England and Wales Court of Appeal (Criminal Division) Decisions

WILLIAMS, R v. [2000] EWCA Crim 74 (19th December, 2000)

Case No: 2000/04492/X4

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CRIMINAL DIVISION)

Royal Courts of Justice

Strand, London,

WC2A 2LL

Tuesday 19^th December 2000

MR JUSTICE POOLE:

1. On 3rd November 1999, at the Crown Court at Bristol before H.H. Judge Boothman, the appellant pleaded guilty to conspiracy to supply Class A drugs and was sentenced to 11 years imprisonment.

2. On 14th April 2000, after hearing evidence, HHJ Boothman made a confiscation order in the sum of £237,161 under s 2 of the Drug Trafficking Act 1994; this was to be paid within 2 years, with 3 years imprisonment consecutive in default of payment. He now appeals against that confiscation order by leave of the single judge.

3. There were 3 co-accused but their sentences are not relevant for the purposes of these proceedings.

4. The brief facts were that the appellant had for some time been believed to be a major source of heroin and other drugs in south-west England, operating through a network of couriers and sub-dealers. An investigation into his activities commenced on 1 May 1997. Subsequently, two couriers were arrested with considerable quantities of drugs in their possession and those couriers were in possession of the appellant's telephone number; the telephone records revealed considerable traffic between the couriers and the appellant. The appellant also visited those couriers, using a false name, whilst they were on remand in prison awaiting their trials.

5. In December 1997, police installed covert listening devices in premises occupied by the appellant. One device was installed in a house in Bristol and another in a flat in London. Transcripts of conversations made by the appellant in those two premises were made and they revealed that the appellant was frequently counting money and talking about drugs. He was clearly implicated in dealing in Class A drugs on a major scale. A search warrant was executed at his premises in Bristol in July 1998 and a large quantity of cash in the region of £40,000 was recovered. From the furnishings in the premises it was apparent he enjoyed a expensive lifestyle. Bank notes were subsequently examined and some of them were found to be contaminated with heroin, cocaine and ecstasy. When interviewed, the appellant declined to comment.

6. In passing sentence following the statutory enquiry into the appellant's benefit from the proceeds of dealing, the learned judge commented that helpful schedules had been produced to set out the items of property and expenditure in dispute and the Court had heard evidence from a number of witnesses on those disputed items, though the appellant himself had not given evidence. The first thing the Court had to decide was what the appellant's net benefit, based on his property acquired and expenditure made over the relevant period, had been. Based on the evidence which the Court had heard, the judge calculated such net benefit at £484,437 including the cost of the drugs the subject of the charges.

7. Having calculated the benefit, the judge said that the next question to be decided was what figure should be used for previous purchases of drugs. It was well known, he said, that the profit on drugs was very high, but it was difficult to state precisely what the mark up should be. The Court had decided to use a mark up of one quarter to calculate the cost to the appellant of the drugs over the relevant period. Accordingly, the expenditure figure would be multiplied by four to calculate the cost of the drugs. That figure came to £1,937,748, and therefore, adding that figure to the net benefit based on expenditure, the total benefit figure would be calculated at £2,422,185. The realisable assets however were only £237,161 and therefore a confiscation order limited to that sum would be made. Such was the approach adopted by the sentencing judge.

8. In Grounds of Appeal settled by Mr Huseyin, and amplified by him in oral submissions before us, the appellant does not appeal against the quantum of the confiscation order but against the finding that his proceeds from drug trafficking should be valued at £2,422,185. This finding it is argued (and we accept) constituted a sentence as the appellant would remain in further jeopardy of steps being taken by the Crown under s16 of the Drug Trafficking Act 1994 (The Act) to increase the confiscation order by any amount up to the proceeds figure. Before summarising Mr Huseyin's argument it is helpful to refer to the relevant passages of the legislation.

9. Section 5 of the Act reads thus:

`'5(1) Subject to subsection (3) below, the amount to be recovered in the defendant's case under the confiscation order shall be the amount the Crown Court assesses to be the value of the defendant's proceeds of drug trafficking......

(3) If the Court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of his proceeds of drug trafficking, the amount to be recovered in the defendant's case under the confiscation order shall be-

(a) the amount appearing to the court that might be so realised; or

(b) a nominal amount..''

