Harvey, R. v (Rev 1)

This judgment is in ten parts, namely:

This is an appeal against a confiscation order in a case to which the “criminal lifestyle” provisions apply. The appellant ran a plant hire and contracting business, which made extensive use of stolen plant. The principal issues are the basis upon which the appellant’s benefit should be assessed, how VAT should be dealt with and whether credit should be given for the residual value of the plant ultimately restored to the true owners.

In this judgment we shall refer to the Proceeds of Crime Act 2002 as “POCA”.

Section 6 of POCA sets out how the Crown Court must proceed in confiscation proceedings:

“6.

Making of order

…

(4)

The court must proceed as follows —

(a)

it must decide whether the defendant has a criminal lifestyle;

(b)

if it decides that he has a criminal lifestyle it must decide whether he has benefited from his general criminal conduct;

(c)

if it decides that he does not have a criminal lifestyle it must decide whether he has benefited from his particular criminal conduct.

(5)

If the court decides under subsection (4) (b) or (c) that the defendant has benefited from the conduct referred to it must —

(a)

decide the recoverable amount, and

(b)

make an order (a confiscation order) requiring him to pay that amount.

(6)

But the court must treat the duty in subsection (5) as a power if it believes that any victim of the conduct has at any time started or intends to start proceedings against the defendant in respect of loss, injury or damage sustained in connection with the conduct.

(7)

The court must decide any question arising under subsection (4) or (5) on a balance of probabilities.”

Section 7 of POCA provides:

“7.

Recoverable amount

(1)

The recoverable amount for the purposes of section 6 is an amount equal to the defendant’s benefit from the conduct concerned.

(2)

But if the defendant shows that the available amount is less than that benefit the recoverable amount is—

(a)

the available amount, or

(b)

a nominal amount, if the available amount is nil.

(3)

But if section 6 (6) applies the recoverable amount is such amount as —

(a)

the court believes is just, but

(b)

does not exceed the amount found under subsection (1) or (2) (as the case may be).”

Section 10 of POCA provides:

“10.

Assumptions to be made in case of criminal lifestyle

(1)

If the court decides under section 6 that the defendant has a criminal lifestyle it must make the following four assumptions for the purpose of —

(a)

deciding whether he has benefited from his general criminal conduct, and

(b)

deciding his benefit from the conduct.

(2)

The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him—

(a)

as a result of his general criminal conduct, and

(b)

at the earliest time he appears to have held it.

(3)

The second assumption is that any property held by the defendant at any time after the date of conviction was obtained by him —

(a)

as a result of his general criminal conduct, and

(b)

at the earliest time he appears to have held it.

(4)

The third assumption is that any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his general criminal conduct.

(5)

The fourth assumption is that, for the purpose of valuing any property obtained (or assumed to have been obtained) by the defendant, he obtained it free of any other interests in it.

(6)

But the court must not make a required assumption in relation to particular property or expenditure if —

(a)

the assumption is shown to be incorrect, or

(b)

there would be a serious risk of injustice if the assumption were made.

(7)

If the court does not make one or more of the required assumptions it must state its reasons.

(8)

The relevant day is the first day of the period of six years ending with —

(a)

the day when proceedings for the offence concerned were started against the defendant, or

(b)

if there are two or more offences and proceedings for them were started on different days, the earliest of those days.”

Section 16 of POCA provides that the first step in confiscation proceedings is for the prosecutor to serve a statement setting out the information relied upon.

Section 75 of POCA defines what is meant in the Act by “criminal lifestyle”. There is no dispute in this case that the appellant falls within that definition.

Section 76 of POCA provides:

“76.

Conduct and benefit

(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 or 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.”

Sections 79 and 80 of POCA contained detailed provisions as to the valuation of property obtained by the defendant. Section 80 (2) (a) requires the value of property to be adjusted to take account of later changes in the value of money.

Article 1 of the First Protocol to the European Convention on Human Rights is generally referred to as “A1P1”. A1P1 provides:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

In some of the authorities which we shall review the offender is appellant and in others he is respondent. For simplicity we shall generally refer to the offender as “the defendant” or “D”. Where there is more than one defendant, we shall refer to each by the initial letter of his surname. We shall use the abbreviation “V” for victim.

Francis Clark LLP are a firm of Chartered Accountants practising in Truro. Their former name was Winter Rule. For simplicity we shall refer to that firm at all times as “Francis Clark”.

After these introductory remarks we must now turn to the facts.

