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England and Wales Court of Appeal (Criminal Division) Decisions
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Cite as:  EWCA Crim 412,  1 Cr App R (S) 4,  1 Cr App Rep (S) 4
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ON APPEAL FROM THE SOUTHWARK CROWN COURT
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE BEATSON
MR JUSTICE BLAKE
|- v -
Brendan Morris appeared on behalf of the Crown
Hearing dates: 27th January 2010
Crown Copyright ©
Mr Justice Blake:
The Proceeds of Crime Act 2002
"(1) Criminal conduct is conduct which-
a. constitutes an offence in England and Wales, or
b. would constitute such an offence if it occurred in England and Wales.
(2) General criminal conduct of the defendant is all his criminal conduct, and it is immaterial-
a. whether conduct occurred before or after the passing of this Act;
b. whether property constituting a benefit from conduct was obtained before or after the passing of this Act.
(3) Particular criminal conduct of the defendant is all his criminal conduct which falls within the following paragraphs-
a. conduct which constitutes the offence or offences concerned;
b. conduct which constitutes offences of which he was convicted in the same proceedings as those in which he was convicted of the offence or offences concerned;
c. conduct which constitutes offences which the court will be taking into consideration in deciding his sentence for the offence of 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."
"Value: the basic rule
(1) this section applies for the purpose of deciding the value at any time of property then held by a person.
(2) its value is the market value of the property at that time.
(3) but if at that time an other person holds an interest in the property it's value, in relation to the person mentioned in subsection (1), is the market value of his interest at that time, ignoring any charging order under a provision listed in subsection (4). "
"Value of property obtained from conduct
(1) This section applies for the purpose of deciding the value of property obtained by a person as a result of or in connection with his criminal conduct; and the material time is the time the court makes its decision.
(2) The value of the property at the material time is the greater of the following-
a. the value of the property (at the time the person obtained it) adjusted to take account of later changes in the value money;
b. the value (at the material time) of the property found under subsection (3).
(3) The property found under this subsection is as follows-
a. if the person holds the property obtained , the property found under this subsection is that property;
b. if he holds no part of the property obtained, the property found under this subsection is any property which directly or indirectly represents it in his hands;
c. if he holds part of the property obtained, the property found under this subsection is that part and any property which directly or indirectly represents the other part in his hands.
(4) The references in subsection (2)(a) and (b) to the value are to the value found in accordance with section 79"
"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 in corporeal property.
(2) The following rules apply in relation to property-
a. property is held by a person if he holds an interest in it;
b. property is obtained by a person if he obtains an interest in it;
c. property is transferred by one person to another if the first one transfers or grants an interest in it to the second;
f. references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest of power."
The unlawful conduct
The assessment of benefit at trial
The contentions on appeal
a. the present value of the untainted contribution towards the purchase price of the house and
b. the value of the equity of redemption.
He supports this submission by reference to subsequent decision of this Court in R v Roach  EWCA Crim 2649
i. The property that was obtained by the appellant 'as a result of or in connection with his criminal conduct' was the title to 18A Northgate Mansions.
ii. The court is required by s.80(2) and (3) to value the property obtained either at the time it was obtained (subject to adjustment in the value of money) or at the time of the confiscation order, whichever is the greater, but at no other time.
iii. Whichever of the two times the court identifies to value the property, the court is required to value the person's interest in the property and where at both available dates, the property was subject to a mortgage in favour of the lender for the outstanding balance of the loan, the appellant's interest in the property is therefore his free equity in the property.
iv. The value of the appellant's interest in the free equity in the property was acquired by mixed funds, the untainted £310,000 (40% of the purchase price) as well as the tainted mortgage advance, and the criminal benefit figure is confined to the latter, either at the time of the original acquisition in 2003 or the confiscation order in 2008.
v. In 2003 the value of the appellant's interest in the free equity obtained by criminal conduct was nil. The market price of the property was the price the appellant obtained for it. 40% of this market value was obtained by untainted funds rather than unlawful conduct. The value of the tainted 60% however had to be discounted by the value of the outstanding mortgage for the whole of the balance of the purchase price.
vi. The position might have been different in 2005 when the first mortgage was redeemed. It is likely that the 60% of the value represented by the tainted advance had increased in value and there may well have been a benefit in the difference of the value of the 60% and the outstanding loan. However, the 2002 Act precluded the court from making a valuation of the property at this date.
vii. By 2008, the position had changed again as the whole of the tainted mortgage had been repaid and the appellant's interest in the market value of the property at the time of the confiscation order was entirely represented by untainted funds.
viii. His primary argument is therefore that the value of the property obtained by criminal conduct was nil. He presented a number of alternatives in the event that the Court disagreed with this conclusion.
