Scragg, R v

This is an appeal against sentence with leave which is limited to the terms of a confiscation order made pursuant to the Proceeds of Crime Act 2002 (“the 2002 Act”). The background to the case can be simply summarised.

The appellant, Michael Scragg, pleaded guilty on 18^th April 2005 to fraudulent trading contrary to section 458 of the Companies Act 1985. He had run a business called Elite Fleet Limited which bought and sold high value cars. By his plea he accepted that, although the business began life as a legitimate venture, after about 17 months when he experienced cashflow difficulties he ran it fraudulently. For this offence he was sentenced to three years imprisonment and was disqualified under section 2 of the Company Directors Disqualification Act 1986 for a period of 10 years. He was further convicted of attempting, while on bail, to obtain a money transfer by deception, contrary to section 1(1) of the Criminal Attempts Act 1981. For that offence he was sentenced to 2½ years imprisonment consecutive, making a total of 5½ years imprisonment in all. The appellant is a man with a number of previous convictions for dishonesty and there is no appeal against the length of that sentence. In addition to those sentences, the Judge imposed a confiscation order in the sum of £557,089.83, that sum to be paid within six months with 4 years imprisonment consecutive in default.

The history of this confiscation order is as follows. The respondent served a statement in accordance with section 16(5) of the 2002 Act on 22^nd July 2005. To this the appellant responded on 18^th October and 21^st November. In the course of the hearing on 9^th December both parties agreed that, for the purposes of confiscation, the appellant’s realisable assets amounted to the sum of £557,089.83. What was in dispute was the benefit figure. It was the respondent’s contention that the figure should be £645,400.67. The appellant argued that that figure contained an element of double accounting and should be reduced to a figure which is now said to be £453,587.62. The figures were calculated from a schedule, Schedule K, which listed the vehicles obtained by Mr Scragg, the sum he had paid for them and the sum for which he sold them on. The respondent argues that the benefit figure is the value of the vehicle when obtained plus the proceeds of its sale. The appellant argues that it should be whichever of the two sums is the greater. Mr Bradley, who has appeared for him, neatly summarised the question thus: “Where a defendant obtains by deception a vehicle valued at £10,000 and sells it for £8,000, how is his benefit to be quantified pursuant to sections 76(4) and 76(6) of the 2002 Act?” He contends that the answer is £10,000 but that the judge effectively ruled it was £18,000. Mr Andrew Jackson, for the respondent, likewise submitted the issue for the court was the interpretation and application of sections 76(4) and 76(6), but added 76(7).

In our judgment it is unhelpful in seeking to answer the question posed on this appeal to focus solely on section 76; it is necessary to have in mind other provisions that form part of the scheme of the 2002 Act.

Both sides referred the court to, and relied upon, authorities. The appellant relied on Ascroft [2003] EWCA Crim 2365 and Glatt [2006] EWCA Crim 605 and the respondent on Smith [2002] 1 All ER 366. Each of those cases was, however, concerned with earlier legislation and not with the 2002 Act and we have gleaned little assistance from them.

As the judge pointed out, he was invited to make a confiscation order under section 6 of the 2002 Act. He was invited to proceed on the basis that the appellant did not have a criminal lifestyle and accordingly he had to decide under section 6(4)(c) whether he had benefited from his particular criminal conduct ie the fraudulent trading to which he had pleaded guilty. If the court concludes he has so benefited it then has to decide the recoverable amount and make an order (a confiscation order) requiring him to pay that amount (section 6(5)). By section 6(6) the court is required to treat the duty in section 6(5) as a power if it believes that any victim of the conduct has at any time started or intends to start proceedings against the defendant in respect of loss, injury or damage sustained in connection with the conduct. However, it is not disputed that the judge complied with this subsection.

Section 7 provides that the recoverable amount, for the purposes of section 6, is an amount equal to the appellant’s benefit from the conduct concerned.

It is next necessary to go to section 76 which defines “criminal conduct”. For present purposes it is unnecessary to say more than that it is all the appellant’s conduct that comprised the offence of fraudulent trading to which he pleaded guilty.

Section 76(4) provides that:

“A person benefits from conduct if he obtains property as a result of or in connection with the conduct.”

Section 76(7) provides that:

“If a person benefits from conduct his benefit is the value of the property obtained.”

We do not think that sections 76(5) and (6) have any bearing on the facts of this case.

The next port of call is sections 79 and 80. Section 79 sets out the basic rule under the Act for the determining the value of property. Essentially it is the market value (section 79(2)). Section 79 has, however, effect subject to section 80 which is the section that provides for the valuation of property obtained through criminal conduct. It provides:

“80 – (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 of 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.”

The scheme of section 80 seems to us to be simple. Subsection (2) requires the court to take the greater of the value of the property when the defendant obtained it (subject to adjustment for change in the value of money) and the value at the time the court makes its decision, the property there including (a) property still held by the defendant and (b) any property in his hands that directly or indirectly represents the property that he had held.

Finally, section 84 makes certain general provisions and includes a wide definition that property includes all form of real or personal property, money, things in action and other intangible or incorporeal property.

In our judgment what the judge should have done, but did not do, was to apply section 80 to the facts of the present case. He should first have looked at the value of the cars when the appellant obtained them and then gone on to see whether there were any proceeds of sale in his hands that exceeded the value of the vehicles when he obtained them. On this basis, to revert to Mr Bradley’s question, where a vehicle was obtained by the appellant worth £10,000 and sold for £8,000 the benefit would be £10,000. On the other hand if the vehicle was sold not for £8,000 but for £12,000 then the benefit would be £12,000. This approach seems to us not only to follow the approach required by the section but also to be in keeping with the principle behind the confiscation legislation namely to relieve criminals of their ill-gotten gains. It is true that the legislation sometimes operates in a draconian manner, but not so as to render a defendant liable to confiscation twice over for the same criminal conduct. It is not in our view realistic to treat the purchase and sale of the same vehicle as separate criminal enterprises; each falls within the ambit of the offence to which the appellant pleaded guilty namely fraudulent trading by carrying on the business of his company with intent to defraud creditors of the company.

It is to be noted that section 80 makes express provision for a situation where a defendant has parted with all or part of the property he criminally obtained but holds other property (or in this case money) that represents it and is worth more. It seems to us that the very existence of such a provision is inconsistent with the respondent’s argument that one should look at the sale of each vehicle as an entirely separate criminal enterprise from its purchase.

Properly analysed we do not think that there were two separate benefits, the value of the car which the appellant initially dishonestly obtained and the proceeds of sale of that same car which he subsequently sold on. The appellant pleaded guilty to fraudulent trading. The obtaining and selling on of cars was the criminal conduct which led to his criminal benefit. He was fraudulently obtaining the cars in order to sell them on and we see that as part of a single process leading to a single benefit in relation to each car. By section 76(4) of the 2002 Act “a person benefits from conduct if he obtains property as a result of or in connection with the conduct”. We do not see that that section specifically permits the sort of double benefit suggested by the respondent and it would be inconsistent with the exercise the court is required to carry out in section 80. Had Parliament intended that such a far-reaching power should be available it would have stated so in terms. Here we consider that the benefit figure is obtained by adding together in the case of each individual car, its cost to the appellant when he obtained it or the amount for which he sold it on, whichever is the greater figure. Such an approach is entirely consistent with the approach of this court in Glatt under the Criminal Justice Act 1988 (see Tugendhat J at paragraph 31 et seq.) Accordingly we allow this appeal by reducing the benefit figure to £453,587.62, that amount to be paid within six months with 4 years imprisonment in default of payment which would be served consecutive to the term he is already serving.