Jannaway, R. v

The appellant on 24^th February 2001 pleaded guilty at Guildford Crown Court before HHJ Bassingthwaighte to one count of obtaining an exemption from a liability to pay Council tax by deception (count 1) and to 22 counts of procuring the execution of a valuable security by deception (counts 4 to 25). He asked that 365 similar offences be taken into consideration. On 1^st March 2001 he was sentenced by Mr Recorder P. Moss to 22 months imprisonment on each count concurrent, and he was released after serving this sentence on 23^rd January 2002.

On 28^th September 2001 a confiscation order was made against him by HHJ Bassingthwaighte in the sum of £118,660.69 under s.71 of the Criminal Justice Act 1988, to be paid within 3 months, with 3 years imprisonment in default. This appeal relates to £81,819.24 of this confiscation order.

The offences took place between January 1993 and February 2000. The appellant lived with his wife and family at 184 MacDonald Road, Lightwater, Surrey. Count 1 related to relief obtained from Council tax payable in respect of such occupation . Counts 4 to 25 related to Job Seekers Allowance obtained from Surrey County Council or the local Department of Social Services, part of which went directly to the Woolwich Building Society to meet payments due under the mortgage on the family home. The deception consisted of regular representations that the appellant had no income or capital. The appellant and his wife in fact had bank and savings accounts containing over £68,000, a number of charge cards on which the amounts due were paid off monthly and assets which included BMW and Ford Escort Cosworth cars, a caravan and a boat.

The sum of £118,660.69 ordered to be confiscated by the Judge was a figure which had been agreed between counsel as the total of the benefits obtained by the appellant from his offending within the meaning of s.71 of the 1988 Act. It included the increase in the value of the family home acquired with the assistance of the benefit payments obtained by deception, which increase was put at £38,000. The balance (on this basis £80,660.69) therefore represented the total of the benefit payments. Realisable assets were also agreed at £263,075. This sum was made up of the equity in the family home (£155,000), the value of motor vehicles (£16,385) and caravan (£4000) and cash in bank (£87,690.27).

After the appellant pleaded guilty on 24^th February 2001 and before he was sentenced on 1^st March 2001, the appellant’s father made a payment to Surrey Heath Borough Council in an amount of £81,819.24, intended to cover the loss caused by the obtaining by the appellant of the benefit payments by deception. The Recorder when sentencing the appellant on 1^st March 2001 was told of this payment by the appellant’s father. He took it expressly into account in the sentence he passed, and he also noted that he did not need to order any compensation “because it has already been paid”. Among the other matters that he also took into account in the sentence he passed was the lifestyle that the appellant and his wife had been able to maintain and support by the fraud that he had perpetrated.

The small difference between the amount of £81,819.24 paid by the appellants’ father and the amount of £80,660.69 taken by the Judge need not concern us at this point. Nor need the fact that the father’s bank account apparently shows a payment of the intermediate sum of £81,837.24. The matter has also been argued before us on both sides on the basis that the payment went to or reached those who suffered the original losses, so that we need not consider the relationship between Surrey Heath Borough Council, Surrey County Council and the Department of Social Services.

The question whether any and what confiscation order should be made was adjourned on a number of occasions, particularly while investigations were undertaken to confirm that the monies paid to Surrey Heath Borough Council came from and belonged to the appellant’s father. It transpired that the father had sold his house some time previously and so had the money available to assist his son. Once this had been confirmed, the matter was determined on 28^th September 2001 on the basis that the appellant owed his father a like sum to that which his father had paid. But no terms for repayment of that debt were shown, and no agreement for the payment of any interest. At the time of sentencing, and possibly to this day, the appellant’s assets were however subject to a freezing order. The appellant in a letter to the Judge said that the amount he owed to his father could be repaid once his account was unfrozen, but that a confiscation order in the sum of £118,000, as the Crown sought, would involve selling the family home, which he said would remove his family’s last bit of stability and add to their punishment as well as his.