" In several cases the court has been called upon to evaluate the benefit accruing to a defendant who had obtained a mortgage loan by making a fraudulent misstatement. In In re K (unreported) 6 July 1990 (McCullough J), in the context of an order applied for under the 1988 Act to restrain the defendant from disposing of his assets in anticipation of a confiscation order, the judge rejected the defendant's submission that the benefit he had obtained was the equity of redemption in the house he had bought rather than the house itself. That decision was followed by the Court of Appeal in R v Layode (unreported) 12 March 1993 (per Macpherson of Cluny J), another decision under the unamended 1988 Act. It must, however, be appreciated that section 71(4) called for an essentially factual enquiry: what is the value of the property the defendant obtained? If (say) a defendant applies £10,000 of tainted money as a down-payment on a £250,000 house, legitimately borrowing the remainder, it cannot plausibly be said that he has obtained the house as a result of or in connection with the commission of his offence. This was the conclusion correctly reached by the Court of Appeal in R v Walls  1 WLR 731. That was a case under the 1994, not the 1988, Act, but in distinguishing the earlier decisions the court relied not on the differences between the two confiscation regimes (see para 27) but on the considered reasoning of Neill LJ in the earlier Court of Appeal decision in R v Johnson  2 QB 249, which had not been cited in the earlier cases.
"48. The committee would conclude by drawing attention to the current importance of the power to make confiscation orders. In the period April 2007-February 2008 the courts in England and Wales made 4,504 such orders in sums totalling £225.87 million. In recent years the number of orders and the sums confiscated have steadily risen. Recognition of the importance and difficulty of this jurisdiction prompts the committee to emphasise the broad principles to be followed by those called upon to exercise it in future. (1) The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine. 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 payable to co-conspirators. (2) The court should proceed by asking the three questions posed above: (i) Has the defendant (D) benefited from relevant criminal conduct? (ii) If so, what is the value of the benefit D has so obtained? (iii) What sum is recoverable from D? Where issues of criminal lifestyle arise the questions must be modified. These are separate questions calling for separate answers, and the questions and answers must not be elided. (3) In addressing these questions the court must first establish the facts as best it can on the material available, relying as appropriate on the statutory assumptions. In very many cases the factual findings made will be decisive. (4) In addressing the questions the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definition. The language used is not arcane or obscure and any judicial gloss or exegesis should be viewed with caution. Guidance should ordinarily be sought in the statutory language rather than in the proliferating case law. (5) In determining, under the 2002 Act, whether D has obtained property or a pecuniary advantage and, if so, the value of any property or advantage so obtained, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership. While the answering of the third question calls for inquiry into the financial resources of D at the date of the determination, the answering of the first two questions plainly calls for a historical inquiry into past transactions. (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. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. 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 Property obtained
i) The appellant no longer holds the money because it was invested in the residential property.
ii) 60% of the 2008 value of the residential property indirectly represents the funds obtained in 2003 despite the repayment of the first mortgage and the grant of the second, because it was only by means of the first tainted advance that the appellant was able to secure his interest in the residential property that was the basis of the second advance.
iii) The funds, unlike the freehold title, were not subject to a charge in favour of someone else that now has to be credited against the current value of the property that represents the funds.
iv) The analogy that the Crown makes with the position of someone who purchases shares with tainted funds is a good one. The property obtained by the unlawful conduct is the money that is changed into shares. It is the proportion of the purchase price of the shares that represents the property obtained. The value of the shares at the time of the confiscation order is the relevant value applying the proportion at acquisition. If the tainted part of the purchase price came from a loan or overdraft the value at the date of the confiscation is not discounted by the cost of repaying the loan. As explained in May"The benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses".
