Judgments - R v May (Appellant) (On Appeal from the Court of Appeal (Criminal Division))

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28.  R v Rees (unreported, 19 July 1990, Auld J) was a first instance decision under the 1988 Act. The defendant had pleaded guilty to offences of obtaining property by deception, contrary to section 15 of the Theft Act 1968 which contains its own expanded definition of obtaining. In the course of his ruling the judge said that

“The fact that he may not have personally received all or some of the money in relation to any of those offences is immaterial for the initial purpose of determining the total benefit ...".

That may indeed be so for purposes of section 15, but for purposes of section 71(4) of the 1988 Act, with which the judge was dealing, it is of course necessary that the defendant himself should have obtained property as a result of his offending, even if jointly or through a third party at his behest, and his benefit is the value of the property so obtained. That is the view that the judge took, holding the defendant responsible for all the proceeds of the offence, a responsibility he could not normally shed because his accomplices had got away with their respective shares (although under the legislation as it then stood the court had a discretion to mitigate the effect of its conclusion).

29.  The defendant in R v Chrastny (No 2) [1991] 1 WLR 1385 was convicted of conspiring with her husband and another to supply cocaine and a confiscation order was made against her in the sum of over £2,670,000. The husband having absconded, the appellant wife contended on appeal to the Court of Appeal that the proceeds of her and her husband’s drug trafficking should be apportioned equally between them, as had been done in R v Porter, above. The court rejected that submission, and substantially upheld the order, although in a reduced sum. On the assumption that the payments had been jointly received, this was the correct decision although, in reaching it, the court fell into the trap of eliding the second and third questions instead of treating them as distinct, as it should have done.

30.  In R v Simpson (David) [1998] 2 Cr App R (S) 111 the Court of Appeal, citing R v Banks [1997] 2 Cr App R (S) 110, applied the principles laid down in cases of repeated drug supply as equally applicable (p 118) to the laundering of drug money.

31.  In R v Patel [2000] 2 Cr App R (S) 10 the appellant, a postmaster, pleaded guilty to one count of conspiring to obtain property by deception. He had obtained payment of £51,920 from the Post Office by using stolen benefit books and forging signatures. He had then paid a share of the proceeds to an accomplice. A confiscation order was made against him in the full sum of £51,920. It was argued on his behalf on appeal that the judge had had a discretion to order payment of a smaller sum, and that he should not in any event have ordered the payment of more than what was left to the defendant after paying his accomplice. These submissions were rightly rejected. The discretion which the court had originally enjoyed under the Act had been removed by the 1995 Act. The defendant admitted receiving in his hand the sum ordered, and what he did with the money afterwards was irrelevant. (This was consistent with the ruling in R v Currey (1994) 16 Cr App R (S) 421, 424, that what matters is whether someone has obtained money, not whether he has retained it). The accomplice was not before the court and his position was not discussed. It is, however, clear that if he had not obtained the full sum jointly with the defendant, he would have been subject to a finding that he had benefited to the extent of the payment he had received.

32.  In R v Gibbons [2002] EWCA Crim 3161, [2003] 2 Cr App R (S) 169 the defendant was one of four conspirators who had between them obtained £220,000 by fraud. But there was no evidence before the trial judge to enable him to determine how the proceeds had been divided between the conspirators or, it seems, to decide that they had been obtained jointly. He therefore divided the sum between the four, although failing (para 66) to specify the sum of benefit which he attributed to the defendant. This equal division was criticised in argument in the Court of Appeal, but was rightly upheld. The case was one which clearly called for a confiscation order. It would have defeated the purpose of the legislation to allow lack of information, which only the defendant and her co-conspirators could provide, to preclude the making of an order. An equal division was the fairest solution available in the circumstances.

33.  A somewhat different problem arose in R v Houareau [2005] EWCA Crim 2106, [2006] 1 Cr App R (S) 509. The defendant pleaded guilty to fraudulent evasion of import duty on cigarettes smuggled into the country, and the trial judge assessed his benefit at one third of the total duty evaded, there being two other defendants (para 9), and based his confiscation order on that sum. On appeal the judge’s order was challenged, and it was argued that the defendant was merely an intermediary, a middleman, not the importer; there was said to be no evidence that he had been beneficially interested in the cigarettes. The Court of Appeal rejected this argument: it had been open to the judge (para 18) to infer that the defendant had had a beneficial interest in the goods in the absence of evidence demonstrating the contrary. It was a question of fact whether a pecuniary advantage had been derived and it had been open to the judge (para 20) to draw robust inferences when those were properly open to him. The attribution of a one-third interest to the defendant if, contrary to counsel’s submission, he had derived a pecuniary advantage at all, was not criticised, and the Court of Appeal accepted it, distinguishing (para 21) the case of a very minor contributor to the import, rewarded by a specific fee and having no interest in the goods or the proceeds of sale.