In 1972 the appellant set up a company which he owned and controlled called Jack Harvey Ltd (“JHL”). The appellant and his family have always lived at Truro in Cornwall. The company was based there. The business of the company was plant hiring and contracting. Over the years the company built up a large stock of plant and machinery. These included rollers, diggers, trailers, low loaders, dumper lorries and planers. Many members of the appellant’s family were involved in the business.

JHL hired out plant to customers. Sometimes JHL supplied drivers to operate the plant. JHL also undertook contracting work using its own plant and drivers. One major customer of JHL was Cornwall County Council. JHL hired out many large machines to the council.

One profitable activity which JHL undertook was road planing. This means removing the top surface of roads with a planer and converting the debris into reusable aggregate, known as “planings”. JHL did much road planing for the council. JHL then sold the planings to farmers or other contractors in the area.

Francis Clark acted as accountants and auditors for JHL. They prepared the company’s annual accounts on the basis of invoices, records and other information provided by the appellant and his family.

JHL regularly acquired or sold plant in accordance with business decisions made by the appellant. Unfortunately the appellant is not an honest man. Many items of plant which JHL acquired were stolen property and the appellant knew this perfectly well.

The appellant’s criminal activities came to the attention of the police in 2008 and 2009. During this period the appellant also set fire to several items of plant belonging to rival contractors. The appellant was identified as the culprit. The appellant was arrested and charged with arson. On 6^th May 2009 the police raided and searched the appellant’s property at Truro. They found 91 items of plant ostensibly belonging to JHL. No fewer than 39 of these items of plant turned out to be stolen.

The police arranged for the stolen items of plant to be valued and then returned to their true owners. In some cases the stolen plant was sold at auction and the proceeds of sale went to the original owners or their insurers, as appropriate. The valuation figures are as follows:

In due course the appellant was prosecuted for offences of arson and handling stolen property. The appellant pleaded not guilty to the arson offences but guilty to nine counts of handling stolen property. The other thirty counts of handling stolen property were ordered to lie on the file. The appellant stood trial at Truro Crown Court in June 2010. He was convicted on all counts of arson. In due course the appellant received a total sentence of 13 years 3 months imprisonment for all the offences of arson and handling stolen goods. On 11^th February 2011 this court allowed the appellant’s appeal against sentence and reduced the total sentence to 9 years 6 months imprisonment.

Very properly the Crown Prosecution Service asked Truro Crown Court to proceed under section 6 of POCA. This request set in motion the confiscation proceedings.

On 11th February 2011 the Crown Prosecution Service served on the appellant a Statement of Information pursuant to section 16 of POCA prepared by the South West Regional Asset Recovery Team. This asserted that the appellant had a “criminal lifestyle”, that all assets of JHL should be treated as the appellant’s property and that the following comprised the appellant’s benefit for the purposes of POCA:

There followed extensive exchanges of information between the parties. The appellant served three reports prepared by Mr David Winch, a chartered accountant. Mr Winch was instructed to investigate the appellant’s financial affairs and to give expert evidence on his behalf.

The confiscation proceedings came on for hearing before his Honour Judge Elwen in Truro Crown Court in March 2012. The appellant conceded that the “criminal lifestyle” provisions applied to his case. He also conceded that the corporate veil should be pierced, so that JHL’s property should be treated as belonging to himself. When the appellant gave evidence, he admitted knowing the truth about the nine stolen items of plant referred to in the counts to which he had pleaded guilty. He denied knowing that the other thirty items of plant were stolen. The appellant also asserted that almost the entirety of JHL’s turnover was legitimate and untainted by the stolen property. Two of the appellant’s daughters and a friend called Mr Wood gave supporting evidence. Mr Winch gave expert evidence, suggesting various ways in which the turnover referable to stolen plant could be identified. Mr Winch expressed the view that at most £583,886 of the company’s turnover was derived from stolen plant.

The judge delivered his reserved judgment on 16^th April 2012. We would summarise the judge’s conclusions as follows:

The assessed amount of the appellant’s benefit was substantially less than his available assets. Accordingly the court made a confiscation order in the sum of £2,275,454.40.

The appellant is aggrieved by the amount of the confiscation order. Accordingly he appeals to the Court of Appeal.

The appellant appeals to the Court of Appeal on four grounds which, as reformulated during the hearing of the appeal, are as follows:

Mr William Boyce QC, who appears for the appellant leading Ms Joanna Martin, adopted the following abbreviations for his four grounds of appeal: VAT, restoration, basis of assessment and term in default. We shall adopt those same abbreviations.

