Written by Nick Dixey and Colm Flanagan

Case Note –  Brian De Wit et al, [POCL 8 of 2014], unreported 8 June 2015

Civil freezing orders, or Mareva Injunctions, are the subject of frequent commentary by the legal profession in the Cayman Islands, together with the extension within the Islands of what has become known as the “Chabra Jurisdiction” in respect of civil injunctive relief against third parties to prevent the dissipation of assets.

What is less frequently considered are the statutory powers available to the court to freeze assets pursuant to the Proceeds of Crime Law, 2014 (“POCL”) upon application by the Director of Public Prosecutions. Section 45 of POCL empowers the court to make a Restraint Order in support of a criminal investigation or proceedings to preserve assets which may become the subject of a confiscation order. In the same way, section 82 of POCL allows the court to make a Property Freezing Order in support of civil recovery proceedings.

In respect of Restraint Orders, a recent decision on 8 June 2015 by Williams J in Brian De Wit et al, [POCL 8 of 2014], as yet unreported, has set out the duties of the enforcement agencies and the prosecuting authority in making applications for Restraint Orders, and provided guidance on the procedure generally in respect of subsequent extension, variation or discharge applications.

The Law

The jurisdiction to make a Restraint Order pursuant to POCL is conferred by sections 44 and 45. Applications for a Restraint Order pursuant to POCL in the Cayman Island are made pursuant to section 44 on the basis that a criminal investigation or criminal proceedings have commenced in the Islands with regard to an offence and there is reasonable cause to believe that the alleged offender has benefitted from his criminal conduct. Where the conditions provided for are satisfied the court may make a Restraint Order prohibiting any specified person from dealing with any realisable property held by him, subject to such conditions and exceptions as may be specified in the order.

A Restraint Order under POCL is analogous to a ‘freezing order’ in civil proceedings.   Its purpose is the preservation of assets at a time at which the Court does not know whether the person under investigation would be convicted of the offence for which they are being investigated. Accordingly, it is generally made ex parte in the first instance so that the suspect is not put on notice and given an opportunity to dissipate his assets.

In seeking a Restraint Order it is incumbent on the Financial Crimes Unit (“The FCU”) and the Office of the Director of Public Prosecutions (“the DPP”) at the ex parte hearing to provide full and frank disclosure and to present the application fairly to the Court.

The Application in De Wit

In Brian De Wit, The DPP sought and obtained ex parte a Restraint Order on the basis that a criminal investigation had been started in the Islands with regard to an offence and there was reasonable cause to believe that the alleged offenders had benefited from their criminal conduct. The DPP needed to satisfy the judge that this test had been met at each renewal application.
‘Criminal conduct’ means conduct which is either an offence in the Islands or is conduct which would constitute such an offence if it occurred in the Islands.

In respect to a reasonable cause to believe, the DPP had relied upon an affidavit exhibiting a US Indictment. However, upon the application to vary the Restraint Order so as to discharge it in respect of one of the applicant’s assets, it was submitted by the applicant that it was not sufficient to rely upon the fact that allegations or assertions of criminal conduct had been made in the US Indictment.  Cogent evidence, whether in the form of witness statements or affidavits, together with supportive documentary material, should be placed before the Court to allow it to form its own view on whether or not there was a reasonable cause.

The power to make an order under s 44 is a particularly draconian one as all that is required is that there is reasonable cause to believe that the subject has benefited from alleged criminal conduct.   It therefore does not require a charge to be ‘contemplated’ or ‘anticipated’.  However, a safeguard is provided in the form of s 46(4) which permits that the Court may discharge any such order if within a reasonable time proceedings for the alleged offence (which is the subject of the investigation in the Islands) are not started. It was a further submission by the applicant that a reasonable time had already elapsed, and no charges had been laid.

The application to essentially discharge the Restraint Order as against the applicant’s assets was made on three grounds; that relying upon the US Indictment alone was not capable of creating a reasonable cause to believe that the applicant had benefited from criminal conduct; that the DPP had failed to disclose an important judgment from the Supreme Court in Belize lifting a similar restraining order that had been in place against the applicant; and delay.

The US Indictment

The Court held reliance on the US Indictment may have been appropriate at the very early stage of the investigation at the time of the initial application, because the content of the US Indictment would have understandably caused the Crown to decide to commence a criminal investigation and to consider at the same time whether to apply to the Court to restrain relevant assets. However, as the months passed, the Crown should not have expected to continue to primarily rely upon the content of the US Indictment for renewals of the Restraint Order. In the circumstances of this case, six months after the obtaining of the Restraint Order, the US Indictment was no longer sufficient evidence to establish a reasonable cause to believe that the applicant had benefitted from criminal conduct.

Non Disclosure

Having decided to accede to the application, the Court do not analyse the submissions in detail on this point. However, Williams J commented generally that The Crown is required to give full and frank disclosure of all material facts. This includes disclosing any weaknesses in its case of which it is aware and any information that might be favourable to the respondent. It is right that a serious failure by the Crown to comply with this duty may result in the order being discharged. That said, the public interest in restraint and confiscation of the proceeds of crime mean that the Court should be careful before discharging a restraint order just because there has been a failure to give full and frank disclosure. In this case, a copy of the Belize judgment should have been provided to the judge at each renewal.

Delay 

The Court reminded itself that there is not an open ended time frame for the bringing of any criminal charges Section 46(4) is intended as a protection to any individual whose rights are being affected by the draconian restraint order, by making it mandatory for a Court to discharge the order once the Court finds that a reasonable period of time for the bringing of criminal proceedings has elapsed. What is reasonable will depend upon the complexity of the case and the size of the investigation. The court is to be updated so that the progress of the investigation so the court can monitor whether it is being conducted in a diligent fashion and whether it would be appropriate for the Restraint Order to remain in force,

Conclusion

De Wit has provided a timely reminder to both practitioners and Crown Counsel as to the criteria and procedure expected in applications for Restraint Orders and renewals. Simply relying on an overseas indictment may be sufficient to obtain the initial order, but the court will expect more substantial evidence at the renewal hearing, and updates as to the progress of the investigation. The case further reminds counsel of the duty of full and frank disclosure, which may justify a discharge, although the court is to exercise such an approach sparingly.