Heron v Serious Organised Crime Agency & Anor

This is an appeal from the refusal of Collins J sitting in the Administrative Court to grant permission for judicial review of the decision of the Crown Court, namely the decision of HHJ Baker QC sitting in the Crown Court at St Albans on 17 December 2009 in the matter of R v Mr Jones and Ms Heron .

He was concerned with the argument put forward by Ms Heron that it was not within the jurisdiction of the Crown Court to treat as within the confiscation order made against the first defendant, Mr Jones, property registered in her name at 5 Augustine Court, Waltham Abbey.

The judge rejected the argument that the Crown Court had no jurisdiction.

Before I go to the judge's judgment I must briefly explain the legislative scheme regarding confiscation orders. Under the Proceeds of Crime Act 2002 confiscation orders may be made in the Crown Court following a conviction. If the conditions for making such an order are satisfied with regard to the crimes the subject of the convictions, the court must decide whether the defendant had a criminal lifestyle, and if so, whether he has benefited from his criminal conduct. If the answer to that question is also yes, the court must decide the amount recoverable from the defendant and make an order for that amount. This procedure is referred to as “stage 1”.

A defendant is considered to have a criminal lifestyle if one of certain criteria are satisfied, for instance that the offence for which he has been convicted is one of those specified in Schedule 2 of the act. If the court decides that the defendant has a criminal lifestyle, as it did in this case, it must make four assumptions when determining the amount of the benefit from the defendant's general criminal conduct, unless the application of those assumptions can be shown by the defendant to be incorrect or would lead him to suffer a serious risk of injustice.

The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him as a result of his criminal conduct, and the relevant day is the day six years preceding the earliest date of commencement of proceedings against him. The second assumption is that any property held by the defendant at any time after the date of the conviction was obtained by him as a result of his criminal conduct. The third assumption is that any expenditure incurred by the defendant at any time after the relevant date was met from property obtained by him as a result of his criminal conduct, and the fourth assumption is that, in valuing the property obtained, the defendant has obtained it free of any other interests in it. We are concerned particularly with the third of those assumptions which is to be found in section 10(4) of the 2002 Act.

So far as the available amount is concerned, section 9(1) provides that:

Then I need to turn to tainted gifts. These are dealt with according to whether or not the defendant is found to have had a criminal lifestyle. If he had a criminal lifestyle the gift will be deemed to be tainted if it was made by the defendant at any time after the relevant day, or if it was obtained by the defendant as a result of or in connection with his general criminal conduct or represented in the defendant's hand property obtained by him as a result of or in connection with his criminal conduct: on that, see section 77(3) of the 2002 Act. That means that in certain circumstances, if possible, gifts can be clawed back beyond the usual period of six years.

So far as third parties who may be interested, for example because they are the donees of gifts, as indeed Ms Heron was in the present case, the third party is not involved during the course of the confiscation hearing as a party but can make an application at the enforcement stage (called “stage 2). However, it would have been open to the defendant to call a third party, such as Ms Heron as a witness at the time of the making of the confiscation order, but for reasons that will become clear, that did not in the event occur.

The Assets Recovery Agency (“ARA”) and now the defendant, SOCA, to which the ARA's functions have been transferred, can apply in the civil court to enforce any confiscation order. The powers are subject to a number of restrictions, for instance that they must be exercised with a view to the value for the time being of the realisable property being made available for satisfying the confiscation order: see section 69(2) of the 2002 Act. However – and this is an important provision in the present case – section 69(3)(b) provides the restriction on the powers in section 69(2) has effect subject to certain rules. These rules include a rule that “in the case of realisable property held by a recipient of a tainted gift, the powers must be exercised with a view to realising no more than the value for the time being of the gift”. Accordingly, if the recipient has other property, the confiscation order cannot apply to that other property.

The third party, as I have said, can make an application to court to recover her property if it is included in the confiscation order, which is precisely had happened in the present case. The essential point on this appeal is whether it was open to the court on application to proceed on the basis that a confiscation order treated a property in the hands of the recipient as a tainted gift, even if the judge on the making of the confiscation order had not in terms found that it was in fact a tainted gift.

As I have said, Collins J rejected the argument and refused permission to apply for judicial review. His judgment was extremely short, and it is therefore convenient if I read it.