In making the assessment of the defendant's proceeds of drug trafficking required by section 5(1), the Court has recourse to the assumptions under section 4, which provides:

"4(1) For the purposes of this Act-

(a) any payments or other rewards received by a person at any time (whether before or after the commencement of this Act) in connection with drug trafficking carried on by him or another person are his proceeds of drug trafficking; and

(b) the value of his proceeds of drug trafficking is the aggregate of the values of the payments or other rewards.

(2) Subject to subsections (4) and (5) below, the Crown Court shall, for the purpose-

(a) of determining whether the defendant has benefited from drug trafficking, and

(b) if he has, of assessing the value of his proceeds of drug trafficking, make the required assumptions.

(3) The required assumptions are-

(a) that any property appearing to the court-

(i) to have been held by the defendant at any time since his conviction, or

(ii) to have been transferred to him at any time since the beginning of the period of six years ending when proceedings were instituted against him, was received by him, at the earliest time at which he appears to the court to have held it, as a payment or reward in connection with drug trafficking carried on by him

(b) that any expenditure of his since the beginning of that period was met out of payments received by him in connection with drug trafficking carried on by him; and

(c) that, for the purpose of valuing any property received or assumed to have been received by him at any time as such a reward, he received the property free of any other interest in it.

(4) The court shall not make any required assumption in relation to any particular property or expenditure if-

(a) that assumption is shown to be incorrect in the defendant's case or

(b) the court is satisfied that there would be a serious risk of injustice in the defendant's case if the assumption were to be made.

It should be noted that the making of an assumption requires the Court to be satisfied (to the civil standard: see s.2 (8)) of one of the following primary facts:

(1) that the defendant has held any property at any time since his conviction: s.4 (3) (a) (i),

(2) that any property has been transferred to him at any time during a period of 6 years before the date when proceedings were instituted against him: s.4 (3) (a) (ii).

(3) that the defendant has incurred expenditure during the same period : s.4.(3) (b).

The Court must have prima facie evidence of one of those facts before it may make and apply the assumption: see R v David Dickens (1990) 91 Cr App R 164 at 169, a decision in respect of similar words in the Drug Trafficking Offences Act 1986 (though it should be noted that by s. 2 (8) of the 1994 Act the civil burden has been substituted for the criminal standard of proof referred to in Dickens).

10. Against this legislative background Mr Huseyin argued as follows:-

(1). The judge found that £484,437 of the expenditure incurred by the appellant during the 6-year period prior to the commencement of the proceedings was expenditure to which the assumptions in section 4 (3)(b) of the Act applied and was one that had not been rebutted. This sum the appellant concedes was properly treated as the proceeds of drug trafficking and taken into account in the proceeds figure. That figure included a sum for the cost of the drugs seized in the operation and took into account deductions for legitimately acquired income.

(2). However the judge then erred in law by wrongly adding to his calculation of the appellant's proceeds of drug trafficking the sum of £1,937,748. This was said to represent the likely cost to the appellant of the purchase of sufficient drugs to generate, when sold, a profit equal to the unexplained expenditure of £484,437. The judge based his calculation on a hypothetical mark-up or profit margin of one quarter of the cost of drugs purchased and resold. He assumed that the cost of buying drugs used to generate such a profit must have been met out of previous trafficking in drugs and held that the cost of such a hypothetical quantity of drugs also fell to be added to the proceeds figure.

(3). Mr Huseyin submitted that this approach was wrong in principle and that it was not in accordance with the procedure set down in the Act.

(4). He submitted that the proper valuation of the appellant's proceeds from trafficking is a 2-stage process which works as follows:-

A) The evidential stage, where the Court hears evidence and establishes its findings to the civil standard as to what property appears to the Court to have been held by the defendant since conviction or transferred to him during the 6 years before these proceedings were brought and his expenditure during that period. Statutory assumptions are of no assistance to the Court at this stage; evidence is required to establish the sums in issue.

B) The assumptions stage, where the Court for the purpose of treating such property and expenditure as the proceeds of drug trafficking, then applies the assumptions in s.4 of the Act unless and to the extent that the assumptions are proved to be incorrect.

(5). Mr Huseyin complains that the judge here adopted an unlawful and flawed approach by confusing the 2 stages. Having properly applied both stages to the expenditure he found to have been incurred and the assets he found to have been held by the appellant, and having added the sum to the proceeds figure, in respect of the drugs the subject of the charges, he then proceeded to take the resulting figure and to apply to it a further series of hypotheses for which there was no evidential basis, namely that it was itself the product of a particular form of trafficking, i.e. wholesale supply; that it represented the net profits of such activity; and that a hypothetical quantity and value of drugs must have been trafficked to enable such net profits to be realised. He then repeated this process in respect of the hypothetical quantity of drugs arrived at, by assuming that they in turn had been purchased from the earlier proceeds of trafficking. There was in fact no evidence of the appellant's active acquisition or possession of such drugs, nor that they were funded from earlier dealings, nor indeed that they were held or purchased within the 6-year period prior to the commencement of proceedings in the case and, in the absence of such evidence, the judge should not have proceeded as he did.

