On 16 December 2005 at Sheffield Crown Court the respondent, Alan Glaves, pleaded guilty to a charge of conspiracy to defraud between 30 March 2001 and 22 May 2003. The particulars were that he and his brother conspired with others to defraud Corus Engineering Steels Ltd by causing it to bear the costs of tipping waste removed from waste transfer stations in Yorkshire. The respondent and his brother were employed as tipper truck drivers by a company used by Corus to collect waste from manufacturing sites and take it to landfill tips. In the course of their employment they also carried out clandestine journeys to collect waste from sites operated by themselves and by acquaintances who paid them cash without questions for its disposal. They falsified their daily worksheets to cover up this activity, enabling them to use their employer’s vehicles and fuel and to dispose of the waste at nil cost to themselves. The cost of the operation was borne by Corus, from whom they purported to have collected the waste.

On 7 April 2006 the respondent was sentenced to 3 years’ imprisonment. He was released on 22 May 2007.

On 7 July 2006 a confiscation order was made in the Crown Court under s71 of the Criminal Justice Act 1988 (CJA 1988) requiring the respondent to pay £145,000.00 within 12 months or in default to serve 30 months’ imprisonment consecutive to his sentence for the offence.

After his release from prison the respondent made partial payments towards the confiscation order, but he claimed that his circumstances were such that he was unable to pay the full amount. There was correspondence between the parties which did not result in agreement, and so on 9 July 2009 the respondent issued an application in the Administrative Court for a certificate of inadequacy under s83 of CJA 1988. This section provided:

The application was supported by a witness statement of the respondent dated 3 July 2009. In it he said that he had paid £94,400.00 towards the order and he asserted that there was an inadequacy of £36,678.40 in the funds available to him.

On 16 November 2009 the respondent made an updated statement amplifying some of the matters in his earlier statement.

The application was due to be heard on 23 November 2009. On 18 November the respondent’s solicitors served a hearing bundle including the respondent’s updated statement and a short skeleton argument in support of the application. The appellant responded by serving a 32 page skeleton argument which challenged a large number of the respondent’s factual claims. The appellant’s skeleton argument also contended that the respondent’s application was bound to fail as a matter of law on the evidence put forward by him.

It was obvious that the time allowed for the application would not be sufficient to resolve the factual issues between the parties, but the judge, Collins J, was invited by the respondent’s counsel, with the agreement of the appellant’s counsel, to decide as a preliminary issue of law whether the application was bound to fail. He agreed to do so. He held that the application was not bound to fail and made an order declaring “that the claimant is in principle entitled to pursue the application for a certificate of inadequacy despite a finding of hidden assets being made by the Crown Court”. He directed that the matter should be adjourned to a date to be fixed for a consideration of the facts of the application. The appellant appeals against the order, with leave of Collins J, and seeks an order dismissing the respondent’s application for a certificate of inadequacy. Pending this appeal, there has been no investigation of the facts.

The course taken by the judge, at the parties’ invitation, was unusual. Counsel knew of no previous example. For reasons which will become clear, I think that it is unfortunate that the judge was persuaded to follow it. It has not resulted in a saving of time or costs, and on an application for a certificate of inadequacy the court’s judgment of the facts is crucially important. If the application raises a controversial question of law, that question is likely to be best decided against a proper understanding of the facts.

CJA 1988 has been repealed and replaced by the Proceeds of Crime Act 2002 (POCA 2002), but the structure of the Acts is similar. (See May [2008] UKHL 28, [2009] 1 Cr App R (S) 31 para 8 and Allpress [2009] EWCA Crim 8, [2009] 2 Cr App R (S) 58, para 7). The court is required, before making a confiscation order, to address three questions:

On the first and second questions the burden of proof rests on the prosecution (subject to any statutory assumptions, with which we are not presently concerned). As to the sum recoverable, CJA 1988 s71(6) provided that:

POCA 2002 s7(2) provides that it is for the defendant to show that the amount available to him is less than the amount of the benefit. That section makes explicit what was implicit in the previous legislation. In Wallbrook and Glasgow (1994) 15 CR App R (S) 783, 786, the Court of Appeal Criminal Division considered the effect of a similar provision in the Drug Trafficking Offences Act 1986. Dyson J, giving the judgment of the court, said at page 786:

In Summers [2008] EWCA Crim 872, [2008] 2 Cr App R (S) 101 the Court of Appeal Criminal Division applied the same principle in relation to s71 of the CJA 1988. Penry-Davey J said at para 11:

The expression “hidden assets”, used in Summers and other cases, is not an expression found in the legislation and it is capable of misleading. There may be cases in which a court makes a positive finding that a defendant has hidden away all or part of the proceeds of his crime, but it is not incumbent on the prosecution to establish that fact. In Barnham Gage LJ, giving the judgment of the court, said at para 41:

There is no requirement that the realisable amount should be connected with the benefit obtained from the criminal conduct. If the defendant has realisable assets equal in value to the amount of his benefit from his criminal conduct, the Act requires a confiscation order to be made for the full amount of the benefit. It is immaterial that he may be able to show that he has not retained any benefit from his criminal activity and that his realisable property comes from a lawful source.

In Summers the defendant argued that the rationale behind the principle that the onus is on the defendant to establish that the amount of his realisable assets is less than the benefit figure was that the prosecution often could not know what had become of the proceeds of the defendant’s criminal activities, and therefore it was for the defendant to show what had become of them; but that, if the prosecution suggested that the defendant had other undisclosed assets, i.e. arising otherwise than from his criminal activities, it was for the prosecution to prove this, or at least to show a prima facie case that he had other undisclosed assets. The court rejected the submission (para 22).

The legislation provides for the service of a statement of information by the prosecutor and a response by the defendant. In CJA 1998 the provisions were contained in s73; they are now contained in ss16-18 of POCA 2002. The prosecutor’s statement is required to address the issue of the defendant’s benefit. It is not required to address the issue of the defendant’s realisable assets, and, while in practice prosecutor’s statements do so, that practice does not affect the burden of proof.

The procedure by which a defendant can apply for a reduction in the amount of a confiscation order has changed under POCA 2002. The High Court is no longer involved. Instead, the defendant applies directly to the Crown Court for a variation of the order: POCA s23. However, this change does not alter the general principles established by the courts in a number of cases arising from applications under CJA 1988, s83 (the relevant section in the present case). The general principles were succinctly summarised by Mr David Holgate QC, sitting as a Deputy High Court Judge, in B [2008] EWHC 3217 at para 74:

It is important to emphasise that this is a helpful summary of general principles developed by the courts in order to fulfil the purpose of the statutory scheme in a way that does justice, but that the underlying objective is critical. It will be necessary to examine more closely the fourth proposition, and the case of O’Donoghue, when looking at the issues in the present case, bearing in mind that such propositions, however eminent their source, are not to be equated with statutory rules.

In broad terms, the respondent’s case is that his circumstances have changed for the worse since the confiscation order was made in a number of ways which he has itemised, with the result that his realisable property is now inadequate for payment of the balance outstanding under the order.

The appellant does not accept that the respondent has produced sufficient evidence to show either that there has been any decline in his realisable property or that his remaining property is consequently inadequate for payment of the balance outstanding. Those are factual issues which cannot be decided on paper.

The appellant also asserts that there is in any event a fatal flaw in the respondent’s application. The fatal defect is that 1) the confiscation order included an amount in respect of hidden assets; 2) the respondent has not shown what has happened to that part of his realisable assets; 3) without full disclosure by him of the form which that part of his realisable assets took and what has become of it, the court is not in a position to know whether that part of his assets may not have appreciated in value in a way that equals any diminution in value there may have been in the respondent’s identified assets (if, that is, the respondent is telling the truth about those matters); 4) therefore his application is bound to fail, whatever depletion in value there may have been in his identified assets.

The argument was presented as an abstract argument of law, but it is necessary to try to understand more fully the factual context in which it arises.

In his first statement in support of his application for a certificate of inadequacy the respondent said (at para 6) that “The court identified the following assets to be used in order to satisfy [sic] the confiscation order in the table below”, and there followed a list of eleven items. He must, I think, have meant that the assets were identified for the purpose of assessing the value of his realisable property. A confiscation order is an order in personam and not in rem. In other words, it does not attach to the assets.