The appeal is, as we have indicated, confined to that part of the confiscation order relating to the benefit payments obtained by deception. It was submitted to the Judge that the appellant had a legitimate expectation that, if he repaid their amount, the Crown would not seek what was described as “double recovery”. The Judge rejected that submission, in the absence of any notification or representation of any such intention by the Crown. Then, as we have said, it was submitted that it would be unduly harsh to make such an order, in the circumstances set out in the appellant’s letter. The Judge rejected this submission, pointing out that the appellant’s wife had accepted a police caution and, therefore, to some extent, shared responsibility with her husband, while the appellant himself had “lived a comfortable lifestyle for many years as at least a partial result of his lengthy fraud” and his assets were more than sufficient to meet the order requested as well as the debt to his father. After referring to the case of Brazil (91/5607/Y4 and 93/6585/Y4) (12^th January 1995), the Judge observed that what the appellant did “was to practise a sizeable fraud upon the taxpayer, meaning that he received and, no doubt, used funds which he should not have had perhaps to generate other funds”. In all the circumstances, he said that, while recognising “the harsh effect of the order sought”, he would make it in the terms requested.

Unusually, the appeal was the subject of two hearings before us. After the first hearing, we sent a note to counsel requiring further assistance on authority on which we had not had argument during the previous hearing, principally Smith [2001] UKHL 68, but also Mitchell [2001] 2 CAR (S) 141, both decided under the 1988 Act as amended by the Proceeds of Crime Act 1995. We also raised points on remarks in Williams [2001] 1 CAR (S) 500 and on the purpose(s) of the discretions under s.71(1) and s.72(3) of the 1988 Act.

It was common ground before the Judge and before us that, because some of the offences charged were committed before the coming into force of the Proceeds of Crime Act 1995 (which amended the 1988 Act), the court should proceed on the basis of the unamended Act: see s.16(5) of the 1995 Act. It is convenient to set out the relevant provisions of the unamended 1988 Act at this point:

“71.—(1)  The Crown Court and a magistrates' court shall each have power, in addition to dealing with an offender in any other way, to make an order under this section requiring him to pay such sum as the court thinks fit.

    (2)  The Crown Court may make such an order against an offender where—

(a)

he is found guilty of any offence to which this Part of this Act applies; and

(b)

it is satisfied—

(i)

that he has benefited from that offence or from that offence taken together with some other offence of which he is convicted in the same proceedings, or which the court takes into consideration in determining his sentence, and which is not a drug trafficking offence; and

(ii)

that his benefit is at least the minimum 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)  The sum which an order made by a court under this section requires an offender to pay must be at least the minimum amount, but must not exceed—

(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.

72.

………

(3)

When considering whether to make a confiscation order the court may take into account any information that has been placed before it showing that a victim of an offence to which the proceedings relate has instituted, or intends to institute, civil proceedings against the defendant in respect of loss, injury or damage sustained in connection with the offence.

……………

    (5)  Where a court makes a confiscation order against a defendant in any proceedings, it shall be its duty, in respect of any offence of which he is convicted in those proceedings, to take account of the order before—

(a)

imposing any fine on him;

(b)

making any order involving any payment by him, other than an order under section 35 of the [1973 c. 62.] Powers of Criminal Courts Act 1973 (compensation orders); or

(c)

making any order under—

(i)

section 27 of the [1971 c. 38.] Misuse of Drugs Act 1971 (forfeiture orders); or

(ii)

section 43 of the [1973 c. 62.] Powers of Criminal Courts Act 1973 (deprivation orders),

but subject to that shall leave the order out of account in determining the appropriate sentence or other manner of dealing with him.

………….

(7)

Where—

(a)

a court makes both a confiscation order and an order for the payment of compensation under section 35 of the Powers of Criminal Courts Act 1973 against the same person in the same proceedings; and

(b)

it appears to the court that he will not have sufficient means to satisfy both the orders in full,

it shall direct that so much of the compensation as will not in its opinion be recoverable because of the insufficiency of his means shall be paid out of any sums recovered under the confiscation order.”

Mr Farmer, for the appellant, renewed the submission that the circumstances of the adjournments left the appellant with an expectation that his father’s payment, if established, would lead to a credit against any confiscation order. We do not see any ground for saying that the Judge was wrong when he rejected this submission below. It was common sense to ascertain the facts, before considering their significance. It is clear that the issue whether and to what extent such a payment may have relevance is a difficult one. There was no reason to address it hypothetically unless there had been such a payment. If, after much argument (without any possibility of an appeal at that stage), the potential relevance of such a payment had been accepted, the matter would then have had to be investigated to examine the circumstances and effect between father and son of the payment, before it was restored for yet further argument in that light. There is also nothing to suggest that the Crown ever held out to the appellant that it would accept that he should be credited in any confiscation order with the amount of any payment that proved to have been made by his father.

