Ex-director who had two accounts frozen during proceeds of crime investigation denied compensation by Inner House

About this case:

• Citation:
  [2026] CSIH 5
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Doherty

Alexander McCartney appealed against a decision of Kilmarnock Sheriff Court that he was not entitled to £102,428.73 in compensation from the Advocate General for Scotland after being blocked from accessing two financial accounts for over a year. A secondary issue in the case arose from an obiter observation of the sheriff concerning the actings of the Scottish Ministers Civil Recovery Unit and how they were relevant to a claim for compensation under section 303Z18 of the Act.

The appeal was heard by Lord Doherty, Lord Tyre, and Lady Wise. A Mackenzie, solicitor advocate, appeared for the appellant and Reid KC and Iridag, advocate, appeared for the respondent. An intervention was made by the Scottish Ministers in respect of the cross-appeal, who were represented by Welsh, advocate.

Only rarest of cases

Around March 2023, a suspicious activity report was made to the National Crime Agency about certain cash deposits in two accounts the appellant had with relevant financial institutions, namely the Royal Bank of Scotland and StoneX Financial Services. On 11 April 2023 the respondent, on behalf of HMRC, applied to the sheriff for an account freezing order prohibiting the appellant from depositing or withdrawing money from both accounts, on the basis that substantial sums of cash had been deposited for which he had no obvious source.

The respondent averred that HMRC had a reasonable suspicion that the appellant, who was formerly the director of several dissolved companies, was attempting to conceal illicit activity. Following further procedure, including extensions of the CRU’s investigation period, on 15 March 2024 the CRU advised the respondent that it did not intend to seek forfeiture of any of the monies in the frozen accounts and they were closing the investigation. The appellant’s AFO was thereafter recalled, and he sought compensation under section 303Z18 of the Act averring that he suffered loss and the circumstances were exceptional.

The sheriff held that the appellant’s averments of loss were irrelevant and lacking in specification. He had chosen to put his funds in accounts with no or negligible interest, and no specific averments arising from loss of opportunity to invest the funds elsewhere. On appeal, the appellant submitted that the AFO had injuriously affected his relationship with the relevant financial institutions. While the sheriff was correct to say he had not applied to have the AFO varied to release funds, this only raised issues for proof and did not make the averments of loss irrelevant.

For the respondent it was submitted that this was not a case of wrongful withholding. Much more was required than the mere fact that an AFO was not followed by an enforcement order. The interveners further submitted that only in the rarest of cases could acts of the Scottish Ministers give rise to an application under section 30Z18, as their acts did not cause the AFO to be applied for or made.

Criticisms not justified

Lord Doherty, delivering the opinion of the court, said of the requirement of exceptionality: “The word ‘exceptional’ in section 303Z18 ought to be given its ordinary meaning. Adopting that approach, are the circumstances here exceptional? Large credits to the appellant’s accounts were unexplained. His income and other means for several years before the credits had been extremely modest and could not have been their source. There were reasonable grounds for suspecting that the monies in the accounts were recoverable property or intended for use in unlawful conduct.”

He continued: “It is clear from the chronology that each time the AFO was extended it was because the CRU’s investigation was continuing and there remained reasonable grounds for suspicion. In our view it is also evident from the chronology that the criticisms which the appellant makes of the conduct of HMRC and the CRU are unjustified, and that in fact many delays were caused by failures by the appellant or his agents to respond promptly and appropriately to reasonable CRU requests.”

On the main ground of appeal, Lord Doherty concluded: “Ultimately, all parties accepted that the conduct of the forfeiture investigation by the CRU was one of the circumstances to which regard could be had when determining whether ‘the circumstances are exceptional’. If the CRU’s conduct of an investigation had been improper or inappropriate, that could be a circumstance which might favour the conclusion that the circumstances were exceptional. Whether that conclusion ought to be drawn would depend on the whole circumstances of the case. Here however, the criticisms made of the CRU are not justified. The conduct of the investigation by the CRU is not a circumstance which suggests that ‘the circumstances are exceptional’.”

Briefly dealing with the cross appeal, he added: “The respondent and the interveners merely take issue with the sheriff’s obiter suggestion that the respondent could be ‘accountable’ for the actions of the CRU. We can see that it was not helpful for the sheriff to put the matter that way. The Scottish Ministers, not the respondent, are responsible for the conduct of the CRU. Nevertheless, that does not prevent the CRU’s conduct of a forfeiture investigation being a circumstance to which regard may be had when deciding whether the circumstances of a compensation application are exceptional. Having provided that clarification, we consider that the appropriate course is to refuse the cross-appeal.”

The appeal and cross-appeal were therefore both refused.