UKSC 51
On appeal from:  EWCA Crim 412
R v Waya (Appellant)
Sir Anthony Hughes
JUDGMENT GIVEN ON
14 November 2012
Heard on 27, 28 and 29 March 2012
(Instructed by Central Law Practice)
David Perry QC
(Instructed by Crown Prosecution Service)
|Advocates to the Court
Jonathan Swift QC
(Instructed by Treasury Solicitor)
|Intervener (Secretary of State for the Home Department)
Lord Pannick QC
(Instructed by Treasury Solicitor)
LORD WALKER AND SIR ANTHONY HUGHES (with whom Lady Hale, Lord Judge, Lord Kerr, Lord Clarke and Lord Wilson agree)
"It is a notorious fact that professional and habitual criminals frequently take steps to conceal their profits from crime. Effective but fair powers of confiscating the proceeds of crime are therefore essential. The provisions of the 1988 Act are aimed at depriving such offenders of the proceeds of their criminal conduct. Its purposes are to punish convicted offenders, to deter the commission of further offences and to reduce the profits available to fund further criminal enterprises. These objectives reflect not only national but also international policy."
These observations have been cited and followed many times, although Lord Steyn's reference to punishment needs some qualification. Despite the use of the term "confiscation", which is a misnomer, orders under Part 2 of POCA are made in sums of money ("value-based") rather than being directed, as are civil recovery orders under Part 5 of POCA, at the divestment of specific assets. Nevertheless, a confiscation order is not an additional fine.
II The statutory provisions
"76 Conduct and benefit
This section has no associated Explanatory Notes
(1) Criminal conduct is conduct which—
(a) constitutes an offence in England and Wales, or
(b) would constitute such an offence if it occurred in England and Wales.
(2) General criminal conduct of the defendant is all his criminal conduct, and it is immaterial—
(a) whether conduct occurred before or after the passing of this Act;
(b) whether property constituting a benefit from conduct was obtained before or after the passing of this Act.
(3) Particular criminal conduct of the defendant is all his criminal conduct which falls within the following paragraphs—
(a) conduct which constitutes the offence or offences concerned;
(b) conduct which constitutes offences of which he was convicted in the same proceedings as those in which he was convicted of the offence or offences concerned;
(c) conduct which constitutes offences which the court will be taking into consideration in deciding his sentence for the offence or offences concerned.
(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(5) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.
(6) References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained both in that connection and some other.
(7) If a person benefits from conduct his benefit is the value of the property obtained.
. . .
79 Value: the basic rule
This section has no associated Explanatory Notes
(1) This section applies for the purpose of deciding the value at any time of property then held by a person.
(2) Its value is the market value of the property at that time.
(3) But if at that time another person holds an interest in the property its value, in relation to the person mentioned in subsection (1), is the market value of his interest at that time, ignoring any charging order under a provision listed in subsection (4).
(4) The provisions are—
(a) section 9 of the Drug Trafficking Offences Act 1986 (c. 32);
(b) section 78 of the Criminal Justice Act 1988 (c. 33);
(c) Article 14 of the Criminal Justice (Confiscation) (Northern Ireland) Order 1990 (S.I. 1990/2588 (N.I. 17));
(d) section 27 of the Drug Trafficking Act 1994 (c. 37);
(e) Article 32 of the Proceeds of Crime (Northern Ireland) Order 1996 (S.I. 1996/1299 (N.I. 9)).
(5) This section has effect subject to sections 80 and 81.
80 Value of property obtained from conduct
(1) This section applies for the purpose of deciding the value of property obtained by a person as a result of or in connection with his criminal conduct; and the material time is the time the court makes its decision.
(2) The value of the property at the material time is the greater of the following—
(a) the value of the property (at the time the person obtained it) adjusted to take account of later changes in the value of money;
(b) the value (at the material time) of the property found under subsection (3).
(3) The property found under this subsection is as follows—
(a) if the person holds the property obtained, the property found under this subsection is that property;
(b) if he holds no part of the property obtained, the property found under this subsection is any property which directly or indirectly represents it in his hands;
(c) if he holds part of the property obtained, the property found under this subsection is that part and any property which directly or indirectly represents the other part in his hands.
(4) The references in subsection (2)(a) and (b) to the value are to the value found in accordance with section 79.
84 Property: general provisions
(1) Property is all property wherever situated and includes—
(b) all forms of real or personal property;
(c) things in action and other intangible or incorporeal property.
