England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM BRIMINGHAM CROWN COURT
His Honour Judge McCreath
T20050421

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/11/2012

Lady Justice Rafferty :

1. Paula HARRIOTT (51) on 21 June 2004 in the Crown Court sitting at Birmingham was convicted of possession of cocaine with intent to supply and on 17 September 2004 sentenced to 5 years imprisonment. On 23 June 2005 in the Crown Court sitting at Birmingham a Confiscation Order in £37,349 84 was made under the Drug Trafficking Offences Act 1994.
2. She appeals against the confiscation order by leave of the single judge who granted an extension of 7 years 3 months

Facts

3. On 6 September 2002 the police at her home found 610 grams of cocaine with a street value of £30,500 plus drugs paraphernalia. The Financial Investigator found that the proceeds of drug trafficking amounted to £85,197 76, cash seized, credits to two bank accounts and the value of the drugs seized. Realisable/available assets were £36,820 84 including the house.
4. During confiscation proceedings Counsel for the appellant said the only realisable asset identified was the house in which she had a quarter shared ownership, the other three quarters owned by Focus Housing. Mr Johnson, her then husband, present but unrepresented, was claiming an interest in the property as his home and that of the children, the youngest 11. The appellant accepted that he contributed to the mortgage and added that she believed his name was mentioned as a joint lessee. Whatever her impression, the true position was that although the original application to Focus was made in joint names, the property was ultimately bought in her sole name because her husband had a County Court judgement recorded against him which made him an unacceptable mortgage applicant. His income was however apparently taken into account by the Bradford & Bingley Building Society in assessing the appropriate level of the appellant's borrowing.
5. Mr Johnson managed to tell the Court from the public gallery that it was important for him to fight the case because he had been paying for the property with his wife and was living there with the children. The Judge explained that although it would seem unfair Mr Johnson had no right to be heard in the proceedings before him. He explained that Mr Johnson would have to assert his equitable interest in separate civil proceedings and that the Crown Court was powerless to declare an interest. The Court was bound to regard the asset as entirely that of the person in whose name it stood.
6. Counsel for the Crown then set out the inter partes agreement reached. The benefit to the appellant was £60,000, as she admitted. The realisable assets were £37,349 84 including the cash found in the house. Counsel for the appellant said she was the leaseholder with a 25% interest in the freehold. Focus did not wish to buy back the 25% and would have to approve any proposed purchaser, so realising the asset might not be straightforward. For that reason and because of the children the Court was asked to allow the appellant as much time as possible to raise the money. The Judge allowed 2 years to pay because it would take time for the appellant to settle into her sentence, it was more difficult to deal with such matters in prison and the nature of the ownership of the premises was complicated.

Chronology

7. On 8 August 2007 Mr Johnson issued a divorce petition and on 9 August sought ancillary relief.
8. On 23 August 2007 enforcement proceedings began at Birmingham Magistrates Court.
9. On 31 March 2008 the CPS said a Certificate of Inadequacy could be agreed on payment to the Magistrates Court of £15,000 (the value of the property reduced because of fire damage).
10. In early June Mr Johnson paid to the Magistrates Court £15,000 (12.5% of the property value) as the purchase price of the appellant's share.
11. On 16 June 2008 the appellant was released from prison. At that time she believed that matters had, in all material respects at least, been concluded and was fortified by the reaction of the CPS.
12. On 29 July 2008 the CPS confirmed there was no objection to the application for a Certificate of Inadequacy on the terms set out and since the appellant had no realisable assets.
13. On 3 July 2009 the CPS Central Unit agreed the appellant no longer had an equitable interest in the property and no other realisable assets but she was employed and details of her salary were requested so that a monthly payment plan could be set up. Whilst she had means, no Certificate of Inadequacy could be agreed.
14. On 14 October 2009 the appellant's solicitors asked the Crown Court sitting at Birmingham for an order under s23 Proceeds of Crime Act 2002. This was the wrong venue: R v McKinsley 2006 EWCA Civ 1092.
15. On 19 October HHJ Davis QC pointed out the error and suggested she apply to the High Court.
16. Her solicitors told the appellant they had already tried that route and did not know what else to try.
17. The appellant agreed with the CPS to begin monthly payments of £150 (later increased to £200).
18. In January 2011 enforcement proceedings recommenced because she was not paying enough.
19. On 11 August 2011 the court clerk at Birmingham Magistrates Court advised an application for leave to appeal against sentence to the Court of Appeal.