Mr Farmer’s more substantial submissions were directed to the discretion which the Judge had under s.71(1). The Judge was in our view clearly aware that he had a discretion. The passage in his remarks addressing the appellant’s submission that it would be harsh to make the order only makes sense on this basis. The considerations which evidently weighed with him were that the appellant had been enabled to live a comfortable lifestyle for many years and to use the funds he received “perhaps to generate other funds”, and that there were assets more than sufficient to meet the order requested.

There are, we think, three points that can be made with regard to the Judge’s approach. First, the suggestion that the appellant had obtained other financial benefits, while eminently realistic in general terms, raises a question as to how far the Court can or should base its exercise of discretion on the proposition that additional financial benefits must have been made, which the Crown has made no attempt to quantify or have confiscated under the Act; the objection to doing so becomes particularly apparent in circumstances where the parties have in fact agreed the amount of the benefits obtained for the purposes of the Act. Second, he made no acknowledgement of the fact that the Recorder, when sentencing, had also taken the comfortable lifestyle achieved by the appellant into account. We do not suggest that the relatively short sentence imposed by the Recorder for highly persistent and long-lasting offending could have taken full account of the comfortable lifestyle. Thirdly, and more fundamentally (and quite likely because of his attitude on the first two points), the Judge did not address the question to what extent a repayment of benefits by an appellant should be taken into account under s.71(1) and, if it should, then to what extent the fact that the repayment of benefits had been made by the father affected the position.

As to the first point, in our view it was not open to the Judge to take into account benefits capable of measurement as pecuniary advantages, when the parties have agreed the total pecuniary advantages, without the Crown ever suggesting that there were any such further advantages and without them being investigated. As to the second point, Mr Farmer for the appellant accepted that a judge considering making a confiscation order could take into account general lifestyle benefits, not measurable as pecuniary advantages under s.71(5). But we think that it would have been desirable to acknowledge that the sentence had already taken some account of the comfortable lifestyle, although the sentencing judge was not concerned with the confiscation of any benefit.

We turn to the third point, which concerns the general approach to be taken to the exercise of the discretion, in circumstances where the victim has been or may be compensated. On the face of it, the discretion incorporated in s.71(1) is quite general. The amendments introduced by the 1995 Act eliminate it, but they do not help us construe the earlier legislation. S.72(3) might be suggested to have been included to enable the court to take into account a likelihood of the offender having to make good any benefits obtained by deception. However, much the more probable purpose seems to us to have been a desire on Parliament’s part not to make a confiscation order that would, by stripping a defendant of all his assets, deprive an innocent victim of compensation. Further, s.72(3) only operates where a victim has instituted, or can be shown to intend to institute, proceedings against the defendant. So there can be no question of asking a court to take into account proceedings which are merely likely, or of returning to court if at a later stage a claim emerges which has not been taken into account when the confiscation order was originally made. Concern for the victim is also the thinking behind s.72(7), whereby a court making both a confiscation and a compensation order, against someone who appears to lack the assets to satisfy both, “shall direct that so much of the compensation as will not in its opinion be recoverable because of the insufficiency of means shall be paid out of any sums recovered under the confiscation order”. So the confiscation order works as a tool to promote recovery under the compensation order. But it is also noticeable that s.72(7) does not contemplate that the confiscation order will necessarily be limited to the amount necessary to meet the compensation order. However, the explanation for that might be that there can be situations where the benefits obtained exceed any loss in respect of which the victim needs or seeks compensation. Take, for example, the gain in property value in the present case. That caused no loss to social services. (Conversely, the loss caused may of course exceed any benefit obtained – see the facts in Mitchell [2001] 2CAR (S) 141.)

