Judgments - R v Islam (Respondent) (on appeal from the Court of Appeal Criminal Division)

(back to preceding text)

44.  Fifth, the statement that “the drugs having been seized, the defendant has received and enjoys no benefit by reason of the drugs themselves” refers, at best, to matters relevant to the exercise of assessing what available property the defendant held at the time of the confiscation order and, at worst, introduces irrelevant considerations into the earlier exercise of assessment of the benefit obtained by his criminality. A defendant may obtain property and, for the statutory purposes, benefit, even though his criminal activities are under close surveillance as a result of which the property he obtains is destined to be and is seized by the authorities. This is illustrated by the House’s decision in R v. Cadman Smith [2001] UKHL 68; [2002] 2 Cr App R(S) 37, where cigarettes (as such, lawful to buy and sell) were illegally imported without payment of customs duty, and the defendant was held to have benefited in the amount of the duty so evaded, although he was, at all times unbeknown to him, under Customs surveillance and the cigarettes were duly seized and forfeited before he could realise any of them. The result was to leave him liable both to pay the duty and to a confiscation order in potentially the same amount (although limited in the event by reference to the value of his realisable property).

45.  Finally, while it is the case that (a) if the drugs had been sold, any cash or other lawful proceeds would have constituted a relevant benefit and also that (b) a confiscation order may be made in respect of the cost price of drugs which can be shown (whether as a result of the statutory assumptions or otherwise) to have been paid for out of the proceeds of criminality, these are considerations which to my mind tend, if anything, to highlight, rather than explain, the oddity of excluding from the assessment of benefit the actual and intended black market value of drugs as and when obtained. Indeed, the latter consideration only operates on the basis of the reality that drugs have a black market value.

46.  The cases of Building and Civil Engineering Holidays Scheme Management Ltd. v Post Office and R(HN Revenue and Customs) v. Machell, to which the Court referred in R v Hussain, concern very different areas of the law. In both the issue was on what basis compensation should be awarded - in the former case for breach of covenant, in the latter case under the provisions of the Customs and Excise Management Act 1979 providing for the payment to innocent parties of the market value of goods belonging to them but destroyed by HMRC. It is understandable that courts should hesitate about recognising an unlawful market in such a context. Nevertheless, Pearson LJ (at p 269) recognised in the former case that “In some other case it might be necessary to resort to surreptitious transactions in search of ‘market value'", citing Mouat v. Betts Motors Ltd. [1959] AC 71, 82. In that case, a car dealer had covenanted not to resell within two years, without offering the car back to the supplier at the original price (£1,207) less depreciation (£50). The dealer in breach of covenant sold the car for £1,700 on the much higher surreptitious market fed by persons who had broken their covenants. Although the supplier could not itself have re-sold the car for more than £1,207, it was entitled to damages measured by reference to the surreptitious market value of £1,700 (i.e. to £543). The effect was to strip from the dealer the benefit it had obtained by its breach of covenant.

47.  There are other contexts in which courts have also had no difficulty in recognising the relevance of black market value. Such values have in the past regularly been put on drugs by police and other experts in the course of criminal trials, although weight at 100% purity is now generally to be preferred (R v. Morris [2001] 1 Cr App R 25). Further, section 44 of the Customs and Excise Act 1952, considered in Byrne v Low [1972] 3 All ER 526, made a defendant convicted of fraudulent evasion of duty “liable to a penalty of three times the value of the goods", such value being defined by section 305(2) as “the price which those goods might reasonably be expected to have fetched, after payment of any duty or tax chargeable thereon, if they had been sold in the open market at or about the date of commission of the offence for which the penalty is imposed". The goods were “indecent books and publications prohibited from being brought into this country at all and for which there could be no open market in England in the sense of a free market, open and above board, and not conducted in an underground fashion” (p 528). Nevertheless, the Divisional Court held (at p 529) that

“in deciding what is the open market value of goods of this kind, one is not restricted by the distinction between the so-called black market and white market. What is being sought is the price which a willing seller would accept from a willing buyer for these goods as landed at the port or airport at which they were originally landed".

Byrne v Low was not cited in R v Hussain, but is closer to the present case than the two authorities on “market value” which were there cited.

48.  The Court of Appeal’s recent decision in R v Rose [2008] EWCA Crim 239 further underlines the oddity of ignoring the black market value of drugs when assessing the benefit obtained by their importation. The Court, while loyally accepting its previous decisions in R v Hussain and R v Islam, distinguished goods stolen and obtained by a thief or handler from goods like drugs which it are intrinsically illegal to buy or sell. It held that the thief or handler was to be regarded as obtaining a benefit in the amount of their market value by obtaining possession of them, even though they were liable to be and were restored to their legitimate owner (and any attempt to sell them would no doubt have involved further wrong-doing). A distinction of this nature, between the benefit from obtaining stolen goods and from obtaining drugs - one moreover putting drug offenders on a more favourable basis as regards confiscation than thieves or handlers - is not convincing.

