England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2
		2nd December 2004

1. LORD JUSTICE PILL: On 10th June 2003, in the Crown Court at Ipswich, Paul Robert Ellingham pleaded guilty to an offence on indictment 196. On 5th September 2003, in the Crown Court at St Albans he pleaded guilty to an offence on indictment 206. On 17th November 2003, at this Court, he was sentenced by Field J on indictment 196, for the fraudulent evasion of duty, to two-and-a-half years' imprisonment. That has been described as the Bury St Edmunds case. On indictment 206, count 2, assisting another to retain the benefit of criminal conduct, 18 months' imprisonment consecutive, to that on 196. That has been described as the St Albans case. The total sentence was therefore one of 4 years' imprisonment.
2. On 13th February 2004, in the Crown Court at St Albans, again before Field J, a confiscation order was made on indictment 196, as a result of the conviction on indictment 196, the Bury St Edmunds case. It was in the sum of £129,756, to be paid by 12th February 2005. It was ordered that there would be 18 months' imprisonment consecutive in default. The order was made under section 71 of the Criminal Justice Act 1988 ("the 1988 Act"). This is an appeal with leave of the Single Judge against the confiscation order and that alone.
3. The facts of the St Albans case, in relation to which there is no appeal, can be stated extremely briefly and need only be mentioned because, in that case, it is submitted that the learned judge took a somewhat different approach to the test to be applied when making a confiscation order. That was a case involving the laundering of large quantities of cash through a bank account. The appellant pleaded guilty on the basis that he had been asked by a co-accused to deposit money in that account and was paid only a sum in relation to each deposit he made. He had no further interest in the matter.
4. In the Bury St Edmunds case there was evidence that on 11th March 2002 a container arrived at the port of Felixstow from China. It was examined by customs officers. It purported to contain a thousand cartons of kitchen equipment but, when checked, was found to contain about 6 million cigarettes. The duty which should have been paid on that importation was £1,120,850.
5. The appellant was involved in the importation of that package. The consignee was Vetaria Import & Export, a company with an address at a farm in Leden Road, Essex. The appellant was the sole director of that company and no point is taken upon any difference in legal personality between the appellant and the company itself. The appellant had been involved in the hiring of a storage unit and the container containing the 6 million cigarettes was delivered to that unit. The appellant had picked up the keys to the unit. He had employed two young men who were observed by a customs officer to be unloading the contents of the container into the unit. They had been asked by the appellant to unload the container.
6. The basis of the appellant's plea to the offence was stated in writing. He was not the organiser of the importation of the cigarettes, nor was he financier nor the end user. He was assisting others in organising freight forward into the United Kingdom and organising the freight for their original storage. He was aware of the importation of cigarettes and that import duty was being evaded. The defendant was promised by the organisers of the fraud a total of £10,000 to arrange the United Kingdom freight, of which he received £5,000 at or around the time he was also given monies to pay freight charges. He was to receive the balance of £5,000 following initial storage. This latter payment he did not receive.
7. When sentencing the appellant to the term of imprisonment on 17th November 2003 the judge stated:

"You were the main organiser in the United Kingdom for this major smuggling operation which had been well planned. With some reluctance, I accept that you were to be paid £10,000 for the role that you played. You were not the organiser of the whole smuggling operation. There were others more involved than you, who organised the shipment to this country."

8. On the confiscation hearing it was conceded that the importation had given rise to a pecuniary advantage in the sum of £1,120,850. It was also not in issue that the level of the appellant's realisable assets was £129,756, the sum in which the order was made.
9. Mr Coltart's submission, on behalf of the appellant, is that the pecuniary advantage was not that of the appellant and that he did not obtain the benefit in the importation. The extent of the property he had obtained was the £5,000 he was actually paid. That, not the sum of over £1 million, was the sum upon which the confiscation order ought to have been based.
10. Section 71 of the 1988 Act provides, at subsection (1), as far as is material:

"Where an offender is convicted, in any proceedings before the Crown Court... of an offence of a relevant description, [to which the present is one] it shall be the duty of the court [and there then follows the procedure by way of seeking a confiscation order.