Background

20. The transcript of dialogue between Bench and Bar during the confiscation hearing repays close scrutiny. The Judge said to counsel for the Appellant:

J: "…but your client's position is that the quarter share in the equity is hers."

C: "My client's position is that [her husband] paid towards the mortgage and she believes that his name is mentioned as a joint lessee. We have not seen any documentation to that effect but of course we are not in a position to assess his interest. As far as we are concerned the house would appear to be in her name. If he is expressing an interest I do not seek to delve into areas of the law that I am by no means an expert in. it strikes me that it would be an equitable interest."

J: "Which you would have to assert by separate proceedings."

C: "Which he would have to assert yes."

J: "In a civil court. I cannot declare an interest…..I cannot declare an interest with a question mark at the end of it. I do not believe that I can can I? There are some cases about this. I need help on this but my recollection is that they are pretty draconian. It is usually a man of course and he is usually the apparent beneficial owner of the property."

And later:

C: "At this stage would your Honour rise for ten minutes and Mr Shoker and I might be able to resolve the matter."

J: "Yes. It is of course open to your client to assert [her husband's] interest if that is what she chooses to do. I do not think it is open to him to do so."

C: "There are limits to the extent to which she can assert his interest."

J: "I appreciate that because of the burden of proof that lies upon her."

And later:

C: "………I say this for [the husband's] hearing and benefit – that given that Miss Harriott clearly has a legal interest in the house your Honour would be right to regard that as a realisable asset."

J: "I am bound to in the absence of any evidence from her to the contrary….Any credible evidence by which she satisfies the burden upon her to prove that it is not."

21. Also repaying attention is correspondence subsequent to the Order. On 31 March 2008 the CPS wrote to the Appellant's solicitors:

"Although the net value of your client's 12.5% share of the property is approximately £18000 ………the Crown would be prepared to agree to a Certificate of Inadequacy if Mr Johnson buys out your client's share for £15000. Once the funds have been transferred to the Magistrates Court and we have had a sight of the transfer documents submitted to the Land Registry extinguishing your client's interest the Certificate can be agreed."

On 29^th July 2008 the CPS wrote again:

"……..the prosecution will not object to your client's application for a COI on the basis that the equity from her property has now been paid towards her outstanding order and that she has no other realisable assets. …In order to assist you, in view of your client's proposed application to the High Court for a COI the forthcoming hearing at the Enforcement Court has been….adjourned…"

And finally for insofar as is relevant on 3 July 2009 the CPS wrote:

"Whilst the Defendant has any means of satisfying the Confiscation Order including making monthly payments we will not consent to her application for a COI……."

22. A Declaration of Trust dated 9^th September 2008 reads where relevant:

"Paula Harriott (the Donor) …is entitled to the property………[and] wishes to declare …..the Donor ……..shall……hold the Property upon trust for …….Julton Johnson absolutely."

Ground of appeal

23. The confiscation Order was flawed as made on the presumption that the Appellant had full control over 25% of the equity in the matrimonial home. The Court is invited to quash the original Confiscation Order, find that the recoverable amount should be recorded as £15,000 and make an Order in that amount. No issue is taken with the previously agreed benefit figure of £60,000.00.

The legal framework

24. In R. v. Buckman [1997] 1 Cr App R (S) 325 the Court referred to section 62(5)(a) of the Drug Trafficking Offences Act, 1994 which provides:

"For the purposes of this Act property is held by any person if he holds any interest in it".

