England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM Wood Green
His Honour Judge Pawlak
T20100674

		Royal Courts of Justice Strand, London, WC2A 2LL
		03/04/2014

Lord Justice Fulford :

Introduction

1. On 9 September 2010 in the Crown Court at Wood Green the appellant pleaded guilty to an offence of falsely claiming or creating the impression that a trader is not acting for purposes relating to his trade, business, craft or profession, contrary to Regulations 12, 13 and Paragraph 22 of Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008 (count 1).
2. On 8 March 2011 he received a community sentence comprising a 100-hour unpaid work requirement.
3. On 21 August 2012 he was ordered to pay a confiscation order in the sum of £109,970 within 6 months, pursuant to section 6 Proceeds of Crime Act 2002 ("POCA 2002"). The default term was set at 2 years' imprisonment. He was also ordered to pay prosecution costs of £8,000.
4. Before this court he appeals against the confiscation element of his sentence by leave of the single judge who also granted an extension of time.

The Facts

5. The appellant was in the business of buying and selling used cars under the trading name Winton Cars. Between 26 May 2008 and 27 February 2009 he advertised and sold 58 vehicles as a private seller, whereas in reality this formed part of his business activities. The reason the appellant represented that these were private sales was to avoid providing a guarantee or warranty.
6. We note that the appellant pleaded guilty on the basis (which was not accepted by the court) that he mistakenly believed that because he had no business premises or partners he was selling the vehicles as a private seller. He suggested he had not attempted to deprive the purchasers of their consumer rights.

The Confiscation Proceedings

7. It was agreed that this was not a criminal lifestyle case and the benefit figure relied on by the prosecution was the turnover of the business: £109,970. The judge observed during the course of his judgment that the net trading profit was approximately £11,140.
8. There was an issue in the court below as regards the appellant's realisable assets. This is only of historic interest because it is not an issue raised on this appeal. Put shortly, the realisable assets were assessed as being £109,970, namely the equity in a property at 1 Colne Way, Watford (which was owned by the appellant) and £16,000, the value of the vehicles held in stock at the time of his arrest. The appellant's case – which the judge did not accept – was that his stepmother, Anne King, had an equitable interest in the property because she had advanced the purchase monies.