The list included five items which he said gave rise to the claimed inadequacy. There were two lorries and a tipper trailer, which were valued at the time of the confiscation order at a total of £7,723.00, but which he said in fact realised £3,300.00, giving rise to a claimed inadequacy of £4,423.00. The fourth item was the respondent’s 50% share in the haulage business which he ran with his brother. His half share was valued at the time of the confiscation order at £14,856.65, but he said that it in fact realised nothing after his operating licence was withdrawn, following his sentence of imprisonment, and the company was no longer able to operate. The fifth item was the respondent’s half share of the balance of the money in a Lloyds TSB account in the name of the respondent and his brother, which was their company’s trading account. He said that after the loss of the operator’s licence and demise of the business the money in the account went to creditors.

If the respondent’s application proceeds, the court will have to determine, after hearing evidence, whether the respondent is truthful in saying that those items were with hindsight substantially over valued at the time of the order and that in consequence he is unable to pay the balance outstanding. For present purposes it must be assumed that he may persuade the court that he is telling the truth about those matters.

The final item in the respondent’s list of assets on which the confiscation order was based forms no part of his application, but forms the foundation of the appellant’s argument that the application is incapable of succeeding. In his statement in support of his application for a certificate of inadequacy the item was described as follows:

The only further reference which he made to that item in his statement (and repeated in his updated statement) was:

The appellant’s skeleton argument in response to the respondent’s application stated that “The assets available to meet the order were recorded as follows (it appears that minor rounding-up occurred)”, and there followed a list of items very similar to the list in para 6 of the respondent’s statement. The item described briefly in the respondent’s statement as “hidden assets” was described in the appellant’s skeleton as “cash withdrawals from Natwest account 30906113”.

There is therefore common ground about how the sum assessed as the value of the respondent’s realisable property was made up. However, although the respondent said in his statement that the court “identified” the individual items and the appellant’s skeleton said that they were “recorded”, that is not apparent from any court document which has so far been produced. The form of court order which has been disclosed in these proceedings is very short. It states:

Counsel appearing before us did not know whether the confiscation order was the result of a hearing at which findings of fact were made by the judge or whether it merely recorded the effect of a compromise. If there was an agreement, it is not clear in what form it was recorded or whether it formed part of the court order. No transcript of the proceedings has been produced.

If the order was the result of a compromise, as counsel seemed to think likely, it is possible to hazard an educated guess how it was reached from looking at the parties’ statements in the confiscation proceedings.

The prosecutor’s statement included the following passage:

The respondent’s answer was as follows:

The final document was the prosecutor’s response. This stated:

The larger amount of cash withdrawals during the later period, for which the respondent apparently produced some documentary evidence, was evidently not included in the ultimate computation of the respondent’s realisable property. The sum of £22,634.50 is almost (but not exactly) half of the amount of the cash withdrawals during the earlier period for which it appears that the respondent did not produce documentary evidence. If there was a compromise, it might be inferred that the prosecution dropped its claim in relation to the later period, for which the respondent had produced documentary evidence, in return for the respondent accepting that he was not able to discharge the burden of proof of showing what had happened to the cash withdrawals during the earlier period of the conspiracy for which he had no documentary evidence. This would be a rational explanation, but in the absence of any transcript of findings by the court or any record of the agreement between the parties and its basis, it is impossible to be sure. That is the uncertain and rather unsatisfactory factual background against which the appeal falls to be decided.

Mr Dennison started with two undisputed propositions. The first was that whether the court actually assessed the respondent’s recoverable property or made the confiscation order by agreement, the figure arrived at included the sum of £22,634.50 from the Natwest account, about which the respondent had failed to prove the necessary negative, i.e. had failed to establish that the amount of his assumed half share of the cash withdrawals was not still available to him in some form.

The second was that the procedure for applying for a certificate of inadequacy is intended to meet a situation where a defendant can show that events since the making of the confiscation order have had the effect that his assets are insufficient to enable him to pay the full amount of the order.

The next step in the argument is critical. Mr Dennison submitted that in a case such as the present an applicant faces an insuperable problem in that he will be unable to show that his current assets are insufficient to meet the balance of the order unless and until he provides “clear and cogent” evidence about what happened to the cash withdrawn from the Natwest account. Since the respondent has no more to say on that subject now than at the time when the confiscation order was made, it necessarily follows that his application must fail.

Mr Dennison submitted that this conclusion followed inexorably from the general principles summarised above, particularly propositions 3 and 4, and he cited among other cases Gokal [2001] EWCA Civ 368, O’Donoghue [2004] EWCA Civ 1800 and Telli [2007] EWCA Civ 1385 [2008] 2 Cr App R (S) 48.

