England and Wales Court of Appeal (Criminal Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM CROWN COURT AT BIRMINGHAM
HH Judge Ross
S20071019

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/02/2009

Lord Justice Thomas :

1. This is an appeal from a confiscation order in which the issue of abuse of process has, in the result, been the only real issue.

The facts

2. The appellant was a director of Commercial Property Service (Midlands) Ltd (CPSM) which had traded since about 2000 as freight and cargo carriers. By the end of 2004 CPSM was in financial difficulties, owing approximately £40,000 to HMRC and £20,000 to its bankers. It had no significant assets apart from a piece of land:

i) In November 2002 it had purchased a piece of land known as the Catherine Wheel Filling Station for £64,593.

ii) In September 2004 planning permission was granted for a small five dwelling development. In consequence by February 2005 the property was worth £175,000.

3. On 6 January 2005 HMRC petitioned to wind CPSM up. The winding up order was made on 16 February 2005. At the time the known creditors were owed about £100,000. One of those was Mr John Lloyd who had done work on the land.
4. On 3 February 2005, after the presenting of the winding up petition but before the winding up order was made, the appellant as a director of CPSM caused the transfer of the land to Penwood Developments Ltd (Penwood), a company of which he and Mr Lloyd were directors. There was no consideration in money or money's worth for the transfer. The transfer was clearly fraudulent as the appellant sought to benefit himself and Mr Lloyd by removing the sole valuable asset of the company.
5. Subsequently on 4 June 2007 the appellant pleaded guilty to an offence under s.206 (1)(b) and (6) of the Insolvency Act 1986 in respect of this transfer.
6. Prior to the plea of guilty the liquidator had in fact recovered the land in the following manner.

i) In July 2005 the liquidator commenced proceedings against Penwood on the basis that the disposition of the land after the commencement of the winding up was, unless the court otherwise ordered, void.

ii) Negotiations about the transfer back of land were conducted between Mr Lloyd for Penwood and the liquidator. Agreement was reached on 25 April 2006 and embodied in a court order of that date under which Mr Lloyd was recognised as a creditor of the company in the sum of £37,000. Under the agreement Penwood was obliged prior to 31 May 2006 to execute a transfer of the property back to the liquidator of CPSM.

iii) That transfer was duly made. The land was subsequently sold for £205,000 in January 2007, six months before the appellant pleaded guilty.

iv) On the completion of the liquidation after payment of all the costs, including solicitors' costs, the liquidator's costs and the fees, there was a small surplus.

7. After the appellant pleaded guilty before the Magistrates, he was committed for sentence to the Crown Court at Birmingham. On 7 December 2007 he was sentenced to 4 months imprisonment for the present offence and a suspended sentence which had previously been imposed on him in January 2004 at Wolverhampton Crown Court was ordered to be served consecutively to the sentence for this offence. He was also disqualified as a director for a period of 7 years.
8. Confiscation proceedings under the Proceeds of Crime Act 2002 were brought. They were heard by HH Judge Ross on 7 December 2007. It was submitted on behalf of the appellant that as the land had been restored and as all those injured had been compensated, the making of a confiscation order would amount to a double penalty. It was also submitted that by reason of the interaction of ss.6(6) and 7(3) of the Proceeds of Crime Act 2002 a confiscation order should not be made. The judge, in a short judgment handed down on 18 January 2008, although expressing considerable sympathy with the position of the appellant, ruled against the appellant on the construction of s.6(6) in the light of the authorities and what he described as their "draconian nature". He accepted the agreed figure of £191,337 as the benefit and determined the amount of the realisable assets as £41,920. This was in significant part the value of the equity in the appellant's home. A confiscation order was made in the sum of £41,920 with a period of imprisonment of 14 months in default. The application for leave to appeal was referred by the Full Court to us. We granted the application for leave and treated the hearing as the hearing of the appeal.

The operation of s.6(6) of the Proceeds of Crime Act 2002

9. Under s.6(5) of the Proceeds of Crime Act 2002, the court is bound to make a confiscation order if it decides that a defendant has benefitted from criminal conduct in an amount determined by the provisions of the Act. It was accepted that under the terms of the Act the appellant had benefited in the sum which we have set out. However under s.6(6) that duty is modified:

"But the court must treat the duty in subsection (5) as a power if it believes that any victim of the conduct has at any time started or intends to start proceedings against the defendant in respect of loss, injury or damage sustained in connection with the conduct."

If that section applies, then under s.7(3), the court can fix the amount as that which the court considers just subject to the maximum that the court would have fixed had it been under the mandatory duty to make the order.

