Source: http://www.ipsofactoj.com/DecidedCases/international/2005A/part09/int2005A(09)-012.htm
Timestamp: 2017-09-26 05:31:39
Document Index: 599296842

Matched Legal Cases: ['art 9', 'EWCA ', 'UKHL ', 'art 7', 'arts 4', 'art 7', 'ART 7', 'art 7', 'art 7', 'art 5', 'art 3', 'UKHL ', 'UKHL ', 'art 7', 'EWCA ', 'UKHL ', 'UKHL ', 'UKHL ', 'Art.2', 'Art.6', 'Art.7', 'Art.8', 'Art.9', 'Art.15', 'Art.3']

Bowman v Fels [CAEW]
IpsofactoJ.com: International Cases [2005A] Part 9 Case 12 [CAEW]
This is the judgment of the court, to which each of its members has made a substantial contribution.
This appeal by the claimant was brought on 7th April 2004, pursuant to permission granted by Judge Cowell, against an order he made in the Central London County Court on 25th March 2004 whereby he discharged an order made by Judge Crawford Lindsay QC two days earlier. Judge Crawford Lindsay, for his part, had vacated the trial date of 25-26th March and directed that the action be re-listed for trial with a new trial window of 5th July-15th October. The appeal raises important issues relating to the ambit of the Proceeds of Crime Act 2002 ("the 2002 Act") and its application to the legal profession. Because of its importance the Bar Council, the Law Society and the National Criminal Intelligence Service ("NCIS") were all granted permission to intervene in the appeal.
THE LITIGATION IN THE COUNTY COURT
The underlying facts are relatively straightforward. The claimant lived with the defendant for ten years between May 1993 and April 2003 in a house which was registered in the defendant’s sole name. After their relationship ended she asserted a right to a beneficial interest in the property arising out of a constructive trust. Her case was that before the house was purchased the defendant had expressly agreed with her that they would buy the property jointly. He resisted her claim, these proceedings were started, and the action was in due course set down for a two-day trial starting on 25th March 2004.
It appears that the claimant’s witness statement was filed eight weeks late on 23rd December 2003. On 12th February 2004 the defendant served a consequential second list of documents. On 3rd March the claimant’s solicitors requested inspection of the documents on that list, and on 15th March copies were duly delivered. On 22nd March the defendant’s solicitors inquired about the whereabouts of the trial bundle. The claimant’s solicitors replied that they were getting on with it. On the same day they notified NCIS, pursuant to their understanding of the effect of certain provisions of the 2002 Act, of their suspicion that the defendant had included the cost of the work he had carried out at the property within his business accounts and his VAT returns, even though these works were unconnected with his business.
The claimant’s solicitors believed that section 328 of the 2002 Act obliged them to make this disclosure and that it also prevented them from telling either their client or the defendant’s solicitors what they had done. They therefore proceeded to make a "without notice" application to Judge Crawford Lindsay QC for an order vacating the trial date after an officer of NCIS had told them that it was unlikely that the requisite consent would be granted before the trial started. That judge granted their application and directed that any further application be made to him. The defendant’s solicitors were then informed of the terms of the order. They were not, however, told on what basis it had been made. They responded with an application that the judge’s order should be set aside and that the claimant’s solicitors should be directed to disclose the basis of their application and the evidence they had tendered in support of it. They had guessed, correctly, why the application had been made. Judge Crawford Lindsay adjourned this application and directed that it be heard on notice by a different judge. This led to a hearing before Judge Cowell on 25th March (the day the trial ought to have begun) and the making of his order which is the subject of this appeal. Finally, on 31st March 2004, NCIS sent the claimant’s solicitors a letter giving consent pursuant to s 335(1) of the 2002 Act.
In his judgment Judge Cowell considered what Dame Elizabeth Butler-Sloss P had said about the interpretation of the 2002 Act in P v P (Ancillary Relief: Proceeds of Crime) [2003] EWHC 2260 (Fam), [2004] Fam 1. He concluded that there was no reason why the claimant’s solicitors could not have disclosed both to the court and to the defendant’s solicitors the reason for seeking an adjournment (see s 333(2) and (3)) or why they could not have continued to prepare the trial bundles and to take the other preparatory steps necessary for bringing the action to trial. Although Dame Elizabeth said in para 51 of her judgment that the person making a disclosure must not take any further steps until certain procedures contemplated by the Act had been completed, Judge Cowell said that unless and until he was told by a higher court that para 51 had to be complied with literally in every case, he was entitled to rely on his understanding of her judgment and of the Act and on the reasons he himself had given, and to conclude that the claimant’s solicitors should inform both the defendant’s legal advisers and the court of their real reasons for seeking an adjournment.
THE JURISDICTION OF THIS COURT TO HEAR THE APPEAL
Although counsel and solicitors appeared for both the parties to the appeal, in addition to counsel and solicitors for the three intervening parties, a difficulty arose at the start of the hearing when it transpired that the parties had by now settled the litigation. In the ordinary way this would be an end of the matter (see Sun Life Assurance Co of Canada v Jervis [1944] AC 111, 113-4 per Viscount Simon LC and Ainsbury v Millington (Note) [1987] 1 WLR 379, 381 per Lord Bridge of Harwich).
The issue at the heart of the appeal is, however, an issue of public law of very great importance which is causing very great difficulties in solicitors’ offices and barristers’ chambers and in the orderly conduct of contested litigation through the country. The language of s 328 has caused great uncertainty within the legal profession, particularly because Parliament has given a much wider meaning to the phrases "criminal conduct" and "criminal property" than was required by the relevant EU directive.
Since the Act came into force lawyers have become concerned that this section may mean that they themselves are exposed to the threat of criminal sanctions if they do not make "an authorised disclosure" of any information which leads them to know or suspect that their client – or some other person, often the opposing party in family proceedings – is involved in the acquisition, retention, use or control of property derived from criminal conduct, however minor. They then feel obliged to wait for "the appropriate consent" before they take any further steps for their client. They believe that they are protected from breaching lawyer-client confidentiality by the terms of s 338(4) which provides quite simply that
An authorised disclosure is not to be taken to breach any restriction on the disclosure however imposed.
In practice these disclosures are made to NCIS, a body created by Part I of the Police Act 1997. In theory it may take over five weeks for the lawyer to feel free to take steps on his client’s behalf again (see the combined effect of the notice period and the moratorium period contained in s 335 of the Act). In practice, Mr. Pannick QC, who appeared for NCIS, told us that the requisite consent is forthcoming within 24 hours in at least 75% of the cases in which lawyers make a disclosure to NCIS. But this welcome information begs the important question whether lawyers outside what is described as the regulated sector (see para 54 below) are obliged to make any disclosures to NCIS at all in breach of lawyer-client confidentiality, and if so in what circumstances.
We were therefore anxious to continue hearing the appeal if we possibly could, so as to comply with the entreaties of all the parties who appeared before us. To send them away empty-handed on an issue of such importance seemed to be not only churlish but also in breach of the overriding objective which illuminates all civil court practice today.
In R v Secretary of State for the Home Department ex p Salem [1999] 1 AC 450 Lord Slynn of Hadley said at p 456 G-H:
My Lords, I accept, as both counsel agree, that in a cause where there is an issue involving a public authority as to a question of public law, your Lordships have a discretion to hear the appeal, even if by the time the appeal reaches the House there is no longer a lis to be decided which will directly affect the rights and obligations of the parties inter se. The decisions in the Sun Life case and Ainsbury v Millington (and the reference to the latter in rule 42 of the Practice Directions applicable to Civil Appeals (January 1996) of your Lordships’ House) must be read accordingly as limited to disputes concerning private law rights between the parties to the case.
He went on to say that the jurisdiction to hear disputes, even in the area of public law, should be exercised with caution, and that appeals which are academic between the parties should not be heard unless there was a good reason in the public interest for doing so. A good reason might be found where a discrete point of statutory construction arose which did not involve detailed consideration of facts and where a large number of similar cases existed, so that the issue would most likely need to be resolved in the near future in any event.
These criteria are amply satisfied in the present appeal. The only difficulty is that the underlying litigation is private law and not public law litigation. However, Lord Slynn was careful to refer to "disputes concerning private law rights between the parties to the case". What is in issue here are public law duties. The contemporary practice of both the House of Lords and this court to permit interventions in private litigation when discrete points of statutory construction are causing great difficulty in a way that was not contemplated when Ainsbury v Millington was decided has created a new scenario within which to consider a point of this kind (compare Callery v Gray [2001] EWCA Civ 1117, [2001] 1 WLR 2112, CA; [2002] UKHL 28, [2002] 1 WLR 2000, HL, where there were many interveners in this private law litigation).
Mr. Elliott QC, who appeared for the Law Society, reminded us that in Ainsbury v Millington Lord Bridge accepted that different considerations might arise in relation to what were called "friendly actions" and conceivably in relation to proceedings instituted specially as a test case. This language showed that even the rule on private law litigation permitted of exceptions, and he suggested that an important point of public law, involving a public authority, where there was an additional public interest element arising out of the court’s supervisory role in connection with solicitors (as officers of the court), who were perplexed as to the content of their obligations under the 2002 Act when conducting or settling litigation, made this par excellence an appeal over which the court should assume jurisdiction.