34.  The defendant in the recent case of R v Sharma [2006] EWCA Crim 16, [2006] 2 Cr App R (S) 416 was convicted of conspiracy to defraud. The fraud in which he was engaged obtained about £179,000, paid into a company account of which the defendant was the sole signatory. A confiscation order was made against him in the sum of £179,000. It was argued on appeal (paras 2(1) and 14) that this figure should have been reduced to take account of sums paid out by the defendant to his fellow conspirators. This argument was rejected. It was rightly held (para 19), applying general principles of law, that a person who receives money into his bank account obtains it from the source from which it is derived and, where he is the sole signatory on the account, he obtains the money and has possession of it for his own benefit. Where (ibid) the defendants have not jointly obtained the benefit, but there has been a disposal by one member of a criminal enterprise to another who knowingly receives it, each is treated as the recipient of a benefit to the extent of the value of the money which has come into the possession of each of them. The amount of the benefit a defendant obtains (para 25) is not affected by the amount which might be obtained by others to whom he transfers any part of the benefit.

The third question: the recoverable amount

35.  From the 1986 Act onwards, the courts have been required to reinforce confiscation orders by the imposition of a term of imprisonment to be served in default of payment. But it has been recognised that a defendant may lack the means to pay a sum equal to the aggregate of the payments or rewards he has received, or the value of the property or pecuniary advantages he has obtained. It has also been recognised that it would be unjust to imprison a defendant for failure to pay a sum which he cannot pay. Thus provision has been made for assessing the means available to a defendant and, if that yields a figure smaller than that of his aggregate benefit, making a confiscation order in the former, not the latter, sum.

36.  Effect was first given to this rule by sections 1(4) and 4(3) of the 1986 Act by which, if the court was satisfied that the amount that might be realised at the time the confiscation order was made was less than the amount the court assessed to be the value of his proceeds of drug trafficking, the amount to be recovered in the defendant’s case under the confiscation order was to be the amount appearing to the court to be the amount that might be realised. There followed, in section 5, provisions governing the meaning of “realisable property". A procedure was laid down in section 14 for revising downwards the amount to be recovered if the realisable property proved inadequate to meet an order.

37.  Section 71(6) of the 1988 Act provided that the sum which an offender should be ordered to pay should not exceed whichever was the less of the benefit in respect of which it was made and the amount appearing to the court to be the amount that might be realised at the time the order was made. Section 74 governed the meaning of realisable property, and section 83 provided for the revision downwards of the amount to be recovered if the realisable property proved to be inadequate for payment of the order.

38.  Section 16 of the 1990 Act provided for the revision upwards of the amount to be recovered under the 1986 Act where the realisable property proved to be greater than had previously been assessed, but it was not to exceed the amount assessed to be the value of the defendant’s proceeds of drug trafficking.

39.  Section 5(3) of the 1994 Act was similar in effect to section 4(3) of the 1986 Act, but sections 6 and 7 defined the “amount that might be realised” and “realisable property” and contained provisions for valuing property. Provision was made in sections 13-17 for initiating confiscation proceedings where there had been none, for re-opening proceedings where no benefit had been found, for revising assessments of the proceeds of drug trafficking and for revising upwards or downwards estimates of what could be realised. Sections 5-7 of the 1995 Act made parallel amendments to the 1988 Act.

40.  By section 7(1) of the 2002 Act, the recoverable amount for purposes of section 6(5) (by which the prima facie sum of a confiscation order is to be the recoverable amount) is an amount equal to the defendant’s benefit from the conduct concerned. But if (section 7(2)) the defendant shows that the available amount is less than that benefit the recoverable amount is the available amount, or a nominal amount if the available amount is nil. The “available amount” is defined in section 9(1) for purposes of deciding the recoverable amount as the aggregate of (a) the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority, and (b) the total of the values (at that time) of all tainted gifts. Definitions of certain of the terms used are found in sections 77-84 of the Act. As in the 1994 Act, provision is made for initiating confiscation proceedings where there have been none (section 19), for reopening proceedings where no benefit has been found (section 20), for revising the assessment of benefit (section 21), for reconsidering the available amount (section 22), for revising downwards the confiscation order (section 23) and for discharging it (section 24).

