England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
A REFERENCE FROM THE CRIMINAL CASES
REVIEW COMMISSION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/12/2016

Lord Thomas of Cwmgiedd, CJ:

1. This is the second time this court has had to consider a confiscation order made against the appellant on 12 April 2006 at Birmingham Crown Court in the sum of £100,000. The appeal on the first occasion was dismissed by this court in 2007 for the reasons set out in the judgment of the court given by Elias J ([2007] EWCA Crim 1994), [2008] 1 Cr App R(S) 84. This second appeal is the result of a reference by the Criminal Cases Review Commission (CCRC), acting under its powers under the Criminal Appeal Act 1995 which permit references of a sentence where an argument on a point of law or information was not raised at the hearing or on the previous appeal. The CCRC have referred the confiscation order to this court again on the basis there has been a change in the law.
2. We dismiss this second appeal for the reasons set out in this judgment.

The background facts

3. The family of the appellant's husband, Clive Neuberg, had carried on for some generations the business of producing light metal products. It had traded as "Neuberg Metal Spinners" for many years. The appellant's husband had used various limited companies as vehicles to continue the trading; in 1998, a company called Neuberg Metal Spinners Limited went into liquidation. After it went into liquidation the business continued to trade under the style of Neuberg Metal Spinners but through a new company called Watergate Services Limited (Watergate) of which the appellant was the sole director and, from 20 May 1998, the company secretary.
4. On 21 July 2000 Clive Neuberg was adjudged bankrupt. Watergate continued to manufacture under the name of "Neuberg Metal Spinners" with Clive Neuberg actively involved in directing its operations after his bankruptcy. He subsequently pleaded guilty to taking part in the management of Watergate while an undischarged bankrupt. Watergate ceased trading by March 2001 but it was not wound up until 19 November 2001.
5. In the meantime the appellant began to trade in her own name Karen Neuberg trading as Neuberg Metal Spinners. She traded using that name until Watergate went into liquidation on 19 November 2001.
6. After 19 November 2001 it was not lawful for her to use the name of "Neuberg Metal Spinners" but she continued to use that style until 14 June 2002, even having been warned not to do so.
7. She was charged with trading under a prohibited style, namely "Neuberg Metal Spinners", without the leave of the court, between 19 November 2001 and 14 June 2002 contrary to s.216 of the Insolvency Act 1986. She pleaded guilty to that offence on 12 November 2004.
8. It was common ground in the confiscation proceedings in 2005-6 that the turnover in respect of the period in which trading had been carried on by the appellant in the name of Neuberg Metal Spinners between 19 November 2001 and 14 June 2002 was £288,948.

The confiscation proceedings before HH Judge Ross in 2005-6

9. After her plea of guilty, the appellant was sentenced on 28 January 2005 to a Community Punishment Order of 80 hours work requirement and disqualified from holding a directorship for five years.
10. Confiscation proceedings under s.71 of the Criminal Justice Act 1988 (as amended by the Proceeds of Crime Act 1995), the applicable statutory provisions at the time the offence was committed, were then commenced. In the course of those proceedings the judge, HH Judge Ross, was asked to make a ruling in relation to the principles on the basis of which details of the calculations could be agreed. The argument for the appellant was presented by Mr Christopher Hotten QC, very experienced counsel in such matters. On 6 May 2005, in a clear and careful ruling the judge, after setting out the provisions of s.71, held:

i) During the relevant period when the appellant was a sole trader she was not entitled to use the name "Neuberg Metal Spinners".

ii) The purpose which lay behind her decision to continue to use the name could be simply stated.

