Some recent decisions at the Court of Appeal have begun to clarify the impact on the confiscation regime of the Supreme Court’s ruling last year in the case of Waya.
The regime for imposing confiscation orders against convicted defendants was introduced for general cases in the Criminal Justice Act 1988, and tightened by amendments in the Proceeds of Crime Act 1995. Like all statutory law in the UK, it has to be construed in accordance with individuals’ rights under the European Convention on Human Rights and its Protocols, and the case law of its court in Strasbourg, by virtue of the Human Rights Act 1998. Among these are the right to peaceful enjoyment of one’s possessions under Article 1 to the First Protocol (which the courts now seem to call ‘A1P1’), interference with which is only permissible if it is proportionate to the public interest involved.
Nevertheless the regime, now contained in the Proceeds of Crime Act 2002 (popularly called ‘POCA’), has generally been interpreted by the courts to act in a harsh manner, often described as ‘draconian’, with respect to the property rights of defendants. This is partly due to the words of the statute itself, which allow the courts very little discretion. Section 6 of POCA says the court must make an order where the prosecution asks for it (or if the court believes it appropriate to do so), and the amount must be the lower of two figures: the value obtained by the defendant by or in connection with his criminal conduct (‘the benefit’); and the value of the assets then owned by him (‘the available amount’), including any gifts or transfers at an undervalue he has made to others since the offence (‘tainted gifts’).
The court only has discretion as to the amount if (under section 6(6)) a victim of the conduct ‘has at any time started or intends to start proceedings against the defendant’ in respect of it. The regime is substantially worse for the defendant in cases where the particular offence or time period involved create assumptions that he has a ‘criminal lifestyle’, that all assets he owns or has owned, everything he has received and everything he has spent in the six years prior to being charged can be traced to his ‘general criminal conduct’ and are to be regarded as his ‘benefit’.
- The Case of Waya
R v Waya UKSC 51 was a case of mortgage fraud, in which the ‘benefit’ of the offence was said at first to be the amount of the mortgage advance, and was eventually found to be a share of the equity in the property he had bought with it. But the Supreme Court (comprising nine judges, in an indication of the case’s importance) also found that in the light of A1P1, section 6 had to be interpreted, despite its wording, as requiring a court not to make an order that was disproportionate to the aim of POCA, which (with reference to its Explanatory Notes) the Court said was ‘to recover the financial benefit that the offender has obtained from his criminal conduct’.
Various caveats should be borne in mind about the judgment. First, it said that a ‘legitimate, and proportionate confiscation order’ could nevertheless (a) require a defendant to pay the whole of a sum he has obtained jointly with others; (b) require several defendants each to pay a sum which has been obtained, successively, by each of them; or (c) require a defendant to pay the whole of a sum he has obtained by crime without enabling him to set off expenses of the crime. Second, it said that an order could similarly take into account a benefit that the defendant had not retained, for instance because it had been spent. In these respects, at least, the regime remains ‘draconian’. Third, the defendant in Waya was not subject to the ‘criminal lifestyle’ assumptions, and some of the conclusions in his case may not apply to defendants who are.
Nevertheless the judgment is significant and, on its face, far-reaching. Some of the discussion was about the situation where a defendant has returned stolen property (for instance) to the victim, which section 6(6) would take into account if the victim had started proceedings or intended to do so, but not otherwise. The position is in many ways analogous with a mortgage fraud case, like Waya, in which all or part of the advance has been paid back to the lender. The Court said in those circumstances that it ‘would be unfair and capricious, and thus disproportionate, to distinguish between a defendant whose victim was about to sue him and a defendant who had already repaid’, and so the principle in section 6(6) should apply in either case.
The Court also mooted another example of ‘the defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods and services obtained’, saying that ‘whether a confiscation order is proportionate for any sum beyond profit may need careful consideration’. Cases of employment obtained by deception were also mentioned in this context, with a hint that there might also be questions of causation involved.
The bottom line was that Waya arguably signalled an important change in the approach to the regime, overriding the strict mandatory wording of section 6 with a principled exception (though not, the Court was keen to stress, a general discretion) to prevent disproportionate orders. There could be no doubt that this was good news for defendants and their lawyers, who would be able to use Waya as an additional basis for arguments, at first instance and on appeal, about whether an order should be made and in what amount. What has been far less clear so far is the exact scope of the Waya principle, and how much impact it will have in practice. Some recent judgments in the Court of Appeal go at least some way towards providing that clarity.
