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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Chief Officer States of Jersey Police v Minwalla [2007] JRC 137 (13 July 2007) URL: http://www.bailii.org/je/cases/UR/2007/2007_137.html Cite as: [2007] JRC 137 |
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[2007]JRC137
royal court
(Samedi Division)
13th July 2007
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Before : |
M. C. St. J. Birt, Esq., Deputy Bailiff, and Jurats Allo, and Morgan. |
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Between |
Chief Officer of the States of Jersey Police |
Plaintiff |
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|
|
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And |
Meher Rohinton Minwalla |
Defendant |
Advocate A. J. Belhomme for the Plaintiff.
Advocate D. M. Cadin for the Defendant.
judgment
the deputy bailiff:
1. This case raises interesting issues in connection with the anti-money laundering legislation.
2. The defendant (to whom for convenience we shall refer as "the wife" although she is now divorced) met Darayus Cyrus Minwalla (known generally as 'Happy Minwalla' and to whom we shall refer as "the husband") in 1986 after she had been widowed at the age of 35. Not long afterwards they began to live together and they had two children. They married in 1994. They lived in London although the husband spent much time in Pakistan and elsewhere looking after his substantial business interests.
3. The marriage broke down in September 2003. Thereafter the husband lived in Pakistan and, more recently, in Dubai. The wife remained at the matrimonial home in London. She is now 58. There followed acrimonious divorce proceedings culminating in a hearing on ancillary relief before Singer J, following which he delivered a detailed judgment on 3rd December 2004. He found that the husband had done everything he could to avoid paying the wife any money. He summarised the position at paragraph 45 of his judgment as follows:-
4. The judge went on to make findings in relation to the parties' financial position. The husband was originally the owner of a Panamanian company called DM Investments SA ("DM"). That company had purchased a house in Friern Barnet shortly after the parties met. In 1991 that property was sold and the parties moved to a house in Bishops Avenue, London. According to the wife's evidence to this Court that house was purchased for £720,000 in the name of DM, which provided the purchase price and a further £200,000 for renovations. She stated that the house was sold in 2000 for £1.75 million. The parties subsequently purchased a flat at Portland Place, London in October 2001. It was in fact acquired by means of purchasing the entire issued share capital of Midfield Management SA ("Midfield"), another Panamanian company which already owned the property. The purchase price of £750,000 was provided by DM. Subsequently a mortgage of £500,000 was taken out against the property but that was in due course redeemed by funds from DM. The wife remains living at the Portland Place flat.
5. In July 1998 the husband created the Fountain Trust ("the Trust"), a trust governed by Jersey law of which CI Law Trustees Limited ("the Trustees") were the trustees. Ownership of DM was transferred to the Trust and when Portland Place was purchased, the shares in Midfield were also acquired by the Trust.
6. The key findings of Singer J were as follows:-
(i) That the Trustees' conduct left a great deal to be desired;
(ii) that the Trust was a sham and that the Trustees were privy to the sham, at least in the sense that they went along with the intentions of the husband;
(iii) that the husband had been uncooperative and obstructive and contemptuous of his obligation to make full and frank disclosures;
(iv) that in respect of general maintenance for the wife, the husband had paid £3,250 in June 2004 but had otherwise ignored the orders of the English courts as to maintenance pending suit;
(v) that the husband was a very wealthy man with assets of at least US$25 million (including in particular a valuable interest of at least 50% in the Hotel Metropole in Karachi), whereas the wife had net debts of £45,000 (ignoring substantial outstanding legal fees);
(vi) that the husband was motivated by ill-will towards the wife and determined to cause her to incur significant legal costs in pursuing her legitimate claim against him ("Pattern-bombing her with litigation" as the judge put it); and
(vii) that the husband's evidence was untrustworthy and undeserving of belief.
7. The judge declared that the Trust was a sham and that accordingly the assets in the Trust, namely the share capital of DM and of Midfield, belonged to the husband. He awarded the wife a lump sum of £4,185,000 (together with maintenance of £100,000 per annum until the lump sum was paid), of which nothing has so far been paid. He ordered that the husband should transfer the shares in DM and Midfield to the wife and, in support thereof, ordered the Trustees to do all that was necessary to effect the transfer of the shares in those two companies to the wife.
8. The wife subsequently issued proceedings before this Court seeking recognition and enforcement of the English judgment. In the judgment delivered by Bailhache, Bailiff on 20th July 2005, this Court stated that, as a matter of generality, it would regard an assumption of jurisdiction by a foreign court to declare a Jersey trust a sham to be exorbitant and would be reluctant to enforce any judgment based upon such an assumption. However, on the particular facts of the case and given the attitude of the husband coupled with the fact that the Trustees had voluntarily submitted to the jurisdiction of the English court, the Court decided to recognise and enforce the English judgment in part. In particular, the Court ordered the Trustees to transfer the shares in DM and Midfield to the wife.
9. However, the Court had been notified that the Government of Pakistan might wish to intervene and the Chief Officer of Police had indicated that he might also wish to make submissions on the issue of consenting to the transfer of the shares in DM and Midfield to the wife. The matter was therefore adjourned for that purpose.
10. The Bailiff has subsequently given a number of directions with a view to bringing the matter to a conclusion. On 18th July 2006 following a directions hearing, he said this:-
He therefore adjourned the giving of directions for three months. Subsequently, on 6th November 2006, the Bailiff gave detailed directions. He ordered that the matter should be listed for trial on 11th and 12th April 2007 and directed that the Attorney General should file a pleading setting out full details of the claim made against or in relation to the Trust or the assets thereof.
11. Pursuant to that direction the Chief Officer filed particulars of the claim and asked the Court to "........... determine that the assets of the Fountain Trust and its underlying companies represent the proceeds of crime." That is therefore the issue which we are called upon to resolve.
12. The current assets in the Trust are as follows. Midfield owns the flat at Portland Place which is valued at approximately £1.4m. There was an outstanding mortgage of approximately £300,000 but the bank was threatening to foreclose and in order to avoid this, the Court authorised cash held by DM to be used to redeem the mortgage. Accordingly Portland Place is now unencumbered. The only other asset consists of cash previously held by DM. This has been transferred to the Viscount and now stands at something just over £500,000. It is clear therefore that, even if she is successful in these proceedings, the wife will recover nothing like her full entitlement under the award of Singer J.
13. The Proceeds of Crime (Jersey) Law 1999 ("the 1999 Law") extended the power to make confiscation orders to benefits received from all crimes for which a person convicted in Jersey might be liable to imprisonment of one year or more. Prior to then, confiscation orders could only be made in respect of drug trafficking or terrorism offences.
14. A confiscation order can of course only be made following conviction for a relevant offence. Clearly there is a risk that criminals will seek to dispose of or hide their assets in the time which elapses between suspicion falling upon them and conviction. Thus the 1999 Law (like the relevant drug trafficking legislation) provides that the Court may grant a saisie judiciaire over a defendant's property. A saisie has the effect of vesting the property in question in the Viscount and prohibiting anyone else from dealing with it pending the making of a confiscation order. Article 15 deals with when a saisie may be granted. It can be granted when criminal proceedings against a person have begun but it can also (see para 1(c)) be granted when the Court is satisfied that criminal proceedings are to be instituted for an offence for which a confiscation order could be made following conviction.
15. One can see immediately that there is scope for potential injustice in that the institution of criminal proceedings may never occur or may be long delayed. The legislature was clearly aware of this risk and accordingly Article 15(3) provides that where the Court has granted a saisie in anticipation of the commencement of criminal proceedings, "........the Court shall discharge the order if the proceedings have not been instituted within such time as the Court considers reasonable." [emphasis added] By virtue of the Proceeds of Crime (Designated Countries and Territories) (Jersey) Regulations 1999 a saisie may also be granted in anticipation of criminal proceedings in a designated overseas country; but again, this is subject to the provision that the Court shall discharge the order if the proceedings have not been instituted within a reasonable time. Pakistan is not a 'designated country' for the purpose of the Regulations.
