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The Advocate General for Scotland against Alexander Watt McCartney and others (Court of Session)
Factual and Procedural Background
The Plaintiff applied on behalf of HMRC for account freezing orders (AFOs) in April 2023 in respect of two accounts held by the Appellant at Company A and Company B after suspicious cash deposits were reported. The sheriff granted AFOs and extended them on several occasions while the Government Entity's Civil Recovery Unit (CRU) investigated potential recoverable property or use in unlawful conduct. The CRU ultimately advised it would not seek forfeiture and the AFOs were recalled in March 2024. The Appellant then lodged a summary application under section 303Z18 of the Proceeds of Crime Act 2002 seeking compensation of £102,438.73 for patrimonial loss (claimed interest) and solatium (distress and inconvenience). The sheriff sustained the Plaintiff's plea to relevancy and dismissed the compensation minute. The Appellant appealed and the Plaintiff cross-appealed an obiter comment by the sheriff about accountability for CRU actings. The Government Entity was granted leave to intervene. The appeal was remitted to this court.
Legal Issues Presented
- How section 303Z18 of the Proceeds of Crime Act 2002 should be construed and applied—in particular, the requirements that (a) the applicant has suffered loss "as a result of the making of the account freezing order" and (b) "the circumstances are exceptional".
- Whether acts of the Government Entity (through the CRU) are relevant to an assessment of whether "the circumstances are exceptional" for the purposes of section 303Z18.
Arguments of the Parties
Appellant's Arguments
- Section 303Z18 claims should not be dismissed at relevancy stage unless bound to fail (relying on Finlayson v Alban Wine Ltd).
- The Appellant had suffered patrimonial loss and distress due to being prevented from using or investing his funds; compensation measured by judicial interest and solatium was appropriate.
- The circumstances pleaded (including alleged lack of candour and dilatoriness by HMRC/CRU, the Appellant's age and reliance on life savings, and the investigation history) could satisfy the statutory requirement that the circumstances be "exceptional".
- The conduct of the CRU was a relevant circumstance and should be assessed at proof; the sheriff erred in dismissing the minute as irrelevant.
Plaintiff's Arguments
- The claim was properly dealt with summarily and the sheriff could consider the chronology and other material.
- The Appellant's averments of patrimonial loss lacked specification (no concrete investment return pleaded) and were irrelevant because the Appellant had chosen non/low-interest accounts and could have applied to vary the AFO.
- Compensation should be rare: enforcement officers act in the public interest and should not be deterred from seeking AFOs where they act honestly, reasonably and on apparently sound grounds.
- The conduct of the CRU was capable of being a relevant circumstance, but the chronology showed the CRU acted appropriately and many delays were caused by the Appellant's failures to cooperate.
Government Entity's Arguments (Interveners)
- Section 303Z18 is distinct from common-law damages: it permits discretionary "compensation" only for loss suffered "as a result of the making of the account freezing order" and only where "the circumstances are exceptional".
- Acts of the Government Entity do not cause the making of the AFO and are generally too remote to ground compensation payable by the applicant for the AFO; it would be rare for acts of the Government Entity to give rise to liability under section 303Z18.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| R (Perinpanathan) v City of Westminster Magistrates Court [2010] EWCA Civ 40, [2010] 1 WLR 1508 | That public enforcement authorities should not be deterred from acting in the public interest; similar principles apply to compensation and costs in enforcement contexts. | The court relied on the principle to support the conclusion that compensation under section 303Z18 should be exceptional so as not to chill enforcement activity. |
| Finlayson v Alban Wine Ltd [2024] CSIH 32 | Standard for dismissing causes as irrelevant—only where bound to fail. | The Appellant relied on this to argue for a proof; the court noted the standard but found some averments suitable for inquiry while others lacked specification. |
| Carmichael v Caledonian Railway Co (No 2) (1870) 8 M (HL) 119 | Authorities on patrimonial loss and interference with creditor/debtor relationships (measure of compensation principles relied upon by appellant). | The court noted the Appellant's reliance but required specification of how investment returns would have arisen; did not accept unqualified judicial-rate interest without specification. |
