England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice The Strand London WC2A 2LL
		23 July 2008

Wednesday 23 July 2008

LORD JUSTICE TOULSON:

1. This is an appeal against a confiscation order made by His Honour Judge Curran at Merthyr Tydfil Crown Court on 21 November 2006. The appellant had previously been convicted of four counts of money laundering contrary to sections 328 and 329 of the Proceeds of Crime Act 2002 for which he received concurrent sentences of 18 months' imprisonment. The prosecution followed from an investigation by the National Crime Squad into the drug trafficking activities of a criminal organisation in South Wales. One of the people involved in the organisation was Andrew Rogers. He pleaded guilty to two counts of conspiracy to supply controlled drugs and four counts of money laundering. He received a sentence of seven years' imprisonment. A confiscation order was made in the sum of £550,000 to be paid within six months or in default a consecutive term of three years' imprisonment.
2. The appellant was a friend of Rogers. Whilst Rogers was on the run from the police and in Holland, he transferred five properties to the appellant who is, among other things, a property developer. The first two transfers were in November 2002. The transfer documents showed that they were transferred for a consideration of £10,000 and £9,000, but there was in truth no consideration. It was said that the Land Registry had suggested that figures should be shown and that the figures mentioned were plucked out of the air.
3. The other three transfers were in January 2004. They also were for no consideration. On this occasion no consideration was shown on the transfer documents.
4. At the time of the confiscation proceedings four of the properties had been sold by the appellant and the proceeds were in an escrow account in the name of his solicitors, where they remain. The fifth property was on the market. The freehold value of the unsold property plus the proceeds of sale of the four sold properties amounted at the time of the judge's order to £241,000.
5. Confiscation proceedings were brought against both Rogers and the appellant. In the case of Rogers the judge found that his benefit was £966,000, but that the amount available to him was £555,000 and so he made a confiscation order in the lower sum. In making his finding as to the amount available to Rogers, the judge included the figure of £241,000 representing the proceeds of sale of the four sold properties and the value of the unsold property as at that date. In the case of the appellant, the judge found that his benefit was £241,000 which represented the value of the houses or their proceeds.
6. Mr Harrington QC on behalf of the appellant makes a simple point. He says that there is a fatal inconsistency in the way that the judge approached the figure of £241,000. If, as he found, this was money available to Rogers to meet a confiscation order, it meant that he concluded that it was property held by Rogers and, in short, was Rogers' money. If that was so, it was not property held by the appellant and so did not represent a benefit to the appellant. Accordingly, the confiscation order should have been nil. Conversely, if it was property held by the appellant and therefore of benefit to him, he must be allowed to use it to discharge the confiscation order.
7. In his written response to the Statement of Information served by the prosecution for the purpose of the confiscation proceedings under section 16 of the Act, the appellant had addressed in direct terms the question of the ownership of the properties. He said:

"Although the properties are in the name of Michael Anthony Richards they are in truth the assets of Andrew Steven Rogers."

8. The judge did not deal with that issue in his ruling in similarly direct terms. The thread of the ruling is not entirely clear. He said:

"The Crown's case is that that transaction [the transfer of the properties] was a complete sham."

A transaction is a sham if documents appear to show one thing when the truth is another: Snook v London and West Riding Investments Ltd [1967] 2 QB 786, 802. It would be a sham if the intention was to pass to the appellant the appearance of ownership while the true owner was intended to be Rogers, for whom the appellant was merely a nominee. The judge added that it was the Crown's case that "the transfer was in effect a gift to [the appellant] for no real consideration". That would be different for if the transactions were truly intended to be gifts, then the transfers would not be a sham (except in the limited sense that in two cases there purported to have been a relatively small consideration). In considering the assets held by Rogers at the time of the confiscation proceedings, the judge said that they included "the current value of the houses transferred for no real consideration to his friend [the appellant] to keep them out of the hands of the prosecution".

9. In relation to the appellant the judge said:

"It is realistically now conceded on his behalf that these are in effect tainted gifts for the purposes of the Act."

He went on to say that the appellant benefited by obtaining the five properties and his benefit was the value of the property obtained. However, he did not address directly the nature of the interest in the properties which the appellant obtained -- ie whether he was a full beneficial owner or merely a nominee. He added that it was:

".... a strange situation in the circumstances of this particular case, in that [the appellant] now concedes that the properties belong to Mr Rogers in reality and are therefore available to Mr Rogers in part satisfaction of the confiscation order made against him".

