Macfarlane, R. v

This is an appeal, brought by leave previously granted by the full court, against a confiscation order. The order was made on 30 June 2006 by His Honour Judge Beashel in the Bournemouth Crown Court and was in the sum of £426,414 with a term of three years imprisonment in default of payment. In addition, a recovery of defence costs order in the amount of £50,000 was made. That too is challenged on this appeal. The Judge allowed a period of two years for payment in respect of both orders.

The background, very shortly put, was this. The appellant, Ian Macfarlane, had been a partner in a firm of solicitors, Traill & Co, with offices in Dorset. He specialised in conveyancing. On 22 October 1996, shortly after joining the firm, he opened an account at the Blandford Branch of the Portman Building Society, in the name of “Ian Revue”. Over the next seven years or so he paid numerous cheques into that account, to a total value of £805,064. The cheques were drawn on the account of Traill & Co and were generally made out to “I. Revue”. The cheques had purported to be in favour of the Inland Revenue, in respect of stamp duty or other tax – the applicant had secured payment from his clients whereas in fact (and of course unbeknown to the clients) he had managed to procure exemption from such taxes on the relevant transactions. No one within Traill & Co had suspicions at the time, just because it was assumed that the cheques were being properly drawn for payment to the Inland Revenue. The fraud ultimately was exposed in 2004. The appellant was in due course charged with theft and was sentenced on 24 June 2005 by Judge Beashel to 3 years 9 months imprisonment, the Judge rightly emphasising that a gross breach of trust had been involved.

In 1993 the appellant and his wife had set up a property development and management company called Kingston Property Management Limited (KPM). It was subsequently shown that some of the stolen money had been applied towards the purchase or development of some of the properties purchased in the name of KPM. At the confiscation hearing it had been accepted by the appellant that a significant amount of the money in the building society account had been applied by the appellant towards payment of his ordinary living expenses, credit card bills and school fees, and so on: the consequence being that he was thereby enabled to use his income from his practice as a solicitor in part to make payments to KPM for property purchases or development.

By the time of the hearing, the prosecutor had identified four particular properties in Bournemouth in respect of the purchase and development of which some of the stolen funds had been applied by means of payments out of the building society account. These properties were 2 Pembroke Road; 95 Alumhurst Road; 3 Warren Road; and 11 Westerham Road. A major dispute at the confiscation hearing was whether or not their purchase had been the subject of an equal joint venture agreement with a third party (in particular a company called RCF Homes Limited). The appellant contended that there had been a joint venture: if correct, that clearly would impact on the amount of any confiscation order to be made. The prosecution did not accept that there had been a joint venture. The Judge, having received written and oral evidence, ruled that there had been such a joint venture.

So far as Traill & Co were concerned, we were told that they had commenced civil proceedings, issued in the Chancery Division of the High Court, against the appellant. A freezing order was obtained (and, we gather, still is in place). In the event various properties owned by the appellant or KPM were sold, with the co-operation of the appellant; and by 15 February 2006, as the Judge found, a total of £916,099 had been paid over to Traill & Co. By letter dated 3 May 2006 sent to the Judge at the Crown Court, Traill & Co indicated that, subject to final quantification, there was a projected shortfall of nearly £115,000 for which recovery would be sought. The letter is not altogether clear as to some of its calculations. At all events, reference was (among other things) briefly made to a “credit balance on [the appellant’s] loan account with the firm” in the a sum of £94,128. A claim for damages, including a claim for “exemplary damages”, was mentioned. Other points were made. As to those outstanding claims of Traill & Co, the Judge said this:-

“… By February this year, the sum of £766, nearly £767 (sic) had been paid to Traill’s. On 15 February this year, a further £149,000 was received following the sale of 2 Pembroke Road, Bournemouth, a total then of £916,099.

Traill’s estimated in their letter that, on the basis of all the figures set out in the letter, the shortfall would be in the order of £115,000. This court cannot now make a compensation order in their favour, but the defendant, hopefully, will have sufficient assets to satisfy any High Court judgment in or about that sum obtained against him, provided of course, that any confiscation order I make in these proceedings is not so high as to deprive the defendant of all his assets, and this is complicated further by the fact that I have to consider a recovery or defence costs order at the end of the case.

The purpose of the 1988 Act as amended has been said to be to strip criminals of their present assets to the extent of their past criminal profits. The Act is designed essentially to impoverish defendants, not to enrich the Crown. It is designed to deprive a person of profits received from criminal conduct and to remove the value of the proceeds received from criminal conduct from possible future use in criminal conduct. …”

We were taken to the relevant sections of the Criminal Justice Act 1988 (as amended). They are very familiar: it is not necessary to set them out in full in this judgment. Likewise, the principles and approach ordinarily adopted – albeit making allowance for those cases where the jurisdiction is discretionary - are by now reasonably well known. Again we do not need to restate them here. Clearly the Court is concerned to assess first the amount of the benefit and then the amount of the realisable assets.

By section 71(6) an order is, subject to subsection (1C), to be equal to the benefit or the amount appearing to the Court to be the amount that might be realised at the time the order was made, whichever is the less. In the present case it was common ground that, because of the civil proceedings instituted by Traill & Co, subsection (1C) did apply: the Judge therefore had a discretion as to whether or not to make an order and in what amount.