16. Thus the legislature has attempted to strike a fair balance between the rights of a person against whom no criminal prosecution has been brought to be able to deal with his assets and the need to preserve monies which may be liable to confiscation following conviction. The intention is clear, namely that if a court grants a saisie in anticipation of criminal proceedings but the proceedings are not then instituted within a reasonable time, the saisie should be discharged and the person should be free to deal with his assets. This might be thought to achieve a reasonable balance between the competing considerations referred to at the beginning of this paragraph.
17. However, there is another provision in the 1999 Law which has the effect of achieving an 'informal' freezing of assets without the need for a court order. The problem arises because of the terms of the money laundering offences such as Article 32 of the 1999 Law. In broad outline, Article 32 provides that a person is guilty of an offence if he is concerned with an arrangement whereby the retention or control by or on behalf of A of A's proceeds of criminal conduct is facilitated in circumstances where the person knows or suspects that A is or has been engaged in criminal conduct. There is a defence available where the person concerned has disclosed his suspicions to the police who have consented to his undertaking the transaction in question.
18. Applying this to the ordinary banking relationship, the consequence is that, if a bank forms a suspicion that its customer may be engaged in criminal conduct, it files a Suspicious Transaction Report (STR) with the police. If the police then consent to the bank thereafter complying with its customer's instructions to pay out money from the account, all well and good; the bank is protected. But if the police do not consent, the bank is on the horns of a dilemma. On the one hand, it has its customer demanding that it make payment in accordance with the mandate. On the other hand, it has a suspicion that its customer has been engaged in criminal conduct and, if it makes the payment, it will clearly facilitate the retention or control of the money by its customer. Accordingly, if it were subsequently to transpire that the money in the account was in fact the proceeds of the customer's criminal conduct, the bank would have committed the criminal offence of money laundering under Article 32. As the bank does not know at that stage whether the money in the account is in fact the proceeds of criminal conduct, it invariably errs on the side of caution and refuses to make the payment. The result is that the account is informally frozen for so long as the bank has the relevant suspicion and the police do not consent.
19. This is clearly capable of causing great hardship and unfairness. There may never be a prosecution, yet the bank may retain its suspicion. The result may be that a person, against whom no criminal charges have been brought and where there lies only a suspicion, finds his assets informally frozen without there even having been any court order to achieve this. Furthermore, the freezing of the account may continue for an indefinite period.
20. It is hard to reconcile this situation with the carefully structured protections provided in respect of a saisie, which are clearly intended to ensure that funds are not frozen indefinitely or for an unreasonably long period in the absence of criminal charges. The potential injustice of the situation was recognised in the United Kingdom where the relevant legislation was amended in 2002 so as to provide that the police have seven days from the STR in which to respond. If no response is given they are deemed to have consented to the bank dealing with funds in question. If they respond within the seven days and refuse consent, they have a further thirty one days in which to apply for a restraint order (the equivalent of a saisie). If they have taken no such action at the expiry of thirty one days after their refusal of consent, the bank may safely proceed. In the recent case of K Limited v National Westminster Bank Plc [2006] 4 All ER 907, the English Court of Appeal concluded that this struck a fair balance between the competing interests and that accordingly there was no need for the court to intervene to prevent an informal freeze, given that it could only last for a maximum of thirty eight days. We would refer also to the recent decision of the English Court of Appeal in R ex p. UMBS Online Ltd v Serious Organised Crime Agency [2000] EWCA Civ 406 concerning the need to strike a fair balance between undue interference with personal liberties and the need to fight crime. However, no such amendment to the 1999 Law has been made and we must therefore wrestle with the resulting difficulties.
21. Two alternative remedies have been canvassed for a customer whose account has been informally frozen following an STR. The customer may seek to judicially review the decision of the police not to consent to any payment. However, in such proceedings the customer would face the high threshold of showing that the decision of the police was one to which they could not reasonably have come. This may not be easy to establish. Alternatively, the customer may institute an ordinary action against the bank seeking an order that it comply with the mandate and pay the money out as instructed. In the event of the court finding on a balance of probabilities that the funds were not the proceeds of crime, the court would order the money to be paid out.
22. The difficulty with the second alternative is that, as a matter of strict analysis, it may not protect the bank. Let us assume that the customer satisfies the court that, on the balance of probabilities, the account does not contain the proceeds of crime. In those circumstances the court will no doubt give judgment for the customer and the bank will pay out accordingly notwithstanding the fact that the police have not consented. Let us further assume that it subsequently transpires - perhaps in later criminal proceedings - that, contrary to what the civil court found, the money in the account was the proceeds of crime. Technically, assuming that, despite the decision of the civil court, the bank retained its suspicion that the customer was engaged in criminal conduct, the elements of the money laundering offence would appear to be made out in that, having the necessary suspicion, the bank will have been concerned in the payment out of funds which are in fact the proceeds of crime.
23. The answer must lie in the realms of common sense and reality. As Tomlinson J said when wrestling with this sort of issue in Amalgamated Metal Trading Limited v City of London Police Financial Investigation Unit [2003] 4 All ER 125 at para 32:-
24. We agree with that observation. Accordingly, it seems to us that, faced with an informal freeze, a customer must, as one possible remedy, be entitled to bring proceedings with a view to establishing to the civil standard of proof that the money in the account is not the proceeds of criminal conduct. On such an application the Court must make a finding on the basis of the evidence produced to it and make such orders for payment as may be appropriate. If, contrary to our view, the Court were held to have no ability to make an order for payment where it has found on the balance of probabilities that the monies are not the proceeds of crime, this would mean that an informal freeze could continue indefinitely without any judicial supervision. Given the careful balance struck in relation to saisies, this would appear to us to be an unacceptable situation and cannot have been intended by the legislature.
25. In one sense the position in this case is somewhat different from that envisaged in the preceding paragraphs. Normally the customer will be the person who is in a position to establish the source of the funds in the account. He will be able to give evidence with a view to establishing that they are not the proceeds of crime. That is not the situation here. It is the wife who seeks payment of the trust assets. It is not disputed by Mr Belhomme that she knew little of her husband's financial affairs and we accept that, generally speaking, she is not in a position to assist as to the source of funds. The one person who would be able to assist is the husband, but we are satisfied that, as found by Singer J in his judgment, the last thing that the husband would be likely to do would be to assist his wife in recovering some of the money which he has been ordered to pay her.
26. It was clearly the view of the Bailiff that the matter should not be allowed to continue indefinitely and the Court should resolve the issue of whether the assets in the Trust were the proceeds of criminal conduct. He gave appropriate directions and accordingly that is the issue which we are called upon to decide.
27. Although it has instructed a firm of local advocates and been given the opportunity of intervening, the Government of Pakistan has chosen not to participate in these proceedings. Accordingly it is only the Chief Officer of Police who is contending that the trust assets are the proceeds of crime and that accordingly, despite the order of the English and the Jersey courts that these sums should be paid to the hard-pressed wife (who is desperately short of money) and despite the fact that, as at the date of the hearing, no steps had been taken to freeze any of the husband's other assets (including his valuable investment in the Hotel Metropole in Karachi, Pakistan), no such payment should be made and the assets should be retained in the Trust just in case criminal proceedings (in which a confiscation order could be made) should at some future date be commenced.
28. The Chief Officer relies on only one witness, namely Inspector Barry Faudemer, who at the date of the hearing, was the head of the Jersey Financial Crimes Unit ("JFCU"). He has sworn an affidavit and exhibited a number of documents. He has no first-hand knowledge of the matters in question and accordingly his evidence is comprised almost entirely of hearsay. He gave oral evidence and was cross-examined by Advocate Cadin. The wife relied upon an affidavit from herself and from Mr Stephen Homyard, an accountant, and both of them gave oral evidence and were cross-examined by Crown Advocate Belhomme.
29. The JFCU received an STR in August 2003. Its investigation began in early 2004. The investigation related to certain transactions undertaken between Cathay Pacific Airways Limited ("Cathay") and Pakistan International Airlines ("PIA"). They are of course both well known international airlines, Cathay being based in Hong Kong and PIA in Pakistan.