49.  For all these reasons, I consider that it is consistent with both the language and the spirit of the statutory scheme to take account of the black market value of drugs when valuing the benefit obtained by the defendant from their illegal importation, although such drugs have a nil market value after seizure for the purposes of assessing the amount available for confiscation. The contrary decision in R v Hussain, which the Court of Appeal loyally applied in the present case, was wrong and should be over-ruled, the present appeal should be allowed and the judge’s confiscation order restored.

LORD NEUBERGER OF ABBOTSBURY

My Lords,

50.  The facts giving rise to this appeal and the relevant provisions of Part 2 of the Proceeds of Crime Act 2002 are fully set out by my noble and learned friend Lord Mance in his opinion, which I have had the benefit of seeing in draft.

51.  The appeal is concerned with the quantification of the sum to be fixed by the court under a confiscation order made against a defendant under section 6(5). Such an order can only be made if the defendant has been convicted of, and has benefited from, one or more specified offences, which include drug trafficking, money laundering, and arms trafficking - sections 6(4)(a), 6(5), and 75(1) and (2) and Schedule 2. If the defendant does not pay the sum fixed, then, by virtue of section 35, he is liable to be imprisoned on the same basis as if he had not paid a fine.

52.  When fixing the sum to be confiscated, the court has to carry out a two-stage process. The first is to assess the “recoverable amount", which is, in summary terms, the “value” of “property” obtained by the defendant as a result of his criminal conduct - sections 6(5), 7(1) and 76(4). The second step is to assess the “available amount", which is, again in summary terms, the current “value” of the defendant’s “free property"- section 9(1). The sum to be paid under the confiscation order is to be “the recoverable amount", subject to a ceiling, namely the “available amount” - sections 6(5) and 7(2). Thus, while the 2002 Act primarily envisages that a defendant should be required to disgorge all the profits he has made from his criminal activity, it recognises that he cannot be required to pay up more than he can realise in cash.

53.  In assessing the “recoverable amount", the court must first assess the defendant’s “benefit from his conduct", which is the “value of property obtained by a [him] as a result of or in connection with his criminal conduct” - sections 8(1), 76(4), (7) and 80(1). “Property” is given a very wide meaning by section 84. Section 80(2)(a) provides that the value of property is to be its “value (at the time the [defendant] obtained it)", subject to adjustment for changes in the value of money. However, an alternative valuation may apply if, on the date the court makes the order, the defendant still “holds the property obtained” or other property representing that property. In such a case section 80(2)(b) provides that, if the “value” of such property at that date is greater than the sum arrived at under section 80(2)(a), then it is that value which is to be taken.

54.   The “available amount” is defined in section 9(1)(a) as “the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant [subject to certain adjustments]". By virtue of section 84, “property” is “free” provided that it is not subject to a forfeiture order under section 27 of the Misuse of Drugs Act 1971, or to a similar order under other specified legislation.

55.  Section 79(1) provides that the section “applies for the purpose of deciding the value at any time of property then held …". Section 79(2) states that “[i]ts value is the market value of the property at that time". The definition of “market value” in section 79(2) plainly applies to the assessment of both the “recoverable amount” under section 7(1) -pursuant to sections 8(1), 76 and 80 - and the “available amount” in section 9(1).

56.  The question which has to be resolved on this appeal is how the heroin imported into this country by the respondent (which gave rise to his conviction) is to be valued for the purposes of assessing the “recoverable amount” under section 7(1), pursuant to sections 8(1), 76(4) and 80(2)(a). Heroin is clearly “property” within section 84, and it is now common ground that the respondent “obtained” the heroin in question at the time it came into this country. Accordingly, the question of principle is whether it had a “market value” under section 79(2), for the purposes of section 80(2)(a), as at that date.

57.   The respondent’s argument (which the Court of Appeal rightly, if somewhat reluctantly, considered that it was bound to accept, in the light of the decision in R v Hussain [2006] EWCA Crim 621) is that the heroin had no such “market value” at the time he obtained it. This was on the basis that the heroin could not have been sold legally in this country, and there was therefore no lawful market in which it could be said to have a value.

58.  In so far as this argument is based on the proposition that, where a statute provides for a “market value” valuation, it must exclude any illegal, or black market, transaction, I would reject it. Whether the black market can be taken into account when assessing the “market value” of a particular piece of property must depend on the context in which the expression is used. The very fact that one refers to “the black market” supports the proposition that, as a matter of language, it is plainly not impermissible to take into account unlawful transactions when assessing a market value. Thus, if the 2002 Act provided for different regimes in drug-related cases depending on the “market value” of the illegal drugs, that would plainly be directing one to the black market value.