The Grounds of Appeal

9. By way of background to the issue raised on this appeal, the revenue or turnover from the sale of the 58 vehicles during the period of the indictment was £109,970: the aggregate of the payments made by the purchasers. Allowing for the original cost of the vehicles and the work undertaken by the appellant prior to sale, his profit was £11,140. Therefore, it is said the business operated "on a margin" of approximately 10%, although the appellant also had to pay the other overheads of the business.
10. The issue on this appeal is whether, on these particular facts, the judge's order which was based on the revenue or turnover of the 58 sales was disproportionate within the meaning of Article 1 of Protocol 1 to the European Convention on Human Rights ("A1P1") (as applied to the Proceeds of Crime Act 2002 ("POCA 2002")), in light of the majority judgment of the Supreme Court in R v Waya [2012] UKSC 51; [2013] 1 A C 294.
11. Mr Yeo submits that it is arbitrary, having confiscated the appellant's profit, additionally to make him pay what is described as a penalty or fine by adding the original purchase price of the cars, along with the value of the work he undertook on them, given the objective of confiscation proceedings is to access the financial benefit of the offender, as opposed to deterring others. It is argued that the appellant gave full value to the purchasers when they bought the cars. Moreover, Mr Yeo submits this case is analogous to the position in "full restoration" cases when, on the particular facts of the case, a confiscation order that is greater than the profit made by the offender is deemed to be disproportionate. Therefore, given the appellant passed the value of the motor vehicles to the purchasers, it is said to be unreasonable to require him to pay the same sum a second time and Mr Yeo contends that the present order breaches the prohibition on double counting.
12. Mr Yeo accepts that in certain instances it is appropriate and proportionate for the confiscation order to reflect the business's turnover rather than the profit alone. By way of example, Mr Yeo concedes that when the value of the "spoils of the crime" is unknown or if it would be impractical to enquire into the financial dealings as between offenders, it may be legitimate to adopt this course. In a similar vein, it is suggested that there is a distinction to be drawn between cases where the underlying activity is unlawful, such as when prohibited drugs are sold or imported, and cases in which the underlying activity is legitimate. Using this example, trading in prohibited drugs is a criminal offence and Mr Yeo accepts that any property received in connection with that offending, such as the purchase price of the drugs, should be treated as benefit, whereas it is argued that trading in cars is not unlawful and therefore the purchase price of each car should not be treated as the benefit. It is argued that distinctions of this kind indicate where the court should draw the dividing line between the situations in which the confiscation order should be for the revenue/turnover/spoils of crime and those in which a lesser figure (for instance the profit) is appropriate.
13. Additionally, it is suggested that the sentence of 100 hours community service was a just sentence and that as a result of the confiscation order the appellant has lost his home and what is described as a legitimate business. In the latter regard, Mr Yeo emphasises that invoices were issued for all of the sales and the appellant complied with the record keeping requirements for the purposes of the car sales margin scheme which relates to claims for VAT (the appellant was registered at all material times).
14. As to the appellant's intention of avoiding providing a guarantee, it is highlighted that by his plea he accepted he had been dealing in the course of trade, and accordingly section 14(2) Sale of Goods Act 1979 applies and a term of quality was implied. Furthermore, by section 6(2)(a) of the Unfair Contract Terms Act 1977, the terms of a contract cannot exclude or restrict the effect of section 14(2) as regards the consumer. Accordingly, it is highlighted that the appellant had failed in his objective: the purchasers got full value because of the protection of these statutory provisions. The appellant had tried to gain a pecuniary advantage but the operation of the law stopped him from achieving his objective.
15. It is argued that this is analogous to a full restoration case and in any event the purchasers of these cars received full value and there has been double counting. It is suggested that the present facts are to be distinguished from R v Beazley [2013] EWCA Crim 567 and that the approach of this court in R v Sale [2013] EWCA Crim 1306 should be applied. These authorities are considered below.

The submissions of the respondent

16. It is submitted that this was not akin to a full restoration case. The appellant had not given full value because, in reality, he avoided selling the vehicles with a warranty. Given he ran his business in breach of the 2008 Regulations, which provide protection for the purchaser, it is submitted the order was not disproportionate.
17. It is emphasised that the appellant sold 58 vehicles and that this operation was illegal from the outset. The appellant was seeking to avoid providing a warranty by maintaining that these were private sales. Section 14(2) would not in reality have altered the position: it would be unrealistic to assume that the purchasers of the motorcars, which were of relatively low value, would usually incur the expense of seeking legal advice, or of commencing proceedings, in order to enforce their statutory rights; and in any event they would have been taken in by his representation that there was no warranty because it appeared to be a private sale. The appellant was only prepared to consider paying a refund on the sole vehicle about which there was a complaint after the proceedings had been brought. Therefore, he did not give full value, and he funded successive sales of vehicles by his repeated breaches of the law.

The Legislation

18. Section 6 POCA, as relevant, provides:

"Making of order

(1) The Crown Court must proceed under this section if the following two conditions are satisfied.

(2) The first condition is that a defendant falls within any of the following paragraphs—

(a) he is convicted of an offence or offences in proceedings before the Crown Court;

[…]

(3) The second condition is that—

(a) the prosecutor [...] asks the court to proceed under this section, or

(b) the court believes it is appropriate for it to do so.

(4) The court must proceed as follows—

(a) it must decide whether the defendant has a criminal lifestyle;

(b) if it decides that he has a criminal lifestyle it must decide whether he has benefited from his general criminal conduct;

(c) if it decides that he does not have a criminal lifestyle it must decide whether he has benefited from his particular criminal conduct.

(5) If the court decides under subsection (4)(b) or (c) that the defendant has benefited from the conduct referred to it must—

(a) decide the recoverable amount, and

(b) make an order (a confiscation order) requiring him to pay that amount."