10. In our view it is clear that this section had no application because of the way in which the provisions of the Insolvency Act operated in respect of the property. S.127 of the Insolvency Act 1986 provides as follows:

"In a winding up by the court, any disposition of the company's property, and any transfer of shares, or alteration in the status of the company's members, made after the commencement of the winding up is, unless the court otherwise orders, void."

The transfer which the appellant had instigated was to Penwood, a company of which he was a director and a 50% shareholder. The land so transferred was never vested in him personally but only in Penwood. As a result of the operation of s.127 that transfer was void unless the court otherwise ordered. Therefore there would be no need to bring a claim against the appellant to which s.6(6) would apply and in fact none was brought. Even if the transfer had not been void, proceedings under s.238 of the Insolvency Act 1986 (which gives the liquidator power to apply to the court for the restoration of property transferred at an undervalue), would have been proceedings against Penwood, not the appellant.

11. Thus, in our view, it is clear that s.6(6) did not operate in this case, as the remedy to recover the land lay against the company and not against the appellant. This was not a point taken before Judge Ross. We therefore gave counsel for the appellant time to consider any argument to the contrary. He subsequently informed the court that he did not wish to make any further submission on the applicability of s.6(6). It was common ground, subject to the abuse of process argument, that a confiscation order had to be made.
12. However it is arguable that the appellant's benefit could not have been the sum of £193,000 but only the extent of his interest in Penwood, namely half of that amount. In view of the fact that the appellant's realisable assets were a lower sum, no argument was heard on this issue. It was unnecessary as it would not make any material difference to the outcome.

Abuse of process

13. As we have already indicated, the alternative submission made to Judge Ross was that the confiscation order was in fact a double penalty, in effect an abuse of process argument, although that term was not used. At that time, however, although it had been made clear in decisions of this court (Mahmood [2005] EWCA Crim 2168, Hockey [2007] EWCA Crim 1577, R v Nield [2007] EWCA Crim 993) that the court had a power to restrain confiscation proceedings as an abuse of process in circumstances where the Crown had acted contrary to an understanding that, if repayment was made, it would not seek a confiscation order, the decisions in Morgan and Byegrave [2008] EWCA Crim 1323, [2008] Crim LR 805 and in R v Shabir [2008] EWCA Crim 1809, [2008] Crim LR 991 explaining that jurisdiction much more fully had not been handed down. In the argument in this court, these decisions were relied on in support of the submission that the confiscation proceedings were an abuse of process as they would lead to double recovery. Rightly, no objection was made to this argument being advanced given the way the case had been argued before Judge Ross. However, it will seldom be the case that this court will allow such an argument to be made in future cases without it being clear that a proper application had been made to the Judge hearing the confiscation proceedings, based on evidence adduced before him. (See paragraph 35 of Morgan and Byegrave.)
14. In the first of the cases, Morgan and Byegrave it was made clear that the circumstances in which an abuse of process application could be made were not limited to those discussed in the cases to which we have referred (and which had been followed in Farquhar [2008] EWCA Crim 896, [2008] Crim LR 645, a decision given after the hearing before Judge Ross). At paragraphs 29 and 30, the court set out the circumstances where a confiscation might be oppressive as:

"where demonstrably (i) the defendant's crimes are limited to offences causing loss to one or more identifiable loser(s), (ii) his benefit is limited to those crimes, (iii) the loser has neither brought nor intends any civil proceedings to recover the loss, but (iv) the defendant either has repaid the loser, or stands ready willing and able immediately to repay him, the full amount of the loss."

"30. In those cases, the Crown accepts, and we hold, that it may amount to an abuse of process for the Crown to seek a confiscation order which would result in an oppressive order to pay up to double the full restitution which the defendant has made or is willing immediately to make, and which would thus deter him from making it. In particular, although the confiscation jurisdiction is rightly described as draconian and often as penal in nature, we do not accept the contention that it is a sufficient justification for seeking a confiscation order in the limited class of cases which we are here dealing with that the Crown wishes to inflict an additional financial penalty upon the defendant. Whilst confiscation may well be draconian or penal in effect, it does not, as the House of Lords observed in R v May, at paragraph 48(1), operate as a fine. Whether an application for confiscation is or is not oppressive in the limited class of cases we are considering will fall to be considered by the trial judge individually on the facts of each case. The jurisdiction to stay may be exercised either in advance of the confiscation hearing or during it if it becomes clear that the making of an order would be oppressive for the reasons here discussed."

As the comment in the Criminal Law Review on this decision pointed out "the scope for an application to stay as identified in this judgment is extremely narrow." The court then set out at paragraph 31 the circumstances in which it would not be oppressive to seek such a confiscation order and decided that in that case the abuse of process application failed.