I go next to the judgment of the Criminal Division of this Court (Keene LJ, Butterfield and Plender JJ) with respect to an appeal which it heard from the making of the confiscation order in 2007. It is in the matter of R v Mr Jones [2009] EWCA Crim 177. Keene LJ, giving the judgment of the court, usefully sets out a large amount of the background:

One of the arguments raised before the Court of Appeal concerned the Augustine Court property with which we are concerned, but before I go to those passages, I will return to the 2007 judgment, by which HHJ Baker QC, sitting in the Crown Court at St Albans, made a confiscation order. He identified the benefits which were in issue before him at paragraph 14 of his judgment:

The judge then dealt with Augustine Court at various subsequent paragraphs in his judgment:

It will be seen from that last paragraph which I have quoted that there was agreement between the parties before the judge as to the recoverable amount which was to be measured by reference to the amount of funds the defendant has available to meet the benefit, and the judge stated that he understood that figure to be agreed at the figure of £3,042,671.92 made up as set out in paragraph 65. With those passages in mind, I go back to the judgment of Keene LJ in the Court of Appeal, Criminal Division. He dealt with Augustine Court at paragraphs 49 to 51 and 54 and 57 of his judgment:

It will be noted that Keene LJ dealt with Augustine Court on the basis that it was expenditure by the appellant which constituted a benefit. He found no error in that conclusion.

I also draw attention specifically to paragraph 54 of the judgment of Keene LJ, which confirmed paragraph 65 of the judgment of HHJ Baker in 2007. It is there held that the available amount was not a matter in issue in the court below, and the Court of Appeal refused permission for it to be opened for the first time in the Court of Appeal. In addition, paragraph 57 specifically shows that the court upheld the order made by HHJ Baker.

I am not concerned with the details of the offences for which Mr Jones was convicted, or how they were committed. It is sufficient to set out the summary in paragraphs 1 and 3 of the judgment of Keene LJ:

In his judgment, Keene LJ dealt with the legislative scheme. He also pointed out that the relevant day in this case was 2 July 1999.

It will be apparent from the passages which I have cited from his judgment that HHJ Baker was well aware that Mr Jones had made a gift of Old Bellgate Wharf to Ms Heron, or a gift of the sum of £205,000 to buy that property, and that Augustine Court was purchased in 2000 for £328,000, with the benefit of a bridging loan from Mr Jones. In fact, that was repaid by Ms Heron to the extent of £240,000 out of the proceeds of sale of Old Bellgate Wharf. He states that to have been his understanding.

The judge makes a finding at paragraph 44 that this was not a case in which a confiscation order should not be made with respect to Augustine Court because it would be unfair or unjust, because he there refers to section 10(6). He also states that he had considered how Augustine Court had been funded, and he holds at paragraph 58 that he was not satisfied that the assumption that the expenditure incurred by the defendant on the bridging loan was met from funds obtained as a result of his general criminal conduct had been shown to be incorrect. He also went on to find at paragraph 59 that the funds used by Bellgate came entirely from the profits of the defendant's business, and therefore the bulk of them too was out of proceeds resulting from criminal conduct. He also made it clear that the business had started in 1987, that is before the purchase of Bellgate Wharf. He therefore tracked through the provenance of the monies used to buy Augustine Court, and he traced them all the way back to the proceeds of the criminal business which Mr Jones had carried on, and from that into Old Bellgate Wharf and then into Augustine Court.

As I have said, the basis of the argument before the judge in 2007 was that the benefit of the bridging loan was expenditure, and that the expenditure was a benefit to Mr Jones.

When in 2009 an application was made for enforcement of the confiscation order, the judge treated the matter as one of tainted gift. He heard evidence from Ms Heron, which he rejected. He also heard evidence from Mr Jones. He found that the reality was, as regards the purchase of Old Bellgate, that the funds were all provided by the defendant, Mr Jones, and that the same had applied to the purchase or Augustine Court, except that £240,000 from the sale of Old Bellgate was credited back to the defendant's bank account. That bank account was with Bank Hofmann (see page 227 of the bundle). The judge was satisfied that the gift of Old Bellgate was a genuine gift and not a sham. He found that the defendant had found it convenient to gift Old Bellgate to Ms Heron, and that he was persuaded that inheritance tax was a further reason for making the gift. But he went to find (and this is page 229 of the bundle) that the bulk of the funds used to purchase both Old Bellgate and Augustine Court had as their ultimate source the dishonestly run business of the defendant.