30. The first transaction was a lease dated 18th March 1999 whereby Cathay leased five Boeing 747-300 aircraft to PIA for a period of two years with an option to extend for a further year. PIA also had an option to convert the lease into a finance lease. There were in fact five identical agreements, one for each aircraft, but for convenience we shall refer to them collectively as "the 1999 lease agreement". On 26th April 2001 Cathay and PIA entered into five identical agreements ("the 2001 extension agreement") whereby the 1999 lease agreement could be extended by PIA for a further five years. On the same date five identical option agreements were entered into ("the purchase option agreement") whereby Cathay granted PIA the option of purchasing the five aircraft at various times during the course of the lease for prices fixed in accordance with the purchase option agreement. On 28th June 2002, pursuant to its purchase option, PIA and Cathay entered into an agreement whereby PIA purchased the five aircraft. By an additional agreement it also purchased a sixth Boeing 747-300 which had not hitherto been leased and had been lying unused by Cathay. The purchase price for the five aircraft was US$11 million per aircraft whereas the price for the sixth aircraft was $7 million i.e. a total of $62 million. The purchase of the five aircraft was completed by bill of sale on 16th August 2002; that of the sixth aircraft appears to have been completed on 5th November 2002.
31. The 1999 lease agreement contained the following provision at Clause 28.9 under 'Miscellaneous':-
A similar provision is to be found in all the agreements we have referred to above.
32. The husband has had a long relationship with Cathay going back as far as 1971, according to Cathay. His role appears to have varied but he seems essentially to have been the manager and representative of Cathay in Pakistan, Afghanistan and elsewhere. Between April 1999 and May 2003 he was an employee of Cathay with a monthly salary of $3,834. His position was as country manager of Pakistan. However during this period Cathay also entered into a number of consultancy agreements with DM. Thus on 1st April 1999 a two-year consultancy agreement was entered into for an annual fee of $525,000. Services to be provided by DM are set out in the schedule to the agreement and include assisting Cathay to obtain air flight clearances in Pakistan, Afghanistan and the Central Independent States of Azerbaijan, Kazakhstan, Uzbekistan, Turkmenistan, Kyrgystan and Tajikstan together with a sales distribution network in those latter countries. The agreement also referred to the fact that Cathay had leased the Boeings to PIA and DM agreed to undertake various services in connection with the maintenance and servicing of those leases. On 1st May 2001 a new consultancy agreement between the same parties was entered into for a five-year period. Essentially it required DM to undertake the same functions as previously but this time in relation to the extended lease. The annual payment was now $850,000. On the same date an advisory agreement was entered into for a one-off fee of $700,000 and this related to the provision of Cathay's engineering services to PIA during the term of the lease. On 30th May 2002 a further consultancy agreement was entered into for a thirteen-month period. This had similar provisions but related to the sale of the aircraft and included follow-up services during the continuation of what was known as the Fleet Hour Agreement. The page which sets out the fees payable is missing from the copy of the agreement in our bundle but, according to the figures provided by Cathay, the sum payable over the period of the agreement was $4million. Finally Cathay has referred to an advisory agreement dated 15th March entered into between Cathay and another company called Aviation International Consultants whereby the sum of $500,000 was payable but the Court has not seen that agreement.
33. It is clear that the services to be provided by DM (and subsequently Aviation International Consultants) were in fact to be performed by the husband who had control and management of the company. The Trustees appeared to have known comparatively little of what was taking place.
34. In response to a request from Inspector Faudemer, Cathay has produced a schedule setting out the amounts payable under the various consultancy agreements. These total $10.5 million of which $8.3 million was paid to DM between 1999 and 2003 and $2.2 million was paid to Aviation International Consultants in 2004. This accords with the finding of Singer J that the husband diverted the fees payable to DM to Aviation International Consultants so as to prevent the wife having recourse against any of those funds.
35. Mr Rashid Hasan ("Mr Hasan") was an employee of PIA. In 1999 he was the general manager of Fleet Planning. According to Inspector Faudemer the bank records of DM show the following payments from DM to Mr Hasan:-
(i) $195,000 on 30th May 2002
(ii) $50,045 on 20th August 2002
(iii) $173,864.54 on 29th August 2003.
According to an internal e-mail at the bank, the husband had said that the payment represented the proceeds of an inheritance although there is no evidence as to whom or when he said that. The e-mail dated 30th May 2002, from the husband to the bank simply requests that the payment be made.
36. DM also paid the sum of $525,000 to a company called Deuma Enterprises Inc on 19th November 2002. This appears to have arisen as follows. On 7th May 2002 DM wrote to Deuma stating that, on behalf of Cathay. it was authorised to release a representative fee of 7½% of the sale proceeds in the event of the sixth aircraft being sold. The ultimate sale price was in fact $7 million and the sum of $525,000 equates to 7½% of that figure. Deuma issued an invoice dated 11th November 2002 for $525,000 in respect of its services and this sum was subsequently paid. There is a signature (in two places) on Deuma's invoice which Inspector Faudemer says is that of a Mr Pervaze Hussein. There is no suggestion that Mr Hussein has ever been employed by PIA but, according to Inspector Faudemer, it is his understanding that Mr Hussein's wife is related to Air Vice-Marshal Hussein, who is a senior official in PIA and might therefore have been in a position to influence the decision to purchase the sixth aircraft.
37. DM also made a number of payments to Mr Casey Kelly, who was an employee of Cathay and appears to have had the primary day to day responsibility for negotiating the various agreements between Cathay and PIA. Indeed he signed them on behalf of Cathay. The payments were as follows:-
|
(i) |
23rd May 2002 |
$200,045 |
|
(ii) |
12th November 2002 |
$237,545 |
|
(iii) |
13th May 2003 |
$225,000 |
|
(v) |
7th July 2003 |
$500,000 |
|
Total |
|
$1,162,590 |
There was also a payment of $150,000 in June 2001.
The payment instruction for (iii) above from Mr Minwalla said that payment was for 'consultancy services provided for aircraft sales' and his instruction for the payment of (iv) said that it was for 'services provided on PIA/Cathay Pacific'. According to Inspector Faudemer, the husband told the bank that the payment of (ii) was for 'technical services provided to DM Investments for the sale of one 747-300 aircraft' although that did not appear to be in the exhibit to which the Inspector referred. Inspector Faudemer pointed out that, in a written statement supplied to the JFCU on 29th May 2005 in response to their queries, Mr Kelly stated that the last three payments referred to above arose out of an unrelated business venture between himself and the husband. He did not comment on the first payment. Inspector Faudemer pointed out that this explanation was inconsistent with the husband's written instructions to the bank at the time of the payments.
38. The Chief Officer submits that these payments were bribes. Mr Hasan was the general manager of Fleet Planning of PIA in 1999 and indeed made the presentation to the board of directors of PIA when it decided to enter into the 1999 lease agreement. The purpose of the payments can only have been to reward him for influencing PIA to lease/buy the aircraft. Similarly, the payment to Deuma was, he says, in fact a payment to Mr Pervaze Hussein and was intended ultimately for the benefit of his relative Air Vice-Marshall Hussein, who was a senior figure in PIA at the time of the decision to purchase the aircraft in 2002. Whilst the exact purpose of the payments to Mr Kelly was not yet understood, it was highly likely, he submitted, that these were also illicit payments connected with the various transactions between PIA and Cathay.
39. As well as the payments themselves, the Chief Officer relies on a number of other factors in support of his assertion that we are concerned here with the proceeds of crime.:-
(i) He says that there was no commercial rationale for the various consultancy agreements between Cathay and DM. The husband was already an employee. The agreements were therefore intended merely as vehicles to enable bribes to be paid. He refers in particular to the statement of the husband in response to the English judgment where he said:-
"It is accurate that DM Investments received millions of dollars from Cathay Pacific Airways, but it is also accurate that DM Investments was a vehicle to transact a business deal which involved many other parties. Under each contract and for each payment made to DM Investments the majority of the monies were payments to third parties, some of whom have a very high profile and wish to remain anonymous. Transactions could not have taken place had DM Investments and the respondent [the husband] not taken this responsibility of trust to make payments to third parties. Several of the third parties trusted me to invest monies for them therefore. DM Investments and myself did so in good faith and eventually paid off the parties concerned."