19. A1P1 provides:

(1) Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

(2) The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

Discussion

20. Under section 6 POCA 2002 the court must make a confiscation order requiring the offender to pay the "recoverable amount". The critical limitation on this obligation is that an order should not be disproportionate or in breach of A1P1. This qualification was described by the majority in the Supreme Court in Waya in the following way:

"16. It is plainly possible to read paragraph (b) as subject to the qualification: "except insofar as such an order would be disproportionate and thus a breach of Article 1, Protocol 1." It is necessary to do so in order to ensure that the statute remains Convention-compliant, as Parliament must, by section 3 of HRA, be taken to have intended that it should. Thus read, POCA can be "given effect" in a manner which is compliant with the Convention right. The judge should, if confronted by an application for an order which would be disproportionate, refuse to make it but accede only to an application for such sum as would be proportionate. "

21. However, in the context of this appeal it is critical to note that the Supreme Court in Waya confirmed that a confiscation order may be based on turnover, thereby denying the offender the opportunity to offset any costs:

"26. It is apparent […] that a legitimate, and proportionate, confiscation order may have one or more of three effects:

(a) it may require the defendant to pay the whole of a sum which he has obtained jointly with others;

(b) similarly it may require several defendants each to pay a sum which has been obtained, successively, by each of them, as where one defendant pays another for criminal property;

(c) it may require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime.

These propositions are not difficult to understand. To embark upon an accounting exercise in which the defendant is entitled to set off the cost of committing his crime would be to treat his criminal enterprise as if it were a legitimate business and confiscation a form of business taxation. To treat (for example) a bribe paid to an official to look the other way, whether at home or abroad, as reducing the proceeds of crime would be offensive, as well as frequently impossible of accurate determination. To attempt to enquire into the financial dealings of criminals as between themselves would usually be equally impracticable and would lay the process of confiscation wide open to simple avoidance. Although these propositions involve the possibility of removing from the defendant by way of confiscation order a sum larger than may in fact represent his net proceeds of crime, they are consistent with the statute's objective and represent proportionate means of achieving it. Nor, with great respect to the minority judgment, does the application of A1P1 amount to creating a new governing concept of "real benefit".

27. Similarly, it can be accepted that the scheme of the Act, and of previous confiscation legislation, is to focus on the value of the defendant's obtained proceeds of crime, whether retained or not. It is an important part of the scheme that even if the proceeds have been spent, a confiscation order up to the value of the proceeds will follow against legitimately acquired assets to the extent that they are available for realisation."

22. Against the broad sweep of this approach, the Supreme Court identified two particular categories of cases in which it may be necessary to limit the extent of the order to prevent a disproportionate result: firstly, those where the goods or money are entirely restored to the loser and, secondly, other "cases of disproportion" that are analogous to full restoration cases.
23. The first category is demonstrated in cases such as R v Morgan and R v Bygrave [2008] EWCA Crim 1323; [2009] 1 Cr App R (S) 60, namely where i) the offender's crimes are limited to offences that caused loss to one or more identifiable losers, ii) his benefit is limited to those crimes, iii) the loser is not intending to bring civil proceedings, and iv) the defendant has either repaid the loser in full or is ready immediately to make full restitution. It is of value in the present context to set out the reasoning of the majority of the Supreme Court in Waya in this regard:

"28. The case of a defendant such as was considered in Morgan and Bygrave is, however, a different one. To make a confiscation order in his case, when he has restored to the loser any proceeds of crime which he had ever had, is disproportionate. It would not achieve the statutory objective of removing his proceeds of crime but would simply be an additional financial penalty. That it is consistent with the statutory purpose so to hold is moreover demonstrated by the presence of section 6(6). This subsection removes the duty to make a confiscation order, and converts it into a discretionary power, wherever the loser whose property represents the defendant's proceeds of crime either has brought, or proposes to bring, civil proceedings to recover his loss. It may be that the presence of section 6(6) is capable of explanation simply as a means of avoiding any obstacle to a civil action brought by the loser, which risk would not arise if repayment has already been made. But it would be unfair and capricious, and thus disproportionate, to distinguish between a defendant whose victim was about to sue him and a defendant who had already repaid. If anything, an order that the same sum be paid again by way of confiscation is more disproportionate in the second case than in the first. Unlike the first defendant, the second has not forced his victim to resort to litigation."

