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||Neutral Citation Number:  EWCA Crim 1303
||Case Nos: 2008/03022/B3 and 2008/00051/DI
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM WOOD GREEN CROWN COURT
HHJ BROWNE QC T20070115
ON APPEAL FROM PORTSMOUTH CROWN COURT
HHJ COWLING T20070011
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE AIKENS
MR JUSTICE HEDLEY
MR JUSTICE HICKINBOTTOM
||- and -
||MORNINGTON STAFFORD SEAGER
||- and -
||ENDON BARRY BLATCH
Mr Paul R Hynes for the Appellant
Andrew Mitchell QC and Mr Alex Munro for the Respondent
Miss Clare Montgomery QC and Mrs Clare Sibson for the Appellant
Mr Andrew Mitchell QC and Mr Jonathan Hall for the Respondent
Hearing dates : 1st May 2009
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Aikens:
- There are two cases before the court which both concern confiscation orders. The same issue arises in each case. It is, broadly, how should the court determine the value of the "benefit" obtained by an offender who has been guilty of managing a company as a director in contravention of a director's disqualification order or an undertaking not to act as a director? In each of these cases the Crown Court judge concluded that the benefit obtained as a result of the criminal conduct by the person who had contravened the disqualification order or undertaking was equal to the total turnover of the relevant companies for the period of his contravention. In both cases the Crown Court judges followed the decisions given by this court in Jennings v CPS  4 All ER 391 and R v Neuberg  EWCA Crim 1994,  1 Cr App R (S) 84. The resulting confiscation orders were therefore made on that basis.
- However, since then the House of Lords has delivered judgments in three cases on the question of how "benefit" is to be assessed and what is meant by an offender "obtaining" a "benefit" in the context of confiscation orders under the proceeds of crime legislation. These are: R v May  1 AC 1028; Jennings v CPS  1 AC 1046 and R v Green  1 AC 1053. An important part of the judgment of Laws LJ in the Court of Appeal in Jennings was disapproved, although in the result the appeal was dismissed. It is, at the least, questionable whether all or part of R v Neuberg now represents good law.
- In the case of Blatch, the applicant participated in the running of six associated companies despite a director's disqualification order which forbade him from doing so. He seeks leave to appeal against the confiscation order for £941,272 which was made by HHJ Cowling on 30 November 2007 pursuant to section 71 of the Criminal Justice Act 1988 ("CJA 1988"). The judge found that the applicant had benefited from his criminal conduct in that sum. The judge said that the correct measure of the benefit obtained by the applicant was "…the gross turnover of those companies during the relevant period": ruling at 10F/G. The issue is whether that approach can now be regarded as sound in law. We grant leave on the sole issue of how the appellant's "benefit" is to be assessed under section 71 of the CJA 1988, when the offender is a disqualified director of a company (or companies) in which he has actively been concerned during the period of his disqualification.
- In the case of Seager, HHJ Browne QC ruled, on 25 April 2008, that Mr Seager had benefited from his particular criminal conduct in the sum of £1.5 million. The judge found that Mr Seager had been actively participating in running a company despite the fact that he had given an undertaking to the court not to do so without the further leave of the court. The judge determined the benefit obtained by Mr Seager, for the purposes of section 6(4) of POCA 2002, "…from the gross turnover and profits of this company [in the relevant period]": ruling page 9 C-D. It was common ground before the judge that the turnover of the company during the relevant period was £1.5 million. The judge held that Mr Seager had fewer means than that sum, so he assessed the realisable amount and thus the amount of the confiscation order, under section 76(4) of the Proceeds of Crime Act 2002, ("POCA 2002"), at £356,249.20.
- Mr Seager sought leave to appeal that order. Hedley J granted leave, but he said that only one issue that was arguable. That was whether the relevant provisions concerning confiscation set out in POCA 2002 applied to the offence of the type to which the appellant had pleaded guilty so as to give the Crown Court jurisdiction to make any confiscation order at all. The single judge commented: "There is no argument over the "benefit" figure or over assets". However, that is not now the argument pursued by Mr Hynes, who appeared for Mr Seager before us. We granted leave to amend the Grounds of Appeal. The sole issue in his appeal is whether, for the purposes of section 6(4) of the POCA 2002, the turnover of the company can properly be said to be the "benefit" obtained by the offender, when he is a person who has given an undertaking not to act as a director, but he has actively been concerned in the company during the period of that undertaking.
R v Endon Blatch: The Facts
- Until February 2001, the appellant Endon Blatch, whom we will refer to as Mr Blatch, owned all of the shares in a company called EBB Investments Ltd ("EBB"), which in turn directly or indirectly owned all of the shares in a number of subsidiary companies including South Shore Freehold Ltd ("South Shore"), Maritime & Leisure Investments Ltd ("Maritime & Leisure"), Northern Counties Leisure Limited ("Northern Counties"), Leisure Experience Limited ("LEL"), Leisure Harbours Limited ("LHL"), and Bembridge Harbour Improvement Co Ltd ("Bembridge Harbour") . We shall call these companies together "the companies". It was common ground before the judge that all the companies conducted entirely legitimate businesses.
- Bembridge Harbour was by far the most important of these companies. The company had been incorporated by the Brading Harbour Improvement Railway and Works Act 1878, a private Act of Parliament. The company's name had been changed and its powers amended by the Brading Harbour and Railway Act 1896 and then by the Pier and Harbour Order (Bembridge Harbour) Confirmation Act 1963. Section 31 of this last Act provided that if in any financial year the company received income exceeding the monies required to manage and maintain the harbour, the excess must be spent on dredging the harbour or renewing, constructing or improving works there.
- Prior to 13 February 2001, Mr Blatch was a director of EBB and, effectively, controlled and ran that company and the subsidiaries. On 13 February 2001, at Scarborough County Court, Mr Blatch was disqualified from acting as a company director for 6 years: ("the Disqualification Order"). However, despite that order, he continued to participate in the direction and management of the companies, in particular through his shareholding of EBB and its control of the various subsidiary companies.
- On the 11 June 2007, at Portsmouth Crown Court, Mr Blatch pleaded guilty to 6 counts of acting in contravention of the Disqualification Order in relation to 6 companies within the group. The Particulars of Offence stated that Mr Blatch, being a disqualified director, took part in or was concerned in the management of the relevant company during various periods between 6 March 2001 and 20 May 2005. He was sentenced to 8 months imprisonment suspended for 18 months in respect of 3 counts relating to the companies which had traded, ie. South Shore, Maritime & Leisure and Bembridge Harbour. In addition, he was made subject to a Prohibitive Action Requirement that he refrain from participating in the management of any company for a period of 18 months, and an order disqualifying him from acting as a director for 5 years. No separate penalty was imposed in respect of the counts relating to the 3 other companies, which had not traded.
- In the confiscation hearing it was common ground, in the light of the case law at the time, that Mr Blatch's benefit was not limited to monies that he had personally obtained in connection with his offences, but would include any monies that Mr Blatch had caused the companies to obtain in the sense of having contributed materially to them doing so. Therefore it was common ground that the benefit was equal to the turnover of the companies that he had caused the companies to obtain. The only dispute was over how much of the turnover of the three relevant trading companies Mr Blatch had caused the companies to obtain. The judge found that the entire turnover of Maritime & Leisure was also included in the turnover of Bembridge Harbour, so to include any of the former would be double counting. In relation to Bembridge Harbour, the judge found, contrary to arguments on behalf of Mr Blatch, that he had played a considerable part in its management and had consequently caused that company to obtain its entire turnover of £920,235. Mr Blatch accepted that he had caused South Shore to obtain its entire turnover of £21,037. Hence the benefits figure of £941,272, i.e. the aggregate turnover of South Shore and Bembridge Harbour. As there was no dispute that Mr Blatch had assets to that value, a confiscation order was made in the same amount.
- The judge summarised his findings as follows (ruling 10F):
"On the facts I have found here it is clear…that a benefit has been obtained as a result of or in connection with the commission of the crime in relation to both [Bembridge Harbour] and [South Shore]. And that the defendant's criminal acts have been a cause, in the sense of having materially contributed to the obtaining the property. The correct measure of benefit in my judgment is the gross turnover of those companies during the relevant period".
Seager, R v: the facts.
