective Sergeant Baxter that it would not have made any difference and that it was not capable of rendering these proceedings to be an abuse of process.
Mr Tucker's final submission was that the U.S. Court order should not be recognised because, under English principles of conflict of laws, a foreign judgment "in rem" cannot be enforced in England if the property affected was not in the foreign country at the time of the foreign proceedings. He contended that there was not any new statutory regime intended to replace the common law rule but that, if the common law rule was not applicable, the new statutory regime should only apply to the part of the order finding the assets to be the proceeds of drug trafficking and not to question of ownership, which ought to be established after a fair hearing.
Mr Talbot submitted that the purpose of the common law rule is to avoid an English court enforcing property rights conferred by foreign court orders which may be in conflict with each other or in conflict with property rights extant according to English law. He contended that, under English law, the U.S, Court order did not affect property rights. The purpose of the 1990 Order is to enable the U.S. Court order to be registered so that steps can be taken, such as the making of a garnishee order or the appointment of a receiver, which would then result in property rights being affected. The whole purpose of the 1990 Order is the enforcement of court orders made in foreign jurisdictions to confiscate property located in this jurisdiction.
I deal first with the jurisdiction issue. I accept that the normal English common law rule is that a foreign judgment "in remit will not be recognised or enforced in England unless the "res" was in that foreign country at the time of the foreign proceedings. That rule avoids potential conflict of laws arising from foreign judgments "in rem" relating to rights in property situated in England. The effect of that common law rule in this case would be that the U.S. Government could not enforce its property rights in the forfeited asset in this country. That was, no doubt, one of the reasons why the 1990 Order was made, which, in itself, is consistent with international cooperation relating to the investigation of drug trafficking and the seizure and forfeiture of the proceeds of drug trafficking, as evidenced by the 1988 Vienna Convention and the 1988 bilateral agreement between this country and the United States of America. The Court of Appeal held in In Re Londono that a restraint order relating to funds in this country can be made under the 1990 Order when the relevant foreign order is a civil judgment "in rem". The purpose of such an order is to preserve the asset in contemplation of an external confiscation order being made. It would be contrary to the purpose of the 1990 Order if the external coryfiscation order could not be registered in England because the asset was in England, rather than in the foreign country, when the external confiscation order was made. In my judgment, the 1990 order provides a new statutory regime whereby an external confiscation order, which may be a civil judgment "in rem", can be enforced in England although the "res" was not in the foreign country at the time of the foreign proceedings. I therefore conclude that this Court does have power to register the U.S. Court Order in this case. Mr Tucker's alternative submission that the Court order should not affect ownership rights where there has not been a fair hearing is, in my view, a matter to be considered under section 26 (A) (1 ) (c) and does not affect the jurisdiction to register the external confiscation order.
I propose next to deal with Mr Tucker's submission that registration of the external confiscation order would be an abuse of process for the three reasons which I have earlier summarised. Although that submission necessarily touches on the "interests of justice" issue under section 26(A)(1)(c), it raises discrete points which can be dealt with conveniently first before dealing with the wider issues under section 26(A)(1)(c).
First, I am not impressed with the abuse of process argument based on the reasons for the acquittal of D in the criminal proceedings in London. D's knowledge of a telephone call to him in London by F, which was the issue in those proceedings, was only a small part of the evidence before the U.S. Court and was not fundamental to the issue before that Court as to whether the asset represented the proceeds'of drug trafficking. Second, there is no force in the abuse of process argument relating to H now being accused of being a drug trafficker. As Mr Talbot explained, what was being said was that H was involved in laundering assets in which it could be inferred W (alias J, a drug trafficker), had an interest. I see nothing wrong in that at all. Third, it is true that Detective Sergeant Baxter did incorrectly state what H.H. Judge Rivlin Q.C. had said in the criminal proceedings, The judge had said that he had assumed for the purposes of his ruling that the money was the proceeds of drug trafficking not that he would have been satisfied that it was the proceeds of drug trafficking if F had given evidence. It must have been fairly obvious that H.H.Judge Rivlin Q.C. would have been most unlikely to have stated the latter rather than the former but, in any event, this is not an aspect which is fundamental to the registration of the external confiscation order and does not, in my view, amount to an abuse of process. I therefore reject Mr Tucker's argument that registration of the external confiscation order would amount to an abuse of process of the Court.
