England and Wales Court of Appeal (Criminal Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE SOUTHWARK CROWN COURT
HIS HONOUR JUDGE MCKINNON
T2003/7615

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/11/2007

Lord Justice Pill :

1. On 16 June 2004 in the Crown Court of Southwark before His Honour Judge McKinnon, Milroy Nadarajah changed his plea to guilty of a charge of conspiracy to supply controlled drugs of Class A. Other charges against him were left on the file. On 9 July he was sentenced to 7 years imprisonment. Following a further hearing, a confiscation order was made by the judge on 25 November 2005, and varied on 21 December 2005, under the Proceeds of Crime Act 2002 ("the 2002 Act"). As varied, it was in the sum of £1,251,696.26, with 7 years imprisonment consecutive in default of payment within 6 months.
2. Milroy Nadarajah appeals against the confiscation order by leave of the full court. Leave was limited to two grounds.
3. On 5 September 2003, the appellant was a passenger in a Range Rover which was driven to a storage unit at a brewery building in Brick Lane, East London. He and a co-defendant unloaded 3 boxes from a vehicle into a unit in the building which was rented by another co-defendant. It was found that the boxes contained 25 blocks of cocaine with a total weight of 15.177 kilos, the equivalent of 11 kilos at 100% purity. The wholesale value of the delivery was said to be just over £400,000 and the street value £1.2 million. The premises were found to contain drug dealing paraphernalia on a large scale and a computer containing trading records for the alleged conspiracy dating from May 2002. The conspiracy was alleged to have been conducted for a substantial time before, and up to, 5 September 2003. The prosecution regarded the appellant as being separate from the main organisation but as supplying them on a large scale.
4. At the appellant's home, at 64 Games Road, Barnet, described as 'palatial', a money counting machine was found together with watches, the keys to a Porsche, other vehicles and amounts of cash. In mitigation, it was submitted that the first time the appellant had involved himself with drugs was on 5 September 2003 and that he was just a delivery man. His declared income for the year 2001/2002 was less than £8,000. In sentencing the appellant, the judge stated that 'he had played an important role in fuelling the supply and distribution of cocaine on 5 September'. The sentences on the appellant and co-accused were not increased upon an Attorney-General's Reference (Nos. 99, 100, 101 and 102 of 2004 [2005] EWCA Crim 294) although the court stated that a somewhat higher sentence would have been expected.
5. At the confiscation hearing, the judge held that he was entitled to consider evidence about the general criminal conduct of the appellant (Section 76(2) of 2002 Act), as well as the supply on 5 September and that ruling is not challenged in this appeal. The appellant's case is that the confiscation order should be in the sum of £337,493.13.
6. The issue is as to the calculation of the benefit to the appellant, as defined in Section 6 of the 2002 Act. Following a method of calculation in important respects different from that adopted by the judge, the prosecution now claim that the benefit should include the value of a mortgage advance of £540,000 obtained by the appellant for the purchase of 64 Games Road, in 2001, (which must be assumed to have been transferred to him as a result of his general criminal conduct (section 10(2)(a)), plus the value of the appellant's interest in the property, said to be £500,000, and the value of the drugs carried on 5 September assessed at £375,000. It is now conceded by the prosecution that the judge erred in basing the benefit on the total value of the house rather than on the equity in the property. A further item, £89,990.84 for 'unexplained deposits', is not in issue.
7. The appellant contends that the amount of the mortgage advance should be excluded from the calculation, that the relevant value of his interest in the property is £360,000, which is the deposit said to have been paid at the time of purchase, and that no sum should be included for the value of the drugs.
8. At the confiscation hearing, considerable evidence was given and the judge's ruling on 25 November was in considerable detail. The computer records found at the unit included a significant number of transactions between the conspiring organisation and 'M', claimed by the prosecution to be the appellant. The figure of £375,000 for the drugs found on 5 September was based on figures found in the computer records.
9. The appellant claimed that, since 1992, he had worked in the music business playing at gigs and as a DJ. He was paid in cash. He also had a production company. The house had been purchased for £900,000 with a mortgage of £540,000. It had been re-mortgaged for £750,000 in 2003. The appellant sought to give an explanation of how he had raised the balance of £360,000 for the purchase. The sum included loans from his mother, family and friends. His mother gave evidence that she was now paying the mortgage and a friend gave evidence that he and the appellant had made a lot of money in the music business between 1989 and 1994.
10. The judge rejected the claim that the appellant was 'M'. The judge stated:

"However, having regard to that evidence one has to weigh it with care and although I am satisfied that the Crown are entitled to place information before the court to show that the defendant is guilty of criminal conduct, in addition to that of 5^th September, it seems to me that although there is the strongest suspicion that the letter 'M' refers to Nadarajah, the evidence is insufficient to identify him as 'M; and any benefit I find that he has obtained will not involve an apportionment of the proceeds of drug trafficking as set out in the computer records."

The judge did, however, refer to the appellant's drug dealing and we will return to that subject.

11. As to the purchase of 64 Games Road, the judge considered and rejected the appellant's submission that he had been able to finance the advance of £540,000. The appellant's declared gross income to the Inland Revenue was £18,309 in 2000 and £27,420 in 2001. The judge rejected the evidence of loans from family and friends. The judge stated:

"Furthermore, it is quite apparent from the extravagant expenditure on expensive furniture for the house, expensive televisions, a Rolex watch, travel abroad and general credit card expenses, over this period that he had access to cash which is not explained by his earnings in the music business or iNi Communications."

12. The judge stated his conclusion:

"From the evidence I have heard, I am in no doubt that Mr Nadarajah was not in a position to be able to afford Games Road out of any legitimate income and that any loans or payments he received were always secured on the proceeds of his general criminal conduct. It follows that the evidence I have heard does not displace the assumption that Games Road, being property that was transferred to the defendant after the relevant day, was obtained as a result of his general criminal conduct. I am satisfied that the assumption has not been shown to be incorrect and there is no serious risk of injustice if the assumption is made."

General conclusions were then expressed, first as to the sum of £89,990.84 not now in issue. The judge continued:

"I am further satisfied that he incurred expenditure in respect of the consignment of the 15 kilos of cocaine which he delivered on 5^th September, 2003, in the sum of £375,000 for which I am satisfied he had been paid and there is no serious risk of injustice in making that assumption. In Mr Nadarajah's case I am, therefore satisfied that he has benefited from his general criminal conduct in the following sums: the unexplained sums in his account amounting to £89,990.84, the current value of 64 Games Road valued at £1,610,000 and his expenditure on the drugs delivered on 5^th September, 2003, in the value of £375,000. This makes a total of £2,074,990.80."

13. The sum of £2,074,990.80 was, however, reduced by the judge by 25% when considering the recoverable amount under Section 7 of the 2002 Act. This was "an allowance for the loss of value of any additional assets and with regard to any dissipation of assets and expenditure." On 25 November 2005, the resulting figure for the confiscation order was £1,556,243.10. At a further hearing on 21 December 2005, that sum was varied to the sum stated in paragraph 1 because of a substantially lower valuation put on the house, £1,250,000, on 21 December. In determining the recoverable amount under Section 7, but not earlier, the judge took the realisable value of 64 Games Road, put at £839,896.40 after the repayment of the mortgage and costs. He referred to other assets stating that he was "quite satisfied, however, having regard to the scale of his [the appellant's] criminal conduct, that there are assets available to be realised which have not been discovered and which he has not disclosed."
14. Counsel have taken the court through the procedure to be followed under 2002 Act when deciding upon the sum to be paid by way of confiscation order. Because of the issues which have in the event emerged, it is not necessary to spell out the procedure in full. The court necessarily found that the appellant had a 'criminal lifestyle', within the meaning of Section 75 of the Act, because of the offence of which he had been convicted. In such a case, the court must, by virtue of Section 6(4)(b) then go on to decide "whether he has benefited from his general criminal conduct." If it so decides, the court must then, by virtue of Section 6(5), decide the recoverable amount and make a confiscation order requiring him to pay that amount. Section 7(1) provides that the recoverable amount is an amount equal to the defendant's benefit from the conduct concerned but if the available amount is less than that benefit, the recoverable amount is the available amount, or a nominal amount, if the available amount is nil (section 7(2)).
15. Section 10 deals with assumptions:

"10. Assumptions to be made in case of criminal lifestyle

(1) If the court decides under section 6 that the defendant has a criminal lifestyle it must make the following four assumptions for the purpose of -

(a) deciding whether he has benefited from his general criminal conduct, and

(b) deciding his benefit from the conduct.