15. However in the second of the cases, Shabir, this court held the application for a confiscation order was an abuse of process. As this was apparently the first case in which this jurisdiction has been exercised in this court or the exercise of the jurisdiction by the Crown Court approved by this court, it is important to emphasise that this court identified the combination of two particulars feature of the proceedings which gave rise to the decision to stay. The court made clear that this was an unusual and exceptional case. At paragraph 24, the court observed:

"This jurisdiction must be exercised with considerable caution, indeed sparingly. It must be confined to cases of true oppression. In particular, it cannot be exercised simply on the ground that the judge disagrees with the decision of the Crown to pursue confiscation or the way it puts its case on the topic. A specific example of this principle is that it is clearly not sufficient to establish oppression, and thus abuse of process, that the effect of the confiscation will be to extract from a defendant a sum greater than his net profit from his crime".

16. We have emphasised these passages to underline, contrary to the fears of some (as for example set out in [2008] Crim LR 991 at 995) that it will not be difficult to know when the jurisdiction to stay is applicable. The cases in which it is likely to be applicable are very rare. Indeed, if the principles set out in Morgan and Byegrave are observed by prosecutors, it may never arise. It is not, for example, an abuse of process to seek to recover more than a defendant has profited from his crime nor where he has made restitution outside the very narrow circumstances identified in Morgan and Byegrave. If it were otherwise the case and the jurisdiction exercised more widely, the court would be defeating the clear decision of Parliament, by enacting the legislation in the terms in which it did, not only to impose a draconian policy but also to remove the discretion of the court to avoid those consequences, save in a case where abuse was established.
17. The circumstances of this case are illustrative of circumstances where the suggestion of abuse could not remotely arise.

i) The appellant made no offer to restore the property. It would have been restored by operation of the provision of the Insolvency Act if his co-director Mr Lloyd had not entered into an agreement to restore it.

ii) This was not a course of criminal conduct limited to one or more identifiable losers; the fraudulent transfer was made to strip an asset out of his company to the detriment of every creditor.

iii) There can be no suggestion of an abuse or oppression. The decision to seek a confiscation order is one that can be seen as simply carrying out the decision of Parliament.

18. It can make no difference in our view that another Government agency, Her Majesty's Customs and Revenue, have a policy of not seeking a confiscation order which would have the effect of imposing on a defendant a further order where the amount the Revenue had lost had been restored: see Dimsey & Allen [2000] 1 Cr App R (S) 497 and paragraph 12(6) of the judgment in Farquhar. There may be good policy reasons for that policy, but another Government Department, BERR, have taken the view in this type of case where directors set up small companies and seek to strip out the assets of the company, there should be no relaxation of what Parliament provided for in the Act.
19. We therefore dismiss the appeal but extend the time for compliance with the Order of the Crown Court by 3 months from 17 February 2009.

Postscript

20. In R v May [2008] UKHL 28, the opinion of the Appellate Committee of the House of Lords delivered by Lord Bingham emphasised at paragraph 48 (4) that the court should in applying the provisions of the Act to the facts of a case focus very closely on the language of the statute and view any judicial exegesis with caution; that guidance should be found in the statutory language rather than in the proliferating case law.
21. There are two points which were evident in this appeal and which are evident in other appeals to which that observation is important:

i) It is essential that the court hearing the proceedings finds and sets out all the relevant facts in its ruling (or judgment), including the facts that are agreed before it. It is evident that many confiscation hearings are not prepared in advance as they should be. There are many complaints that Defence Statements are inadequate. Timetables set out in the Criminal Procedure Rules or the court's directions frequently slip. Sometimes it is only at the last minute, either immediately before the court sits or even in the course of a hearing, that some matters are agreed and the real issues emerge, considerably burdening the task of the judge hearing the proceedings. If identifying the issues is left to the last minute, then insufficient attention is paid to ensuring that any procedural steps needed for the evidence to be admissible are taken. In an occasional case, where difficult issues arise, it may be the case that counsel with more experience of such issues is needed. Difficulties are from time to time compounded by a lack of a properly paginated bundle. It is, in the experience of many in this court, that, for reasons such as those we have outlined, it is not always clear from the ruling (or judgment) below what the facts were on which the issues which arose were determined. As the task of the court hearing the confiscation proceedings is to apply the statutory provisions to the facts (as agreed or found), it is essential that the ruling (or judgment) sets out all the relevant facts, as agreed and as found.

ii) Too many authorities are cited to courts. Advocates should bear the observations in May at paragraph 48 (4) clearly in mind before any authority is cited to the judge hearing the proceedings or in this court. We were provided with a large bundle of authorities which were unnecessary.