- Recent Cases at the Court of Appeal
R v Jawad (Mohid) EWCA Crime 644 was a money laundering case in which the defendant was ordered to pay compensation to the victim bank (under a separate statutory power) as well as confiscation under POCA. It was also a case in which the statutory assumptions of ‘criminal lifestyle’ applied. The Court said (perhaps surprisingly) that if a victim had been repaid in full then including the same sum in the benefit figure would be disproportionate, but the making of a compensation order (which did not guarantee actual payment) did not have the same effect.
R v Taylor and Wood EWCA Crim 1151 was a case of evasion of duty payable on the import of cigarettes, in which the defendants argued that it would be disproportionate to include in the benefit figure any sum that HM Revenue and Customs could recover civilly. The Court noted that it was not HMRC’s practice to seek double recovery in the same sum, and that it had not done so in this case. It said there was no good reason to distinguish the Crown from any other person who might seek to recover loss civilly, and that adding the gloss the defendants sought to the regime was unwarranted, and not required by Waya.
R v Bestel and Others EWCA Crim 1305 was a set of mortgage fraud cases, in which the defendants sought to appeal their confiscation orders out of time on the basis that the law had changed (or been clarified) in Waya. The Court restated the principle of finality (also noted in Jawad), that a change in the law would not justify an extension of the relevant time limit unless substantial injustice would otherwise be done to the defendant, and the mere fact of a change in the law does not ordinarily create such injustice. It went on to grant one defendant leave to appeal out of time on a ground unrelated to Waya, and refused leave to the others, citing the finality principle.
R v Sale  EWCA Crim 1306 was a case in which the defendant had had a corrupt relationship with a manager at Network Rail, during which it had awarded to his company contracts worth £1.9 million. The sentencing judge had used the latter figure as the benefit in assessing the amount of the confiscation order, but the Court of Appeal, applying Waya and noting that the contracts had been completed satisfactorily, instead used the agreed profit figure of £197,683.12.
R v Harvey EWCA Crim 1104 was a case of arson and handling stolen property (and another ‘lifestyle’ case), in which the defendant ran a plant hire and contracting business, making extensive use of stolen machinery, and set fire to several items of machinery belonging to rival contractors. The Crown Court accepted that only a proportion (38%) of the business’ turnover came from crime, and assessed the benefit figure accordingly.
On appeal, the defendant said the figure should have deducted the VAT paid to his suppliers, and given credit for the stolen items that had been returned to their owners. The Court said an ‘accounting exercise’ including deduction of VAT would be repugnant and contrary to the principles stated in Waya, and that no credit should be given for the return of chattels that had been used and so depreciated in value. It also upheld the Crown Court’s method of assessment generally.
The Court in Harvey also took the opportunity to review several cases decided before Waya and assess whether they were consistent with it. The result was to affirm most of the past cases and most of the pre-Waya principles, including the following:
First, that the courts would look at the ‘turnover’ of the crime rather than the profit from it (though it cited one case, R v Del Basso and Goodwin  EWCA Crim 1119, in which the application of that principle to a car-park business run without planning permission ‘seemed excessively harsh and may arguably be characterised as disproportionate’);
Second, that it was not unfair to put the burden on the defendant to prove facts in his favour;
Third, that other than ‘mere couriers or custodians’ (to be distinguished from money launderers), anyone owning property, even briefly, could be said to have ‘obtained’ it;
Fourth, that partial (as opposed to full) restoration to the victim would not always be taken into account (although based on comments on R v Morgan and Bygrave  EWCA Crim 1323,  1 Cr Appr R (S), it would seem this may depend on the degree of restoration involved).
Defence lawyers have become accustomed over the years to giving pessimistic advice to clients (not just defendants but often also others affected, such as spouses or relatives) about the post-conviction regime for confiscation, and citing somewhat apologetically the courts’ repeated affirmations that it was intended to be ‘draconian’ in effect. There can surely be no doubt that Parliament intended POCA to be harsh on defendants. There is also much merit in the courts’ view, until Waya, that the aim of the statute in truth goes further than confiscating proceeds of crime, and also includes the deterrent and symbolic value of routinely bringing those convicted of acquisitive crimes literally to the brink of financial ruin (if and insofar as the orders are enforced, that is – a caveat whose importance is increasingly recognised by the general public). The words of the statute are ambiguous in some ways, but it seems clear at least that it does not deal with net retained profit (as it could easily have done) but with gross benefit obtained, and what clarification is provided (in section 84(2)(b), that ‘property is obtained by a person if he obtains an interest in it’) indicates the very broadest (and harshest) construction.
To that extent, even to a defence practitioner the principle enunciated in Waya – on the face of it, that the amount of the order should bear some relation to the ‘real’ benefit obtained (as the dissenting judges in the case put it) - looks peculiarly generous to defendants’ rights. But it must also be admitted that in striving to reintroduce some fairness to the regime, Waya also risks making it more arbitrary and more unpredictable. It is not surprising that the Court of Appeal has had to work hard to reintroduce some order to the law, and that work is surely not over yet.
