England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2A 2LL
		Tuesday, 8th December 2009

1. LORD JUSTICE ELIAS: In 2007 the appellant was sentenced on two counts of money laundering, five-and-a-half years' imprisonment on one, four-and-a-half years concurrent on the other, leaving a total of five-and-a-half years in prison. The time spent in custody was to count towards sentence. He was recommended for deportation, disqualified for 10 years under the Company Directors Disqualification Act, and was subsequently made the subject to a Confiscation Order in the sum of £90,400.00, or in default to serve 2 years' imprisonment consecutive to the term imposed for the substantive offence. He now appeals against the Confiscation Order after leave by the full court.

The relevant law.

2. Before summarising the issues in the case, we set out the material law.
3. As Lord Bingham of Cornhill pointed out in R v May [2008] 1 AC 1028, at paragraph 8, a court which is considering whether or not to make a confiscation order has to ask itself three questions.
4. The first question is: has the defendant benefited from the relevant criminal conduct? If yes, then the second question is: what is the value of the benefit the defendant has obtained? The third question is: what sum is recoverable from the defendant?
5. If the defendant has assets sufficient to meet the benefits received, then the recoverable amount will be the value of the benefits. But if he has not, then the confiscation order should not be for a greater sum than the assets available to him. Hence the reason for the third question: a defendant may simply not have assets which are capable of discharging a confiscation order were it to be based on the full benefits which he has obtained from his criminal conduct.
6. As Lord Bingham pointed out in May (para 35):

"From the 1986 Act onwards, the courts have been required to reinforce confiscation orders by the imposition of a term of imprisonment to be served in default of payment. But it has been recognised that a defendant may lack the means to pay a sum equal to the aggregate of the payments or rewards he has received, or the value of the property or pecuniary advantages he has obtained. It has also been recognised that it would be unjust to imprison a defendant for failure to pay a sum which he cannot pay. Thus provision has been made for assessing the means available to a defendant and, if that yields a figure smaller than that of his aggregate benefit, making a confiscation order in the former, not the latter, sum."

7. The onus is on the defendant to satisfy the court that what is termed "the available amount" as defined by section 9 of the 2002 Act is less than the benefit gained. Section 9 identifies how the available amount is to be determined. It is as follows:

"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."

8. Subsection (2) then defines the obligations which will have priority. There are no such obligations here.
9. Accordingly, there are three stages in the assessment of available amount. First, the court must determine the value of all free property held by the defendant at the time the Order is made. Second, they should deduct from that sum the total amount of obligations which have priority, as defined by subsection (2). Third, they then add the value of tainted gifts which are defined by section 77 of the Act.
10. Section 84 defines property in the following way:

"84 Property: general provisions.

(1) Property is all property wherever situated and includes—

(a) money;

(b) all forms of real or personal property;

(c) things in action and other intangible or incorporeal property."

Section 84(2) then sets down certain rules which assist in determining whether something is property. Under subsection (2)(a) it is provided that "property is held by a person if he holds an interest in it". By subsection (2)(f) it is provided that "references to an interest, in relation to property other than land, include references to a right (including a right to possession)."