- This appellant, whom we shall call Mr Seager, had been the director of a small family company called Tabline Ltd. On 25 June 2003 he resigned his directorship and his wife and son were appointed directors in his stead. On 4 September 2003 he signed a 5 years disqualification undertaking, which became operative on 29 September 2003. That prevented Mr Seager from taking part or being concerned in the promotion, formation, or management of any company. He signed this undertaking after he was threatened with disqualification proceedings because of the poor financial record of the previous company of which he had been a director. That previous company had been wound up with large debts to their creditors. It was believed that Tabline was, effectively, being used as a vehicle to run the remaining business of the former company.
- However, Mr Seager continued to be involved in running Tabline. In particular he negotiated a lease with the landlords of Tabline, the Kimoto group. In doing so Mr Seager signed letters of agreement and a company cheque. After Tabline had become tenants of Kimoto, it defaulted on payments of rent.
- During all this time neither Tabline's bankers, Lloyds TSB, nor its accountants, knew that Mr Seager had resigned as a director of the company. They continued to deal with him as before. However, on 7 July 2004 Tabline entered a creditors' voluntary liquidation, with an estimated deficiency of over £1 million. When Mr Seager was interviewed, he accepted that he had been involved with Tabline. However, he said that he worked as an employee at the direction of his son.
- The Particulars of Offence on the Indictment stated that Mr Seager had taken part in the promotion, formation and management of Tabline between 29 September 2003 and 7 July 2004, being a person disqualified from doing so by his undertaking to the Court, and doing so without the leave of the Court. The Crown did not allege that Mr Seager had been dishonest. Nor did the Crown assert that any particular loss to Tabline had resulted from his actions as carrying on as a shadow director of the company. Its case was that he should have known that he was not entitled to carry on in the direction and management of the company as if he were a director.
- When the judge ruled on the issue of the "benefit" obtained by the appellant, he applied the decision of this court in R v Neuberg  EWCA Crim 1994,  1 Cr App R (S) 84, which we shall have to analyse in some detail shortly. Judge Browne found that Mr Seager had played an active part in Tabline since his disqualification and that he was fundamental to the running of the company. As already noted, he ruled that the amount of the benefit should be taken from the turnover of Tabline for the period of the disqualification, which was agreed to be £1.5 million: see page 9B-E of the ruling.
The statutory provisions concerning director disqualification: The Company Directors Disqualification Act 1986 ("the 1986 Act").
- For the Crown, Mr Mitchell QC has emphasised the particular statutory provisions of the 1986 Act. He drew our attention to many of its provisions, which we shall have to refer to later. We note now the following particular sections:
"1. - (1) In the circumstances specified below in this Act a court may, and under section 6 shall, make against a person a disqualification order, that is to say an order that [ for a period specified in the order—
(a) he shall not be a director of a company, act as receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of the court, and
(b) he shall not act as an insolvency practitioner.]
[ 1A. — (1) In the circumstances specified in sections 7 and 8 the Secretary of State may accept a disqualification undertaking, that is to say an undertaking by any person that, for a period specified in the undertaking, the person—
(a) will not be a director of a company, act as receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of a court, and
(b) will not act as an insolvency practitioner.
(2) The maximum period which may be specified in a disqualification undertaking is 15 years; and the minimum period which may be specified in a disqualification undertaking under section 7 is two years.
(4) In determining whether to accept a disqualification undertaking by any person, the Secretary of State may take account of matters other than criminal convictions, notwithstanding that the person may be criminally liable in respect of those matters.]
13. —If a person acts in contravention of a disqualification order or [ disqualification undertaking or in contravention]of section 12(2) [ or 12A], or is guilty of an offence under section 11, he is liable—
(a) on conviction on indictment, to imprisonment for not more than 2 years or a fine, or both; and
(b) on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both.
14.— (1) Where a body corporate is guilty of an offence of acting in contravention of a disqualification order [F28 or disqualification undertaking or in contravention of section 12A], and it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity he, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly.
(2) Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.
15. — (1) A person is personally responsible for all the relevant debts of a company if at any time—
(a) in contravention of a disqualification order or [ disqualification undertaking or in contravention]of section 11 [ or 12A]of this Act he is involved in the management of the company, or
(b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given without the leave of the court by a person whom he knows at that time to be the subject of a disqualification order [ or disqualification undertaking or a disqualification order under Part II of the Companies (Northern Ireland) Order 1989]or to be an undischarged bankrupt.
(2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.
(3) For the purposes of this section the relevant debts of a company are—
(a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and
(b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.
(4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company.
(5) For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given without the leave of the court by a person whom he knew at that time to be the subject of a disqualification order [ or disqualification undertaking or a disqualification order under Part II of the Companies (Northern Ireland) Order 1989] or to be an undischarged bankrupt is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.
The statutory provisions concerning confiscation orders: the CJA 1988 and POCA 2002.
- In the case of Mr Blatch, his offences were committed between March 2001 and May 2005. It appears to have been assumed that the provisions in the CJA 1988 (as amended by the Proceeds of Crime Act 1995) therefore applied to confiscation issues in that case. We think that is correct. Article 3(1) of the Proceeds of Crime Act 2002 (Commencement No 5, Transitional Provisions, Savings and Amendment) Order 2003 (SI No 333 of 2003), stipulates that section 6 of POCA 2002 shall not have effect where the offence was committed before 24 March 2003. Article 10(1) saves sections 71 – 89 of the CJA 1988 where POCA 2002 does not apply. Here there was a single Indictment with counts relating to offences that were both before and after the 24 March 2003. It is logical that the earlier Act should apply to all the offences. We note that in Moulden  EWCA Crim 2561, it was common ground that the earlier Act applied, even where there were two Indictments respectively reflecting offences before and after March 2003: see para 15 of the judgment.
- Sections 71(1),(1A),(1B), (4),(5) and (6) of the CJA 1988 (as amended) provide:
"71. - (1) Where an offender is convicted, in any proceedings before the Crown Court or a magistrates' court, of an offence of a relevant description, it shall be the duty of the court—
(a) if the prosecutor has given written notice to the court that he considers that it would be appropriate for the court to proceed under this section, or
(b) if the court considers, even though it has not been given such notice, that it would be appropriate for it so to proceed,
to act as follows before sentencing or otherwise dealing with the offender in respect of that offence or any other relevant criminal conduct.
(1A) The court shall first determine whether the offender has benefited from any relevant criminal conduct.
(1B) Subject to subsection (1C) below, if the court determines that the offender has benefited from any relevant criminal conduct, it shall then—
(a) determine in accordance with subsection (6) below the amount to be recovered in his case by virtue of this section, and
(b) make an order under this section ordering the offender to pay that amount. …….
(4) 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.
(5) Where a person derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated for the purposes of this Part of this Act as if he had obtained as a result of or in connection with the commission of the offence a sum of money equal to the value of the pecuniary advantage.
(6) Subject to subsection 1(C) above the sum which an order made by a court under this section requires an offender to pay shall be equal to —
(a) the benefit in respect of which it is made; or
(b) the amount appearing to the court to be the amount that might be realised at the time the order is made,
whichever is the less.
- In the case of Mr Seager, the offence took place between September 2003 and July 2004. There is no doubt in that case that confiscation issues are governed by the provisions of POCA 2002.
- Sections 6, 8, 76(3)(4) and (6) of the POCA 2002 provide:
"6 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;
(b) he is committed to the Crown Court for sentence in respect of an offence or offences under section 3, 4 or 6 of the Sentencing Act;
(c) he is committed to the Crown Court in respect of an offence or offences under section 70 below (committal with a view to a confiscation order being considered).
(3) The second condition is that—
(a) the prosecutor or the Director 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.
8 Defendant's benefit
(1) If the court is proceeding under section 6 this section applies for the purpose of—
(a) deciding whether the defendant has benefited from conduct, and
(b) deciding his benefit from the conduct.
(2) The court must—
(a) take account of conduct occurring up to the time it makes its decision;
(b) take account of property obtained up to that time.
76 Conduct and benefit
(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 n 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
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.
The law prior to the three House of Lords cases
- A key submission of Mr Mitchell, for the Crown, was that this court can still be guided by the case of R v Neuberg  EWCA Crim 1994,  1 Cr App R (S) 84, in particular the application of the law set out at paragraph 27. In Mr Mitchell's submission the position in Neubrg was analogous to that in the present two. Therefore, it is sensible to see how Elias J in that case summarised the law as it appeared before the three House of Lords decisions. R v Neuberg concerned confiscation proceedings under section 71 of the CJA 1988. The appellant was Mrs Neuberg. Her husband had pleaded guilty to managing a company when an undischarged bankrupt. She had pleaded guilty to the offence of trading under a prohibited style, viz. Neuberg Metal Spinners, between November 2001 and June 2002 without the leave of the court, contrary to the Insolvency Act 2002. Neuberg Metal Spinners had traded for many years. At some stage Neuberg Metal Spinners Limited was incorporated and it carried on the Neuberg Metal Spinners business. But Neuberg Metal Spinners Limited went into liquidation in 1998. Thereafter the Neuberg Metal Spinners business was continued by another company, Watergate Services Limited, of which Mrs Neuberg was the sole director and company secretary, but her husband was the driving force. Then in July 2000, Mr Neuberg was declared bankrupt. Watergate Services Limited carried on business until it ceased trading in March 2001. It was wound up in November 2001.
