JUDGMENT
R v Waya (Appellant)
before
Lord Phillips
Lord Walker
Lady Hale
Lord Judge
Lord Kerr
Lord Clarke
Lord Wilson
Lord Reed
Sir Anthony Hughes
JUDGMENT GIVEN ON
14 November 2012
Heard on 27, 28 and 29 March 2012
Appellant Respondent
Ivan Krolick David Perry QC
Oliver Grimwood
Stephen Akinsanya
William Hays
(Instructed by Central
Law Practice)
(Instructed by Crown
Prosecution Service)
Advocates to the Court
Jonathan Swift QC
Duncan Penny
(Instructed by Treasury
Solicitor)
Intervener (Secretary of
State for the Home
Department)
Lord Pannick QC
Mark Vinall
Emily Neill
(Instructed by Treasury
Solicitor)
LORD WALKER AND SIR ANTHONY HUGHES (with whom Lady Hale,
Lord Judge, Lord Kerr, Lord Clarke and Lord Wilson agree)
I Overview
1. This appeal raises important and difficult issues as to the meaning and
effect of Part 2 of the Proceeds of Crime Act 2002 (“POCA”), dealing with postconviction confiscation. It does not concern civil recovery under Part 5 of POCA,
which was considered recently by the court in Serious Organised Crime Agency v
Perry [2012] UKSC 35, [2012] 3 WLR 379 nor, although the argument ranged
widely, did it address by any means all of the questions which are raised in a postconviction case. But because of the importance and difficulty of the issues which
are raised, the appeal (originally heard by a court of seven Justices in 2011) has
been re-argued before a court of nine. These issues relate chiefly to the calculation
of benefit and the impact of the Human Rights Act 1998 (“HRA”). At the
rehearing the Court has had the benefit of argument not only on behalf of the
original parties, but also from counsel instructed as advocates to the Court and
counsel on behalf of the Secretary of State for the Home Department as an
intervener.
2. POCA is concerned with the confiscation of the proceeds of crime. Its
legislative purpose, like that of earlier enactments in this field, is to ensure that
criminals (and especially professional criminals engaged in serious organised
crime) do not profit from their crimes, and it sends a strong deterrent message to
that effect. In R v Rezvi [2002] UKHL 1, [2003] 1 AC 1099, para 14, Lord Steyn
stated:
“It is a notorious fact that professional and habitual criminals
frequently take steps to conceal their profits from crime. Effective
but fair powers of confiscating the proceeds of crime are therefore
essential. The provisions of the 1988 Act are aimed at depriving such
offenders of the proceeds of their criminal conduct. Its purposes are
to punish convicted offenders, to deter the commission of further
offences and to reduce the profits available to fund further criminal
enterprises. These objectives reflect not only national but also
international policy.”
These observations have been cited and followed many times, although Lord
Steyn’s reference to punishment needs some qualification. Despite the use of the
term “confiscation”, which is a misnomer, orders under Part 2 of POCA are made
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in sums of money (“value-based”) rather than being directed, as are civil recovery
orders under Part 5 of POCA, at the divestment of specific assets. Nevertheless, a
confiscation order is not an additional fine.
3. The legislation under which “value-based” criminal confiscation orders are
made has changed significantly during the past thirty years. The main landmarks
can be briefly summarised (there is a more detailed account, which also refers to
the international conventions underlying some of the legislation, in the considered
opinion of the Appellate Committee of the House of Lords, delivered by Lord
Bingham, in R v May [2008] UKHL 28, [2008] AC 1028, para 8). The first statute,
the Drug Trafficking Offences Act 1986 (“the 1986 Act”) provided for
confiscation of sums related to the proceeds of unlawful drug trafficking. The 1986
Act was repealed and replaced by the Drug Trafficking Act 1994 (“the 1994 Act”).
In the meantime Part VI of the Criminal Justice Act 1988 (“the 1988 Act”) had
extended the range of offences in respect of which confiscation orders could be
made. The 1988 Act and the 1994 Act were framed in similar but not identical
terms and in some of the authorities the Court of Appeal had to consider whether
relatively small variations in the scheme and language of the statutes reflected
significant differences in legislative policy (see for instance R v Rose [2008]
EWCA Crim 239, [2008] 1 WLR 2113, para 78). POCA has put an end to those
difficulties, but they must be borne in mind when reading some of the older cases.
4. The Proceeds of Crime Act 1995 (“the 1995 Act”) was an amending statute,
but its effects were far-reaching and, with hindsight after the enactment of HRA a
few years later, problematic. The 1995 Act removed from the Crown Court almost
all discretion as to the making or quantum of a confiscation order, if it was applied
for by the prosecution and the statutory requirements were satisfied. That remains
the position under POCA. The Crown Court no longer has any power to use its
discretion so as to mould the confiscation order to fit the facts and the justice of the
case, even though a confiscation order may arise in every kind of crime from
which the defendant has benefited, however briefly. The Crown Court has
encountered many difficulties in applying POCA’s strict regime. Many of the
complexities and difficulties of confiscation cases, arising from the extremely
involved statutory language, would undoubtedly be avoided if a measure of
discretion were restored, but whether to restore it, and if so in which form, is a
matter for Parliament and not for the courts.
5. On the introduction of the Bill that was later enacted as POCA it was
certified in the usual way, under section 19 of HRA, as compatible with rights
under the European Convention on Human Rights (“Convention rights”). The
question now raised for this court is whether the application of POCA’s rules for
the calculation of benefit may, in some circumstances, give rise to a contravention
of Convention rights. This is not a question which has arisen in cases before the
Strasbourg court although other challenges to evidential aspects of confiscation
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legislation have been rejected, for example in Phillips v UK [2001] ECHR 437,
(2001) 11 BHRC 280 (statutory assumptions) and Grayson and Barnham v UK
[2008] ECHR 871; (2009) 48 EHRR 30 (onus on defendant to demonstrate
realisable assets smaller than the benefit figure). This very important issue is
addressed at section III below.
II The statutory provisions
6. Part 2 of POCA has two general features of central importance to its
structure. The first is the distinction between cases in which the defendant is, or is
not, to be treated as having a criminal lifestyle (as prescribed by section 75 of
POCA). Mr Waya’s is not a criminal lifestyle case, but many of the authorities are
concerned with criminal lifestyle cases, and it must be noted that the statutory
assumptions made in those cases (under section 10 of POCA) are often
determinative of the outcome.
7. The other structural feature is that the making and quantum of a
confiscation order involve three stages. The first stage is the identification of the
benefit obtained by the defendant (sections 6(4), 8 and 76 of POCA). The second
stage is the valuation of that benefit. It may fall to be valued (sections 79 and 80)
either at the time when it is obtained, or at the date of the confiscation order (“the
confiscation day”). Intermediate events may be relevant, especially for the tracing
exercise that may be required under section 80(3), but the valuation date must be
either at the beginning or at the end of the process. The third stage is the valuation
as at the confiscation day of all the defendant’s realisable assets (designated in
section 9 as “the available assets”). This value sets a cap on the amount (“the
recoverable amount”) of the confiscation order (section 7). In R v May [2008] AC
1028, para 8, the House of Lords emphasised that the Crown Court must proceed
through these three stages in a systematic manner, and not elide them.
8. Because POCA covers a wide range of offences, Parliament has framed the
statute in broad terms with a certain amount of what Lord Wilberforce (in a tax
case) called “overkill”. Examples of this are the apparently loose causal test in
section 76(4) (“as a result of or in connection with the conduct”) and the rather
puzzling definition (“property is obtained by a person if he obtains an interest in
it”) in section 84(2)(b). Although the statute has often been described as
“draconian” that cannot be a warrant for abandoning the traditional rule that a
penal statute should be construed with some strictness. But subject to this and to
HRA, the task of the Crown Court judge is to give effect to Parliament’s intention
as expressed in the language of the statute. The statutory language must be given a
fair and purposive construction in order to give effect to its legislative policy.
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9. Much of the argument in the appeal has focussed on sections 76, 79, 80 and
84 of POCA, and they must be set out in full.
“76 Conduct and benefit
(1) Criminal conduct is conduct which—
(a) constitutes an offence in England and Wales, or
(b) would constitute such an offence if it occurred in England and
Wales.
(2) General criminal conduct of the defendant is all his criminal
conduct, and it is immaterial—
(a) whether conduct occurred before or after the passing of this Act;
(b) whether property constituting a benefit from conduct was
obtained before or after the passing of this Act.
(3) Particular criminal conduct of the defendant is all his criminal
conduct which falls within the following paragraphs—
(a) conduct which constitutes the offence or offences concerned;
(b) conduct which constitutes offences of which he was convicted in
the same proceedings as those in which he was convicted of the
offence or offences concerned;
(c) conduct which constitutes offences which the court will be taking
into consideration in deciding his sentence for the offence or
offences concerned.
(4) A person benefits from conduct if he obtains property as a result
of or in connection with the conduct.
Page 5
(5) If a person obtains a pecuniary advantage as a result of or in
connection with conduct, he is to be taken to obtain as a result of or
in connection with the conduct a sum of money equal to the value of
the pecuniary advantage.
(6) References to property or a pecuniary advantage obtained in
connection with conduct include references to property or a
pecuniary advantage obtained both in that connection and some
other.
(7) If a person benefits from conduct his benefit is the value of the
property obtained.
. . .
79 Value: the basic rule
(1) This section applies for the purpose of deciding the value at any
time of property then held by a person.
(2) Its value is the market value of the property at that time.
(3) But if at that time another person holds an interest in the property
its value, in relation to the person mentioned in subsection (1), is the
market value of his interest at that time, ignoring any charging order
under a provision listed in subsection (4).
(4) The provisions are—
(a) section 9 of the Drug Trafficking Offences Act 1986 (c. 32);
(b) section 78 of the Criminal Justice Act 1988 (c. 33);
(c) Article 14 of the Criminal Justice (Confiscation) (Northern
Ireland) Order 1990 (S.I. 1990/2588 (N.I. 17));
(d) section 27 of the Drug Trafficking Act 1994 (c. 37);
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(e) Article 32 of the Proceeds of Crime (Northern Ireland) Order
1996 (S.I. 1996/1299 (N.I. 9)).
(5) This section has effect subject to sections 80 and 81.
80 Value of property obtained from conduct
(1) This section applies for the purpose of deciding the value of
property obtained by a person as a result of or in connection with his
criminal conduct; and the material time is the time the court makes
its decision.
(2) The value of the property at the material time is the greater of the
following—
(a) the value of the property (at the time the person obtained it)
adjusted to take account of later changes in the value of money;
(b) the value (at the material time) of the property found under
subsection (3).
(3) The property found under this subsection is as follows—
(a) if the person holds the property obtained, the property found
under this subsection is that property;
(b) if he holds no part of the property obtained, the property found
under this subsection is any property which directly or indirectly
represents it in his hands;
(c) if he holds part of the property obtained, the property found under
this subsection is that part and any property which directly or
indirectly represents the other part in his hands.
(4) The references in subsection (2)(a) and (b) to the value are to the
value found in accordance with section 79.
Page 7
…
84 Property: general provisions
(1) Property is all property wherever situated and includes—
(a) money;
(b) all forms of real or personal property;
(c) things in action and other intangible or incorporeal property.
(2) The following rules apply in relation to property—
(a) property is held by a person if he holds an interest in it;
(b) property is obtained by a person if he obtains an interest in it;
(c) property is transferred by one person to another if the first one
transfers or grants an interest in it to the second;
(d) references to property held by a person include references to
property vested in his trustee in bankruptcy, permanent or interim
trustee (within the meaning of the Bankruptcy (Scotland) Act 1985
(c. 66)) or liquidator;
(e) references to an interest held by a person beneficially in property
include references to an interest which would be held by him
beneficially if the property were not so vested;
(f) references to an interest, in relation to land in England and Wales
or Northern Ireland, are to any legal estate or equitable interest or
power;
Page 8
(g) references to an interest, in relation to land in Scotland, are to any
estate, interest, servitude or other heritable right in or over land,
including a heritable security;
(h) references to an interest, in relation to property other than land,
include references to a right (including a right to possession).”