59.  There have indeed been cases where a statutory reference to market value has been held to extend to dishonest or illegal transactions or markets. A reported decision to that effect is where a fine for importing prohibited goods was to be linked to “the price” which the goods would fetch “if sold in the open market” - Byrne v Low [1972] 3 All ER 526. On the other hand, in cases where a statute provides compensation for wrongly destroyed or lost property on a “market value” basis, it would, at least normally, be right to ignore any possibility of an unlawful market or unlawful transaction. A reported decision adopting such an approach is Building and Civil Engineering Holidays Scheme Management Ltd v Post Office [1966] 1 QB 247.

60.  When considering the meaning of “market value” in relation to the “recoverable amount” under section 7(1), pursuant to sections 8(1), 76(4) and 80(2), it seems to me that there is considerable attraction in the contention that it should extend to the black market, in the light of the purpose of Part 2 of the 2002 Act. That purpose is to make confiscation orders against people who have profited from criminal activity committed for financial gain, and section 80 is concerned with assessing the value of the property obtained from such activity. Many people convicted of such activity will have obtained assets which cannot lawfully be sold but are readily saleable on the black market, such as drugs, firearms, or stolen goods. It would seem a little surprising if the very assets which will often have been the subject of the conviction giving rise to the application of the 2002 Act, could be excluded from the calculation of the value of the property obtained from criminal activity. Further, the more unlawful drugs a convicted drug-dealer has in his possession, the less would be the value of his other assets: so the bigger the drugs haul, the smaller the potential sum identified in the confiscation order. It is not as if there is anything particularly inappropriate about valuing drugs on a black market basis for the purpose of assessing the recoverable amount: if a criminal has sold such drugs, it will have been on the black market, and the proceeds would be taken into account when assessing the “recoverable amount".

61.  On the other hand, such an approach does lead to a somewhat surprising result when one considers its effect more widely. If the “recoverable amount” can be assessed by valuing the drugs a convicted drug dealer has obtained or still possesses on a black market basis, a similar approach would logically have to be adopted in relation to all assets obtained by such a defendant when assessing the “recoverable amount". If he collected guns or motor cars perfectly lawfully, albeit with the proceeds of his criminal activity, it would seem to follow that they could be, indeed would be, valued taking into account black market values. If he owned a house, and the evidence showed that such houses were often sold partly for cash, which was not declared, in order to evade stamp duty or for some other unlawful reason, thereby inflating the price above its lawful market value, the inflated value would have to be taken into account. Indeed, a passport may have substantial value on the black market. It appears to me somewhat implausible that the value of such items was intended by Parliament to be assessed on a black market basis.

62.  I am unpersuaded that this point could be answered by fastening on the word “obtained” in section 80(2)(a) and deducing that it is only those items which the defendant has obtained or intends to dispose of on the black market which can be valued on a black market basis. Although such a contention may produce an attractive result, it appears to me to involve placing an unjustifiably strained meaning on “obtained” in section 80(2)(a), and in section 80(3)(a), where the word is used, as in section 80(1), simply to limit and identify the property to be valued, and not to give any guidance as to how it is to be valued. Equally, the notion that only items which can solely be obtained or disposed of on the black market can be ascribed a black market value may produce an attractive result, but, at least in my opinion, it does not meet the point that only one meaning can logically be given to the expression “market value” in section 79(2).

63.  So, if one limits oneself to the “recoverable amount", it appears to me that the question whether “market value” in section 79(2) extends to black market value is quite finely balanced. However, while this case is only concerned with the assessment of the “recoverable amount” in section 7(1), pursuant to sections 8(1), 76(4) and 80(2), the definition of “market value” applies equally to the assessment of the “available amount” in section 9(1)(a), as already mentioned. So it is necessary to consider the effect of section 79(2), with its market value provision, on the assessment of the “available amount".

64.  In many cases, indeed, I suspect, the majority of cases, even if illegal drugs could be ascribed a black market value in principle, they would have no value ascribed to them at the section 9 “available amount” stage. This is because the drugs will either have been forfeited by HM Revenue and Customs or be liable to immediate forfeiture. Section 80(2)(a) requires “property” to be valued “at the time the [defendant] obtained [them]", whereas, under section 9(1)(a), it is “free property” which is to be valued “at the time the confiscation order is made".

65.  While illegal drugs are “property” (which is widely defined in section 84) which may have a “market value", albeit on the black market, under section 80(2)(a), the position will often, indeed I think normally, be different under section 9(1)(a). If the drugs have been forfeited under section 27 of the Misuse of Drugs Act 1971 (or other legislation) by the time the court is considering a confiscation order, they would not be “free property", and therefore would not fall to be taken into account, or valued, at all when assessing the “available amount".

