Sivaraman, R. v

LORD JUSTICE TOULSON:

Introduction

1. On 13 February 2006, in the Crown Court at Lincoln, before His Honour Judge O'Rorke, the appellant pleaded guilty to an offence of conspiracy to contravene section 170(2) of the Customs and Excise Management Act 1979. The particulars of the offence were that he and others conspired fraudulently to evade excise duty in respect of hydrocarbons imposed by section 6 of the Hydrocarbons Oil Duties Act 1979. For his part in the conspiracy he received a sentence of twelve months' imprisonment.

2. On 22 January 2007 the trial judge imposed a confiscation order on the appellant under the Proceeds of Crime Act 2002 in the sum of £59,365, with 18 months' imprisonment to be served in default. He appeals against the confiscation order by leave of the single judge.

The Conspiracy

3. Under the Hydrocarbons Oil Duties Act 1979 the rate of excise duty paid on fuel varies according to the type of fuel. Diesel Engine Road Vehicle fuel ("DERV") carries a significantly higher rate of excise duty than so-called "red" diesel which is chemically indistinguishable, except that it contains a chemical marker and a red dye in order that it can be differentiated. The lawful use of red diesel is restricted to agricultural machinery or vehicles for off-road use. The overall conspiracy involved buying red diesel, removing the red dye and selling it on for use as DERV.

Grange Farm Service Station

4. The ringleaders of the conspiracy needed an outlet (or outlets) for the laundered fuel. The statement of information provided by an officer of HM's Revenue and Customs (HMRC) under section 16(5) of the Act for the purpose of the confiscation proceedings against the appellant stated, among other things:

"3.7 The main purchaser for the laundered fuel was Sathasivam Mangaleswaran who is the proprietor of Grange Farm Service Station located on the A508 in Northampton. He had a contract with BP to sell their fuel either directly to general members of the public or via a trade scheme to business customers. In the latter case the fuel is stored and supplied from large bunker tanks that are separate from the other storage tanks.

3.8 The [appellant] started his employment at Grange Farm Service Station in May 2003, having previously been employed by Sathasivam Mangaleswaran at a service station in Essex. Initially, he was employed at Grange Far Service Station as a cashier, with accommodation provided by Sathasivam Mangaleswaran in Northampton. At that time he was earning about £100 per week, but in or about December 2003, it would appear that he was promoted to the position of Manager with an increase in salary."

As a matter of strict accuracy it appears from the prosecution case summary that the appellant was employed by Grange Farm Service Station Limited, a company of which Mr Mangaleswaran was the proprietor; but nothing turns on that.

5. The appellant pleaded guilty to the charge of conspiracy on a written basis in which he stated:

"(1) I was employed at Grange Farm Services.

(2) Whilst there during 2003 I accepted between 8-10 deliveries (each tanker containing approximately 30,000 litres of fuel) of diesel.

(3) I knew the delivered diesel referred to at point (2) above had to have excise duty paid on it, and I knew this did not happen.

(4) I accept that by allowing the deliveries above, and by my knowledge of the failure to pay any of the appropriate duty in respect of this fuel, I am guilty of the offence as charged.

(5) For my part in this crime I received £15,000, overall, as my share of the sale proceeds."

6. The alleged benefit to the appellant put forward in HMRC's section 16(5) statement was the value of the duty and VAT avoided on 270,000 litres of oil (ie nine deliveries of 30,000 litres). The duty which would have been payable on the purchase of 270,000 litres of DERV was £128,520. Arithmetically that figure was not disputed.

7. In his reply to HMRC's statement, the appellant said:

"3. In relation to my guilty plea, the maximum I received for my benefit is a figure of £15,000 maximum, not the £130,000 plus VAT as suggested. I received no benefit from the diesel and did so only via my boss for ordering the fuel. This justifies the maximum benefit I have received of a maximum of £15,000. I did not receive any monies from diesel itself."