(1A) The court shall first determine whether the offender has benefited from any relevant criminal conduct."

The word "benefit" is defined in section 71(4):

"For the purposes of this Part of this Act a person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained.

(5) Where a person derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated for the purposes of this Part of this Act as if he had obtained as a result of or in connection with the commission of the offence a sum of money equal to the value of the pecuniary advantage."

11. The general approach to the statute was stated by the House of Lords in R v Rezvi [2002] UK HL 1. Giving the leading speech, Lord Steyn stated, at paragraph 14:

"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."

12. Mr Coltart submits that to make a confiscation order in the present sum was unfair to the appellant. In addition to sending him to prison and confiscating his true proceeds of crime (the sum of £5,000) the order amounted to imposing a large fine upon him. The benefit figure, within the meaning of section 71(4), was limited to any fee paid to the appellant for looking after the drugs. This is consistent, it is submitted, with the reality of the situation.
13. In making that submission, the appellant seeks to rely upon cases decided under the drugs legislation, where the appellants had no beneficial or financial interest in the drugs involved, in particular, in relation he relies on the case of J [2001] 1 Cr App R(S) 79 (273) and R v Johannes [2002] 2 Cr App R(S) 29 (109). Upon the judge's approach to section 71 in the present case, it is submitted that drugs offenders are in a more favourable position than those who commit offences covered by section 71. That cannot, it is submitted, have been the intention of Parliament. The relevant section of the Drugs Trafficking Act 1994, section 2(3) provides, in so far as is material:

"...a person has benefited from drug trafficking if he has at any time... received any payment or other reward in connection with drug trafficking carried on by him or another person."

Counsel submits that the word "benefit" is so to be construed under section 71 as to provide no greater penalty to offenders covered by that provision than drugs offenders covered by the section 2(3) of the 1994 Act.

14. It is further submitted that, in the circumstances, the Court should take into account the right now provided by the Human Rights Act 1998, which had incorporated Article 1 of the first protocol to the European Convention on Human Rights. Article 1 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."

It is submitted that, upon the broad construction of section 71 on which the prosecution rely, the test of proportionality is not met. The pecuniary advantage obtained by the appellant was very small in relation to the entire value of the duty evaded. The Court, by virtue of section 3 of the Human Rights Act, should construe legislation, so far as possible in a way which is compatible with Convention rights. Those Convention rights are infringed by the imposition of a confiscation order on the basis it was. Mr Ross, for the prosecution, submits that the words "obtains" and "benefit" should be given a broad meaning.

15. In R v Patel [2000] 2 Cr App R(S) 10 there was an issue as to the amount in which an order could be made when several defendants obtained money pursuant to a criminal conspiracy. The Court stated, in its conclusions at page 16:

"On the facts of this case the appellant, pursuant to the criminal conspiracy, admitted receiving in his hand a total of £51,920.89. That represented his benefit from his relevant criminal conduct. The fact that he had subsequently given some of that money to his fellow conspirator is irrelevant for the purposes of section 71."

16. In R v Gibbons [2003] 2 Cr App R(S) 33, the appellant was convicted of conspiring to defraud banks and credit card companies by dishonestly obtaining the redirection of mail. The total loss to the companies was in excess of £220,000. The Court, Kennedy LJ presiding, considered the relevant section. Hallett J, giving the judgment of the Court, stated at paragraph 58:

"In our judgment, it is plain that Parliament intended this legislation to bite and to bite hard on criminals and to remove from them, where possible, their ill-gotten gains. The court is under a duty, under the terms of s 71, either of its volition or at the behest of the prosecution to determine the benefit obtained by an offender as the result of or in connection with the offence of which they have been convicted.

In our judgment the words of s 71(4) have a deliberately wide ambit. The word 'obtains' is neither qualified nor defined. Parliament has not laid down any rules governing the way in which a court should approach its task in determining the benefit obtained as a result of or in connection with an offence. We decline to follow [counsel's] reasoning because, if we did, it would plainly thwart a clear intention of Parliament."

