Sangha & Ors, R. v

Bhovinder Singh Sangha, Brian John Meehan and Gerard Martin McAllister appeal with the leave of the full court against confiscation orders made against them by HHJ McCreath in the Worcester Crown Court on 4 April 2007. The orders followed their conviction in June 2006, after a trial before the same judge and a jury, on counts of cheating the public revenue. The offences related to their participation in a VAT carousel fraud of a kind now familiar to the courts (see, for example, R v May [2008] UKHL 28, [2008] 2 WLR 1131). The confiscation proceedings took place within the framework of Part VI of the Criminal Justice Act 1988 as amended. The judge found that each appellant had benefited from his relevant criminal conduct. The amount of benefit was determined as follows: Sangha, £28,608,317.56; Meehan and McAllister, £23,893,424.53 each. The confiscation orders made against them were in substantially lower sums, reflecting the lower amount of their realisable property: Sangha, £4,729,006.14; Meehan, £970,796.78; and McAllister, £648,101.70; in each case with provision as to time for payment and period of imprisonment to be served in default.

The core submission made on behalf of the appellants is that, given the way the matter was left to the jury at the trial, they were each convicted on a narrow factual basis and could not be said to have benefited at all from the criminal conduct of which they were convicted. The judge was therefore wrong to make a confiscation order against any of them.

The essence of the alleged fraud was that a trader in the United Kingdom (“the missing trader”) would register for VAT. The missing trader would purchase mobile phones from a “foreign supplier” located outside the United Kingdom but inside the European Union. This meant that no VAT was payable on the purchases. The missing trader would then sell the phones on to another company within the United Kingdom (“the first buffer”), invoicing an amount for VAT. The VAT so invoiced should have been collected by the missing trader and accounted for to the Commissioners of Customs and Excise (as they then were). What happened in practice, however, was that the first buffer paid the VAT, together with the purchase price for the phones, not to the missing trader but to the foreign supplier; and neither the missing trader nor the foreign supplier ever accounted for the VAT to the Commissioners. The evasion of VAT in this way was referred to as the “front end” of the fraud.

The first buffer would sell the phones on to another buffer company within the United Kingdom, at a small mark up and again invoicing VAT. The first buffer would account for the VAT received on those sales but would offset the VAT paid on its purchases from the missing trader, so that it was liable to pay only a small net amount of VAT to the Commissioners. The process might be repeated several times, with onward sales to a succession of buffer companies.

The last buffer would then sell the phones to a company outside the United Kingdom but again inside the European Union (sometimes to the same company as had sold them to the missing trader in the first place). Those export sales did not attract a charge to VAT. Since the last buffer had paid input VAT on its purchase of the phones from the previous buffer in the chain but had no output VAT to account for, it was able to reclaim the input VAT from the Commissioners. This was referred to as the “back end” of the fraud.

The consequence was that the Commissioners were making large repayments of VAT to the company at the back end without receiving the VAT due from the company at the front end.

We have referred for convenience to sales and purchases, rather than to “purported” sales and purchases, without prejudice to the question whether they were genuine trading transactions. The transactions within the United Kingdom were evidenced by purchase orders and invoices which enabled the prosecution to produce, for the trial of the appellants, a detailed “master schedule” showing the trade in each relevant batch of phones, from missing trader to first buffer and onwards to last buffer. The trade in question took place between February 2000 and November 2001, and involved over a thousand batches of phones.

The foreign suppliers involved in the fraud were Handycom SA, Willcom SA and Midafon, all of which were controlled by an individual called Emanuel Hening who was based in Luxembourg.

The missing traders were Eurocoin (UK) Ltd (“Eurocoin”), MSCoten Ltd (“MSCoten”) and Jactrade Developments Ltd (“Jactrade”), all of which were also controlled by Emanuel Hening.

The relevant United Kingdom buffer traders were controlled by the appellants and other defendants as follows: (1) Meehan and McAllister controlled Bridge GSM Products Ltd (“Bridge”), which occupied the position of first buffer for the first part of the period but then slipped down to second buffer; (2) Sangha controlled B-Tel-Com Ltd (“B-Tel”), which took over from Bridge the position of first buffer; (3) an individual by the name of David Burch, who was convicted in the same trial but is not an appellant, traded as “Keep Talking” and took over the position of first buffer late in the relevant period; (4) an individual by the name of Jaswant Raykanda, who was convicted in a later trial relating to the same fraud, controlled Waves International Ltd (“Waves”), which was the buffer company to which many of Bridge’s onward sales were made.