We accept these submissions. If it is in the public interest for this court to decide an important and difficult point of law arising out of the interpretation of a recent statute, when both the parties to the case and three interveners of the status of those who appeared before the court are anxious that the court should do so, it is in our judgment unnecessary for the court to resort to artificial devices on which to found its jurisdiction.
It would have been perfectly possible, as Mr. Boswood QC, who appeared for the Bar Council, observed, to achieve a situation in which the court had undoubted jurisdiction, by embarking on the artificial device of initiating judicial review proceedings there and then. With the co-operation of all parties, which would have been readily forthcoming, and the willingness of a member of the court to act as a high court judge and refuse permission to apply for judicial review at first instance, the dispute could have been catapulted into this court in less than 10 minutes, with all formalities and time limits being dispensed with, as an application by the Bar Council and the Law Society for declaratory relief as to the meaning and effect of this difficult legislation, which the court would have retained for hearing itself.
We found great assistance in the discussion of these issues which is contained in Zuckerman’s Civil Procedure (2003) at para 23.139 - 23.145, and the guidance suggested in para 23.145. This was a matter in which all the parties actively wished the court to proceed and had prepared very full argument for this purpose. In the circumstances we are satisfied that we have jurisdiction to hear the appeal.
We have not overlooked the fact that s 328 creates a criminal offence, and that in general civil courts are wary of usurping the function of the criminal courts by interpreting a criminal statute unless it is very desirable for it to do so (see Attorney-General v Able [1984] QB 795 at pp 806-808 for a helpful statement of the relevant principles). Mr. Pannick told us that NCIS was particularly keen that we should resolve the question of the interpretation of s 328 so far as it affects the legal profession. In those circumstances it would be wrong to refuse this request.
THE ISSUE AT THE CENTRE OF THE APPEAL
After this long preamble we turn to consider Part 7 of the 2002 Act, and in particular s 328 of that Act. This legislation originates from the requirements of two European Union directives: Council Directive of 10th June 1991 (91/308/EEC) ("the 1991 Directive"), and Council Directive of 4th December 2001 (2001/97/EEC) ("the 2001 Directive"): see Parts 4 and 6 below for relevant extracts from these two directives and their recitals. From the outset we must take note of the fact that Part 7 of the 2002 Act includes more stringent provisions than were required by the second of these directives.
On this appeal we are invited to determine whether s 328 (for its text see para 46 below) means that as soon as a lawyer acting for a client in legal proceedings discovers or suspects anything in the proceedings that may facilitate the acquisition, retention, use or control (usually by his own client or his client’s opponent) of "criminal property", he must immediately notify NCIS of his belief if he is to avoid being guilty of the criminal offence of being concerned in an arrangement which he knows or suspects facilitates such activity (by whatever means).
This particular appeal focuses on the applicability or otherwise of s 328 in a case where information comes to the attention of the lawyer for one of the parties in the course of legal proceedings and leads him to know or, more likely, suspect that the other party has engaged in money laundering. Mr. Dulovic, for the appellant, and Mr. Pannick submit that the language of s 328 should be read:
as entirely general;
as apt to preclude that legal representative from taking any further step in the conduct of legal proceedings, prior to making appropriate disclosure of the relevant information to NCIS, if he knows or suspects that the outcome of the proceedings (whether by judgment or settlement) might facilitate the acquisition, retention, use or control by either party (or any third party) of criminal property;
as applicable in this way although such information may have been obtained in circumstances of legal professional privilege or from documentation disclosed by another party, use of which would normally be restricted to the particular proceedings.
On the other hand, Mr. Boswood submits that:
s 328 applies only to an act of participation which is (i) active and/or (ii) performed with the purpose of facilitating the acquisition, retention, use or control of criminal property.
Further, both Mr. Boswood and Mr. Elliott submit that:
s 328 cannot apply to acts prior to the actual making of an arrangement – this is a submission supported by Mr. Copley for the respondent and adopted in Judge Cowell’s judgment; and that
s 328 cannot on any view override fundamental principles providing for legal professional privilege and (at common law) restricting the use of information obtained from documentation disclosed by another party to legal proceedings.
Potential issues also arise on the decision and guidance about "good practice" given by the President, Dame Elizabeth Butler-Sloss GBE, in P v P (Ancillary Relief Proceeds of Crime) [2003] EWHC 2260 (Fam); [2004] Fam 1.
The issue at the very centre of this appeal is whether s 328 applies to the ordinary conduct of legal proceedings at all. There is also a narrower issue, namely if it does, whether Parliament can be taken, without using clear words to that effect, to have intended to override the important principles underlying legal professional privilege and the strict terms on which lawyers are permitted to have access to documents disclosed in the litigation process.
We turn, first, to consider the material parts of the two directives and then set out, so far as is relevant, the language in which they were implemented in our national legislation.
The express purpose of the 1991 Directive was the "prevention of the use of the financial system for the purpose of money laundering". Article 2 provided that:
Article 1 explained that the phrase "money laundering" embraced four different types of intentional conduct. These may be described as "conversion or transfer", "concealment or disguise", "acquisition, possession or use" and "participation". The Article expressly provided that "knowledge, intent or purpose required as an element of the above-mentioned activities may be inferred from objective factual circumstances". The first three of these types of conduct included among their ingredients the knowledge that the property in question had been derived from criminal activity. The phrase "criminal activity" was defined for this purpose as meaning a crime specified in Article 3(1)(a) of the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and any other criminal activity designated as such for the purposes of the directive by each member state.
In addition to the express prohibition on money laundering contained in Article 2, the 1991 Directive contained a number of requirements designed to involve credit and financial institutions in each member state in the battle against money laundering. Article 6, for instance, provided that:
Member States shall ensure that credit and financial institutions and their directors and employees co-operate fully with the authorities responsible for money laundering:
by informing those authorities, on their own initiative, of any fact which might be an indication of money laundering,
Article 7 contained further provisions designed to strengthen the new regime.
Article 15 expressly provided that the member states might adopt or retain in force stricter provisions in the field covered by the directive in order to prevent money laundering.
The 1991 Directive contained no suggestion that lawyers might be required to disclose to the relevant authorities information which had come to their attention in circumstances to which legal professional privilege attached. Article 9, on the other hand, provided protection for employees and directors of credit or financial institutions against allegations of breach of confidentiality:
The disclosure in good faith to the authorities responsible for combating money laundering by an employee or director of a credit or financial institution of the information referred to in Articles 6 and 7 shall not constitute a breach of any restriction or disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, and shall not involve the credit or financial institution, its directors or employees in liabilities of any kind.
HOW THE 1991 DIRECTIVE WAS TRANSLATED INTO ENGLISH LAW
Parliament enacted the requirements of the 1991 Directive by the amendments to Part VI of the Criminal Justice Act 1988 which were introduced by Part III of the Criminal Justice Act 1993 ("the 1988 Act, as amended"), and by the provisions of Part III of the Drug Trafficking Act 1994 ("the 1994 Act"). These two legislative schemes were broadly similar. In Part III of the 1988 Act, as amended, ss 93A, 93B and 93C were headed "Assisting another to retain the benefit of criminal conduct", "Acquisition, possession or use of proceeds of criminal conduct", and "Concealing or transferring proceeds of criminal conduct". For present purposes it is only necessary to consider in detail the scheme contained in the first of these sections.
In s 93A a new offence was created by sub-section (1):
Subject to subsection (3) below, if a person enters into or is otherwise concerned in an arrangement whereby –
the retention or control by or on behalf of another (‘A’) of A’s proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or
A’s proceeds of criminal conduct -
are used to secure that funds are placed at A’s disposal; or
are used for A’s benefit to acquire property by way of investment, knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct,
This language clearly required some kind of active conduct. Sub-section (3) furnished the protection prescribed by Article 9 of the 1991 Directive (see para 30 above), and provided that:
Where a person discloses to a constable a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct or discloses to a constable any matter on which such a suspicion or belief is based –
the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise; and
if he does any act in contravention of sub-section (1) above and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if
the disclosure is made before he does the act concerned and the act is done with the consent of the constable; or
Sub-section (4) also softened the effect of sub-section (1). It provided:
In proceedings against a person for an offence under this section, it is a defence to prove –
that he did not know or suspect that the arrangement related to any person’s proceeds of criminal conduct; or
that he did not know or suspect that by the arrangement the retention or control by or on behalf of A of any property was facilitated or, as the case may be, that by the arrangement any property was used, as mentioned in sub-section (1) above; or
he intended to disclose to a constable such a suspicion, belief or matter as is mentioned in subsection (3) above in relation to the arrangement; but
there is reasonable excuse for his failure to make disclosure in accordance with sub-section (3)(b) above.
