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Lord Kingsland: I am inclined to press the Minister further. He adumbrated the principle that there should be no double counting—that if any previous forfeiture or confiscation in relation to ill-gotten gains has led to the payment of funds or in kind by the offender, that should count against what is designated in the Bill as the proceeds of crime. Would it not be more
appropriate to have a general clause to that effect, leaving it to the court to apply that general clause to the specific circumstances of the culprit?
Lord Rooker: I do not think so, for the reasons that I gave. That would go much too far. There must be precision about the confiscation of proceeds of crime. As I made clear, we do not want double counting. I also want to make clear that we shall make appropriate provision in any subsequent enactments to prevent double counting under the Bill.
It is far better that the courts are given flexibility under the Bill. As I said, the amendments would require the court making a confiscation order to consider the confiscatory effect of previous fines and other measures not designed for confiscatory purposes. That would make matters difficult, because, as I said, the court imposing such a measure may not indicate precisely how much of a fine was imposed with recovery in mind and what was intended to be penal—we would not know.
As I said, the amendments would therefore undermine the precision of the calculation, which is crucial to get across the message to the criminal fraternity.
Lord Kingsland: I am most grateful to the Minister for his reply. He has fairly said that he is not inclined to accept our preferred position. In those circumstances, I should like to test the opinion of the Committee.
6.4 p.m.
On Question, Whether the said amendment (No. 18) shall be agreed to?
Their Lordships divided: Contents, 64; Not-Contents, 108.
Anelay of St Johns, B.
Astor of Hever, L.
Boardman, L.
Brooke of Sutton Mandeville, L.
Brookeborough, V.
Brougham and Vaux, L.
Burnham, L.
Buscombe, B.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Campbell of Croy, L.
Carnegy of Lour, B.
Cavendish of Furness, L.
Chadlington, L.
Colwyn, L.
Cope of Berkeley, L. [Teller]
Craigavon, V.
Dean of Harptree, L.
Elton, L.
Erroll, E.
Feldman, L.
Ferrers, E.
Flather, B.
Geddes, L.
Glentoran, L.
Goschen, V.
Henley, L.
Higgins, L.
Holderness, L.
Howe of Aberavon, L.
Howell of Guildford, L.
Hylton, L.
Jenkin of Roding, L.
Jopling, L.
King of Bridgwater, L.
Kingsland, L.
Laird, L.
Liverpool, E.
Lucas, L.
Lyell, L.
MacGregor of Pulham Market, L.
Marlesford, L.
Monro of Langholm, L.
Montrose, D.
Newton of Braintree, L.
Northesk, E.
O'Cathain, B.
Palmer, L.
Pearson of Rannoch, L.
Perry of Southwark, B.
Pilkington of Oxenford, L.
Rees-Mogg, L.
Renton, L.
Rotherwick, L.
Saltoun of Abernethy, Ly.
Seccombe, B. [Teller]
Strathclyde, L.
Taylor of Warwick, L.
Tebbit, L.
Vivian, L.
Wade of Chorlton, L.
Warnock, B.
Wilcox, B.
Acton, L.
Ahmed, L.
Allenby of Megiddo, V.
Alli, L.
Alton of Liverpool, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Ashton of Upholland, B.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bernstein of Craigweil, L.
Blackstone, B.
Blease, L.
Boothroyd, B.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Campbell-Savours, L.
Carter, L. [Teller]
Chan, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Craig of Radley, L.
Crawley, B.
Darcy de Knayth, B.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Desai, L.
Dixon, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Gale, B.
Gibson of Market Rasen, B.
Gladwin of Clee, L.
Golding, B.
Goldsmith, L.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Grocott, L.
Hardy of Wath, L.
Harrison, L.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howells of St. Davids, B.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Jay of Paddington, B.
Jenkins of Putney, L.
Jones, L.
Layard, L.
Lea of Crondall, L.
Lipsey, L.
Lofthouse of Pontefract, L.
McCarthy, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Masham of Ilton, B.
Mason of Barnsley, L.
Massey of Darwen, B.
Milner of Leeds, L.
Mitchell, L.
Nicol, B.
Patel, L.
Patel of Blackburn, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Puttnam, L.