Section 71(4) provides that 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. That is wide language and (as previous decisions of constitutions of this Court show) capable of wide application. We add that we do not accept, in the context of this particular case, the submission on behalf of the appellant that that subsection is in some way displaced or superceded by the provisions of section 71(5) relating to the deriving of a pecuniary advantage as a result of and in connection with the committing of an offence; and we can see no error in the Judge’s approach on this.

It has to be said that the proceedings, both in the Court below and in this Court, became rather encrusted with obscurity and complexity. Indeed, notwithstanding directions previously given in this court at earlier stages in this appeal, the true issues on this appeal had not been altogether precisely identified: although matters did acquire a much sharper focus during the appeal hearing itself. We would wish to pay particular tribute to Mr Leonard, who had taken over at relatively short notice from counsel who had previously been instructed in the appeal and in the court below (and who had unfortunately become ill) for his clear and forceful submissions on behalf of the appellant.

Mr Leonard dealt first, with some encouragement from the Court, with the question of realisable assets. The Judge, by agreement, had excluded the matrimonial home from the assets figure (that property belonging beneficially solely to the appellant’s wife). Further, it had been agreed that the other assets of the appellant amounted to £867,193.

The Judge’s short observation on the issue of realisable assets was this:-

“… The equity in the matrimonial home is in the order of £400,000, and, by agreement now, that figure is deducted from the assets figure.

The prosecution submit, therefore, on the basis of their being a joint venture, the defendant’s benefit from the four properties was £475,350. The other assets figure of £867,193 is agreed, a total then of £1,342,543. It is accepted that the monies paid to Traill’s already in the sum of £916,099 be deducted from that figure, and the prosecution say, therefore, that the proper figure for confiscation is in the sum of £426,414.”

The Judge accepted that, going on to say: “I do not consider it disproportionate or unfair to make the orders sought …”

The figure of £475,350 was essentially based on the prosecutor’s Third Supplemental Statement dated 13 February 2006 (which appended the relevant calculations) and a written note from prosecuting counsel dated 14 June 2006.

Mr Leonard criticised this part of the ruling. He said that the Judge gave no reasons for his conclusion and did not explain why the lengthy written submissions and evidence on behalf of the appellant had been rejected. Further, he said that adding the benefit arising from the four properties to the other agreed assets figure of £867,193 was completely wrong. The realisable property of the defendant was that held by him at the time of the hearing: and the alleged benefit arising from the four properties was not relevant for this purpose. In the present case, the four properties had by the time of the hearing been sold by way of long leases granted for a premium. The only asset in respect of these properties remaining available thus was the value of the freehold reversion, which in each case could not on the evidence exceed £10,000: if not, indeed already taken into account in the agreed assets figures of £867,193 (as Mr Moorhouse for the respondent told us it in fact was).

It seems to us that Mr Leonard was right on this, and the issue of benefit had at this stage become wrongly confused with the issue of realisable assets. Indeed, Mr Moorhouse for the respondent conceded as much. He frankly accepted that the root cause of the Judge’s mistake here probably was Mr Moorhouse’s own written note dated 14 June 2006 which had wrongly added the asserted benefit figure arising from the four properties to the other agreed assets figure of £867,193.

The next stage of Mr Leonard’s argument was consequently this. As recorded by the Judge in his ruling “it is accepted that the monies paid to Traill’s already in the sum of £916,099 be deducted from that figure …”. Since “that figure” was properly (as conceded by the respondent) to be taken to be £867,193 there existed no balance. Consequently, so the argument went, no confiscation order should have been made.

We are unable to accept this. In particular, we cannot accept that there was a binding agreement that, in assessing what confiscation order should be made, the sum of £916,099 should be deducted from the realisable assets figure. It is true that counsel then appearing for the appellant had in the Court below argued for that: although he had (realistically) acknowledged that the opposing approach of the prosecution - which he styled a “rigorist approach” – was another possible approach. The Judge himself had, in a previous written note to counsel dated 1 June 2006, referred in neutral and unexceptional terms to deducting the £916,099 received by Traill & Co from “the total”. In his written note of 14 June 2006 Mr Moorhouse had simply said at the end “It is agreed that the sum of £916,099 paid to Traills should be deducted …”. He did not say that it should be deducted from the agreed realisable assets figure; and it would have been entirely contrary to the Crown’s whole case for him to have done so. As he told us, it was his intention that it be deducted from the assessed benefit. If the Judge had understood Mr Moorhouse to be agreeing that the sum paid to Traill & Co should be deducted from the assets figure then they were at cross-purposes.

There can be no obvious justification, in logic or in sense, in deducting the £916,099 from the agreed assets figure. The Crown had been prepared to accept that the sum of £916,099 was a proper deduction in this particular case, under the discretionary regime, and in the light of the approach adopted in Glatt [2006] EWCA 605. That deduction properly fell to be made, having regard to the benefit from the offences, in deciding overall the amount for which any confiscation order should be made.