Brooke L.J. observed "In our judgment this is convenient language to show that if someone holds, say a 15% or 30% or 50% beneficial interest in property in which the legal title is either held by him or her or by someone else, then that beneficial interest pro tanto is property which is caught by the language of the Act. It certainly does not mean, in our judgment, that he or she holds the whole beneficial interest in the property in question, or that it should be regarded as being wholly his or her property."

25. Hirani [2008] EWCA Crim 1463 was an appeal against a confiscation order made by consent. The court having considered the appropriate route and drawn helpful comparisons gave guidance on the circumstances in which such an appeal might succeed. The appellant suggested that he agreed to figures on the basis of erroneous legal advice. In March 1993 the appellant and his then wife, Rozmin Hirani had jointly purchased a property for £49,000 of which he was still at that time the joint owner. There was substantial equity in that home. The marriage had foundered and he had moved out. It was not until long after the confiscation order that the appellant transferred his interest in the house to his ex-wife for nil consideration. At the confiscation proceedings the evidence had to be seen in the light of the fact that the burden rested on the appellant. He was a man whose credibility was, in truth, shot through. The court quoted with approval R v Bailey [2007] EWCA Crim 2873 in which MacKay J noted that confiscation orders are dealt with as appeals against sentence, not conviction. He said at paragraph 14:

"… The interests of justice would often be offended by a conviction for crime based on defective legal advice. In the area of confiscation we believe the position is very different, not least because in this whole exercise the burden of proof lay on the appellant to show that the realisable assets were less than the benefits."

Giving the judgment of the court in Hirani, Burnett J said:

"In confiscation proceedings, the burden is on the defendant to show a lower figure of realisable assets than the benefit, if he can. The judge in this case made the confiscation order on the basis on which he was invited to by the appellant. He did not proceed on a wrong factual basis, as, for example, may happen if a judge sentences on a factual basis not available on the material that was before him.

In other jurisdictions, those who have entered into consent orders may set them aside on very narrow grounds. We do not exclude the possibility in the arena of confiscation orders that such circumstances might conceivably arise. But we do not consider that they arise where the essence of the complaint is that, in seeking to secure the best deal available, erroneous advice was given to one of those who was party to the agreement, save in the most exceptional circumstances. We would not wish to identify exhaustively what those circumstances might be but, in our judgment, there would need to be a well-founded submission that the whole process was unfair."