The Judge's Ruling

8. The judge dealt at the same time with confiscation applications made against both the appellant and Mr Mangaleswaran. The law in this area has recently been clarified by the judgments of the House of Lords in R v May [2008] UKHL 28, [2008] 2 WLR 1131, Jennings v CPS [2008] UKHL 29, [2008] 2 WLR 1148 and R v Green [2008] UKHL 30, [2008] 2 WLR 1154. When the judge dealt with the present applications the law was in a number of respects less clear. In his ruling he said:

"I need not go into the details of this complicated conspiracy involving the laundering of red diesel so as to make it appear to be road diesel, save to say that the defendant Sathasivam Mangaleswaran was the proprietor of Grange Farm Service Station at the appropriate time, that the evidence was he received a number of deliveries, as much as 30,000 to 36,000 litres at a time, by way of tanker and that these were commercially sold to members of the public at the full pump price. His employee and associate during at lest part of that period was the second defendant with whom I am concerned, Mr Mylupillai Sivaraman. It cannot be established precisely what part he played or rather the period of time over which he played his part. .... but at the end of the day what the Crown say -- and for these purposes the figure is essentially accepted by both defendants -- is that some nine deliveries should be attributed to Mr Mangaleswaran on the basis of his plea and similarly nine deliveries laid at the door of Mr Sivaraman. ....

The amount of duty thereby evaded -- and it is agreed -- is £128,520. Therefore, in the case of each man, if that is the benefit within the construction of the Act which they received, that would be the liability, subject to available funds, of the confiscation order."

The judge then referred to a number of cases which had been cited to him in argument including May in the Court of Appeal. It was argued, unsuccessfully, on the appellant's behalf that the Act gave the court a measure of discretion. For the reasons which he explained, the judge felt constrained as a matter of law to find that the value of the benefit gained by the appellant was £128,520, but he expressed his misgivings at having to reach this finding.

9. Having referred to the various authorities cited to him, the judge set out paragraphs 76(4) and (5) of the Act, which provide:

"(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.

(5) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage."

He continued:

"Applying those terms strictly, a person who, even on behalf of his employer, receives at a petrol station a delivery of illicit diesel, which then finds its way into the employer's storage tanks and is sold to the public, that employee will only benefit by reason of receiving his wage or enhanced wage from his employer or by way of some other cash payment or backhander from his employer to him, but nevertheless it is quite clear under the general law he is obtaining that pecuniary advantage and he is obtaining the benefit, whether directly to profit himself or to profit his employer, by his action in receiving this diesel into his employer's tanks. I see no way around that. That is consistent with the wording of the Act and, indeed, consistent with the way in which similar provisions in the earlier Acts have been interpreted in the cases I have mentioned and in other leading cases on the subject.

....

Directing myself in accordance with that, I have to say with reservation as to the particular unfairness, but I hope consistently with the authorities I have mentioned, I am constrained to find that in the case of Sivaraman, the employee at the material time of Mr Mangaleswaran, his benefit must be £128,520. As far as Mr Mangaleswaran is concerned, I have no hesitation in finding that his benefit was not only notionally but actually in real life £128,520."

The amount of the confiscation order made against the appellant was less than the benefit found by the judge because the money available to the appellant was less.

10. The original grounds of appeal advanced by the appellant have been abandoned. However, in the light of the recent decisions of the House of Lords, the appellant sought leave to amend his grounds to argue that the judge was wrong in law to find that his benefit was £128,520 and that he should have found that it was £15,000. The prosecution opposed the application; but Mr Sutherland Williams properly accepted that granting it would not cause unfair prejudice and we granted leave.

The Law

11. In this appeal we are concerned only with the provisions of the Act which relate to benefit. Under section 6 a court considering whether to make a confiscation order must decide whether the defendant has benefited from the relevant criminal conduct (whether it be general criminal conduct or, as in this case, particular criminal conduct); and, if so, what is the recoverable amount. Under section 7 the recoverable amount is an amount equal to the defendant's benefit from the conduct concerned unless the defendant shows that the available amount is less than that benefit, in which case the recoverable amount is the available amount (or a nominal amount if the available amount is nil). We have already set out section 76(4) and (5) in summarising the judge's ruling.

12. In the trio of cases recently decided by the House of Lords a number of matters were made plain:

(1) The legislation is intended to deprive the defendants of the benefit they have gained from the relevant conduct within the limits of their available means. It does not operate by way of fine: May , paragraph 48(1); Jennings , paragraph 13.

(2) The benefit gained is the total value of the property or pecuniary advantage obtained, not the particular defendant's net profit: May , paragraph 48(1).

(3) In considering what is the value of the benefit which the defendant has obtained, the court should focus on the language of the statute and apply its ordinary meaning (subject to any statutory definition) to the facts of the case: May , paragraph 48(3) and (4); Jennings paragraph 13.

(4) "Obtained" means obtained by the relevant defendant: Jennings , paragraph 14.