"It was to present a picture of business as usual and not to reveal to suppliers and customers that anything had changed in the company's fortunes. That there was nothing for them to be concerned about in any way."

iii) There were two matters to determine – (a) was there a benefit directly linked to the commission of the offence? and (b) if so was that benefit the turnover or the net profit?

iv) Although the business was agreed to be a lawful business, it was carried out through an unlawful vehicle. The name "Neuberg Metal Spinners" was:

"much more than a bolt-on addition - a convenient non harmful badge. The name Neuberg Metal Spinners was fundamental to the business in two respects. First it sent out a message to the world at large, and in particular to creditors and customers, suppliers and customers, that nothing had changed in relation to the company structure and trading nature. There was no need for anyone to be concerned. It was business as usual. Second, the name Neuberg Metal Spinners was fundamental to the company's business identity and fundamental to the generation of business by virtue of the company's history. Mrs Neuberg, I find knew this, and for these reasons traded through this company unlawfully named."

v) The offence was a continuing offence throughout the period during which she traded, not simply an offence on day one. There was therefore a benefit.

vi) The benefit amounted to the turnover. The effect might be draconian but was justified.

"This was a deliberate attempt, a successful one to present a business as usual picture to the world at large and suppliers in particular; one that would prevent creditors or suppliers being prompted to ask questions. Without the carrying on of the lawful business through an unlawful business vehicle, I find it was highly probable that the business would have collapsed."

vii) There was therefore no injustice in saying that the turnover rather than the net profit was the appropriate approach to the calculation of benefit in the case.

11. The formal Order for confiscation was made nearly a year later on 12 April 2006. The benefit was the turnover in the sum of £288,948. The realisable assets were £100,000. The Order was made in the amount of £100,000. The judge fixed the term of imprisonment in default at two years and ordered the appellant to pay £7,500 towards the cost of the prosecution.

The first appeal to this court in 2007

12. On 19 March 2007 this court granted leave to appeal; see the judgment reported at [2007] EWCA Crim 761.
13. The appeal was argued for the appellant by Christopher Hotten QC, on 13 July 2007 before Leveson LJ, Elias and Griffiths Williams JJ. The judgment of the court dismissing the appeal was given by Elias J (as he then was) [2007] EWCA Crim 1994, [2008] 1 Cr App R(S) 84. Three points were taken on appeal.

i) The judge was wrong in concluding that the appellant had obtained a benefit within the meaning of s.71(4) of the Criminal Justice Act 1998 (as amended).

ii) The judge should, when calculating the benefit, have looked at the profit and not turnover.

iii) The penalty was not proportionate as required by the European Convention on Human Rights.

14. In the argument before the court the terms of s.71(4) were central to the appeal. The subsection provided:

"For the purposes of this part of this Act a person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained."

15. The court held:

i) In relation to the first ground of appeal, there was no basis for saying the judge was not entitled to conclude that the appellant had obtained a benefit within the meaning of s.71(4). The judge had found as a fact that her use of the prohibited name had enabled her successfully to trade when otherwise she would not have been able to do so. The court concluded that it was plain the purpose of using the name was to benefit from the goodwill attached to it. The court continued:

"The appellant had been told on a number of occasions not to use the name and continued to do so. She plainly must have recognised that there was objectively a benefit to her in so doing. It is true that she would no doubt have had some turnover even if she had used a different vehicle for her business. But that does not assist the appellant. The use of the illegal name was one of the causes of the benefits obtained by her. In our judgement the judge was entitled to take the view that it had that effect. Indeed we consider that it would have been difficult for him to conclude otherwise."

ii) As to the second ground, the court also concluded that the judge was right at looking at turnover and not limiting the amount to profit. This was clear from the authorities.

iii) As to the third ground the court concluded the principle of proportionality did not apply. The legislation was meant to have a deterrent effect. But even if there had been a residual discretion of the kind argued for, the court did not think that the facts of this case would begin to come within such a principle.

16. The appellant paid the sum of £100,000.

The application to the CCRC

17. On 14 December 2010 the appellant applied to the CCRC for review of her confiscation order, arguing that following the decision of this court in Seager & Blatch [2009] EWCA Crim 1303, [2010] 1 WLR 815, the judgment of the Court of Appeal was no longer good law. On 30 May 2012 the CCRC declined to refer her case as the judge had found the turnover of the business had been obtained by the appellant in connection with the offence. For the reasons we give at paragraphs 21-35 that decision of the CCRC in 2012 was unquestionably correct.
18. On 10 June 2013, following the judgment of the Supreme Court in R v Waya [2012] UKSC 51, [2013] 1 AC 294, she reapplied to the CCRC (on the basis of advice from Mr Hotten QC), on the ground that the order was disproportionate under the principle set out in Waya, particularly at paragraph 34 of the judgment of Lord Walker and Sir Anthony Hughes which we set out at paragraph 39 below.