- After that date it became unlawful to trade in the name of Neuberg Metal Spinners. However Mrs Neuberg carried on trading as "Karen Neuberg trading as Neuberg Metal Spinners" until June 2002, although she had been warned not to do so after 19 November 2001.
- In the confiscation proceedings against Mrs Neuberg, the judge found that she had obtained a benefit from the commission of her offence. He also found that the benefit should be calculated by reference to the turnover of the business for the relevant period. However, as she had fewer realisable assets, the confiscation order was for a smaller sum, which was £100,000.
- Mrs Neuberg appealed that order. Mrs Neuberg raised three arguments on appeal. First, that she had received no benefit from the use of the prohibited name of Neuberg Metal Spinners. Secondly, the proper basis of the assessment of benefit was the net profit, after taking account of any expenditure involved; it should not be gross turnover. Thirdly, the judge making the confiscation order had a broad discretion to consider whether it was in the interests of justice to impose an obligation to pay the sum which was the subject of the Confiscation Order; he should not impose it if to do so would be unjust. This last argument was said to be founded on section 3 of the Human Rights Act 1998.
- At paragraph 17 of the judgment of this court, Elias J summarised six principles which, he said, the cases clearly established. He said that they must be followed when a court carried out a confiscation order hearing under section 71 of the CJA 1988. His principles three to six were as follows:
(3) The way in which the court gives effect to section 71(4) is to ask two questions. The first is whether a benefit has been obtained as a result of or in connection with the commission of the crime. If it has not, that is the end of the inquiry. If it has, then the second question is: what is the value of that benefit?
(4) In determining the first question, the test is whether the offender's criminal acts have been a cause (in the sense of having materially contributed to) of obtaining the property. Whether the property has been retained is irrelevant.
(5) In determining the value of any benefit, the court is not limited to considering the extent to which the offender personally benefited; nor is the concept of benefit to be equated with profit. It is the value of the property obtained, irrespective of the cost of obtaining it.
(6) A judge's findings on the two questions which arise out of section 71(4) are findings of fact. He has a wide discretion when applying these principles. His order will stand if he has a proper evidential basis for it and he has not misdirected himself.
- In support of principle (4), Elias J referred to the judgment of Laws LJ in Jennings v CPS  EWCA Civ 746 at paragraph 38, where Laws LJ had said:
"38. What remains to be said about the meaning of the word 'obtain' in section 71(4)? Clearly it does not mean 'retain' or 'keep'. But no less clearly, in my judgment, it contemplates that the defendant in question should have been instrumental in getting the property out of the crime. His acts must have been a cause of that being done. Not necessarily the only cause: there may, plainly, be other actors playing their parts. All that is required is that the defendant's acts should have contributed to a non-trivial (that is, not de minimis) extent, to the getting of the property. This is no more than an instance of the common law's conventional approach to questions of causation.
Laws LJ had then observed that there was no separate requirement that the defendant should be shown to have control over the property. He said, at paragraph 40 of Jennings:
"40. .... The issue in every case is whether the defendant has obtained property by his crime: it means, as I have indicated, whether his acts have materially contributed to the getting of it."
- At paragraph 20 of Neuberg, the court referred to other authorities in support of principle (5). It referred again to Jennings. Elias J further analysed that case and the decisions it had referred to and then summarised the conclusion in that case as follows:
"20……The court [in Jennings] held that "benefit" refers to whatever the defendant's alleged criminal [conduct] has generated or delivered. Laws LJ therefore rejected the defendant's submission that the concept of benefit was restricted to such property as the defendant obtained for himself or for his family. He observed: "36. It is in my judgment plain that the essence of what is meant by "benefit" in section 71(4) is given by the verb "obtain". And whether in any given case a person has obtained any particular property must involve issues of fact"".
- At paragraph 21, Elias J said that it was clearly established that there was nothing in section 71 that required or entitled the court to have regard to the amount of profit, as opposed to the value of property. He referred to the judgment of May LJ in R v Priestley  EWCA Crim 2237 at paragraph 21, where May LJ had said that the court was concerned with the gross value of property obtained and was not concerned to deduct the cost of obtaining it.
- Having reviewed other authorities, the court in Neuberg concluded that none of them suggested that the principles that had been summarised must be modified. It then applied the principles it had set out. It concluded (at paragraph 27) that Mrs Neuberg had obtained a benefit within the meaning of section 71(4), because she had (as the judge found) used the prohibited name to enable her to trade successfully when she would not otherwise have been able to do so. She benefited from the goodwill attached to it. "The use of the illegal name was one of the causes of the benefits obtained by her".
- The court then dealt with the second ground of appeal. At paragraph 28 Elias J said:
"The second ground of appeal can be dealt with shortly. When calculating the benefit, for reasons we have given, the judge was right to look at turnover and not simply to limit the benefit to profits. We have analysed the authorities with regard to that. They establish a clear principle which the judge applied appropriately".
- The court also rejected the third ground, so the appeal was dismissed.
The three House of Lords decisions
- The first of the trio of cases is R v May  1 AC 1028. That case concerned a confiscation order under the CJA 1988, as amended. The appellant had been convicted of conspiracy to cheat HM Customs and Excise (as it was then) of VAT, which resulted in a loss of about £11 million, by means of a "carousel fraud" in the import of CPUs. Limited companies had been incorporated solely for the purpose of dishonestly retaining and reclaiming the VAT on CPUs that were imported and "sold" to a dishonest trader also involved in the fraud. The appellant had joined the conspiracy about half way through its life, but he was found to be the driving force behind the fraud. The unaccounted VAT for that period was about £4.4 million. For the purposes of assessing the "benefit" obtained by the appellant, the judge had deducted sums recovered from "missing trader" bank accounts and the sale of CPUs that were recovered, leaving a net figure of about £3.2 million, which the judge found was the "benefit obtained" by the appellant.
- In giving the considered opinion of the committee, Lord Bingham of Cornhill traced the history of confiscation legislation and referred to cases which had had construed its terms. There are five passages in the speech of Lord Bingham where he sets out principles which we think are particularly relevant to the present appeals. The first is at paragraph 16, where he referred to an unreported decision of Buxton J, R v Gokal (7 May 1997), in which the judge had to consider the meaning of section 71(4) of the unamended CJA 1988. Lord Bingham said:
"…….. [Buxton J] held that section 71(4) requires "what can fairly be described as an obtaining by the defendant himself" and that "the obtaining of property under section 71(4) must be by the defendant personally". These statements are not incorrect, but they should not, with respect, be understood as excluding joint receipts from the operation of the section, nor cases where payment is made to a third party at the behest of the defendant. "
- At paragraph 28, Lord Bingham discussed a decision of Auld J, R v Rees (unreported, 19 July 1990), which was also a case under the unamended CJA 1988. The defendant had pleaded guilty to offences of obtaining property by deception, contrary to section 15 of the Theft Act 1968, which, as Lord Bingham noted, has its own expanded definition of "obtaining". Lord Bingham continued:
" ……. In the course of his ruling the judge said that "The fact that he may not have personally received all or some of the money in relation to any of those offences is immaterial for the initial purpose of determining the total benefit ...". That may indeed be so for purposes of section 15, but for purposes of section 71(4) of the 1988 Act, with which the judge was dealing, it is of course necessary that the defendant himself should have obtained property as a result of his offending, even if jointly or through a third party at his behest, and his benefit is the value of the property so obtained. That is the view that the judge took, holding the defendant responsible for all the proceeds of the offence, a responsibility he could not normally shed because his accomplices had got away with their respective shares (although under the legislation as it then stood the court had a discretion to mitigate the effect of its conclusion)."