It has been common ground throughout that in each case the corporate veil is to be torn away and the acts of the companies are to be treated as the acts of the individuals controlling them.

The indictment for the trial of the appellants contained three counts. Count 1 related to Meehan and McAllister, count 2 to Sangha and count 3 to Burch. Save for the necessary changes of name and related details, the counts were in materially identical form. It therefore suffices to quote from count 1, which charged Meehan and McAllister with “cheating Her Majesty the Queen and the Public Revenue” and gave the following particulars:

“Brian John Meehan and Gerard McAllister, between the 23rd day of February 2000 and the 19th day of June 2001, together with Emmanuel Hening and other persons cheated Her Majesty the Queen and the Public Revenue, namely the Commissioners of Customs and Excise, by dishonestly orchestrating artificial trade in mobile telephones by

(i)

Purchasing mobile telephones from Handycom SA, Willcom SA and Midafon companies in other EU Member State upon which there was no requirement to pay Value Added Tax at the point of entry into the United Kingdom;

(ii)

Using Eurocoin (UK) Ltd and MSCoten Ltd (the ‘missing traders’) to conduct transactions in respect of the said mobile telephones within the United Kingdom, pretending that the companies were to be operated as bona fide businesses under the VAT system;

(iii)

Causing and permitting the charging of amounts described as VAT by the ‘missing traders’ on invoices raised to Bridge GSM Products Ltd (‘the first buffer’) which was not paid to the said Commissioners of Customs and Excise;

(iv)

Causing and permitting HM Customs and Excise to make repayments of amounts claimed as Value Added Tax credit upon the sale and ultimate removal of the said mobile telephones from the United Kingdom;

To the Commissioners’ loss and their gain.”

It was made plain by the prosecution in opening the case at trial that those particulars described the fraud in its totality, whereas the part alleged to have been played by the individual defendants was limited.

The extent of common ground at the trial appears from the helpful summary given in the judge’s ruling on confiscation:

“2.1

As is common in cases of this kind, there was little dispute about the primary facts on which the prosecution case was based. A number of schedules were placed before the jury and were formally admitted as representing, subject to the possibility of occasional error in their compilation, the picture painted by the documentation generated by the relevant transactions.

2.2

That picture, so far as it directly concerned these defendants, amounted to this:

2.3

During the material times, Brian Meehan and Gerard McAllister were responsible for the running of Bridge, a company of which they were both directors and in whose profits they shared equally. It was accepted that Bridge had traded honestly in the mobile phone business until February 2000. Thereafter it turned its attention exclusively to trading in mobile phones, purchasing them from missing traders, paying the purchase price for them not to the UK based missing traders but to the European companies which had sent them into the UK via the missing trader and selling them to other UK traders. The prosecution case was that the UK missing traders and the European exporters were, in reality, the corporate entities of Emanuel Hening.

2.4

Whereas Bridge accounted to Customs and Excise for the VAT which it had recovered from the companies to which it sold the mobile phones, the missing traders did not account for the VAT which they had added to their invoices to Bridge. Instead the VAT was sent by Bridge into bank accounts in the names of the European companies. Accordingly, the direct beneficiary of the fraud was Hening.

2.5

The profits enjoyed by Bridge arose not from VAT evasion but from the mark-up which it added to the goods when it sold them on. The sums received by Bridge from their customers were applied in four ways: … (a) to pay for the goods, including the VAT charged on them; … (b) to make payments to Customs and Excise of the net VAT owed by them (and, no doubt, other taxation liabilities; … (c) to meet their business expenses; … (d) for the private use of the directors of the company.

2.6

The trading patterns of the companies controlled by the other defendants, B-Tel in the case of Mr Singh Sangha and Keep Talking in the case of Mr Burch, were, for all practical purposes, identical.

2.7

None of this was in issue in the case ….”