(ii) The bogus nature of the consultancy agreements is shown, it is said, by the events surrounding Caz Consultants Limited. The matter is dealt with in Inspector Faudemer's affidavit. Suffice it to say that the husband e-mailed the Trustees on 1st March 1999 stating that he required a company for a consultancy agreement. The Trustees immediately acquired a BVI company called Caz Consultants Limited ("Caz"). There is an internal memo dated 1st March on the Trustees' files which states that the writer has been advised by the husband that he should not be in any way connected to the company. There is a later memo dated 31st March where the writer states that "If Stock phones, do not mention the connection with Minwalla." Mr Stock appears to have been a solicitor with Johnson Stokes and Master, the Hong Kong solicitors to Cathay. On 3rd March the husband had sent the Trustees a copy of the formal letter of intent from Cathay to PIA concerning the proposed lease of the five aircraft. According to Inspector Faudemer, the Trustees sent the papers to a Mr Andrew Warren, a lawyer in London, for him to draft the consultancy agreement. It is not clear where the Inspector obtained that information and he was unable to elaborate in cross examination. Certainly the documents exhibited to his affidavit suggest that two draft consultancy agreements were in fact prepared by David Morgan Whitehead & Co, the associated legal practice in Jersey of the Trustees. The first draft is dated 4th March and the second is dated 9th March. Both refer to the Letter of Intent and describe the purpose of Caz as being to procure and conclude the 1999 lease agreement. In fact, the proposed consultancy agreement between Cathay and Caz was never proceeded with. Instead, as described earlier, Cathay entered a consultancy agreement with DM dated 1st April 1999. According to Inspector Faudemer, it was only on 4th November 1999 that the husband informed the Trustees that he would not be proceeding with Caz and that another company would be used. However it is not clear where the Inspector obtained this date from and we were not referred to any documentary evidence in support of the date. Be that as it may, Inspector Faudemer therefore queries whether the agreement between DM and Cathay was back-dated. He certainly asserts that the deal between Cathay and PIA concerning the lease of the five aircraft had effectively been done before the consultancy agreement was drawn up. He says therefore that it was in effect a sham agreement.
(iii) The fact that inconsistent stories have been told about the reason for the payments out of DM is, says the Chief Officer, indicative of dishonesty. Thus, as already mentioned, Mr Kelly's explanation of three of the payments to him is not consistent with the instruction given by the husband at the time. As far as the payments to Mr Hasan are concerned, there is an internal file note dated 13th June 2002 of Standard Chartered Bank (apparently in connection with the proposed opening of an account by Mr Hasan), which file note states that the bank had been informed that the proposed payment of $195,000 was in respect of an inheritance. However, as Mr Cadin pointed out, there is no evidence as to who made this remark to whom at the bank; it is hearsay upon hearsay. The same can be said of another note dated 23rd September 2003 stating that the bank's records suggest that 'Dimitri' had advised that Mr Hasan had lent money to DM and accordingly a proposed payment by DM represented repayment of the loan.
(iv) The Chief Officer, both in his particulars of claim and in Inspector Faudemer's affidavit, placed great weight upon a suggested mismatch between the amount paid by PIA in respect of the purchase of the aircraft and the proceeds of sale accounted for by Cathay. There is no dispute that the purchase price of the six aircraft totalled $62m. According to the Chief Officer, Cathay has recorded the sale proceeds as $56.9m. The Chief Officer accepts that the sum of $1,112,500, representing the lease payment in respect of the month of July 2002, fell to be deducted making a total figure of $60,887,500 i.e. $3,987,500 more than the sale figure recorded by Cathay. The Chief Officer then points to the fact that, according to the schedule provided by Cathay, it paid almost exactly that figure ($4m) to DM pursuant to the consultancy agreement dated 30th May 2002 in respect of the sale of the aircraft. He asserts therefore that the sale price was inflated by the amount which Cathay paid DM.
(v) When giving evidence in chief, Inspector Faudemer admitted that the documents showed that in fact PIA had deducted two (as opposed to one) months of rental from the payment which made the total payable $59,775,000 i.e. a difference of $2,875,000 compared with the sum of $56.9m apparently recorded by Cathay. In cross examination it transpired that the figure of $56.9m was taken merely from an unsigned schedule sent to Inspector Faudemer in February 2006 by a Mr Cubbon, a director of Swires (the controlling shareholder of Cathay) and Cathay. It is not clear who prepared the figure and what exactly it purports to represent. Furthermore, as Mr Cadin demonstrated convincingly during cross examination of Inspector Faudemer, there were a number of additional items which Cathay agreed to include in the sale and which they might quite reasonably have chosen to deduct from the sale proceeds for accounting purposes in order to reflect the net value of the sale to them. Thus the 'Best and Final Offer' document prepared by Cathay and acknowledged by PIA in April 2002 suggests that Cathay had by then agreed to include in the sale free of charge certain stock (with a value of some $2.1m), five spare engines, an engine change kit and four engine stands. There was also reference to Cathay carrying out a refit before delivery to a value of $3.5m. According to Mr Cadin, a total sum of $13.1m (including the two months of lease payments) could have been offset against the sale proceeds of $62m.It is clear to us that these matters could easily account for any difference in the figure taken by Cathay into its books as being the net receipts of the sale and we consider that there is nothing suspicious in the figures produced to us and they do not assist the Chief Officer's case in any way.
(vi) There is no evidence on the Trustees' files of any activity on the part of DM to justify the consultancy agreements or the fees paid thereunder. However, we have to say that we do not find this surprising in view of the findings of Singer J concerning the manner in which the Trustees administered the Fountain Trust and DM. Furthermore, it is quite clear that the consultancy agreements envisaged DM performing its functions entirely through the husband. Cathay clearly wished to engage him to perform the various services in Pakistan and other countries referred to in the agreements and it was a matter of convenience that this was done through DM. Accordingly we do not think that this particular point assists the Chief Officer.
(vii) The Chief Officer also refers to a document which has been called the 'March memorandum'. This appears to be an internal briefing document prepared by someone in Cathay in anticipation of a negotiating session between Cathay and PIA on 26th-29th March 2002 to discuss the possible conversion of the lease of the five aircraft into a purchase. As one would expect, the memo concentrates on the supposed strengths and weaknesses of the members of the negotiating team from PIA and the Chief Officer places particular weight on a comment concerning the director of finance at PIA. We accept that this shows that the husband and Mr Kelly had clearly been in close touch with the director of finance about the possibility of PIA buying the aircraft rather than continuing to lease them but we do not think that it bears the weight which the Chief Officer seeks to place upon it.
40. A confiscation order can be made where a person has benefited from criminal conduct and has realisable assets. Those assets can then be confiscated up to the extent of the benefit. There is no need for the assets which are confiscated to have derived in any way from the criminal conduct. They may have been acquired legitimately with wholly untainted funds. It follows that, when granting a saisie, the Court is not concerned whether the assets which are the subject of the saisie are the proceeds of criminal conduct or not. A saisie is simply granted in respect of realisable property of the defendant (whatever its source) which may be liable to confiscation in the event of a conviction.