In Gokal Keene LJ said at para 24:

In O’Donoghue a confiscation order was made for a little under £95,000.00. The defendant’s assets included some vehicles which were later sold for less than their valuation at the time of the confiscation order. The assessment of the defendant’s available assets also included £35,500.00 which had been withdrawn from a building society account about a year before the date of the confiscation order. The defendant applied for a certificate of inadequacy because of the reduced amount of the proceeds of sale of the vehicles. Lightman J dismissed the application because the defendant had not disclosed what had happened to the £35,500.00, and his judgment was upheld by the Court of Appeal.

Laws LJ said at para 3:

In a short concurring judgment Pill LJ said at para 18:

In Telli a confiscation order was made by agreement in a sum approaching £3.5 million. The defendant’s assets included a statue of Dionysus, for which the keeper of the Greek and Roman Department of the British Museum suggested a market price between £1 million and £1.5 million. During negotiations leading to the compromise the defendant indicated that he had available cash in the region of £900,000.00 to £1 million, and there was evidence that he had control over offshore bank accounts. Ten years later the defendant applied for a certificate of inadequacy on the basis that the Turkish government had recovered the statue of Dionysus as stolen property and that its value to him was therefore nil. It appears from the report that he was silent on his application about the part of the sum previously taken to be the value of his realisable assets which had not been itemised. Collins J dismissed the application and the Court of Appeal upheld his decision.

Moses LJ (with whom the other members of the court agreed) said that, absent identification of all the realisable property held by him, a defendant will normally be unable to satisfy the court that the amount that might be realised at the time the confiscation order is made is less than the amount assessed to be the proceeds of his drug trafficking (para 31). Dealing with the particular case he said:

Moses LJ added (at para 39) that his conclusion was consistent with the decisions in O’Donoghue and Gokal.

In the present case Collins J said:

Mr Dennison submitted that this reasoning is illogical. The only way in which the respondent seeks to show that he has made nothing out of his hidden assets is to deny their existence, and that is to deny the correctness of the confiscation order, which he cannot do. Mr Thomas on behalf of respondent submitted that the judge was right to hold that it did not follow from the fact that the respondent had been unable to disprove that his available assets included the proceeds of withdrawals of £22,634.50 from the Natwest account that he was therefore precluded from seeking to persuade the court that overall he was unable now to pay the amount outstanding under the order by reason of the diminution in value of his other assets. He gave an example which he used in his submissions before Collins J to demonstrate the potential unjustness of the law if Mr Dennison’s argument were correct. Imagine, he said, a defendant who owns a house valued at £1 million at the date of the confiscation order and who is also found to have, or is unable to prove that he did not have, £20,000.00 in hidden assets. After the order has been made the property market crashes and the house is sold for far less than £1 million. A rule of law which precluded the court from granting him a certificate of inadequacy unless he was able to itemise what had happened to the £20,000.00 would, he submitted, be contrary to common sense and justice.

Collins J was right in my view to refuse to dismiss the respondent’s application for a certificate of inadequacy without a full hearing, but I would put the reasons more broadly.

The prosecution’s argument has a certain degree of logic to commend it but nothing else. The lifeblood of the law is not logic, although logic is a valuable tool, but justice. The inflexibility of the rule for which Mr Dennison contends has the potential to cause injustice.

The starting point for considering any application for a certificate of inadequacy is the confiscation order itself. Since the burden of proof at the time of the making of a confiscation order is on the defendant to show that his available assets are less than the benefit figure, it follows that there may be cases in which a confiscation order is properly made in a larger sum than the defendant is in truth able to pay, and this may result in him having to serve a period of imprisonment in default for failing to pay what he cannot pay. It may be that the defendant has been dishonest or cavalier in his evidence or it may be that, although truthful, he has not been able to produce evidence sufficient to discharge the burden of proof which rests on him. In the case of money which has gone through a bank account in modest amounts over the course of time, and for which he is not kept detailed records, he may be unable to give more than a generalised explanation.