24. The second category of other "cases of disproportion" was exemplified in R v Shabir [2008] EWCA Crim 1809; [2009] 1 Cr App R (S) 84, page 497. In that case a pharmacist made a monthly claim to the health service payment body for the cost of the prescriptions he dispensed. His criminality related to the small amounts by which he inflated these claims over a number of months. The counts on the indictment were not said to reflect specimen charges and accordingly the amount improperly obtained could be calculated, namely £464. However, the total sums paid in these six months added up to £179,731.97 and although the defendant was entitled, without qualification, to this amount save for the £464, in the confiscation proceedings the Crown submitted that the entire sum was his benefit for the purposes of the confiscation legislation. Since it was said this was the correct figure for his benefit, the defendant's case became, by statutory definition, one of a criminal lifestyle and the various assumptions about his property which are prescribed by section 10 of the Proceeds of Crime Act 2002 were made. The defendant could not displace one of the assumptions, and a confiscation order in the sum of £212,464.17 was made.
25. In determining that the prosecution's decision to proceed was wrong on the facts of this particular case, it was emphasized that the court's jurisdiction to avoid the arithmetically determined result "must be exercised with considerable caution, indeed sparingly. It must be confined to cases of true oppression" [24].
26. A further example of case involving a disproportionate result is R v Sale [2013] EWCA Crim 1306. In that case a contract to provide services to Network Rail was obtained by bribes paid by the appellant, who was the managing director of the company which received about £1.9 million in payment for the services it rendered. It was accepted that full value had been provided for the work and materials that had been performed for National Rail. The underlying factual position was encapsulated thus:

"48. […] great emphasis was laid upon the fact that, apart from the corruption underlying the offence, the contracts had been properly carried out and given full value to Network Rail. The expenses incurred in carrying out those contracts by the company, some ninety percent of the total invoice price, were expenses which would have been incurred in the performance of any legitimately obtained contract. Those expenses represented management, administration, labour, materials, and other ordinary business overheads. Such payments were to be distinguished from the expenses of criminal activity itself, such as the cost of the bribes or favours for which no credit was claimed."

[…]

52. […] this is not, in our judgment, a case analogous to one where goods or money have been entirely restored to the loser. True it is that Network Rail received value for money, but Mr Sale had obtained contracts for his company by corrupt means on a continuing basis so that every contract obtained was tainted by it. Moreover, in a case of this nature it is wholly unrealistic to regard Network Rail as the only victim of the crime. Corruption of this nature clearly impacts on others. The company obtained contracts with a client with whom it had had no previous business relationship. Existing contractors with Network Rail were cheated out of the tendering process. The substantial market in Network Rail contracts of this type was distorted, with the company gaining a market share to the detriment of others. Tendering costs were avoided.

[…]

56. […] had this been an offence whose only criminal effect was upon Network Rail which had been provided with value for money achieved by the performance of a contract which required the company to expend monies in the ordinary course of business, it would have seemed to us proportionate to limit the confiscation order to the profit made, and to treat the full value given under the contract as analogous to full restoration to the loser.

57. However, we have already alluded to the pecuniary advantage gained by obtaining market share, excluding competitors, and saving on the costs of preparing proper tenders. A proportionate confiscation order would need to reflect those additional pecuniary advantages and, it seems to us, that an order for profit gained under these contracts, together with the value of pecuniary advantage obtained, would represent a proportionate order which would avoid double counting."