III The effect of HRA
10. At the first hearing of this case in 2011 Mr Krolick’s arguments on behalf
of the defendant included the submission that the operation of the confiscation
regime might in some circumstances give rise to an order which infringed Article 1
of the First Protocol to the European Convention on Human Rights. When
adjourning the case to a fresh hearing, this court invited further submissions on this
topic, and more generally upon the questions:
a. whether POCA is capable of operating in a manner which is
oppressive and/or an abuse of process;
b. if so, whether the court ought to give any (and if so what)
guidance on when that might occur;
c. what ought to be the approach to property gained by the
defendant but fully restored to the true owner;
d. what ought to be the approach to a dishonestly-obtained loan
which had been fully repaid.
Further submissions on these and related topics were, in consequence, made by all
parties at the re-hearing of the appeal.
11. Article 1 of the First Protocol to the European Convention (“A1P1”)
provides:
“Every natural or legal person is entitled to the peaceful enjoyment
of his possessions. No one shall be deprived of his possessions
except in the public interest and subject to the conditions provided
for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the
right of a State to enforce such laws as it deems necessary to control
the use of property in accordance with the general interest or to
secure the payment of taxes or other contributions or penalties”
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12. It is clear law, and was common ground between the parties, that this
imports, via the rule of fair balance, the requirement that there must be a
reasonable relationship of proportionality between the means employed by the
State in, inter alia¸ the deprivation of property as a form of penalty, and the
legitimate aim which is sought to be realised by the deprivation. That rule has
consistently been stated by the European Court of Human Rights: see for example
its iteration in Jahn v Germany (2006) 42 EHRR 1084, para 93:
“93. The Court reiterates that an interference with the peaceful
enjoyment of possessions must strike a ‘fair balance’ between the
demands of the general interest of the community and the
requirements of the protection of the individual’s fundamental rights
[see, among other authorities, Sporrong and Lönnroth, cited above,
p. 26, § 69]. The concern to achieve this balance is reflected in the
structure of Article 1 of Protocol No. 1 as a whole, including
therefore the second sentence, which is to be read in the light of the
general principle enunciated in the first sentence. In particular, there
must be a reasonable relationship of proportionality between the
means employed and the aim sought to be realised by any measure
depriving a person of his possessions [see Pressos Compania
Naviera SA and Others v Belgium, judgment of 20 November 1995,
Series A no. 332, p. 23, § 38].
In determining whether this requirement is met, the Court recognises
that the State enjoys a wide margin of appreciation with regard both
to choosing the means of enforcement and to ascertaining whether
the consequences of enforcement are justified in the general interest
for the purpose of achieving the object of the law in question [see
Chassagnou v France [GC], nos. 25088/94, 28331/95 and 28443/95,
§ 75, ECHR 1999-III].”
Although that case applied this principle to very particular facts, relating to the
operation of post-reunification German land re-organisation, the principle itself is
gathered from established Strasbourg jurisprudence in terms often repeated and
generally applied.
13. A1P1 is one of the Convention rights to which the HRA applies: section
1(1)(b). That means that section 3(1) requires that so far as it is possible to do so,
legislation must be:
“read and given effect in a way which is compatible…” [with it].
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14. Mr Perry QC, for the Crown, and Lord Pannick QC for the Home Secretary,
both submitted that this means:
(a) that POCA must be read and given effect in a manner which avoids a
violation of A1P1;
(b) that a confiscation order which did not conform to the test of
proportionality would constitute such a violation;
(c) that it is incumbent upon the domestic court to provide a remedy for
any such violation; and
(d) that the appropriate remedy lies in the duty of the Crown Court judge
not to make an order which involves such a violation.
These submissions are plainly correct. Any such violation can be avoided by
applying to POCA, and in particular to section 6, the rule of construction required
by section 3 of HRA. The extent of the court’s obligation under section 3 was
summarised by Lord Bingham in Sheldrake v DPP [2004] UKHL 43, [2005] 1 AC
264, para 28:
“The interpretative obligation of the courts under section 3 of the
1998 Act was the subject of illuminating discussion in Ghaidan v
Godin-Mendoza [2004] 2 AC 557. The majority opinions of Lord
Nicholls, Lord Steyn and Lord Rodger in that case (with which Lady
Hale agreed) do not lend themselves easily to a brief summary. But
they leave no room for doubt on four important points. First, the
interpretative obligation under section 3 is a very strong and far
reaching one, and may require the court to depart from the legislative
intention of Parliament. Secondly, a Convention-compliant
interpretation under section 3 is the primary remedial measure and a
declaration of incompatibility under section 4 an exceptional course.
Thirdly, it is to be noted that during the passage of the Bill through
Parliament the promoters of the Bill told both Houses that it was
envisaged that the need for a declaration of incompatibility would
rarely arise. Fourthly, there is a limit beyond which a Conventioncompliant interpretation is not possible, such limit being illustrated
by R (Anderson) v Secretary of State for the Home Department
[2003] 1 AC 837 and Bellinger v Bellinger [2003] 2 AC 467. In
explaining why a Convention-compliant interpretation may not be
possible, members of the committee used differing expressions: such
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an interpretation would be incompatible with the underlying thrust of
the legislation, or would not go with the grain of it, or would call for
legislative deliberation, or would change the substance of a provision
completely, or would remove its pith and substance, or would violate
a cardinal principle of the legislation (paras 33, 49, 110-113, 116).
All of these expressions, as I respectfully think, yield valuable
insights, but none of them should be allowed to supplant the simple
test enacted in the Act: ‘So far as it is possible to do so …’. While
the House declined to try to formulate precise rules (para 50), it was
thought that cases in which section 3 could not be used would in
practice be fairly easy to identify.”
15. Section 6(5) of POCA sets out the final stage of the process of assessment
of a confiscation order:
“If the court decides under subsection 4(b) or (c) that the defendant
has benefited from the conduct referred to it must –
(a) decide the recoverable amount, and
(b) make an order (a confiscation order) requiring him to pay that
amount.”
16. It is plainly possible to read paragraph (b) as subject to the qualification:
“except insofar as such an order would be disproportionate and thus
a breach of Article 1, Protocol 1.”
It is necessary to do so in order to ensure that the statute remains Conventioncompliant, as Parliament must, by section 3 of HRA, be taken to have intended
that it should. Thus read, POCA can be “given effect” in a manner which is
compliant with the Convention right. The judge should, if confronted by an
application for an order which would be disproportionate, refuse to make it but
accede only to an application for such sum as would be proportionate.
17. Both Mr Perry and Lord Pannick accepted the correctness of two cases
decided in the Court of Appeal, Criminal Division, in which it was held that a
disproportionate confiscation order might in limited circumstances be prevented by
the application of the court’s jurisdiction to prevent an abuse of process. Those
cases were R v Morgan and R v Bygrave [2008] EWCA Crim 1323; [2009] 1 Cr
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App R (S) 60 and R v Shabir [2008] EWCA Crim 1809, [2009] 1 Cr App R (S) 84.
The first (where the point was substantially conceded by the Crown) involved
consideration of the case of a class of defendant (such as Morgan) whose benefit
was limited to loss occasioned to a single victim, who did not have a criminal
lifestyle, and who either had repaid, or stood ready to repay, the victim in full.
Such a defendant would not be able to invoke section 6(6) of POCA to ask the
court to treat the statutory duty to make a confiscation order as a discretionary
power, because the victim would have no occasion to bring or threaten legal
proceedings to recover his loss. The second case involved a defendant whose
defalcations were accepted to amount to £464 but from whom the Crown sought a
confiscation order of over £400,000 as a result of the manner in which he had
obtained the money together with much larger sums to which he was agreed to be
entitled and of the form of the charges of which he had been convicted. The
situations described in both cases have (with others) subsequently been recognised
in guidance issued by the DPP to prosecutors as ones in which a disproportionate
confiscation order ought not to be sought by the Crown.
18. Whilst the outcomes of those cases were, as is conceded, correct, the better
analysis of such situations is that orders such as those there considered ought to be
refused by the judge on the grounds that they would be wholly disproportionate
and a breach of A1P1. There is no need to invoke the concept of abuse of process.
19. That guidance should be issued to prosecutors is perfectly proper. The
Crown’s power, under section 6(3)(a) of POCA, to ask the court to make a
confiscation order is one with far-reaching consequences and care should be taken
to exercise it on sound principles. Section 6 of HRA imposes on prosecutors the
duty not to act in a manner incompatible with Convention rights, so that the Crown
has an important preliminary function in ensuring that a disproportionate order is
not sought. But the safeguard of the defendant’s Convention right under A1P1 not
to be the object of a disproportionate order does not, and must not, depend on
prosecutorial discretion, nor on the very limited jurisdiction of the High Court to
review the exercise of such discretion by way of judicial review. The latter would
moreover lead to undesirable satellite litigation. Mr Perry and Lord Pannick were
correct to identify the repository of the control in the person of the Crown Court
judge, subject to the reviewing jurisdiction of the Court of Appeal, Criminal
Division, on appeal by either party. There is no occasion for any challenge to a
confiscation order to involve an application for judicial review, which would
founder on the objection that there is an adequate remedy in the hands of those two
courts.
20. The difficult question is when a confiscation order sought may be
disproportionate. The clear rule as set out in the Strasbourg jurisprudence requires
examination of the relationship between the aim of the legislation and the means
employed to achieve it. The first governs the second, but the second must be
Page 13
proportionate to the first. Likewise, the clear limitation on the domestic court’s
power to read and give effect to the statute in a manner which keeps it Convention
compliant is that the interpretation must recognise and respect the essential
purpose, or “grain” of the statute.
21. Both Mr Perry and Lord Pannick submitted that it would be very unusual
for orders sought under the statute to be disproportionate. Both drew attention to
the severity of the regime and commended its deterrent effect. The purpose of the
legislation is plainly, and has repeatedly been held to be, to impose upon convicted
defendants a severe regime for removing from them their proceeds of crime. It is
not to be doubted that this severe regime goes further than the schoolboy concept
of confiscation, as Lord Bingham explained in R v May [2008] 1 AC 1028. Nor is
it to be doubted that the severity of the regime will have a deterrent effect on at
least some would-be criminals. It does not, however, follow that its deterrent
qualities represent the essence (or the “grain”) of the legislation. They are, no
doubt, an incident of it, but they are not its essence. Its essence, and its frequently
declared purpose, is to remove from criminals the pecuniary proceeds of their
crime. Just one example of such declarations is afforded by the explanatory notes
to the statute (para 4):
“The purpose of confiscation proceedings is to recover the financial
benefit that the offender has obtained from his criminal conduct.”
22. A confiscation order must therefore bear a proportionate relationship to this
purpose. Lord Bingham recognised this in his seminal speech in R v May, in
adding to his “Endnote” or overview of the regime, at para 48, two balancing
propositions:
“The legislation … does not provide for confiscation in the sense
understood by schoolchildren and others, but nor does it operate by
way of fine.”
23. Some general propositions may be offered in the light of the submissions of
Mr Perry and Lord Pannick.
24. For the reasons given above, it must clearly be understood that the judge’s
responsibility to refuse to make a confiscation order which, because
disproportionate, would result in an infringement of the Convention right under
A1P1 is not the same as the re-creation by another route of the general discretion
once available to judges but deliberately removed. An order which the judge
would not have made as a matter of discretion does not thereby ipso facto become
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disproportionate. So to treat the jurisdiction would be to ignore the rule that the
Parliamentary objective must, so long as proportionately applied, be respected.