It therefore is necessary to turn to the question of benefit.

As to that the Judge said this:-

“The benefit, of course, under the Act is defined in this way: a person benefits from an offence it he obtains property as the result of, or in connection with, its commission and his benefit is the value of the property so obtained. I find here the benefit figure to be £1.5 million.”

As Mr Leonard observed, here too the Judge gave no reasons for his shortly stated conclusion as to the benefit figure or as to why he had rejected the detailed evidence on behalf of the appellant on the issue of benefit.

It is, however, clear enough that the Judge had preferred the prosecution’s approach and figures (as set out in its reports) to those of the appellant. The figure of £1.5 million may perhaps partially be explained as representing the sum of £791,946.80 (being the money stolen from Traill & Co and put into the building society account but less that element of the stolen money applied towards the purchase of the four properties, then increased by an amount corresponding to an increase in the Retail Price Index in the relevant period) and the purchase price of the four properties (divided by one half to reflect the joint venture); and, with some (unspecified) rounding off.

Mr Moorhouse in this Court and in the Court below, was, however, prepared in this particular case to accept (in line, as he said, with the approach taken in Glatt) that - whether or not strictly half of the purchase value of the four properties could have been taken to calculate the benefit - in calculating the benefit the Judge could have regard to the “profit” (as Mr Moorhouse styled it) from the four properties. The prosecution calculated that by reference to the gross proceeds of sale less development and mortgage costs. That, as set out in the detailed calculations in the Third Supplemental Report, gave a figure (allowing for the joint venture agreement) of £110,450 for 2 Pembroke Road; nil for 95 Alumhurst Road; £149,350 for 3 Warren Road; and £215,550 for 11 Westerham Road: giving a total of £475,350. This, of course, was the figure for the “benefit from the four properties” to which the Judge had himself referred later on his ruling.

Mr Leonard did not challenge the calculation of the element of £791,946.80 forming part of the total benefit figure. Further, although the written submissions on behalf of the appellant made some complaint that insufficient allowance had been made for other costs and expenses (including work undertaken and payments said to have been made by Mrs Macfarlane) incurred in respect of the four properties, Mr Leonard did not independently pursue that. In any case that matter was one for the Judge. Mr Leonard’s criticism was more fundamental. He said that the Judge should have accepted the approach of the appellant’s accountant and taken the benefit arising from the four properties as being the sum of the stolen monies actually applied towards their purchase together with the resultant profit after deduction of all expenses and prospective tax and after deduction of the purchase price. Thus taking (for illustrative purposes) the case of 2 Pembroke Road, the resulting “profit” on that property, after deducting expenses and purchase price would amount, on the calculation put forward by Mr Meakin (one of the appellant’s witnesses) to £20,700. That general approach was advanced by the appellant’s accountant in the Court below; he calculated a total (pre-tax) profit on the redevelopment of the four properties as £147,809 for KPM’s half in the joint venture. By this route, it is submitted, there is no double recovery.

The difficulty in that approach is that it virtually equates the notion of profit of the kind one might deploy, for example, for the purposes of a capital gains tax calculation with the notion of benefit under the terms of the 1988 Act as amended. We do not think that justified or required either by the terms of section 71 or by the reported cases. Further, the Judge was not required to take such an approach in deciding what order ultimately to make. Further, it should not be overlooked in considering the fairness of the overall outcome of these particular confiscation proceedings that the appellant, quite apart from directly applying stolen money towards the purchase of the properties, was indirectly enabled to purchase or develop them with other income by his use of stolen money to pay his ordinary living expenses. The Judge was entitled, in our judgment, to take the approach that he did and (in essentials) to accept the prosecution’s submissions in this regard in deciding on the amount of the confiscation order to be made in this particular case.

Accordingly, while we accept, in line with Mr Moorhouse’s concession, that the relevant benefit figure should have been assessed by the Judge as £1,267,296.80 (that is, £791,946.80 plus £475,530) we cannot see that the Judge otherwise adopted an unjustifiable approach. Deducting from that figure – in accordance with what was clearly the Judge’s overall intention – the sum of £916,099 paid by the appellant to Traill & Co, the resulting figure, representing the confiscation order to be made, is £351,197.80.

Mr Leonard submitted that there should at any rate be a further deduction of £115,000 to reflect the further recoveries by Traill & Co; or at all events an amount of some £55,000, which he says can be deduced from their letter of 3 May 2006 as a minimum sum to be treated as so recovered. But the letter is not clear; there were uncertainties for future recoveries; and we can see no error in the exercise of discretion by the Judge when he left the matter of such further recoveries to the outcome of the civil proceedings being pursued by Traill & Co.

Finally, there is the challenge to the recovery of defence costs order in the sum of £50,000. That was considerably less than the total amount involved (put at about £150,000). Reference was made to the history of the confiscation proceedings. We can, however, see no basis for challenging that exercise of discretion on the part of the Judge.

Accordingly, the appeal succeeds to the limited extent (not challenged by the Crown) that a figure of £351,197.80 is to be substituted for the figure of £426,414 as representing the confiscation order to be made. In all other respects the appeal is dismissed.