The reference by the CCRC

19. On 8 March 2016 the CCRC referred the case to this court under s.14(4)(a) of the Criminal Appeal Act 1995. It did so on the following grounds:

"In accordance with s.14(4A) of the Act 1995 as inserted by s.315 of the Criminal Justice Act 2003, this confiscation order is being referred on the following grounds:

i. Following a fresh interpretation of the law in McDowell and Singh [2015] EWCA Crim 173 it is now recognised that s.216 of the [Insolvency Act] 1986 (use of a prohibited company name) is a regulatory offence from which Mrs Neuberg obtained no benefit.

ii. In the alternative, if Mrs Neuberg has obtained a benefit that benefit should be limited to the pecuniary advantage she obtained from the use of a prohibited business name, and an appropriate calculation should therefore be made.

iii. Although these arguments are based on a change of law, because Mrs Neuberg's untainted assets have been confiscated and Counsel argued the points at the time and they were wrongly rejected, Mrs Neuberg would suffer a substantial injustice if her confiscation order was not quashed/reduced."

20. It is to be noted that despite the application to the CCRC based on the decision in Waya and the issue of proportionality, this was not one of the three grounds expressly set out by the CCRC for referring the case. We will infer, however, from observations in the reference that the CCRC intended to rely on this decision. We will consider in turn each of the grounds put forward expressly by the CCRC, as well as the effect of the decision in Waya.

(1) Was a benefit obtained? The decision in McDowell and Singh

21. We have set out at paragraph 15i) above the decision of this court in the first appeal in 2007 on the question of whether a benefit was obtained within the meaning of s.71(4) as a result of or in connection with the commission of the offence under s.216 of the Insolvency Act 1986.

The contention of the appellant

22. The appellant contended, on the basis of the reference by the CCRC, that the decision in the first appeal was no longer good law as a result of the decision of this court in R v McDowell and Singh [2015] EWCA Crim 173, [2015] 2 Cr App R (S) 14 and the earlier decision in R v Sumal & Sons (Properties) Ltd [2012] EWCA Crim 1840, [2013] 1 WLR 2078. The CCRC had said at paragraph 68 of the reference:

"The CCRC considers that in the circumstances there is a real possibility that the Court of Appeal will conclude that like the offence in Sumal (letting properties without a licence) and the offence of Mr Singh in McDowell and Singh (selling scrap metal whilst unregistered) the offence under s.216 of the [Insolvency Act] (reusing a prohibited business name without the leave of the Court) is not conduct which of itself results in the offender obtaining property or a pecuniary advantage. Consequently in the CCRC's view, no confiscation order is appropriate."

The decision in Sumal and McDowell and Singh

23. It is important to begin by pointing out that the decisions in Sumal and McDowell and Singh had no connection and nothing to do with the decision of the Supreme Court in Waya [2012] UKSC 51 on which the application by the appellant had been based and which we consider at paragraph 39 below.
24. Sumal and McDowell and Singh were both concerned with the assessment of benefit where the offence committed was the failure to obtain a licence. In Sumal the defendant had been an owner of property which was rented without a licence contrary to s.95(1) of the Housing Act 2004. It had been held at the Crown Court that the defendant had benefited from criminal conduct in the amount of the rent received while no licence had been obtained; a confiscation order was made in that amount. It was submitted on the appeal that that decision was correct as the rent obtained was obtained unlawfully as a consequence of the defendant committing the offence under s.95(1). However, the Court of Appeal held that that decision was wrong as under the statute, read as a whole, it was clear that the failure to obtain a licence did not make the contract illegal; the right of the owner to recover rent remained enforceable at the suit of a landlord.
25. In McDowell and Singh the defendant McDowell had failed to obtain a licence to deal in arms under the Trade in Goods (Control) Order 2003; the defendant Singh had failed to obtain a licence for dealing in scrap metal under the Scrap Metal Dealers Act 1964. The court held, after consideration of the decisions in del Basso [2010] EWCA Crim 1119, [2011] 1 Cr App R(S) 41 and Sumal, that:

"34. In our judgment these decisions of the court further demonstrate the importance of identifying the criminal conduct of the offender at the first stage of the assessment. It is not sufficient to treat 'regulatory' offences as creating a single category of offence to which POCA is uniformly applied. We respectfully agree with the conclusion of the court in Sumal that the question whether benefit has been obtained from criminal conduct must first depend upon an analysis of the terms of the statute that creates the offence and, by that means, upon an identification of the criminal conduct admitted or proved. It may be that, as in Sumal, the wider statutory context of the offence will assist to answer the critical question: what is the conduct made criminal by the statute – is it the activity itself or is it the failure to register, or obtain a licence for, the activity? In our judgment, there is a narrow but critical distinction to be made between an offence that prohibits and makes criminal the very activity admitted by the offender or proved against him (as in del Basso) and an offence comprised in the failure to obtain a licence to carry out an activity otherwise lawful (as in Sumal)."

Our conclusion

26. It is clear that both of those decisions turn upon the application of different statutory provisions. They plainly do not amount to any change in the law. It appears to have been the view of the CCRC and it was the submission of the appellant that, for a reason that it is difficult to understand, the characterisation of the offences in those cases as "regulatory offences" meant that the decision carefully arrived at in the first appeal by the appellant in 2007 in this case was somehow wrong.
27. It is, however, clear from the decisions and in particular paragraph 34 of the judgment of the court in McDowell and Singh that the approach of the CCRC in referring the case and the appellant's submission was misconceived. It is always necessary to conduct an analysis of the terms of the statute that creates the offence and identify the criminal conduct admitted or proved. This is what this court did in subsequent cases such as Palmer [2016] EWCA Crim 1049 (on which there is helpful commentary in [2016] Crim LR 856) where the court reiterated what was said in the earlier cases:

"18. Thirdly, the question where benefit has been obtained from criminal conduct must first depend on the proper interpretation of the statute which creates the offence, and by that means identify the criminal conduct which has been proved or admitted.

19. Fourthly, for this reason it will not necessarily be helpful to look at other statutes and other factual circumstances in order to answer, by analogy, the question that arises in any particular case. It is the wording of the statute in question that matters."

28. It is therefore necessary on this appeal to reconsider whether this court was in error in the analysis it carried out of the offence under s.216 of the Insolvency Act 1986. It provided:

"Restriction on re-use of company names

1. This section applies to a person where a company ("the liquidating company") has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation.

2. For the purposes of this section, a name is a prohibited name in relation to such a person if—

a. it is a name by which the liquidating company was known at any time in that period of 12 months, or

3. Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation—

c. in any way, whether directly or indirectly, be or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name."

29. It is clear that the analysis of the offence set out by Elias J was unquestionably correct; the criminal activity was carrying on the business in the prohibited name. On the findings of fact made by the judge, as this court held in 2007, it is simply unarguable to contend that no benefit arose from the criminal activity which comprised the offence.
30. There is nothing remotely surprising in this conclusion. In simple terms, the illegal use of a name in selling goods is often an activity through which criminals obtain a benefit. On the construction of s.216 of the Insolvency Act and on the unimpeachable and clear findings of the judge made in 2005, it is clear that the appellant carried on the business under a prohibited name and it was the carrying on of that business under that name that gave her a significant benefit.
31. The submission of the appellant therefore fails entirely on this first ground.

(2) What was the benefit received?