"I turn first to the stage of the payment to the solicitor. At this point of time, the question has to be considered on the basis that the solicitor, when he receives the money, does so as agent of the lending institution and holds it as bare trustee for the lending institution: see Target Holdings Ltd. v. Redferns  1 AC 421, 436, per Lord Browne-Wilkinson. Now it is true that, by reason of the deception of the mortgagor, the legal interest in the money has vested in the solicitor; and it may be suggested that in those circumstances the mortgagor has obtained the money either for himself or for another within section 15(2). But (like Sir John Smith - see his commentary on the decision of the Court of Appeal in the present case  Crim.L.R. 564) I find difficulty in conceiving that in either case section 15 applies where, as here, the solicitor receives the money in his capacity as agent of the lending institution, in circumstances in which the lending institution retains control over the money while in his (the solicitor's) hands and can require it to be repaid at any time. Furthermore, in any event the same difficulties arise here as they do where the money has been paid direct to the mortgagor by electronic transfer, or by cheque. This is because any chose in action which comes into existence by the crediting of the solicitor's bank account (simultaneously with the debiting of the lending institution's bank account), or by the receipt by the solicitors of a cheque from the lending institution, can never have belonged to the lending institution or its bank and so can never have belonged to another as required by section 15(1).
I turn next to the release of the money by the solicitor, with the lending institution's authority, to the vendor's solicitor in the form of a banker's draft. Presumably the solicitor's bank will debit the solicitor's general account with the amount of the draft, and in due course the solicitor will effect an adjustment in his own accounts as between his client account and his general account. The banker's draft will be made payable to the vendor's solicitor who will, on receipt of the draft, obtain property in the form of a chose in action represented by the draft; but once again that chose in action never belonged to another - either to the solicitor acting in the mortgage transaction or his bank, or to the lending institution itself. It is true that the consequence will have been that the lending institution's equitable interest, such as it was, was extinguished. But the identification of that equitable interest is not altogether easy. True, the solicitor acting in the mortgage transaction received the money as trustee, but the money itself was paid directly into the solicitor's client account where it was "mixed" with other money and its identity lost. I suppose that, if the solicitor became bankrupt, the lending institution could assert an equitable proprietary claim in the form of an equitable lien upon the chose in action represented by the credit balance (if any) in the account; but that contingency did not occur and, in any event, despite the broad words of section 5(1) of the Act applicable in the case of obtaining property by deception by virtue of section 34(1), I find great difficulty in conceiving the possibility of the mortgagor "obtaining" any such interest, which is not transferred to the mortgagor or to the vendor, but is simply extinguished, being replaced in due course by the lending institution's rights as mortgagee. In truth, the more one examines this problem, the more inapt does section 15 of the Act appear to be in cases of this kind.
It is for these reasons that I have concluded that in circumstances such as these it is not appropriate to charge the mortgagor with having obtained property by deception contrary to section 15(1) of the Act of 1968."
"..identifying the sum in question as property does not advance the argument very far. The crucial question, as I see it, is whether the defendant obtained (or attempted to obtain) property belonging to another. Let it be assumed that the lending institution's bank account is in credit, and that there is therefore no difficulty in identifying a credit balance standing in the account as representing property, i.e. a chose in action, belonging to the lending institution. The question remains however whether the debiting of the lending institution's bank account, and the corresponding crediting of the bank account of the defendant or his solicitor, constitutes obtaining of that property. The difficulty in the way of that conclusion is simply that, when the bank account of the defendant (or his solicitor) is credited, he does not obtain the lending institution's chose in action. On the contrary that chose in action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in an equivalent sum owed by a different bank to the defendant or his solicitor. In these circumstances, it is difficult to see how the defendant thereby obtained property belonging to another , i.e. to the lending institution." (original emphasis)
"It seems to us that the money transfers obtained by the defendant each month were intangible, or incorporeal, property. They were not, no doubt, property belonging to the paying authority, for the reasons explained some time ago in R v Preddy  AC 815, because the paying authority never owned the precise chose in action created when the defendant's bank account was credited. Rather, a new piece of property, in the form of a new chose in action, was created, but this is still property obtained by the defendant. For this, see particularly the speech of Lord Goff at 834. In the end, however, it does not matter for present purposes whether what the defendant obtained is properly described as 'property' or as 'a pecuniary advantage'. Whichever it is, the question which matters is what its value is".