(2) The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him -

(a) as a result of his general criminal conduct, and

(b) at the earliest time he appears to have held it.

(3) The second assumption is that any property held by the defendant at any time after the date of conviction was obtained by him -

(a) as a result of his general criminal conduct, and

(b) at the earliest time he appears to have held it.

(4) The third assumption is that any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his general criminal conduct.

(5) The fourth assumption is that, for the purpose of valuing any property obtained (or assumed to have been obtained) by the defendant, he obtained it free of any other interests in it.

(6) But the court must not make a required assumption in relation to particular property or expenditure if -

(a) the assumption is shown to be incorrect, or

(b) there would be a serious risk of injustice if the assumption were made.

(7) If the court does not make one or more of the required assumptions it must state its reasons.

(8) The relevant day is the first day of the period of six years ending with -

(a) the day when proceedings for the offence concerned were started against the defendant, or

(b) if there are two or more offences and proceedings for them were started on different days, the earlier of those days.

(9) . . . .

(10) . . . ."

16. As to the sum of £375,000 attributed to the drugs, we have cited the judge's general conclusion. While he had found that the appellant was not 'M' referred to in the other conspirators' records, the judge summarised the prosecution's case that the appellant had supplied the organisation on many occasions previous to 5 September. The judge concluded:

"I am further satisfied that he incurred expenditure in respect of the consignment of the 15 kilos of cocaine which he delivered on 5 September, 2003, in the sum of £375,000 for which I am satisfied he had been paid and there is no serious risk of injustice in making that assumption".

17. The judge stated, in relation to the 5 September consignment:

"I am satisfied that it was not the case that such a large and valuable consignment of cocaine was entrusted to a complete novice in the cocaine dealing world, as Mr Nadarajah was suggesting by his evidence, who was later left in the unit with the drugs in his charge, and on his own, by Mr Long."

Read with the judge's finding that the appellant 'incurred expenditure in respect of the consignment' the prosecution submit that the judge must have found that the events of 5 September were not a 'one off' but performed by a trafficker of some standing and duration. Further, when considering the amount recoverable, the judge referred to the 'scale of his [the appellant's] criminal conduct'. Reliance is also placed on the presence of the money counting machine in his house, which the judge found to be of 'particular significance', and that it was not simply an 'unfortunate coincidence' that in his business premises was found a press contaminated with cocaine and very similar to the presses found at the unit in Brick Lane.