The judge proceeded on the basis that there was a tainted gift. He concluded at page 230 as follows:

Mr Gregory, who appears for Ms Heron today, submits that the only basis of the argument before HHJ Baker in 2007 was that the expenditure was a benefit. I readily accept that that was so. He also relies on a passage from the transcript of the hearing on the appeal from the confiscation order before the Court of Appeal, Criminal Division as originally constituted. What happened was that that court ran out of time to finish the appeal and the therefore had to be terminated without a judgment, and it was then heard by a court presided over by Keene LJ. In the course of the exchanges between counsel and the court, Hallett LJ put it to Mr Bennett, then appearing as today for SOCA, "So we have a property, AC, that is registered in her name. For all intents and purposes she is legal owner, both beneficial and in title. She also, we happen to know, seems to have provided by means of an untainted gift, whatever the original source of the money, a large part of the proceeds. On what basis is the Crown Court judge entitled to bear in mind AC without hearing her or giving her the opportunity to be heard? This is her home as well."

As I have already explained, Ms Heron had no right to appeal as a party to the confiscation order proceedings, although she could have been called as a witness. Within that observation from Hallett LJ is the expression that the court now knew that the amount had been received by way of a untainted gift. Mr Gregory relies on that point as indicating that there was no finding in 2007 that it was a tainted gift. Indeed, I think he would go further and say it could also not be construed as a tainted gift, and that Hallett LJ was obviously accepting that point.

So far as I am concerned, without wishing to express any disrespect for that passage whatever, I would say that it does not constitute a precedent by which this court is bound because it was not an observation given as part of a judgment of the court. Therefore, while I have borne it in mind, I do not consider that it concludes the issue with which we must deal.

Mr Gregory proceeds that there was no ruling that Augustine Court was a tainted gift and that the real basis, as Keene LJ made clear, of the decision in 2007 was that the bridging loan was a benefit. He further relies on the final paragraph of the judgment of the Court of Appeal in R v Buckman [1997] 1 Cr App R (S) 325. In this case the judge had to deal with a joint property, and he made a brief decision that the wife had not established any interest in it. Brooke LJ in the final paragraph of his judgment, which was the judgment of the court, said:

Mr Gregory particularly relies on that last sentence and on the further holding by the court in that paragraph that it was not appropriate to remit the matter back to the judge. Mr Gregory submits that these matters support his submission that it is critical that there should be a finding that there was a tainted gift at stage 1 to enable that point to be taken at stage 2. He submits that the judge’s treatment of the gift to Ms Heron at stage 2 as a tainted gift is inconsistent with the description of the process set out by Lord Hobhouse in the decision in the House of Lords of R v Norris [2001] 1 WLR 1388. Lord Hobhouse explained at paragraph 13 of his judgment that the question of the amount that might be realised at the time of the confiscation order is made involves a different exercise. It is an exercise to be undertaken at the date of the making of the confiscation order. He continues, and he is here dealing with the equivalent provisions in the Drug Trafficking Act 1986:

Mr Gregory also points out that it was far too late by 2009 for SOCA to apply to extend the assets to which the order related since under section 21, where a court has made a confiscation order. There has to be evidence which was not previously available to the prosecutor to enable the prosecutor to persuade the court that the amount of the benefit is greater than the relevant amount.

Mr Gregory relies on that section as indicating also that the matter must be entirely dealt with at stage 1, and that if it was a tainted gift it must be identified as such at stage 1.

Mr Jones is an interested party in this appeal. He appears by Mr Stradling, who did not appear below. Mr Stradling adopted Mr Gregory's submission. He submits that there was a deliberate decision by SOCA not to argue tainted gift on the 2007 application, which I called the stage 1 application. He points out that Old Bellgate Wharf was not included in the list of benefits which are set out in paragraph 14 of the judge's judgment, nor indeed was the bridging loan or the gift of £204,000. He submits that that further supports the argument that there was no tainted gift in the present case, that the matter being relied upon was the bridging loan and not the gift constituted by Augustine Court or indeed Old Bellgate Wharf. Mr Stradling accepts, however, that if Ms Heron had been able to repay the bridging loan out of her independent assets, and the matter had been contested, then the only asset which could have been included in the realisable amount was the value of the bridging loan and not Augustine Court.