| Farstad Supply AS v Envirico Ltd [2011] CSOH 153, 2012 SLT 348 (upheld on appeal, [2013] CSIH 9, 2013 SC 302) | Authorities on measures of compensation for interference with funds (relied on by Appellant). | The court recorded the reliance but treated the Appellant's patrimonial averments as insufficiently specified for the claimed measure (judicial rate). |
| F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 | Public authorities act in the public interest; not analogous to private litigants acting periculo petentis. | Used to support the proposition that enforcement officers should not generally face compensation liability unless circumstances are exceptional. |
| R v Kelly (Edward) [2000] QB 198 | Ordinary meaning of "exceptional"—out of the ordinary, unusual or special. | The court adopted this ordinary meaning in construing "the circumstances are exceptional" in section 303Z18. |
| R v Offen [2001] 1 WLR 253; R(O) v Crown Court at Harrow [2003] EWHC 868, [2003] 1 WLR 2756; MF (Nigeria) v Secretary of State for the Home Department [2013] EWCA Civ 1192, [2014] 1 WLR 544 | Authorities illustrating usage of "exceptional" in various contexts. | Cited to support construction of "exceptional" as ordinary English adjective and to show related jurisprudence; court agreed ordinary meaning should apply here. |
| R v Haden [2024] EWCA Crim 344; R v Soneji [2006] 1 AC 340; R v Guraj [2016] UKSC 65, [2017] 1 Cr App R(S) 32 | Approach to "exceptional circumstances" in section 14(4) of the 2002 Act (confiscation context) where a broad view was taken. | The court distinguished those authorities on context, holding that the broader approach in the confiscation regime is not appropriate for section 303Z18's compensation context. |
| Abbey Forwarding Ltd (in liquidation) v Hone (No 3) [2014] EWCA Civ 711, [2015] Ch 309 | Remoteness principles in relation to cross-undertakings and freezing orders. | Referenced when discussing causation/remoteness and whether acts of third parties (such as the Government Entity) are too remote to ground compensation by the AFO applicant. |
Court's Reasoning and Analysis
The court treated the compensation claim as a summary application and accepted that it could consider the chronology and other materials. It analysed the two statutory requirements in section 303Z18(3): (1) loss suffered as a result of the making of the AFO; and (2) that the circumstances are exceptional.
On loss, the court found the Appellant's patrimonial claim (interest at the judicial rate) insufficiently specified—there was no pleaded detail of the investment return that would have been obtained and the claimed rate exceeded likely market returns at the relevant times; the court observed that if proper grounds for the AFO existed the funds were not "wrongfully" withheld. However, the court (differing from the sheriff) considered that the Appellant's averments of solatium for distress and inconvenience were suitable for inquiry and should not have been dismissed at relevancy stage outright.
On "exceptional" circumstances, the court construed "exceptional" by its ordinary meaning (unusual, out of the ordinary) drawing on authorities such as R v Kelly. It rejected importing the broader approach used in the confiscation context (section 14(4)) as in R v Haden and related cases, because the statutory contexts differ. The court emphasised the public-interest dimension: enforcement officers act in the public interest and compensation should not be awarded save in exceptional cases so as not to deter reasonable enforcement activity. Applying these principles to the facts, the court concluded that large unexplained credits and the absence of satisfactory immediate explanations gave HMRC reasonable grounds to seek AFOs and that the CRU's conduct (now accepted as a circumstance capable of being relevant) did not, on the chronology, demonstrate impropriety or dilatoriness sufficient to make the circumstances exceptional. Many investigation delays were attributable to the Appellant or his agents. For these reasons the court concluded the statutory exceptional threshold was not met.
Holding and Implications
APPEAL AND CROSS-APPEAL REFUSED
Holding: The court refused the appeal and refused the cross-appeal. It held that (a) the Appellant's patrimonial averments were insufficiently specified for the claimed judicial-rate compensation and (b) the circumstances were not "exceptional" within the ordinary meaning of that word so as to justify compensation under section 303Z18.
Implications: The direct effect is that the Appellant's summary compensation claim remains dismissed. The court clarified that (i) the conduct of the Government Entity's investigative unit (CRU) may be a circumstance relevant to the "exceptional" inquiry but, on the facts, did not render the case exceptional; and (ii) compensation under section 303Z18 is to be confined to exceptional cases so as not to deter bona fide enforcement actions. The decision did not establish a novel broad precedent expanding compensable circumstances under section 303Z18.
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