Sub-section (5) provided that an employed person might make the requisite disclosure "to the appropriate person in accordance with the procedure established by his employer for making such disclosure". Sub-section (6) prescribed that penalties for an offence under the section might range from a "fine not exceeding the statutory maximum" in a magistrates’ court to "imprisonment for a term not exceeding fourteen years" in the Crown Court. Sub-section (7) restricted the meaning of "criminal conduct" for the purposes of Part VI of the Act to the criminal conduct to which that Part of the Act applied (for which see s 71(9)(c): in effect nearly all indictable offences and a few summary offences listed in Schedule 4 to the Act).
So far as ss 93B and 93C were concerned, it is noteworthy that knowledge was required for the "acquisition, possession or use" offence in s 93B(1) and the more familiar language of "knowing or having reasonable grounds to suspect" was contained in the offence-creating s 93C(2). Section 93C (headed "Concealing or transferring proceeds of crime and conduct") did not contain any provisions for disclosure to a constable or anyone else.
S 93D created the offence of "tipping off" which was foreshadowed by Article 8 of the 1991 Directive. For present purposes it is necessary only to set out the offence created by sub-section (1):
A person is guilty of an offence if –
he knows or suspects that a constable is acting, or is proposing to act, in connection with an investigation which is being, or is about to be, conducted into money laundering; and
Two related offences were created by sub-sections (2) and (3). In sub-sections (4) and (5) Parliament showed itself conscious of the dilemma which these provisions might create for legal advisers, and it picked them out for special protection in a manner not foreshadowed by the 1991 Directive. These sub-sections provided:
Nothing in sub-sections (1) to (3) above makes it an offence for a professional legal adviser to disclose any information or other matter –
for the purpose of those proceedings.
Sub-section (4) above does not apply in relation to any information or other matter which is disclosed with a view to furthering any criminal purpose.
Part III of the 1994 Act followed a similar pattern. Sections 49, 50 and 51 of that Act created offences comparable to those created by ss 93C, 93A and 93B of the 1988 Act, as amended (in that order). Section 52(1) created a new offence of failure to disclose knowledge or suspicion of drug money laundering. This section contained provisions designed to soften the effect of sub-section (1), and s 54(2) provided expressly that:
Sub-section (1) above does not make it an offence for a professional legal adviser to fail to disclose any information or other matter which has come to him in privileged circumstances.
Section 53 of the 1994 Act created "tipping off" offences along the lines of those created by s 93D of the 1988 Act, as amended, with the same protection for professional legal advisers as was contained in s 93D(4) and (5) of that Act.
The 2001 Directive, for its part, amended the 1991 Directive in a number of important ways. Paragraphs (1) to (15) of its recitals explained the reasons why the steps required to combat money laundering now needed to be enlarged. Paragraph (13), for instance, referred to evidence that the tightening of controls in the financial sector had prompted money-launderers to seek alternative methods for concealing the origin of the proceeds of crime. Paragraph (14) spoke of a trend towards the increased use by money-launderers of non-financial businesses. And paragraph (15) stated that the obligations of the 1991 Directive concerning customer identification, record-keeping and the reporting of suspicious transactions should be extended to a limited number of activities and professions which had been shown to be vulnerable to money laundering.
Paragraphs (16), (17) and (18) of the recitals are so important that we must set them out in full:
Notaries and independent legal professionals, as defined by the Member States, should be made subject to the provisions of the Directive when participating in financial or corporate transactions, including providing tax advice, where there is the greatest risk of the services of those legal professionals being misused for the purpose of laundering the proceeds of criminal activity.
However, where independent members of professions providing legal advice which are legally recognised and controlled, such as lawyers, are ascertaining the legal position of a client or representing a client in legal proceedings, it would not be appropriate under the Directive to put these legal professionals in respect of these activities under an obligation to report suspicions of money laundering. There must be exemptions from any obligation to report information obtained either before, during or after judicial proceedings, or in the course of ascertaining the legal position for a client. Thus, legal advice remains subject to the obligation of professional secrecy unless the legal counsellor is taking part in money laundering activities, the legal advice is provided for money laundering purposes, or the lawyer knows that the client is seeking legal advice for money laundering purposes.
Directly comparable services need to be treated in the same manner when practised by any of the professionals covered by the Directive. In order to preserve the rights laid down in the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and the Treaty of the European Union, in the case of auditors, external accountants and tax advisors who, in some Member States, may defend or represent a client’s legal position, the information they obtain in the performance of these tasks should not be subject to the reporting obligation in accordance with the Directive.
We will now set out the material provisions of the 1991 Directive as amended by the 2001 Directive:
"Money laundering" means the following conduct when committed intentionally:
participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned in the foregoing indents.
Knowing, intent or purpose required as an element of the abovementioned activities may be inferred from objective factual circumstances.
notaries and other independent legal professionals, when they participate, whether:
by assisting in the planning or execution of transactions for their client concerning the
opening or managing of bank, savings or securities accounts;
creation, operation of management of trusts, companies or similar structures;
or by acting on behalf of and for their client in any financial or real estate transaction;
Member States shall ensure that the institutions and persons subject to this Directive and their directors and employees cooperate fully with the authorities responsible for combating money laundering:
by informing those authorities, on their own initiative, of any fact which might be an indication of money laundering;
[first paragraph] ....
[second paragraph] Member States shall not be obliged to apply the obligations laid down in paragraph 1 to notaries, independent legal professionals, auditors, external accountants and tax advisors with regard to information they receive from or obtain on one of their clients, in the course of ascertaining the legal position for their client or performing their task of defending or representing that client in, or concerning judicial proceedings, including advice on instituting or avoiding proceedings, whether such information is received or obtained before, during or after such proceedings.
Member States shall ensure that the institutions and persons subject to this Directive refrain from carrying out transactions which they know or suspect to be related to money laundering until they have apprised the authorities referred to in Article 6. Those authorities may, under conditions determined by their national legislation, give instructions not to execute the operation. Where such a transaction is suspected of giving rise to money laundering and where to refrain in such manner is impossible or is likely to frustrate efforts to pursue the beneficiaries of a suspected money laundering operation, the institutions and persons concerned shall apprise the authorities immediately afterwards.
The disclosure in good faith to the authorities responsible for combating money laundering by an institution or person subject to this Directive or by an employee or director of such an institution or person of the information referred to in Articles 6 and 7 shall not constitute a breach of any restriction on disclosure off information imposed by contract or by any legislative, regulatory or administrative provision, and shall not involve the institution or person or its directors or employees in liability of any kind.
PART 7 OF THE 2002 ACT
This, then, was the setting in which Part 7 of the 2002 Act falls to be considered. The key to the resolution of the issues we have to determine on this appeal lies in a proper understanding of the scheme and scope of this Part. It is in lapidary style, and was clearly envisaged as a coherent whole. The 1991 and 2001 Directives are important to its proper understanding. We must interpret the United Kingdom Act "so far as possible, in the light of the wording and the purpose of the Directive in order to achieve the result pursued by the latter": Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135, para 8. But it was open to the United Kingdom Parliament to go further than the Directives (cf Article 15), and in some respects it did (see paras 47-51 below).
Because of this fact, and of the possibility that Parliament might have had some different purpose in mind when it went further than the two directives strictly required, we will also examine whether in so doing it can have intended to override important principles of English law without clearly indicating its intention to do so.
We start with certain core provisions of Part 7:
transfers criminal property;
removes criminal property from England and Wales or from Scotland or from Northern Ireland.
But a person does not commit such an offence if-
he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;
he intended to make such a disclosure but had a reasonable excuse for not doing so;
A person commits an offence if each of the following three conditions is satisfied.
The first condition is that he-
has reasonable grounds for knowing or suspecting,
The second condition is that the information or other matter-
on which his knowledge or suspicion is based, or
which gives reasonable grounds for such knowledge or suspicion,
The third condition is that he does not make the required disclosure as soon as is practicable after the information or other matter comes to him.
But a person does not commit an offence under this section if-
he has a reasonable excuse for not disclosing the information or other matter;
he is a professional legal adviser and the information or other matter came to him in privileged circumstances; ....
Information or other matter comes to a professional legal adviser in privileged circumstances if it is communicated or given to him-
by (or by a representative of) a client of his in connection with the giving by the adviser of legal advice to the client;
by a person in connection with legal proceedings or contemplated legal proceedings.
But subsection (10) does not apply to information or other matter which is communicated or given with the intention of furthering a criminal purpose.
he knows or suspects that a disclosure falling within section 337 or 338 has been made, and
he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure referred to in paragraph (a).
But a person does not commit an offence under subsection (1) if-
he is a professional legal adviser and the disclosure falls within subsection (3)
A disclosure falls within this subsection if it is a disclosure-
to (or to a representative of) a client of the professional legal adviser in connection with the giving by the adviser or legal advice to the client, or
to any person in connection with legal proceedings or contemplated legal proceedings.
But a disclosure does not fall within subsection (3) if it is made with the intention of furthering a criminal purpose.
For the purposes of this Part a disclosure is authorised if-
it is a disclosure to a constable, a customs officer or a nominated officer by the alleged offender that property is criminal property .... and
the first or second conditions set out below is satisfied.