The third ground of appeal mutated somewhat during the course of argument. Mr Boyce focused most of his argument in relation to this ground on the question whether the judge should have deducted from the turnover figure sums received by JHL from sales of plant.

Mr Martin Evans, who appears for the prosecution leading Ms Kate Brunner, resists the first three grounds of appeal. He makes no submissions about the fourth ground of appeal, rightly observing this is a matter for the court.

In relation to the assessment of benefit, Mr Evans submits that, if anything, the judge was unduly generous to the appellant. The use of stolen property must have enabled the appellant to build up his business and thus attract customers. Accordingly, it may be said that all or most of JHL’s turnover was tainted. Mr Evans puts forward this argument to support the judge’s assessment of 38%, not in attempt to increase that assessment.

Mr Evans also points out that the judge did not increase his assessment of benefit to take account of changes in the value of money, as required by section 80 (2) (a) of POCA. This was because the prosecution did not draw that provision to the attention of the judge. The prosecution have not sought to appeal the assessment on this ground. Mr Evans accepts that it is now too late to take the point.

Neither Mr Boyce nor Mr Evans appeared in the court below.

Having outlined the cases of both parties in this appeal, we must now turn to the law.

The law in relation to confiscation has recently undergone a seismic shift. This is because of the Supreme Court’s decision in R v Waya [2012] UKSC 51, [2013] 1 AC 294.

Both parties have placed reliance on a number of authorities which pre-date Waya. The issue therefore arises to what extent those authorities are still good law. In order to address this issue, we shall review the relevant cases in chronological order and then analyse the impact of Waya on earlier decisions.

In R v Smith [2001] UKHL 68, [2002] 1 WLR 54 D imported 1.25 million cigarettes without paying the excise duty due of £130,666. Customs officers subsequently seized the cigarettes. The Crown Court held that the defendant benefited to the extent of £185,666, comprising the excise duty evaded plus the cost of the boat used for smuggling. The Court of Appeal held that in the circumstances D had not derived any pecuniary advantage by evading the payment of excise duty; accordingly the assessment of benefit should be reduced by £130,666. The House of Lords allowed the prosecution’s appeal. Lord Rodger, with whom the other four members of the Appellate Committee agreed, reasoned as follows:

At paragraph 23 Lord Rodger said this:

“23.

These provisions show that, when considering the measure of the benefit obtained by an offender in terms of section 71 (4), the court is concerned simply with the value of the property to him at the time when he obtained it or, if it is greater, at the material time. In particular, where the offender has property representing in his hands the property which he obtained, the value to be considered is the value of the substitute property "but disregarding any charging order". Except, therefore, where the actual property obtained by the offender has subsequently increased in value, the court is simply concerned with its value to the offender "when he obtained it". It therefore makes no difference if, after he obtains it, the property is destroyed or damaged in a fire or is seized by customs officers: for confiscation order purposes the relevant value is still the value of the property to the offender when he obtained it. Subsequent events are to be ignored, in just the same way as any charging order is to be ignored under subsection (6). Such a scheme has the merit of simplicity. If in some circumstances it can operate in a penal or even a draconian manner, then that may not be out of place in a scheme for stripping criminals of the benefits of their crimes. That is a matter for the judgment of the legislature, which has adopted a similar approach in enacting legislation for the confiscation of the proceeds of drug trafficking. In that context the courts have consistently held that "payments" received in connection with drug trafficking mean gross payments rather than net profit and that the "proceeds" of drug trafficking mean the gross sale proceeds, rather than the net profit after deducting the cost of the drug trafficking operation.”

In R v Singh [2008] EWCA Crim 243 D, a sole trader operating in a market stall, pleaded guilty to seven counts of selling counterfeit goods. In confiscation proceedings it was common ground that the “criminal lifestyle” provisions applied. The judge held that all sums which D had paid into his bank and building society accounts constituted benefit. The judge also held that all sums which D had paid out on purchases (mostly recorded “paid in cash”) formed part of D’s benefit. The Court of Appeal upheld that decision. At paragraph 25 Royce J summarised the conclusions of the Court of Appeal as follows:

“1.

The judge carefully considered the respective arguments and was fully entitled to conclude that the assumptions should remain in place and that no injustice arose as a result of such conclusion. In relation to that he was entitled to expect clear and cogent evidence on behalf the appellant to displace those assumptions. He did not have before him clear and cogent evidence so to do.