That leaves me with what I consider to be the main issue in this case, namely whether I am of the opinion that enforcing the U.S. Court order would not be contrary to the interests of justice pursuant to section 26(A)(1)(c). Mr Tucker has raised a natural justice issue arising out of the conduct of the U.S. proceedings which deserves serious consideration. That, in turn, has led to such matters as issue estoppel, lifting the corporate veil and abuse of process being raised by Mr Talbot.
It seems to me that the starting point in the consideration of these issues must be a recognition of the seriousness and scale of drug trafficking and the sophistication of asset concealment and the money laundering that goes with it. It has been recognised as an international problem which has led to the Vienna Convention, and this country has entered into a bilateral agreement with the United States of America under which both countries undertake to assist each other in proceedings for the freezing, seizure and forfeiture of the proceeds of drug trafficking to the extent permitted by their respective laws. It is to be expected that different countries will have different systems dealing with the problems of drug trafficking, some more draconian than others. That has to be respected in the spirit of international cooperation whilst at the same time ensuring that basic concepts of English justice are maintained. It is in that context that I approach the question whether enforcement of the U.S. Order would not be contrary to the interests of justice.
It is right to say that the procedure in the U.S. Court involved a reversed burden of proof both on the question of standing and on the issue whether the funds are the proceeds of drug trafficking. I do not see anything wrong with requiring a claimant to show that he has a real interest in the funds in question, otherwise it would be all too easy for drug traffickers to hide behind the facade of a corporation specifically created for that purpose. The concept of a reversed burden of proof when considering whether assets are the proceeds of drug trafficking exists under English drug trafficking law, particularly in the assumptions that have to be rebutted by the defendant in section 4(3) of the Drug Trafficking Act 1994, although it is right to say that those provisions only come into play after a conviction, whereas there was no conviction of H and W in this case because, it was said, they were untraceable. Overall, I do not find it possible to say that the reversed burdens of proof involved in the U.S. civil forfeiture proceedings are so contrary to our concepts of justice as to prevent me reaching a conclusion that enforcement of the order is not contrary to the interests of justice.
In my view, the U.S. Court's finding on the preliminary issue of standing was entirely justified on the basis of Mr Brugnarals affidavit relating to that issue, which dealt with the nature of D's involvement with C Ltd. and with the real nature and control of C Ltd, The Court was justified in concluding that D had no proprietary interest in the funds and that C Ltd was a shell corporation which had no independent existence apart from H and W. Furthermore, D and C Ltd appeared by an attorney to contest the issue of standing.
Having been denied locus standi, C Ltd was not, of course, able to contest the issue of whether the funds were the proceeds of drug trafficking, but that was a consequence of the Court's finding on the locus standi issue. Having determined that H and W were, in reality the owners of the funds, it was up to them to come forward and show the innocent derivation of the funds. Neither of them came forward to do so, despite 3 advertisements in newspapers in California and three advertisements in newspapers in London. Mr Tucker suggested several possible innocent explanations why H, who undoubtedly controlled C Ltd failed to come forward, but there was no evidence to that effect. Furthermore at no time has any positive evidence of the lawful derivation of the funds been put forward.
It was suggested by Mr Tucker that W does not exist except as a name in correspondence and that there is no evidence to link W to JS or to the other aliases. It is certainly true that the evidence to link w to JS and the other aliases is circumstantial. That is not surprising when the people concerned use a number of different names. Having considered the intricate evidence of the linkages between the various players in this affair, I am satisfied that there was evidence from which the U.S.Court could properly have inferred that W was J or JS -- in other words the person, whatever alias was used, who purportedly sold the ranch to C Ltd and who was a drug trafficker. I accept that, if the issue of the derivation of the assets had been fully contested before the Court, there were a number of justifiable criticisms that could have been made about inaccuracies and omissions in Mr Brugnara's "probable cause" affidavit. However, the matter was not contested because the people who had been found on the locus standi issue to be the real owners had not appeared to contest the issue of the derivation of the funds. In those circumstances, the forfeiture application could not properly be described as an ex parte application, as was suggested by Mr Tucker. It was a hearing where the true owners of the funds failed to appear.