26. Also of assistance is Gibson v RCPO [2009] 2 WLR 471, [2008] WTLR 1605, [2008] EWCA Civ 645 Gene Gibson's benefit from drug trafficking was in excess of £38 million. The recoverable amount was £5,430,671.00, £5m representing hidden assets. Specific assets included the matrimonial home in joint names. It was open to [the appellant] Mrs Gibson to challenge its full attribution to her husband in proceedings in the High Court – s31(4) of the 1994 Act and In Re Norris [2001] 1 WLR 1388. There were proceedings in the High Court to enforce the confiscation order. Mrs Gibson was joined to enable her to contend that she was the beneficial owner of 50% of the equity. The High Court put her beneficial interest at 12.5%. As between husband and wife Mrs Gibson was the beneficial owner of 50% of the equity in the property. This was not challenged on appeal and it was accepted that the burden is on the prosecution to displace her apparent beneficial interest – Norris paragraph 25. Mr Gibson's interest, be it his initial 50% or a subsequently enhanced interest, was subject to the confiscation order. Mrs Gibson was entitled to a 50% beneficial interest in the matrimonial home.
27. For the respondent Crown Mr Newbold did not concede that the Order was flawed. He argued that the Appellant had full control of the equity in the matrimonial home until her husband initiated proceedings for ancillary relief and the CPS conceded he had a half share in the equity. The appeal appears based on the view that his half share in the property (which must have pre-dated the Order) should have been considered as an obligation having priority and thus deducted from the available amount. When the Court determined the amount to be recovered the original Prosecutor's Statement showed the Appellant owned the property and made the mortgage payments from her account. The full value was rightly included in the Order. Possible third party interest was raised at the hearing but there was no legal basis for third party intervention. No enforceable interest became apparent until Mr Johnson filed for divorce and applied for ancillary relief, some 2 years after the Order. The available amount (and therefore the recoverable amount) of the Order was agreed. The CPS has conceded that, at some time after the application for ancillary relief in 2007, Mr Johnson had a 50% interest in the property but nevertheless the original Order was properly made on the facts then known. The matter should be resolved by an application to the High Court for a Certificate of Inadequacy, followed by a Crown Court application for a corresponding reduction in the Confiscation Order
28. In our judgment it is true that, as explained in cases like Norris, the scheme of the Drug Trafficking Act 1994 is that third party interests are to be advanced at the enforcement stage in the High Court. However, the question for the Crown Court was still the extent of the Appellant's realisable assets, the available amount. Her situation was perhaps not the usual in that typically the home is in the name of the husband and the wife argues she had a beneficial (e.g. 50%) interest, or the Crown argues that property in the wife's name was a tainted gift and really the husband's.
29. The Judge was led into error as to the available amount because he was given insufficient or incorrect information as to the beneficial ownership of the house.  Had the beneficial ownership been reflected in the legal ownership he would not have been misled and would not have included the husband's share in the available amount.  The Crown in our view cannot assert a post-confiscation change in the value of the Appellant's available assets; arguably she never owned the entire beneficial interest.
30. Her difficulties however include the concession by her counsel that the property was hers (notwithstanding her husband's correct assertion to the contrary).  Despite Mr Newbold's suggestion that it is unclear whether this were a property adjustment order rather than the crystallisation of a pre-existing equitable interest, her husband was in our view entitled in law to that share of the property and she was not.  No doubt that is why the CPS agreed to the Certificate of Inadequacy when it was first mentioned.
31. Given that a beneficial interest counts (Buckman, Gibson) the likely trigger for the difficulty we have identified is that it was for the Appellant to assert before the Judge that her husband had one such. It would appear that she by her counsel raised the matter but that the Judge was concerned that an equitable interest fell to be asserted in separate proceedings before he could take account of it. He was not assisted by counsel who was candid as to his, counsel's, areas of expertise.
32. Did the Appellant's husband have an interest at the time of the confiscation hearing? The date of resolution of ancillary relief proceedings is not within the papers though that of their commencement, 7^th August 2007, is. Neither Mr Newbold nor Mr Fell for the Appellant could assist. Mr Fell told us that the likely reason is that the parties reached agreement inter se and no judicial intervention was required. We can on the other hand be confident that by 31 March 2008 - possibly before the ancillary relief proceedings were determined - the Appellant would have assumed that the Crown accepted she owned but 12.5 % of the property (see letter of that date, extract supra).
33. Hirani does not disentitle an Appellant from arguing that she acted on the basis of a legal ruling which was wrong. We are persuaded that such was the position here - the hearing proceeded on a mistaken legal basis. We note that both parties agree the outcome was wrong. The Judge's conclusion that without a court order he could not find that the husband had an equitable interest was in our view in error. We understand how, in these unusual circumstances, it arose. However, we consider that the Judge confused the evidential route with the substantive test. He was correct to find that Mr Johnson had no locus before him, but that should not have been the end of the matter. It was open to the Appellant to lead evidence that she owned but 12.5 %. She could have given it on oath. She could have called her husband who himself could have given it on oath. Had that been done the Judge, were he persuaded, would have been entitled to find that the burden on her had been discharged and that her equity was as she and her husband contended. If her husband had a beneficial interest, he had one. It existed without a court order saying that he had one. The court would not be creating the interest, rather deciding what to do if it accepted one existed.
34. Not only are we persuaded that the confiscation hearing proceeded on the wrong basis as a matter of law, we are also conscious that the Appellant, reading correspondence from the CPS which we have distilled, would inevitably have taken it that the contention she here advances had already found acceptance.
35. For all the reasons we have set out, we quash the confiscation order and for it substitute one nominating the recoverable amount as £15,671.84.