The judge went on to explain what was in issue in the case. For that purpose we should turn to the judge’s summing up, from which he had quoted earlier in his ruling. In the relevant part of the summing up the judge emphasised first that the defendants were not alleged to have had any involvement in the back end of the fraud; the jury had heard about the back end because the prosecution wanted to paint the full picture, out of a concern that if the jury did not see the fraud in its entirety they would not understand the significance of what was going on at the front end. He turned to the indictment, directing the jury as follows:

“… It contains in each count particulars of the way in which the prosecution say the fraud was carried out in its entirety, but it is perfectly plain that there are aspects of the fraud in which it cannot be said that any of these defendants had any part to play at all.

Let’s look at particulars (i) and (ii) …. What particulars (i) and (ii) relate to, as a cursory reading of them will show, is to the activities of those, including, or perhaps exclusively, Hening, who put in place the mechanism whereby the fraud was to be carried out, the setting up of the missing traders, the pretence that the missing traders were to be operated as bona fide UK traders and so on. That’s what particulars (i) and (ii) describe, none of it done by any of the defendants in this case.

I skip over particular (iii) to come to particular (iv), and that … plainly describes what happened at what I have called the back end of the fraud, and whether or not this was a fraud which had as part of its object the ultimate exportation of the goods back to the EU and the repayment of the VAT to the UK exporter, there is no evidence at all connecting any of the defendants with that. So they did not do themselves, directly or indirectly, any of things in particulars (i), (ii) and (iv).”

The judge then focused on paragraph (iii) of the particulars, explaining first that none of the defendants was a primary party to the conduct alleged in that paragraph, before moving on to explain the concept of secondary participation and what was needed to prove a defendant’s involvement as a secondary party:

“But you will say, and rightly say, that none of the defendants in this case caused and/or permitted VAT to be charged on the invoices raised by Eurocoin or MSCoten or Jactrade. Quite right. They didn’t. What they did do was to send the VAT which they had obtained on their sales within the UK not to the UK companies which had sold them the goods but to the EU companies, and that role in the fraud is not expressly set out, as you can see, in particular (iii), because the things done in particular (iii) were actually done by Hening or his associates, not by these defendants. They did not create the Eurocoin invoices or the MSCoten invoices or the Jactrade invoices. Hening did or his associates.

So I need to give you a legal direction about how a person might be guilty of an offence even if he did not directly commit it ….

The prosecution in this case must prove in respect of any defendant that he played a part in the fraud knowing that he was playing a role in a fraud against the Revenue and doing so dishonestly. In straightforward terms comes to this, does it not: is it proved against any defendant that when he sent the VAT to the bank accounts of the EU companies, he did so in the knowledge that he was thereby playing a part in the carrying out of a Revenue fraud and he did that dishonestly?”

In his confiscation ruling the judge described that as the sole issue for the jury and said that the verdicts of the jury determined the issue against each defendant.

In his confiscation ruling, the judge said that two issues had been argued before him: the first was the submission that the court was bound to find that there was no benefit; the second was a submission in the alternative that if there was a benefit it ought to be apportioned. The judge found that there was a benefit and that there was no basis on which he could properly apportion it. The only matter before us is his ruling on benefit. If he was right to find a benefit, there is no challenge to his ruling on apportionment.

In relation to benefit, the judge summarised the arguments for the defendants, which we will consider at greater length later in this judgment. He then set out the prosecution submission that “the underlying purpose of the trading in mobile phones in which all of these defendants were involved was to generate VAT which it was never intended would be paid to Customs and Excise” and that the only real issue for the determination of the jury was whether “it [was] proved in the case of any defendant that he was a knowing participant in a Revenue fraud”, so that “not only was it demonstrated that this trading was objectively fraudulent (a matter which was never in issue at trial), it was also proved that these defendants were knowing participants in it”. The judge said that he accepted the prosecution submissions. He went on, however, to express his reasons in his own way as follows:

“4.13

The relevant offence in this case was a cheat on the Revenue, carried out ultimately by the … failure of the missing traders to account for the VAT charged by them on their sales.

4.14

It was common ground at trial that the trading which involved what may be called the Hening companies (the European exporters and the UK based missing traders) had only one purpose, namely the generation of VAT.