The first condition is that the disclosure is made before the alleged offender does the prohibited act.
the disclosure is made after the alleged offender does the prohibited act,
there is a good reason for his failure to make the disclosure before he did the act, and
the disclosure is made on his own initiative and as soon as it is practicable for him to make it.
An authorised disclosure is not to be taken to breach any restriction on the disclosure of information (however imposed).
References to the prohibited act are to an act mentioned in section 327(1), 328(1) or 329(1) (as the case may be).
Property is criminal property if-
it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and
It is immaterial-
who carried out the conduct;
who benefited from it;
whether the conduct occurred before or after the passing of this Act.
References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained in both that connection and some other.
If a person benefits from conduct his benefit is the property obtained as a result of or in connection with the conduct.
Money laundering is an act which-
constitutes an offence under section 327, 328 or 329,
constitutes an attempt, conspiracy or incitement to commit an offence specified in paragraph (a),
constitutes aiding, abetting, counselling or procuring the commission of an offence specified in paragraph (a), or
would constitute an offence specified in paragraph (a), (b) or (c) if done in the United Kingdom.
THE RESPECTS IN WHICH THE 2002 ACT GOES FURTHER THAN THE DIRECTIVES
The directives aim, first, to prohibit money laundering (article 2). Money laundering is defined in article 1 in terms of
intentional conduct of various types (described in the first three sub-clauses of article 1(C) in the 2001 Directive) in respect of property known to be derived from criminal activity or
participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any such conduct (see the fourth sub-clause).
Under the 1991 Directive the phrase "criminal activity" originally had the meaning set out in para 27 above. Under the 2001 Directive the concept extends to "any kind of criminal activity in the commission of a serious crime", with a minimum list of examples and liberty to member states to "designate any other offence as a criminal activity for the purposes of this Directive" (article 1, as replaced).
The directives’ second aim is to impose obligations on specified institutions or persons. The 1991 Directive covered credit and financial institutions (and in some respects their directors and employees), with a requirement on member states to extend its provisions "in whole or in part to professions and to [other] categories of undertakings .... which engage in activities which are particularly likely to be used for money laundering purposes" (article 12). The 2001 Directive covers not merely credit and financial institutions as re-defined in the amended article 1 (and in some respects their directors and employees), but also "the legal or natural persons acting in the exercise of their professional activities" specified in the new article 2a. Under the directives both articles 6 and 7 are limited in application to the institutions and persons covered by the respective directive.
In contrast, the United Kingdom legislation defines money laundering to include property known or suspected to constitute or represent a benefit from criminal activity, and, following the 1991 Directive, the United Kingdom’s money laundering regime was applied both to drug-related crime (the 1994 Act) and to other crime (Part VI of the 1988 Act, as amended): see Part 5 above. Following the 2001 Directive, it now applies to the benefits of any type of criminal conduct (s 340(3) of the 2002 Act).
The extended definition of money laundering in the United Kingdom legislation (to embrace circumstances of suspicion) involved abandoning the distinction drawn in the directives between money laundering (articles 1 and 2) and the requirement (article 7) that the institutions and persons subject to the directives should "refrain from carrying out transactions which they know or suspect to be related to money laundering". Under the United Kingdom legislation, the distinction between money launderers and other institutions and persons whose conduct is regulated by the legislative regime is preserved in relation to ss 330-1, which applies only to the regulated sector and gives broad effect to article 6. But ss 327-9 (in common with the predecessor sections 93A, B and C of the 1988 Act) contain both the provisions by which the United Kingdom fulfilled its obligation to prohibit money laundering and provisions regarding disclosure to the authorities which derive inspiration from article 7 of the directives. Section 328, in particular, is thus applicable to any person, although otherwise close in subject matter and spirit to article 7 of the 2001 Directive. The inclusion in ss 327 and 329 of provisions qualifying their prohibitions on money laundering by reference to provisions relating to disclosure may at first sight seem odd, but can be rationalised on the basis that, if such disclosure is made, the situation ceases in substance to involve money laundering.
Sections 327 and 329 proscribe the (intentional) doing of any act in relation to property known or suspected to constitute a criminal benefit in terms which more than fulfil the United Kingdom’s obligations under the first three sub-clauses of article 1(C) of the 2001 Directive (see para 43 above). They should (as the definition of money laundering in s 340(11) confirms) be viewed in conjunction with the provisions of the Criminal Law Act 1977 s 1, the Criminal Attempts Act 1981 s 1 and the Accessories and Abettors Act 1861 s 8, which together make it an offence to conspire to commit, to attempt to commit and to aid, abet, counsel or procure the commission of any offence indictable in the United Kingdom. The only phrase in article 1 of the directives not expressly covered by ss 327 and 329 of the 1977, 1981 and 1861 Acts is "facilitating and counselling", but it is not obvious that that could, in English law, add much, if anything, to the provisions of these sections. It therefore seems to us that s 328 cannot be regarded, at least primarily, as required to fulfil the United Kingdom’s obligations under the fourth sub-clause of article 1C of the 2001 Directive. The word "facilitates" is, nevertheless, a key word used in s 328, the meaning of which is central to this appeal. In the directives, it is qualified by the adverb "intentionally", whereas in s 328 no such qualification appears (at least expressly), and its meaning may on one view therefore simply be transcribed as "makes easier". We return to this point in paragraph 98 below.
THE CENTRAL ISSUE ON THIS APPEAL
As we have observed (see para 24 above), the central issue on this appeal is whether s 328 applies to the ordinary conduct of legal proceedings or any aspect of such conduct – including, in particular, any step taken to pursue proceedings and the obtaining of a judgment. A question not directly raised by the facts of this appeal, but which it would not be sensible to ignore, is whether the section applies to any consensual steps taken or settlement reached during legal proceedings. We discuss this question at paras 99-102 below. The fact that s 328 (unlike article 7) applies to any person gives rise to the argument that s 328 applies to lawyers conducting legal proceedings. But there is a general problem about this argument which exists as much under the directives as under the more expanded domestic legislation.
The recitals to and the text of the 2001 Directive show that there was very considerable concern about the potential effects of the mandatory expansion of the money laundering regime outside the field of drugs in relation to legal and comparable professionals conducting litigation and giving ordinary legal advice. The opinions, the "common position", and the decisions referred to in footnote (3) to the 2001 Directive witness the efforts made to cater for this concern. Ultimately, agreement was reached on emphatic recitals and a somewhat differently formulated text. The recitals to the 2001 Directive state that legal (and comparable) professionals "must" have "exemptions from any obligation to report information obtained either before, during or after judicial proceedings, or in the course of ascertaining the legal position for a client" (recitals (17) and (18)). They make reference to the rights laid down in the European Convention on Human Rights and the Treaty of the European Union. The relevant text in the second paragraph of article 6(3) of the directive is in less than mandatory terms, probably reflecting the process of dialogue and "negotiation" between the different European authorities.
Article 6(1) requires that institutions and persons subject to the relevant directive be obliged to report to the authorities "any fact which might be an indication of money laundering". The word "might" shows that this article was always capable of embracing circumstances of mere suspicion. Article 6 of the 1991 Directive led to s 52 of the 1994 Act, covering "information or other matter" coming to the attention of someone "in the course of his trade, profession, business or employment". As amended by the 2001 Directive, article 6 led to ss 330-1 of the 2002 Act, applying to the "regulated sector". The original definition of the "regulated sector" in appendix 9 to the 2002 Act was replaced by The Proceeds of Crime Act 2002 (Business in the Regulated Sector and Supervisory Authorities) Order 2003 (SI 2003 No 3074) under part 3 of appendix 9. The activities defined as constituting business in the regulated sector are, basically, activities in the financial and property sectors. Among them is included:
the provision by way of business of legal services by a body corporate or unincorporate or, in the case of a sole practitioner, by an individual and which involves participation in a financial or real property transaction (whether by assisting in the planning or execution or any such transaction or otherwise by acting for, or on behalf of, a client in any such transaction.
Section 330 is only relevant where information or other matter coming to the attention of a person in the course of a business in the regulated sector leads him to know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering. It follows that when s 330(6)(b) and (10) exempt legal professionals learning of information or other matter in privileged circumstances from any obligation of disclosure, this suggests that they may continue to act as legal professionals in the course of the relevant business, and so continue the conduct of any legal proceedings or the giving of any legal advice, without making such disclosure. If NCIS is right in its submissions, this would, however, be incorrect.
Under the second paragraph of article 6(3) (for the text see para 43 above), read literally, it remains open to member states to apply the obligations laid down in article 6(1) to legal and comparable professionals, even "with regard to information they receive from or obtain on one of their clients, in the course of ascertaining the legal position for their client or performing their task of defending or representing that client in, or concerning judicial proceedings". Recital (17) and the second paragraph of article 6(3) do not state expressly whether they are referring both to the activities of legal professionals in the limited field covered by article 2a(5) of the directive (see para 43 above), and also to their activities in other fields. If the latter were also intended, then the second paragraph of article 6(3) would have the unexpected effect of granting an express permission to member states to extend the obligations of disclosure to information obtained by legal professionals when giving legal advice or conducting legal proceedings in circumstances having nothing to do with any activity listed in article 2a(5).