(5) A defendant's acts may contribute significantly to property, or to a pecuniary advantage, being obtained without that defendant obtaining it: Jennings , paragraph 14.

(6) Where two or more defendants obtain property jointly, each is to be regarded as obtaining the whole of it. Where property is received by one conspirator, what matters is the capacity in which he receives it, that is whether for his own personal benefit, or on behalf of others, or jointly on behalf of himself and others. This has to be decided on the evidence: Green , paragraph 15. By parity of reasoning, two or more defendants may or may not obtain a joint pecuniary advantage; it depends on the facts.

13. It follows from the above that participants in a joint criminal offence (including conspiracy) may benefit jointly to the same extent by each obtaining the same property or pecuniary advantage; or the value of the benefit received by them may differ as between one and another. To Circuit Judges and Recorders who do not come from a civil law background, it may seem rather daunting; but, as Lord Bingham said, it is essentially a matter of applying concepts which are themselves in most cases relatively straightforward (that is, obtaining property or obtaining a pecuniary advantage) to the facts as established and trying to avoid becoming enmeshed in case law in the process: May , paragraph 46(3) and (4). The thrust of Lord Bingham's advice was clear: the court needs to find the facts and to apply the words of the statute to them in as commonsensical a way as possible.

Discussion and Disposal

14. In the light of these principles it is clear that the judge misdirected himself in reaching a decision as to benefit which was contrary to his commonsense view of the true benefit gained by the appellant as a matter of fact. This is apparent from his statement that, with reservations as to its unfairness, he felt constrained to find in the appellant's case that his benefit must be assessed at £128,520, whereas in the case of the appellant's employer the judge had no hesitation in finding that the same figure represented his benefit "not only notionally but actually in real life".

15. As can now be seen, the law did not constrain the judge to make such a finding against the appellant. The proposition that a person acting purely in the capacity of an employee, who receives a consignment of illicit fuel on behalf of his employer, and who, as a reward for doing so, receives only an enhanced wage or cash payment, must necessarily as a matter of law be taken to profit to the same extent as his employer does from the purchase and sale of the consignment is unsound. But that was the proposition which caused the judge to find as he did.

16. There is no dispute between the parties that the appellant's employer, who bought illicit fuel and resold it to business customers or to the general public under a contract between the employer and BP (see paragraph 3.7 of the HMRC section 16(5) statement) obtained a pecuniary advantage equal to the duty which the employer would have had to pay as part of the purchase price if it had bought genuine DERV. It obtained that pecuniary advantage because it was a trader and it traded the fuel as DERV. If it had sold the fuel honestly as red diesel for agricultural or off-road use, it would not have been cheating the Revenue, nor obtained the pecuniary advantage that it did.

17. The crucial question in the case of the appellant was: what was his position in relation to his employer with regard to the purchase and sale of the fuel which generated that pecuniary advantage? It was not the prosecution's case that the appellant was a joint purchaser and seller of the fuel. At any rate that was not how the matter was presented in the 16(5) statement. Mr Sutherland Williams relied upon the passage in the ruling which recorded that it was accepted that nine deliveries should be "laid at the door" of the appellant. As previously stated, the appellant had admitted receiving eight to ten deliveries, knowing of their illicit nature. But that begs the vital question as to the capacity in which he did so. It would be one thing if he did so as a joint trader with Grange Farm Service Station Limited or its proprietor, Mr Mangaleswaran; but another if he was acting as an employee.

18. Mr Sutherland Williams referred to, and relied upon, Lord Bingham's observations in May at paragraph 48(6):

".... Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property."

By contrast, Mr Sutherland Williams submitted that the appellant was not a mere minor contributor to the conspiracy, but that he played a significant role as the petrol station manager. The way in which he sought to deploy that sentence illustrates the need for care in the way that courts approach judicial commentary, the purpose of which is to elucidate and not stand in the place of the underlying principle.

19. The greater the involvement of a defendant in a conspiracy, the greater will be the appropriate level of punishment. But it does not follow that the greater the involvement the greater the resulting benefit to that defendant. Within the statutory definitions contained in the Act, what benefit a defendant gained is a question of fact. As we have said, the critical question in relation to the conduct of the appellant in supervising the bunkering operations carried out under his control was the capacity in which he was acting. Was he, in point of fact, a joint purchaser of the fuel for resale as DERV who, by his conduct, jointly gained the pecuniary advantage of being able to resell it as DERV without having incurred the duty which would have had to be paid on purchasing DERV; or was he acting just as an employee? The judge did not find the former. Indeed, it is plain that he believed the position to be the latter. Otherwise he would have had no misgiving in finding that the appellant obtained benefit of the amount which he felt obliged to find. It would be wrong for this court to make a different finding.