The source of the problem is really the lack of discretion in POCA itself, together with the sometimes zealous breadth with which the courts have traditionally interpreted the concept of ‘obtaining’, which in turn expands the concept of ‘benefit’ far beyond its commonsense meaning. It is doubtless right that the regime is intended to operate in a very broad-brush manner when dealing with property obtained jointly or successively with others, or that has been disposed of, by putting (in effect) the burden on the defendant to prove facts in his favour, and by dealing with the ‘turnover’ of the offending and not the ‘profit’.
Unfortunately though, the courts’ inevitably legalistic approach to the wording of the statute has led to some distinctions and results that are arbitrary and illogical as well as merely harsh. These depend for instance on the distinction between a ‘courier’ and a ‘launderer’ (which is not at all clear in practice), or that between an offender who receives monies and then pays expenses to third parties (like the car-park business in Del Basso), and one who has his customers pay third parties direct (like the brothel-keepers in the case of R v Worrall  EWCA Crim 1150).
The issue of when ‘benefit’ means ‘profit’ and when it means ‘turnover’ appears far from settled. The distinction between Waya and Sale on the one hand (where it seems to have meant ‘profit’) and Taylor and Wood, Harvey and Del Basso on the other (where it meant ‘turnover’) seems based more on the extent of the sentencing judge’s sympathy (or lack of it) with the defendant’s plight than on any objective analysis of causation. This has an additional importance for business crime lawyers because of the analogy to the question of how the benefit of a corporate offender under the Bribery Act 2010 is to be assessed for the purposes of calculating a financial penalty, either at sentence or when considering the option of a Deferred Prosecution Agreement under the Crime and Courts Act 2013.
The position with respect to restoration to victims, actual or contemplated, full or partial, is also particularly problematic. Section 6(6) of POCA is clearly intended to deal with the problem by giving the judge a discretion where a civil claim has been made or is intended, but as the courts have discussed at length, a literal application would have absurd results. Waya has helped by establishing the principle (albeit by way of obiter remarks, with no attempt to justify them by reference to the statute) that full voluntary reparation will be taken into account. Nevertheless, it seems defendants who make partial reparation, or return depreciated chattels, on a voluntary basis may still end up having to pay twice. Defendants who manage to be sued by their victims, on the other hand, will not. The use of compensation orders, and the timing of civil actions (what if the victim decides to sue after the confiscation order is imposed?), give rise to yet further problems in these cases.
Nearly two decades after their general discretion was removed, it is perhaps not surprising that the courts have turned against the tyranny of the regime to an extent. But the cure suggested by Waya, with which the lower courts are inevitably struggling, may ultimately turn out to be worse than the disease. What seems to be happening is the development of a system whereby the courts first assess the result under the ‘draconian’ principles that held sway before Waya, and then go on to consider whether that result is disproportionate in the circumstances of the case, translating ad hoc pronouncements from previous hard cases into general statements of principle.
This was, arguably, an entirely avoidable result. The courts could surely have used the long-established rules of statutory interpretation to apply the concepts of ‘obtaining’ and ‘benefit’ to the facts of each case in the commonsense way Parliament intended. This is needed because a narrow legalistic approach to such questions plainly cannot produce just results, as has been proven in case after case. It is particularly so given the difficult questions of causation that can arise where the proceeds of an otherwise legitimate activity (such as the running of a business, the earning of a wage, or the purchase of a house), perhaps involving otherwise legitimate funds, are tainted, to some extent, by the commission of an offence.
The courts could also have used the same rules to broaden the application of section 6(6) to any case where a victim’s loss has been or is likely to be compensated by other means. This is surely the purpose of that subsection, notwithstanding the somewhat clumsy reference to a victim who ‘has at any time started or intends to start proceedings’. Presumably the reason for using this wording was that civil claims were not expected to be concluded or settled before the confiscation hearing, with an assumption perhaps that this would inevitably follow very soon after conviction (which is often, sadly, very far off the mark).
It is perhaps regrettable that the courts have chosen not to use these rules to make the regime workable in practice. Instead, the deployment of A1P1 by the Supreme Court in Waya has threatened to throw the regime into some degree of disorder. The Court of Appeal, particularly in its helpful review of past cases in Harvey, has been doing its best to keep that disorder contained, until the inevitable day when a particularly hard case leads these questions back to the Supreme Court for another rethink. For the time being though, it seems defence lawyers will continue to have the somewhat mixed blessing of this uncertainty as a potential weapon in their armoury. For their part, the courts will simply have to continue to feel their way through the uncertainty as best they can.