11. The concept of "free property" is defined by section 82. Property is held to be free unless an Order is in force with respect to it under any one of a number of statutory provisions. There are no relevant provisions in issue here.
12. If the recoverable amount is calculated by reference to the available amount, because this is less than the benefit acquired from the criminal conduct, then a difficulty sometimes arises where the money which it was anticipated would be recovered from a defendant's assets when the Confiscation Order was made is not in fact realised. In those circumstances a defendant can seek a Certificate of Inadequacy from the Crown Court under section 23 of the Act. The available amount is then recalculated in the light of the new circumstances. A typical example is where property is sold for less than its anticipated value. The intention of this provision is clear: it is to ensure that a defendant does not serve the period in default where it turns out that he is in fact unable to raise the money which the court anticipated he would be able to do when it imposed the Confiscation Order.
13. In view of the nature of this appeal, very little need be said about the nature of the offence. The appellant, with his co-accused, Vu, operated a money service business called Highstar Technical Limited, which operated from premises in Tottenham. He was also involved in another organisation, called "the Adam organisation", with various co-accused which was involved in money laundering activities. The Adam organisation would pass money to Highstar who converted cash into foreign transfers. The money obtained was from drug dealing or at least principally so. Records showed that Highstar converted over £10 million cash into foreign transfers between 5th December 2005 and 7th August 2006.
14. In this case it was common ground that the defendant had benefited from his general criminal conduct and that the benefit figure was £10 million. This figure dwarfed the available assets, however, and so they had to be calculated in order to determine the recoverable amount.
15. It was accepted that the appellant had advanced £25,000.00 to his wife for the purchase of a Spanish property and that this should be treated as a tainted gift within the meaning of section 77 of the Proceeds of Crime Act 2002 and it is a sum to which the appellant is deemed to have access. It was also accepted that he had made a loan of £25,000.00 to a man called Sadri but this appeared to be unconnected with the criminal conduct, although in fact the evidence was that Sadri was seeking to avoid repayment. However, it was accepted that it was clearly an asset available to the appellant.
16. There was a further sum of £40,400.00 which was owed by a man called Zakarie. In fact he owed £80,800 to both the appellant and Vu, and they were to share the proceeds. Zakarie, an Iranian living in Iran, was by all accounts a ringleader in a drug gang. The judge accepted that in the circumstances "this is money which on any likelihood he is not going to get" but he did not think that this meant that it could not be treated as an available asset. The judge said this:

"It seems to me that if this defendant through agreements that he entered into would be entitled to payments of money if only the people with whom he was entering into the agreements would honour their side of the bargain, then that is property in which he has a right. I do not consider that it is for this Court, considering a confiscation application, to have to determine whether he only has a right to this because he is a criminal. I consider the fact that he has entered into agreements with criminals with his eyes open means that he must take the consequences of entering into those agreements ..."

17. The short point is whether this conclusion of the judge was sustainable.
18. The appellant submits that the order of the judge was wrong in law essentially for two reasons. First, he says that he has no interest in this property and therefore it should not have been treated as part of his available assets. He says that "a thing in action" or other intangible or incorporeal property" in section 84(1)(c) requires that the property can be claimed or enforced by legal action. Since the debt is one arising out of an illegal contract it could not be enforced in any court of law, whether in the UK or Tehran or elsewhere. Accordingly, it is fanciful to say that he has any interest in it at all. So it does not fall within the relevant definition of "property". The position would be otherwise if the money had been paid over; plainly it would then be property of the appellant. Furthermore, if this were to be done at some time in the future, the Crown could return to court under section 22 of the Act and seek to have the available amount increased.
19. 19. Moreover, if the money cannot be recovered legally then it is wrong for the court to make an order which might encourage a defendant to recover it illegally. Reliance is placed on certain observations of Lord Mance in the case of R v Islam [2009] UKHL 30. In that case, the majority of their Lordships held that when assessing whether a defendant has derived a benefit from certain criminal activity (in that case, unlawfully importing drugs) the market value of those drugs for the purpose of determining benefit was what they could be sold for on the black market. However, when determining what assets were available the court should give no value to the drugs because they could not lawfully be sold, and no encouragement should be given to illegal activity. Lord Mance dealt with the issue as follows (para 38):

"As a matter of general policy, the court will not enforce or condone the doing of an illegal act here or abroad. The 'integrity of the justice process' must be preserved, as McLachlin J said in Hall v. Hebert (1993) 101 DLR (4th) 129, 160-8. On the same principle contracts for the performance of illegal acts abroad are unenforceable. A confiscation order requires the defendant to realise his available assets, on pain of serving the additional period of imprisonment specified by the court when making the order. If the court took account of black market value in fixing the value of the defendant's available property, it could itself be regarded as requiring or encouraging, or imprisoning for failure to effect, an unlawful realisation of the drugs by the defendant."