4.15

The means by which the VAT so generated was put beyond the reach of the UK authorities was by the acts of the defendants in this case, making payment for the goods purchased by them not to the UK missing traders from whom they had, on the face of the documents, purchased them but to the European companies which had purported to sell them to the UK missing traders.

4.16

The defendants obtained the funds whereby they were able to make these payments by selling the goods onward within the UK, thus obtaining from the UK second purchasers not only the increased price of the goods but also the VAT on them, offsetting against their VAT liability the sums which they had paid on the purchase of the goods.

4.17

These sums, obtained from the second UK purchasers, were plainly property obtained by the defendants in connection with the commission of the relevant offence. It was precisely these sums which were used, in substantial part, to make payment to the Hening companies for the price of the goods and, of fundamental importance, the VAT on them.

4.18

It was proved at trial that the defendants performed all of those acts in the knowledge that they were thereby participating in a fraud on the Revenue.

4.19

In those circumstances, it is, in my judgment, abundantly clear that these defendants, who are shown by the piercing of the corporate veil to have been the controllers of the relevant companies, obtained property in connection with the commission of the relevant offence, the cheat on the Revenue which amounted, in plain language, to the stealing of VAT which was rightfully due to the Revenue.”

In determining the amount of the benefit, the judge declined to accede to a submission by the prosecution that the whole of the proceeds of sale of the phones, including the VAT, should be taken into account. He said this (with his emphasis):

“5.5

In my judgment, the property obtained by these defendants in connection with the commission of the offence of cheat were the sums obtained by them on their sales which were used to pay the VAT element of their purchases. It was the stealing of this money by Hening which constituted the cheat. Any additional sums obtained by these defendants cannot realistically be said to have been obtained in connection with the relevant offence.”

Before considering the challenge to the judge’s ruling, it will be helpful to set out the relevant statutory provisions. As we have said, the case is governed by Part VI of the Criminal Justice Act 1988 as amended. The provisions of central relevance are to be found in s.71, as follows:

“(1A) The court shall first determine whether the offender has benefited from any relevant criminal conduct.

…

(1D) In this Part of this Act ‘relevant criminal conduct’, in relation to a person convicted of an offence in any proceedings before a court, means … that offence taken together with any other offences of a relevant description which are either (a) offences of which he is convicted in the same proceedings, or (b) offences which the court will be taking into consideration in determining his sentence for the offence in question.

…

(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.

…

(7A) The standard of proof required to determine any question arising under this Part of this Act as to (a) whether a person has benefited from any offence, or … (c) the amount to be recovered in his case, shall be that applicable in civil proceedings. ”

By s.102(5), references to property obtained, or to a pecuniary advantage derived, in connection with the commission of an offence “include a reference to property obtained or to a pecuniary advantage derived, both in that connection and in some other connection”.

The case for the appellants was presented to us by Mr Tedd QC, who represented Sangha alone in the court below but was able to act for all the appellants in this court because the arguments advanced apply in the same way to each of them.

The starting-point for Mr Tedd’s submissions was the limited way in which the case against the appellants was left to the jury at the trial and the correspondingly limited basis of their convictions. The only matters proved against them by the jury’s verdicts were that they had participated in that part of the fraud set out in paragraph (iii) of the particulars under each count, relating specifically to the evasion of VAT by the missing traders, and that they had participated only as secondary parties, in that they had acted dishonestly and in the knowledge that they were playing a part in the carrying out of a fraud on the public revenue when they paid the VAT on their purchases from the missing traders into the bank accounts of the foreign suppliers. That was the permissible factual basis for sentencing. It had not been proved or admitted that there was a wide-ranging fraudulent scheme going beyond evasion of VAT by the missing traders, or that any appellant knew of, or participated in, any such wide ranging scheme, or that any receipt by any appellant resulted from criminal conduct.

Mr Tedd submitted that the judge fell into error by going beyond the permissible factual basis for sentencing. In his reasoning as to the issue of benefit, the judge wrongly treated the appellants as if it had been proved against them upon their conviction that they were knowing participants in every aspect of a widespread fraudulent scheme, and as if their entire business was fraudulent. He also wrongly treated matters that were “never in issue at trial”, in the sense that they were not before the jury for determination, as though the appellants admitted them, which was not the case.