Mr Dennison submitted that the fact that his evidence is of a general kind ought not to prevent a judge from accepting it, if the defendant is in truth being candid. I agree, and this is a point which should be remembered, although the prosecution usually take a less accommodating position on the making of such applications. As the prosecutor’s statements in the present case illustrate, courts are routinely reminded of the dictum in Wallbrook and Glasgow that the defendant must produce clear and cogent evidence, and that generalised assertions will rarely be sufficient to discharge the burden. The truth is that there is a balance of judgment to be struck. The courts are right to treat with some scepticism generalised assertions by someone whose credibility may be deeply suspect by reason of the facts of the offence. Absence of independent credible evidence to corroborate a defendant’s account is not fatal as a proposition of law, but it may well be fatal as a matter of fact. That, as I have said, is a matter for the judgment of the court considering the confiscation application. The fact that a defendant may end up with a confiscation order for more than he can pay, because he has been unable to produce sufficient evidence to satisfy the court of his true means, rather than because he has been deceitful or evasive, is hard but not unjust. It is not unjust, because it is right that the burden of proof should be on him.

At the stage of an application for a certificate of inadequacy, the burden of proof is again on the defendant. He is unlikely to succeed unless the court is satisfied that he is being candid, and an application for a certificate of inadequacy is not intended to be a means of the defendant having a second bite at the same cherry. Those principles are clearly established. However, a rule of law which said that the court could not be persuaded that the defendant was unable to pay the outstanding amount by reason of a worsening of his financial circumstances unless he gave full disclosure of what had happened in the meantime to all his assets, including previously unidentified assets, would trammel the width of s83 by imposing a restriction which is not in the statute. It would also be capable of causing not merely hardship but hardship amounting to injustice.

In the case of previously unidentified assets, it is possible that a defendant may genuinely have no idea or only a dim recollection what had originally happened to them. He should be allowed to try to persuade the court, if this be the case, that his identified assets have shrunk in value and that as a result he is not able to pay the amount outstanding. What the court makes of that evidence will be a matter for its judgment. Much will no doubt depend on the nature of the case. Cases involving unidentified assets can vary greatly. The case of an international drug dealer with evidence of a lavish lifestyle, ready access to large sums of cash and connections with a web of offshore companies and bank accounts, may merit different treatment from the case of a defendant whose apparent circumstances and amount of unaccounted for assets are much more modest. It is for the court to consider the totality of the evidence before concluding whether it accepts that the defendant has suffered a change of fortune such that he is probably not able to pay the balance of the outstanding money. If the defendant is not permitted the opportunity of trying to establish this, there is a real risk that even though he can demonstrate a change in his circumstances, possibly very great, he may serve an additional period of imprisonment through failure to do that which is impossible by reason of his change of circumstances.

The authorities cited by Mr Dennison do not take him as far as he seeks to go. They ban an attempt to have a second bite of the same cherry, but the respondent is not attempting to do so. Although he says that in fact he never had any undisclosed assets, he accepts the finality of that order as things stood at that date. On the question whether he can persuade the court that it is right to grant a certificate of inadequacy when he cannot now give any further account of what has happened to the previously unaccounted for assets, the court in O’Donoghue was cautious not to lay down a rigid rule. Laws LJ said that the proper conclusion would depend on the court’s appreciation of all the evidence. Pill LJ added his own emphasis that the matter must depend on an overall view and that the court needs to keep a sense of proportion in conducting the exercise. The point that he emphasised is important. It has been said many times that the statutory scheme for confiscating the proceeds of crime is intended to be draconian. So it is, but in administering the scheme it is right that the courts should keep a sense of justice and proportion, bearing in mind the essential purpose of the scheme, which is not to punish a defendant a second time for conduct for which he will have been sentenced but to deprive him of the benefit of his criminal conduct. The court in Telli did not seek to lay down a different principle from the court in O’Donoghue. On the facts it involved a different scale of criminality from the present case – a drug dealer who had claimed to have available cash in the region of £1 million. The court referred to him as having chosen not to identify his realisable assets. Whether the same may be said of the respondent will be a matter for the court to decide when it has heard his evidence.

I would dismiss the appeal, but I would vary the paragraph of the judge’s order which declared “that the claimant is in principle entitled to pursue the application for a certificate of inadequacy despite a finding of hidden assets being made by the crown court”. As I have explained, in the absence of a transcript it is unclear what, if any, finding of fact was made by the Crown Court. I would substitute a paragraph declaring that the respondent is entitled to a hearing of his application for a certificate of inadequacy.

I agree.

I also agree.