25. A great many of the more serious cases in which confiscation orders are
appropriate are criminal lifestyle cases. The statutory test for a lifestyle case is
contained in section 75, read with Schedule 2, of POCA. In essence, a defendant
who has in the past six years committed a number of offences from which he has
benefited, or who has committed certain specified offences, will meet the statutory
test. If he does, the calculation of his benefit will normally not depend on the
known benefit obtained from identified offences, but will be made after applying
the statutory assumptions set out in section 10 as to the criminal source of any
assets passing through his hands in the six year period. Although the starting point
is that the assumptions “must” be made (section 10(1)), this duty is subject to two
qualifications contained in section 10(6). The assumptions should not be made if
they are shown to be incorrect: section 10(6)(a). Nor should they be made if
making them would give rise to a risk of serious injustice: section 10(6)(b). The
combination of these provisions, and especially the latter, ought to mean that to the
extent that a confiscation order in a lifestyle case is based on assumptions it ought
not, except in very unusual circumstances, to court the danger of being
disproportionate because those assumptions will only be applied if they can be
made without risk of serious injustice.
26. It is apparent from the decision in May that a legitimate, and proportionate,
confiscation order may have one or more of three effects:
(a) it may require the defendant to pay the whole of a sum which he has
obtained jointly with others;
(b) similarly it may require several defendants each to pay a sum which has
been obtained, successively, by each of them, as where one defendant
pays another for criminal property;
(c) it may require a defendant to pay the whole of a sum which he has
obtained by crime without enabling him to set off expenses of the crime.
These propositions are not difficult to understand. To embark upon an accounting
exercise in which the defendant is entitled to set off the cost of committing his
crime would be to treat his criminal enterprise as if it were a legitimate business
and confiscation a form of business taxation. To treat (for example) a bribe paid to
an official to look the other way, whether at home or abroad, as reducing the
proceeds of crime would be offensive, as well as frequently impossible of accurate
Page 15
determination. To attempt to enquire into the financial dealings of criminals as
between themselves would usually be equally impracticable and would lay the
process of confiscation wide open to simple avoidance. Although these
propositions involve the possibility of removing from the defendant by way of
confiscation order a sum larger than may in fact represent his net proceeds of
crime, they are consistent with the statute’s objective and represent proportionate
means of achieving it. Nor, with great respect to the minority judgment, does the
application of A1P1 amount to creating a new governing concept of “real benefit”.
27. Similarly, it can be accepted that the scheme of the Act, and of previous
confiscation legislation, is to focus on the value of the defendant’s obtained
proceeds of crime, whether retained or not. It is an important part of the scheme
that even if the proceeds have been spent, a confiscation order up to the value of
the proceeds will follow against legitimately acquired assets to the extent that they
are available for realisation.
28. The case of a defendant such as was considered in Morgan and Bygrave is,
however, a different one. To make a confiscation order in his case, when he has
restored to the loser any proceeds of crime which he had ever had, is
disproportionate. It would not achieve the statutory objective of removing his
proceeds of crime but would simply be an additional financial penalty. That it is
consistent with the statutory purpose so to hold is moreover demonstrated by the
presence of section 6(6). This subsection removes the duty to make a confiscation
order, and converts it into a discretionary power, wherever the loser whose
property represents the defendant’s proceeds of crime either has brought, or
proposes to bring, civil proceedings to recover his loss. It may be that the presence
of section 6(6) is capable of explanation simply as a means of avoiding any
obstacle to a civil action brought by the loser, which risk would not arise if
repayment has already been made. But 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. If anything, an order that the
same sum be paid again by way of confiscation is more disproportionate in the
second case than in the first. Unlike the first defendant, the second has not forced
his victim to resort to litigation.
29. The principle considered above ought to apply equally to other cases where
the benefit obtained by the defendant has been wholly restored to the loser. In such
a case a confiscation order which requires him to pay the same sum again does not
achieve the object of the legislation of removing from the defendant his proceeds
of crime, but amounts simply to a further pecuniary penalty – in any ordinary
language a fine. It is for that reason disproportionate. If he obtained other benefit,
then an order confiscating that is a different matter.
Page 16
30. The earlier case of Nield [2007] EWCA Crim 993 voiced concern about the
effect of a confiscation order in a full restoration case. That case, however, predated Morgan and Bygrave and did not consider A1P1. To the extent that it, and
Forte [2004] EWCA Crim 3188 (a non-counsel application with minimal
argument), rationalised a confiscation order in such a case on the basis that part of
the purpose of the statute was to impose an additional punitive sanction, those
observations need now to be read in the light of the observations of Lord Bingham
at para 48 in May, cited above. The principal thrust of Rose [2008] 1 WLR 2113
relates to the question whether the loser’s interest in stolen property prevents the
thief from obtaining it, and to the proper basis for valuation of benefit obtained
(see below). To the extent that Rose held at para 88 that the recovery and
restoration intact of the stolen property was always irrelevant to the making of a
confiscation order, that part of the decision should not be followed; it too
preceded both Morgan and Bygrave and May, and neither A1P1 nor any issue of
disproportion was addressed in argument.
31. Several of these conclusions can conveniently be tested by considering the
facts of R v Wilkes [2003] EWCA Crim 848, [2003] 2 Cr App R (S) 105. The
defendant was convicted of burglary. He had a previous conviction, within the
statutory assumption period of six years, for handling. Both the property stolen in
the burglary and the property handled had been recovered intact and restored,
undamaged, to the true owners. The defendant had obtained no other benefit from
those two offences. Under the legislation then prevailing, the 1988 Act (as
amended), these two convictions triggered the statutory assumptions, providing
that Wilkes had benefited (to any extent) from each of the offences. The Crown
did not assert that the calculation of Wilkes’ benefit ought to include the value of
the goods either stolen in the burglary or handled on the previous occasion. It
confined itself to relying on the statutory assumptions which cast upon him the
onus of disproving the proposition that his expenditure on living over the previous
six years and some money found buried in the garden were, in each case,
attributable to crime. The Court of Appeal was invited to hold that the statutory
assumptions did not apply because Wilkes had not benefited, even briefly, from
the two offences under consideration. That argument was rightly rejected; plainly
he had benefited, although the benefit had been for the briefest of time. The court
had no occasion to consider whether the order sought was disproportionate. If the
Crown had sought to recover from him the value of the goods which had been
restored intact to their owners, that would have been disproportionate to the aim of
the statute to deprive him of his proceeds of crime. But it did not. It sensibly
abstained from attempting to do so and instead relied upon the contention that
except so far as he could prove otherwise his assets and expenditure over the past
six years should be treated as the proceeds of crime. That was no doubt severe, but
he had the opportunity to disprove these things, and could do so, to the extent, for
example, that he could show that he had received state benefits. If he had been able
to demonstrate that the source of his assets or expenditure was honest earnings
from employment, or genuine untainted gifts from others, or a loan honestly
Page 17
obtained from a third party (R v Johnson (Julie) [1991] 2 QB 249 and R v Walls
[2002] EWCA Crim 2456, [2003] 1 WLR 731), the same would have applied. If
any assumption had carried the risk of serious injustice to him, it would not have
been made. Instead, the conclusion on the evidence was that he was a career
criminal and all unaccounted-for expenditure had been derived from the proceeds
of crime. For the confiscation order to be made, there had to be available assets up
to the sum ordered. The order as made in his case was not disproportionate to the
statutory objectives.
32. Under the POCA rules for lifestyle offences, the trigger for the assumptions
would now be four, not two, offences of this kind from which the defendant had
benefited, but otherwise the position is unchanged. If, however, an order were
sought independently of the lifestyle provisions and the concomitant assumptions,
and to the extent that it were based solely on the momentary benefit of obtaining
goods which had been restored intact to the true owners, that order would be
disproportionate and ought not to be made: it would not serve the aim, or go with
the grain, of the legislation. Such a defendant’s proceeds of crime would already
have been restored to the loser in their entirety. An order in the same sum again
would simply impose an additional financial penalty upon him. If such a defendant
deserves an additional financial penalty, as in some cases he may, it ought to be
imposed openly by way of fine, and whether or not he is also sent to prison,
providing he has the means to pay.
33. A confiscation order in such a case is not compelled by the House of Lords
decision in R v Smith (David) [2001] UKHL 68, [2002] 1 WLR 54, although the
contrary appears often to be asserted. In Smith the defendant had evaded the
payment of duty on imported cigarettes by smuggling them past the customs post.
The decision in the case was that the pecuniary advantage thus (admittedly)
obtained had not retrospectively been undone by the subsequent seizure of the
cigarettes. That was plainly correct. Lord Rodger held, at para 23, that the
subsequent seizure of the cigarettes was in like case to subsequent loss of or
damage to goods obtained in the course of crime; such loss or damage would not
affect the propriety of a confiscation order – consider for example the case of a
burglar who hides the householder’s goods in the open air so that they are ruined
by the weather or stolen by someone else. The House was not, however,
considering the case in which the criminal property obtained has been restored to
its owner undamaged. On the contrary, Smith was agreed to have obtained the
pecuniary advantage of avoiding payment of the duty, at any rate temporarily. The
true analysis of tax or excise avoidance cases did not arise in this appeal and ought
to await full argument when it does. It is, however, to be observed that in such a
case HM Revenue and Customs does not as a matter of practice seek double
recovery by way of both the payment of the unpaid duty and a confiscation order
in the same sum: see R v Edwards [2004] EWCA Crim 2923, [2005] 2 Cr App R
(S) 29, paras 24 to 25, where the existence of this practice was the reason why no
Page 18
breach of A1P1 was argued. This practice is followed, it appears, because such
double recovery is recognised to be disproportionate and wrong. On the principle
explained in para 19 above, the argument may need in the future to be considered
that a disproportionate result should not be left to be achieved by way of Executive
concession but rather should be the responsibility of the court to which an
application for a confiscation order is made.
34. There may be other cases of disproportion analogous to that of goods or
money entirely restored to the loser. That will have to be resolved case by case as
the need arises. Such a case might include, for example, the defendant who, by
deception, induces someone else to trade with him in a manner otherwise lawful,
and who gives full value for goods or services obtained. He ought no doubt to be
punished and, depending on the harm done and the culpability demonstrated,
maybe severely, but whether a confiscation order is proportionate for any sum
beyond profit made may need careful consideration. Counsel’s submissions also
touched very lightly on cases of employment obtained by deception, where it may
well be that difficult questions of causation may arise, quite apart from any
argument based upon disproportion. Those issues were not the subject of argument
in this case and must await an appeal in which they directly arise; moreover related
issues are understood to be currently before the Strasbourg court.
35. The present case is one of money lent because of fraud, but subsequently
repaid in full and always fully secured. If, in such a case, the fraud were
discovered immediately any confiscation order which included the same sum as
had been repaid in full would be disproportionate on the principles set out above.
However, the present case, like many mortgage frauds, is one of substantial benefit
gained from the fraud in the form of the large increase in value of the flat which
the fraud enabled the offender to buy. This therefore is not a case in which no
confiscation order ought to have been made because any order would be
disproportionate. In general, where the mortgage loan has been repaid or is bound
to be repaid because it is amply secured, and absent other property obtained, a
proportionate confiscation order is likely to be the benefit that the defendant has
derived from his use of the loan, namely the increase in value of the property
attributable to the loan.
IV The facts
36. Mr Waya is a Nigerian businessman resident in London. In 2003 he wished
to buy a flat, 18A Northgate Mansions, Albert Road, London NW8. He contracted
to purchase the flat for £775,000, of which £310,000 came from his own resources.
The balance of £465,000 was provided by a mortgage lender, G E Money Home
Lending. In order to obtain this loan Mr Waya made false statements about his
employment record and his earnings. The sentencing judge’s remarks (quoted by
Page 19
His Honour Judge Rivlin QC, who made the confiscation order) suggest that Mr
Waya’s advisers may have encouraged him to make false statements. The purchase
and mortgage were completed in the usual way, with the mortgage lender putting
Mr Waya’s solicitor in funds shortly before completion. The solicitor would have
held the funds in his client account, in trust for and to the order of the mortgage
lender, until they were paid direct to the vendor’s solicitor on completion. (There
is a fuller description of the normal process of completion of a purchase and
mortgage in the opinion of Lord Goff of Chieveley in Preddy [1996] AC 815, 828-
829.)