10. Although the judge's reasoning is not entirely clear, it appears to this court that he plainly found as a fact that Rogers' assets at the time of the order included the proceeds of sale of the four properties and the unsold property.
11. We turn to the law. In R v May [2008] UKHL 28 the House of Lords examined the structure of the Act in relation to confiscation orders. As Lord Bingham of Cornhill emphasised, there are three stages in determining whether a confiscation order should be made and, if so, in what amount. The first stage is to determine whether the person concerned has obtained a benefit from or in connection with the relevant criminal conduct, be it general criminal conduct or particular criminal conduct. The second stage is to place a value on the benefit. The third stage is to consider, if the point is raised, whether the person concerned has available assets equal to the value of the benefit received.
12. In the appellant's case we are concerned only with stage 2. Mr Harrington has properly conceded that on any view the appellant received a benefit for the purposes of the Act when he obtained legal title to the properties even if he was a bare nominee. The core provisions for determining the value of the benefit received by the appellant are sections 79 and 80 of the Proceeds of Crime Act 2002. These provide:

"Value: the basic rule

79. (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)."

(Subsection (4) is not relevant in the present case.)

"Value of property obtained from conduct

80. (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."

13. Under section 80 the value of the benefit received by the appellant was the greater of (a) the market value of the appellant's interest in the properties at the time he received them (with allowance for changes in the value of money), or (b) the value of his interest in the unsold property, plus the proceeds of sale of the sold properties, at the date of the confiscation order.
14. As already recounted, the judge made his assessment of value in relation to each defendant at the latter date. By virtue of section 79 the judge had therefore to assess the value of each defendant's relevant interest at that date. At that date the beneficial interest in the unsold property and the proceeds of sale of the sold properties could not belong both to Rogers and to the appellant, unless they were joint owners, and that was never suggested. The judge treated them as belonging to Rogers, as Mr Harrington has submitted. He therefore says that they could not be treated as a value obtained or held by the appellant. The most that he then had was a bare legal title to the unsold property. Unsurprisingly, nobody has sought to place a market value on such a bare title.
15. Mr Griffiths for the prosecution submits that the judge was right in relation to Rogers to treat the assets as available to him at the date of the order. He submits that the proceeds belonged beneficially to Rogers at that date. But he submits that it was open to the judge under the terms of the Act to value the appellant's benefit at the date of the receipt of the properties and that, valuing his benefit at that earlier date, it was proper for the judge to assess it by reference to the full freehold market value of the properties. It is correct that the judge had to perform separately the valuation exercise required by the Act in relation to each defendant and that in relation to each of them he had to assess the greater value as at two possible dates. Therefore, under the terms of the Act there would be nothing wrong in him making a confiscation order against one defendant based on a valuation at the date of the confiscation order, and against the other defendant based on a valuation at the time of the relevant transaction.
16. That is not, in fact, how the judge approached the matter. He approached the matter by reference to the value at the date of the confiscation order. That is one obstacle to upholding the judge's order against the appellant on the basis contended for by the prosecution; but there is a more fundamental one. If at the time of the order the beneficial interest in the unsold property and the proceeds of sale of the sold properties belonged to Rogers, as both parties to the appeal contend, how could the beneficial interest in the properties have belonged to the appellant at the time of the transfers? Mr Griffiths submits that the properties had to be returned to Rogers because of the operation of the tainted gift provisions of section 77 of the Act, and that the beneficial interest in the properties which had initially passed to the appellant re-vested by operation of law upon the making of the confiscation order by the judge.
17. That submission requires examination of the tainted gift provisions of the Act. Under the Act the expression "tainted gift" has a special meaning. It is introduced for a particular purpose. Section 7 provides that the recoverable amount for the purpose of the court's jurisdiction to make a confiscation order is an amount equal to the defendant's benefit from the conduct concerned, but if the defendant shows that 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). The available amount is dealt with in section 9, which provides:

"(1) For the purposes of deciding the recoverable amount, the available amount is the aggregate of --

(a) the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority, and

(b) the total of the values (at that time) of all tainted gifts."

18. The definition of "tainted gifts" is to be found in section 77. There are different tests to be applied depending on what, if any, determination the court has made as to whether the defendant has a criminal lifestyle. In the present case the court determined that Rogers had a criminal lifestyle. If followed, among other things, that any gift made by him within the period of six years prior to the commencement of proceedings against him (which included the time when the transfers were made) was a tainted gift within the statutory definition of the term. "Gift" is defined by section 78, which provides that if a transfer is made by a defendant of property for a consideration which is significantly less than its value at the time of transfer, it is to be treated as a gift.
19. Pausing there, certain things are clear. First, the tainted gift provisions only apply where there has been a transfer of property. Whether there has been a transfer of property and, if so, what is the nature of the proprietorial interest that has been transferred are matters to be determined by the law of property. In this case the tainted gift provisions cannot determine what interest in the five houses passed to the appellant. Secondly, if there has been a transfer at a significant undervalue, the consequence in terms of the Act is not to prevent the transfer having such legal effect as it may have as a matter of property law. (This is unsurprising for it is well established as a matter of property law that property can pass under an illegal transaction: see Singh v Ali [1960] AC 167.) The effect under the Act is that the value of the property transferred at a significant undervalue is to be included in the valuation of the amount available to the defendant to satisfy the confiscation order.
20. There are further provisions in section 81 which determine how such gift is to be valued. If the property is in the hands of the recipient, then the value is its value. However, there is still an overall requirement on the part of the court to assess that which is available to the defendant on the facts of the case. It is possible that a defendant may in fact be unable to recover property which has passed to another at an undervalue. The Act provides potential, but qualified, relief for a defendant in such circumstances. Section 23 provides:

"(1) This section applies if --

(a) a court has made a confiscation order, and

(b) the defendant .... applies to the Crown Court to vary an order under this section.

(2) In such a case the court must calculate the available amount, and in doing so it must apply section 9 as if references to the time the confiscation order is made were to the time of the calculation and as if references to the date of the confiscation order were to the time of the calculation.

(3) If the court finds that the available amount (as so calculated) is inadequate for the payment of any amount remaining to be paid under the confiscation order it may vary the order by substituting for the amount required to be paid such smaller amount as the court believes is just."

There follows an important proviso in subsection (5):

"The court may disregard any inadequacy which it believes is attributable (wholly or partly) to anything done by the defendant for the purpose of preserving property held by the recipient of a tainted gift from any risk of realisation under this Part."

21. The underlying purpose of the tainted gift provisions of the Act is plain. No self-respecting organised criminal would expect to be caught with high-value property in his own name readily identifiable, particularly since the enactment of legislation which is designed to strip such criminals of their profits. As a matter of standard practice he is likely to have taken steps to transfer high-value assets to nominee companies, offshore trusts or trusted associates who can be looked upon to harbour the assets until such time as he perceives that the danger has passed or he has served any sentence of imprisonment which he may have had the misfortune to have imposed upon him. Parliament has sought to address that mischief in various ways, including the tainted gift provisions presently under consideration. The scheme adopted by the Act is to enable property transferred at a significant undervalue to be included in the calculation of the available amount. It is true that the interest to be valued is still his interest in such property, although the mechanism for its valuation is set out in the Act. But, dependent on the circumstances, a court may readily infer that the recipient is a nominee or in any event likely to be receptive to the transferor's wishes and can be expected to value the defendant's interest accordingly. If it transpires that a defendant genuinely cannot recover property (as distinct from having a lack of willingness to do so), section 23 provides for the possibility of a re-assessment.
22. There is nothing in this scheme which supports the contention advanced by the prosecution that the Act operates to re-vest property transferred at an undervalue in the transferor. If Parliament had so intended, it would have been easy enough to provide that a transfer at a significant undervalue shall have no effect in law, or to provide for a re-vestment of the transferred interest on a defined occurrence such as a ruling by the court. The Act does not adopt that approach. In our judgment it is impossible to read it as somehow by implication doing so. The provisions of section 23(5), for example, would be otiose if such were the effect in law. Accordingly, we reject that attempt by the prosecution to square the circle.
23. There is a further problem in the prosecution's argument. It rests on the foundation that beneficial interest in the properties did pass to the appellant on their transfer. Mr Griffiths accepts that the judge made no finding to that effect. He submits that this court ought to make such a finding on the material before it. He accepts that the mere fact that the properties were put in the name of the appellant does not help him; but he points to there being some evidence of the appellant letting the flats and receiving rental, and expending money on the flats. We have not been taken to the details. It is not difficult to imagine a number of possible reasons for such an arrangement. Perhaps the most obvious would be that if the purpose of the transfer was to shield the properties during the criminal proceedings and any subsequent confiscation proceedings, it would make sense for the appellant, as a professional property developer, to have the use of the properties and be responsible for their upkeep. This is speculation, but the evidence provides a thin basis for a finding that there was genuinely an intention on the part of Rogers to part altogether with his interest in the properties. That is inherently improbable in the circumstances. The judge's reference in his ruling to the purpose of the transfer being to keep the assets out of the hands of the prosecution is entirely consistent with an intention that the appellant should look after them safely until Rogers was no longer at threat of imprisonment or confiscation of assets.
24. Accordingly, we do not accept the argument that the judge ought to have found that the appellant received the full beneficial interest in the properties. On those grounds the confiscation order against the appellant cannot stand and must be quashed.
25. Some form of confiscation order might have been merited on the alternative basis that the appellant received rents from the properties, but that has not been explored before us. Nor have we been asked to consider making an alternative order in the event that we concluded that the order made by the judge is unsustainable.
26. The result, therefore, is that the confiscation order against the appellant will be quashed. No injustice will be done by this result for the value of the properties will pass to the State by reason of the order made against Rogers.