41.  The answering of this third question is a very important stage in the procedure for making confiscation orders since, however great the payments a defendant may have received or the property he may have obtained, he cannot be ordered to pay a sum which it is beyond his means to pay. In many cases the assessment of the realisable amount poses complex and difficult problems for the trial judge, often exacerbated by lack of information, as illustrated by cases such as R v Dickens [1990] 2 QB 102, R v Comiskey (1990) 12 Cr App R (S) 562, R v Chrastny (No 2) [1991] 1 WLR 1385, R v Ahmed [2005] 1 WLR 122, and the recent case of R v Glatt [2006] EWCA Crim 605. But the statutory provisions governing the assessment are detailed, and the problems which arise are not, in the main, questions of principle. It is not in doubt that assets legitimately acquired may be included within the realisable amount, provided of course that the defendant’s total benefit from the relevant criminal conduct is not exceeded. The question whether assets legitimately acquired by the defendant after the date of the confiscation order may be included within the recoverable amount, as held by the Court of Appeal in R v Tivnan [1999] 1 Cr App R (S) 92, is not one raised in any of these appeals, and should be considered in a case where the issue arises.

The argument

42.  The submissions attractively advanced by Mr Campbell-Tiech QC for the appellant were in essence simple. Parliament intended to establish a confiscation regime which was effective but fair. It intended to strip wrongdoers of their ill-gotten gains but not to deprive them of that which they had never had, to permit recovery of the same sum against different defendants or to permit recovery of a sum exceeding what the victim had lost. Such results were oppressive and disproportionate, inconsistent with article 1 of the First Protocol to the European Convention on Human Rights and also (because of the defendant’s liability to imprisonment in default of payment) article 5. The present case, counsel contended, illustrated the vice of the Crown’s contention, upheld in the courts below. For there were 16 conspirators named in the indictment: had each been found to have shared jointly in the proceeds of the fraud and made liable (assuming they had realisable assets of the required value) for the full sum ordered against the appellant, the same sum would have been recovered 16 times over and the state would have gained more than HM Customs and Excise had lost. The solution in such a case, counsel urged, was to apportion the overall loss among those held to be jointly liable as was done in R v Porter [1990] 1 WLR 1260 on which strong reliance was placed.

43.  The answer of Mr Sells QC for the Crown was also simple and direct. The confiscation regime serves an important, internationally recognised, social purpose. It is penal in intention and effect, as accepted by the European Court of Human Rights in Welch v United Kingdom (1995) 20 EHRR 247, para 30, and Phillips v United Kingdom (2001) 11 BHRC 280, paras 51-52. The legislation lays down a mandatory regime, and the court has no surviving discretion save as to application of the statutory assumptions. Lord Steyn’s reference in R v Rezvi [2002] UKHL 1, [2003] 1 AC 1099, para 15, to “standing back and deciding whether there is or might be a risk of serious or real injustice” if an order were to be made was not to be otherwise understood, as R v Ahmed [2005] 1 WLR 122, para 10 and R v Neuberg [2007] EWCA Crim 1994, paras 29-30, explained. The legislation is not oppressive or disproportionate since (a) it does not target anyone who is not shown to have benefited financially from wrongdoing, (b) it imposes no liability beyond what the defendant is shown to have received or obtained as a result of the relevant wrongdoing, and (c) where the defendant’s benefit exceeds the sum he is able to pay, his liability is limited to the latter sum. There is no warrant in any of the statutes for apportioning liability to pay among those who have benefited jointly, and R v Porter, above, is not authority supporting such a principle. Where a benefit is obtained jointly each of the joint beneficiaries has obtained the whole of the benefit and may properly be ordered to pay a sum equivalent to the whole of it.

The judgment of the Court of Appeal

44.  The committee is grateful for the lucid judgment of Keene LJ in the Court of Appeal [2005] 1 WLR 2902. The judge had decided that where several defendants were jointly responsible for a fraud, and the property thus obtained was jointly held by them, each benefited in the amount jointly held and there was no requirement to apportion that amount between them. That proposition was challenged in the Court of Appeal, as in the House, and reliance was placed on R v Porter, above, and other authorities. But Keene LJ observed (para 31) that the court in R v Porter had not apparently been asked to apply its mind to the propriety of several orders being made for the full joint benefit, nor was there any analysis of why apportionment was more appropriate than such an order. In contrast (para 32), R v Chrastny (No 2) [1991] 1 WLR 1385 showed that someone with joint control of the property representing the benefit could be made liable for the total. Attention was also drawn to the Court of Appeal’s acceptance in R v Simpson (David) [1998] 2 Cr App R (S) 111, 117-118, that there could be multiple recovery where the same sums passed through several hands. There were cases, such as R v McKechnie [2002] EWCA Crim 3161 in which the total proceeds of a fraud had been divided up among those responsible but that was not a case (para 34) in which the court had had to decide whether a defendant in that conspiracy might be liable for the total amount of the fraud.