37. In April 2005 the mortgage in favour of G E Money Home Lending was
redeemed, on payment of the full sum secured together with a fee of £58,000 for
early redemption, and the flat was remortgaged to Birmingham Midshires Building
Society to secure the sum of £838,943. There is no clear evidence as to what
happened to the balance (which must have been of the order of £360,000) in
excess of the redemption money but it seems probable that Mr Waya spent some of
it on improvements to the flat. The judge accepted that he spent up to £150,000 on
the flat during his period of ownership.
38. Mr Waya was arrested in November 2005 and was charged on two counts
of obtaining a money transfer by deception, contrary to section 15A of the Theft
Act 1968, one relating to each of the mortgages. On 10 July 2007 at Southwark
Crown Court he was convicted on the first count and acquitted on the second. He
was sentenced to 80 hours community punishment. The application under POCA
was heard on 25 January 2008. The sum of £1.54m ordered by Judge Rivlin was
arrived at by deducting from the then market value of the flat (£1.85m) the sum of
“untainted” money (£0.31m) paid by Mr Waya out of his own resources on the
original purchase. The judge disregarded the remortgage for reasons that he stated
rather briefly.
39. The Court of Appeal, in a careful reserved judgment delivered by Blake J
on 25 March 2010, reduced the amount of the order to £1,110,000: [2010] EWCA
Crim 412. This figure was arrived at as 60% of the market value of the flat. This
represented a rateable split of the value since £465,000 (the loan obtained) is 60%,
and £310,000 is 40%, of the original purchase price of £775,000. The remortgage
was again disregarded.
40. The Court of Appeal certified a point of law of general public importance in
these terms:
“Where a person obtains a money transfer by deception contrary to
section 15A Theft Act 1968 as amended, and thereby causes a
Page 20
lending institution to transfer funds to the person’s solicitor for the
purpose of a mortgage advance to enable purchase by that person of
a residential property, does:-
i) That person obtain a benefit from his conduct in the form of
property within the meaning of Part 2 of the Proceeds of Crime Act
2002?
ii) If so is the property so obtained the value of the loan
advanced to purchase the property or his interest in the property or
some other property?
iii) If not does the person obtain a pecuniary advantage within the
meaning of Part 2 of the Proceeds of Crime Act 2002?”
The issues in the appeal have since become wider, partly as the result of directions
given by this Court when directing a rehearing (see para 10 above).
41. Mr Waya’s sentence of 80 hours’ community service reflected the judge’s
view of the relatively low level of his culpability. He was not guilty of a serious
mortgage fraud involving dishonest overvaluation of property. There was no loss
to the mortgage lender. Nevertheless he did, by dishonestly misrepresenting his
own financial position, obtain credit on terms which might not otherwise have
been available. It is well known that those with poor credit ratings must expect to
pay higher rates of interest if they have to borrow on the secondary or sub-prime
mortgage markets.
42. In economic terms, the benefit that Mr Waya obtained from the offence for
which he was convicted was obtaining credit, on better terms than those that he
could expect to get if he told the truth. With that credit came the prospect of
obtaining a handsome capital gain if the market for high-grade residential property
in London continued to rise (as it did). If on the other hand the market had fallen
substantially, the mortgage lender’s security might have proved inadequate, and
the mortgagor’s personal covenant to repay principal and interest might have been
shown to be worthless. Depriving him of that prospective capital gain, or a
proportionate part of it, would therefore be the appropriate way of making the
confiscation order fit the crime. Moreover that is the way in which the provisions
of POCA apply in this case, on a fair and purposive construction that takes account
of section 3 of HRA and the need for proportionality under A1 P1.
Page 21
V The property obtained
43. The first issue, and the only one squarely raised in the certified question, is
the identification of the property that Mr Waya obtained (in the language of
section 76(4) of POCA) “as a result of or in connection with” the criminal conduct
for which he was convicted of an offence under section 15A of the Theft Act 1968.
This issue of identification is of critical importance since the value of the property
obtained, at the time when it was obtained, fixes (subject to adjustment for
inflation) one of the two alternative bases of valuation under section 80(2)(a). If
what Mr Waya obtained was £465,000, then that sum (adjusted for inflation) is the
minimum sum to be treated as the value of his benefit under section 76(7).
44. The issue of identification is also important if the alternative (tracing) basis
of valuation under section 80(2)(b) and (3)(b) or (c) falls to be considered, because
the property originally obtained is no longer in the defendant’s hands. If this arises,
the first necessary step is to identify the property originally obtained and then to
progress by inquiring whether the defendant now holds other property which
directly or indirectly represents it. This aspect is discussed in Part VI below.
45. All counsel rightly acknowledged that the issue of identification is a
difficult one, and some offered alternative analyses. Mr Krolick (for the appellant)
put forward a radical solution, contending that Mr Waya’s benefit was nil and
criticising as a fallacy what he called the “snapshot” approach exemplified by the
decision of the House of Lords in R v Smith (David) [2001] [2002] 1 WLR 54. Mr
Perry QC (instructed by the Crown Prosecution Service) put forward as his
primary submission (paras 86 and 108 of his printed case) that Mr Waya obtained
£465,000. Lord Pannick QC supported this submission (para 39 of his printed case
on behalf of the Secretary of State as Intervener). So did Mr Swift QC (para 17 of
the printed case of the Advocates to the Court). These submissions were broadly in
line with the reasoning of the Court of Appeal, although Blake J put it rather more
tentatively in para 25 of his judgment ([2010] EWCA Crim 412):
“In our judgment, at the latest at the time the conditions upon which
the money was advanced were satisfied, the appellant had at the least
an equitable interest in the money transfer order in his solicitor’s
account, namely a right to ensure that the money was forwarded to
the vendor to complete the purchase. Whether the appellant’s interest
was in property belonging to the lender institution at a time when his
interest arose is irrelevant to our inquiry although it was central to
the decision in Preddy [R v Preddy [1996] AC 815]. In the words of
section 15A Theft Act as amended he obtained the money transfer
for himself, if only for the purpose of it being applied to discharge
Page 22
the obligation to pay the purchase price for the property through the
solicitor’s account.”
46. No one contended that the property obtained was the entire flat, although
that analysis had been adopted in two early unreported cases on the 1988 Act, Re K
(6 July 1990, McCullough J) and R v Layode (12 March 1993, Court of Appeal). In
the latter case the Court relied on the wide language of section 71(4) of the 1988
Act, which (like section 76(4) of POCA) refers to obtaining property “as a result of
or in connection with” the commission of an offence. Both were, however, cases
where the judicial discretion was available to ensure that any eventual order did
not exceed what was fair, and more recent cases have declined to stretch the causal
link. In R v May [2008] AC 1028, para 26, a case on the 1988 Act as amended by
the 1995 Act, Lord Bingham referred to Re K and R v Layode and observed:
“It must, however, be appreciated that section 71(4) called for an
essentially factual inquiry: what is the value of the property the
defendant obtained? If (say) a defendant applies £10,000 of tainted
money as a down-payment on a £250,000 house, legitimately
borrowing the remainder, it cannot plausibly be said that he has
obtained the house as a result of or in connection with the
commission of his offence.”
47. Similar reasoning can be found in the decision of the Court of Appeal, Civil
Division, in Olupitan v Director of the Assets Recovery Agency [2008] EWCA Civ
104, 22 February 2008 and in R v Ahmad [2012] EWCA Crim 391; [2012] 1 WLR
2335, 2 March 2012. But it is unnecessary and probably inappropriate to refer to
those cases in detail, since an appeal to this court is pending in Ahmad, whilst
Olupitan was a civil recovery case on different wording in Part 5 of POCA, where
as Toulson LJ observed at para 55, the rival arguments about the mechanics of the
transaction by which one house had been acquired did not in the end make any
difference, once it had been found that the source of all relevant purchase money
was some relevant crime. It is sufficient to say that the contention that Mr Waya
obtained the whole leasehold interest in the flat by his dishonest conduct would
completely ignore his down-payment, out of untainted funds, of £310,000. That
would not be a fair or purposive application of section 76(4), and it is unnecessary
to add that it would also be disproportionate for the purposes of HRA.
48. The submission that what Mr Waya obtained was £465,000 calls for close
examination. In the case of an ordinary loan induced by fraud, there is no doubt
that the defendant does obtain the loan sum advanced. The facts that he is under an
obligation to repay it, and even intends to repay it, do not mean that he does not
obtain it. Indeed the obligation (and intention) to repay both assume an initial
obtaining; if there had not been an initial obtaining, there would be nothing to
Page 23
repay. Nor does the fact that repayment is secured mean that he does not obtain it.
A loan may often be secured on property belonging to the borrower. The security
means that the lender has a much better prospect of being repaid, but once again
there can be no doubt that the borrower obtains the sum advanced. It is paid to him
and he can use it either as he wishes, or maybe for the particular purposes for
which it is advanced. In either case, it has come into his possession and control; he
has obtained it. For the reasons set out in Part III above, if a borrower does in fact
repay a fraudulently induced loan, secured or unsecured, a confiscation order
which requires him to pay the same sum again is (lifestyle considerations apart)
likely to be disproportionate and wrong. But that, likewise, does not mean that he
did not obtain the loan sum advanced in the first place.
49. The difference in the present case lies in the legal machinery by which the
loan advance is made, as explained in para 36 above. The appeal has proceeded on
the agreed or assumed factual basis that the same solicitor was acting for Mr Waya
and the mortgage lender; that the mortgage advance was paid to the solicitor to be
held in the solicitor’s client account, until completion, in trust for and to the order
of the mortgage lender; and that on completion the jointly-instructed solicitor
transferred the advance to the vendor’s solicitor, receiving instead an executed
transfer of the lease. Mr Waya would already have executed a charge of the lease
in favour of the mortgage lender.
50. In the eyes of the law all these events occurred simultaneously. That is
established by the decision of the House of Lords in Abbey National Building
Society v Cann [1991] 1 AC 56. There is a full explanation in the speech of Lord
Oliver at pp 92-93. After referring to “the proposition that, at least where there is a
prior agreement to grant the charge on the legal estate when obtained, the
transactions of acquiring the legal estate and granting the charge are, in law as in
reality, one indivisible transaction,” Lord Oliver analysed the position in detail and
concluded:
“The reality is that the purchaser of land who relies upon a building
society or bank loan for the completion of his purchase never in fact
acquires anything but an equity of redemption, for the land is, from
the very inception, charged with the amount of the loan without
which it could never have been transferred at all and it was never
intended that it should be otherwise. The ‘scintilla temporis’ is no
more than a legal artifice.”
51. On this analysis even Blake J’s cautious reference to “at least an equitable
interest” seems open to debate. Mr Waya no doubt had a contractual right as
against the mortgage lender, conditional on the vendor performing his contractual
obligations to the purchaser, to have the mortgage advance applied towards
Page 24
payment of the purchase price on completion. Lord Oliver (in a part of his speech
between the passages quoted above) referred to the purchaser having a
“specifically enforceable agreement” once the advance was in his solicitor’s client
account, and that might be described as an equitable interest of a sort. But that
cannot detract from the well-established principle that in this sort of case the
mortgage advance remains in the beneficial ownership of the lender until
completion, when it passes direct to the vendor. That principle was stated in Target
Holdings Ltd v Redferns (a firm) [1996] AC 421, 436, reaffirmed in R v Preddy
[1996] AC 815, 838, and recently discussed by the Court of Appeal in Lloyds TSB
Bank Plc v Markandan & Uddin [2012] EWCA Civ 65, 9 February 2012, a case
about a mortgage fraud the facts of which are, even by today’s standards, fairly
remarkable.
