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
		9 July 2009

LORD JUSTICE KEENE: I shall ask the Recorder of Nottingham to give the judgment of the court.

THE RECORDER OF NOTTINGHAM:

1. This case concerns a relatively straightforward question as to the calculation of benefit under the Proceeds of Crime Act 2002. It illustrates how matters can go badly wrong if the principled approach recommended by the judicial committee of the House of Lords in R v May [2008] UKHL 28 is not followed.
2. This appellant appeals with the leave of the single judge, who granted the necessary extension of time, against sentence, but only the confiscation order aspect of the sentence, made against him on 14 July 2008 at the Chelmsford Crown Court. The grounds of appeal, as originally settled, complained that the judge had double-counted in relation to one aspect of the benefit he found the appellant had obtained as a result of, or in connection with, his criminal conduct. This court has allowed the grounds of appeal to be amended in order to permit the appellant to argue before us the issue that was central to his argument in the court below.
3. The appellant was committed for sentence to the Crown Court having pleaded guilty to nine charges of theft totalling £17,250. He asked for a number of other unspecified offences of VAT fraud to be taken into consideration. The judge in the Crown Court held that he had benefited from his criminal conduct, both particular and general, in the sum of £89,106.17. This was made up of (i) £17,250 being the proceeds of the substantive offences of theft, and against which there is no appeal; (ii) £1,640 being a sum paid into the appellant's own bank account, which the judge, applying the assumptions under section 10 of the Act of 2002, decided should be treated as a benefit and against which there is no appeal; (iii) £2,665 which was the agreed valuation of a motor vehicle which the judge treated as a benefit applying those same assumptions and against which there is no appeal; and (iv) £67,551.17 being the amount of the VAT fraud which the judge decided was obtained by the appellant as a result of or in connection with his criminal conduct. As we have indicated, we have permitted the grounds of appeal to be amended so that we can consider whether this amount should have been included in the confiscation order.
4. It is not entirely easy to discern with certainty on the material we have the precise facts, but the following appears to be the case. The appellant was employed at the Roding Valley High School, Loughton, as a business manager. He was responsible for preparing and managing the school budget and for all school finances. The school had its own bank account. The appellant was one of several co-signatories to that account. Any cheque drawn on it required two signatures. He was also responsible for submitting invoices together with relevant documentation to Essex County Council, which in turn completed VAT returns. The appellant would enter details on the computerised ledgers, as well as sending invoices and other documents to the County Council. The school was a net re-claimer of VAT.
5. Between 9 May 2006 and 16 March 2007 the appellant submitted false invoices to the County Council who in turn innocently reclaimed VAT from Her Majesty's Revenue and Customs in an amount that was greater than its entitlement. The County Council then credited the school with the overstated amount.
6. This undoubtedly dishonest activity was supposed to be represented by the offences taken into consideration. What offence or offences this activity is supposed to embrace is unclear. It is clear what activity those other offences relate to, but the form does not specify or identify any particular offence or statutory provision. This is plainly extremely unsatisfactory.
7. In interview the appellant accepted that he had manipulated the VAT accounts to cover up the substantive offences he had committed. The other offences could have been charged, we suppose, as false accounting. The appellant's dishonest removal of funds from the school bank was charged as theft of monies between 24 May 2005 and May 2007, such monies being said to belong to the County Council in the nine charges on the memorandum of conviction. The appellant certainly defrauded the County Council/school in that he produced a number of cheques over that period, each signed by himself, and he deceived the co-signatory (probably the head teacher) into providing the other signature. Accordingly, there can be no doubt that the appellant obtained property and benefited from his criminal conduct to the amount which he obtained after deceiving his co-signatory.
8. The judge in the court below also decided that a confiscation order should be made in respect of the overpayments of VAT, which amounted to £60,551.17. He had difficulty on the available material in deciding whether the £17,250 (the proceeds of the dishonest cheques) should be included in whole or in part in the figure of £67,551.17. He said:

".... there is no evidence before me showing the movement of funds into and out of the school accounts which could in any way identify a particular sum stolen with a VAT payment. The best one can do is to look at the dates" (Ruling 18 July 2008, page 2F-G).

9. The judge went on to find, applying R v Patel [2002] 2 Cr App R(S) 10, that, just as there should be no deduction for any sum paid by an offender to an accomplice, the sums obtained by the appellant from the start of his offences of theft should not be deducted from the sum from which he found the appellant had benefited through the VAT offences. In his view there was no double-accounting.
10. In view of our decision in relation to the substantive issue argued before the court below and before us, the question of double-counting is no longer relevant to this appeal.
11. It was argued in the court below that the appellant had not benefited from the VAT offences because he had not obtained property within the meaning of the Proceeds of Crime Act 2002 when the overstated VAT amount was paid into the school bank account. It appeared on the available evidence, and was agreed by counsel, that the only sums that the appellant "got his hands on" were the sums obtained via the cheques. Presumably there would be sums in the school bank account that were legitimately there in addition to, when they arrived, the overstated VAT repayments. The judge accepted the Crown's argument that the VAT offences and the thefts were inextricably linked together and that the reclaiming of the VAT was crucial to the operation of the appellant's dishonest scheme. The inference to be drawn, perfectly properly on the available evidence, was that the VAT fraud was essential both in providing funds that he could steal and in assisting in covering up the fact that he was stealing.
12. So far as the substantive issue argued in the court below and before this court is concerned, in rejecting the appellant's submission, and purporting to apply the principles he understood to have been laid down in R v May and R v Jennings [2008] UKHL 29, the judge concluded that the appellant was

"clearly in a position where he had a power of disposition or control over the VAT monies. It was he who set up the false VAT returns with the intention that the money should come to the school for his own purposes, so that he might use it (a) to cover up his thefts or (b) subsequently to provide funds from the school account which he could then steal. He was therefore acting within the ordinary meaning of obtaining as described in paragraph 13 of Jennings and the end note (6) in May, that is to say he had a power of disposition or control over those VAT monies. .... In my judgment, the defendant obtained VAT monies and has therefore benefited in the sum of £67,551.17 when added to the figure of £21,555 referred to previously gives a total benefit figure of £89,106.17."

