The judgment of the Supreme Court in R v Harvey (Jack Frederick)  UKSC 73, finding that when assessing the amount of benefit obtained as a result of a criminal act the inclusion of amounts which have not in fact been gained by the offender is disproportionate and a breach of Article 1 of Protocol 1 ("A1P1") to the European Convention on Human Rights (the right to property), demonstrates the potentially significant impact a human rights argument can have in court proceedings.
1. Key Points
- Where a public authority takes action to confiscate wrongful gains it may be a breach of A1P1 to include in the confiscation a sum which the wrongdoer did not in fact gain, for example in this case because it was paid to the tax authority.
- Although there may be evidential difficulties in establishing the necessary factual points, this matter of convenience is not a sufficient reason for the Court to avoid the fact that allowing the Crown double recovery would be disproportionate under A1P1.
The appellant had previously been convicted for handling stolen goods, through a machinery hire company of which he owned 98.9% of the shares, with the balance owned by his wife. At a hearing following his conviction, it was decided that he had obtained a benefit of £1,960,754.40 from “general criminal conduct”, under section 76 of the Proceeds of Crime Act 2002 ("POCA"). This figure was calculated as a proportion of the company's turnover (inclusive of VAT) for the relevant period, which was equivalent to the proportion of the company's machinery stock which was stolen property. A confiscation order was made for this amount, along with a further sum for particular criminal conduct, payable within 6 months.
The appellant appealed the issue of whether the trial judge was right to use the VAT inclusive turnover figure in his assessment of the benefit obtained. The appellant argued that if VAT was included in the turnover figure used to calculate the amount subject to the confiscation order, this would involve an unacceptable degree of double counting, on account of the fact that the company had already accounted for the VAT to HMRC. This, the appellant argued, either:
- follows from the wording of POCA, when interpreted according to normal domestic principles; and/or
- results from the incidence of A1P1.
The Crown defended the appeal on the basis that that it had been previously established that, for the purposes of POCA, a benefit is “obtained” if it has been received by a defendant, even if he has subsequently accounted for some or part of it, to a third party.
3. The Decision
The Supreme Court, by a majority of 3:2, (with Lord Hughes and Lord Toulson dissenting) allowed the appeal. It would be disproportionate, and therefore a breach of A1P1, to make a confiscation order calculated on the basis that VAT which has been accounted for to HMRC had been “obtained” by the defendant for the purposes of POCA.
Interpretation of POCA
The Court considered that a proper application of POCA requires a more purposive approach than the mechanical application of the law of property and referred to previous judicial comments that recognised that POCA should still be subject to the “traditional rule that a penal statute should be construed with some strictness”, but that it was also subject to the Human Rights Act 1998.
Although the Court considered that POCA was a complex statute which was difficult to interpret, in the “interests of minimising the risk of uncertainty as to the meaning in POCA” the Court rejected the appellant's first argument on the interpretation of POCA.
Application of A1P1
In relation to the appellant's second argument, which concerned the application of A1P1, the court considered that the reasoning applied in the POCA argument did not apply. The Court established that if VAT were to be included in the amount which is the subject of the confiscation order, the Government would enjoy double recovery of VAT: once under tax legislation, and again under POCA. Although double recovery is not absolutely forbidden by A1P1, there is a risk that it would be disproportionate. Treating proceeds of crime that are returned to the loser as part of the “benefit obtained” would effectively be a punitive measure.
The Court accepted that whilst there may often be difficulties in assessing the amount of VAT which has been accounted for to HMRC,“the potential inconvenience involved in applying POCA in a manner which is consistent with A1P1 is not a good reason for failing to do so”.In cases where the amount of VAT accounted for is not clear, although the burden to establish the gross benefit is on the Crown, the burden to establish the sum which has been accounted for to HMRC would be on the defendant. Furthermore, judges should be “robust” in making a determination and it would not be disporoprtionate to take a “broad-brush approach” when assessing what sums were received in the context of criminal activity, if there were evidential difficulties in determining the amount.
Although the Court was considering the principle of proportionality under A1P1 specifically in relation to the assessment of the proceeds of crime and alongside the relevant provisions of POCA, the decision nonetheless demonstrates that where substantive questions of justice are at stake, courts must recognise instances of disproportionality, notwithstanding inconvenience in determining evidential issues.
This judgment also further highlights the potential impact of human rights arguments in domestic proceedings. As in a number of A1P1 cases over recent years, it was the human rights point which ultimately proved successful for the appellant when the common law based claim failed.