Waya, R v (Rev 1)

On 10 July 2007 at the Southwark Crown Court this Appellant was convicted of a count of obtaining a money transfer by deception contrary to s.15(A) Theft Act 1968 as amended. He was acquitted of a second count of similar conduct. He was sentenced to a community punishment order for 80 hours and confiscation proceedings adjourned. On 25 January 2008 a confiscation order was made against him by HHJ Rivlin QC in the sum of £1,540,000 to be paid within 6 months.

This is an appeal against part of the sentence, namely the confiscation order, leave to appeal and an extension of time in which to do so having been granted by the full court on the 8 September 2009. It is concerned with how the Proceeds of Crime Act 2002 applies to cases were a person has obtained a mortgage advance by way of deception.

Section 76 of the 2002 Act provides as follows

“(1)

Criminal conduct is conduct which-

a.

constitutes an offence in England and Wales, or

b.

would constitute such an offence if it occurred in England and Wales.

(2)

General criminal conduct of the defendant is all his criminal conduct, and it is immaterial-

a.

whether conduct occurred before or after the passing of this Act;

b.

whether property constituting a benefit from conduct was obtained before or after the passing of this Act.

(3)

Particular criminal conduct of the defendant is all his criminal conduct which falls within the following paragraphs-

a.

conduct which constitutes the offence or offences concerned;

b.

conduct which constitutes offences of which he was convicted in the same proceedings as those in which he was convicted of the offence or offences concerned;

c.

conduct which constitutes offences which the court will be taking into consideration in deciding his sentence for the offence of offences concerned.

(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.

(6)

References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained both in that connection and some other.

(7)

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

More detailed provisions as to the determination of the value of property or a pecuniary advantage obtained by criminal conduct are spelt out in s.79 of the Act in the following terms:

“Value: the basic rule

(1)

this section applies for the purpose of deciding the value at any time of property then held by a person.

(2)

its value is the market value of the property at that time.

(3)

but if at that time an other person holds an interest in the property it’s value, in relation to the person mentioned in subsection (1), is the market value of his interest at that time, ignoring any charging order under a provision listed in subsection (4). “

The basic rule is supplemented by the provisions of s.80:

“Value of property obtained from conduct

(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 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 meaning of property for the purposes of this Act is set out in s.84 (1) and (2) (a) (b) (c) and (f):

“Property: general provisions

(1)

Property is all property wherever situated and includes-

a.

money;

b.

all forms of real or personal property;

c.

things in action and other intangible or in corporeal property.

(2)

The following rules apply in relation to property-

a.

property is held by a person if he holds an interest in it;

b.

property is obtained by a person if he obtains an interest in it;

c.

property is transferred by one person to another if the first one transfers or grants an interest in it to the second;

f.

references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest of power.”

In November 2003 the appellant wanted to purchase a residential property 18A Northgate Mansions, Albert Road London. The purchase price was £775,000. He purchased the property with funds from two sources: he provided £310,000 from his own resources and obtained a loan secured by mortgage from a company known as GE Money Home Lending in respect of the balance of £465,000. In order to obtain that mortgage he made false statements about his employment history and current earnings. He engaged a solicitor to act in the purchase of the property. In due course the money was advanced by the lender. As normally occurs in such transactions, first the money was paid by the lender to the solicitor; it was then paid over by the solicitor to the vendor; finally, the title to the property was registered in the name of the appellant with a charge in favour of the lender. Interest payments were then made by the appellant and kept up to date.

In April 2005 the first mortgage was redeemed early when a second loan in the sum of £838,943 was advanced by the Birmingham Midshires Building Society. GE Money lending received back the whole of the outstanding loan, and in addition a payment by way of premium for early repayment. The second mortgage was secured by a further charge on the property. Although the appellant was charged with a further count of obtaining the second mortgage by deception, as a result of his acquittal on count two of the indictment, it is not disputed that the obtaining this second mortgage was untainted by any deception. The appellant was arrested in November 2005. The property had increased in value and by the time of the confiscation order had an open market value of £1,850,000.

In the confiscation proceedings, a statement was made by DC Peter Clarke indicating that the Crown was proceeding under POCA 2002 s.6(4) on the basis that the Appellant had benefited from particular criminal conduct by virtue of his conviction. This was therefore not a criminal life style case, and no statutory presumptions arise. The particular conduct was that specified in the memorandum of conviction namely that he had obtained a money transfer by deception for the amount of £465,000 from GE Money.