52. In R v Glatt [2006] EWCA Crim 605, 17 March 2006, a case under the
1988 Act in its original form, in which a solicitor had been convicted of assisting
in laundering the proceeds of large-scale evasion of excise duty, the Court of
Appeal stated in relation to section 71(4) of the 1988 Act (para 141):
“But ‘obtain’ does include the cases where a defendant retains
control over property received by a third person as a result of steps
taken by him, as well as cases where he obtains an interest in
property received by a third person.”
In R v May [2008] AC 1028, para 16 Lord Bingham stated that the observations on
section 71(4) made by Buxton J in R v Gokal (7 May 1997) “should not . . . be
understood as excluding . . . cases where payment is made to a third party at the
behest of the defendant.”
53. True it is that in this case the mortgage advance was paid to the vendor’s
solicitor at Mr Waya’s behest. But he had no control over its disposal in the
recipient’s hands; the sole and predetermined purpose of the payment was to form
part of the purchase price of the flat, with the mortgage lender having security for
its repayment from the moment of completion. Mr Waya never in fact acquired
anything but an equity of redemption (as Lord Oliver put it in Cann), the equity of
redemption corresponding in value (at that point) to his untainted down-payment
of £310,000. To conclude (as was submitted by Mr Perry, Lord Pannick and Mr
Swift) that Mr Waya obtained £465,000 is a legally inaccurate account of the
transaction, because the loan sum never became his or came into his possession.
Under the tripartite contractual arrangements between vendor, purchaser and
mortgage lender Mr Waya obtained property in the form of a thing in action which
was an indivisible bundle of rights and liabilities, and it cannot be correct to fasten
onto the rights and ignore the liabilities (the analysis would of course be different
if the loan had ever been at the defendant’s free disposal: see paras 48 and 49
Page 25
above). In short, what Mr Waya obtained was the right to have the mortgage
advance applied in the acquisition of his flat, subject from the moment of
completion to the mortgage lender’s security, which ensured the repayment of the
advance. This thing in action had no market value at or immediately after
completion, as the equity of redemption (or in everyday speech, the equity)
represented Mr Waya’s down-payment. There will no doubt be other mortgage
fraud cases in which this thing in action does have a value. One example would be
the common case where false representations as to income and status of the
borrower are accompanied by a dishonestly inflated valuation of the property
which is being purchased. In such a case the fraud may not only have induced a
larger loan than would otherwise have been made, but may well have induced a
loan which is not fully secured as the lender believes. Another example might be
the case where the property which the defendant is purporting to purchase does not
exist, or is not really being purchased at all. In both these cases the thing in action
has a real value to the defendant.
54. It is unnecessary to consider the alternative view (canvassed by Mr Perry in
para 43 of his printed case) that if the money transfer was not property it was a
pecuniary advantage, except to express some doubt as to whether, as Mr Perry
suggests, the analysis would be just the same. It is not clear that the tracing
provisions in section 80(3) of POCA could apply to a pecuniary advantage which
is not property, but is merely deemed (by section 76(5)) to be a sum of money.
But it is not necessary to decide that point.
VI The operation of section 80(3)
55. There are four general features of s 80(3) which should be recognised.
a) Once property has been obtained as a result of or in connection with
crime, it remains the defendant’s benefit whether or not he retains it. This is
inherent in the value-based scheme for post-conviction confiscation.
b) If however the defendant does not retain all or any of the property
originally obtained, but does have other property representing it in his
hands, then section 80(3) operates. This is an important part of the statutory
scheme in cases where, for example, the profits of crime such as drug
trafficking, are laundered into other assets which are likely to rise in value.
c) Even in such a case, s 80(3) only bites if the value of the
representing property is larger than the value of the property originally
Page 26
obtained; if it is not, the benefit remains the value of what was originally
obtained, subject to index-linking under section 80(2)(a).
d) Where s 80(3) applies, the value of the representing property is an
alternative but not an additional or cumulative benefit; see the helpful
explanation offered by Toulson LJ in Pattison, considered below at paras 59
to 61.
56. Section 80(3) of POCA does not give any guidance (beyond the general
interpretative provisions in section 84) as to how the test of direct or indirect
representation is to be applied. This is in contrast to the detailed provisions in Part
5 of POCA, which are to be applied by civil courts in cases where what is being
considered is, unlike a post-conviction Part 2 case, an order for the surrender of
identified property, rather than simply an order for payment of a sum of money.
This suggests that Parliament may have intended section 80(3)(b) and (c) to apply
only when the established facts are relatively straightforward.
57. That is what is likely to happen in practice. Where bank statements and
other documentary evidence are not available the Crown Court may well conclude
that any elaborate tracing exercise is impossible. But the general notion that the
court can trace one asset into another is very familiar in English law, not only
under formally constituted trusts but also for the purposes of obtaining proprietary
or other remedies against a variety of persons in fiduciary positions, such as
company directors, and others who have, by dishonestly giving assistance, made
themselves accountable as if they were fiduciaries (see generally Lewin on Trusts,
18th ed (2008) pp 1655-1732; Lionel Smith, The Law of Tracing (1997).
58. This is not to suggest that section 80(3) of POCA is intended to bring in the
whole panoply of rules as to tracing in equity. But the language of the subsection
plainly proceeds on the basis that there may be sufficient evidence that one item of
property represents another, in the sense that one asset has been exchanged for
another asset, or (as is in practice more likely) that money derived from the one
asset (whether by sale, mortgage or otherwise) has been used to acquire another
asset. That was recognised (in relation to a similar provision in section 74(8) of the
1988 Act) in the speech of Lord Rodger (with which the rest of the House
concurred) in R v Smith (David) [2002] 1 WLR 54, para 23. It was explored in
detail by Toulson LJ giving the judgment of the Court of Appeal in R v Pattison
[2007] EWCA Crim 1536, [2008] 1 Cr App R (S) 51.
59. It is worth setting out one passage of Toulson LJ’s judgment in full, since it
explains the position very clearly. In Pattison the defendant was an estate agent
who had been convicted of money-laundering when he bought, at a gross
Page 27
undervalue, a house belonging to an associate who anticipated (correctly) that he
would in the near future be the subject of a confiscation order for drug dealing.
The estate agent bought the house for £43,000 in 2004 and it was worth £152,500
at the time of the confiscation order against him. But he had charged it to secure a
loan of £112,500 which he intended to use to meet the drug-dealer’s confiscation
order. However the estate agent was arrested before he could do so, and only
£60,000 of the loan was actually drawn down, and remained in his bank account.
60. In these circumstances Toulson LJ said (para 21):
“It is the prosecution’s argument that where a defendant acquires
property through criminal conduct, and subsequently deals with that
property, then any proceeds of that dealing must be benefits which
result from the offending and are therefore to be added to the original
value of the property. This overlooks the provisions of section 80 (to
which the judge was not referred) but before coming to that section it
is worth pausing to consider the implications of the argument.
Suppose that after the appellant received the property worth
£150,000 he had sold it for that sum and put the money in the bank.
On the prosecution’s argument, the benefit that he would then have
received and for which he would be amenable to a confiscation order
would be £300,000, representing the value of the property
(£150,000) plus the sum for which he realised it (£150,000). If he
then used the £150,000 to buy a yacht worth £150,000, the benefit
would rise to £450,000. If he then tired of sailing and sold the yacht
for the same price, the benefit which he would have received and for
which he would be liable to a confiscation order would become
£600,000. All the while, his true financial position would have
remained identical. That offends commonsense. Every school child
knows that you cannot have the penny and the sweet. If your mother
gives you a penny and you buy a sweet with it, your benefit is a
penny’s worth and not two penny’s worth. It is correct that the
provisions of the legislation are draconian, but the effect of the
prosecution’s argument would not [make] any underlying sense.
Fortunately, s.80 addresses the situation where a person subsequently
deals with property which has been acquired by him through
criminal conduct.”
He then set out the terms of section 80, and concluded that quantifying the benefit
at £150,000 accorded “with the language of the statute as well as with justice and
commonsense.” It was represented, on the estate agent’s confiscation day, by an
equity of redemption (presumably worth about £90,000, since the loan had not
been drawn down in full) and £60,000 in his bank account.
Page 28
61. Although Toulson LJ’s example takes complete substitutions, no doubt for
the sake of simplicity, the actual decision in the case was on what restitution
scholars, following Roman law, call a mixed substitution (see for instance Foskett
v McKeown [2001] 1 AC 102, 115F (Lord Hoffmann), 126G (Lord Millett)). There
is no reason to restrict the language of section 80(3) to complete substitutions,
since section 80(3)(c) in terms covers the case of partial representation. To do so
would greatly restrict its operation. Provided that adequate evidence is available,
the section is to be given its natural meaning, which is (especially with the
interpretative provision in section 84(2)(a)) quite wide.
62. In this case the established facts are reasonably straightforward. It is
absolutely clear that Mr Waya no longer had the chose in action originally
obtained, and equally clear that some interest in the flat now represented that chose
in action in his hands. But there are competing arguments as to (1) what that
interest was and (2) how it was to be valued.
63. It is at this point convenient to advert to the discussion before us as to the
import of two sections of POCA, section 84(2)(b) and section 79(3).
64. Section 84(2)(b) is a general statement concerning property. It has a bearing
on the question of what representing property was held by Mr Waya when
confiscation came to be calculated. One question briefly raised was whether the
combination of section 84(2)(b) with section 79(3) carries the meaning that if a
person obtains by his crime a limited interest in an item of property, he thereby is
to be treated as obtaining the whole item. It is quite apparent that this is not what
section 84(2)(b) means. Such a construction would ignore well understood
concepts of concurrent interests in property, which are recognised by, inter alia,
section 79(3). The potential confusion arises from the sometimes indiscriminate
use of the word “property” to mean both (1) “an interest” and (2) the item itself,
such as a racehorse or 13 Acacia Avenue. Both the racehorse and the house in
Acacia Avenue are very commonly held by several people with concurrent partial
interests. What section 84(2)(b) plainly means is that if a person obtains a limited
interest in an item of property, that limited interest is itself property which may fall
accordingly to be counted as benefit. In the same way, section 84(2)(a) means that
a person who holds an interest in property holds property for the purposes of
POCA. It follows that the representing property held by Mr Waya can perfectly
well be a limited interest in the flat and does not have to be the whole flat.
65. Section 79(3) contains a general provision for valuation. If the defendant
and another person both hold interests in the same property, then it is the value of
the defendant’s limited interest which is to be taken for the purposes of calculating
his benefit. Contrary to some submissions made to us, it clearly applies both at the
Page 29
benefit calculation and at the assessment of realisable property stages. That was
the conclusion correctly reached in R v Rose [2008] 1 WLR 2113.
66. Rose was a relatively straightforward case in which the defendant had been
found guilty on three counts of possession of criminal property under section 329
of POCA. Some of the stolen property (principally a lorry trailer and its load of
alcoholic drink) had been restored to the owner, a brewery. But the alcoholic drink
was no longer marketable, and some of the stolen property had not been restored at
all. The confiscation order made was for little more than £8,000, although the
market value of the stolen goods was over £27,000. The Crown appealed,
challenging the proposition that the property obtained was valueless, since legal
title remained in the brewery. The logic of that proposition, as Richards LJ pointed
out at para 38, was that instead of a confiscation order for about £8,000, there
should have been no order at all. The judgment delivered by Richards LJ sets out a
careful analysis of the provisions of the earlier legislation in this area, and the
authorities on it. The Court of Appeal rejected the Crown’s subsidiary submission
that section 79(3) applied only to the valuation of realisable assets (the last stage in
the three-stage statutory process).