2.

He had before him manifestly dishonest evidence from the appellant, who in producing books for the proceedings must at that stage have been determined to deceive the court. He was entirely lacking in credibility.

3.

He had highly suspicions invoices, which he was not obliged to take at face value.

4.

He rightly concluded that there was other cash trading of goods with no records whatsoever. That may have been very substantial. Its extent was impossible to determine because of the dishonest nature of the appellant's record keeping.

5.

If, and in so far as there had been legitimate trading, it was impossible to determine its percentage and that was because of the appellant's determination in spite of regular brushes with trading standards and the Revenue, to keep no accounts, so as to facilitate his criminal life-style. The Judge was not under a duty to speculate and pluck some figure from the air.”

In R v May [2008] UKHL 28, [2008] 1 AC 1028 D and others pleaded guilty to conspiring to cheat the Customs and Excise by wrongfully withholding and wrongfully reclaiming VAT. The judge noted that the loss to the Customs and Excise was £3,264,277 and made a confiscation order against D in that sum. The judge held that where several defendants were jointly responsible for a fraud and jointly acquired the proceeds of the fraud, each defendant should be treated as having obtained the full amount of the proceeds. There was no need to make an apportionment between the different defendants. Both the Court of Appeal and the House of Lords upheld this approach.

In the House of Lords Lord Bingham delivered a single speech on behalf of all members of the Appellate Committee. At the end of his speech Lord Bingham set out the following guidance in paragraph 48, which was headed “Endnote”:

“(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 life style 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.”

R v Morgan and Bygrave [2008] EWCA Crim 1323, [2009] 1 Cr App R (S) concerned two defendants who paid compensation to their victims. M cheated V out of £280,000. After adjusting for inflation, M’s benefit was £306,913. Before the confiscation hearing M repaid most of this sum to V, leaving only £51,967 outstanding. The judge disregarded the repayments that M had made and assessed M’s benefit at £306,913. He made a confiscation order in the sum of £106,259, as that was the value of M’s available assets.

B stole £12,768 from V. She arrived at court for the sentencing and confiscation hearing with sufficient funds to repay V the full amount. The judge made a confiscation order in the sum of £12,768. V subsequently said that it would sue B for the amount of V’s loss.

The appeals of M and B were listed for hearing together. The Court of Appeal dismissed M’s appeal. The court allowed B’s appeal to the extent of varying the confiscation order by attaching to it a direction that the whole sum confiscated be paid to V. The court noted that there was an anomaly in the legislation, namely that D was worse off if he compensated V before the confiscation proceedings were brought.

Hughes LJ, delivering the judgment of the court, added that it was important that the extent of the anomaly should not be overstated. The confiscation jurisdiction is deliberately draconian. One not infrequent consequence is that the amount of a confiscation order is higher than D’s profit from his crime. Hughes LJ went on to point out that in cases where confiscation proceedings were oppressive, the court could order a stay for abuse of process: see paragraphs 26-35. The Court of Appeal did not regard the confiscation proceedings in M’s case as oppressive.

In R v Xu and Xu [2008] EWCA Crim 2372 Ds employed three illegal immigrants in their restaurant and were convicted of facilitating a breach of immigration law contrary to section 25 (1) of the Immigration Act 1971. In confiscation proceedings the recorder assessed Ds’ benefit as the entire amount of their receipts during the relevant period. The Court of Appeal allowed Ds’ appeal. The court noted that the three illegal immigrants constituted a quarter of the workforce of the restaurant. On that basis the Court of Appeal assessed Ds’ benefit as one quarter of their receipts from the restaurant during the relevant period.

In R v Baden Lowe [2009] EWCA Crim 194 D, the director of CPSM, a company which was about to be wound up, fraudulently caused the company to transfer land to Penwood, another company of which D was director. Fortunately no harm was done. The liquidator of CPSM recovered the land and sold it some six months before D pleaded guilty in the Crown Court. The judge held in confiscation proceedings that D had benefited to the extent of the value of the land and made a confiscation order in the sum of £41,920, which was the amount of D’s realisable assets. The judge regarded it as irrelevant that V had been fully compensated.