20. The second argument advanced by counsel is this. Even if the debt falls within the concept of property within the meaning of the legislation, nevertheless the court should not have treated this sum as potentially available to meet the terms of the Confiscation Order, given that the judge recognised that it could not in practice be recovered. It was not an available asset.
21. The Crown submit that both arguments are misconceived. As to the first, they submit that the ordinary meaning of a thing in action includes a debt. The only effect of the contract being illegal is that the court will not assist either party to enforce the contract or provide any other remedies arising out of it. It is not that there is no contract and no debt, but merely that the court will not enforce the contract or assist in recovery of the debt.
22. Mr Bird, counsel for the Crown, supports this submission by asserting that it is not inconceivable that if a receiver were to be appointed and were to take action to recover this debt in order to meet the appellant's obligations under a Confiscation Order public policy would not necessarily debar him from recovery.
23. In addition, the Crown submit that it would potentially significantly undermine the purpose behind the confiscation provisions if what would otherwise be contractual promises of money from one thief to another were to be treated as giving rise to no property rights at all. The purpose of the Act is to make the defendant liable for all sums or potential sums resulting from his criminal conduct.
24. Third the Crown rely upon the decision of this court in R v D (UK) Ltd v Revenue & Customs Prosecutions Office [2007] EWCA Crim 2919. That case concerned the imposition of a Restraint Order under the 2002 Act. This is an Order designed to prevent a defendant from dealing with property which it is anticipated may be the subject of a subsequent Confiscation Order.
25. The defendant in that case was being prosecuted for a complex fraud on the Revenue. Essentially, the illegality involved creating a train of ostensibly proper and arms length commercial transactions which the prosecution contended were, in fact, a sham and were designed to induce the Revenue to pay VAT refunds which were not properly repayable. A Restraint Order was in place and an application to vary it was made so as to include a sum of £366,000.00 held in the account of one of the companies which was allegedly used to bring about this fraud. D Limited, was one of the companies involved in the series of transactions. It sought to contend that there was no power to make the Restraint Order because the defendant, an individual, could have no interest in this property since if it were the proceeds of crime then no enforceable right can exist and no conspirator can "hold an interest" in sums in the co-conspirators' bank accounts.
26. Longmore LJ, giving the judgment of the court (Longmore LJ, Poole J and the Recorder of Winchester) pointed out that the irony of the fact that in order to succeed in this submission the applicant company was positively asserting that they were guilty of fraud. He identified the logic of the submission as follows:

"As Mr Brodie for D put it, if Jack, John and Jill steal cash from a bank and it is held by Jack (whether at his own bank or in a chest under his bed), John and Jill could not possibly be said to hold an interest in the sum however much they may have agreed among themselves they should share the sum or that it should be handed over to one of them." (para 13)

27. He later rejected that submission in uncompromising terms saying this (para 19):

"In our judgment, Revenue & Customs do not have to show that there is any enforceable right to the money as between the fraudsters if they can show an arguable case of fraud in which R (or any other party which may claim entitlement to the money) were participating, money obtained in the execution of the fraud is, for the purpose of the legislation, the fraudsters' money. No doubt the legal title to the chose in action constituted by R's account at its bank while it is in credit is in R but the beneficial interest lies with any of the fraudster participants in the fraudulent scheme. It is thus an existing beneficial interest which can be subject to a restraint order, not as Mr Brodie sought to persuade the full court in his supplemental skeleton argument in order to obtain leave to appeal 'in inchoate future benefit'."