Recitals (17) and (18) are drafted in general terms, and make general reference to the "activities" of "ascertaining the legal position of a client or representing a client in legal proceedings". The general nature of this reference can only have been there as a matter of caution as regards legal professionals, since the directive was only intended to apply in their case in the limited field of financial and corporate transactions (see recital (16) and article 2a(5)). When the drafters of the directive arrived at the form of words used in article 6(3) ("shall not be obliged"), they may have envisaged that some member states might wish to extend the disclosure obligations under the directive to legal and comparable professionals acting in fields within article 2a(3) and (5), but it seems improbable that they had in mind the extension of the scope of the directive, and thus of disclosure obligations, in the case of legal professionals to fields outside article 2a(5).
Under article 7, member states’ obligation to "ensure that the institutions and persons subject to this Directive refrain from carrying out of transactions which they know or suspect to be related to money laundering until they have apprised the authorities referred to in Article 6" is limited, in the case of legal professionals, to circumstances when they participate in an activity specified in article 2a(5). It also only relates to the "carrying out of transactions" which they know or suspect to be related to money laundering. The concept of a "transaction" appears in the eleventh recital of the 1991 Directive and in recitals (3), (11) and (16) of the 2001 Directive, and it contrasts with the references to "legal proceedings" in recitals (17) and (18) of the 2001 Directive.
We do not consider that one can derive from the inclusion of recitals (17) and (18) or of the second paragraph of article 6(3) any conclusion that the activities upon which they focus (conducting ordinary legal proceedings and giving legal advice) would by themselves amount to "participating in financial or corporate transactions" in the area covered by recital (16) and article 2a(5). Indeed, while legal advice may be given in any area, one would not often expect legal professionals assisting in the planning or execution of or acting for a client in respect of a financial or real estate transaction of a kind specified in article 2a(5) to have received from, or obtained on, their client relevant information "in the course of performing their task of defending or representing that client in, or concerning judicial proceedings". To that extent recitals (17) and (18) and the second paragraph of article 6(3) may appear as a matter of caution, even in relation to transactions in the area covered by recital (16) and article 2a(5).
The prohibition contemplated under article 7 cannot in any event have been envisaged as covering any aspect of the conduct or resolution of legal proceedings, since, had that been envisaged, it seems beyond doubt that the European legislator would have applied the clearly stated policy of recitals (17) and (18) to article 7, as well as to article 6. The protection afforded by article 6 to legal professionals conducting legal proceedings must have been intended to apply so as to enable such legal proceedings to be continued to their ordinary conclusion. Likewise, there seems to us to be considerable room for argument, although it is unnecessary to express any concluded view on this, that the protection intended in respect of the giving of legal advice must have been intended to cover advice given in the context of some transaction which the client was about to undertake; it cannot, in other words, have been envisaged that a legal professional would be "carrying out [a] transaction" merely because he had advised in relation to it.
The importance which was attached under article 6 to enabling legal and comparable professionals to continue to conduct legal proceedings and give legal advice is obvious. Yet article 7 of the 2001 Directive prohibits the institutions and persons subject to the directive, including the same legal and comparable professionals in certain contexts, from "carrying out any transaction which they know or suspect to be related to money laundering". What was given by way of protection under article 6 cannot have been intended to be taken away under article 7. It follows that article 7 must be understood in a way which does not undermine the protection expressed in article 6(3).
We do not believe that the absence from article 7 of any protection at all of the kind expressed in article 6(3) can have been an oversight; or that it can have thought that the protection was implicit and did not need spelling out in article 7 when it had been in relation to article 6. But the absence of any specific protection in respect of legal proceedings, or in respect of legal professional privilege in the broad sense of article 6, is a strong argument for a restricted understanding of the concepts of "carrying out transactions" in article 7. It cannot in our view have been conceived that the ordinary conduct of litigation to its ordinary conclusion, resolving the rights and duties of two parties according to law, could be said to involve the "carrying out" of a "transaction" related to money laundering. This would remain the case even if assets which happened to be the proceeds of money laundering might be the subject of claims in the proceedings, or be retained or used to satisfy any liability according to the outcome of the proceedings. The function of litigation - to resolve rights and duties according to law - and the public scrutiny to which it is subject, together with the presence and role of the judge, also distinguish legal proceedings from any "transaction" that the European legislator can have had in mind, as well as offering safeguards against misconduct.
In a similar way and for similar reasons, the absence from s 328 of any equivalent protection to that contained in respect of the regulated sector in s 330(10) is a strong argument for a restricted understanding of the concept of "being concerned in an arrangement" in s 328(1). Although s 328 applies to any person and is not limited like s 330 to the regulated sector, s 328 only applies if a person "enters into or becomes concerned in an arrangement" which he knows or suspects facilitates the acquisition, retention, use or control of criminal property. To our mind, it is as improbable that Parliament, being the UK legislator, had the ordinary conduct of legal proceedings to judgment in mind under s 328 (or indeed under ss 327 and 329) as it is to suppose that the European legislator had them in mind in article 7. If the European legislator did not intend article 7, and the UK legislator did not intend ss 327-9, to cover the ordinary conduct of legal proceedings or the ordinary giving of legal advice in circumstances not making the legal adviser a co-conspirator or accessory to any other offence, it was unnecessary - and would indeed have been inappropriate - to have introduced into either article 7 or into ss 327-9 any equivalent exceptions to those provided, respectively, by article 6 and s 330(6)(b), (10) and (11). Support for our conclusions is provided by linguistic and policy considerations.
THE CENTRAL ISSUE: LINGUISTIC CONSIDERATIONS
In P v P no distinction appears to have been drawn between acting for a party in litigation (or, as it was put, seeking an arrangement from the court) and negotiating the settlement of a financial dispute (paras 3 and 49); and it was also assumed that a legal professional could "become concerned in an arrangement" prior to its execution, by, for example, the act of negotiating it (para 48). However, as a matter of ordinary language, our impression on reading s 328 was and remains that, whatever Parliament may have had in mind by the phrase "entering into or becomes concerned in an arrangement which .... facilitates ....", it is most unlikely that it was thinking of legal proceedings.
It is, however, helpful to take the position in stages. First, to describe a judgment or order as an "arrangement" is a most unnatural use of language, whether one looks at the matter from the viewpoint of the litigant, the lawyers or the judge. Mr. Pannick expressly disclaimed any suggestion that a judge giving a judgment or making an order could be regarded as "a person .... concerned in an arrangement", within s 328(1). But, one may ask: why not, if Mr. Pannick is right in saying that a legal professional seeking or obtaining such a judgment or order is so concerned? Neither the judge nor the legal professional is in our view a relevant person concerned, for the simple reason that a judgment or order is not an arrangement within the section. It is therefore unnecessary to seek to exclude a judge from any possible obligation of disclosure under s 328 by resorting to the proposition (itself open to some debate) that a judge is a "person in the public service of the Crown" within the meaning of s 452 of the 2002 Act, in relation to whom no order has (as yet) been made applying s 328.
Secondly, if a judgment or order is outside the concept of an arrangement under s 328, we see equally little basis in ordinary language for treating any step taken to issue or pursue legal proceedings with a view to obtaining a judgment or order as an "arrangement".
These conclusions undermine the proposition apparently accepted in P v P, viz that the act of seeking a particular disposition by the court could amount to entering into or becoming concerned in an arrangement facilitating the acquisition, etc. of criminal property within s 328. But we would make these further observations on that proposition. First, each of ss 327-9 speaks of doing an act in precise terms suggestive of a focus on a particular point in time. This is so in the case of ss 327 and 329, even though use or possession of criminal property may be continuing, with the result that a charge may be brought and may succeed by reference to any point during a period. In s 328 the nature of the act is either entering into an arrangement or the vaguer concept of "becom[ing] concerned in an arrangement". To enter into an arrangement involves a single act at a single point in time; so too, on the face of it, does to "become concerned" in an arrangement, even though the point at which someone may be said to have "become" concerned may be open to argument.
Accordingly, even if we had accepted that the ordinary pursuit or conduct of legal proceedings could give rise to an "arrangement which .... facilitates the acquisition, retention, use or control of criminal property" under s 328, we would not have accepted that an offence could be committed until such an arrangement was made, or that an arrangement could be said to have been made by any intermediate step in the pursuit of proceedings which did not itself involve the acquisition, retention, use or control of criminal property.
Finally, we would wish to keep open the question whether and how far the section means that a person who has done some previous act, such as giving advice or playing a role in negotiations, can fall to be treated retroactively as having committed an offence by that act, if and when an arrangement is subsequently made. The alternative interpretation is (as mentioned in P v P, para 48) that the section only bites on those who either enter into or become concerned in an arrangement when it is made or subsequently. This interpretation could involve taking over some role under it or in relation to its performance.
