H.M. Customs & Excise v Hare & Ors

A statutory restraint and receivership regime permits control of a defendant’s realisable property, but it does not itself confer jurisdiction to appoint a receiver over a separate company’s property. The court cannot create that power through statutory definitions or inherent jurisdiction. Where the corporate veil is properly lifted, however, company property may be treated as property held by the defendants for the purposes of the regime. The veil may be lifted where companies are used as a façade for fraud or to evade legal restrictions, and the evidence must justify that conclusion. A receiver’s powers remain subject to the court’s directions. Where an order indicates that directions are required before winding up or selling non-depreciating or non-surplus goods, the appropriate course is to stay such sales pending that application.

Customs and Excise obtained ex parte restraint and receivership orders under Part VI of the Criminal Justice Act 1988 against three defendants suspected of large-scale excise duty fraud. The defendants owned 75 per cent of two companies; the intervenor owned the remaining 25 per cent and had not been charged. The receiver was empowered to manage the companies and their property.

Dyson J rejected challenges to jurisdiction and dismissed applications by the defendants and intervenor seeking restrictions on the receiver’s powers, including a restriction on sales. The defendants and intervenor appealed. The central questions were whether the Act or the court’s inherent jurisdiction authorised receivership of the companies’ underlying assets, whether the corporate veil could be lifted on the evidence, and whether sales should be stayed pending further directions.

1. Appeals and jurisdiction. The appeals were dismissed, subject to a stay on the sale of non-depreciating or non-surplus goods pending an application by the receiver for the court’s directions. The court rejected the argument that sections 102(1) and (7) of the Criminal Justice Act 1988, or section 77(8), independently authorised appointment of a receiver over company property. A definition section was an unlikely source of power. Reading section 77(8)(a) and (b) disjunctively would make paragraph (a) otiose.
2. Inherent jurisdiction. The principle in In re O that the High Court must be able to make a restraint order effective supported ancillary disclosure and identification measures. It did not justify creating a new power to deal with another person’s property as though it were the defendant’s realisable property.
3. Corporate veil. The general rule in Salomon v Salomon & Co. is that a duly incorporated company is a separate legal person with rights and liabilities distinct from those of its shareholders. Nevertheless, the court may look behind that status where the company’s character or controllers are relevant. The court accepted the approach in Merchandise Transport Ltd v British Transport Commission and the propositions identified in Adams v Cape Industries Plc concerning veil-lifting where a corporate structure is used to evade legal limitations.
4. On the evidence, there was a prima facie case that the defendants controlled the companies, used them for large-scale excise duty fraud, treated them as a family business, and benefited from company cash. It was therefore appropriate to lift the veil and treat stock in the warehouses and motor vehicles as property held by the defendants. The absence of charges against the companies did not prevent that conclusion.
5. The wording of the original order indicated that the receiver should seek directions before winding up or selling non-depreciating or non-surplus items. The stay was granted without varying the order. The intervenor’s applications concerning legal expenses and self-incrimination had not been properly formulated or supported; any such application should be made by summons supported by affidavit evidence. The order included the stated costs directions, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): appeals from Dyson J’s judgment of 19 December 1995 were dismissed, save for a stay on the sale of non-depreciating or non-surplus goods pending the receiver’s application for directions. Leave to appeal to the House of Lords was refused.
• High Court, Queen’s Bench Division: Dyson J rejected the jurisdictional challenge and dismissed the defendants’ and intervenor’s applications.