27. An example of a case that fell the other side of the line is R v Beazley [2013] EWCA Crim 567 in which the offenders offered wheel trims for sale that were designed specifically for about a dozen different well-known makes of motorcar. They were specifically advertised as suitable to be fitted to motorcars made by named car manufacturers. However, the relevant car manufacturers had not made any of the wheel trims, nor had they granted a licence to the offenders. The trims nonetheless bore the logos of the relevant manufacturer and they were marketed in this country by the defendants as "non-genuine replacement parts" and under an advertisement which typically indicated "Vauxhall Astra Part [and a number]. These wheel trims are not produced from the car manufacturer but made to the same if not better product offering a high quality lasting product for your vehicle [sic]."
28. There was some uncertainty as regards the figures, but the prosecution sought orders of around £120,000, and the offenders' profits were approximately £25,000.
29. The judge in that case stayed the proceedings because, first, in his view it was unlikely that Parliament intended what he described as the particular draconian result; second, he noted these were strict liability offences (it was not necessary to prove bad faith or dishonesty); third, others who had acted in a similar way or who had participated in this offending had not been prosecuted; fourth, the defendants were carrying on what he described as a "proper business" (they kept records and paid tax, they were not fly-by-night traders and the judge suggested "their only mistake was not doing sufficient research"); and, finally, he paid regard to the fact that the order would strip the defendants of all their available assets [11].
30. This court decided that the recorder erred in these conclusions. It was observed, inter alia, that the offences in question did real damage because they denied the purchasers of the protection of the relevant trade mark; they deprived the manufacturers of the legitimate fruits of their research and development; and the business was exclusively focused on selling fake wheel trims. The court emphasized that the "essence of confiscation" is the removal of the proceeds of offending and that these "may well be similar whether the defendant is greatly to blame or much less to blame" and "[i]t is the proceeds which matter and not the blame" [14] and [15]. As the court explained "a business which is founded entirely on the infringement of other people's property rights, and is a criminal offence, will inevitably attract the consequence of confiscation of the proceeds" and "it will certainly remove their gross takings from [the] business" [17].
31. The court concluded:

"19. There is nothing remotely disproportionate about removing from this unlawful business the proceeds which it has generated. It is not in any way analogous to the kind of double recovery situation contemplated explicitly in Waya. The judgment in Waya specifically endorses the longstanding approval to the difference for confiscation purposes between gross proceeds on the one hand, which are the measure of benefit, and profit on the other, which is not. That is explicit in paragraph 26. There may be some other special cases in which a confiscation order can properly be described as disproportionate, but the fact that it is based on gross proceeds of crime is not one of them. Nor is there anything in this case which could possibly justify the description 'disproportionate', whether under Waya or otherwise."

32. The authorities reveal there is a clear distinction to be drawn between cases in which the goods or services are provided by way of a lawful contract (or when payment is properly paid for legitimate services) but the transaction is tainted by associated illegality (e.g. the overcharging in Shabir or the bribery in Sale), and cases in which the entire undertaking is unlawful (e.g. a business which is conducted illegally, as in Beazley). When making a confiscation order, the court will need to consider, amongst other things, the difference between these two types of cases. It is to be stressed, however, that this divide is not necessarily determinative because cases differ to a great extent, but it is a relevant factor to be taken into account when deciding whether to make an order that reflects the gross takings of the business.
33. In our judgment, the present case falls squarely on the Beazley side of the line. Although selling cars, as with selling wheel trims, will often be a legitimate undertaking, in this case the entire enterprise was characterised by the deliberate misrepresentations of the appellant. His objective throughout was to gain a significant advantage by falsely pretending that each of the 58 transactions was a private sale, in order to avoid providing a warranty. This business was founded on illegality, and to borrow the words of Hughes LJ in Beazley: "a business which is founded entirely on the infringement of other people's property rights, and is a criminal offence, will inevitably attract the consequence of confiscation of the proceeds. […] It will certainly remove their gross takings in the business." [17] It does not matter that the purchasers, save for one, were seemingly satisfied with the motorcar they bought or that trading in motorcars is usually a lawful undertaking. Nor does section 14 (2) have any significant effect, because the reality of the position is that the appellant had deliberately obscured the opportunity for recourse on the part of the purchasers if the motorcars were defective by creating the impression this was a private sale. They would have been unaware that section 14 (2) provided them with protection. If the transaction is inherently unlawful because of the manner in which it is conducted, that finding militates in favour of making an order that is directed at the gross takings of the business.
34. Bearing in mind the purpose of the governing legislation, this is a severe but not a disproportionate result: again to borrow from the language of the judgment in Beazley "[t]here is nothing remotely disproportionate about removing from [an] unlawful business the proceeds which it has generated" [19].
35. This appeal is dismissed.