32. The second ground on which the reference was made related to the assessment of the benefit. It is self-evident that this was a factual enquiry which was carried out on the basis of the ruling made by Judge Ross in 2005. As the appellant was a sole trader there could be no question as arose in Jennings v The CPS [2008] 1 AC 1046 as to whether the appellant obtained a benefit (see paragraphs 12-14 of the judgment of Lord Bingham).
33. It was submitted by the CCRC and by the appellant that the trial judge and this court were in error in looking at turnover.
34. However, it is clear that submission is also misconceived. As this court said in 2007, the critical question was the application of s.71(4). Giving that provision its ordinary meaning, the benefit that the appellant, as the sole trader, obtained through the use of the name was the turnover, that is to say the receipts or payments into the account.
35. We were taken to what were said to be the relevant accounts for the period during which the appellant had unlawfully used the name of Neuberg Metal Spinners, namely the unaudited accounts of the business carried on in the name of "Supreme Metal Spinning" of which the appellant was the sole proprietor for the period 1 January 2001 to 31 March 2002 and the draft accounts for the same entity for the year 31 March 2002 to 31 March 2003. The period during which the offence was committed spanned part of those years. It was submitted to us that if we examined the accounts and draft accounts it could be seen that the profit for both years was very much smaller than the turnover.
36. However, as we discuss in relation to the third question, the accounts and draft accounts present considerable difficulties when trying years later to discern the position of the appellant during the period.
37. For present purposes, it is sufficient to say that, as this court held in 2007, the judge was unquestionably correct in calculating the benefit by reference to the turnover.

Was the Order proportionate?

38. As is apparent from the summary we have given of the decision of this court in 2007, this court, as the law then stood, rejected the argument advanced by Mr Hotten QC that the amount of the benefit could be limited by a concept akin to proportionality.
39. However, in Waya, the Supreme Court decided that there might be occasions where the court, once it had determined under the operation of the stringent provisions of the confiscation legislation what the benefit was, could consider whether the order was proportionate. Lord Walker and Sir Anthony Hughes, giving the majority judgment, dealt with the paradigm case where the legislation would have determined a benefit had been obtained even though nothing had in reality been obtained or retained. They said at paragraph 34:

"There may be other cases of disproportion analogous to that of goods or money entirely restored to the loser. That will have to be resolved case by case as the need arises. Such a case might include, for example, the defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained. He ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration. Counsel's submissions also touched very lightly on cases of employment obtained by deception, where it may well be that difficult questions of causation may arise, quite apart from any argument based upon disproportion. Those issues were not the subject of argument in this case and must await an appeal in which they directly arise; moreover related issues are understood to be currently before the Strasbourg court."

40. In the present case there has undoubtedly been a change in the law as a result of the decision in Waya which has been applied subsequently in decisions such as R v Sale [2013] EWCA Crim 1306, [2014] 1 WLR 663. As we have said at paragraph 20, we consider that as certain paragraphs of the CCRC's reference referred to Waya, it was intended that we should consider this as a third issue. It would in any event be open to us to consider this third issue, although not referred to us by the CCRC, exercising our powers under s.14 (4) and (5) of the Criminal Appeal Act 1995. It would therefore be open to us to determine whether the confiscation order was disproportionate provided the evidence before us enabled us to do so.
41. However, the only evidence before us were the accounts and draft accounts to which we have referred. There is a statement from the appellant dated 22 May 2005 (purporting to answer the prosecutor's statement of 14 January 2005) which was available at the hearing, though the prosecutor's statement was not. There was also a statement from her husband dated 21 April 2005. The accounts, draft accounts and the statements are annexed to the reference. That was the totality of the evidence.
42. We have already referred to the fact that the accounts are not of any real assistance. For example, according to the accounts for 1 January 2001 to 31 March 2002, it is clear that the gross profit, on a turnover of £797,000, was £355,000. The items which reduced that to the net profit of £37,000 include depreciation of £130,000, hire purchase interest and various other matters which are not clear. Furthermore, it is clear from the notes to the accounts that in that year there had been drawings of £189,000 though capital of £165,000 had been introduced. The accounts are unaudited and based on the information provided by the appellant. In assessing the weight that could be attached to them, it is necessary to take account of the fact that the judge not only found she had deliberately committed a criminal offence, but it appears disbelieved her on some matters.
43. In respect of the draft accounts for the period 31 March 2002 to 31 March 2003 the gross profit had been £204,000 on a turnover of £530,000; there had been a net loss of £75,000. Again it is not clear how these sums are calculated; it is to be noted there was again depreciation of £107,000 and drawings of £169,000 though capital of £135,000 was introduced. In any event these are not even accounts signed by the appellant.
44. The reference contains no analysis, save an abstract of the sales, gross and net profit shown in the accounts and draft accounts; clearly if the CCRC was to consider making a reference it should have satisfied itself that on the available evidence, properly analysed, there was a case that the order was disproportionate. Nor was any analysis produced by the appellant. No application was made to adduce any other evidence. It was suggested by the CCRC that the court should compare the turnover and profit for the period when the prohibited name was used and the corresponding figures for the period when it was not used. This would amount at best to a "back of the envelope" calculation as the figures were provided by an appellant whom the judge disbelieved. This court cannot contemplate such an approach; what was needed was a proper analysis on the available evidence.
45. On the basis of the information put before us, there is nothing from which we could infer that the amount of the confiscation order in the sum of £100,000 was in any way disproportionate. It is, we think, fair to observe that attempting to conduct an exercise in ascertaining the financial position of this business more than 14 years ago is one that would have been fraught with difficulty. Therefore, it is hardly surprising that on this issue, which is the only issue which relates to a change in the law, there is no evidence which would enable this court to determine whether the amount of £100,000 for which the Order was made was disproportionate. This third issue therefore gives rise to no ground on which to allow any appeal.

