England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2A 2LL
		15 October 2008

1. LORD JUSTICE TOULSON: On 6 June 2005 at Liverpool Crown Court the appellant pleaded guilty to six counts of possessing discs bearing a false trade mark with a view to herself or another offering them for sale, three counts of making a false statement with a view to obtaining benefit and three counts of distributing games and discs which infringed copyright in the course of a business. She also pleaded guilty to four charges of possessing items which infringed copyright. For these offences she received a sentence of 12 months' imprisonment. On 11 August 2006, before His Honour Judge George, she was made subject to a confiscation order in the sum of £242,807.40 with a period of imprisonment of 27 months to be served in default of payment.
2. She appeals against the confiscation order by leave of the single judge, who granted leave on limited grounds. Those on which he refused leave have been not renewed.
3. The prosecution arose out of an investigation conducted from May to July 2004 by trading standards officers of Liverpool City Council and fraud officers of the Department of Work and Pensions. One of the sites placed under surveillance was Great Homer Street Market in Liverpool. The appellant was filmed on a number of occasions working with others at a stall selling DVDs and CDs. In due course the stall was raided and arrests made of those working on the stall. The appellant was arrested and her premises searched. A total of nearly 3,000 counterfeit discs were seized at her home, together with a laptop computer containing a large number of picture and music files and an extensive list of DVD music and games titles. The total value of all the discs seized from the stall, her vehicle and home address was in the region of £100,000.
4. The appellant pleaded guilty at a late stage of the proceedings on a written basis that she had agreed to participate in an ongoing business conducted by others, including family members. She was sentenced on the basis that she was not the organiser of the enterprise. On the hearing before Judge George it was submitted that he was bound by her written basis of plea. That submission was based on what had been said in this court by Keene LJ giving the judgment of the court in May [2005] 1 WLR 2902 paragraphs 88 and 89, to the effect that the making of a confiscation order is part of a sentencing procedure and that where there is a basis of plea which is accepted by the prosecution the judge must honour it.
5. However, in the present case the basis of plea had been agreed by the prosecution expressly without prejudice to the confiscation proceedings. In those circumstances the judge rejected the submission that he was bound by the appellant's basis of plea in the confiscation proceedings. In fact, having heard evidence, he rejected her factual contentions. The judge's approach was right.
6. The observations in May set out the ordinary rule. It is unnecessary to consider whether there may be exceptions, for example, if fresh evidence comes to light in the interval before the confiscation proceedings are heard. But in May the court was concerned with a case in which there had been an unqualified agreement by the prosecution to the defendant's basis of plea. That was not so in this case. There was no injustice, where the basis of plea was accepted on the qualified basis which it was in this case, in the judge hearing the evidence and coming to his own view on the facts.
7. The judge's judgment in the confiscation proceedings was a full and careful judgment, which has the hallmarks of detailed preparation.
8. Two main points underlie the grounds of appeal. Firstly, where a property is acquired on mortgage, what is the interest to be valued when assessing the offender's benefit: is it the freehold interest, or the equity? Secondly, what is the position where funds for the property come partly from tainted and partly from untainted money?
9. In this case the appellant was deemed to have a criminal lifestyle, so the judge had to apply the assumptions set out in section 10 of the Proceeds of Crime Act 2002, subject to the provisions about incorrectness or injustice in subsection (6). The issues concern the way in which he applied those presumptions in relation to four properties.
10. 8 Park Lane. This property was obtained by the appellant, subject to a mortgage, in 1987. It was still owned by her at the time of the hearing. It therefore fell within the second assumption set out in section 10(3), which is as follows:

"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."