20. Mr Sutherland Williams referred in his submissions to the benefit obtained by "the conspiracy", and he submitted at one stage that all conspirators must be taken to enjoy a 100 per cent share in all such benefit. But the court is concerned with the benefit not to an abstract entity called "a conspiracy", but to the individual conspirators before the court. There is no such rule of law as that which he advanced when it comes to applying the confiscation provisions of the Act so as to determine the benefit gained by any particular defendant. Conspirators are criminally liable for the acts of their confederates done within the scope of their employment; but, when considering questions of confiscation the focus of the inquiry is on the benefit gained by the relevant defendant, whether individually or jointly.

21. Mr Sutherland Williams also relied on the observation by Lord Bingham at paragraph 48(6):

"D .... ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject."

Mr Sutherland Williams cited authorities illustrative of that proposition, such as R v Rowbotham [2006] EWCA Crim 747, [2006] 2 Cr App R(S) 99. But that is not to the point in this case. This form of cheating HMRC was different from that of a person, such as a smuggler, who dishonestly fails to pay duty on dutiable goods. There was no actual liability to pay excise duty which this appellant dishonestly evaded. The nature of the scheme in the present case was different. It all goes to show that the court must examine the facts before determining the benefit gained by a particular defendant on those facts.

22. Mr Sutherland Williams submitted that at the confiscation hearing it was conceded on the appellant's behalf that the court was bound to find that the value of the benefit to the appellant was as the judge assessed it. Mr Sutherland Williams made that submission on instructions because he was not himself present at the Crown Court. We do not read the ruling as recording a concession in quite those terms. But assuming for the sake of the argument that such a concession of law was made, we do not consider that it would be just in all the circumstances to hold the appellant to it and to dismiss the appeal on that basis.

23. It follows that the judge's finding that the appellant benefited in the sum of £128,520 must be set aside. The powers of this court on this appeal are those set out in section 11(3) of the Criminal Appeal Act 1968. In the exercise of those powers, we quash the confiscation order made in the sum of £59,346 and substitute a confiscation order in the sum of £15,000. There will also have to be the appropriate reduction in the length of the sentence to be served in default of payment.

24. MR BLANDFORD: My Lord, in relation to the money, I understand that he has paid £30,000.

25. LORD JUSTICE TOULSON: In other words, you are saying that there does not need to be default period because more than the revised amount has already been paid?

26. MR BLANDFORD: Those are my instructions, my Lord.

27. LORD JUSTICE TOULSON: Mr Sutherland Williams?

28. MR SUTHERLAND WILLIAMS: That is certainly my understanding.

29. LORD JUSTICE TOULSON: Right. In that event there will be no order for imprisonment in default of payment because that would be unnecessary and inappropriate in these circumstances.

30. MR SUTHERLAND WILLIAMS: It appears that the appellant is due a refund. That is something to take up with those instructing me.

31. LORD JUSTICE TOULSON: Yes. Thank you very much for your arguments.

32. MR SUTHERLAND WILLIAMS: My Lord, the question which now arises, in my submission, is whether my Lords' judgment creates a point of general public importance. In my submission it does and I would seek the leave of this court to certify a question.

33. LORD JUSTICE TOULSON: We will give you three choices. You can make the application on the hoof, if you want to. We will rise for five minutes, and you can think about formulating it and we will deal with it then. Or you can deal with it on paper. Which would you prefer?

34. MR SUTHERLAND WILLIAMS: Five minutes.

35. LORD JUSTICE TOULSON: We would like a written form of the issue of public importance which you say it gives rise to.

36. MR SUTHERLAND WILLIAMS: Yes.

37. LORD JUSTICE TOULSON: That is the point because it is unsatisfactory talking about these things in airy-fairy words. Experience tells us that these things are actually rather better done when you formulate then on paper and have a moment to think about what you are doing. We think that that is the appropriate thing to do in this case. Formulate the question. Take time to do it. Put it forward, the other side can comment on it and we will deal with it on paper. But it must be done speedily because we are together only for the next few days.

38. MR SUTHERLAND WILLIAMS: My Lord, on that subject, would my Lord order an expedited transcript of the judgment?

39. LORD JUSTICE TOULSON: Yes.