66.  If they were not yet forfeited but were liable to forfeiture (as may be more usual - see section 13 of the 2002 Act), the drugs would be “free property", but they would have no “market value", because they would be held by, or to the order of, HMRC, and they would be certain to be forfeited. In those circumstances, even if such drugs could be said to be capable of having a “market value", that value would be nil. In the absence of a specific or implied direction to the contrary, the market value of property which is subject to inevitable statutory compulsory acquisition must be based on the amount of compensation, if any, to be paid for that acquisition. Just as the value of drugs may be enhanced by the fact that they are liable to be forfeited if discovered by the authorities, so may their value become nil once they effectively under the control of the authorities.

67.  Having said that, it is easy to envisage cases where a defendant’s “free property” may include drugs in this country (or indeed abroad) which are illegal, and cannot lawfully be sold, but which are not certain to be forfeited. The court may conclude that the defendant holds illegal drugs in this country which cannot be found, as he will not say where they are. Or the court may conclude that the defendant holds illegal drugs outside the jurisdiction, in another country where their sale would be illegal.

68.  At any rate at first sight, there may seem to be no good reason why one should not ascribe a market value based on the black market to such drugs under section 9(1)(a), in the same way as under section 80(2)(a). The same principles appear to apply: there is no inherent basis for excluding an illegal transaction as a matter of language; the purpose of the 2002 Act suggests that such property should be valued in this way; a defendant who had disposable drugs would otherwise receive be subject to a smaller confiscation order than one who had not; if the drugs had been sold, the proceeds could be taken into account when assessing the “available amount".

69.  However, the Crown concedes that it cannot be right to ascribe a value for the purposes of section 9(1)(a) to illegal drugs held in this country (or indeed abroad), even if they are not liable to immediate forfeiture. As Lord Mance says in para 37, the purpose of sections 7(1) and 9(1) is to ensure that the confiscation order made by the court under section 6 does not exceed the value of the defendant’s assets. And if a defendant does not meet the confiscation order in full, he will suffer a term of imprisonment in lieu. Accordingly, a confiscation order will, in practice, normally require a defendant to sell all items of “free property” at their “market value", so as to comply with the order and avoid imprisonment in lieu. If the court were to ascribe a “market value” to illegal drugs held in this country, it would effectively be requiring, or at least condoning, the criminal sale of those drugs, or it would be assessing a figure which the defendant could not meet, and would therefore face further imprisonment under section 35. Accordingly, the Crown concedes that the “market value” to be ascribed to such illegal drugs for the purpose of section 9(1)(a) must be nil.

70.  This concession was not challenged at the hearing, it is at least strongly arguable, and indeed as at present advised it seems to me to be probably correct. Accordingly, I am content to proceed on the basis that the concession is rightly made.

71.  On that basis, I think that it must follow, essentially for the reasons given far more pithily by my noble and learned friend, Lord Walker of Gestingthorpe in his opinion, which I have seen in draft, that one cannot take into account the black market when determining the value of drugs, or indeed any other property, for the purpose of assessing the “recoverable amount” for the purposes of section 7(1) pursuant to the provisions of section 80(2)(a). The direction to value by reference to “market value” in section 79 applies equally to valuations under sections 9(1)(a), 80(2)(a) and 80(2)(b). It is conceded that the expression cannot extend to the black market when it applies to section 9(1)(a). In those circumstances, unless it was plain beyond peradventure that the same expression had to have a different meaning when applied to section 80(2) (because, for instance, the section simply could not otherwise work), it seems to me to be impermissible to give it a different meaning when it is so applied. Indeed, as I have mentioned, it would be by no means clear to me that the black market should be taken into account when valuing property under section 80(2), even ignoring section 9(1).

72.  I am not persuaded by the argument that a different meaning can be given to “market value” because of the different valuation dates in section 9(1)(a) and section 80(2)(a). First, the difference in the dates of valuation cannot logically justify a different meaning or effect being given to the expression “market value” in section 79(2). Secondly, the argument is undermined by section 80(2)(b), which contains an alternative valuation exercise to section 80(2)(a), and requires the “market value” to be determined as at the same date as section 9(1)(a).

73.  Nor do I consider that the principle that the court will not condone a legal act assists the conclusion that a different meaning can be given to the expression in sections 80(2)(a) and 9(1)(a). Part 2 of the 2002 Act works satisfactorily if the statutory expression “market value” excludes black market transactions wherever it applies, at least partly because, in some cases, it would otherwise lead to the court condoning an illegal act. It therefore seems to me to be rather a strange process of construction to conclude that the expression includes black market transactions wherever it applies, save that, where it would lead to the court condoning an illegal act, the expression does not include such transactions.

 
Continue  Previous