67. But the Court acceded to one limb of the Crown’s primary argument, that is
(para 87):
“. . . that the ‘market value’, within section 79(2), of property
obtained by a thief or a handler is the amount it would have cost the
defendant to obtain the property legitimately, or the economic value
to the loser, rather than what the defendant could get for the property
if he sold it (or, therefore, what he could get for his interest in the
property if he sold that interest). That was the approach of the Courts
when applying section 74(5) of the [Criminal Justice Act 1988]: see,
most obviously, R v Ascroft [2004] 1 Cr App R (S) 326: paras 56 and
60 above. On that basis there is no need to consider the nature of the
defendant’s interest in the property obtained or the market value of
that interest: the focus is on the incoming value of the property, not
the value of the property in his hands.”
The Court considered that Parliament did not intend to alter the outcome of
Ascroft, and that the restoration of stolen property to the owner was irrelevant. It
added that R v Johnson [1991] 2 QB 249 and R v Walls [2003] 1 WLR 731 did not
tell against this conclusion.
68. The argument thus confronted in Rose and also ventilated in this court is
that section 79(3) means that in every valuation of property which had been stolen
Page 30
or obtained by deception, the interest of the true owner must be taken into account
as reducing the value to the defendant. The same argument can be presented on the
basis that a thief obtains no title to the stolen property, but at most a possessory
interest good against third parties, and thus of no significant value. If the argument
is good, the effect will be in most cases to reduce the value to the defendant of
property obtained by acquisitive crime to nil, or to next to nothing, since almost
every loser has the right to the restoration of such property. It is quite clear that
section 79(3) cannot carry this meaning without wholly emasculating POCA; such
a construction is contrary to the whole purpose of the Act and would mean that
some of the most obvious examples of the proceeds of crime would be almost
entirely removed from the calculation of benefit. This possible construction of
section 79(3) is not necessary. What that section means is that lawfully co-existing
interests in property are to be valued individually. It does not mean that the loser’s
right to recover the property from the thief, which is a claim totally to defeat
anything the thief has obtained, is to be treated as a co-existing partial interest for
the very purpose of valuing what he has obtained. Rose and Ascroft are correct in
holding that the measure of the value of the interest in property stolen to the thief,
for the purposes of confiscation, is what it would cost him to acquire it in the open
market.
69. In the present case Mr Perry and Lord Pannick advanced an extension of
this Rose proposition. They contended that because the lender was the loser in the
crime, its partial interest in the flat would be irrelevant to any valuation of the flat
which had to be performed. Thus, they contended, any valuation of Mr Waya’s
interest in the flat ought to ignore the mortgage held by the lender. That does not
follow. Section 79(3) plainly does apply to co-existing legitimate partial interests.
A mortgagee has such an interest. The fact that he is also the victim of the crime,
and so could no doubt claim rescission of the loan, does not affect the fact that if
the value of the flat has to be determined, what Mr Waya has is not an
unencumbered flat, but a flat subject to the interest of the lender-mortgagee. The
victim’s right to rescission is not within s 79(3), but his quite separately existing
mortgage interest is.
70. What, then, was the property held by Mr Waya, after the completion of the
purchase, which represented in his hands the chose in action which he had
originally obtained? Mr Perry and Lord Pannick submitted that it was a 60%
interest in the flat. That submission can be accepted so far as it goes, but it does
not address the incidence of the mortgage. The property representing the original
chose in action was a fractional part of Mr Waya’s total interest in the flat, the
fraction corresponding to the part of the original purchase price financed by the
dishonestly-obtained mortgage (that is, 60%). But fairness requires that the
mortgage liability (deductable under section 79(3)) should be matched to this 60%
interest, so that the benefit obtained by Mr Waya was initially nil. Otherwise 60%
of his untainted contribution of £310,000 would, irrationally, be treated as
Page 31
proceeds of crime. The interest which fairly represented his original chose in
action was 60% of the open market value of the flat from time to time, less the
whole of the mortgage liability (£465,000). In other words it was 60% of any
increase in the flat’s market value over its acquisition price. That represents the
reality of what he obtained from his crime and is, moreover, a proportionate order
to make by way of confiscation, subject only to the re-mortgage, considered
below.
71. So for example, if the confiscation day had occurred before the remortgage
and if the flat had then been worth £1.2m, the value of the property obtained by Mr
Waya as a result of his dishonesty would have been computed under section 80(2)
and (3) as follows:
£
market value 1,200,000
mortgage 465,000
________
equity 735,000
original equity 310,000
________
appreciation 425,000
60% thereof 255,000
72. This analysis may seem, at first sight, to be inconsistent with R v Moulden
[2004] EWCA Crim 2715, [2005] 1 Cr App R (S) 121, but it is not. That was a
case under the 1994 Act in which the proceeds of drug trafficking had provided
down-payments on several properties, otherwise funded by mortgage lenders. The
properties had greatly increased in value. In the judgment of the Court of Appeal
given by Stanley Burnton J the Court rejected the argument that the increase in
value should be apportioned between the equity of redemption and the mortgage
(para 25):
“In our judgment it is neither unjust nor surprising that where a
property is bought with a relatively low down-payment and a high
mortgage and it increases in value, the benefit to the defendant is a
sum which may be a multiple of the original deposit. That is because,
subject to any interest payments, any mortgage remains unchanged
by increases in market values, whereas the defendant has acquired
the equity in the property, that is to say he has the property subject
only to the mortgage. That appears to us to be plain on the wording
of section 4 and having regard to the draconian purposes of the Act”.
Page 32
So where the down-payment was tainted money, and gearing was obtained by the
use of a mortgage, the Court of Appeal had no reason to depart from the entirely
uncontroversial view that subject to the fixed sum of principal secured by the
mortgage, the equity in the property, including the whole of any capital
appreciation, belongs to the owner.
73. The difference between the two cases is a factual one. A mortgage is a fixed
liability which does not rise as the market rises. What the defendant in Moulden
had converted his criminal money into was the whole equity in the house, ie its full
value less the fixed sum of the mortgage. What Mr Waya converted his criminal
chose in action into was the proportion of the equity attributable to the mortgage
loan, less that loan.
VII The remortgage
74. By the remortgage Mr Waya realised additional liquid funds of about
£360,000 (after payment-off of the original mortgage and the fee for early
repayment). Up to £150,000 of the £360,000 is assumed to have been spent on the
flat and was no doubt reflected, to some extent, in its market value at the
confiscation day. There is no evidence of what happened to the balance of
£210,000. It cannot therefore be caught by section 80(3), since there are only two
possible valuation dates that can be relevant: the date when property is first
obtained, and the confiscation day. That is spelled out in section 80(2), together
with the definition of “material time” in section 80(1). If this £210,000 were
known still to be in the bank, or to have been converted into some other
identifiable asset, then section 80(3)(b) would catch it, but there are no findings
that either has occurred, rather than the money simply being consumed in living
expenses. The statute does not provide for any assumption adverse to the
defendant to be made on that point. We must assume (in Toulson LJ’s homely
phrase) that Mr Waya decided to consume the sweet.
75. Mr Perry (para 126) disputes this analysis (again Mr Swift, paras 51 to 59,
takes a rather different line). Mr Perry would apply an extended principle derived
from Rose to the remortgage as well as to the original mortgage. They supplement
this submission by pointing out that otherwise ill-gotten gains could easily be
laundered, and the effectiveness of the confiscation regime undermined. That
cannot however be a good reason for disregarding the reasonably plain terms of
the statute. It is inherent in the scheme of section 80(3)(b) that it can operate only
where the defendant still possesses the representing property. If he previously
created it, and then liquidated it and spent the money, section 80(3)(b) cannot
apply. In most cases (though not here) section 80(2)(a) will provide a satisfactory
alternative basis for an order, and in some cases (though not here) money raised by
Page 33
a remortgage will be traceable into more valuable assets held at the confiscation
day.
VIII Repayment of principal
76. The last complication to be raised is of little practical importance on the
facts of this case, but it calls for mention because it may make more of a difference
in other cases. It arises from the fact that at some time between the remortgage in
April 2005 and the confiscation day (25 January 2008) Mr Waya paid off a
relatively small part (£23,400) of the principal sum secured by the remortgage.
This payment is agreed to have been made out of untainted funds.
77. Once the repayment of capital was made, the representing property in the
hands of Mr Waya was no longer 60% of the market value less mortgage and
untainted contribution but was the lesser percentage which £465,000 less £23,400
yields. Thus the effect of repayment of principal out of untainted funds is not to
have the paradoxical effect of diminishing the section 79(3) deduction and so
increasing the severity of the confiscation order. In this case, where the repayment
was relatively small and seems to have been made at a time when most of the
capital appreciation had already taken place, justice can be done by the simple
adjustment of adding the amount of the repayment to the amount of the original
down-payment. But in the case of a long-term instalment mortgage under which
principal was repaid throughout the term, it might be more accurate (and fairer) to
adjust the percentages of the original down-payment and the original mortgage
advance so that a smaller proportion of the capital appreciation is treated as
benefit. Elaborate and precise calculations would not be called for; in many cases
experienced counsel would be able to agree on the appropriate adjustment and
invite the judge to adopt it.
IX The order to be made
78. Pulling together and summarising the reasoning set out above, we consider
that the benefit obtained by Mr Waya from his criminal behaviour was a thing in
action with no immediate market value. It was an item of property but it had a very
short life, since on completion it immediately came to be represented by a
fractional 60 per cent share of the leasehold interest in the flat, subject to (the
whole of) the mortgage, with the remaining 40% representing the untainted
contribution. In economic terms, his benefit was so much of any appreciation in
value as was attributable to the mortgage obtained by his dishonesty. Immediately
after completion this value was nil, but as the market value of the flat increased the
benefit came to have a significant value, that is 60 per cent of the appreciation in
the net value of the flat, subject to the mortgage.
Page 34
79. On the facts of this case the amount raised and secured by the remortgage
had three elements. The first, £465,000 plus the early repayment fee of £58,000,
had no significant economic effect since it merely substituted one mortgage lender
for another (possibly at a different rate of interest). No new, untainted money of
Mr Waya was used to redeem the original mortgage. The next element, not
exceeding £150,000 at most, was recycled into the flat and probably produced
some increase, but not a pound for pound increase, in its market value. The third
element, the balance, must be supposed to have been consumed in expenditure of
one sort or another so as to fall outside the ambit of section 80(3).
80. A small adjustment needs to be made for the repayment of the principal
sum of £23,400. A computation in similar format to that at para 71 above produces
these figures:
£
market value 1,850,000
mortgage 862,000
________
equity 987,400
original equity and
repayment 333,400
________
appreciation 654,000
60% thereof 392,400
81. We would therefore allow the appeal and substitute a confiscation order in
the sum of £392,400. That is a substantial sum, but the order is not
disproportionate.
LORD PHILLIPS AND LORD REED
Introduction
82. By far the most important part of the majority judgment is contained in
paragraphs 1 to 34. These paragraphs recognise that the provisions of POCA are
capable of operating in a manner that violates article 1 of the first protocol to the
European Convention on Human Rights (“A1P1”). They provide a remedy in that
they hold that the judge can and must substitute a confiscation order that is
proportionate for the confiscation order that would be produced by applying
Page 35
strictly the relevant provisions of POCA, where this is disproportionate. We shall
call this remedy by way of shorthand “A1P1”.
83. The identification of A1P1 is novel and imaginative. It has the important
effect of rendering POCA compatible with the European Convention on Human
Rights. We both admire and endorse the careful reasoning and the conclusion of
the majority in paragraphs 1 to 34 of their judgment. There is thus unanimity as to
the most important part of the judgment. The part of the majority judgment from
which we dissent is of limited significance, albeit of some complexity. It relates to
the manner in which POCA applies to a mortgage transaction.
84. A1P1 requires the judge hearing an application for a confiscation order to
adopt the following approach. First he must decide on the amount of the benefit
that the defendant is deemed to have obtained from his crime by the application of
the express provisions of POCA (“the POCA benefit”). Secondly he must decide
on the real benefit that the defendant has obtained from his crime (“the real
benefit”). Thirdly, where the POCA benefit exceeds the real benefit, he must
decide whether it is proportionate to base the confiscation order on the POCA
benefit. If it is not, he must make an order that is proportionate in place of the
order based on the POCA benefit.