By virtue of s.71(1A) and (1D) of the 1988 Act, a defendant’s benefit is confined to benefit from “relevant criminal conduct”, which means for present purposes the offence of which he has been convicted. Those provisions accord both with first principles, namely that an offender should only be sentenced in respect of matters that have been alleged and proved against him before the appropriate forum, and with the line of sentencing authorities deriving from R v Canavan, Kidd and Shaw [1998] 1 WLR 604, [1998] 1 Cr App R (S) 243, and including R v Eubank [2002] 1 Cr App R (S) 11, R v Murphy [2003] 1 Cr App R (S) 39, and R v Graham and Whatley [2005] 1 Cr App R (S) 115. Mr Tedd submitted that the judge’s approach, in proceeding on a factual basis going beyond that inherent in the verdicts, was contrary to that laid down in the authorities and was not open to him.

The correct analysis, submitted Mr Tedd, was that the evasion of VAT involved the obtaining of a pecuniary advantage, which by virtue of s.71(5) of the 1988 Act was to be treated as the obtaining of a sum equal to the value of the pecuniary advantage: see R v Dimsey and Allen [2000] 1 Cr App R (S) 497. But the pecuniary advantage was derived in this case by the missing traders, since they were the persons liable for the tax evaded (or by Hening, as the person who controlled them). The appellants obtained no such pecuniary advantage.

As to the judge’s reliance on s.71(4), Mr Tedd submitted that the authorities which concern evasion of tax draw a distinction between cases in which the monies on which the tax was payable derived from criminal activity and those where they did not; and that they demonstrate a resistance to arguments that in tax evasion cases the whole of the monies in respect of which tax has been evaded constitutes benefit to the offender. He cited R v Moran [2002] 1 WLR 253, R v Foggon [2003] EWCA Crim 270 and R v Gill [2005] EWCA Crim 2697. Accordingly, he submitted, monies received by the first buffer companies from the onward sale of phones could not be treated as property obtained “as a result of or in connection with” the commission of the offence, because those funds were not proved to have been derived from unlawful activity: that was not the basis of the jury’s verdicts and, given the way the case was left to the jury and the basis of their verdicts, it was not open to the judge to make a finding of his own on the matter.

For the Crown, Mr Finnigan supported the judge’s reasoning. We need not, however, summarise the detailed submissions he made, which to a large extent we have accepted and incorporated in the discussion that follows.

Where there has been a contested trial, the jury’s verdict and the factual basis upon which it was reached (to the extent that this can be determined from what happened at the trial) will of course have an important part to play in setting the parameters of the confiscation proceedings, and it will not be open to the judge to act inconsistently with the verdict or its factual basis when dealing with matters of confiscation. In our judgment, however, Mr Tedd’s submissions seek to place unwarranted limitations upon the confiscation proceedings by reference to the verdict and its factual basis. The questions that have to be determined in the confiscation proceedings (whether the defendant has benefited from the relevant criminal conduct, the amount of any such benefit, and the amount recoverable from him) are distinct from those falling for determination during the trial process itself. The standard of proof is different, namely that applicable in civil proceedings. There will normally be evidence additional to that led at the trial. The court responsible for making the relevant determinations is the judge, not the jury. Whilst the judge must act consistently with the jury’s verdict and its factual basis, it is open to him, in the light of the evidence as a whole, to make additional and more extensive findings of fact than those upon which the verdict was based.

Clear support for that view is to be found in R v Threapleton [2001] EWCA Crim 2892, [2002] 2 Cr App R (S) 46, in which it was argued that the way in which the relevant count had been left to the jury at trial created alternative factual bases upon which the jury could convict, and that the judge was bound to proceed for the purposes of confiscation on the basis of the version of the facts most favourable to the defendant. The argument was advanced by reference to the principle in R v Efionayi (1995) 16 Cr App R (S) 380 that where a verdict is consistent with two views of the facts and it would have been possible to amend the indictment so as to obtain the jury’s views, the judge must adopt the more favourable view. This court, however, held that that principle has no application to confiscation proceedings. Stanley Burnton J, giving the judgment of the court, stated at para 28:

“We reject the submission that in making a confiscation order the Judge is bound to approach the case on the version of the facts before the jury most favourable to the defendant. The case of R v Efionayi … was concerned with sentencing in the strict sense of the word, i.e. a sentence of imprisonment. The principle applied in the context of that case does not apply in the present context. Section 71 of the 1988 Act imposes a duty on the court to make the determinations specified in subsections (1A), (1B) and (6), i.e. whether the defendant has benefited from any relevant criminal conduct, the amount of that benefit and the amounts that might be realised at the time the order is made. In the case of the Crown Court, the court there means the trial judge, and does not include the jury. The same determinations fall to be made under section 72A, where the determinations are postponed. The fact that the determinations are separate from the trial process itself is emphasised by section 71(7A) of the 1988 Act, which provides that the standard of proof required to determine any question arising under Part VI of the Act is that applicable in civil proceedings.”

That the judge can and should determine the statutory questions on the evidence before him, rather than being limited to the factual basis of the jury’s verdict, is supported by R v Olubitan [2004] EWCA Crim 2940, [2004] 2 Cr App R (S) 14. The appellant in R v Olubitan had been convicted of conspiracy to defraud, in circumstances where the jury were to be taken to have found that he knowingly joined the conspiracy at a very late stage, on the day of his arrest, when a dummy consignment in which he had been involved was intercepted. The court quashed the confiscation order against him on the basis that he had obtained no benefit. It did so, however, as para 14 of the judgment makes clear, not because of the limited basis of the jury’s verdict, but because there was no evidence on which the judge could properly be satisfied on a balance of probabilities that the appellant had benefited from his relevant criminal conduct. The decision is therefore wholly consistent with the view we have expressed above.

Another case illustrating the entitlement of the judge to make his own factual findings on the evidence is R v Green [2008] UKHL 30, [2008] 2 WLR 1154, in which Lord Bingham, giving the considered opinion of the House of Lords, quoted with approval (at para 15) the following passage from the judgment of David Clarke J in the Court of Appeal:

“Whether the proceeds of sale received by [the appellant’s associates] in the present case were initially received on their own personal behalf or on behalf of the conspirators as a whole was a matter for the judge to decide on the evidence before him. In fact, there was evidence on which he could find that the appellant was the ringleader and controller of the conspiracy and in those circumstances he was entitled to infer that the others were acting in accordance with his instructions, receiving proceeds of sale on behalf of the conspirators as a whole before retaining for themselves such amounts as had been agreed with the appellant ….”

Nor do we accept that the principle in R v Canavan (above), upon which Mr Tedd placed much reliance, has the effect of limiting the judge to the jury’s verdict and its factual basis. In R v Canavan it was held that, where a defendant is indicted and convicted on a specimen or sample count which is said to be representative of other criminal conduct of the same kind on other occasions not the subject of any other count in the indictment, the court may not take account of such other conduct so as to increase the sentence it imposes if the defendant does not admit the commission of other offences and does not ask the court to take them into consideration when passing sentence. Lord Bingham of Cornhill CJ expressed the relevant principle as follows (at [1998] 1 WLR p.607B-C):

“A defendant is not to be convicted of any offence with which he is charged unless and until his guilt is proved. Such guilt may be proved by his own admission or (on indictment) by the verdict of a jury. He may be sentenced only for an offence proved against him (by admission or verdict) or which he has admitted and asked the court to take into consideration when passing sentence …. If, as we think, these are basic principles underlying the administration of the criminal law, it is not easy to see how a defendant can lawfully be punished for offences for which he has not been indicted and which he has denied or declined to admit.”

Even in the normal sentencing context, the principle in R v Canavan has important limits to it. Thus in R v. Considine and Davis [2007] EWCA Crim 1166, [2007] 3 All ER 621, the court had to consider the process of assessing dangerousness under s.229 of the Criminal Justice Act 2003. In the earlier case of R v Farrar [2006] EWCA Crim 3261 it had been held to be contrary to the principle in R v Canavan for the sentencing judge, for the purpose of determining dangerousness, to hold what was in effect a Newton hearing in order to determine whether the defendant had been involved in a similar previous incident which he denied and which had not been the subject of a charge. Sir Igor Judge P, giving the judgment of the court in R v Considine and Davis, dealt with the matter in this way (at paras 34-36):