- The next relevant passage is at paragraph 34. There Lord Bingham dealt with a case, R v Sharma  EWCA Crim 16,  2 Cr App R (S) 63, where there were several conspirators and one of them, the appellant, had dealt with the proceeds of a fraud by paying it into a company's bank account of which he was the sole signatory. Sums were then paid from that account to other conspirators. It had been argued on appeal that the amount of "benefit" obtained by the appellant should take account of the sums paid out to co – conspirators. Lord Bingham commented on that decision as follows:
"34. …….. This argument was rejected. It was rightly held (para. 19), applying general principles of law, that a person who receives money into his bank account obtains it from the source from which it is derived and, where he is the sole signatory on the account, he obtains the money and has possession of it for his own benefit. Where (ibid) the defendants have not jointly obtained the benefit, but there has been a disposal by one member of a criminal enterprise to another who knowingly receives it, each is treated as the recipient of a benefit to the extent of the value of the money which has come into the possession of each of them. The amount of the benefit a defendant obtains (para 25) is not affected by the amount which might be obtained by others to whom he transfers any part of the benefit."
- The fourth relevant extract concerns the argument of the appellant to the Court of Appeal and the House of Lords in May itself. The appellant argued that he should not have been held to have benefited from the full sum lost to HM Customs & Excise. Instead, account should have been given for sums he had paid out to co- conspirators from the bank account of the companies established dishonestly to retain and reclaim the VAT. At paragraph 45, Lord Bingham noted that the Court of Appeal had held that the corporate veil of the companies used to retain and reclaim the VAT in the fraud could and should be pierced. The property of those companies, including the sums in their bank accounts, was to be regarded as that of those that controlled the companies. Each conspirator was therefore jointly entitled to the full amount in the bank accounts. Therefore each conspirator had "obtained" the property (ie. the total VAT lost to HM Customs & Excise) for the purposes of section 71(4) of the CJA 1988.
- Lord Bingham agreed with that analysis. He said, at paragraph 46:
"46. The sum which the appellant, jointly with others, was found to have fraudulently obtained from HM Customs and Excise was, in law, as much his as if he had acted alone. That conclusion leads ineluctably to the further conclusions that he benefited from his offending, and benefited to an extent substantially greater than the confiscation order made again him (because of the deduction erroneously made by the judge as recorded in para 6 above). The order made was less than his realisable assets. It is entirely consistent with the legitimate objects of the legislation, and it requires that he be ordered to pay such sum, which involves no injustice or lack of proportionality. …."
- Paragraph 48 of the opinion is entitled "Endnote", but it contains remarks concerning the correct approach to confiscation orders on which both the appellants and the respondents have relied in the two cases before us. For present purposes there are four important points noted by Lord Bingham. These are, first, that "the benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses or any amounts paid to co- conspirators". Secondly, when dealing with confiscation under the legislation, the court must ask three questions: (i) has the defendant benefited from relevant criminal conduct; (ii) if so what is the value of the benefit that he has so obtained; and (iii) what sum is recoverable from the defendant? They are distinct questions. Thirdly, in addressing all questions the court must focus on the language of the statutory provisions and "any judicial gloss or exegesis should be viewed with caution". Fourthly, when determining whether a defendant has obtained property and its value, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. Lord Bingham continued:
"The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership….[A defendant] ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else….Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers".
- The second House of Lords case is Jennings v Crown Prosecution Service  1 AC 1046. That was also a case concerning the CJA 1988, as amended, although statements made by the House of Lords about the construction of section 71(4) of the CJA 1988 Act are intended to apply also (where relevant) to the equivalent sections in the Drug Trafficking Act 1994 and POCA 2002. The case concerned a restraint order made under section 77(1) of the CJA 1988, by which Mr Jennings had been restrained from removing, diminishing or dissipating any of his assets from England and Wales, pending his trial (with others) on a charge of conspiracy to defraud. The fraud was carried out through a company, of which Mr Jennings was neither a director nor a shareholder, but an employee who received a salary and other benefits from the company. The Crown alleged that Mr Jennings and his co-conspirators had each benefited to the extent of the total amount of money obtained from the fraud, which was calculated at £584,737.64.
- The central issue between Mr Jennings and the CPS concerned the interpretation of the words in section 71(4) of the CJA 1988: "a person benefits from an offence if he obtains property as a result of or in connection with its commission". Lord Bingham of Cornhill gave the considered opinion of the committee. The committee stated (at paragraph 14) that it did not find "helpful or entirely accurate" the formulation at paragraph 38 of the judgment of Laws LJ (in the Court of Appeal) on the meaning of the word "obtain" in section 71(4) of the CJA 1988. That was the paragraph referred to and relied upon in the judgment of Elias J in Neuberg (at paragraph 18), in support of that court's proposition (5), quoted at paragraph 27 above. Lord Bingham noted, at paragraph 14, that "…A person's acts may contribute significantly to property (as defined in the Act) being obtained without his obtaining it". He said, on the correct construction of section 71(4), "…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, which must be read as meaning "obtained by him"." Those passages were heavily relied on by the appellants in the cases before us.
- Lord Bingham said that this interpretation was consistent with the object of this and similar legislation, which Lord Bingham had described at paragraph 13 as being:
"… to deprive the defendant of the product of his crime or its equivalent, not to operate by way of fine. The rational of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent. He cannot and should not, be deprived of what he has never obtained or its equivalent, because that is a fine. Thus must ordinarily mean that he has obtained property so as to own it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else".
- Lord Bingham also considered the question of piercing the corporate veil in a case, such as that one, where a company had been used as the vehicle for a fraud. He said, at paragraph 16, that:
"...In the ordinary way acts done in the name of and on behalf of a limited company are treated in law as the acts of the company, not of the individuals who do them. That is the veil which incorporation confers. But here the acts done by the appellant and his associated Mr Phillips in the name of the company have led to the conviction of one and a plea of guilty by the other. Thus the veil of incorporation has been not so much pierced as rudely torn away".
- The third case in this trio is R v Green  1 AC 1053. The principal issue in that case was whether, for the purpose of calculating (under section 4(1) of the Drug Trafficking Act 1994), the aggregate of the value of the payments or other rewards received by a person at any time in connection with drug trafficking carried on by him, there should be deducted from the total sums received by all the conspirators by the sale of the drugs, any sums retained by co – conspirators in the conspiracy to supply the drugs. Lord Bingham of Cornhill again gave the considered opinion of the committee. He held that there should be no such deduction. He said, at paragraph 15, that where two or more defendants obtain control of property jointly, each of them has obtained the whole of it, for the purposes of the drug trafficking and proceeds of crime legislation. If one defendant receives property jointly for himself and others and then distributes part of it to co- conspirators, the distribution is irrelevant for the purposes of calculating the "benefit" obtained.
Cases since the trio of House of Lords cases
- We were referred to four subsequent decisions of this court which are relevant to the issues we have to decide. We will take them in chronological order. The first is R v Sivaraman 1 Cr App R (S) 80,  EWCA Crim 1736. It was a case under POCA 2002. The appellant was the manager of a service station. He was employed by a company. He had accepted deliveries of "off road" diesel fuel on behalf of other conspirators, who sold it on without paying the excise duty. He had pleaded guilty to conspiracy to evade excise duty in respect of hydrocarbons, contrary to section 170(2) of the Customs and Excise Management Act 1979. The basis of plea was that the appellant had received payments of £15,000 as a share of the sale proceeds of the untaxed diesel. In the confiscation proceedings the judge had held that the appellant and his employer had jointly benefited in the total amount of the duty evaded, viz. £128,520, so that figure was therefore the appellant's "benefit". The confiscation order was based on that figure, although the appellant's realisable assets were less.
- On appeal it was argued that the judge should have found the appellant's benefit was £15,000. Toulson LJ reviewed the House of Lords cases and concluded that the judge had misdirected himself on the law. He emphasised, at paragraph 20, that in confiscation proceedings "…the focus of the inquiry is on the benefit gained by the relevant defendant, whether individually or jointly". The court quashed the judge's order and substituted a confiscation order for £15,000.
- The next case is R v Mark Barrington Grainger  EWCA Crim 2506. In that case the appellant, who at the time had been employed as the group finance director of a group of companies, was convicted of knowingly being party to the carrying on of business of one of the companies for a fraudulent purpose. That purpose was dishonestly to obtain payments of advances from a number of banks under invoice discounting facilities they had granted, by falsely representing that the invoices submitted were genuine records of debts. Over a period of four years, three banks had paid over £41 million to six of the companies in the group of which the appellant was the group finance director. The appellant had been paid a salary during that time and had received various other benefits and expenses.