41. That is not the position here. The various money laundering offences require the offender to have dealt in some way with the proceeds of criminal conduct. Criminal conduct is defined as conduct which constitutes an offence in Jersey for which a person may be sentenced to a term of one or more years imprisonment or, in respect of conduct which has occurred outside Jersey, conduct which would constitute such an offence if occurring in Jersey (see Article 1(1) read with Schedule 1 of the 1999 Law). Reading together the definitions in Article 1(1) of 'proceeds of criminal conduct' and 'benefit', the proceeds of criminal conduct means the property obtained as a result of or in connection with the criminal conduct. There is an elaboration of that definition in Article 32(2) of the 1999 Law which provides:-
42. The Court must therefore consider what criminal conduct is involved in this case in order to determine whether the funds in question are the proceeds of such criminal conduct. In the particulars of claim and in his written skeleton argument the Chief Officer alleged two categories of fraud at Jersey customary law. The elements of that offence were authoratively established in the case of Foster v Attorney General [1992] JLR 6. In particular Le Quesne JA summarised the elements as follows at 26:-
43. The first fraud relied on by the Chief Officer relates to Clause 28.9 of the 1999 Lease Agreement and the matching provision in the other agreements ("the broker clause"). It is said that Cathay's conduct would amount to the offence of fraud under Jersey customary law if committed in Jersey. The fraud was committed on PIA. Taking the various requirements of Jersey fraud, the representation is to be found in the broker clause and was false in two respects. First, Cathay had in fact appointed a broker or commission agent (namely DM) and secondly it had in fact paid or agreed to pay an amount to a broker or commission agent in order to induce PIA to enter the relevant agreement, in that it had paid money to DM with a view to DM in turn paying sums to Mr Hasan or Mr Hussein, as the case may be. Cathay knew the representation to be false because the agreement in each case was signed by Mr Kelly who had also signed the consultancy agreements with DM and had indeed received monies from DM. The false representation by Cathay was made with the intention and consequence of causing actual benefit to Cathay (namely the entering into by PIA of the relevant agreement for the lease or sale of the aircraft) and actual prejudice to PIA (again, the entering into of the relevant agreement).
44. The second instance of customary law fraud relied upon by the Chief Officer was referred to by Mr Belhomme as an overcharging fraud and we shall do likewise. This fraud is said to arise out of the allegation that there was a $4m difference between the purchase price paid by PIA for the purchase of the aircraft in 2002 and the sale proceeds taken into the books of Cathay and that this sum was that transferred to DM as a slush fund to pay bribes etc. PIA was therefore, it is said, defrauded of this sum by way of overcharging.
45. As to what constituted the proceeds of this criminal conduct, the Chief Officer in his pleadings said that DM received payments from Cathay in connection with and as a result of these various frauds. These payments were intended to be paid on to individuals such as Mr Kelly, Mr Hussein and Mr Hasan. The Chief Officer asserted that, to the extent that DM retained any part of these funds, they remained the proceeds of crime because it was most likely that the residual funds left with DM represented the husband's reward for being concerned in the fraud on PIA. The funds were therefore monies he obtained in connection with or as a result of his criminal conduct.
46. The Chief Officer accepted that on 17th July 2002 DM appeared to have received some US$333,000 in aggregate from sources other than Cathay, although those sources had not yet been identified. The Chief Officer contended that, in the light of the general conduct of the husband in relation to DM, it was more likely than not that these were also the proceeds of criminal conduct.
47. During the course of the hearing Mr Belhomme modified to some extent the way in which he put his case concerning the proceeds of criminal conduct. Given that the allegation was that Cathay had committed a number of frauds on PIA which had resulted in PIA entering into the various lease and purchase agreements for the aircraft, it was the case, he submitted, that all sums paid to Cathay by PIA by way of rental or by way of purchase price for the aircraft were the proceeds of criminal conduct in the hands of Cathay. Cathay had in turn paid a total of $10.5m to DM and this was to be taken as having been paid out of the criminal proceeds in Cathay's hands. Accordingly, to the extent that any of the $10.5m paid to DM still remained in DM or in the Trust, it was the proceeds of criminal conduct.
48. In summary, Cathay together with the husband and others, had committed various offences of fraud on PIA in respect of the 1999 lease agreement, the lease extension agreement, and the purchase agreements and the property currently to be found in the Trust structure was the proceeds of that criminal conduct.
49. Mr Cadin cross-examined Mr Faudemer quite extensively and relied upon a number of matters raised during the course of that examination. He also relied upon the evidence of the wife and Mr Homyard, an accountant. We do not think it necessary to refer to his submissions in any detail because those points which we consider particularly material will appear in our conclusions.
50. We would however note the following matters:-
(i) One of the main points which he made was that there was no evidence that entering into the 1999 lease agreement, the lease extension agreement and all the purchase agreements had been to the prejudice of PIA. Inspector Faudemer conceded in cross-examination that there was no evidence before the Court that the sale price of the aircraft was greater than the market value. He conceded that he had made no enquiries as to the market value of the aircraft for rental or purchase purposes and therefore simply did not know whether the price paid was fair or not. In this connection Mr Cadin referred in particular to the following matters:-
(a) The value of each of the five aircraft for insurance purposes had been agreed by the parties at $35m in the 1999 lease and $22m in the lease extension agreement.
(b) The price agreed in the event of the finance lease option contained in the 1999 lease agreement being exercised was $30m per aircraft, less the amounts paid by way of rental at the time the option was exercised.
(c) According to the presentation made to the board of PIA at the time they were considering the purchase of the aircraft, the aggregate purchase price as at 30th June 2002 for the five aircraft pursuant to the purchase option agreement was $57.283m.
(d) An independent valuation by Jack B Feir & Associates, an American firm of aviation consultants, was included in the PIA board papers and gave a valuation of $14-16m for each of the five aircraft at the time of purchase in 2002.
(e) Cathay's financial statements provided for depreciation on aircraft and related equipment over 20 years to a residual value of between 0% to 10% of cost. On that basis and assuming a straight line depreciation, Mr Homyard calculated a depreciated value of each of the five aircraft of between $12m and $20m at the time of purchase.
(f) The March memorandum suggested that Cathay was carrying the aircraft at a residual value of $3.3m at the end of the extended lease in 2006. If one added back the depreciation for four years to calculate the value as at 2002, it came to $19.7m.
All of these values exceeded the price of $11m actually paid by PIA for each of the five aircraft, from which a further deduction had to be made for all the various extras thrown in by Cathay in order to consider the true value paid by PIA for each aircraft. On the available evidence therefore, it had, submitted Mr Cadin, been a very good deal for PIA.
(ii) Mr Cadin referred the Court to the board minutes of PIA held on 4th March 1999 together with the accompanying presentation by the negotiating team. The meeting was called to consider whether to proceed with the proposed lease of the five aircraft from Cathay. Mr Cadin pointed out that the presentation and minutes showed that the matter had been considered extremely thoroughly. They dealt with all the matters which one would expect to see covered and considered all the other options including a possible deal with Singapore Airlines. They showed too, he said, the independence of the board of PIA because one of the recommendations of the presentation was that the induction of new technology aircraft should be delayed whereas the board in its decision rejected the recommendation and resolved that the issue should not be delayed but should be pursued vigorously. He accepted that the presentation had been made by Mr Hasan (as General Manager of Fleet Planning) and the board appeared to have been informed specifically that no middle men were involved. However, there was no evidence of any payment to Mr Hasan in 1999. The only evidence before the Court was of payments in 2002 and 2003, which was when the purchase of the aircraft was proceeding. In this connection Inspector Faudemer was forced to concede that Mr Hasan was no longer General Manager of Fleet Planning in 2002 and indeed there was no evidence before the Court that he was even still employed by PIA at that time, although Inspector Faudemer believed that he was. Mr Cadin pointed out that his name did not appear on any of the PIA documents before the Court in connection with the purchase.
(iii) Mr Cadin also referred to the papers presented to the PIA board at the time of the purchase of the aircraft in 2002. It appears from these that there had been extensive negotiations between Cathay and PIA which had resulted in the production of a document entitled 'Best and Final Offer' and this had been signed by Mr Kelly on behalf of Cathay and Mr Anwar, Chief Operating officer, on behalf of PIA. Inspector Faudemer accepted that these documents showed that there had been extensive and hard fought negotiations between Cathay and PIA as one would expect. Thus, for example, whereas the purchase price for the five aircraft under the purchase option agreement was in excess of $57m, the price in the Best and Final Offer document was $55m. The document suggested that the sixth aircraft would be sold for $8m. In fact, as we know, subsequent negotiations reduced the price further to $7m. The document also suggests that Cathay were going to carry out certain works to the aircraft prior to sale to a value of approximately $3.5m. The document also showed a number of areas where PIA had asked for additional matters (e.g. spare engines etc) and showed the extent to which Cathay had conceded on these aspects. Mr Cadin pointed out that, even if it was the case that Mr Hasan was still employed by PIA despite the management re-shuffle which had (according to papers before the Court) taken place, there was no evidence that he had participated in the negotiating team or at the board meeting in connection with the purchase. Similarly, there was no document suggesting that Air Vice-Marshal Hussein had played any part.