(6). Mr Huseyin submitted that each of the statutory assumptions could only be applied once to any item of expenditure made or property, acquired, and that any further conclusions as to the origins of the money which funded such items had to be based on evidence.

(7). Finally, he submitted that the application of the assumptions under s.4 to the appellant's expenditure was not intended to permit a sum greater than the total of that expenditure to be included in the proceeds figure. In the absence of evidence, the Act did not give the Court power to assume anything about the nature of the transactions that gave rise to those payments.

11. We accept Mr Huseyin's submissions and consider that the approach under the Act should be as follows:

Once the court has satisfied itself that an offender, to whom the Act applies, has benefited from drug trafficking, it then has to determine the amount to be recovered from the offender (section 2(2) and 2(5)). It does so in accordance with section 5 of the Act, and in making the assessment of the defendant's proceeds of drug trafficking required by section 5(1) the Court has recourse to the assumptions under section 4, which involves the 2-stage process referred to above. If the court wishes to include in the calculation of the proceeds figure some other sum, alleged to be a payment or reward for drug trafficking, which is not deemed to be so by the application of one of the assumptions, it can do so only on the basis of evidence, to the civil standard: see section 2(8) of the Act.

12. The mistake of the judge in the present case was to take the figure produced by the application of the proper approach, £484,437, and then to subject it to a series of further hypotheses for which there was no evidential basis, namely;

i) that it was the product of a particular form of drug trafficking i.e. wholesale supply,

ii) that it represented net profits of such activity and

iii) that a hypothetical quantity and value of drugs must have been required to be purchased during the preceding 6 years to enable such a net profit to be realised.

13. The judge was wrong to employ the `expenditure' assumption under section 4(3)(b) for this purpose and his device of hypothesising a figure for the working capital required to produce a profit equal to the proceeds figure of £484,437 was incorrect. There was simply no evidence as to the defendant's possession of such drugs, or that they were funded from previous dealing.

14. Equally, there was no evidence that this hypothetical stock of previous drugs or the capital with which they were assumed to be purchased were held or expended within the period of 6 years prior to the commencement of the proceedings. Thus, as Mr Huseyin submitted, the proceeds figure should be reduced to that which the judge found after the proper application of the assumptions and before his `grossing -up' calculation, namely £484,437.

15. Mr McFarlane, for the Crown, sought to defend the sentencing judge's approach but, in doing so, there were at least two questions that he was frank enough to admit he could not answer:-

i) Why should the sentencing judge stop at £1,937,748? On the basis of the judge's reasoning, that sum itself represented the proceeds of drug dealing, and if it, in turn, represented the profits of such dealing, the proceeds as statutorily defined would approach £8,000,000. If one continued in this vein, galactic figures would soon be arrived at.

ii) How could it be known that the £1,937,748 had come into the appellant's hands within the statutory 6 year period? In the absence of evidence, there could be no answer, and there had been no evidence.

16. Mr Macfarlane referred us to R v Simons (1994) 98 Cr. App. R 100, which made clear that, where there is a chain of contracts dealing in drugs, the purchase price paid by each dealer in the chain is a payment for the purposes of section 1(3) of the Drug Trafficking Offences Act 1986, and thus liable to confiscation as opposed to the actual turn or profit made by each. However, it does not seem to us that the principle elucidated in Simons assists the Crown in this case, which essentially concerns questions of proof.

17. In the present case, the problem seems to us to have stemmed from the fact that the sentencing judge, having properly calculated the proceeds, then sought to redefine and treat them as `profits', and to base his further calculations on that redefinition. That approach does not seem to us to be one permitted by the scheme of the Act. It is also one likely to lead to arbitrary and unjust results.

18. In these circumstances we consider that the `proceeds' figure found by the judge should be reduced to that which he found after the proper application of the assumptions and before he embarked on hypothetical calculations for which there was no evidential basis on the material placed before him. We would therefore substitute £484,437 for the figure of £2,422,185 found by the judge to be the proceeds of the appellant from drug trafficking. To that extent, this appeal succeeds.