13. It is perhaps relevant to note what Lord Bingham of Cornhill in fact said in end note (6) in May. He said:

"D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control as where a person directs payment or conveyance of property to someone else."

His Lordship does not there suggest that ownership necessarily flows from a power of disposition or control.

14. In R v Sivaraman [2008] EWCA Crime 1736, this court set out the following general principles derived from the trio of cases, May, Jennings and Green [2008] UKHL, as follows:

"(1) The legislation is intended to deprive the offender of benefit he has gained from his relevant criminal conduct within his available means. It does not operate as a fine.

(2) The benefit gained is the total value of the property or pecuniary advantage gained, not his net profit.

(3) In considering what is the value of the benefit which the offender has obtained, the court should focus on the language of the statute and apply its ordinary meaning (subject to any statutory definition) to the facts of the case.

(4) 'Obtained' means obtained by the relevant defendant.

(5) A defendant's act may contribute significantly to property being obtained without that defendant obtaining it.

(6) ...."

15. Section 6(4) of the 2002 Act requires the court to decide whether an offender has benefited from his criminal conduct, whether general or particular.

Section 76 provides:

"(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct."

Section 84 provides:

"(1) Property is all property wherever situated and includes --

(a) money;

(b) all forms of real or personal property;

(c) things in action or intangible or incorporeal property.

(2) The following rules apply in relation to property --

(a) property is held by a person if he holds an interest in it;

(b) property is obtained by a person if he obtains an interest in it;

(c) ...."

16. As the House of Lords said in May, in addressing the questions that arise in a case of this nature, the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definition. Guidance should be sought in the statutory language rather than the proliferating case law. The court should also apply ordinary common law principles to the facts as found.
17. On the judge's findings of fact, the essential question that arises here is whether the appellant had any interest in the school bank account. He undoubtedly had some control over it in the sense that he could ensure, as an incident of his employment, that sums were credited to the account. But he did not have absolute control over the removal of funds from it. As the other offences show, he could cause sums to be credited which were not lawfully due. Did this give him an interest in property? The judge based his decision on his finding that the appellant had a power of disposition or control over the VAT monies. To some extent, that is true, but it does not follow that such control gave him an interest in property. No one would have considered, before his criminal actions, that his ordinary duties as an employee of the school or County Council gave him any interest in the school bank account. He was not, for example, in the same position as the dishonest solicitor appellant, Mr Morris, in R v Allpress and Others [2009] EWCA Crim 8. Morris had permitted tainted funds that came from a VAT fraud to pass through the client account of his firm. It was argued that he himself had not obtained any property within the meaning of section 71(4) of the Criminal Justice Act 1988 (the equivalent is now section 76 of the 2002 Act). It was submitted that he was merely a trustee of funds for the fraudsman who had cheated Revenue and Customs and transferred sums into the account. It was accepted that Morris was not a co-conspirator in respect of the fraud itself. The trial judge rejected the suggestion that he was merely a bare trustee. This court, on appeal, rejected the notion that he should be treated as if he were a cash courier. The account was an account of Morris and his partners with the bank. Payment of monies into that account gave rise to a thing in action in favour of Morris (jointly with his partners). The starting point (as in R v Sharma [2006] EWCA Crim 16) is that this was therefore his property. In Sharma the defendant caused the proceeds of a fraud in which he was engaged to be paid into a company account of which he was the sole signatory. It was held that the money in the account was money held for his benefit as the sole signatory on the account and that decision was approved by the House of Lords in May. In the case of Morris, the account was not only in the name of a firm of which he was a partner, so that he had a thing in action against the bank, but he also had, in fact, sole operational control over the account.
18. In the present case, although the appellant was able to bring about the transfer of funds obtained as a result of his own dishonesty, this did not give him any interest in the school bank account and therefore did not give him any interest in property. Nor did he have absolute control over the account. Unlike Morris, these transfers did not give rise to a thing in action in the appellant's favour against the bank. To hold that it did would be to confuse criminal liability and resulting benefit. In our judgment the appellant could not, and did not, obtain anything unless and until he committed a further dishonest act in deceiving a co-signatory into signing the dishonest cheques which he prepared. It is conceded that in ordinary language he only obtained those sums which were the consequence of the dishonest cheques. He never "got his hands on" the balance of the funds transferred into the school bank account as a result of the VAT fraud. Had he not been caught, he would no doubt have done so or attempted to do so.
19. This case demonstrates precisely what the Judicial Committee said in the trio of cases to which we have referred. The court must first establish the facts as best it can on the material available. In many cases -- and this case is an illustration -- the factual findings will be decisive. Second, the court should focus very closely on the language of the statutory provision in question. Third, in determining, under the 2002 Act, whether the offender has obtained property and, if so, the value of the property, the court should apply ordinary common law principles to the facts as found.
20. The appellant never acquired an interest in property before he successfully extracted funds from the school bank account. The property he obtained "as a result of or in connection with" his criminal conduct was limited to those sums, plus the additional amounts the judge found, when applying the assumptions, in respect of the transfer of monies into his own account and the value of the motor car. This accords not only with the law but with common sense and follows from the judge's determination of the facts.
21. Accordingly, we propose to quash the confiscation order made in the court below and replace it with an order in the sum of £21,555 only. To that extent the appeal is allowed. The period of default is fifteen months.

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