18. For the appellant, Mr Bodnar, stresses the need for the judge to follow the statutory procedure clearly and sequentially. The prosecution must prove that the defendant has obtained property, that it has been obtained from his general criminal conduct, and the value of the property so obtained. The statutory assumptions apply, and subject to Section 10(6), only to the second and third of those stages, it is submitted.
19. Thus, it is submitted, the procedure is for the court first to determine on the evidence the amount of property which has passed through the defendant's hands. Where the defendant has been found to have a criminal lifestyle, the court may assume that everything that has passed through the defendant's hands during the relevant period was derived from crime. Third party interests must be considered and the assumption that the property has been obtained free of any other interests in it may thereby be defeated. The court must then consider whether it has been shown that property not subject to a third party interest was derived from a source other than crime. If it is, the assumption is shown to be incorrect. The court must, in any event, stand back and consider whether there would be a serious risk of injustice if assumptions were to be made.
20. As to the mortgage, Mr Bodnar submits that there is no evidence that it was dishonestly obtained. It is submitted that in effect the appellant has been found guilty of a mortgage fraud without having been tried for it. He submits that property was not, in any event, obtained because the mortgage money would have been paid direct to the vendor without passing through the appellant's hands. The separate submission is made that the prosecution case is now put on a wholly different basis from that at the confiscation hearing. Their case was then based on the entire current value of 64 Games Road, taken first as £1,610,000 and then, by way of variation, at £1,250,000. Moreover, third party interests were considered only in deciding what was recoverable under the 2002 Act and not, as they should have been, when considering the figure for benefit.
21. We reject the submission that mortgage money, if on investigation there was a mortgage, was not obtained by the appellant because, at his request and following usual practice, it was probably paid by the mortgage company direct to the vendor. Moreover, on the statutory procedure, there is no need to prove a mortgage fraud. The appellant obtained, on his own evidence, the substantial sum of £540,000 and, unless shown to be incorrect, the assumption that it was obtained as a result of his general criminal conduct applied.
22. We do, however, see force in Mr Bodnar's submission that the obtaining of £540,000 should not be considered as a discrete item when it was not so treated at the hearing. Had the application been based on the obtaining of that sum, attention would inevitably have been directed to the circumstances in which the sum was obtained and, indeed, to the full circumstances of the purchase of the property. The documentation dealing with the sale and the alleged mortgage was relevant. Had it been alleged that the sum was obtained by way of mortgage, the presumption that it was obtained as a result of general criminal conduct may well then have been shown to be incorrect (R v Walls [2003] 1 Cr. App R 510, [2002] EWCA Crim 2456 (decided under earlier legislation)).
23. In the absence of further enquiry at the hearing, it is not in our judgment appropriate for the assumption to be relied on, at this stage in the litigation, in relation to the £540,000. Of course, had enquiry at the confiscation hearing shown that there was no mortgage, and having regard to the finding that the alleged deposit of £360,000 had not been honestly obtained, the assumption would have applied, unless shown to be incorrect, to the entire purchase price. There would, in the circumstances, be a serious risk of injustice if the assumption in Section 10(2) were now to be held to apply to a sum of £540,000 obtained under a mortgage (Section 10(6)(b)).
24. We accept Mr Bodnar's submission that the current third party interest, the mortgage, should be taken into account when considering the defendant's benefit from the conduct concerned rather than at the later stage of determining the recoverable amount. It follows that, with respect to 64 Games Road, the benefit should be based on the value of the equity at the material time, as is conceded on behalf of the appellant.
25. We do not, however, accept Mr Bodnar's submission that the equity should be valued at £360,000. The relevant figure is the greater of the value at the time the property was obtained and the value at the time of the confiscation order (Section 80 of 2002 Act and R v Scragg [2006] EWCA Crim 2916). Mr Bodnar submits that the value when the property was obtained, the assumed deposit of £360,000, is greater than the true value at the time of the confiscation order, put at £150,000.
26. We do not accept that submission. For present purposes, the value was determined following full investigation at the confiscation hearings. The equity was assessed at £500,000 on the basis of valuations, including those submitted by the appellant. The appellant was given and took the opportunity to return to court following the first determination and successfully to achieve the lower valuation determined on 21 December 2005 when the confiscation order was made. Attempts to reduce that figure on the basis of further evidence seeking to demonstrate that the property had been over valued in December 2005 are not, in our judgment, permissible. Accordingly, the higher, and relevant, figure under Section 80 of the 2002 Act is £500,000.
27. In relation to the value of the drugs, Mr Bodnar submits that, having found that the appellant was not 'M', the judge left a vacuum in the judgment. It cannot properly be inferred from the judge's findings that the appellant was a regular drug dealer. The judge was not entitled to conclude, it is submitted, that the appellant had paid £375,000 for the drugs he consigned on 5 September, having found that the appellant was not 'M'. Mr Bodnar also relies on the manner in which the judge expressed himself when finding that the appellant incurred expenditure in respect of the 5 September consignment, to which the assumption in Section 10(4) would apply. He elided that finding with a finding that there was no serious risk of injustice in assuming that the appellant has been paid, an assumption which, it is submitted, can come into play only at a later stage and not when fact-finding.
28. We reject those submissions. The judge could have put it more clearly but he was in our view finding, in the passages cited that, although not 'M', the appellant was a regular drug dealer. The judge was entitled to make that finding. Secondly, the judge was entitled to find that the appellant paid £375,000 for the drugs, and that the sum was paid from property obtained as a result of his general criminal conduct. The judge should have separated the 'injustice' aspect from the other aspects of fact-finding but the shorthand he used does not detract from the legitimacy of his conclusion.
29. It follows that the confiscation order should be in the sum of £500,000 plus £375,000, plus £89,990.84 that is £964,990.84, less the 25% discount not in issue, giving, £723,741.63. The consecutive sentence in default will be five years imprisonment.
30. To that extent, the appeal is allowed.