THE CENTRAL ISSUE: POLICY CONSIDERATIONS
As to policy, nothing makes it plausible to suppose that the UK legislator adopted the policy of recitals (17) and (18) in relation to activity in the regulated sector, but that it intended to cover legal proceedings, yet to abandon that policy, under ss 327-9. This is reinforced by more general considerations of principle.
First, access to justice through legal proceedings is as much a fundamental principle of European Community law as it is under the European Convention on Human Rights (the "ECHR") and under UK domestic law. The European Court of Human Rights said in Golder v UK [1975] 1 EHRR 524, paras 35-36:
The principle whereby a civil claim must be capable of being submitted to a judge ranks as one of the universally ‘recognised’ fundamental principles of law; the same is true of the principle of international law which forbids the denial of justice. Article 6(1) must be read in the light of these principles ....
.... it follows that the right of access constitutes an element which is inherent in the right stated by Article 6 ....
The European Court of Justice in Johnston v Chief Constable RUC (Case 222/84) [1987] QB 129 said at para 18, in relation to a directive requiring all persons having discrimination claims to be able "to pursue their claims by judicial process after possible recourse to other competent authorities", that
The requirement of judicial control .... reflects a general principle of law which underlies the constitutional traditions common to the member states. The principle is also laid down in articles 6 and 13 of the [ECHR] .... As the European Parliament, Council and Commission recognised in their joint declaration of 5 April 1977 (OJ 1977 No c 103, p 1) and as the court has recognised in its decisions, the principles on which that Convention is based must be taken into consideration in Community law.
Recital (17) of the 2001 Directive expressly acknowledges the need to avoid interference with the conduct by legal and comparable professionals of judicial proceedings "in order to preserve the rights laid down in the [ECHR]."
Secondly, access to legal advice on a private and confidential basis is also a fundamental principle not lightly to be interfered with. This is so both in the criminal law sphere (cf S v Switzerland (1991) 14 EHRR 670, Ocalan v Turkey (2003) 37 EHRR 10 and Campbell v UK (1992) 15 EHRR 137), but also in the context of advice sought for civil law purposes: cf Foxley v UK (2001) 31 EHRR 25, para 43, where the European Court of Human Rights, citing Campbell, said:
.... the lawyer-client relationship is, in principle, privileged and correspondence in that context, whatever its purpose, concerns matters of a private and confidential nature.
Foxley was a case concerned with the interception of correspondence between a prisoner and his lawyer in which the court made it clear that a heavy onus lay on a Government to justify such interference. Thus, after describing the manner in which letters from the prisoner’s lawyers were being opened and photocopied by the prison authorities, who then placed a copy in the prisoner’s file before he was allowed access to them, the court said (at para 44):
The Court can see no justification for this procedure and considers that the action taken was not in keeping with the principles of confidentiality and professional privilege attaching to relations between a lawyer and his client. It notes in this connection that the Government have not sought to argue that the privileged channel of communication was being abused; nor have they invoked any other exceptional circumstances which would serve to justify the interference with reference to their margin of appreciation.
The importance attached to the confidentiality of client-lawyer communications has also been recognised by the case law of the European community. For instance in A M & S Europe Ltd v Commission of The European Communities (Case 155/79) [1983] QB 878, 949 the European Court of Justice said (at para 18):
Community law, which derives from not only the economic but also the legal interpretation of the member states, must take into account the principles and concepts common to the laws of those states concerning the observance of confidentiality, in particular, as regards certain communications between lawyer and client. That confidentiality serves the requirement, the importance of which is recognised in all of the member states, that any person must be able, without constraint, to consult a lawyer whose profession entails the giving of independent legal advice to all those in need of it.
This principle of lawyer-client confidentiality is also reflected in Recital (17) of the 2001 Directive (see para 43 above). It, too, would often be infringed if information obtained in the ordinary course of conducting legal proceedings could trigger the application of article 7 or s 328.
So far as UK domestic law is concerned, it is elementary that when a lawyer is advising a client or acting for him in litigation, he may not disclose to a third party any information about his client’s affairs without his express or implied consent. The great importance which the law attaches to legal professional privilege was stated in uncompromising terms by Lord Taylor CJ in R v Derby Magistrates’ Court ex p B [1996] 1 AC 487 at pp 503-508. In particular he said, after citing some of the leading cases:
In Three Rivers DC v Bank of England (No 6) [2004] UKHL 48, [2004] 3 WLR 1274 the House of Lords restated emphatically that legal advice privilege was just as important as litigation privilege, and that for good policy reasons the law affords a special privilege to communications between lawyers and their clients which it denies to all other confidential communications (see Lord Scott of Foscote at paras 23-28). After citing dicta from the United States Supreme Court, the Supreme Court of Canada and the High Court of Australia and referring to the jurisprudence of the Court of Appeal of New Zealand and the European Court of Justice at Luxembourg, Lord Scott said at para 34:
.... [T]he dicta to which I have referred all have in common the idea that it is necessary in our society, a society in which the restraining and controlling framework is built upon a belief in the rule of law, that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyers' legal skills in the management of their (the clients') affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busy-bodies or anyone else (see also paras. 15.8 to 15.10 of Adrian Zuckerman's Civil Procedure where the author refers to the rationale underlying legal advice privilege as "the rule of law rationale"). I, for my part, subscribe to this idea.
In R (Morgan Grenfell & Co Ltd) v Special Commissioner for Income Tax [2002] UKHL 21, [2003] 1 AC 563 the House of Lords was concerned with a case in which an inspector of taxes initiated a procedure apparently sanctioned by s 20(7) of the Taxes Management Act 1970 refusing disclosure by a bank of its instructions to counsel and counsel’s advice concerning a tax avoidance scheme. The House unanimously held that much clearer language would be required in an Act of Parliament before a fundamental human right could be overridden. Lord Hoffmann said at paras 7-9:
Two of the principles relevant to construction are not in dispute. First, legal professional privilege (‘LPP’) is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice. The cases establishing this principle are collected in the speech of Lord Taylor of Gosforth CJ in R v Derby Magistrates’ Court, ex p B [1996] AC 487. It has been held by the European Court of Human Rights to be part of the right of privacy guaranteed by article 8 of the Convention .... and held by the European Court of Justice to be a part of Community law ....
Section 20(1) contains no express reference to LPP and the question is therefore whether its exclusion must necessarily be implied.
In ex p Simms Lord Hoffmann said at para 44:
In relation to both access to justice through legal proceedings on the one hand and legal professional privilege on the other, the driving principles behind European Community law, ECHR law and UK domestic law are therefore seen to be virtually identical.
OUR CONCLUSION ON THE CENTRAL ISSUE
For these reasons we conclude that the proper interpretation of s 328 is that it is not intended to cover or affect the ordinary conduct of litigation by legal professionals. That includes any step taken by them in litigation from the issue of proceedings and the securing of injunctive relief or a freezing order up to its final disposal by judgment. We do not consider that either the European or the United Kingdom legislator can have envisaged that any of these ordinary activities could fall within the concept of "becoming concerned in an arrangement which .... facilitates the acquisition, retention, use or control of criminal property".
In summary, legal proceedings are a state-provided mechanism for the resolution of issues according to law. Everyone has the right to a fair and public trial in the determination of his civil rights and duties which is secured by article 6 of the European Convention on Human Rights. Parliament cannot have intended that proceedings or steps taken by lawyers in order to determine or secure legal rights and remedies for their clients should involve them in "becoming concerned in an arrangement which .... facilitates the acquisition, retention, use or control of criminal property", even if they suspected that the outcome of such proceedings might have such an effect.
THE NARROWER ISSUE
If we were wrong in our conclusion on the central issue, the question would remain whether on its true construction s 328 has the effect of overriding legal professional privilege and the terms on which lawyers are permitted to have access to documents disclosed in the litigation process. We will therefore apply to the interpretation of s 328 certain principles that are used to interpret English Acts of Parliament when there is not a European perspective. In paragraphs 74-81 above we have referred to the great importance attached to legal professional privilege in the jurisprudence of the courts in Strasbourg and Luxembourg and in our domestic law.
There is nothing in the language of s 328 to suggest that Parliament expressly intended to override legal professional privilege. In his speech in the Morgan Grenfell case Lord Hobhouse said at paras 45-46:
It is accepted that the statute does not contain any express words that abrogate the taxpayer’s common law right to rely upon legal professional privilege. The question therefore becomes whether there is a necessary implication to that effect. A necessary implication is not the same as a reasonable implication as was pointed out by Lord Hutton in B (A Minor) v Director of Public Prosecutions [2000] 2 AC 428, 481. A necessary implication is one which necessarily follows from the express provisions of the statute construed in their context. It distinguishes between what it would have been sensible or reasonable for Parliament to have included or what Parliament would, if it had thought about it, probably have included and what it is clear that the express language of the statute shows that the statute must have included. A necessary implication is a matter of express language and logic not interpretation.
In the present case the statutory language falls a long way short of meeting this criterion.