I now turn to my conclusions. The argument can be shortly summarised. What is being said is that the judge could not hold, had no jurisdiction to hold, in his 2009 judgment in the St Albans Crown Court that the amounts paid towards the acquisition of Augustine Court constituted a tainted gift because that finding and that holding had not been made at stage 1 in 2007. In my judgment, there were reasons why that matter was not held to be the case at stage 1. First, the entire focus of the argument was on the bridging loan point: ie that Mr Jones had been enabled to make the bridging loan because of the criminal activities which he had carried on. Second, the bridging loan was not in fact property of the defendant at the date of the confiscation order, and it will be recalled that section 9 requires the available amount to be composed, so far as it concerned property held by the defendant, of values then held by him. Furthermore, it was agreed by the defendant, Mr Jones, that Augustine Court was an asset which should be included in the available amount, and it was thus conceded by him that it was an asset against which the confiscation order against him could be enforced, and therefore the judge was entitled to take the course in 2007 that the confiscation order should include Augustine Court and not the bridging loan.

Third, it would have been duplicative for the judge to have found that there was a tainted gift as well as to proceed on the basis that he did proceed, that there was a bridging loan which was a benefit. That is, I think, an answer to the point Mr Stradling made, that there was a deliberate decision not to argue the tainted gift point, because there is a good reason not to have argued it if it is purely duplicative of the matters which the judge had to resolve in order to make the order.

Fourth, as against that, and this is fourthly, all the facts necessary to establish a tainted gift were found by the judge. He found that the gifts to Ms Heron were all along made out of the property which had been obtained as a result of criminal activities. He held that in relation to not only Augustine Court but also to Old Bellgate Wharf.

Fifth, there is no prejudice to Ms Heron in the court coming to the conclusion that what the judge did in 2007 was in substance to find that there was a tainted gift. The position is that Ms Heron in law could argue everything that she desired to argue at stage 2. In the event, her evidence was purely that she had contributed £6,000 towards the deposit. But the fact is that she had no control over what was argued at stage 1, and thus it would be giving her a windfall if she was able to benefit from this point.

Sixth, there is no suggestion that any evidence could have been produced to show that Augustine Court was not a tainted gift. As I have explained, she only argued before the judge in 2009 that she had contributed £6,000. Her evidence on that was rejected, and she did not take the point which has been mentioned in the appellant's skeleton argument that she was entitled to say that she had provided consideration as the home maker. Likewise, that point has not been advanced orally in this court. The fact is that Ms Heron was able to argue everything she wanted to argue at stage 2 and that she was not prejudiced by the fact that all the facts had been found in relation to the tainted gift at stage 1.

It is correct, as Mr Stradling submits, that nothing was ventilated on the tainted gift argument at stage 1, but there was nothing else that needed to be ventilated, and, as I have said, there was the concession about Augustine Court being within the available assets. That concession must have a role to play in this particular case.

As I see it, in those particular circumstances, all the facts having been found which are necessary to find a tainted gift, and that the only thing that was missing was that the judge should actually say, in the alternative, this transaction was a tainted gift for the purposes of the 2002 Act, in my judgment the jurisdiction to hold that there was a tainted gift at stage 2 was established by the judge's judgment in 2007. There was, as I see it, a clear finding of all the necessary facts, short of that one final conclusion. There is also the aspect of the way in which the proceedings were conducted in relation to the inclusion of the asset and the bridging loan. I would add that I do not think that this was an ideal way in which the matter should have been resolved at stage 1. It would have been possible surely for counsel to say that, if the point were necessary for him to take it, he would reserve the issue that there was a tainted gift or invite the judge to make a finding on that matter. That would have made it unnecessary to pursue this stage of the litigation. As it is, in my judgment the jurisdiction for stage 2 was clearly established in the circumstances of this case by the judge having found the facts and considered all the necessary steps towards establishing a tainted gift. He went into matters which it would otherwise have been unnecessary for him to go into simply to reach the conclusion on the bridging loan. I would therefore dismiss this appeal.

agree.

I also agree.