11. It was submitted, firstly, by Mr Redpath that it was unjust to apply that assumption in the present case because so many years had elapsed since the appellant had acquired the property.
12. The appellant's case was that the deposit for the purchase of the property had come from the sale of a previous house, or other legitimate resources, and that the balance had been borrowed on mortgage. There was no dispute as to the mortgage, but the question was whether the appellant had shown that it would be unjust to apply the assumption in relation to the acquisition of the property, bearing in mind the lapse of time and her evidence about the source of the deposit.
13. The judge dealt with this point briefly in his judgment, saying that the figures in evidence did not demonstrate that money from the sale of a previous house or other legitimate resources went towards the purchase of 8 Park Lane in addition to the mortgage. He made plain that in view of the time which had elapsed he would not have expected what he termed full financial records, but he would have expected some more evidence from her. Although she asserted that the deposit came from the sale of another property, she offered no information about the other property, or how it had been acquired, or for how much it was sold. It could reasonably have been expected that she would have been able to remember the previous house in which she had lived and to provide at least some information about its acquisition. In our judgment, no legitimate criticism can be made of the judge's decision as a matter of fact that on the evidence before him it was not unjust to apply the statutory assumption in relation to that property.
14. There is a second point in relation to the Park Lane property which is no longer in dispute. The appellant is a joint owner of the property. It is her submission that since it was acquired on mortgage, the value of her interest in the property for the purposes of the Act was the value of her interest subject to the mortgage. That is the effect of section 79 of the Act which provides:

"(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 orders under a provision listed in subsection (4)."

15. Applying those provisions, the relevant value was the value of the interest of the appellant in the property at the material time, subject to the charge in favour of the building society. The relevant time for this purpose was the time at which the judge reached his decision under section 80. There are alternative dates at which the property may be valued, but in this case the value at the date of the hearing was the value pursued by the prosecution. Accordingly, the benefit figure found by the judge in respect of that property must be adjusted to half the equity in the property, representing the appellant's half share of the property, subject to the building society's interest. This comes to a figure in the region of £55,000.
16. We add that the judge did not have the benefit of having his attention drawn to authorities of this court on this point, such as Walls [2003] 1 WLR 731. We have no doubt that if his attention had been drawn to that and other authorities and to the section to which we have referred, he would have approached the matter differently.
17. 43 Lusitania Road. This property was acquired by the appellant for just short of £40,000. Half of the purchase price was lent to her as an unsecured loan. The other half of the purchase money came from her own funds, which the court was entitled to treat as tainted money since she had provided no satisfactory evidence of any lawful source of that money. Given that the purchase money therefore consisted half of tainted funds and half of non-tainted funds, the question arose how her benefit in relation to that property was to be assessed.
18. The appellant's argument is that since half the purchase price came from clean money, half the value of the property should be regarded as not representing the fruits of crime.
19. The prosecution's submission was that logically the entire property should be regarded as obtained by her as a result of or in connection with her criminal activities, but by way of concession it was prepared to allow a discount in the amount of the unsecured loan.
20. There is no authority which is directly binding on us on this point, but there is some statutory provision and authority of this court in relation to another part of the Act which provide a helpful pointer.
21. The overall purpose of the Act is to separate criminals from property and other benefits obtained as a result of their crime. This may be done through criminal confiscation proceedings, with which we are presently concerned, or through civil action brought by the director of the Asset Recovery Agency.
22. In relation to the latter, section 306 of the Act deals specifically with the position where property has been obtained through the use of mixed funds; that is to say, tainted funds and untainted funds. Section 306 provides as follows:

"(1) Subsection (2) applies if a person's recoverable property is mixed with other property whether his property or another's.

(2) The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.

(3) Recoverable property is mixed with other property if, for example, it is used,

...

(b) in part payment for the acquisition of an asset."