“We entertain reservations whether the full ambit of the principle in R v Canavan, which was concerned with the process of establishing guilt, applies to the assessment of dangerousness for the purposes of s.229. What R v Farrar, consistently with R v Canavan, prohibits is the introduction of a hybrid arrangement into the criminal justice system, in effect the possibility of conviction, or effective conviction, of a serious criminal offence after trial by judge alone in the course of a sentencing decision. The court was concerned that s.229 should not be construed so as to allow the defendant to be deprived of his right to trial by jury, or in some way or other be fixed with the consequences of guilt of a criminal offence without due process. A Newton hearing is not an acceptable form of trial for a criminal offence. It is after all a precondition to the Newton hearing that guilt of the offence is admitted by the defendant. It is therefore inappropriate to embark on a Newton hearing to decide whether or not the defendant has committed a discrete, but similar offence to those already before the court, solely for the purpose of making the assessment of dangerousness.

…

In our judgment what R v Farrar clearly did not decide is that, absent a conviction, the court making the s.229 decision is precluded from considering evidence of previous misconduct which would amount to a criminal offence. Arguments advanced on the basis that it did so decide are ill-founded. The contrary is true, and in R v Farrar the end result was that material directly related to the earlier incident did in fact contribute to the conclusion that Farrar himself should properly be assessed as dangerous. For this purpose no conviction is necessary ….”

In the context of confiscation proceedings there are even stronger reasons for entertaining reservations whether the full ambit of the principle in R v Canavan applies. Indeed, where the “criminal lifestyle” provisions of the Proceeds of Crime Act 2002 are engaged, the statute goes so far as to require the court to decide whether the defendant has benefited from his “general criminal conduct” (namely all his criminal conduct, not limited to the offence or offences of which he has been convicted) and even to make assumptions to the effect that his property was obtained as a result of his general criminal conduct, unless the assumptions are shown to be incorrect or there would be a serious risk of injustice if they were made. Mr Tedd submitted that in that specific situation, which has no counterpart in Part VI of the 1988 Act, the principle in R v Canavan is displaced by statute whereas in the present situation it applies in the normal way. It seems to us, however, that the criminal lifestyle provisions of the 2002 Act illustrate, albeit in an extreme way, how different are confiscation proceedings from the situation at which the principle in R v Canavan is directed.

In any event, even on the assumption that the principle in R v Canavan does apply to confiscation proceedings, what was said in R v Considine and Davis about the scope of the principle has equal force in this context. The court is not limited to the facts on the basis of which the jury reached their verdict. If other misconduct is relevant to the statutory questions that the court has to determine, the principle does not preclude the court from considering evidence of that other misconduct even where it amounts to a criminal offence.

For those various reasons we reject Mr Tedd’s submissions of principle that it was not open to the judge in the present case to go beyond the confines of the factual basis of the jury’s verdict when determining whether the appellants had benefited from their relevant criminal conduct. Provided that he acted consistently with the verdict and its factual basis, the judge was entitled to take into account all the evidence he had heard and to make his own relevant findings of fact when determining that question.

We turn to consider, in the light of the above, whether there was any error in the judge’s actual reasoning.

The judge had to determine under s.71(1A) whether the appellants had benefited from their “relevant criminal conduct” within the meaning of s.71(1D). The only relevant criminal conduct was the offence of which they had each been convicted, namely the offence of cheating the public revenue. It is clear that the judge proceeded on that basis, taking the offence of which the appellants had been convicted as his starting-point.

In determining whether the appellants had benefited from that offence, the judge focused on s.71(4) and the obtaining of property, rather than on s.71(5) and the obtaining of a pecuniary advantage. In our judgment, he was right to do so. Mr Tedd was no doubt correct in his submission that the evasion of VAT would generally be held to involve the obtaining of a pecuniary advantage, but that on the evidence in this case any pecuniary advantage resulting from the evasion of VAT by the missing traders at the front end of the conspiracy was obtained by Hening and not by the appellants, so that there was no basis for a finding against the appellants under s.71(5). It remained open to the judge, however, to make a finding against them under s.71(4) if the facts supported it.