Mr. Pannick argued that Parliament must have been taken by s 338(4) (see para 46 above) to have intended authorised disclosure to override legal professional privilege save to the extent that Part 7 expressly so provided. This language, however, was used in the earlier legislation (for instance, s 93A(3)(a) of the 1988 Act as amended: see para 33 above) to protect what would otherwise be a breach of a duty of confidence in circumstances which did not amount to the violation of a fundamental human right. Much stronger language would have been required if s 328 could be interpreted as bearing a necessary implication that legal professional privilege was to be overridden. As Lord Hoffmann said in ex p Simms (see para 81 above),
Fundamental rights cannot be overridden by general .... words.
For these reasons, even if s 328 does apply to the ordinary conduct of legal proceedings, it does not override legal professional privilege.
There is another very important principle underlying the proper administration of justice that would be jettisoned if a wide meaning were given to s 328. In so far as a lawyer gains information from documents disclosed by another party to adversarial litigation and not read in open court, he will be committing a contempt of court if he discloses them to a third party without the express or implied permission of the court or express, clear, Parliamentary sanction. Lord Hoffmann explained the policy underlying the implied undertaking to the court in these terms in Taylor v Serious Fraud Office [1999] 2 AC 177 at p 207:
The concept of an implied undertaking originated in the law of discovery in civil proceedings. A solicitor or litigant who receives documents by way of discovery is treated as if he had given an undertaking not to use them for any purpose other than the conduct of the litigation. As Hobhouse J. pointed out in Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756, 764 the undertaking is in reality an obligation imposed by operation of law by virtue of the circumstances in which the document or information is obtained. The reasons for imposing such an obligation were explained by Lord Keith of Kinkel in Home Office v Harman [1983] 1 AC 280, 308:
Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.
We are of the firm opinion that it would require much clearer language than is contained in s 328 and its ancillary sections before a Parliamentary intention could be gleaned to the effect that a party’s solicitor is obliged, in breach of this implied duty to the court, and in breach of the duty of confidence he owes to his own client as his litigation solicitor, to disclose to NCIS a suspicion he may have that documents disclosed under compulsion by the other party evidence one of the matters referred to in s 328.
It follows that on this narrower issue we are satisfied that even if, contrary to our primary view, s 328 is to be interpreted as including legal proceedings within its purview, it cannot be interpreted as meaning either that legal professional privilege is to be overridden or that a lawyer is to breach his duty to the court by disclosing to a third party external to the litigation documents revealed to him through the disclosure processes.
It is unnecessary in these circumstances to go on to discuss whether the wide interpretation of s 328 favoured by NCIS is compatible with Articles 6 and 8(1) of the European Convention on Human Rights, requiring as it does the breach of lawyer-client confidentiality in all circumstances, even if the lawyer suspects a minor criminal offence may have been committed long ago. It is sufficient, perhaps, to remind oneself of the dangers of over-literal interpretation of the language of a statute which were identified by Lord Nicholls in Associated Dairies Ltd v Baines [1997] AC 524 at p 532:
Linguistic arguments of this character should be handled warily. They are a legitimate and useful aid in statutory interpretation, but they are no more than this. Sometimes a difference in language is revealing and therefore important, other times not. In the process of statutory interpretation there always comes a stage, before reaching a final decision, when one should stand back and view a suggested interpretation in the wider context of the scheme and purpose of the Act. After all, the object of the exercise is to elucidate the intention fairly and reasonably attributable to Parliament when using the language under consideration.
We should cover certain further arguments of construction which were addressed to us. First, Mr. Pannick submitted that there is no incongruity if the considerations reflected in ss 330(6)(b) and (10) had no application to acts of legal professionals conducting legal proceedings or (presumably) giving legal advice who rightly suspected that a client was engaged in money laundering. He based this proposition on s 330(1), which he submits reflects the common law rule according to which a client can enjoy no legal privilege if he is in fact engaged in criminal activity: R v Cox and Railton 14 QBD 153.
This submission is open to a number of objections. First, it still fails to explain why the respective legislators included the last paragraph of article 6(3) or the provisions of s 330(6)(b) and (10), but no equivalent protection in article 7 or s 328. Further, s 330(11) is limited to "information or other matter which is communicated or given with the intention of furthering a criminal purpose". We accept that the more natural reading of that phrase is that it looks at the intention of the person communicating or giving the information to the legal professional, although we would wish to leave open whether that is necessarily the right reading.
The rule in Cox and Railton was decided in a common law context where the lawyer would have no right or duty to disclose mere suspicions; and it addressed the existence or absence at common law of a privilege which belongs to the client alone. The general aim of s 330(6)(b) is clearly to protect legal professionals, by enabling them – in the interests of the public and clients generally – to render basic legal services, despite any suspicions such professionals may have and whatever may ultimately prove to be the true factual position. The situation differs in this respect from that considered in R v. Central Criminal Court, ex p Francis & Francis [1989] AC 346. So it may be arguable that s 330(11) only applies if the legal professional is aware of the intention to further a criminal purpose. But, however that may be, s 330(11) is only applicable where information or other matter is communicated with the intention of furthering a criminal purpose.
Information communicated or given with the intention of enabling a court to adjudicate upon the respective rights and duties of opposing parties would not be given for such a purpose, even though it happened to disclose that one or other party had engaged or was engaged in money laundering activities (e.g. a VAT or tax fraud). For the reasons we have already given, the issue or pursuit of ordinary legal proceedings with a view to obtaining the court’s adjudication upon the parties’ rights and duties is not to be regarded as an arrangement or a prohibited act within ss 327-9.
Next, heavy reliance was placed on paragraph 48 of the judgment of Dame Elizabeth Butler-Sloss in P v P (see para 23 above). Although both the Bar Council and the Law Society intervened by leading counsel in the argument before Dame Elizabeth, Mr. Elliott, who also appeared for the Law Society on that occasion, told us that he was first instructed on the day before the hearing. A perusal of the list of cases set out on page 2 of the report shows that no argument at all was addressed to the possibility that s 328 did not disclose a clear Parliamentary intention, by necessary implication, to the effect that legal professional privilege was to be overridden.
For this reason it is unnecessary to dwell on those parts of Dame Elizabeth’s judgment (particularly in paras 51 and 67) which are causing very great difficulties in practice. It is noteworthy that Dame Elizabeth said that issues of legal professional privilege did not seem to her to arise under ss 327, 328 or 329 of the Act. Such issues unquestionably do arise if a lawyer informs NCIS without his client’s consent of his suspicions about his client from what the client has told him or shown him.
Thirdly, Mr. Boswood sought to confine s 328 not merely by arguing that the concept of "being concerned in an arrangement which .... facilitates ...." should be construed in a restricted sense in relation to the conduct of legal proceedings – a submission with which we agree - but also by suggesting that there should be read into it a requirement of a shared "purpose" to make money laundering easier. But, while there is in our view room to restrict the concept by reference to its inherent nature, there is no express restriction by reference to purpose in the language of s 328(1). We find it difficult to see how any could be read in, when the section embraces situations in which a person making an arrangement suspects that it facilitates the acquisition, retention, use or control of criminal property. Further, in a case to which we were not referred by counsel, R v McMaster [1999] 1 Cr App R 402, the criminal division of this court rejected a submission that a person exchanging the sterling proceeds of drug trafficking for guilders could only be convicted under s 50(1)(a) of the 1984 Act, the predecessor section to s 328, if the purpose of the relevant exchange was to conceal the sterling proceeds. The court observed that the bracketed examples of facilitation which appeared in s 50(1)(a) were not limited to concealment, and said that the words of s 50(1)(a) were:
apt to cover facilitation .... without reference to what the reason or purpose for that conversion was. As it seems to us, what the guilders which came into the appellant’s hands were to be used for was immaterial. It is to be noted that there is no reference in the section to the purpose for which, as distinct from the means by which, the facilitation took place.
The motivation of a transaction which otherwise falls within s 328 is on this basis not directly relevant. In these circumstances, we are not able to accept Mr. Boswood’s further submission that we should read into s 328 some requirement of purpose.
CONSENSUAL RESOLUTION IN A LITIGIOUS CONTEXT
We must now say something about the position where parties agree to dispose of the whole or any aspect of legal proceedings on a consensual basis. The consensual resolution of issues is an integral part of the conduct of ordinary civil litigation. If, as we consider, article 7 was intended to leave unaffected the ordinary conduct of litigation, then it seems implausible to suggest that it was intended to apply to legal professionals negotiating or implementing a consensual resolution of issues in a litigious context. It cannot have been thought that they would thereby be "carrying out [a] transaction" within the meaning of article 7. Similar considerations apply with regard to s 328 of the 2002 Act, despite the different terminology ("enters into or becomes concerned in an arrangement)". It would be a strange policy which treated the ordinary conduct of litigation as outside the scope of s 328, but only to the extent that the parties refrained from agreeing on any step involved in its conduct and/or from agreeing to resolve any of the issues arising by settlement rather than by litigation to judgment.