17. The House of Lords considered the matter in the case of R v Smith [2002] 1 WLR 54. The appellant bought a motor vessel and allowed himself to be used by another man as shipowner and captain. The boat was used to land substantial quantities of cigarettes on which duty was not paid. The charge was of fraudulent evasion of excise duty. In the leading speech, given by Lord Rodger of Earlsferry, the effect of section 71 was considered:

"23 These provisions show that, when considering the measure of the benefit obtained by an offender in terms of section 71(4), the court is concerned simply with the value of the property to him at the time when he obtained it or, if it is greater, at the material time. In particular, where the offender has property representing in his hands the property which he obtained, the value to be considered is the value of the substitute property 'but disregarding any charging order'...

It therefore makes no difference if, after he obtains it, the property is destroyed or damaged in a fire or is seized by customs officers: for confiscation order purposes the relevant value is still the value of the property to the offender when he obtained it. Subsequent events are to be ignored, in just the same way as any charging order is to be ignored under subsection (6). Such a scheme has the merit of simplicity. If in some circumstances it can operate in a penal or even draconian manner, then that may not be out of place in a scheme for stripping criminals of the benefits of their crimes."

Then at paragraph 26:

"If, then, the value of property obtained as a result of or in connection with the commission of an offence is simply the value of the property to the offender when he obtained it, even if it is subsequently destroyed, damaged or forfeited, one would expect the same general approach to apply in the case of pecuniary advantage. And indeed subsections (4) and (5) of section 71 of the 1988 Act produce that result. As I have already noted, the combined effect of those subsections is that the offender who has derived a pecuniary advantage from his offence is treated as a person who has obtained 'property' as a result of or in connection with the commission of the offence, the 'property' in question being a sum of money equal to the value of the pecuniary advantage. Under section 74(5) for the purposes of making a confiscation order the value of the property is its value to the offender when he obtained it. In this case the respondent derived a pecuniary advantage by evading the duty at the moment when he imported the cigarettes. The sum equalling that pecuniary advantage is treated as property obtained by the respondent at that moment. In terms of section 74(5), its value must therefore be determined at that moment, disregarding the fact that, soon after, the customs officers seized the cigarettes at Goole."

We regard those statements as directly applicable to the facts of this case, the circumstances being those of the moment of importation.

18. Mr Coltart seeks to distinguish Smith on the basis that there was no basis of plea in that case. The Court in Smith was entitled to assume that the defendant was to share the profits of the illicit enterprise. This places him, it is submitted, in an entirely different position from the present appellant, who pleaded guilty on a particular basis, and whose benefit was only in the sum of £5,000.
19. We refer to one further case, rightly and helpfully brought to our attention by Mr Coltart, the case of R v Alagobola 21st January 2004 [2004] EWCA Crim 89. That was a case where the defendant facilitated a money laundering operation. He allowed a bank account to be credited with sums and he requested the bank to transfer sums from the account elsewhere. It was held that the full sum paid into the defendant's account was the benefit received by him within the meaning of the section.
20. It was argued, as in the present case, that the marginal culpability of the defendant was such that not the full sum but only any reward he had obtained should be taken into consideration. This Court, Latham LJ presiding, rejected the submission. Pitchford J, giving the judgment of the Court, stated at paragraph 21:

"It seems to us, however, that the submission is founded upon the fallacial assumption that when the appellant dealt with the money by transfer he derived thereby no benefit. On the contrary, it seems to us the appellant was now in possession of the funds in his account which he knew or suspected were the proceeds of criminal conduct. By dealing with it following the acquisition of knowledge, upon the instructions of the alleged criminal, he was, in our view, and for the purpose of onward transmission, obtaining property in connection with the commission of an offence. He was exercising the right of the holder of the account to deal with the funds within it and he was dealing with those funds with a guilty mind. Accordingly, his benefit was the value of the property so obtained. Benefit from criminal conduct does not, for the purposes of section 71, mean personally to enjoy the fruits of criminal conduct."

It appears to us clear from the authorities that the avoidance of customs duty was "deriving a pecuniary advantage" within the meaning of section 71(5). It is not disputed that any such advantages was, "as a result of or in connection with the commission of an offence." It was the appellant who was responsible for the importation and storage of the goods, whatever reward he might eventually have been expecting, and, in our judgment, he derived a pecuniary advantage within the meaning of the subsection upon the importation. We follow the reasoning of Lord Rodger, in Smith. The pecuniary advantage having been obtained, the appellant did, within the meaning of subsection(4), obtain property as a result of or in connection with the commission of the offence. In our judgment, his participation was such that he obtained the property within the meaning of the subsection.