Ramsay of Cartvale, B.
Randall of St. Budeaux, L.
Rea, L.
Rendell of Babergh, B.
Renwick of Clifton, L.
Rooker, L.
Sawyer, L.
Scotland of Asthal, B.
Sheldon, L.
Simon, V.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Turnberg, L.
Turner of Camden, B.
Walker of Doncaster, L.
Weatherill, L.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williamson of Horton, L.
Woolmer of Leeds, L.
Resolved in the negative, and amendment disagreed to accordingly.
6.15 p.m.
Lord Goodhart moved Amendment No. 19:
- After Clause 10, insert the following new clause—
The noble Lord said: The amendment raises an important issue of principle; namely, the question of priority as between the state and the creditors of a defendant.
On these Benches, we agree fully with the principle that a criminal should be deprived of the proceeds of his crime. However, we also believe that the state has no legal claim to those assets that is equal to that of a creditor who has acted in good faith. If the state deprives a defendant of the money to pay his debts and does not compensate a bona fide creditor, the creditor—not the defendant—will suffer the loss.
It is obvious that we cannot leave a criminal with enough money to pay off his debts. In such a situation, the criminal will pay not them and will choose to use his money for something else. That explains why the identification of the "available amount" in Clause 10 does not include unsecured debts, unless they are preferential debts within the meaning of the bankruptcy legislation. However, it is not clear whether the available amount includes securities. Would a confiscation order override the security of a secured creditor? My initial impression was that it would not, but, having read through the Bill, I am not sure that that is the case. If a confiscation order did override secured debts, there would be serious problems with banks and building societies.
Let us assume that the confiscation order overrides only unsecured debts and that a criminal has entered into a contract with a builder for ordinary work—of some value—to be done to his house. It is a bona fide contract, and the builder does not know that the defendant is a criminal and has no reason to be aware of the risk that a confiscation order will be made. If, after the work is done—on credit terms, as usual—the criminal goes to prison and his assets, including his house, are confiscated, the builder will get nothing.
Assuming that a secured debt will not be overridden, we can see that, if the criminal has borrowed money on a mortgage from a building society or a bank to help him buy the home, the building society or bank will get its money back because it has security. However, on any interpretation of the Bill, the builder will not. Why should not the state, having confiscated the assets out of which the builder would have been paid, be obliged to pay him off? If it does not do that, it is punishing an innocent third party.
A bona fide creditor has a higher moral right to the money than the state. It can be said that the state has a duty, in the public interest, to deprive criminals of the benefits of their crime. However, that duty is not infringed by using confiscated money to pay off a bona fide creditor. Of course, I accept that it is possible to manufacture artificial debts by, for instance, creating fictitious loans to the defendant. So safeguards are needed to ensure that the only debts that are repaid are those that are made in good faith.
Amendment No. 19 proposes that there should be three conditions for payment of debts out of confiscated money. Those three conditions are, first, that as a result of the confiscation order having been made, the defendant has become unable to pay the unsecured debt. If the confiscation order still leaves the defendant with enough assets to pay his unsecured debts, then that is where the creditor should look for them.
The second condition is that the debt should be paid for full consideration. The third consideration is that the court must be satisfied that the creditor did not have any reason to believe that the defendant was a person against whom a confiscation order might be made and that he had no reason to believe that such an order was likely to be made.
If those conditions are not met—in many cases they will not be easy to meet—the court should require payment of compensation out of the confiscated funds. Amendment No. 63 extends that by allowing debts to be paid out of property if, before it is subject to a confiscation order, it is subject to a restraint order. The remaining amendments apply the same rules in relation to Scotland and Northern Ireland. I beg to move.
"COMPENSATION OF CREDITORS
(1) Any person who was a creditor of the defendant at the time when the confiscation order was made may, within one year of the date of the order, make an application to the court for compensation.
(2) The court may require the enforcement authority to pay compensation to the applicant if it is satisfied that—
(a) as a result of the making of the order the defendant is wholly or in part unable to repay the debt;
(b) the debt was incurred for full consideration; and
(c) at the time the debt was incurred the applicant had no reason to believe that a confiscation order could be made against the defendant."
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