The Crown alleged that the benefit obtained by the appellant as a result of his offence was the market value of property as of the date of confiscation proceedings, namely £1,850,000. It did so by reference to a decision of Mr Justice McCulloch of R v K (unreported) 1 October 1990, that was approved by this Court in R v Layode 12 March 1993. Both were decisions under the Criminal Justice Act 1988. It seems that the Crown’s reasoning was not the subject of dispute below. The judge accepted the Crown’s case and concluded on the basis of the decided case law that it was not necessary to analyse the case in the context of the statutory provisions cited above. He deducted the sum of £310,000 that represented the appellant’s untainted contribution to the purchase price in 2003. He accordingly reached a benefit figure of £1,540,000. It was not contended that the appellant’s available assets were less than this sum. No deduction was made for the loans advanced on the security of the property by either lender. The confiscation order was made in the sum of £1,540,000.

Before this court the appellant is represented by fresh counsel who did not appear below. Mr Krolick for the appellant submits that the judge was wrong to apply the cases of K and Layode. He relies on R v Walls [2002] EWCA Crim 2456 [2003] 1 Cr App R 31 and R v Nadarajah [2007] EWCA Crim 2688 (16 November 2007). All of these cases were decided before the confiscation order was made in the present case and should have been brought to judge’s attention. He submits on the basis of these authorities that there should have deducted from the confiscation order:

He advances this submission as follows:-

The Crown no longer relies upon the submissions that it advanced below and persuaded the trial judge to make the confiscation order in the sum that he did. Applying the decisions of this Court in Walls, Roach, and Nadarajah in 2008 Mr Morris submits that the value in 2008 of the benefit obtained in 2003 was 60% of the market value of the property or £1,110,000. It accepts that the judge fell into error in valuing the market value of the whole property in 2008 rather than the 60% of the value of the property represented by the tainted mortgage.

He relies on the statement of principles in the decision of the House of Lords in R v May [2008] UKHL [2008] AC 1028. Lord Bingham observed at [26]

“ In several cases the court has been called upon to evaluate the benefit accruing to a defendant who had obtained a mortgage loan by making a fraudulent misstatement. In In re K  (unreported) 6 July 1990 (McCullough J), in the context of an order applied for under the 1988 Act to restrain the defendant from disposing of his assets in anticipation of a confiscation order, the judge rejected the defendant's submission that the benefit he had obtained was the equity of redemption in the house he had bought rather than the house itself. That decision was followed by the Court of Appeal in  R v Layode  (unreported) 12 March 1993 (per Macpherson of Cluny J), another decision under the unamended 1988 Act. It must, however, be appreciated that section 71(4) called for an essentially factual enquiry: what is the value of the property the defendant obtained? If (say) a defendant applies £10,000 of tainted money as a down-payment on a £250,000 house, legitimately borrowing the remainder, it cannot plausibly be said that he has obtained the house as a result of or in connection with the commission of his offence. This was the conclusion correctly reached by the Court of Appeal in R v Walls  [2003] 1 WLR 731. That was a case under the 1994, not the 1988, Act, but in distinguishing the earlier decisions the court relied not on the differences between the two confiscation regimes (see para 27) but on the considered reasoning of Neill LJ in the earlier Court of Appeal decision in  R v Johnson  [1991] 2 QB 249, which had not been cited in the earlier cases.

At the conclusion of the judgment in May the Appellate Committee added this endnote :

“48. The committee would conclude by drawing attention to the current importance of the power to make confiscation orders. In the period April 2007-February 2008 the courts in England and Wales made 4,504 such orders in sums totalling £225.87 million. In recent years the number of orders and the sums confiscated have steadily risen. Recognition of the importance and difficulty of this jurisdiction prompts the committee to emphasise the broad principles to be followed by those called upon to exercise it in future. (1) The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine. The benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses or any amounts payable to co-conspirators. (2) The court should proceed by asking the three questions posed above: (i) Has the defendant (D) benefited from relevant criminal conduct? (ii) If so, what is the value of the benefit D has so obtained? (iii) What sum is recoverable from D? Where issues of criminal lifestyle arise the questions must be modified. These are separate questions calling for separate answers, and the questions and answers must not be elided. (3) In addressing these questions the court must first establish the facts as best it can on the material available, relying as appropriate on the statutory assumptions. In very many cases the factual findings made will be decisive. (4) In addressing the questions the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definition. The language used is not arcane or obscure and any judicial gloss or exegesis should be viewed with caution. Guidance should ordinarily be sought in the statutory language rather than in the proliferating case law. (5) In determining, under the 2002 Act, whether D has obtained property or a pecuniary advantage and, if so, the value of any property or advantage so obtained, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership. While the answering of the third question calls for inquiry into the financial resources of D at the date of the determination, the answering of the first two questions plainly calls for a historical inquiry into past transactions. (6) D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. 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. It may be otherwise with money launderers.”