45.  The Court of Appeal here attached importance (para 37) to the finding that the companies defrauding HM Customs and Excise of VAT were jointly controlled by a group of people including this appellant. Once the corporate veil was pierced, as it was accepted it could be (a step endorsed by the Court of Appeal in R v Dimsey [2000] QB 744) the property in question was to be regarded as the joint property of those controlling the company. It was analogous to the situation where conspirators had put the proceeds of the fraud straight into their joint bank account. Each is then entitled to the full amount in the account. Each individual, in the statutory language, “obtains” the property jointly held. The law was accurately summarised (para 38) in Mitchell, Taylor & Talbot on Confiscation and the Proceeds of Crime, vol 1, paras 5.026 - 5.027. Someone who has joint control of property has “obtained” that property within the meaning of section 71(4) (para 39), which bites when the property is obtained or the pecuniary advantage is derived. The court did not consider it more unjust (para 40) for the whole of property jointly controlled to be treated as the individual defendant’s benefit than for money which had passed through a defendant’s hands to be treated as his benefit, even though that money was a much greater amount than his personal profit. Yet the latter result was accepted as well-established by the authorities. There might be circumstances in which orders for the full amount against several defendants might be disproportionate and contrary to article 1 of the First Protocol, and in such cases an apportionment approach might be adopted, but that was not the situation here and the total of the confiscation orders made by the judge fell well below the sum of which the Revenue had been cheated. The judge’s order against the appellant was accordingly upheld.

Conclusion

46.  The sum which the appellant, jointly with others, was found to have fraudulently obtained from HM Customs and Excise was, in law, as much his as if he had acted alone. That conclusion leads ineluctably to the further conclusions that he benefited from his offending, and benefited to an extent substantially greater than the confiscation order made against him (because of the deduction erroneously made by the judge as recorded in para 6 above). The order made was less than his realisable assets. It is entirely consistent with the legitimate objects of the legislation, and it requires, that he be ordered to pay such sum, which involves no injustice or lack of proportionality. The legislation is, as Lord Steyn described it in R v Rezvi [2003] 1 AC 1099, para 17, “a precise, fair and proportionate response to the important need to protect the public". R v Porter [1990] 1 WLR 1260 is not authority that the court has power to apportion liability between parties jointly liable, a procedure which would be contrary to principle and unauthorised by statute. No error was shown in the reasoning of Keene LJ, with which the committee generally agrees, while stressing that in any given case the statutory questions must be answered by applying the statutory language, shorn of judicial glosses and paraphrases, to the facts of that case.

47.  The appeal must be dismissed. Written submissions on costs are invited within 14 days.

Endnote

48.   The committee would conclude by drawing attention to the current importance of the power to make confiscation orders. In the period April 2007 - February 2008 the courts in England and Wales made 4504 such orders in sums totalling £225.87 million. In recent years the number of orders and the sums confiscated have steadily risen. Recognition of the importance and difficulty of this jurisdiction prompts the committee to emphasise the broad principles to be followed by those called upon to exercise it:

(1)  The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine. The benefit gained is the total value of the property or advantage obtained, not the defendant’s net profit after deduction of expenses or any amounts payable to co-conspirators.

(2)  The court should proceed by asking the three questions posed above: (i) Has the defendant (D) benefited from relevant criminal conduct? (ii) If so, what is the value of the benefit D has so obtained? (iii) What sum is recoverable from D? Where issues of criminal life style arise the questions must be modified. These are separate questions calling for separate answers, and the questions and answers must not be elided.

(3)  In addressing these questions the court must first establish the facts as best it can on the material available, relying as appropriate on the statutory assumptions. In very many cases the factual findings made will be decisive.

(4)  In addressing the questions the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definition. The language used is not arcane or obscure and any judicial gloss or exegesis should be viewed with caution. Guidance should ordinarily be sought in the statutory language rather than in the proliferating case law.

(5)  In determining, under the 2002 Act, whether D has obtained property or a pecuniary advantage and, if so, the value of any property or advantage so obtained, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership. While the answering of the third question calls for inquiry into the financial resources of D at the date of the determination, the answering of the first two questions plainly calls for a historical inquiry into past transactions.

(6)  D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers.

 
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