(iv) Mr Cadin reminded the Court that the Chief Officer was alleging that a leading international airline had committed a major fraud on another leading international airline. This was a serious allegation. Whilst he accepted that the standard of proof was the civil standard, namely a balance of probabilities, he submitted that the degree of probability required must reflect the gravity of the allegation. In this connection he referred the Court to two cases. The first was Hornal v Neuberger Products Limited [1957] 1 QB 247 the head note to which reads:-
This was summarised by Denning LJ 258 as follows:-
At 266 Morris LJ said:-
Hornal was approved by the House of Lords in Re H [1995] 2 WLR 8. In particular Lord Nicholls at 24 said this:-
Mr Belhomme did not dissent from these submissions and we agree that this is the approach which we should adopt in this case, where fraud is alleged.
51. The Court received evidence from the wife both on affidavit and in person. She told how the husband had been a very successful businessman during the marriage and how his name was regarded in Pakistan as being synonymous with that of Cathay. He was an influential and successful man in Pakistan and he had been instrumental in obtaining licences for Cathay to fly to various of the Central Independent States. Cathay was well known in Pakistan because it had been the first international carrier to resume flights to Pakistan following the Afghanistan war. The husband was well known to those at the highest levels of both Cathay and Swires and she had often helped him entertain them when they came to Pakistan on business visits.
52. She explained that the husband continued to make life difficult for her. She had been forced to litigate in the United States and Pakistan in order to try and recover the amount awarded to her. The husband was a wealthy man with business and property interests in Pakistan. In particular he had at least a 50% interest in the Hotel Metropole in Karachi which had been valued at a minimum of £7.5m by Singer J. She was endeavouring to enforce the English award in Pakistan but was advised that this was a process which could take many years. In the meantime she had obtained some form of freezing order over the Hotel Metropole but the husband, assisted by a government body to whom he wished to sell the hotel, was seeking to lift the freezing order. She was having to contest this. Her financial position remained desperate. She depended entirely on loans from friends coupled with such distributions from the trust assets as this Court had allowed. She owed very substantial sums to her English and other lawyers and would have to repay these in due course, as well as the other loans which she had borrowed to keep going. So far as the husband was concerned, she understood that he had now moved to Dubai where he had business interests and lived in an expensive and luxurious property. In this connection it was of note that Advocate Grace, instructed by the husband (presumably on a fee paying basis) sat through the entirety of the hearing before us as an observer.
53. The first issue we must consider is whether there has been criminal conduct. Mr Belhomme confirmed that the only offence upon which the Chief Officer relies for the purpose of these proceedings is the customary law offence of fraud, which we have described earlier. As also mentioned earlier, he contended that there were two different categories of fraud which had been committed by Cathay assisted by the husband.
54. The first was the overcharging fraud referred to at para 44 above. This allegation is based entirely on the alleged mismatch between the purchase price of $62m paid by PIA for the six aircraft and the sum of $56.9m apparently taken into its books by Cathay as its proceeds of sale (a difference of just under $4m), coupled with the fact that the sum of $4m was paid to DM pursuant to the consultancy agreement between Cathay and DM in respect of the sale. PIA had therefore been overcharged by this amount.
55. We are not entirely clear that, even as the case was put initially, it amounted to the customary law offence of fraud. However, the evidential basis for the allegation simply fell apart during the hearing. Even in his evidence in chief, Inspector Faudemer accepted that, because of the rental payments deducted by PIA, the difference was no longer $4m. In cross-examination he accepted that, as set out in paragraph 39(v), Cathay had included a number of other items and services in the price and that it would be perfectly natural and proper for them to have set the cost of these items and services against the sale price. It was clear that the value of such items and services (coupled with the deduction for two months' rental) could more than account for the difference of $4m. In the circumstances we have no difficulty in concluding that the Chief Officer has come nowhere near establishing that the offence of fraud has been committed in this respect.
56. The second category of alleged fraud was based upon the broker clause in each of the relevant agreements. Paragraph 43 above summarises how Mr Belhomme put the Chief Officer's case in that regard.
57. In response, Mr Cadin's first submission was that it was not clear that there had been a misrepresentation. The broker clause appeared to be a standard form of clause. It was likely to have an acknowledged technical meaning in the aviation and commercial world. The clause itself provided a civil remedy in the event of breach, namely the refunding of any amount paid to such a broker or commission agent. It could not really be the case that the clause was intended to cover a consultant such as DM/the husband. It was commonplace for companies to employ consultants or advisers on such matters and it was no business of a purchaser/lessee as to whether a vendor/lessor chose to use some of its receipts to pay such a person. DM/the husband could not therefore be described as a commission agent or broker. Nor could Mr Hussain, Mr Hasan or Mr Kelly be so described. Suffice to say that we note the submissions but, in view of our finding in relation to detriment which follows, we do not think it necessary to consider this aspect further.
58. An essential element of Jersey fraud is actual prejudice to the alleged victim. This appears from the passage from Foster cited at paragraph 42 above and is elaborated upon by Le Quesne JA in the following passage at page 27 in the judgment:-
59. Mr Cadin submits that there is no evidence of actual prejudice to PIA in this case whether in relation to the lease agreements or the purchase of the aircraft. We agree for the following reasons:-
(i) Inspector Faudemer accepted that he had no reason to doubt the accuracy of the position which faced PIA in 1999 as described in the presentation to the board referred to in para 50(ii) above. This stated that the existing fleet of Boeing 747-200 aircraft was very old, that heavy expenditure was being incurred on maintenance because they had passed their economic life and that extensive modifications would be required to keep them airworthy for European and North American destinations. PIA therefore needed to re-equip itself. He also conceded that, based upon the information in the presentation, the offer from Cathay was reasonably seen as the most advantageous from PIA's point of view and in particular was preferable to that from Singapore Airlines. What Inspector Faudemer said was that he could not know whether the payment of any bribes to Mr Hasan had affected the content of that presentation. However, the fact remains that there is no evidence before us which suggests that anything contained in that report was false or erroneous. Furthermore, as referred to at para 61(i) below, there is no evidence of payments to Mr Hasan at or near the time of the 1999 lease agreement.
(ii) Furthermore there is no evidence presented to us to suggest that the rental paid by PIA for the five aircraft was anything other than a fair market rental. If PIA needed the aircraft and it paid a fair market rental for the best offer available to it at the time, there would be no prejudice.
(iii) As to the purchase of the aircraft, there is no evidence before us that the price which was paid was anything other than a fair price or was more than they would have paid for purchasing aircraft elsewhere. On the contrary, it was clearly the subject of hard bargaining between Cathay and PIA and such evidence as has been produced to us suggests that PIA may well have obtained a favourable price, for the reasons set out in paragraph 50(i) above. In particular the evidence before us suggests that an independent firm of American aviation consultants valued the five aircraft at between $14-16m each compared with the price actually paid of $11m (less the price of the extra spares, services etc thrown in by Cathay).
(iv) According to the evidence of Mr Homyard, which was not challenged or contradicted in this respect, PIA has in fact obtained a good deal, not only because, on the available information, the price was advantageous but also because the aircraft are, according to the PIA website, still in service as part of the fleet which suggests a low depreciation rate since the purchase in 2002.
(v) At the time of the purchase, PIA had been operating the five aircraft for three years pursuant to the lease. They were therefore wholly familiar with the aircraft and were in a position to assess their value. It makes it inherently less likely that any misrepresentation by means of the broker clause induced them to act to their prejudice.
(vi) Inspector Faudemer conceded that the police had made no enquiries as to whether PIA had paid a fair price for the aircraft or could have obtained them for less elsewhere. He accepted the existence of the independent valuation from the American aviation consultants but said that he wished to visit them in order to see whether they had been bribed to provide such a valuation. Nevertheless the fact remains that there is no evidence before us to suggest that the purchase of the aircraft was in any way detrimental to PIA.