28. That was a case of a Restraint Order, but we accept that the logic of the court's reasoning was that the defendant had a proprietary interest even though the moneys could not have been recovered in a legal action. The case is not, however, decisive of the situation where the alleged asset is a debt, which is a personal action, rather than property which has been received by the wrongdoers.
29. The Crown also submit, if the appellant is right the implications are very significant. Not only would the debt not be capable of constituting part of the assets available to the defendant, it would not even be part of the benefit acquired from the criminal conduct. This is because benefit obtained is property acquired as a result of or in connection with the criminal conduct (section 76(4)), and the concept of "property" for the purposes of that subsection is again the definition found in section 84. So Mr Bird submits that if, say, a hit man is paid a sum of money for carrying out a murder he may be convicted before any money is paid over. If the appellant is right, this promised sum is not a benefit unless and until it is paid to him. Moreover, although under section 19 the Crown can return to court and amend the confiscation order where a further benefit emerges, this can only be done within six years of the order being made (unlike section 22 which enables an application for amending the available amount to be made at any time.)
30. These are powerful arguments. However, it is not necessary for us ultimately to resolve them, given that we think that the appeal should be upheld on the second ground. We would add, however, that if this is property, we would not accept that it would be inconsistent with the principles enunciated by Lord Mance in Islam to require a defendant to take such steps as he could to recover the debt, even if legal proceedings were not available to him. He is not being required to act illegally as he would have been if the court in that case had treated the value of the drugs as the black market value.
31. We turn to the second ground. The claimant submits that even if the debt were property within the meaning of section 84, once the judge had accepted that the monies were in practice irrecoverable, then they should not have been included in the Order. They were no longer available assets.
32. We accept that given the finding of the judge, the value of this debt should not have been included in the order. We do not however reach that conclusion on the basis that the asset is not an available asset, assuming that it is a chose in action, rather it is on the basis that it is an asset which would have no value. It is on that limited basis that the Crown effective concedes that the appeal should succeed.
33. If it is impossible to recover the debt then it would be quite inconsistent with the structure of the Act as explained by the judgment of Lord Bingham in May to trigger the default sentence. A defendant is not to be imprisoned if he satisfies the court that he simply does not have the assets available: see the decision of this court in Chen (4th December 2009). So if an asset is in fact of no financial value, it must be assessed as such.
34. We anticipate that this situation will arise but rarely. In many and perhaps most cases a court may well at the point of determining the Confiscation Order be sceptical about assertions by a defendant that monies due are irrecoverable. They court may quite properly wish to have evidence from the defendant of the steps he has taken to recover the sums before he is able to satisfy the court that the debt is in practice worthless. In those circumstances the court will make a confiscation order and the amount will include the value of the debt, and the defendant will have to seek a certificate of inadequacy at a later date. But where, as here, the judge is fully satisfied when making the order that the debt will not be recovered, he should assess the value of the asset at nil.
35. It follows that in our view this appeal should succeed and the Confiscation Order should not include this debt. It should therefore be limited to the other two assets which results in a total of £50,000.
36. MR ROWLANDS: My Lord, there remains the issue of the default sentence. Could I respectfully ask my Lords to vary the 2 year term, the new band in fact, I think we are agreed, is between 12 months and 18 months, the ceiling being £50,000. There is authority for the view, and I can take my Lords to it if necessary, on page 85, paragraph 409 of Archbold, that in general, the default band should be halfway between the minimum, the lower band and the maximum, the existing band which would make it 15.
37. LORD JUSTICE ELIAS: Mr Bird do you have any views about that?
38. MR BIRD: I do not accept it is halfway when it is at the top end of the band. The band 18-months maximum is an amount exceeding £20,000 but not exceeding £50,000. So right at the top end of the band. In my submission although the court has a discretion the top end of the maximum sentence.
39. MR ROWLANDS: I should add this. It is proper that I do so, because the court in the paragraph I have alluded to it, should consider that the purpose of the default sentence is to secure payment of the amount. I am in a position to say to the court everything that could possibly have been done to realise the £50,000 has been done, and those who instruct me during the court case, furnish me with a large bundle showing that in relation to the 25,000 debt a County Court judgment has been obtained been passed to bailiffs for enforcement in relation to the Spanish property it is about to auctioned by the bank. So nothing further really could be done. The purpose of the default sentence has really been achieved in so far.
40. LORD JUSTICE ELIAS: On that basis it does not matter how long it is.
41. MR ROWLANDS: In those circumstances, I am asking your Lordships to go as low as possible I would add this Mr Najafpour has recently been a heart operation, he is not a well man, and I make--
42. LORD JUSTICE ELIAS: Sorry when was the order made?
43. MR ROWLANDS: It was made on 8th December 2008.
(The Bench Conferred)
44. LORD JUSTICE ELIAS: On this occasion 18 months will be specified .
45. MR ROWLANDS: Thank you.