Embezzlement Uk | Emmlegal.com

The ongoing Dr Gerald Smith saga continues as the Serious Fraud Office (“SFO”), through enforcement receivers, continues to attempt to enforce a confiscation order made 16 years ago. This has led to a series of proprietary claims by various parties as against assets which the enforcement receivers say are part of the realisable property.

As recently as last week, enforcement receivers successfully sought from Mr Justice Foxton a declaration that a house in Ascot, legally owned by Dr Smith was also beneficially owned by him.

The executor of Dr Smith’s late mother’s estate, his brother Anthony, supported by evidence from Dr Smith and his ex-wife Dr Gail Cochrane, argued that the estate was beneficially held not by Dr Smith but by his late mother. Thus, argued the Smith parties, the asset was beyond the reach of the Bankruptcy Fraud enforcement receivers. The Smith parties’ evidence was rejected (Milson & Standish (Enforcement Receivers) v. Smith [2023] EWHC 255 (Comm)). This stems from a series of hearings in which proprietary interest in assets has had to be assessed by the court.

On 30 November 2022, Foxton J handed down a judgment relating to numerous competing interests in Dr Smith’s assets (EWHC 3053 (Comm)) (“the November 2022 judgment”). The judgment largely relates to the construction of a trust and questions as to its administration.The judgment follows that in SFO & Anr v Litigation Capital Ltd & 46 Ors (In re Gerald Martin Smith [2021] EWHC 1272 (Comm) handed down on 18 May 2021 (“the May 2021 judgment”). The May 2021 judgment was upheld by the Court of Appeal in January of this year on the point appealed but was otherwise not appealed ([2023] EWCA Civ 36).

Dr Smith was the CEO of a property portfolio which included numerous Thistle hotels. Dr Smith had already served a two-year sentence of imprisonment for theft from a company pension fund. In 2006 he was sentenced to an 8-year term of imprisonment for theft of a further £35 million from Izodia plc. On 13 November 2007, the SFO obtained the confiscation order against Dr Smith in the sum of £40,856,911, to be paid within 12 months. Enforcement receivers were appointed in 2008 to enforce the confiscation order against Dr Smith’s realisable property.

To this date, the confiscation order has not been satisfied and ongoing High Court litigation has resulted from various assets being tied up, and as the SFO/enforcement receivers would invariably argue, hidden, in complex onshore and offshore trust Embezzlement Uk structures and through proxy persons, or “nominees” who have claimed to have had a competing proprietary interest.

The Outcome in a Nutshell

Foxton J was required thereafter to make an assessment of the various claims to proprietary interest over the Relevant Property. As Foxton J rehearsed, an enforcement authority’s rights in seeking to enforce a confiscation order rank after those with proprietary interests acquired otherwise than by gift. Priority is given to the proprietary rights of innocent third parties. He had to consider whether the apparent owner of the Relevant Property in fact held it as a nominee.

The confiscation order

The outstanding amount to satisfy the confiscation order, was, at the date of the May 2021 judgment, £72 million. The issue whether the various claimants did indeed hold a proprietary interest in the Relevant Property was an important one to the enforcement receivers who would, if the claims were valid, therefore not be able to realise such property to satisfy the Corporate Fraud confiscation order. In CPS v Aquila Advisory Ltd  [2021] UKSC 49, the Supreme Court confirmed that existing confiscation orders would not be prioritised in favour of constructive trusts. In that case, the directors of a company later acquired by Aquila breached their fiduciary duty and secured a £4 million profit. Aquila brought a claim to secure its proprietary interest arguing it held a constructive trust over the profit. The actions of the directors were not attributed to the company and a constructive trust arose automatically the moment the directors received the profit.