I have considered whether issue estoppel should apply in circumstances such as these where there has been a finding by the U.S. Court that the funds were the proceeds of drug trafficking. That depends in the first place whether it would be appropriate to lift the corporate veil of C Ltd I have no doubt that it would be appropriate to do so in the circumstances of this case. The character of the company and the nature of the people who control it are highly relevant to the true nature of the transactions in this case. It is, in my view, necessary to lift the corporate veil to achieve justice in this case. When that is done, I agree with Mr Talbot, for the reasons given by him, that it can properly be inferred that C Ltd is a facade behind which the real owners of the funds, H and W, are hiding. In my view, the conclusion reached by the U,S, Court on that aspect of the matter was justified. That conclusion puts the issue of natural justice raised by Mr Tucker in a different light. it is not so much a matter of C Ltd being prevented from contesting the issue of the derivation of . the funds as the true owners, H and W, who could give evidence about that issue, not coming forward to contest it.
In the light of that conclusion I return to the question whether issue estoppel should apply. I have to bear in mind that the issue of the derivation of the funds was, in effect, decided on a "probable cause" basis in default of appearance of the owners of the funds. The case of Masri is some authority for the proposition that issue estoppel can apply where a party has chosen not to take advantage of the opportunity to have the issue tried and where the order was made without the court hearing argument or evidence on the merits. In this case, H and W chose not to appear and contest the issue. In those circumstances, they should not, in my view, be allowed to re-open the issue through their mouthpiece, C Ltd. I would hold that natural justice in this case does not prevent issue estoppel applying.
However, if I were wrong about that, I make it clear that I attach particular importance to Mr Talbot's abuse of process argument. In my judgment, it would be contrary to the interests of justice and public policy, contrary to the spirit of international cooperation to combat sophisticated drug trafficking and money laundering and contrary to the spirit of the bilateral agreement with the United States of America if findings fundamental to the U.S, Court order were not to be accepted by this Court unless there were very strong reasons todo so. I do not believe that any such strong reasons exist in this case. Mr Tucker suggested that I would have jurisdiction to order a hearing in this country on the issue of the derivation of the funds. I very much doubt if I do have jurisdiction to do so and, in any event, even if I did have jurisdiction to do so, I would refuse to make such an order. If I were to decide that the f inding of the U.S. Court should not be accepted as being contrary to the interests of natural justice, the proper course for me to adopt would be to refuse registration of the order, not to direct another hearing of the issue. However, for the reasons I have given, I do not consider that C Ltd. have demonstrated a sufficiently strong case for me to refuse registration. Applying the criterion in section 26(A)(1)(c), I am of the opinion that enforcing the U.S. Court order would not be contrary to the interests of justice. I therefore grant the application by the U.S, Government to register the external confiscation order.
There is a subsidiary application by the U.S. Government to add H as a defendant in these proceedings. There is no objection by Mr Tucker to that application. That application is granted. It will be necessary to consider how notice of the registration of the external compensation order should be given to H in the light of such information as there may be as to her whereabouts.
As I mentioned earlier, Mr Tucker withdrew his application for discharge of the restraint order. However, he also made an application to vary the restraint order to allow C Ltd to be paid a reasonable sum for legal costs out of the restrained fund. He stressed the need for C Ltd to use the funds in the bank account, which are its only asset, in order to fulfil its duty to take these proceedings.
Mr Talbot accepted the general rule that a restrained person may access the restrained fund to meet his legal costs, but he submitted that, if the corporate veil is lifted and C Ltd is seen to be a sham, the Court then needs to be satisfied that the real owner of the funds, H and W, do not have other assets which they could use before they have recourse to the restrained funds, which should otherwise be preserved for the purposes of the external confiscation order.
I accept that submission. It follows from my previous conclusions that it is appropriate to lift the corporate veil which, on the available evidence, reveals H and W as the real owners of the funds. It has not been shown that they need to have recourse to the restrained funds and, in those circumstances, the application for C Ltd to have access to those funds for its legal costs is refused.