- In the confiscation hearings under the CJA 1988, the Crown's case was that the total benefits from the fraud were the amounts paid by the banks and that, since all the defendants were parties to a joint enterprise, all were to be treated as having benefited equally from the criminal conduct. However, the Crown invited the judge, as a matter of discretion, to apportion that "benefit" between the appellant and his co –defendants. The judge adopted that approach and held that the "benefit", in the case of Mr Grainger, was 1/12th the sum the banks had paid to the companies. Mr Grainger appealed.
- This court held that, following the trio of House of Lords cases, the judge had misdirected himself on the law. Toulson LJ said that it was necessary to examine what in reality the offender had obtained. The payments had been made to the companies, not the appellant. His benefit was what he obtained by way of employment by the companies concerned. The judge should have examined the "real benefit" that the offender had obtained: paragraph 14.
- Toulson LJ also said, at paragraph 15, that it should not be thought that an offender could hide behind companies with impunity for the purposes of confiscation proceedings.
"If an offender chooses to use a company as a shield to hide his benefits from crime, it is open to the court to look behind the corporate veil in order to ascertain the true position. Again it is necessary in each case for the prosecution in the first instance and then the judge to examine the facts in order to see what benefit the offender has in truth obtained and how it should be valued".
- Toulson LJ further noted, at paragraph 16, that the prosecution had not attempted to present its case on the benefit obtained by the appellant in an alternative way, which might have enabled the judge to evaluate differently the real benefit he had received. He said:
"We have considered whether it is open to us to do so on the material before us, but it is not. The role of this court is that of a court of review. It would involve a primary fact finding exercise which we are not in a satisfactory position to conduct"
- The next day, a similarly constituted court determined the case of R v David Kai Xu and Lu Xu  EWCA Crim 2372. In that case the two appellants had run a Chinese restaurant through the medium of a limited company in which they were each 50% shareholders. They were each convicted of being involved in the employment of illegal immigrants in the restaurant. There were confiscation proceedings under POCA 2002. At first instance the Recorder had followed the decision in Neuberg (supra). He assessed the "benefit" that was to be attributed to the appellants' conduct in running the restaurant with the aid of the illegal immigrants as the amount of the entire receipts from the business over the relevant period.
- This court held that was the wrong approach. The "benefit" obtained by the appellants was a question of fact. It concluded that as the illegal immigrants constituted a quarter of the workforce during the relevant time, "it should be inferred that a quarter of the receipts of the business over the relevant period came from their employment". The court therefore substituted a figure for "benefit" equal to that amount: see paragraph 12.
- We wish to note two points about that decision. The first is that the court appears to have assumed tacitly that, despite the fact that the business was carried on through a limited company, for the purposes of the confiscation legislation, the "benefit" obtained by the appellants was equal to the benefit obtained by the company in running the restaurant business with the illegal immigrants. This conclusion might have been made on one of two bases. It is possible that the court concluded that, because the appellants were equal shareholders in the company, therefore, ultimately, the benefit obtained by the company could have been enjoyed by them. However, we doubt that this would have been the court's analysis. It would not have taken account of the basic legal distinction between the legal entity which is the company and its shareholders. Nor would it have recognised the fact that the property of the company is not the property of its shareholders: Salomon v Salomon & Co  AC 22; Macuara v Northern Assurance Co Ltd  AC 619 at 626 (Lord Buckmaster), 630 (Lord Sumner) and 633 (Lord Wrenbury). The benefit that accrues to a company does not have to be distributed to its shareholders and there was no finding of fact that this had been done or was bound to be done in that case.
- Alternatively, the court may well have applied what it had said the previous day in Grainger, viz. that if an offender chooses to use a company as a shield to hid his benefits from crime, it is open to the court to look behind the corporate veil in order to ascertain the true position. Toulson LJ did not say in terms in Xu that this was the court's reasoning. But it seems to us that it must have been so.
- However, that brings us to the second point we wish to note about this case. It is that, unlike the case of Grainger which it had decided the previous day, the court had no difficulty in finding primary facts about the "benefit" that the two appellants had actually obtained from their criminal activity and then applying those findings. Whether an appellate court can do so in a particular case must therefore depend (in the absence of the admission of fresh evidence) on what evidence and what facts were before the lower court and what the appellate court was being asked to find on the basis of the material that had been before the lower court.
- The last of the subsequent cases to which we were referred is a decision of a five judge Court of Appeal (Sir David Latham V-P, Hughes and Toulson LJJ, Rafferty and Maddison JJ) in R v Sylvia Allpress and others  EWCA Crim 8. There were, in fact, five cases before the court, all concerning confiscation orders against defendants who had been involved in the safeguarding or transfer of funds which represented proceeds of crime, ie. money laundering. Some had been involved in conspiracies, but some had not. The key issue before the court was whether there should be a different approach to the question of what "benefit" was to be ascribed to a defendant when he had been involved in money laundering offences.
- The court rejected a number of arguments advanced by the prosecution in favour of treating money laundering cases in a different manner to that set out in the trio of House of Lords cases. First, it rejected a submission that because the House of Lords had not specifically overruled a previous decision of the Court of Appeal, (R v Simpson  2 Cr App R(S) 111,  EWCA Crim 3420 ), on the assessment of "benefit" in a money laundering case, that the court was bound by that decision: see paragraph 37. Secondly, it rejected the argument that money laundering cases involving money in any form constitute a separate category of cases to which a separate approach should apply: paragraphs 42 - 44. Thirdly, it rejected an argument that a holder of cash, in particular cash which constituted the proceeds of crime, was necessarily in a different position from a bailee of other tangible property: paragraphs 45 – 50. Fourthly, it rejected the argument that the language of the DTA 1994 section 2(3) and CJA 1988 section 71(4) compelled a different approach to money as opposed to other forms of property. Fifthly, it rejected the argument that the House of Lords' observations in May and Jennings were either incorrect or inapplicable with regard to POCA 2002, either in cases involving money or other forms of property: paragraphs 60-79.
- The court therefore concluded that, in the courier cases before it, the cash carried by them did not amount to property "obtained" by the couriers (under either the CJA 1988 or POCA 2002), nor was it a "payment or other reward" within the DTA 1994 section 2(3). The same applied to the cash custodian: paragraphs 80 – 82. However, the position of the solicitor, Morris, who had permitted cash, which constituted the proceeds of crime, to be placed in his firms' client accounts, was different. That was because the account was in the name of the firm (Brooks) of which Morris was a partner and over which he had sole operational control. As against the bank, the money in that account constituted a debt owing to the partners of the firm. Morris therefore had "legal ownership and also practical control" over that "thing in action" – ie. the debt. Thus, for the purposes of section 71(4) of the CJA 1988, he had "obtained" that cash, ie. "property" and had done so "as a result of or in connection with" the commission of his offences of possessing criminal property, contrary to section 329(1)(c) of POCA 2002: paragraphs 83 – 87.
- For present purposes, two aspects of the decision are important. First, when dealing with confiscation issues, there should be no special approach to either cash or money balances in accounts; nor are money laundering offences to be placed in a separate category. The guidance of the House of Lords in the trio of cases it had decided was across the board. So couriers and other guardians of cash will not normally have "obtained" that money for the purposes of the confiscation legislation. Secondly, however, if, applying general common law principles to the facts found (cf. May at paragraph 48, page 1045F of the report), it is clear that a defendant has had a legal right to money in a bank account at some stage and he has had practical control over that bank account, then it is open to the court to hold that defendant had "obtained" that property for the purposes of the confiscation legislation.
The arguments on the present appeals.
- Miss Montgomery QC presented the argument on behalf of Mr Blatch and her arguments on the law were adopted by Mr Hynes on behalf of Mr Seager, so far as they applied to Mr Seager's case. Miss Montgomery submitted: (i) given the trio of House of Lords cases, Neuberg is no longer good law. Therefore, the judge misdirected himself in law on the correct test to apply in relation to the "benefit" obtained by Mr Blatch from his offence. (ii) The particular nature of the present offences (ie. that they are company director disqualification offences) does not require any different approach towards confiscation issues to that set out in the three House of Lords decisions. (iii) Nor does the fact that the offences concern corporate entities. (iv) There was no basis on which the judge could have "pierced the corporate veil" so as to conclude that the turnover of the companies equalled the "benefit" that Mr Blatch had obtained as a result of or in connection with the commission of his offences. It was common ground below that the business of the companies was legitimate. There was no finding that Mr Blatch had "hidden" behind the corporate veil to carry out his offences. (v) The judge should therefore have asked: what monies or other property did Mr Blatch personally obtain as a result of or in connection with his "shadow" directorship? (vi) On the facts, Mr Blatch did not receive the turnover of any of the companies as a result of or in connection with his de facto direction of them. Therefore he did not "obtain" those sums, for the purposes of section 71(4) of the CJA 1988. (vii) It is accepted that Mr Blatch did receive money from the group of companies in return for services rendered as a shadow director during the period covered by the Indictment. The sum totalled £221,109.81. (viii) The court should exercise its powers under section 11(3) of the Criminal Appeal Act 1968 to quash the existing confiscation order and sentence in default and substitute a sum of £221,109.81 with three years imprisonment in default.