In R v Del Basso and Goodwin [2010] EWCA Crim 1119 Ds pleaded guilty to failing to comply with an enforcement notice contrary to section 179 of the Town and Country Planning Act 1990. The offence was using an area of land as a car park without planning permission. The defendants ploughed the profits from the car park into a local football club which they ran. The judge held that the “criminal lifestyle” provisions applied. The judge further held that all receipts from the car park, during the period before a limited company took over the business, were a benefit of Ds. These amounted to £1,881,221. The judge made a confiscation order against one defendant in the sum of £760,000, which was the amount of his available assets. He made a nil confiscation order against the other defendant, who was bankrupt.

The Court of Appeal upheld the judge’s decision. Leveson LJ, giving the judgment of the court, noted Ds’ argument that receipts from parking were used for paying expenses (including VAT and national insurance) and for supporting the football club: see paragraph 35. He went on to hold that these facts were irrelevant to the assessment of benefit. The court had to focus on the property coming to the offenders, not what happened to it subsequently: see paragraph 38.

In James and Blackburn v R [2011] EWCA Crim 2991 Ds were involved in the importation and processing of large quantities of tobacco without paying excise duty. This was not a case to which the “criminal lifestyle” provisions applied. The tobacco was processed at a factory in Stevenage, which B managed. The tobacco was then packaged and stored in a garage next to J’s home. The trial judge made substantial confiscation orders, which the Court of Appeal quashed. Hooper LJ, delivering the first part of the judgment of the court, said that neither J nor B had incurred a liability to pay excise duty. B was effectively the salaried manager of the factory with no proprietary interest in the tobacco which passed through it. Edwards-Stuart J, delivering the second part of the judgment of the court, said that expenses which Ds incurred in buying equipment and materials for the purpose of the venture were not incurred “in connection with” the criminal conduct. Accordingly they were not caught by POCA. Likewise payments of rent for the factory building were not incurred “in connection with” the criminal conduct.

In R v Ahmad [2012] EWCA Crim 391, [2012] 1WLR 2335 Ds were the directors and shareholders of a company which was involved in a VAT carousel fraud. There were 32 circular transactions, which enabled certain Irish companies fraudulently to reclaim £12,662,822 VAT. The judge held that Ds’ benefit was the total amount which had passed through the company’s bank account during the 32 transactions. After adjusting for inflation this amounted to £92,333,667. The Court of Appeal allowed Ds’ appeal and substituted an assessment of benefit in the sum of £12,662,822, subject to adjustment for inflation. Hooper LJ, giving the judgment of the court, stated that large sums of money put up to “prime the pump” in a carousel fraud did not constitute property obtained in connection with the commission of the offence: see paragraph 31.

We now turn to R v Waya [2012] UKSC 51, [2013] 1 AC 294. This is the first case in which the impact of A1P1 on POCA has been fully considered. A panel of nine judges, including the Lord Chief Justice, heard this appeal. In advance of the hearing the court sent a note to the parties indicating that it might consider whether Smith was correctly decided.

In Waya D purchased a flat for £775,000 using £310,000 of his own money and £465,000 provided by a mortgage lender. D obtained the mortgage by making false statements about his employment record and his earnings. D was convicted of obtaining a money transfer by deception. Fortunately the lender suffered no loss, because the flat increased in value and another lender stepped in to replace the original lender.

By the time of the confiscation proceedings the value of the flat was £1.85 million. This was not a case to which the “criminal lifestyle” provisions applied. The judge made a confiscation order in the sum of £1.54 million. He arrived at this sum by deducting the monies originally put up by D from the current market value of the flat. The Court of Appeal reduced the sum confiscated to £1.11 million, which was 60% of the value of the flat. The Supreme Court by a majority of 9:2 reduced the sum confiscated to £392,400. The judgment of the majority was delivered by Lord Walker JSC and Hughes LJ. In broadest outline, the reasoning of the majority judgment was as follows:

The majority judgment contained a review of a number of earlier decisions. In paragraphs 17 and 18 the majority approved the decision in Morgan and Bygrave. They added that in cases where the confiscation order would be wholly disproportionate, the remedy would be to apply A1P1, rather than to strike out the confiscation proceedings as an abuse of process (as suggested in Morgan and Bygrave).

In paragraphs 21, 22 and 26 the majority indicated their agreement with Lord Bingham’s speech in May, including his “Endnote”.

In paragraph 25 the majority stated that in a “criminal lifestyle” case the safeguards built into section 10 (6) of POCA should generally save a confiscation order based on the statutory assumptions from being disproportionate.