85. The majority have decided that, on the facts of this case, the POCA benefit
obtained by Mr Waya was the same as the real benefit that he obtained by his
criminal conduct. There is, in consequence, no scope for the application of A1P1.
The confiscation order must be made in the amount of the benefit obtained by Mr
Waya from his criminal conduct, calculated in accordance with the express
provisions of POCA.
86. We regret that we are fundamentally at odds with the majority in respect of
this analysis. We do not agree with the conclusion of the majority as to the POCA
benefit. Nor do we agree with the conclusion of the majority as to the real benefit
that Mr Waya obtained from his crime. To explain why we differ from the
majority requires a more detailed explanation than would normally be appropriate
for a dissent from such a powerful majority. As, however, the Court will have to
return to POCA when considering the appeal that is pending in R v Ahmad [2012]
EWCA Crim 391, we have decided that we should give a full explanation for our
dissent.
The Analysis of the Majority
87. The analysis of the majority follows the following steps:
Page 36
i) The property initially obtained by Mr Waya was the bundle of
contractual rights and liabilities to which Mr Waya was subject prior to
completion (see paragraph 53).
ii) These constituted a single chose in action (see paragraph 53).
iii) The chose in action had no value (see paragraph 53).
iv) After completion (and before the remortgage) the property that
“represented” the original chose in action was (a) 60% of the open market
value of the flat from time to time, less the mortgagee’s security interest of
£465,000, or (b) 60% of the increase in the flat’s market value over its
acquisition price (see paragraph 70) or (c) 60% of the increase in Mr
Waya’s equity in the flat (see paragraph 71), these being different ways of
describing the same property.
v) After the remortgage (and ignoring the repayment of principal) the
property that represented the original chose in action was 60% of the
increase in Mr Waya’s equity in the flat (see paragraphs 74, 75 and 80).
vi) On the facts of this case the repayment of principal can be reflected
by adding the amount of the repayment to the original down payment (see
paragraph 77).
vii) The effect of regular repayments of principal under a long term
mortgage should be dealt with by a notional adjustment to the original down
payment and the original mortgage advance (see paragraph 77).
viii) The POCA benefit arrived at in accordance with the preceding steps
was the same as the real benefit that Mr Waya obtained by his criminal
behaviour, so that it was proportionate to base the confiscation order on the
POCA benefit.
88. We have problems with each of these steps. We propose to explain these
problems before setting out our own approach to this case.
Page 37
Step (i): The property that Mr Waya initially obtained was the bundle of rights and
liabilities to which he was subject prior to completion
89. This starting point is the foundation of all that follows in the reasoning of
the majority. It is a novel starting point. With one exception, all other decisions
applying POCA in the context of a mortgage transaction have treated the property
initially obtained as the physical property purchased with, or with the aid of, the
mortgage loan, not the contractual rights and obligations prior to the completion of
the mortgage transaction. The exception is the approach of Toulson LJ in Olupitan
v Director of the Assets Recovery Agency [2008] EWCA Civ 104, a Part 5 case,
referred to by the majority at paragraph 47. The majority do not explain why they
have chosen this novel starting point. Their choice raises an important issue as the
approach that should be adopted when applying POCA to a contract procured by
fraud.
90. Where a defendant by a fraudulent misrepresentation induces a third party
(the victim) to enter into a contract that is subsequently performed, there are two
possible ways of identifying the property initially obtained by the defendant “as a
result of or in connection with” his criminal conduct for the purposes of section
76(4) of POCA: (i) the defendant’s rights under the contract prior to its
performance; (ii) the property obtained by the defendant upon performance of the
contract. (i) and (ii) are not normally the same, nor can it normally be said that (ii)
“represents” (i). When valuing the defendant’s rights under the contract it is
necessary to take into account the consideration that he has agreed to provide
under the contract whereas the value of the property that he obtains after the
contract has been performed will not normally reflect the consideration provided.
Thus if a defendant fraudulently induces a lender to agree to make him a loan, the
value of his rights and obligations under that agreement will reflect the
consideration that the defendant has agreed to provide for the loan – normally the
obligation to pay interest and to provide security for that obligation. On
completion the property obtained by the defendant will simply be the sum
advanced by the lender.
91. At paragraph 48 of their judgment the majority consider the position of a
loan that is secured on property already owned by the defendant. In that situation
they conclude that the property initially obtained is the sum advanced under the
loan, not the bundle of rights and obligations under the antecedent contract. We
understand that they adopt a different approach in this case because, under the
bundle of rights and liabilities, the loan made to Mr Waya had to be used to
purchase the property that secured it. We readily appreciate why this affects the
analysis of the property obtained by Mr Waya on completion of the transaction.
We do not understand why it makes it appropriate to treat the property initially
obtained as the antecedent bundle of rights and liabilities, rather than the property
obtained on completion.
Page 38
92. The approach adopted by the majority to the property initially obtained by
Mr Waya has its attractions. It produces a result that approximates to the real
benefit initially obtained by Mr Waya. As we shall explain, however, it is not
possible after completion to identify property that fairly “represented” the
antecedent bundle of rights and liabilities. The approach of the majority injects a
complication into the application of POCA that is at odds with the simple scheme
of the Act. We shall suggest in due course that, on the natural reading of the
provisions of POCA, the property initially obtained by Mr Waya “as a result of or
in connection with his [criminal] conduct” was the flat, subject as it was to the
mortgage.
Step (ii): the bundle of rights and liabilities constituted a single chose in action.
Step (iii): the chose in action had no value
93. It is an over-simplification to say that the bundle of rights and liabilities
constituted a single chose in action. The bundle of rights and liabilities arose under
two interlinked contracts, the purchase contract and the loan agreement. Mr Waya
had a chose in action in relation to each: (i) the right to purchase the flat for
£775,000; (ii) the right to require the lender to pay 60% of the purchase price of
the flat. Assuming that £775,000 was the market value of the flat, the first chose in
action had no value. The same is not true of the second chose in action. The
majority assume that Mr Waya obtained the loan on better terms than he would
have obtained had he told the truth about his sources of income (paragraphs 41 and
42 above). They accept that this was a benefit “in economic terms”. A mortgage
broker could, no doubt, put a value on this benefit. As explained below we
consider that this was the real benefit that Mr Waya obtained from his criminal
conduct.
94. The majority at paragraph 53 say that the chose in action had no market
value. In doing so they focus on the first chose in action and ignore the second.
They disregard their earlier finding that the loan agreement had an economic
benefit for Mr Waya. Yet in the latter part of paragraph 53 they set out examples
of other situations in which a loan agreement, ie the second chose in action, would
“have a value”. These demonstrate that the real benefit that a defendant obtains
from a mortgage transaction will vary, depending upon the particular facts of the
case and the nature of the deception that he has perpetrated. What they do not
support is the thesis that it is possible to identify, after completion of the
transaction, property that “represents” the bundle of rights and liabilities that
existed before completion, or that represents the real benefit derived by the
defendant from the transaction. We do not believe that it is possible to do so in the
present case.
Page 39
Step (iv): After completion and until the remortgage, the chose in action was
represented by (i) 60% of the market value of the flat less the mortgagee’s security
interest of £465.000, or (ii) 60% of the increase in market value of the flat over its
acquisition price or (iii) 60% of the increase in Mr Waya’s equity in the flat, all
three being the same thing
95. Paragraph 70 of the majority judgment represents perhaps the most critical
step in their reasoning. We can summarise that reasoning as follows. Because the
loan was fully secured, the benefit that Mr Waya derived from it was not the
amount of the advance, but the benefit derived from the use of the advance. The
advance had to be used to purchase 60% of the flat and Mr Waya’s benefit from
the transaction was 60% of any increase in value of the flat, or of his equity in the
flat, the two being the same. That was what Mr Waya was entitled to under the
bundle of rights and liabilities that constituted the property that he initially
obtained. 60% of the increase in value of the flat, or of his equity in the flat, was
the property that “represented” the property that he originally obtained.
96. We have already explained the first problem that we have with this analysis
– it ignores the economic benefit that Mr Waya obtained by securing the mortgage
facility on better terms. Our second problem, as explained below, is that we do not
accept that it is correct to treat 60% of the increase in value of the flat, or of Mr
Waya’s equity in the flat, as the benefit that Mr Waya obtained from his criminal
conduct. Our fundamental problem with the approach of the majority is, however,
that we do not consider that “60% of the open market value of the flat less the
mortgage liability of £465,000” or “60% of any increase in the flat’s market value
over its acquisition price”, or “60% of the increase of Mr Waya’s equity in the
flat” is, or can properly be said to be “property”, as defined by section 84 of POCA
or at all. These formulae do not even describe the value of an interest in property.
They describe the increase in the value of an interest in property. The approach of
the majority cannot be reconciled with the provisions of sections 79, 80 and 84 of
POCA, which govern the identification and valuation of property obtained by or in
connection with criminal conduct.
Step (v): After the remortgage (and ignoring the repayment of principal) the chose
in action was represented by 60% of the increase in Mr Waya’s equity in the flat
97. The majority deal with the effect of the remortgage at paragraphs 74, 75, 79
and 80 of their judgment. In paragraph 74 they treat the additional funds raised on
the remortgage as falling in principle within the scope of section 80(3)(b), as
property representing the original chose in action, notwithstanding the fact that
they consider that the flat, on the security of which the funds were raised, cannot
itself be treated in its entirety as having been obtained from criminal conduct.
Paragraph 75 considers and dismisses an argument advanced by the Crown that the
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additional funds constituted further property obtained by Mr Waya by or in
connection with his criminal conduct so as to increase the amount of the
confiscation order, even though the additional funds had been dissipated by
confiscation day. On this point we agree with the majority. Paragraphs 79 and 80
disregard the use of funds raised by the remortgage to repay the original loan and
to meet the early repayment fee, on the basis that “no new, untainted money of Mr
Waya was used to redeem the original mortgage”. The implicit assumption is again
that any funds obtained on the security of the flat are “tainted”, although only a
proportion of the value of the flat represents, in the view of the majority, the
property obtained by Mr Waya as a result of or in connection with criminal
conduct.
98. The majority judgment does not expressly provide a formula for arriving at
the property representing the original chose in action that takes account of the
remortgage. The formula that we have set out as representing step (v) is derived
from the computation at paragraph 80 of the judgment, which the majority
describe as a “computation in similar format” to that at step (iv). The formula is,
however, no longer the same as “60% of the increase in the market value of the
flat”. That formula has to be abandoned in face of the requirement imposed by
section 79(3) to have regard to the increase in the amount secured by the mortgage
when valuing Mr Waya’s interest in the flat. Our principal objection to the formula
adopted at step (v) is the same as our objection to the formula adopted at step (iv).
It does not describe property or a proprietary interest. It describes the increase in
value of a proprietary interest.
Step (vi): On the facts of this case the repayment of principal can be reflected by
adding the amount of the repayment to the original down payment
99. This conclusion of the majority is set out in paragraph 77 of their judgment.
It is tantamount to saying that because the repayment was made late in the day and
was of a relatively small amount, £23,400, its effect can be reflected by making a
pound for pound reduction from the confiscation order of 60% of the sum repaid.
This robust approach sidesteps the problem of how to apply the formula that
immediately precedes it:
“Once repayment of capital was made, the representing property in
the hands of Mr Waya was no longer 60% of the market value less
the mortgage and untainted contribution but was the lesser
percentage which £465,000 less £23,400 yields”.
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100. On the face of it this formula would seem to have the result that Mr Waya
could have reduced the value of the “representing” property held by him to nil by
repaying the entire loan on the day before confiscation day.