We conclude that the primary focus of the 1988 Act in its unamended form was upon the stripping of benefits from offenders and upon the protection of the interests of third parties, rather than upon avoiding hardship to offenders by a strict measuring of net benefits. However, it remains the fact that the discretion under s.71(1) is general. Although in his written submissions Mr Connolly for the Crown suggested that the only purpose of the Act was to assist the victim and that it consciously ignored the draconian effects of a confiscation order, he was in his oral submissions ready to accept that a judge could legitimately take into account a defendant’s repayment. He submitted that the Judge’s order could be justified not only by the factors expressly relied upon, but by other factors, such as the appellant’s obstructive attitude to investigators and his very late plea on the day of the trial. However, these matters, not mentioned by the Judge, appear to us relevant to the sentencing exercise, rather than to the confiscation order.

We turn to the authorities to see what assistance they offer on the correct approach. Brazil decided under the unamended 1988 Act in January 1995 presents in our view an odd situation, since the judge there made both a confiscation and a compensation order in identical sums (£30,220 in each case), in circumstances where the appellant had assets of £68,494.95, i.e. sufficient to meet both. Yet the only objection taken on appeal was to the compensation order, on the ground that it would have a disproportionately harsh effect. Not surprisingly the court refused to disturb that order. In Layode (12^th March 1993) on the other hand, this Court endorsed, albeit in clearly obiter remarks, the provisional view expressed by Auld J in a prior first instance case (Rees; Plymouth Crown Court; 19^th July 1990) to the effect that, where building societies had been able to recover the monies dishonestly obtained, the proper exercise of the court’s discretion under s.71(1) should be to exclude those sums in determining the amount of a confiscation order.

More recent authority takes, however, a uniformly and avowedly draconian attitude to the legislation. We start with Williams [2001] 1 CAR (S) 500. The appellant had by fraud obtained payments for works which were either never carried out or grossly overvalued. The question argued on appeal was whether the judge ought to have made confiscation and compensation orders in identical sums when both represent the same loss. Brazil was cited, but not so far as appears Layode or Rees. Turner J giving the judgment in this court rejected the argument that to make both orders was analogous to imposing a fine. It was, he said at p.504, clear from the provisions of s.72 that the court should consider the question of confiscation before it proceeded to compensation, so as to ensure that the offender did not profit. There was “nothing within the Act itself to indicate that the expropriatory provisions of section 72 should be diminished in any way by the independent civil rights of the losers concerned”.

This passage does not expressly address s.72(3), although it was set out earlier in the judgment. Further, we are not sure on what basis it was said that the court will consider making a confiscation order before a compensation order. That does not in our view follow from s.72(5), and s.72(7) treats the processes as potentially concurrent. In Mitchell the Court identified in these subsections “the clear intention of Parliament that the victim should come first”, and the fact that this was a decision under the 1988 Act after its amendment in 1995 does not affect this conclusion. We have also in mind the statutory provisions requiring courts to give priority to a compensation order, when an offender has insufficient means to pay both a fine and a compensation order. Further, as the present case illustrates, the making of a confiscation order may well post-date the sentencing exercise by some considerable time. Finally, when considering the statements in Williams, it is in our view very relevant to bear in mind that the victims there had not been reimbursed, and it could not be known whether or when a compensation order would be enforced. In the present case, in contrast, the social services had actually been paid the agreed amount of the unlawfully obtained benefits.

Mitchell [2001] 2 CAR (S) 141 was a case under the 1988 Act as amended in 1995. The appellants, husband and wife, had defrauded the wife’s employers, who were caterers at Lords Cricket Ground, and the husband had thereafter set fire to the caterers’ premises at Lords to try to conceal the fraud. The joint benefits received totalled £67,439,60, and the damage by arson exceeded £60,000. The husband’s assets totalled £60,874.76 (including £50,000 for his half share in the matrimonial home), while his wife’s were simply her £50,000 half share in the home. Although the judge was informed that the caterers intended to pursue a civil claim, counsel at trial positively invited the judge to make confiscation orders in a sums of £33,719 each, which the judge did. This Court reiterated, citing Brazil, that there is “no objection” to making both a confiscation and a compensation order when there are assets sufficient to cover both (p.145). However, it should not do so, if the result would be to prejudice a victim’s claim to recover in full for loss suffered. The Court considered making orders under s.72(7) with a view to aiding the caterers to recover their loss, but the caterers had already obtained charging orders and did not seek this. In these circumstances, the confiscation orders were set aside in their entirety and the Court substituted compensation orders in the sums of £33,719 each.