- Mr Hynes submitted that (i) there was no finding by the judge that Tabline Limited was a vehicle for fraud or that any fraud was involved in its trading. Nor had Mr Seager "hidden" behind the corporate veil to carry out his offences. (ii) Therefore, there was no basis for piercing the corporate veil in the case of Mr Seager. (iii) The sole basis for the confiscation order before the judge was the turnover of Tabline Ltd during the relevant period. It is not now open to the Crown to suggest some other basis without any evidence or agreed facts. There are none. Therefore, following Grainger, because the basis of the confiscation order made was wrong in law, it must be quashed. No other figure could be substituted.
- For the Crown, Mr Andrew Mitchell QC submitted: (i) if a person has acted effectively as a director of a company despite being disqualified from doing so (or despite being in breach of an undertaking to the court not to do so), then the company has been used by that person as the vehicle for his criminal activity. Moreover, a person who has acted in contravention of a disqualification order or undertaking is personally liable for all the debts of the company concerned: see CDDA 1986 section 15. (ii) Accordingly, the court is entitled to pierce the corporate veil in both cases and treat the turnover of the companies as being to the "benefit" of the appellants: see Re H and others  2 All ER 391. (iii) But for the acts of the disqualified director in each case, the companies would not have obtained the turnover that they did. (iv) Such an approach to calculating the "benefit" would be consistent with this court's decision in R v Neuberg, para 27, which has not been overruled and remains good law. It would also be consistent with the decision in R v Xu, which is a case involving a company and post – dates the House of Lords cases. The approach of the court in that case should be followed. (v) If turnover is not to be taken as the amount of "benefit" obtained by a person who has contravened a director's disqualification order, this will mean that the Department of Business, Enterprise and Regulatory Reform ("DBERR") and other prosecution authorities will have to prosecute the companies concerned under the 1986 Act, section 14. That would be complicated and costly and should be avoided. (vi) Accordingly, in the case of Mr Blatch, the judge would have arrived at the same conclusion even after the House of Lords cases, because he would have held that (a) the corporate veil could be pierced; and (b) the turnover of the two companies was therefore to be attributed to the "benefit" of Mr Blatch. (vii) In the case of Mr Seager, he contributed to obtaining the turnover of Tabline Ltd, which would not have been able to continue to trade but for his involvement. If, as it must, the corporate veil is pierced, it is Mr Seager who has obtained the benefit. (viii) In relation to both cases, even if the court cannot pierce the corporate veil, the companies involved acted through their directing minds, respectively Mr Blatch and Mr Seager. If a person convicted of a company disqualification offence has, in the name of the company concerned, obtained property, that obtaining is the "obtaining" by the offender himself for the purposes of the confiscation legislation: Jennings, paragraph 16. (ix) Therefore the trio of House of Lords cases does not mean that the conclusions of the judges were wrong, so that both appeals must be dismissed.
Issues to be decided.
- It appears to us that the following issues have to be considered in order to decide these appeals. (1) Do company director disqualification cases call for a different approach to the confiscation legislation from that adopted by the trio of House of Lords cases for the purposes of ascertaining the "benefit" obtained by an offender by reason of or in connection with his offence? (2) If the general approach set out in those House of Lords cases is to be adopted, how does it apply in relation to director disqualification cases? In this connection, is all or part of R v Neuberg still good law? (3) If the general approach of the House of Lords trio of cases is to be adopted, then is the corporate veil to be pierced in either of the cases before the court and, if so, on what basis? (4) If it is not, on what basis is the amount of "benefit" to be calculated in the case of (a) Mr Blatch and (b) Mr Seager? (5) In each case, can the judge's confiscation order stand? If it cannot, is this court entitled to substitute any other figure for "benefit" and for a confiscation order, and if so what?
Issue One: Do company director disqualification cases call for a different approach to the confiscation legislation from that adopted by the trio of House of Lords cases?
- To answer this question, we think, (following the approach in R v Sylvia Allpress and others in relation to money laundering offences), is necessary to outline the broad scope of the Company Directors Disqualification Act 1986. Section 1(1) of the 1986 Act gives the court power to make disqualification orders which prevent a person from being a director of a company, acting as a receiver of a company's property, or being concerned or taking part in the promotion, formation or management of a company (directly or indirectly) without the leave of the court. Section 1A of that Act gives the Secretary of State the power to accept an undertaking from a person to the same effect as a disqualification. Sections 2 to 9 of that Act set out the principal circumstances in which a court may (or must) make a disqualification order against a person. Broadly, these cover situations where a person has: (i) been convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation or management of a company (section 2); (ii) persistently defaulted in relation to certain provisions of the companies legislation (sections 3 and 5); (iii) been convicted for fraudulent trading or any fraud in relation to the company or other breach of duty as an officer of the company (section 4); (iv) is or has been a director of a company that has become insolvent and his conduct as a director makes him unfit to be concerned in the management of a company (sections 6 and 7); (v) it appears to the Secretary of State from "investigative material" that it is expedient in the public interest that a disqualification order should be made against a person who is or has been a director or shadow director of a company (section 8); (vi) a person is a director of a company that has breached competition law and the court considers that the person's conduct makes him unfit to be concerned with the management of a company (section 9). The maximum period of disqualification depends on the reason for it, but the longest period possible is 15 years.
- Section 13 of the Act makes it an offence to act in contravention of a disqualification order or undertaking. Section 14 stipulates that a body corporate (which definition must include a company) can be guilty of contravening a disqualification order or undertaking and provides that if an officer of such a body corporate consents or connives at it, he is guilty of an offence also. Section 15 makes a person liable for all the relevant debts of a company if, in contravention of a disqualification order or undertaking he is involved in the management of a company. His responsibility for the debts is joint and liable with that of the company and any other person so liable.
- In our view the object of the 1986 Act is to ensure that only reasonably competent, responsible and honest people act as company directors. This is to ensure that shareholders and employees of companies, those who trade with companies (such as banks or other companies) and members of the public who deal with companies can be protected from possible fraud, incompetence and regulatory failings by people who are supposedly directing companies. If a person is the subject of a disqualification order or a disqualification undertaking and he contravenes the order or undertaking, the criminal conduct consists of acting in contravention of the order or undertaking, by -broadly speaking - acting as a "shadow" director in controlling or managing a company, when the court has ordered that he must not.
- The confiscation legislation is, as Lord Bingham of Cornhill stated in R v May at paragraph 48(1), "…intended to deprive defendants of the benefit they have gained from their criminal conduct, whether or not they have retained such benefit, within the limits of their available means…". Therefore, it seems to us, if a defendant has been convicted of contravening a director's disqualification order or undertaking, then in any subsequent confiscation proceedings, the three questions to be asked are no different from that in any other type of crime. They are: (a) has the defendant benefited from the relevant criminal conduct; (b) if so what is the value of the benefit that he has so obtained and (c) what sum is recoverable from him? (See: R v May at para 48(2)). There is nothing in either the confiscation legislation nor the 1986 Act to suggest that any different approach has to be taken in relation to a defendant whose criminal conduct consists of contravening a director's disqualification order or an equivalent undertaking. Nor is there anything in the House of Lords cases themselves or subsequent cases that suggests that a different approach is called for.
- The fact that a disqualified director contravenes the disqualification (or who contravenes an undertaking) by working through a company cannot make any difference to the nature of the enquiry for the purposes of confiscation proceedings and orders. That does not preclude the possibility of piercing the corporate veil in appropriate circumstances in order to ascertain the true answer to the question: to what extent has a defendant who has contravened a director's disqualification order or undertaking benefited from his criminal conduct? But there is nothing in the statutes concerned with confiscation or the 1986 Act to suggest that the basis on which the corporate veil can be pierced, when examining what benefit the defendant has gained, is any different in the case of defendants who have contravened a director's disqualification order or undertaking.