(vii) This is further supported by the fact that, in most cases of fraud, a victim comes forward to assert that, if only the false statement had not been made to him, he would not have acted as he did. That is a necessary element in order to prove the offence. Here, there is no evidence before us that PIA has complained to anyone that it regrets the lease or purchase of the aircraft. Despite the fact that the Jersey police have alerted the National Accountability Board in Pakistan (the anti corruption authority) which has in turn made enquiries of PIA, there is no evidence of any complaint by PIA or any civil action against Cathay by PIA. There is no evidence that PIA has stated that, if only it had known that the representation in the broker clause was false and that payments had been made to DM and in turn to Mr Casey, Mr Hasan or Mr Hussein, it would not have agreed to the lease or purchase, as the case may be, or would not have agreed the rental or purchase price in question. Indeed Inspector Faudemer conceded that he simply did not know the effect (if any) of the payments to Mr Hasan, Mr Hussein or Mr Kelly.
For these reasons we conclude that the Chief Officer has not produced any evidence of actual prejudice to PIA, which leads us to hold that, on the balance of probabilities, no offence of fraud has been committed on PIA as contended by the Chief Officer. As this is the sole Jersey offence relied upon, this means that there has been no criminal conduct as defined in the 1999 Law.
60. That finding alone is sufficient to conclude the proceedings in favour of the wife but there are a number of other matters which were raised during the hearing and on which we think it might be helpful to give our conclusions.
61. Even if the difficulties mentioned above were overcome, there are still a number of evidential difficulties which emerged during the hearing. Thus:-
(i) The Chief Officer contended that the 1999 lease agreement was induced by bribes paid by Cathay through DM and the husband. In particular it was pointed out that Mr Hasan was the General Manager of Fleet Planning in 1999 and that he made the presentation to the board of PIA. However the only evidence of payments to Mr Hasan relates to 2002 and 2003. There is no evidence of any payments to him at any time prior to that date. Accordingly it is hard to see that there is any evidence that any of the payments to DM in any way affected or induced the 1999 lease agreement.
(ii) Similarly, there is no evidence of any payments to anyone other than Mr Kelly (who was an employee of Cathay and in respect of whom Cathay have made no complaint ) at the time of the 2001 extension agreement.
(iii) There is evidence of payments to Mr Hasan in 2002 and 2003. However, as mentioned earlier, there is no evidence that he was still employed by PIA at that time, let alone that he was in a position to or did play a part in the decision to purchase the aircraft.
(iv) The Chief Officer asserts that the payment to Deuma in November 2002 was a bribe in respect of the purchase of the sixth aircraft. However there are difficulties in that respect. First the only evidence that the beneficiary of the payment to Deuma was Mr Pervaze Hussain is a somewhat illegible signature on the receipted invoice. There is no other evidence connecting Mr Hussain to Deuma. Secondly it is accepted that Mr Pervaze Hussein has never been employed by PIA. Thirdly, the only evidence of any connection between Mr Pervaze Hussein and anyone at PIA is the oral evidence of Inspector Faudemer that he understands (although he could not recollect where he had obtained this information) that Mr Hussein's father-in-law is a senior official in PIA. Finally, there is no evidence that the father-in-law played any part in the decision to purchase the sixth aircraft.
62. Assuming that we had concluded that criminal conduct had occurred, we would next have had to consider whether the assets with which we are concerned are the proceeds of that criminal conduct. We take first the flat at Portland Place owned by Midfield. Here, the history is relevant. The parties began their relationship in 1986 and very shortly afterwards DM purchased a house in Friern Barnet. That was sold in 1991 and replaced by a house in Bishops Avenue, London. DM purchased that property for £720,000 and a further £200,000 was spent on renovations. This all took place before any suggested criminal conduct began in 1999. Bishops Avenue must therefore be regarded as being an entirely 'clean' asset and accordingly the proceeds of sale of that property of £1.75m in 2000 have to be similarly regarded. After a short period of leasing, Portland Place was purchased in October 2001. Initially DM provided the entire purchase price of £750,000 although later a mortgage of £500,000 was taken, which was reduced to £300,000 in July 2002 and redeemed entirely fairly recently out of monies DM held in Jersey. £200,000 was also spent on renovations.
63. We must ask ourselves whether Portland Place is property obtained as a result of or in connection with any criminal conduct or which directly or indirectly represents property obtained as a result of or in connection with criminal conduct. We have no hesitation in concluding that it does not. On the sale of Bishops Avenue, DM was in possession of £1.75m of legitimate funds. No tracing exercise has been undertaken, but we consider that we should look at the realities of the situation. Not long after the sale of Bishops Avenue, DM provides £750,000 for the purchase of Portland Place. We consider the natural and proper conclusion is that this purchase was funded out of the clean proceeds of Bishops Avenue. Indeed we were referred to a memo dated 29th August 2002 (before the marriage broke down) where the husband stated to a director of the Trustees that this was so. It is true that there was a mortgage of £500,000 obtained shortly thereafter which has since been repaid by DM but we do not think that that alters the position in this case. DM had £1.75m of clean money derived from the parties matrimonial home and there is now a successor matrimonial home purchased for a lesser sum. We consider that it would be unfair and unjust to ignore the existence of this large sum of clean money and instead infer that the purchase of Portland Place was effected with tainted monies derived from any fraud committed in relation to PIA. Accordingly, even if we had concluded that there was criminal conduct in relation to PIA, we would have held that Portland Place does not represent directly or indirectly the proceeds of any such criminal conduct.
64. As to the cash held by DM, we accept that, on the assumption that criminal conduct in relation to the broker clause was established, some of it should be treated as representing the proceeds of such conduct. However allowance would have to be made for the fact that DM had, on the evidence presently available, also received $333,000 from sources other than Cathay. We would not feel able to accede to the Chief Officer's contention that, in the light of the general conduct of the husband in relation to PIA, it was more likely than not that these were also the proceeds of criminal conduct. That sum should therefore not be regarded as the proceeds of criminal conduct.
65. We would make the following comments on some of the points made to us:-
(i) We took into account the fact that we were being asked to make our decision solely on the basis of the evidence of Inspector Faudemer. We accept without reservation that Inspector Faudemer gave his evidence honestly and fairly with a view to assisting the Court. However, as he himself admitted, he had no first hand knowledge of the matters in question. He had no witness statements or other evidence from anyone directly involved in Pakistan, Hong Kong or even Jersey (the Trustees). This clearly impacted upon the weight which we could place on his evidence. For example Inspector Faudemer was driven from time to time to say that he understood or believed such and such to be the case. We do not doubt that that is indeed his belief or understanding but, in the absence of any evidence from the source of such belief or understanding, we could not properly place much weight upon such evidence, particularly given the serious allegations of fraud which are being made. Indeed in some instances the Inspector was unable even to identify the source of his belief or understanding.
(ii) Mr Belhomme submitted that the consultancy agreements had no commercial purpose and that there was no explanation for the large sums paid to DM. We were unable to make such a finding on the state of the evidence before us. It is commonplace in cases which come before the Court for remuneration to be paid (either wholly or partly) by way of a consultancy fee rather than as salary to an employee. This may be for any one of a number of reasons, including legitimate tax planning. The evidence before the Court suggests that the husband was very important to Cathay in connection with its business in Pakistan and the other Central Independent States. He operated at the highest level. In these circumstances it is not surprising that he was highly remunerated. Mr Cubbon (who Inspector Faudemer understood was a person who had no connection with the PIA transactions) produced documents from Cathay in February 2006 confirming that they had paid a total of $10.5m to the husband (through DM and then Aviation International Consultants) and that they considered this to be a reasonable sum for the services that he had provided. We accept that Inspector Faudemer was surprised to find, during cross-examination, that Mr Cubbon had witnessed a power of attorney on behalf of Cathay authorising Mr Kelly to sign the letter of intent which led to the 1999 lease agreement but we do not consider that that fact alone shows that Mr Cubbon was more involved than he had said. We cannot of course know, but it is certainly common for a director of a company to witness a power of attorney in favour of an employee so that the employee may sign an agreement in relation to a matter with which the director is not involved. Even though it has been informed of the payments out of DM, Cathay has not altered its statement to Inspector Faudemer that the total sum paid to DM/Aviation International Consultants was reasonable for the services the husband had provided.