Of present interest are the following comments in Kennedy LJ’s judgment on the situation where assets exceed the amount needed to compensate a victim fully:

“When it is clear that the victim can be properly compensated, and that what remains in the hands of the defendants is a relatively modest sum, the residue of a lifetime’s legitimate savings, the court may wish to take that factor into account. …. if and in so far as the judge in the present case thought that he would be able to spare the appellants some of their funds, when in reality, at the end of the day, they were going to be liable to those who were the victims of their offences for more than their assets there was simply no route by which he could achieve that perhaps desirable route.”

So it appears that, even under the amended Act, which contains no general discretion, but only the limited discretion under s.71(1C) (the reformulated equivalent for present purposes of s.72(3) of the unamended Act, the purpose of which is to protect the interests of victims), the Court may, after taking account of the interests of victims, also have some regard to the effect of its order on the defendant. If that is so in the limited situations where a discretion exists under the amended legislation, it confirms the view that we would anyway have formed that it must have been so under the general discretion in the unamended Act. We draw attention however to Kennedy LJ’s reference to “the residue of a lifetime’s legitimate savings”. No doubt the monies lent by the appellant’s father to the appellant fall into a similar category. But the unquantifiable “lifestyle benefits” enjoyed by the appellant and his family as a result of his frauds are a countervailing consideration, although as we have said they were, to some limited extent at least, taken into account by the Recorder when sentencing.

In Smith the House of Lords was concerned with the amended Act. It reaffirmed that the concepts of property obtained (in s.71(4)) and pecuniary advantage derived (in s.71(5)) are stringent; they do not, for example, take account of any costs incurred in obtaining the property or of the temporary nature of any advantage obtained by deferring liability for excise duty by smuggling into this country goods which were immediately confiscated by Customs. Lord Rodger said that:

“If in some circumstances [the scheme of the legislation] can operate in a penal or draconian manner, then that may not be out of place in a scheme for stripping criminals of the benefits of their crimes”.

Smith was solely concerned with the meaning of property obtained and pecuniary advantage derived. There is under the amended Act no question of exercising any discretion. It is not in issue before us that the appellant derived obtained property or pecuniary advantages totalling some £81,000. We have, in contrast, to consider how to exercise the discretion given to us under the unamended Act. In considering this, we are entitled to proceed on the basis that there is no general objection to operating the scheme in a penal or draconian manner. But we are also entitled to bear in mind that the agreed value of the property obtained or pecuniary advantages derived were paid back to the social services by the appellant’s father, and that the appellant has incurred a liability to his father in that respect, which he has expressed an intention to meet, if and when his assets are unfrozen, but which he could only otherwise meet by selling his whole family’s home.

Our review of the third point leads us to the conclusion (accepted, as we have said, by counsel for the Crown in his oral submissions) that the court can and should take into account, in the exercise of its general discretion under s.71(1) of the unamended 1988 Act, the fact that the benefits obtained were actually paid back to social services. The fact that they were paid back by the appellant’s father and not by the appellant himself is also important. But it is important in two opposing ways. First, it means that, in addition to the lifestyle benefits to which we have already referred, the appellant himself has not, as yet, felt the financial impact of the repayment. He has been able to continue to benefit from the monies in his bank account, on which presumably interest has been earned. (So far as we are aware, there was under the unamended Act no provision similar to s.75A introduced in 1995, whereby sums unpaid under a confiscation order carry interest at the Judgments Act rate.) Further, there is nothing to show that he is liable to pay his father any interest. Secondly, and on the other hand, the Court should not, we think, discourage relatives who wish to assist defendants to reimburse the victims of crime.

In summary, account can and should be taken of the fact of repayment our of the appellant’s father’s assets, but this is tempered by the consideration that, although the appellant intends to repay his father, he will, so far as appears, continue to enjoy the interest earned on the monies in the meantime. The primary focus must be on the appellant’s position. At the same time, the court should not remove all incentive from relatives wishing to assist offenders to repay the victims of crime.

In the circumstances, we have reached the conclusion that the Judge erred in the exercise of his discretion in the respects that we have identified and that the result at which he arrived was more severe than necessary or appropriate. Taking into account all the matters which we have mentioned, we consider that it would be right to make a confiscation order in excess of the amount of £38,000 which is not in issue, but that the amount ordered by the Judge should be reduced to £78,000 (that is the £38,000 plus approximately half the agreed social security benefits).