- We were unimpressed with Mr Mitchell's argument that if the turnover of the relevant was not taken to be the "benefit" obtained by the person who acted as a "shadow" director of that company in contravention of a director's disqualification order, then it would mean that the DBERR and other prosecuting authorities would have to prosecute companies under section 14 of the 1986 Act. This is for two reasons. First, that argument is not an answer to the fact that there is nothing in either the 1986 Act nor the confiscation legislation to suggest that a different approach to the issue of "benefit" has to be adopted in the case of director disqualification cases. Secondly, if the DBERR and other prosecuting authorities seek to pursue companies under section 14 of the 1986 Act, then, as it would seem to us, it would be necessary to prove that the corporate entity was itself guilty (through its directing mind and will) of acting in contravention of a disqualification order against it. If it was found guilty and then confiscation proceedings were taken against that corporate entity, the question would be what "benefit" that entity had obtained as a result of or in connection with its offence. That may raise different issues with which we are not concerned. But just because there might be difficulties in that exercise, it cannot logically follow that a departure from the plain meaning of the 1986 Act and the confiscation legislation in relation to the ascertainment of the "benefit" of directors who contravene disqualification orders must result.
Issue Two: If the general approach of those cases is to be adopted, how does it apply in relation to director disqualification cases? In this connection, is R v Neuberg still good law?
- Lord Bingham stated in both R v May (paragraph 48(3) and (4)) and in R v Jennings (paragraph 13) that the court must focus on the language of the statute and apply its ordinary meaning to the facts of the case in hand when dealing with confiscation issues in general and in particular when considering what is the value of the "benefit" which the defendant has obtained. Thus, in the case of the CJA 1988, in order to ascertain whether a defendant who has been convicted of the offence of contravening a director's disqualification order or undertaking has benefited from that offence, a court must ask: has he "…[obtained] property as a result of or in connection with its commission…": (section 71(4)). In other words, the court must ask: has the offender obtained property as a result of or in connection with the commission of the offence of contravening the director's disqualification order or an equivalent undertaking?
- In the case of POCA 2002, the court must first decide whether the offender has a "criminal lifestyle": section 6(4)(a). If the answer is "yes", then the court must decide whether the offender has "benefited from his general criminal conduct". If the answer to the first question is "no", then the court must decide whether the offender has "benefited from his particular criminal conduct": section 6(4)(b) and (c). In each case, "benefit" is defined by section 76(4) of POCA 2002, as follows: "a person benefits from conduct if he obtains property as a result of or in connection with the conduct". Section 76(7) stipulates that "…if a person benefits from conduct his benefit is the value of the property obtained". Thus, as the House of Lords has made clear, the questions to be asked are essentially the same whether the confiscation proceedings arise under the CJA 1988 or POCA 2002, or indeed the DTA 1994.
- Two further general principles must apply to an offender who has been found guilty of contravening a director's disqualification order or who has contravened an equivalent undertaking. First, in R v May, the House of Lords stated that the benefit gained is the total value of the property (or pecuniary advantage) gained, not the particular defendant's net profit: see paragraph 48(1). In Jennings v CPS the House of Lords held that "obtained" meant obtained by the relevant defendant: see paragraph 14. Secondly, however, it is important to recognise that a defendant's acts may contribute significantly to property (or to a pecuniary advantage) being obtained, without the relevant defendant obtaining it himself: ibid.
- Is R v Neuberg still good law? It is referred to in paragraph 43 of Lord Bingham's speech in R v May. But it is cited only as an example of a case supporting the proposition that the confiscation legislation lays down a mandatory regime, leaving no other discretion save as to the application of the statutory assumptions. There is no other comment on the correctness of the decision, one way or another, in the trio of cases. In our view it is only necessary to comment on the court's reasoning and decision on the second ground of appeal, viz. that the judge was correct to look at turnover to calculate Mrs Neuberg's "benefit", as opposed to looking at her profits from her use of the unlawful name for trading. In our respectful view, the court's decision on that issue is inconsistent with the analysis in the three House of Lords decisions. The judge should have asked the question: what benefit had Mrs Neuberg, as the relevant offender, obtained as a result of or in connection with her offence of trading under a prohibited style without the leave of the court, contrary to the Insolvency Act 1986? It was not correct necessarily to equate the turnover of the business with the benefit that had been obtained by Mrs Neuberg as a result of or in connection with her offence.
- On the law as it stands, the benefit obtained by an offender is a question of fact, to be determined by the judge. However, the turnover of any company through which the offender acted may be relevant to ascertaining the benefit obtained by the offender. That was held to be so by this court in R v Xu (supra).
Issue Three: If the general approach of the House of Lords trio of cases is to be adopted, then is the corporate veil to be pierced in either of the cases before the court and, if so, on what basis?
- There was no major disagreement between counsel on the legal principles by reference to which a court is entitled to "pierce" or "rend" or "remove" the "corporate veil". It is "hornbook" law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders: Salomon v A Salomon & Co Ltd  AC 22; referred to by Rose LJ in Re H and others (restraint order: realisable property):  2 All ER 391 at 401F. A court can "pierce" the carapace of the corporate entity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not the just the form. In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced. First if an offender attempts to shelter behind a corporate façade, or veil to hide his crime and his benefits from it: see Re H and others, per Rose LJ at 402A; Crown Prosecution Service v Compton and others  All ER (D) 395,  EWCA Civ 1720, paragraph 44 – 48, per Simon Brown LJ; R v Grainger, paragraph 15, per Toulson LJ. Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender's conviction, then "the veil of incorporation is not so much pierced as rudely torn away": per Lord Bingham in Jennings v CPS, paragraph 16. Thirdly, where the transaction or business structures constitute a "device", "cloak" or "sham", ie. an attempt to disguise the true nature of the transaction or structure so as to deceive third parties or the courts: R v Dimsey  QB 744 at 772 (per Laws LJ), applying Snook v London and West Riding Investment Ltd  2 QB 786 at 802, per Diplock LJ.
- In the case of Mr Blatch, the argument of Mr Mitchell on this issue had three strands. First, the appellant had used the companies as the vehicle for his offence of acting as a director when it was unlawful for him to do so. He was therefore attempting to shelter behind a corporate façade, or veil, to hide his crime and his benefits from it. Secondly, the acts done by Mr Blatch in purporting to act as a director in running the companies were acts done in the name of those companies. Those acts have led to Mr Blatch pleading guilty to the offences under section 13 of the 1986 Act. Therefore, by analogy with the remarks of Lord Bingham in Jennings v CPS, paragraph 16, "…the veil of incorporation has been not so much pierced as rudely torn away", thereby entitling the judge to regard all the turnover of the companies as "benefit obtained" by Mr Batch. Thirdly, because Mr Blatch had de facto control of the companies and so de facto power of disposition or control over their property (including money paid to them), therefore he can be taken to have obtained such property or money himself and so obtained a benefit as a result or in connection with his offence. This will be equal to the total turnover of the companies. In this regard, Mr Mitchell relied on the remarks of Lord Bingham in R v May, paragraph at 45 – 46. He also relied on what Lord Bingham said at paragraph 48(6): "D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else."
- We do not accept these arguments. As to the first, Mr Blatch was not hiding behind the companies to conceal his offence of contravening his disqualification to act as a company director. He was doing the opposite. He was brazenly continuing to operate and control the companies despite his ban. That was the essence of his offence. There was no question of Mr Blatch using the companies for any illegal purpose such as avoiding the payment of VAT, or money laundering, or defrauding his creditors, from which he benefited. There was no evidence before the judge that Mr Blatch used the companies as a shield to hide benefits that he had obtained from his offence of contravening the disqualification.
- As to the second, we accept that Mr Blatch performed acts in the names of the companies whilst illegally acting as a "director" of them. But the position is very different from that in Jennings v CPS. There the company was the vehicle used to perpetrate the "advanced fee fraud" of the appellant (an employee) and his co-accused, who was the controlling shareholder and sole director of the company. The corporate structure was, effectively, a sham. Once the corporate veil was pierced, or torn aside, then the property in question was to be regarded as the joint property of those who controlled the company. That was why the restraining order against the dissipation of the appellant's property was held to be effective, because the property restrained was to be regarded as the appellant's (jointly with his co-accused), rather than that of the company. In the present case the acts of Mr Blatch, when purporting to be a director, were done on behalf of the companies and they meant that he contravened his disqualification. But the existence of the companies themselves and the legitimacy of their business cannot be in doubt. No one has said that they are to be disregarded as legitimate legal entities.