(2) The following rules apply in relation to property—
(a) property is held by a person if he holds an interest in it;
(b) property is obtained by a person if he obtains an interest in it;
(c) property is transferred by one person to another if the first one transfers or grants an interest in it to the second;
(d) references to property held by a person include references to property vested in his trustee in bankruptcy, permanent or interim trustee (within the meaning of the Bankruptcy (Scotland) Act 1985 (c. 66)) or liquidator;
(e) references to an interest held by a person beneficially in property include references to an interest which would be held by him beneficially if the property were not so vested;
(f) references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest or power;
(g) references to an interest, in relation to land in Scotland, are to any estate, interest, servitude or other heritable right in or over land, including a heritable security;
(h) references to an interest, in relation to property other than land, include references to a right (including a right to possession)."
III The effect of HRA
a. whether POCA is capable of operating in a manner which is oppressive and/or an abuse of process;
b. if so, whether the court ought to give any (and if so what) guidance on when that might occur;
c. what ought to be the approach to property gained by the defendant but fully restored to the true owner;
d. what ought to be the approach to a dishonestly-obtained loan which had been fully repaid.
Further submissions on these and related topics were, in consequence, made by all parties at the re-hearing of the appeal.
"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.
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"
"93. The Court reiterates that an interference with the peaceful enjoyment of possessions must strike a 'fair balance' between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights [see, among other authorities, Sporrong and Lönnroth, cited above, p. 26, § 69]. The concern to achieve this balance is reflected in the structure of Article 1 of Protocol No. 1 as a whole, including therefore the second sentence, which is to be read in the light of the general principle enunciated in the first sentence. In particular, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by any measure depriving a person of his possessions [see Pressos Compania Naviera SA and Others v Belgium, judgment of 20 November 1995, Series A no. 332, p. 23, § 38].
In determining whether this requirement is met, the Court recognises that the State enjoys a wide margin of appreciation with regard both to choosing the means of enforcement and to ascertaining whether the consequences of enforcement are justified in the general interest for the purpose of achieving the object of the law in question [see Chassagnou v France [GC], nos. 25088/94, 28331/95 and 28443/95, § 75, ECHR 1999-III]."
Although that case applied this principle to very particular facts, relating to the operation of post-reunification German land re-organisation, the principle itself is gathered from established Strasbourg jurisprudence in terms often repeated and generally applied.
"read and given effect in a way which is compatible..." [with it].
(a) that POCA must be read and given effect in a manner which avoids a violation of A1P1;
(b) that a confiscation order which did not conform to the test of proportionality would constitute such a violation;
(c) that it is incumbent upon the domestic court to provide a remedy for any such violation; and
(d) that the appropriate remedy lies in the duty of the Crown Court judge not to make an order which involves such a violation.
These submissions are plainly correct. Any such violation can be avoided by applying to POCA, and in particular to section 6, the rule of construction required by section 3 of HRA. The extent of the court's obligation under section 3 was summarised by Lord Bingham in Sheldrake v DPP  UKHL 43,  1 AC 264, para 28:
"The interpretative obligation of the courts under section 3 of the 1998 Act was the subject of illuminating discussion in Ghaidan v Godin-Mendoza  2 AC 557. The majority opinions of Lord Nicholls, Lord Steyn and Lord Rodger in that case (with which Lady Hale agreed) do not lend themselves easily to a brief summary. But they leave no room for doubt on four important points. First, the interpretative obligation under section 3 is a very strong and far reaching one, and may require the court to depart from the legislative intention of Parliament. Secondly, a Convention-compliant interpretation under section 3 is the primary remedial measure and a declaration of incompatibility under section 4 an exceptional course. Thirdly, it is to be noted that during the passage of the Bill through Parliament the promoters of the Bill told both Houses that it was envisaged that the need for a declaration of incompatibility would rarely arise. Fourthly, there is a limit beyond which a Convention-compliant interpretation is not possible, such limit being illustrated by R (Anderson) v Secretary of State for the Home Department  1 AC 837 and Bellinger v Bellinger  2 AC 467. In explaining why a Convention-compliant interpretation may not be possible, members of the committee used differing expressions: such an interpretation would be incompatible with the underlying thrust of the legislation, or would not go with the grain of it, or would call for legislative deliberation, or would change the substance of a provision completely, or would remove its pith and substance, or would violate a cardinal principle of the legislation (paras 33, 49, 110-113, 116). All of these expressions, as I respectfully think, yield valuable insights, but none of them should be allowed to supplant the simple test enacted in the Act: 'So far as it is possible to do so …'. While the House declined to try to formulate precise rules (para 50), it was thought that cases in which section 3 could not be used would in practice be fairly easy to identify."
"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."
"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.
"The purpose of confiscation proceedings is to recover the financial benefit that the offender has obtained from his criminal conduct."
"The legislation … does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine."
(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".