In paragraph 26 the majority stated that there could not be an accounting exercise whereby D sets off the costs of committing his crime. They accepted that the confiscation order may remove from D more than his net proceeds of crime. They regarded this as consistent with POCA’s objective and as a proportionate means of achieving the objective.

In paragraph 27 the majority stated that the focus of POCA was upon D’s obtained proceeds of crime, whether retained or not. Then in paragraphs 28 and 29 the majority stated an important qualification to the principles set out above. These paragraphs state:

“28.

The case of a defendant such as was considered in Morgan and Bygrave is, however, a different one. To make a confiscation order in his case, when he has restored to the loser any proceeds of crime which he had ever had, is disproportionate. It would not achieve the statutory objective of removing his proceeds of crime but would simply be an additional financial penalty. That it is consistent with the statutory purpose so to hold is moreover demonstrated by the presence of section 6(6). This subsection removes the duty to make a confiscation order, and converts it into a discretionary power, wherever the loser whose property represents the defendant’s proceeds of crime either has brought, or proposes to bring, civil proceedings to recover his loss. It may be that the presence of section 6(6) is capable of explanation simply as a means of avoiding any obstacle to a civil action brought by the loser, which risk would not arise if repayment has already been made. But it would be unfair and capricious, and thus disproportionate, to distinguish between a defendant whose victim was about to sue him and a defendant who had already repaid. If anything, an order that the same sum be paid again by way of confiscation is more disproportionate in the second case than in the first. Unlike the first defendant, the second has not forced his victim to resort to litigation.

29.

The principle considered above ought to apply equally to other cases where the benefit obtained by the defendant has been wholly restored to the loser. In such a case a confiscation order which requires him to pay the same sum again does not achieve the object of the legislation of removing from the defendant his proceeds of crime, but amounts simply to a further pecuniary penalty – in any ordinary language a fine. It is for that reason disproportionate. If he obtained other benefit, then an order confiscating that is a different matter.”

In paragraph 33 the majority approved the House of Lords’ decision in Smith. They indicated, however, that if HM Revenue and Customs sought double recovery (viz payment of the unpaid excise duty and a confiscation order in the same sum), this would be disproportionate and a breach of A1P1.

Mr David Thomas QC has provided a commentary on Waya in the Criminal Law Review at [2013] Crim LR 256-262. Mr Thomas observes that many earlier decisions must now be in question in the light of Waya. He comments that the decision in Del Basso may be one of the cases which are now open to question. Mr Thomas adds that many of these matters remain to be decided in the future on a case by case basis. Counsel did not refer to this commentary during the hearing. Subsequently, however, we discovered it and invited counsel to send in any written submissions which they may wish to make about the commentary. Both parties duly sent in their written submissions.

We have now considered the reasoning of the majority judgment in Waya, Mr Thomas’ commentary on that judgment and counsel’s submissions both at and after the hearing. Our conclusions as to the status of the pre-Waya cases discussed above are as follows:

Counsel have drawn our attention to three recent Court of Appeal decisions, which post-date Waya. In Axworthy [2012] EWCA Crim 2889 D made a fraudulent insurance claim, asserting that his mother’s car had been stolen. In fact D had hidden the vehicle overseas. The judge made a confiscation order comprising the value of the car and the costs incurred by the insurers in bringing it back to England. The Court of Appeal reduced the sum confiscated so that it comprised only the repatriation costs.

In R v Hursthouse [2013] EWCA Crim 517 D put forward a forged will under which she received the entire estate (rather than half the estate as stipulated in the true will). Although technically D became owner of the entire estate for a period, the truth came to light whilst her solicitors were still dealing with the administration. Thus the deceased’s property was distributed in accordance with the provisions of the genuine will. The Court of Appeal quashed the confiscation order which had been made by the Crown Court judge.

In R v Jawad [2013] EWCA Crim 644 D committed a fraud which caused a loss of £64,086 to Lloyd’s Bank. In confiscation proceedings the “criminal lifestyle” provisions were applied. The judge assessed D’s total benefit at £174,827, which included the sum of £64,086 fraudulently obtained from Lloyd’s Bank. The judge made a confiscation order in the sum of £174,827. He also ordered D to pay compensation of £64,086 to Lloyd’s Bank. The Court of Appeal accepted that it was disproportionate for D to pay the amount of the bank’s loss twice over. The court ordered that, if D paid compensation of £64,086 to the bank within 28 days, the confiscation order would be reduced by that amount.