- As to the third argument, we think that it involves a misreading of Lord Bingham's statement in R v May. Lord Bingham's first proposition is that "…D ordinarily obtains property if in law he owns it, whether alone or jointly…". Lord Bingham then states the legal consequences that come with ownership of property, viz. "…a power of disposition or control…". But the converse is plainly not the case. Just because a person has a power of disposition or control over property, it does not mean that he owns it. As Toulson LJ pointed out in R v Allpress and others, paragraph 48, classically a bailee of property has control of it whilst he is bailee of it. But he does not own the property. Hence, neither a courier nor a guardian of, eg. drugs, would own them by virtue simply of being a courier or guardian. Thus, even if Mr Blatch dealt with money or other property on behalf of the companies as a "shadow" director in contravention of his disqualification, he did not own that money or property. It belonged to the company concerned.
- The case of Re H was different on the facts. There, Rose LJ, who gave the leading judgment, held that the evidence showed that the defendants controlled the family companies, which had been used for fraud to evade excise duty on a large scale and that company cash had benefited the defendants in substantial amounts: see page 402A. In those circumstances it was obviously appropriate to lift or pierce the corporate veil.
- In the case of Mr Seager, the argument of Mr Mitchell is that Mr Seager and his wife owned the two only shares in Tabline Limited. In practice he controlled it. He was instrumental in negotiating the lease with Komoto Group Limited, who believed he was the chairman and managing director of Tabline and treated him as such. He concealed the fact that he was the subject of an undertaking not to act as a director from both Komoto and Lloyds TSB, Tabline's bank, as well as its accountants. The bank would not have let him act as a signatory to Tabline's account if it had known the true position. Mr Mitchell submitted, effectively, that the court should pierce the corporate veil in this case upon the basis of the same three arguments advanced in relation to Mr Blatch.
- We cannot accept any of those arguments are good reasons to pierce the corporate veil in the case of Mr Seager. Mr Seager did not use Tabline as a façade to hide benefits from his crime of contravening the undertaking. He did not use the company for other illegal activities. The business of the company was legitimate. Although Mr Seager purported to do acts in the name of the company (eg. enter the lease and operate a bank account in its name), there was no evidence that this was a "sham", with the consequence that he was, in practice, the lessee or the person beneficially entitled to any credit in the bank account. Even if Mr Seager did, as a "shadow" director, dispose of property and money on behalf of the company, that would not, by itself, prove that he owned it.
- Therefore we conclude that, on the facts as found by the sentencing judges in these cases, there is no basis on which the corporate veil can be pierced.
Issue Four: If the corporate veil is not to be pierced in either case, then how is the amount of the "benefit" to be calculated in the case of Mr Blatch and Mr Seager respectively?
- Given our conclusions on Issues One to Three above, it follows that the conclusion of both judges that the "benefit" of the appellants must equal the turnover of the relevant companies was wrong as a matter of law. It also follows that to ascertain the amount of "benefit" obtained by each appellant, we must ask the first two of the three questions posed by Lord Bingham in R v May, paragraph 48(2), in the light of the findings of fact of the sentencing judges and, if appropriate, the evidence before them: see R v Sivaraman  1 Cr App R (S) 80, paragraphs 7 and 23. This court has the power to vary the conclusion on the amount of "benefit" obtained by the appellant, and so to vary the confiscation order, if that is warranted by a correct application of the law to the facts before the judge or any evidence that he had before him, but not otherwise: Criminal Appeal Act 1968 section 11(3); R v Sivaraman (supra), paragraph 23: R v Grainger (supra) paragraphs 14 – 16.
- In the case of Mr Blatch, there was no finding by HHJ Cowling that Mr Blatch had obtained a benefit as a result of or in connection with his offence other than the conclusion that the turnover of the companies was to be treated as being his benefit. There was no evidence or finding that Mr Blatch was the sole signatory or had sole control over any of the company's bank accounts or that he treated company accounts as his own. (Compare R v May, paragraph 45 ; R v Allpress, paragraph 85). There was no evidence before the judge of any other "real benefit" to Mr Blatch: cf. R v Grainger, paragraph 14. This court cannot find primary facts, unless it permits the introduction of new evidence for the purposes of an appeal or leave to appeal pursuant to the Criminal Appeal Act 1968, section 23(1).
- However, Miss Montgomery submitted that the court was entitled to receive as evidence the facts set out in her Outline Argument at paragraphs 44 – 46. Miss Montgomery said that Mr Blatch accepted that he had received money from the group of companies in return for his services as a "shadow" director during the period of the Indictment. It was submitted that the starting point for calculating the "benefit" received by Mr Blatch should therefore be his gross personal income during the period of the Indictment, viz. 6 March 2001 to 20 May 2005. The total as set out in the Outline Argument is £221,109.81. Miss Montgomery said, on behalf of Mr Blatch, that he accepted that this sum should be treated as the value of his "benefit" for the purposes of making a confiscation order.
- Mr Mitchell's primary submission was that the court should not to adopt these figures. He pointed out: (i) they had not been put forward before the judge; (ii) they had not been tested in cross – examination; and (iii) the figures looked like the "net" benefit to him, as opposed to his gross benefit. We take those points, but, in our view, if Mr Mitchell retained that position, it puts him in a difficulty. It seems to us that if the figures put forward by Miss Montgomery are not to be accepted by this court, then there is no other material before us which would enable us to find the amount of "benefit" obtained by Mr Blatch as a result of or in connection with his offences. So we would have to quash the confiscation order and could not substitute any other order.
- The position of this court in R v Xu (supra) was different for two reasons. First, there was material that had been before the judge that the three illegal employees were a quarter of the work force of the company of which Mr and Mrs Xu were the two shareholders and it was that company which had employed the illegal immigrants. Secondly, as we have already indicated, it is implicit in the court's conclusion in that case that it found that Mr and Mrs Xu were using the company as a façade to hide their crime of facilitating breaches of the Immigration Act 1971 by the illegal immigrants, so it could (and did) pierce the corporate veil. Given all those facts, this court could make a different conclusion from the judge about the "benefit" obtained by Mr and Mrs Xu, based on the contribution of the illegal immigrants to the company's turnover.
- Ultimately, Mr Mitchell recognised this difficulty and was prepared not to dispute the figures if the Crown lost on all its other arguments. He was right to take that stance. In our view there is no theoretical or practical objection to accepting the figures put forward by Miss Montgomery as the amount of Mr Blatch's "benefit" obtained as a result of or in connection with his offences, in default of any other material. We therefore hold that the amount of his "benefit" was £221,109.81.
- In the case of Mr Seager, the material before HHJ Browne about "benefit" all concerned the turnover of Tabline Limited. There was no investigation of whether Mr Seager had personally obtained any "benefit" and, if so, what amount. There was no evidence before the judge of what salary or other "benefits" Mr Seager obtained from Tabline Limited whilst he acted in contravention of the undertaking, so there was no means of ascertaining what "real benefit" he obtained. There was evidence that Mr Seager was the authorised signatory of Tabline's bank account with Lloyd's TSB: prosecution opening of the facts page 4G. But there was no evidence or finding about how that account was used by Mr Seager. The prosecution did not put any alternative case for the calculation of Mr Seager's "benefit" other than the turnover of Tabline.
- We have concluded, like the court in Grainger (supra), that, having held that the basis of the judge's finding on Mr Seager's "benefit" was wrong in law, there is no method by which we can reach any alternative finding of his "benefit" on the facts. There are no findings of primary fact or the relevant materials before us to enable us to do so.
Issue Five: Can the conclusion of the judges stand in each case. If not, what figures for "benefit" and confiscation order can this court substitute, if any?
- It follows from what we have said that the confiscation order in both cases must be quashed and the appeals allowed.
- However, in the case of Mr Blatch, for the reasons we have given, we find that the benefit obtained by him as a result of or in connection with his offences is £221,109.81. It is not disputed that Mr Blatch has realisable assets of at least that figure. Therefore, in his case we will substitute a confiscation order in the sum of £221,109, to be paid within two months of the date this judgment is handed down. There will be a period of three years imprisonment in default of payment.
- In the case of Mr Seager, it follows from the conclusions under Issue Four that we cannot substitute any other figure as the "benefit" obtained by Mr Seager as a result of or in connection with his offence. The confiscation order in his case will simply be quashed.
- In each case the confiscation order is quashed and the appeal allowed. In the case of Mr Blatch a confiscation order of £221,109.81 will be substituted, to be paid in two months, with three years imprisonment in default.
- We are very grateful to counsel for their helpful submissions.
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