21. Mr Coltart concedes, that somebody derived a pecuniary advantage within the meaning of subsection (5). We reject the submission that the appellant is not covered by those provisions in relation to the entire sum avoided by way of the duty which ought to have been paid. It is suggested that the distinction between the section so construed, and the equivalent section under the Drugs Trafficking Act, means that an arbitrary taking of property is involved. The wording of the relevant sections in the two Acts is quite different. In our judgment, the meaning and relevance of the subsections to the present conduct is plain. Moreover, fortified by the statements of authority to which we have referred, we do not consider that these provisions as so applied involve any breach of the Human Rights Act 1998 and the rights conferred therein.
22. A pecuniary advantage was obtained by the avoidance by the payment of duty. By his conduct the appellant obtained property within the meaning of the section 71(4). The fact that his financial reward in the and was small and the fact that, on the basis of his plea, it could only have been small, does not prevent the operation of the section, in our view, in the way we have described. We respectfully agree with the way the matter has been put by this Court in the judgment of Hallett J in Gibbons and, more recently, in the judgment of Pitchford J in Alagobola though Alagobola did not involve a route via section 71(5). For the reasons we have given this appeal is dismissed.
23. MR COLTART: I am minded to ask your Lordships to grant leave to appeal your Lordships' decision to the House of Lords. That is my first application. If that fails, I wonder if your Lordships would consider a draft question which I have drafted to determine whether or not this case involves the point of law general public.
24. LORD JUSTICE PILL: We have to certify first, do we not? Have you got it in writing?
25. MR COLTART: Pass up copies of it. Mr Ross has seen it. I do not know if he has observations on terms of it.
26. LORD JUSTICE PILL: This is entirely consistent with the submissions you have made. Do you want to add anything?
27. MR COLTART: No thank you. For the purposes of the record I should read out what the question says:

"If the defendant is involved in the commission of an offence which gives rise to financial gain but sentenced on the basis that (a) he had no beneficial interest in the proceeds of the offence, and (b) he received only a lesser identifiable sum for having taken part, is his benefit, for the purposes of section 71(4) Criminal Justice Act 1988 restricted to the sum referred to in B?"

My Lord, if your Lordships are not minded to grant leave to appeal this case to the House of Lords, I respectfully ask your Lordships to certify this case as involving a point of law of general public importance, in the terms sought.

28. LORD JUSTICE PILL: Mr Ross?
29. MR ROSS: My Lord, I do not really have any submissions on this application.
30. LORD JUSTICE PILL: Very well. Mr Coltart, in deciding this we do have to have regard to the weight of authority, do we not? We cannot treat this as if the point has never come up before.
31. MR COLTART: I accept that of course. I stated at the outset, under the weight of authority, it was against me.
32. LORD JUSTICE PILL: House of Lords, we regard the case of Smith as relevant.
33. MR COLTART: My Lord, yes. I ask your Lordships to bear in mind the impact of the anomaly which has been identified during the course of argument.
34. LORD JUSTICE PILL: You said it was my word. What I said was I thought on your case 'anomaly' was a better word than 'arbitrary', but I am not complaining.
35. MR COLTART: That is a matter of significance. I respectfully submit and one sufficiently unclear at present in order to satisfy the test of general public importance for the purpose of this question.
36. MR JUSTICE GRAY: Your draft point of law goes further than your basis of plea. I do not think there is anything about having beneficial interest in the proceeds of the offence and your basis of plea. I mention that in case...
37. MR COLTART: His reward was limited to a fee of £5,000, then the inference would be he was not entitled to share in the wider proceeds. I accept it is not explicit on the basis of plea.
38. LORD JUSTICE PILL: We will retire.
(Short Adjournment)
39. LORD JUSTICE PILL: Mr Coltart, in the light of the authorities and our view of the section, we are not prepared to certify.