The three cases cited in paragraphs 65-67 above are helpful illustrations of how the principles stated in Waya are applied in practice. After this review of the authorities, we must now tackle the grounds of appeal in the present case, beginning with the VAT issue.

Mr Boyce submits that the receipts of JHL included VAT which JHL charged to its customers. JHL paid the VAT to HM Revenue and Customs. Accordingly the judge should have subtracted VAT from the turnover, before he proceeded to assess how much of the turnover was attributable to the appellant’s general criminal conduct.

In relation to this ground of appeal, Francis Clark have provided the following information from their records. During the six year period ending 30^th November 2009, JHL received £843,827 VAT from its customers in respect of sales and services provided. During the same period, JHL recouped the VAT which it had paid on purchases. In some quarters JHL made payments of VAT to HM Revenue and Customs. In other quarters JHL claimed repayments. After setting off payments made against re-payments received, the bottom line is that out of £843,827 VAT which JHL collected, it paid over £200,745 to HM Revenue and Customs.

The judge dealt with the VAT issue in a ruling during the course of the confiscation hearing. He noted that what JHL obtained from the provision of services and plant to customers was a total sum, including VAT. If the plant in question was stolen, then JHL acquired the whole of that sum “as a result of or in connection with” its criminal conduct within s.76 (4) of POCA. Relying on Del Basso, he said that the court should focus on the property coming to JHL not what had happened to it afterwards. The judge distinguished James and Blackburn, because in that case the acquisition of property was not the result of or in connection with criminal conduct. The judge also distinguished Ahmad, because in that case the court was concerned with set up costs, not with property obtained.

Mr Boyce submits that the judge fell into error. He should have left out of account the £843,827 VAT which JHL received from its customers. This was money which JHL was obliged to pass on to HM Revenue and Customs. JHL did pass that money on, either by paying VAT on its own purchases or by making quarterly payments to HM Revenue and Customs.

In support of his argument Mr Boyce relied upon section 464 of the Companies Act 2006. This defines, “turnover” as “the amount derived from the provision of goods and services falling within the company’s ordinary activities, after deduction of … value added tax”.

Mr Evans resists this ground of appeal, essentially relying upon the judge’s reasoning. He points out that in Del Basso the VAT which Ds collected formed part of the total receipts which constituted Ds’ benefit: see paragraph 36.

In addressing this issue, it becomes critical to determine whether Del Basso is still good law following the Supreme Court’s decision in Waya. For the reasons set out in paragraph 64 (vi) above, Del Basso is close to the line. Nevertheless the Court of Appeal’s approach in focusing upon money received, not how it was spent, remains valid: see Waya at paragraph 26. On the other hand, when one stands back and looks at all the circumstances of Del Basso, it may be said that the final result was disproportionate.

How would Del Basso be decided if those same facts recurred after Waya?It is difficult to fault the Court of Appeal’s general approach. The court focused upon monies received by the defendants as a result of their breaches of the enforcement notice. The expenses which Ds has incurred in committing their offences should not be deducted. It may be, however, that a court deciding Del Basso today would find some basis for reducing the bottom line figure by reference to A1P1. Whether this speculation is right or wrong, there is nothing in Waya which calls into question the manner in which the Court of Appeal in Del Basso dealt with VAT.

We therefore regard Del Basso as binding authority in relation to the VAT issue and we must apply it. In conducting their business JHL obtained payments from customers to whom they hired out stolen plant or for whom they performed work using stolen plant. The total monies which those customers paid to JHL constituted property which JHL obtained as a result of criminal conduct. JHL then expended those monies in a variety of ways, including payments in respect of VAT, income tax and national insurance. Those monies belonged to JHL until such time as JHL paid them over. JHL did not hold any of those monies on trust for the intended payees. It is repugnant and contrary to the principles stated in May paragraph 48 and Waya paragraph 26 to carry out an accounting exercise in respect of those monies.

In relation to VAT, the way in which JHL dealt with these monies is significant. JHL expended three quarters of the VAT which it collected upon the purchase of goods and services. In doing so, JHL was using the proceeds of criminal conduct to purchase those goods and services. It would be wrong in principle for the appellant to be given credit in respect of the VAT element of these purchases.

As an alternative to allowing £843,827 in respect of VAT, Mr Boyce submits that the court should allow the lesser sum of £200,745. We do not accept this submission. It would be wrong in principle to carry out an accounting exercise in respect of VAT which JHL collected through the use of stolen property. It would be repugnant to say that the appellant is entitled to credit for one quarter of the VAT because that was accounted for by JHL in its quarterly returns to HM Revenue and Customs.