We would observe that Mr Morris’s submissions have the virtue of simplicity and consistency with authority and the statutory language as long as he can bring the present case within the ambit of s.80(3) (b) and (c) POCA 2002.

In essence what the Crown now contend is that the property obtained by the appellant was not the freehold title to 18A Northgate Mansions, but the funds transferred by the lender to his solicitor that were in turn transmitted to the vendor. If the property obtained is the money, then it can be said:-

Mr Krolick responds to this new way in which the Crown puts its case by submitting that the share analogy is inappropriate because in the present case the appellant never obtained an interest in the funds that passed through his solicitor’s account but only in the property that was acquired in consequence of the mortgage arrangement.

He relies on the analysis of the position at common law given by Lord Goff in the case of R v Preddy [1996] 2 Cr App R 524. In that case the House of Lords concluded that a mortgagor did not obtain funds belonging to another for the purposes of s.15 Theft Act 1968 before its amendment. Lord Goff observed 538-9

“I turn first to the stage of the payment to the solicitor. At this point of time, the question has to be considered on the basis that the solicitor, when he receives the money, does so as agent of the lending institution and holds it as bare trustee for the lending institution: see Target Holdings Ltd. v. Redferns  [1996] 1 A.C. 421, 436, per Lord Browne-Wilkinson. Now it is true that, by reason of the deception of the mortgagor, the legal interest in the money has vested in the solicitor; and it may be suggested that in those circumstances the mortgagor has obtained the money either for himself or for another within section 15(2). But (like Sir John Smith - see his commentary on the decision of the Court of Appeal in the present case [1995] Crim.L.R. 564) I find difficulty in conceiving that in either case section 15 applies where, as here, the solicitor receives the money in his capacity as agent of the lending institution, in circumstances in which the lending institution retains control over the money while in his (the solicitor's) hands and can require it to be repaid at any time. Furthermore, in any event the same difficulties arise here as they do where the money has been paid direct to the mortgagor by electronic transfer, or by cheque. This is because any chose in action which comes into existence by the crediting of the solicitor's bank account (simultaneously with the debiting of the lending institution's bank account), or by the receipt by the solicitors of a cheque from the lending institution, can never have belonged to the lending institution or its bank and so can never have belonged to another as required by section 15(1).

I turn next to the release of the money by the solicitor, with the lending institution's authority, to the vendor's solicitor in the form of a banker's draft. Presumably the solicitor's bank will debit the solicitor's general account with the amount of the draft, and in due course the solicitor will effect an adjustment in his own accounts as between his client account and his general account. The banker's draft will be made payable to the vendor's solicitor who will, on receipt of the draft, obtain property in the form of a chose in action represented by the draft; but once again that chose in action never belonged to another - either to the solicitor acting in the mortgage transaction or his bank, or to the lending institution itself. It is true that the consequence will have been that the lending institution's equitable interest, such as it was, was extinguished. But the identification of that equitable interest is not altogether easy. True, the solicitor acting in the mortgage transaction received the money as trustee, but the money itself was paid directly into the solicitor's client account where it was "mixed" with other money and its identity lost. I suppose that, if the solicitor became bankrupt, the lending institution could assert an equitable proprietary claim in the form of an equitable lien upon the chose in action represented by the credit balance (if any) in the account; but that contingency did not occur and, in any event, despite the broad words of section 5(1) of the Act applicable in the case of obtaining property by deception by virtue of section 34(1), I find great difficulty in conceiving the possibility of the mortgagor "obtaining" any such interest, which is not transferred to the mortgagor or to the vendor, but is simply extinguished, being replaced in due course by the lending institution's rights as mortgagee. In truth, the more one examines this problem, the more inapt does section 15 of the Act appear to be in cases of this kind.

It is for these reasons that I have concluded that in circumstances such as these it is not appropriate to charge the mortgagor with having obtained property by deception contrary to section 15(1) of the Act of 1968.”

The particular problem created for the criminal law by this analysis was resolved by the enactment of the Theft (Amendment) Act 1996 introducing a new section 15A offence of obtains a money transfer by deception, with which the appellant was convicted.

Mr Krolick submits that whilst s.15A undoubtedly established that the appellant was guilty of the offence of “dishonestly obtaining a money transfer for himself or another” it does not alter the position at common law described by Lord Goff. He submits that on that basis it was decided that the appellant obtained no property for himself. The s15A offence could be committed by obtaining a transfer to another, namely his solicitor and therefore is not decisive of what property the appellant actually obtained by his conduct.