IV The facts
"Where a person obtains a money transfer by deception contrary to section 15A Theft Act 1968 as amended, and thereby causes a lending institution to transfer funds to the person's solicitor for the purpose of a mortgage advance to enable purchase by that person of a residential property, does:-
i) That person obtain a benefit from his conduct in the form of property within the meaning of Part 2 of the Proceeds of Crime Act 2002?
ii) If so is the property so obtained the value of the loan advanced to purchase the property or his interest in the property or some other property?
iii) If not does the person obtain a pecuniary advantage within the meaning of Part 2 of the Proceeds of Crime Act 2002?"
The issues in the appeal have since become wider, partly as the result of directions given by this Court when directing a rehearing (see para 10 above).
V The property obtained
"In our judgment, at the latest at the time the conditions upon which the money was advanced were satisfied, the appellant had at the least an equitable interest in the money transfer order in his solicitor's account, namely a right to ensure that the money was forwarded to the vendor to complete the purchase. Whether the appellant's interest was in property belonging to the lender institution at a time when his interest arose is irrelevant to our inquiry although it was central to the decision in Preddy [R v Preddy  AC 815]. In the words of section 15A Theft Act as amended he obtained the money transfer for himself, if only for the purpose of it being applied to discharge the obligation to pay the purchase price for the property through the solicitor's account."
"It must, however, be appreciated that section 71(4) called for an essentially factual inquiry: what is the value of the property the defendant obtained? If (say) a defendant applies £10,000 of tainted money as a down-payment on a £250,000 house, legitimately borrowing the remainder, it cannot plausibly be said that he has obtained the house as a result of or in connection with the commission of his offence."
"The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The 'scintilla temporis' is no more than a legal artifice."
"But 'obtain' does include the cases where a defendant retains control over property received by a third person as a result of steps taken by him, as well as cases where he obtains an interest in property received by a third person."
In R v May  AC 1028, para 16 Lord Bingham stated that the observations on section 71(4) made by Buxton J in R v Gokal (7 May 1997) "should not . . . be understood as excluding . . . cases where payment is made to a third party at the behest of the defendant."
VI The operation of section 80(3)
a) Once property has been obtained as a result of or in connection with crime, it remains the defendant's benefit whether or not he retains it. This is inherent in the value-based scheme for post-conviction confiscation.
b) If however the defendant does not retain all or any of the property originally obtained, but does have other property representing it in his hands, then section 80(3) operates. This is an important part of the statutory scheme in cases where, for example, the profits of crime such as drug trafficking, are laundered into other assets which are likely to rise in value.
c) Even in such a case, s 80(3) only bites if the value of the representing property is larger than the value of the property originally obtained; if it is not, the benefit remains the value of what was originally obtained, subject to index-linking under section 80(2)(a).
d) Where s 80(3) applies, the value of the representing property is an alternative but not an additional or cumulative benefit; see the helpful explanation offered by Toulson LJ in Pattison, considered below at paras 59 to 61.
"It is the prosecution's argument that where a defendant acquires property through criminal conduct, and subsequently deals with that property, then any proceeds of that dealing must be benefits which result from the offending and are therefore to be added to the original value of the property. This overlooks the provisions of section 80 (to which the judge was not referred) but before coming to that section it is worth pausing to consider the implications of the argument. Suppose that after the appellant received the property worth £150,000 he had sold it for that sum and put the money in the bank. On the prosecution's argument, the benefit that he would then have received and for which he would be amenable to a confiscation order would be £300,000, representing the value of the property (£150,000) plus the sum for which he realised it (£150,000). If he then used the £150,000 to buy a yacht worth £150,000, the benefit would rise to £450,000. If he then tired of sailing and sold the yacht for the same price, the benefit which he would have received and for which he would be liable to a confiscation order would become £600,000. All the while, his true financial position would have remained identical. That offends commonsense. Every school child knows that you cannot have the penny and the sweet. If your mother gives you a penny and you buy a sweet with it, your benefit is a penny's worth and not two penny's worth. It is correct that the provisions of the legislation are draconian, but the effect of the prosecution's argument would not [make] any underlying sense. Fortunately, s.80 addresses the situation where a person subsequently deals with property which has been acquired by him through criminal conduct."
He then set out the terms of section 80, and concluded that quantifying the benefit at £150,000 accorded "with the language of the statute as well as with justice and commonsense." It was represented, on the estate agent's confiscation day, by an equity of redemption (presumably worth about £90,000, since the loan had not been drawn down in full) and £60,000 in his bank account.
". . . that the 'market value', within section 79(2), of property obtained by a thief or a handler is the amount it would have cost the defendant to obtain the property legitimately, or the economic value to the loser, rather than what the defendant could get for the property if he sold it (or, therefore, what he could get for his interest in the property if he sold that interest). That was the approach of the Courts when applying section 74(5) of the [Criminal Justice Act 1988]: see, most obviously, R v Ascroft  1 Cr App R (S) 326: paras 56 and 60 above. On that basis there is no need to consider the nature of the defendant's interest in the property obtained or the market value of that interest: the focus is on the incoming value of the property, not the value of the property in his hands."