We have already set out, at para 19 above, the judge’s reasoning under s.71(4). In essence, it proceeded as follow: (i) payments for goods sold by the missing traders to the appellants were made by the appellants not to the missing traders but to the foreign suppliers, thereby putting the VAT charged on those sales beyond the reach of the Commissioners; (ii) the appellants funded those payments by the sums obtained from the onward sale of the goods to purchasers within the United Kingdom; (iii) all the acts in (i) and (ii) were performed by the appellants in the knowledge that they were thereby participating in a fraud on the Revenue; and (iv) in those circumstances, in so far as the sums obtained from the onward sale of the goods were used to pay the VAT element of the appellants’ purchases, those sums were property obtained “in connection with” the commission of the offence of which the appellants had been convicted.

We see no difficulty with the factual basis of that reasoning. As to (i) and the related finding in (iii) that the relevant acts were done by way of knowing participation in the fraud, that was the very issue resolved against the appellants by the jury’s verdicts. As to (ii) and the related finding in (iii) that the relevant acts were done by way of knowing participation in the fraud, we read these as additional findings by the judge based on the evidence at the trial, rather than as reflecting an erroneous belief on his part that they followed necessarily from the jury’s verdicts: Mr Tedd conceded that to read them as additional findings was one sensible construction of the judge’s words. In our view, in line with the approach discussed above, the judge was perfectly entitled to make such findings. They were consistent with the factual basis of the jury’s verdicts and they were supported by the evidence. Mr Finnigan, for the Crown, drew our attention to specific items of evidence supporting them; but in any event Mr Tedd accepted that there was material to justify the findings if, contrary to his submission, the judge was entitled to go beyond the factual basis of the jury’s verdicts.

That leaves the question whether it was open to the judge to conclude in those circumstances that the sums obtained from the onward sales of the goods were obtained “in connection with” the commission of the relevant offence. The expression “in connection with” is broad in its potential scope, a point which is underlined by the provision in s.102(5) that references to property obtained in connection with the commission of an offence include a reference to property obtained “both in that connection and in some other connection”. We need say no more about the statutory expression than that. In R v May (above), at para 46, Lord Bingham, giving the considered opinion of the House of Lords, stressed that “in any given case the statutory questions must be answered by applying the statutory language, shorn of judicial glosses and paraphrases, to the facts of that case”. The judge in the present case approached the matter in just that way: he applied the statutory language to the facts without attempting any gloss or paraphrase. His conclusion did not involve an unduly strained application of the statutory language. It was a conclusion properly open to him.

The appellants are not assisted by cases such as R v Gill (above), where a distinction is drawn between the proceeds of genuine trading activity and the failure to account for tax payable on the profits from that trading activity, and it is said that the proceeds of the genuine trading activity cannot be regarded as property obtained as a result of or in connection with the tax offence. What distinguishes the present case very clearly from that situation is the judge’s finding that, in making the onward sales and obtaining the proceeds of sale, the appellants acted in the knowledge that they were thereby participating in a fraud on the Revenue. The trading in question was plainly not legitimate trading of the kind envisaged in R v Gill.

The judge might well have gone further in his findings. There were strong grounds for viewing the entire chain of transactions as artificial trade (as indeed the opening words of the particulars in the indictment alleged), and a substantial proportion of the onwards sales made by the appellants were to companies controlled by persons who had themselves been convicted, after a separate trial before the same judge, of the same offence. But the judge did not refer to those additional matters and there is no need for us to rely on them. It suffices for present purposes that the judge found that the appellants had acted, in relation to the onward sales and the obtaining of the proceeds of sale, in the knowledge that they were participating in a fraud. That is a sufficient reason why the reasoning in cases such as R v Gill does not bite on the present situation.

Mr Tedd suggested that the judge’s approach should logically have led to a finding that the entirety of the sums obtained from the onward sales, and not just that part used for the payment of VAT on the purchases from the missing traders, were property obtained in connection with the commission of the relevant offence: he submitted that the middle ground taken by the judge was not available. It seems to us, however, that the judge had a rational basis for drawing the line where he did. We need not decide whether it would have been open to him to go further and treat the entirety of the sums obtained from the onward sales as property obtained in connection with the commission of the relevant offence.

For the reasons given, we hold that the judge was entitled to find that each of the appellants had benefited from his relevant criminal conduct. Since that is the only issue before us, it follows that the appeals against the confiscation orders must be dismissed.