23. So if in the present case proceedings had been initiated by the director of the agency there is no doubt how this question would have been resolved. The appellant pooled tainted money (the half of the acquisition price which came from her own criminal proceeds) with untainted money to acquire an asset, namely 43 Lusitania Road, and the portion of that which would have been attributable to her criminality would have been one half.
24. Those provisions were considered by the Court of Appeal Civil Division in the case of Olupitan and another v Director the Assets Recovery Agency [2008] EWCA Civ 104. The court accepted that if property was acquired in part with untainted money and in part with the proceeds of fraud, it was not Parliament's intention that the purchaser should be deprived of the portion of the value of the property derived from untainted money (see paragraphs 38 and 52).
25. It is theoretically conceivable that Parliament intended that a different approach should be taken in criminal confiscation proceedings. But it is impossible to discern any rational ground on which it should do so. While the different provisions of the Act may be capable of producing anomalies, the court should try to avoid this where possible. It seems to us that the provisions of section 306 are instructive because they indicate a legislative intent in this type of situation.
26. A common sense application of the words of section 10 points to the same result. The second assumption directs attention to the time when the property was acquired. The assumption, in the absence of evidence to the contrary, is that property held by the defendant on or after conviction was obtained as a result of the defendant's criminal conduct and that the defendant has benefited accordingly. But if there is evidence which satisfies the judge that the property was obtained in whole or in part from untainted money, the provisions of section 10(6) will apply. To the extent that the property was obtained by untainted funds, it would be incorrect to assume that it represents or constitutes a benefit obtained by criminal conduct.
27. There is fairness and simplicity in this outcome. It is fair because if, for example, someone acquired property largely with untainted funds, but with a small injection of criminal funds, there would be an injustice in depriving that person of the whole value of the property. That is not the purpose at which the Act is aimed. Our approach should not be difficult to apply, because the court simply has to look at the time when the property was acquired and evaluate the evidence, if any, about the source or sources of the purchase money.
28. Other questions may arise where property is acquired on mortgage and mortgage instalments are thereafter paid either out of tainted or innocent funds, but we need not consider those matters in this case.
29. Accordingly we accept the appellant's argument on this issue. The result is that the benefit figure in respect of 43 Lusitania Road should be assessed in the amount of half the value of the property at the date of its valuation by the judge.
30. 34 and 40 Parkinson Road. One of these properties was acquired by the appellant in her own name and the other through a nominee, but the issue is the same in each case. In each case the property was obtained with a mortgage loan. The question is whether in assessing the appellant's benefit from her criminal conduct the valuation of the property should be the market value of the appellant's net interest, subject to the mortgage, or of the freehold. On those facts alone the natural conclusion would be that the value to be assessed is that of the appellant's net interest, as agreed in the case of 8 Park Lane.
31. However, the prosecution submit that in this case a different result should apply because the mortgages were obtained fraudulently. Miss Miles relies on the decision in Olupitan that in such a case the entire property was to be regarded as having been obtained by fraud; and therefore in that case it was found that a recovery order under Part 5 of the Act was properly made in relation to the whole property.
32. However, there is here a relevant distinction between the provisions relating to civil recovery orders and criminal confiscation provisions. The effect of the civil recovery order was to place the property into the hands of an independent officer, who would deal with it in accordance with provisions of the Act (relating to civil recovery proceedings), which are designed to protect the legitimate interests of all interested parties. In that particular case the effect of the order was that the amount owed to the building society would be paid to the building society and the remainder would go to the state.
33. In the present proceedings we are not concerned with a recovery order of that kind. We are concerned with assessing the benefit of the appellant in relation to the relevant properties. Section 79 forms part of the scheme which has to be applied. It was argued that this court can somehow disregard section 79 in a case where the mortgage was obtained by fraud, but there is no statutory process for that submission. It is a matter of fact that in relation to each of these properties at the material time another person, namely the building society, held an interest in the property, and the interest acquired by the appellant was not the unencumbered freehold, but the net equity subject to the building society's charge. Accordingly we can see no basis on which the judge could disapply section 79. Therefore the relevant value to be taken in the case of each of those properties was the amount of the net equity.
34. LORD JUSTICE TOULSON: We think and hope that covers all the points. May we leave it to counsel to prepare the necessary form of order? I don't imagine there will be any disagreement about that. If there is you can deal with it on paper. Is that going to affect the default period?
35. MISS MILES: No.
36. LORD JUSTICE TOULSON: Thank you.