Step (vii): The effect of regular repayments of principal under a long term
mortgage should be dealt with by a notional adjustment to the original down
payment and the original mortgage advance
101. This proposition is set out in the latter part of paragraph 77 of the majority
judgment. As we understand this, the notional adjustment would have to be made
each time a repayment was made. An ever decreasing proportion of the increase in
the value of the flat would be treated as benefit derived from Mr Waya’s criminal
conduct, to be added to the previous increases in value which qualified as benefit
derived from the criminal conduct. The task of computing on confiscation day the
value of the benefit derived by Mr Waya from his criminal conduct would be near
impossible, which is no doubt why the majority state, somewhat optimistically,
that elaborate and precise calculations would not be called for because experienced
counsel would in many cases be able to agree upon an appropriate adjustment.
Whatever the final figure agreed upon in the way suggested, we do not see how it
could be described as “property” held by Mr Waya on confiscation day that
“represented” the chose in action that he initially obtained.
Step (viii): the POCA benefit, calculated in accordance with the preceding steps,
was the same as the real benefit obtained by Mr Waya’s criminal conduct so that
the confiscation order based upon it was proportionate
102. We shall explain why we disagree with this proposition when we come to
consider the real benefit obtained by Mr Waya as a result of his criminal conduct.
First, however, we propose to set out our conclusions as to how the provisions of
POCA apply in the case of Mr Waya.
Our Analysis
103. Once it is recognised that the judge has A1P1 at his disposal to deal with
any disproportionate effect of POCA, it is no longer necessary, or desirable, to
depart from the natural meaning and effect of the provisions of POCA in an
attempt to avoid an unfair result. The earlier cases on mortgage transactions cease
to provide a foundation upon which to build. This is as well, for those cases do not
provide a consistent approach. The approach of the majority certainly does not
purport to found on the previous cases that deal with mortgage transactions.
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The property initially obtained by Mr Waya
104. We understand it to be the view of the majority that where a contract is
induced by the fraud of a defendant the property obtained by the defendant under
that contract will normally constitute the property obtained “as a result of or in
connection with” the defendant’s criminal conduct, within the meaning of section
76(4) of POCA. We agree with this analysis. It gives the words of section 76(4)
their natural meaning. We can see no justification in the present case for treating as
the property initially obtained the rights and liabilities under the two linked
contracts, rather than the property held by Mr Waya after the simultaneous
performance of those contracts.
105. We agree with the majority, for the reasons set out at length in paragraphs
48 to 52 of their judgment, that the property initially obtained by Mr Waya was not
the advance of £465,000. Mr Waya never obtained that sum. It was paid by the
lender to the vendor as part of the simultaneous performance of the two contracts.
106. There is no doubt as to the property held by Mr Waya after the performance
of the two linked contracts. It was the flat, which was subject to the mortgage. We
consider that on the natural meaning of section 76(4) the entire flat was obtained
“as a result of or in connection with” Mr Waya’s criminal conduct, or at least
constituted property obtained “in that connection and some other” – section 76(6).
The flat was, of course, also obtained “as a result of or in connection” with Mr
Waya’s contribution of 40% of the purchase price, but that does not take the flat
outside the wording of section 76(4) and 76(6).
107. If POCA treats the whole flat as property obtained as a result of or in
connection with Mr Waya’s criminal conduct, notwithstanding that he contributed
40% to the purchase price, the result is unfair and disproportionate. The temptation
is to disregard the broad reach of the wording of section 76(4) and (6) and hold
that only 60% of the flat was property obtained by Mr Waya as a result of or in
connection with his criminal conduct. We were initially tempted to adopt this
course. Unfortunately it only mitigates but does not resolve the unfairness that
results from the application of the provisions of POCA, as the majority have
identified in paragraph 70 of their judgment. Attempting to avoid this unfairness
has led the majority to adopt the complex series of steps that we believe, for the
reasons that we have given, are not compatible with the provisions of POCA.
108. We have concluded that the better course is to recognise that POCA will
often produce a disproportionate result when applied to property obtained under a
contract induced by fraud. The provisions of POCA are simple to apply when
accorded their natural meaning, and they should be applied in accordance with that
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meaning. Where this produces a disproportionate result, the judge should tailor the
confiscation order so as to produce a result which is proportionate. This is an
easier task, and one that has greater flexibility, than the task of following the steps
that the majority have held must be taken in order to comply with the requirements
of POCA.
109. Thus we would hold that the property initially obtained by Mr Waya as a
result of his criminal conduct was the flat. As the majority have observed at
paragraph 46, this accords with the analysis in the early cases of Re K and R v
Layode, where the courts simply applied the natural meaning of property obtained
“as a result of or in connection with” the commission of an offence – language
preserved in section 76(4) of POCA.
The value of the property initially obtained
110. The flat was, when obtained by Mr Waya, subject to the mortgage. This
situation is covered by section 79(3). The value of the flat in relation to Mr Waya
was the market value of his interest, which some would describe by way of
shorthand as his “equity” in the flat. This can be calculated by deducting the
amount of the mortgage, £465,000, from the market value of the flat, £775,000,
producing a value of £310,000.
111. That value was wholly attributable to Mr Waya’s contribution of £310,000
to the purchase price of the flat. The provisions of POCA give him no credit for
this. To base a confiscation order upon it would be disproportionate. A1P1
provides the judge with the necessary power to defeat any attempt by the
prosecution to produce such a result.
The effect of the remortage
112. By the time of the remortgage the flat had increased in market value. The
remortgage increased the amount secured on the flat. This diminished the value of
Mr Waya’s interest in the flat, and thus its value in relation to him, by reason of
the application of section 79(3). The fact that this diminution was attributable to
Mr Waya, in effect, drawing down part of his interest in the flat did not affect the
process of valuing the flat held by him. It is arguable, however, that the additional
funds drawn down “represented” in Mr Waya’s hands part of the original property
obtained by Mr Waya so that they fell within the provisions of section 80(3)(c) of
POCA. The additional funds were, however, no longer in the hands of Mr Waya
on confiscation day, so they vanish from the picture. The majority correctly so
hold at paragraph 75 of their judgment.
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The effect of the repayment of principal
113. Section 79(3) is of general application. It provides a simple and rational
method of calculating the value to a defendant of property held by him that is
subject to a charge. It pays no regard to the reason for the charge. The effect of
paying off part of the principal secured by a mortgage is to reduce the amount
secured by the mortgage and to increase the value of the property held in relation
to the defendant. The more that the defendant repays the greater the confiscation
order. This result is paradoxical, but underlines the fact that the provisions of
POCA are capable of producing an unfair result when applied to a mortgage
transaction. A1P1 provides the answer to this.
The confiscation order according to POCA
114. Calculation of Mr Waya’s benefit on confiscation day, and thus the amount
of the confiscation order, poses no problem. The market value of the flat had more
than doubled to £1,850,000. The amount of the mortgage was £862,600. Applying
section 79(3), Mr Waya’s benefit was the difference between the two, namely
£987,400. That is the amount of the confiscation order that follows from the
application of the express provisions of POCA. On any view this needs to be
adjusted under A1P1 to reflect the fact that part of this benefit was attributable to
the 40% contribution to the cost of the flat that was made by Mr Waya out of
untainted funds. We turn to consider the real benefit obtained by Mr Waya from
his criminal conduct.
The real benefit obtained by Mr Waya
115. While on our analysis the determination of the POCA benefit is easily
achieved, the more difficult problem for the confiscating judge is to determine the
real benefit derived by a defendant from a mortgage fraud. It may be appropriate to
apply a broad brush to this task.
116. The majority consider that any increase in value of that portion of the
property purchased with the mortgage loan will normally constitute benefit
obtained by the defendant as a result of his criminal conduct and that it will be
proportionate to base the confiscation order on this (see paragraph 35). We do not
agree. The real benefit obtained by a mortgage fraud will depend on the nature of
the fraud and may involve the application of principles of causation – for a
discussion of these in the context of the assessment of damages for
misrepresentation in relation to a mortgage transaction see Banque Bruxelles
Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191.
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117. In the second part of paragraph 53 the majority consider different types of
mortgage fraud. The facts of the present case are so extreme that there is no need
to embark on the task of attempting to define the value of the benefit obtained by
the defendant in each of these examples. We will restrict ourselves to some general
observations.
118. A normal mortgage agreement is one under which the lender provides the
borrower with the use of a sum of money to purchase realty. The primary
consideration that the borrower provides for the use of the lender’s money is the
interest that he agrees to pay. The lender has decided to use his money to produce
income rather than, for example, to speculate on the property market. A defendant
who, by a misrepresentation, induces the lender to make a loan that he would not
otherwise have made, or to make a larger loan than he would otherwise have made,
is not in the same position, and does not obtain the same benefit, as a defendant
who, by a misrepresentation, induces the lender to make a loan on more favourable
terms than he would otherwise have demanded. And a defendant who uses tainted
funds to pay the interest due under the mortgage agreement obtains a greater
benefit from his criminal conduct than a defendant who pays for the use of the
lender’s money with clean funds. It cannot be right to proceed on the basis that in
each of these cases the benefit obtained by the defendant is the same, namely the
increase in value of the property that he purchases with the money he has
borrowed.
119. We turn to the facts relating to Mr Waya. The majority have referred to the
remarks of the sentencing judge, His Honour Judge Elwin. These recorded that, in
filling out the application form for the mortgage Mr Waya misrepresented the
source of his income. The judge continued:
“The lender suffered no loss, indeed as the loan was redeemed early
it made a profit of £58,000. By their verdict the jury plainly and
surely concluded that you knew that the employment details entered
on the form were false; you nevertheless signed it. Whether you were
responsible for the collection and collation of the supporting
documentation is far from clear. There was no false valuation, and
the probability is that if you had been open and honest with the
lender the loan would have been granted anyway. It may well also
have been the case that you left almost everything to others…” (our
emphasis).
120. In the light of these remarks it cannot be right to proceed on the basis that if
Mr Waya had not made a misrepresentation about his income he would not have
obtained the finance that he needed. The majority are right at paragraph 41 to
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summarise the benefit he obtained from his dishonesty as obtaining credit “on
terms which might not otherwise have been available”.
121. Mr Waya provided 40% of the cost of the flat and thus took upon himself
the risk that its value might fall to that extent. Realistically the lender’s money was
never at risk.
122. Mr Waya paid the interest due under the mortgage agreement out of clean
funds. He then discharged the first mortgage out of funds raised by remortgaging
the flat. He was guilty of no dishonesty in obtaining the second mortgage – he was
charged but acquitted of obtaining this by deception. In circumstances where the
remortgage was honestly obtained, and in which the property over which it was
secured was not the real benefit obtained by the initial mortgage fraud, we do not
think it right to treat the funds raised on the remortgage as tainted monies.
123. It seems to us that the only benefit that Mr Waya obtained by his
dishonesty was that the terms of the loan advanced to him may have been
somewhat more generous than they would have been had he told the truth about
his income. A confiscation order in the value of that benefit would plainly be
proportionate. That, in effect, would make him pay the price that he should have
paid for the finance that he obtained. But having achieved this, it would, we
suggest, plainly be unjust and disproportionate to deprive him of the benefit that he
obtained by the use of the money for which he had paid. It would be even more
unjust to disregard the fact that Mr Waya redeemed the mortgage with funds
acquired without dishonesty.
124. In these circumstances we cannot accept that the real benefit that Mr Waya
obtained by his dishonesty was any part of the increase in value of the flat. The
real benefit was no more than the money value of obtaining his financing on better
terms than might otherwise have been available. To base the confiscation order on
the increase in value of the flat would be disproportionate. For this reason we
consider that the judge should have applied A1P1 and reduced the confiscation
order to reflect the modest benefit that Mr Waya may have enjoyed of obtaining
the mortgage on better terms.
125. In theory the case could be remitted for determination of that benefit. But
after the time that has elapsed and the stress that these proceedings must have
involved for Mr Waya, we would not think it just to adopt that course. We would
simply allow this appeal and quash the confiscation order.