We do not accept that the decision in Preddy is an answer to the Crown’s submissions before us. Preddy was concerned with the construction of s.15 Theft Act 1968 before the 1996 amendment, where a critical element of the offence was that it was necessary for the Crown to show the property obtained belonged to another at the moment when any obtaining took place. Lord Goff at p 534 accepted that the credit into the solicitors account was a chose in action which is turn property but he concluded that this does not assist the prosecution because :

“..identifying the sum in question as property does not advance the argument very far. The crucial question, as I see it, is whether the defendant obtained (or attempted to obtain) property belonging to another. Let it be assumed that the lending institution's bank account is in credit, and that there is therefore no difficulty in identifying a credit balance standing in the account as representing property, i.e. a chose in action, belonging to the lending institution. The question remains however whether the debiting of the lending institution's bank account, and the corresponding crediting of the bank account of the defendant or his solicitor, constitutes obtaining of that property. The difficulty in the way of that conclusion is simply that, when the bank account of the defendant (or his solicitor) is credited, he does not obtain the lending institution's chose in action. On the contrary that chose in action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in an equivalent sum owed by a different bank to the defendant or his solicitor. In these circumstances, it is difficult to see how the defendant thereby obtained property belonging to another , i.e. to the lending institution.” (original emphasis)

Lord Goff was thus not concerned to analyse the position where the lender’s money is transferred to the solicitor in contemplation of the purchase of the property and the sale is completed as contemplated. He was concerned with whether what the borrower obtained was property “belonging to another” and only to this extent with the position of the borrower. We are however concerned with s.76 (4) Proceeds of Crime Act 2002 where all that is necessary is that a person obtains property as a result of or in connection with criminal conduct. In the case of R v Mohammed Shabir [2008] EWCA Crim 1809 [2009] 1 Cr App R (S) Lord Justice Hughes observed at [10]

“It seems to us that the money transfers obtained by the defendant each month were intangible, or incorporeal, property. They were not, no doubt, property belonging to the paying authority, for the reasons explained some time ago in R v Preddy[1996] AC 815, because the paying authority never owned the precise chose in action created when the defendant's bank account was credited. Rather, a new piece of property, in the form of a new chose in action, was created, but this is still property obtained by the defendant. For this, see particularly the speech of Lord Goff at 834. In the end, however, it does not matter for present purposes whether what the defendant obtained is properly described as 'property' or as 'a pecuniary advantage'. Whichever it is, the question which matters is what its value is”.

Section 84 (1) Proceeds of Crime Act 2002 gives property a wide meaning including things in action and other intangible or incorporeal property. Section 84(2)(a) and (b) demonstrate that property is held and obtained if a person obtains an interest in it, and (f) identifies that an equitable interest suffices.

In our judgment, at the latest at the time the conditions upon which the money was advanced were satisfied, the appellant had at the least an equitable interest in the money transfer order in his solicitor’s account, namely a right to ensure that the money was forwarded to the vendor to complete the purchase. Whether the appellant’s interest was in property belonging to the lender institution at a time when his interest arose is irrelevant to our inquiry although it was central to the decision in Preddy. In the words of s.15A Theft Act as amended he obtained the money transfer for himself, if only for the purpose of it being applied to discharge the obligation to pay the purchase price for the property through the solicitor’s account.

It follows that the Crown is correct in submitting that it is necessary to trace the money transferred to the appellant through the process when it is invested in the property and changes in character from money into a proportion of the value of the property. Further it makes no difference that before the confiscation order was made, there was a fresh mortgage. The Proceeds of Crime Act 2002 is not concerned with whether there has been a loss to a mortgage company but whether there has been a benefit obtained from criminal conduct. Where there has been, the benefit can be identified and followed into new property in accordance with the statutory scheme.

After the conclusion of the argument, we drew attention to s.76(5) and (6) Proceeds Crime Act 2002 and invited submissions as to whether the appellant had gained a pecuniary advantage by the money transfer that he was convicted of, whether or not it was property that he obtained. Section 76(5) equates pecuniary advantage with a sum of money equal to its value. In the event, it is unnecessary to consider this question as we are satisfied that the appellant had obtained a sufficient interest in the transfer to amount to property. There is no statutory definition of pecuniary advantage in the present context.

We observe, however, that the terms of s.76(5) where it applies, may be said to support the tenor of the Crown’s construction of the pertinent sections of the 2002 Act which look realistically at the value of the benefit obtained rather than become side tracked by technical complexities of the process of purchase and conveyance with a mortgage. Further Lord Justice Hughes’s observation in the case of Shabir noted above at [23] supports the conclusion that a money transfer is either property or a pecuniary advantage and possibly both.

It follows that this appeal should be allowed, but only to the extent that the sum of £1,110,000 should be substituted for the sum of £1,540,000 made by the judge.