The Court considered that Parliament did not intend to alter the outcome of Ascroft, and that the restoration of stolen property to the owner was irrelevant. It added that R v Johnson  2 QB 249 and R v Walls  1 WLR 731 did not tell against this conclusion.
market value 1,200,000
original equity 310,000
60% thereof 255,000
"In our judgment it is neither unjust nor surprising that where a property is bought with a relatively low down-payment and a high mortgage and it increases in value, the benefit to the defendant is a sum which may be a multiple of the original deposit. That is because, subject to any interest payments, any mortgage remains unchanged by increases in market values, whereas the defendant has acquired the equity in the property, that is to say he has the property subject only to the mortgage. That appears to us to be plain on the wording of section 4 and having regard to the draconian purposes of the Act".
So where the down-payment was tainted money, and gearing was obtained by the use of a mortgage, the Court of Appeal had no reason to depart from the entirely uncontroversial view that subject to the fixed sum of principal secured by the mortgage, the equity in the property, including the whole of any capital appreciation, belongs to the owner.
VII The remortgage
VIII Repayment of principal
IX The order to be made
market value 1,850,000
original equity and
60% thereof 392,400
LORD PHILLIPS AND LORD REED
The Analysis of the Majority
i) The property initially obtained by Mr Waya was the bundle of contractual rights and liabilities to which Mr Waya was subject prior to completion (see paragraph 53).
ii) These constituted a single chose in action (see paragraph 53).
iii) The chose in action had no value (see paragraph 53).
iv) After completion (and before the remortgage) the property that "represented" the original chose in action was (a) 60% of the open market value of the flat from time to time, less the mortgagee's security interest of £465,000, or (b) 60% of the increase in the flat's market value over its acquisition price (see paragraph 70) or (c) 60% of the increase in Mr Waya's equity in the flat (see paragraph 71), these being different ways of describing the same property.
v) After the remortgage (and ignoring the repayment of principal) the property that represented the original chose in action was 60% of the increase in Mr Waya's equity in the flat (see paragraphs 74, 75 and 80).
vi) On the facts of this case the repayment of principal can be reflected by adding the amount of the repayment to the original down payment (see paragraph 77).
vii) The effect of regular repayments of principal under a long term mortgage should be dealt with by a notional adjustment to the original down payment and the original mortgage advance (see paragraph 77).
viii) The POCA benefit arrived at in accordance with the preceding steps was the same as the real benefit that Mr Waya obtained by his criminal behaviour, so that it was proportionate to base the confiscation order on the POCA benefit.
Step (i): The property that Mr Waya initially obtained was the bundle of rights and liabilities to which he was subject prior to completion
Step (ii): the bundle of rights and liabilities constituted a single chose in action. Step (iii): the chose in action had no value
Step (iv): After completion and until the remortgage, the chose in action was represented by (i) 60% of the market value of the flat less the mortgagee's security interest of £465.000, or (ii) 60% of the increase in market value of the flat over its acquisition price or (iii) 60% of the increase in Mr Waya's equity in the flat, all three being the same thing
Step (v): After the remortgage (and ignoring the repayment of principal) the chose in action was represented by 60% of the increase in Mr Waya's equity in the flat
Step (vi): On the facts of this case the repayment of principal can be reflected by adding the amount of the repayment to the original down payment
"Once repayment of capital was made, the representing property in the hands of Mr Waya was no longer 60% of the market value less the mortgage and untainted contribution but was the lesser percentage which £465,000 less £23,400 yields".
Step (vii): The effect of regular repayments of principal under a long term mortgage should be dealt with by a notional adjustment to the original down payment and the original mortgage advance
Step (viii): the POCA benefit, calculated in accordance with the preceding steps, was the same as the real benefit obtained by Mr Waya's criminal conduct so that the confiscation order based upon it was proportionate
The property initially obtained by Mr Waya
The value of the property initially obtained
The effect of the remortage
The effect of the repayment of principal
The confiscation order according to POCA
The real benefit obtained by Mr Waya
"The lender suffered no loss, indeed as the loan was redeemed early it made a profit of £58,000. By their verdict the jury plainly and surely concluded that you knew that the employment details entered on the form were false; you nevertheless signed it. Whether you were responsible for the collection and collation of the supporting documentation is far from clear. There was no false valuation, and the probability is that if you had been open and honest with the lender the loan would have been granted anyway. It may well also have been the case that you left almost everything to others…" (our emphasis).