(iii) The investigation in this matter has been driven by the Jersey police. Although they have been in touch both with Cathay and the Hong Kong police, no investigation or other action is taking place there. Inspector Faudemer said that, when he informed Mr Cubbon on his visit to Jersey in February 2006 of the payments by DM to Mr Kelly (in particular) and also to Mr Hasan, Mr Cubbon was surprised. Nevertheless, no steps appear to have been taken to pursue the matter either by Cathay or the Hong Kong police since then. Furthermore the papers from Cathay provided by Mr Cubbon stated that Mr Kelly had at all times reported to the director of corporate development and in turn to the chief executive of Cathay in relation to the lease and subsequent sale of the aircraft to PIA.
(iv) By reference to the events concerning Caz, the Chief Officer submits that the deal between Cathay and PIA in relation to the 1999 lease agreement was a done deal before the consultancy agreement with DM was drawn up. We accept that this was so. Not only was the letter of intent clearly said to have been already drawn up when instructions were given for the lawyer to draw up the consultancy agreement but the date of the consultancy agreement (1st April 1999) was after the 1999 lease had been entered into on 18th March 1999. However, we do not regard that as necessarily suspicious. It is clear that the consultancy company (whether DM or Caz) was simply a vehicle for the husband. It was he who had been actively involved in the negotiations for the lease and was to continue to be involved in the maintenance and servicing of the lease thereafter. He was to be rewarded for both of these activities by way of a consultancy fee. He chose to take this fee through DM. It is, we fear, not unusual to see fees paid to a company in respect of services performed by an individual which may have been carried out before incorporation of the company. Such behaviour is not to be condoned and may give rise to serious taxation or other issues but it is not necessarily indicative that the work has not been carried out by the individual in the first place.
(v) Inspector Faudemer mentioned on a number of occasions during the course of his evidence that this was an ongoing investigation and that further evidence might well be obtained in future to support the allegation of criminal conduct. We accept that this may be so. But the fact remains that the investigation by the Jersey police began as long ago as the beginning of 2004 and, in the passage quoted in paragraph 10 above, the Bailiff was informed that the investigations were all but complete. Nearly two years have passed since the decision of the Court in July 2005 to support the decision of Singer J and order that the assets should be paid to the wife. We accept that in proceedings such as this where there is an issue as to whether assets may be the proceeds of criminal conduct, the authorities must be given sufficient time to carry out an investigation as to the source of the funds. However we consider that the authorities have had adequate time in this case and, when balanced against the needs of the wife, now is a reasonable time for the Court, in accordance with the directions of the Bailiff, to reach a conclusion as to the source of these funds, notwithstanding that further evidence might in future emerge which is relevant to that issue.
66. Mr Belhomme accepted from the outset that the burden of proof fell on him. It was for the Chief Officer to prove on the balance of probabilities that the monies in the Trust were the proceeds of criminal conduct. We think that in this he was correct but our decision does not turn on the issue of who bears the burden of proof. Our answer would have been the same even had the burden of proof rested upon the wife. We find that, on the balance of probabilities, and on the basis, naturally, of the evidence as produced to us, the assets in the Trust with which we are concerned are not the proceeds of criminal conduct. We accept, of course, that the evidence raises a question as to whether bribes or secret payments have been paid to Mr Hasan and others. But that is not the issue before us. Our task is to decide whether, on the present state of the evidence, the assets in the Trust are the proceeds of criminal conduct, namely fraud under Jersey law. For the reasons given, we find that they are not.
67. The foregoing conclusions of this judgment are based upon the evidence as it was before the Court at the hearing. However, at a time when drafting of the judgment was well advanced, Mr Belhomme sought and obtained leave to file further evidence and the parties have filed short written submissions on this additional evidence. In summary, the further evidence shows that on 1st June 2007 a reference was filed with the Accountability Court in Pakistan by the National Accountability Bureau ("NAB") alleging that the husband, Mr Hasan and Mr Pervaze Hussein had by corrupt, dishonest or illegal means obtained for themselves pecuniary advantage and had thereby committed the offence of corruption and corrupt practices. That reference has been accepted by the Accountability Court with the result that a non-bailable warrant of arrest has been issued by the Accountability Court against the husband. He has in effect been charged. The supplementary evidence also shows that the NAB has obtained a freezing order in respect of the husband's property in Pakistan including the Hotel Metropole (in respect of which the evidence states that an agreement had apparently been reached between the husband and a Pakistan government organisation called the National Logistics Cell for the sale of the hotel for the equivalent of £16.6m). Other assets frozen includes a flat in Karachi and a bank account.
68. We have considered carefully whether this development causes us to alter the conclusions which we had reached on the basis of the evidence presented at the hearing. We have concluded that it does not. It is clear from Inspector Faudemer's evidence that he has been pressing the NAB to act and he has presented them with evidence about the payments to Mr Hasan and Deuma. The NAB has visited Jersey and officers from Jersey have visited Pakistan. There is still no evidence of any complaint by PIA or any evidence that the lease and purchase were on terms that, if it had known the true facts, PIA would not have proceeded with. There is still no evidence of any actual prejudice to PIA.
69. The additional evidence shows merely that the NAB considers that it has evidence, sufficient for the purposes of charging, to show that the husband may have paid bribes to Mr Hasan and/or Mr Hussein. However the Corruption (Jersey) Law 2006 was not in force at the time of the PIA transactions and it has not been suggested that such a payment would of itself amount to an offence under Jersey law if carried out in Jersey and could therefore be classified as criminal conduct. The only Jersey law offence relied upon is that of fraud which has the various requirements to which we have referred earlier. The mere fact that the Pakistan authorities have brought charges in relation to these payments does not alter or affect the various reasons which we have given above for concluding that, on the balance of probabilities and on the present state of the evidence, the assets in the Trust are not the proceeds of criminal conduct as that expression is defined under the 1999 Law.
70. We have reached our conclusion simply by applying the law to the evidence before us. However, we are not dismayed to have come to the conclusion which we have. If any crime has been committed, it has been committed by the husband (and others). It has not been committed by the wife. If the husband has committed any crime his proceeds cannot exceed $10.5m, which was the total sum paid to DM/Aviation International Consultants by Cathay. The husband has substantial assets. In particular he has at least a 50% interest in the Metropole Hotel in Karachi which is now valued at £16.6m. It is not however clear whether the $16.6m relates to the hotel as a whole or just the husband's interest.
71. At the time of the hearing before us, no steps had been taken to freeze the assets of the husband in Pakistan even though the Jersey police had given full details of the evidence and the various payments to the Pakistan authorities. The only assets which anyone was seeking to freeze at that time were those which Singer J and this Court had ordered should be paid to the wife, who was in desperate need of funds. It was not an attractive proposition.
72. The position is now even less attractive. The husband's assets in Pakistan have been frozen. They are valued at not less than £16.6m (or £8.3m if £16.6m represents the value of the Metropole Hotel as a whole). Either way this exceeds the sum of $10.5m which would appear to be the maximum amount of his benefit and therefore the maximum amount which could be confiscated in the event of his being convicted. There is therefore ample property secured in Pakistan in order to meet any confiscation order. There is simply no need for the property in Jersey to supplement what is frozen in Pakistan; yet the authorities in Jersey still seek to freeze the assets which Singer J has held should be paid to the wife in circumstances where she is in a desperate financial position.
73. In all the circumstances we maintain our decision and hold that the assets with which we are concerned are not the proceeds of criminal conduct and should therefore be paid to the wife in order to satisfy the judgment of Singer J as endorsed by the Court in its judgment of 20th July 2005. However, before formally making such an order, we will at the time of delivery of this judgment need to hear another party who is said to wish to intervene to claim some of the assets.
74. Finally, we would refer back to paragraph 20 of this judgment which describes the changes in the United Kingdom legislation (upon which ours is based) in order to avoid the practical difficulties and potential injustice referred to in that paragraph. The English Court of Appeal has held that the legislation as amended strikes a fair balance between the competing interests. The legislation in Jersey remains in its original form and we would urge that immediate consideration be given to introducing amendments similar to those which have been introduced in the UK.