The need to encourage co-operation and the value of consensual settlement have been underlined both nationally, by the Woolf Reforms in particular, and internationally, e.g. in the acquis of the Council of Europe and the developed practices of courts in countries such as the United States and Canada. Consensual settlement gives effect to the parties’ perception of the strengths and weaknesses of their respective positions, which would otherwise have to be determined by litigation to judgment. Any consensual agreement can in abstract dictionary terms be called an arrangement. But we do not consider that it can have been contemplated that taking such a step in the context of civil litigation would amount to "becoming concerned in an arrangement which .... facilitates the acquisition, retention, use or control of criminal property" within the meaning of s 328. Rather it is another ordinary feature of the conduct of civil litigation, facilitating the resolution of a legal dispute and of the parties’ legal rights and duties according to law in a manner which is a valuable alternative to the court-imposed solution of litigation to judgment.
We appreciate that this means that there is a distinction between consensual steps (including a settlement) taken in an ordinary litigious context and consensual arrangements independent of litigation. But this is a distinction that is inherent in recitals (17) and (18) and in the second paragraph of article 6(3) of the 2001 Directive, as well as in ss 330(10)(c), 333(3)(b), and 342(4)(b) of the 2002 Act (see paras 42 and 46 above). The 2002 Act makes it clear that the distinction is between situations where there are existing or contemplated legal proceedings and other situations, and this seems to us consistent also with the language of recitals (17) and (18) and the second paragraph of article 6.3 of the 2001 Directive.
If the view expressed in the preceding paragraph were wrong, the question would arise at what, if any, point a legal professional advising on, negotiating or concluding on his client’s behalf a settlement of legal proceedings on the merits could or should be said to have "become concerned in an arrangement which .... facilitates the acquisition, retention, use or control of criminal property", if he suspected that the settlement embraced or would in practice fall to be satisfied out of criminal property. We would not wish without further argument to be thought to accept that this could necessarily be said in any of these situations. The position could be different if one were concerned with a settlement which did not reflect the legal and practical merits of the parties’ respective positions in the proceedings, and was known or suspected to be no more than a pretext for agreeing on the acquisition, retention, use or control of criminal property. Similar considerations to those mentioned in paragraph 67 above would anyway also apply regarding the moment at which any prohibited act could be committed and at which it could be said, assuming that it could be said at all, that a legal professional had become concerned in any such act.
"POCA" CLAUSES
We would wish to leave open the permissibility or possibility in any context of a "POCA" clause, that is one whereby an arrangement might be made but expressly "not to take effect until authorised disclosure has been made pursuant to s 328 of the Proceeds of Crime Act 2002 and appropriate consent is given or deemed to be given pursuant to s 335 of that Act". A question could arise whether the making of such an arrangement, even though its validity or implementation were to be made so subject, could itself still be a prohibited act within ss 328(1) and 338. Assuming that it would not be, we remain uneasy about a clause which would disclose to all concerned (including the other party, who might well be the person suspected of money laundering activity) that money laundering was suspected.
Perhaps curiously, the prohibition on tipping off under s 333 only applies once a disclosure to the authorities falling within ss 337 or 338 has been made. Section 342, which governs a situation where a person knows or suspects that an appropriate officer "is acting (or proposing to act) in connection with a .... money laundering investigation", and prohibits any disclosure which is likely to prejudice the investigation, might perhaps apply. But both s 330(3)(c) and (4) and s 342(3)(c) and (4) preserve a broad freedom to make disclosure not merely to a client when giving legal advice but to any person in connection with actual or contemplated legal proceedings. So it may be that a POCA clause would create no problem in the context of legal proceedings.
But the position is not so obvious if one pre-supposes the inclusion of a POCA clause in an agreement proposed to be reached in a non-litigious context. Whenever an arrangement is made (and even if NCIS consents to it), an offence is only not committed under s 328(2) if, prior to the arrangement, there was an authorised disclosure. "Authorised disclosure" means by definition under s 338(3)(c) a disclosure "made .... as soon as it is practicable for him to make it". If there was time to reach an agreement containing a POCA clause, it would seem difficult to suggest that it was not practicable to inform NCIS before doing so, and before therefore, in practice, putting the other party to the agreement on notice of the suspicion about money laundering. In any event, there seems to us to be an oddity about a clause which discloses to all other parties to a proposed agreement an intention to make the disclosure to NCIS which once made will oblige the person making the disclosure not (at least in a non-litigious context) to tip off such other parties. Even in a litigious context, it is difficult to think that ss 330(3)(c) and 342(3)(c) were conceived with the use of any clause such as a POCA clause in mind.
OUR CONCLUSION ON THE FACTS OF THE PRESENT CASE
Applying the above conclusions in relation to the facts of this case, we would uphold the decision of Judge Cowell that there was
no good reason why the grounds on which the appellant sought to obtain and obtained from Judge Crawford Lindsay QC an adjournment of the trial date should not have been communicated to the respondent; and
no proper basis for any such adjournment.
We would do so on the basis that s 328 did not in the present context of legal proceedings apply to require the appellant’s legal advisers to disclose to NCIS any suspicion that they may have developed regarding the source of any of the respondent’s assets on the basis of information derived from their conduct of the proceedings; and that they were free to continue with the ordinary conduct of legal proceedings notwithstanding any such suspicion. We would also reach this conclusion on the basis that in enacting s 328 Parliament evinced no clear intention to override very important principles of our law without adverting to them at all.
This approach to the construction of the statute will, we hope, remove most of the difficulties which have impeded the orderly conduct of litigation ever since s 328 became law.
Nothing in this judgment should be interpreted as diminishing the importance of the task undertaken by NCIS in detecting criminal conduct concerned with the handling of the proceeds of crime. Mr. Pannick explained to us how valuable NCIS found the flow of information from lawyers to be, and we were told that NCIS believes that it will receive about 150,000 disclosures during 2004. But when an Act of Parliament is enacted to further the purposes of an European Community Directive, we are bound to ascertain what those purposes were, and they preclude NCIS’s wish to have access to this information. Further, fundamental human rights or obligations owed to a court by implication of law cannot be swept away these days without clear evidence of a Parliamentary intention to that effect, even if Parliament is in some respects to be taken to have gone outside the strict requirements of a directive in addition to fulfilling them to the letter.
We have not overlooked the submissions of Mr. Dulovic, for the appellant, and Mr. Copley, for the respondent. But the former’s submissions relied on the correctness of the judgment in P v P, and we have held, on much fuller argument, that the relevant parts of that judgment are not to be followed. The latter’s submissions were founded on arguments which in the event it proved unnecessary for us to consider.
For these reasons we would dismiss this appeal and uphold the order of Judge Cowell on different grounds.
P v P (Ancillary Relief: Proceeds of Crime) [2003] EWHC 2260 (Fam), [2004] Fam 1
Sun Life Assurance Co of Canada v Jervis [1944] AC 111
Ainsbury v Millington (Note) [1987] 1 WLR 379
R v Secretary of State for the Home Department ex p Salem [1999] 1 AC 450
Callery v Gray [2001] EWCA Civ 1117, [2001] 1 WLR 2112, CA; [2002] UKHL 28, [2002] 1 WLR 2000, HL,
Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-106/89) [1990] ECR I-4135
Johnston v Chief Constable RUC (Case 222/84) [1987] QB 129
S v Switzerland (1991) 14 EHRR 670
Ocalan v Turkey (2003) 37 EHRR 10
Foxley v UK (2001) 31 EHRR 25
A M & S Europe Ltd v Commission of The European Communities (Case 155/79) [1983] QB 878
R v Derby Magistrates’ Court ex p B [1996] 1 AC 487
Three Rivers DC v Bank of England (No 6) [2004] UKHL 48, [2004] 3 WLR 1274
R (Morgan Grenfell & Co Ltd) v Special Commissioner for Income Tax [2002] UKHL 21, [2003] 1 AC 563
Taylor v Serious Fraud Office [1999] 2 AC 177
Associated Dairies Ltd v Baines [1997] AC 524
R v Cox and Railton 14 QBD 153
R v. Central Criminal Court, ex p Francis & Francis [1989] AC 346
R v McMaster [1999] 1 Cr App R 402
Proceeds of Crime Act 2002: s.327, s.328, s.330, s.333, s.335, s.338, s.340
Proceeds of Crime Act 2002 (Business in the Regulated Sector and Supervisory Authorities) Order 2003 (SI 2003 No 3074): Appendix 9 (Pt 3)
Council Directive of 10th June 1991 (91/308/EEC): Art.2, Art.6, Art.7, Art.8, Art.9, Art.15
Council Directive of 4th December 2001 (2001/97/EEC)
UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988: Art.3
Criminal Justice Act 1988: s.93A, s.93B, s.93C
Drug Trafficking Act 1994: s.49, s.50, s.51, s.52, s.53, s.54
Milan Dulovic (instructed by Levine Mellins Klarfeld) for the Appellant.
James Copley (instructed by Male & Wagland) for the Respondent.
Anthony Boswood QC, Roger Masefield and Jonathan Ashley Norman (instructed by the Bar Council pro bono unit) for the Bar Council intervening.
Nicholas Elliott QC and Danny Friedman (instructed by the Law Society) for the Law Society intervening.
David Pannick QC and Marcus Thompson (instructed by NCIS) for the National Criminal Intelligence Service intervening.