Conclusion

46. In our judgement, therefore, it is clear that this appeal must fail. It is a matter of some regret that the reference was made to the court without a more careful analysis of the basis on which the reference was to proceed, particularly in the light of the correct conclusion that the CCRC had reached in 2012 as set out in paragraph 17 above. The result has been the expenditure of the precious resources of the CCRC and of this court to no benefit.

Substantial injustice

47. It has been clearly established for some time that, where there is a change of law but the conviction was entirely proper under the law as it stood at the time of trial, leave to appeal out of time will only be granted where substantial injustice would otherwise be done. That principle has been set out in numerous cases such as R v R [2007] 1 Cr App R 150 and R v Jogee [2016] UKSC 8 at paragraph 100, [2016] 2 WLR 681 and [2016] 1 Cr App R 31.
48. It was also made clear in R v Cottrell [2007] EWCA Crim 2016, [2007] 1 WLR 3262 and [2008] 1 Cr App R 7 that the CCRC, in deciding whether to refer a case to the court, had to take into account the practice of this court. That was confirmed by the decision of the Supreme Court in R v Jogee.
49. In the case of a conviction appeal, the amendment to the Criminal Appeal Act 1968 by the insertion of s.16C(1) enables this court to refuse to allow an appeal against conviction on a reference by the CCRC where, in the court's view, it would not consider it appropriate to extend time in a change of law case.
50. However, there is no corresponding power in a CCRC reference on a sentence. In such a case, it is the essential duty of the CCRC to consider the law in relation to substantial injustice as set out in the decisions to which we have referred and to apply that law when considering whether to refer the case to the court. If the CCRC concludes that there is a substantial injustice on a reference in relation to sentencing, and it makes a reference to this court, then this court may have no power to consider the question of substantial injustice, but may well have to proceed to consider the appeal on sentence purely on the ordinary principles applicable to an appeal brought within time.
51. In the present case it appears that the CCRC may have thought that the issue of substantial injustice was one for the court, as appears from the third issue we have set out at paragraph 19 above. In our judgement it is an issue which the CCRC should have considered and, if it had not considered that issue, or had not done so by applying the clear law, we consider that it would have been open to the prosecuting authority affected by the decision to consider judicial review of the CCRC's decision to refer.
52. It is well accepted that the decision of the CCRC to refer cases to this court can be the subject of judicial review at the suit of the proposed appellant. We see no reason why, if the CCRC was to fail to consider the issue of substantial injustice in a sentence appeal or was to misapply the principles established by this court, then its decision would be unlawful and could be set aside by a Divisional Court.
53. We make those observations to emphasise the importance of the CCRC carrying out its statutory duty. We have no doubt that in the future it will carry out its duty in relation to substantial injustice with great care, but in the unlikely event that it does not, it will be for a court to decide whether the decision of the CCRC can be judicially reviewed and, if so, whether the decision was one arrived at lawfully.