We agree with the judge that both James and Blackburn and Ahmad should be distinguished. The expenses in James and Blackburn and the circulating funds in Ahmad were not property obtained as a result of the criminal conduct. Nor were they sufficiently connected with the criminal conduct.

In the result therefore we dismiss the first ground of appeal and uphold the judge’s decision in respect of VAT.

JHL made use of the stolen items of plant for some years, before the police recovered those items and returned them to the true owners or their insurers.

In view of the fact that the stolen property was ultimately restored, Mr Boyce submits that £314,700 should be deducted from the benefit figure assessed by the judge. The court pointed out during argument that this figure made no allowance for depreciation during the period when JHL was using the stolen property. Mr Boyce accepted this point. He put forward as an alternative the figure of £159,800 as the sum to be deducted. That was the value of the stolen property when recovered by the police.

In support of this ground Mr Boyce relies heavily on the reasoning of the Supreme Court in Waya. He draws particular attention to paragraphs 28 and 29 of the majority judgment, which we have set out in Part 5 above. Mr Boyce also relies upon three decisions since Waya, namely Axworthy, Hursthouse and Jawad.

We shall deal with these authorities in turn, starting with Waya. Paragraphs 28 and 29 of Waya make it clear that in cases of total restoration, the property originally obtained should not be treated as “benefit”. These paragraphs do not, however, address the question of partial restoration.

At first blush it may be thought that Waya was a case of total restoration. After all the victim in that case was repaid in full. Nevertheless the Supreme Court considered that a confiscation order was required, albeit in the reduced sum of £392,400. This was because (a) the property which D had purchased using the dishonestly obtained mortgage had increased in value and (b) V had not benefited from the increase in value.

Axworthy is a more straightforward case. The property which D obtained through his crime, namely the motor car, was restored in good condition to V. Accordingly the Court of Appeal held that the value of the car should be excluded from the assessment of D’s benefit. Likewise Hursthouse is a straightforward case. There was total restoration to V of the property which D had wrongfully obtained. Accordingly the Court of Appeal quashed the confiscation order. Jawad was also a case of total restoration, that being the premise upon which the Court of Appeal reduced the confiscation order. An important feature of Jawad is that if D were to make only partial restoration to V, then the original confiscation order in the full sum of £174,827 would stand. There would be no question of pro rata reduction: see the judgment of Hughes LJ at paragraph 27.

The present appeal raises a different problem from that which arose in Waya, Axworthy, Hursthouse or Jawad. In the present case the appellant and his company used the stolen property for some years before they were caught. When the police recovered the stolen property, it had depreciated in value from £314,700 to £159,800. Obviously some items of plant depreciated more than others, depending upon the date of the theft and the amount of subsequent use. Overall, however, the position is that the stolen property approximately halved in value during the period of the appellant’s dishonest handling.

In our view, this case is best characterised as one of partial restoration. In Morgan both the Crown Court judge and the Court of Appeal held that partial restoration by D did not affect the assessment of the benefit which he obtained: see paragraphs 9, 10 and 36 to 40 of Hughes LJ’s judgment. As noted in Part 5 above, the Supreme Court in Waya approved the decision in Morgan.

A significant difference between Waya and the present case should be noted. In Waya the property which D purchased using the dishonestly obtained mortgage was real property (albeit leasehold, not freehold). This increased in value between the date of D’s offence and the date when he was caught. The present case, however, concerns chattels, not real property. The stolen plant in the present case depreciated in value between the date when the appellant acquired it and the date when he was caught.

Upon consideration of the authorities cited, we come to the following conclusion. If:

The court which assesses benefit is required to focus upon the property which D originally obtained. There is nothing in the wording of POCA which requires the court to deduct the residual value of chattels after prolonged use. Nor does A1P1 require that such a deduction be made. If D steals or otherwise unlawfully obtains someone else’s property and uses it for a number of years thereby materially reducing its value, a confiscation order based upon the original value of that property without any deduction is not disproportionate.

We therefore come to the conclusion that the judge in this case was right not to deduct the residual value of the stolen plant after recovery by the police. We reject the second ground of appeal.

Mr Boyce began his submissions on this ground with a general attack upon the judge’s approach. He submitted that to take 38% of the total turnover was arbitrary and involved the use of too broad a brush. Mr Boyce did not challenge the judge’s findings of fact. Nevertheless, he asked rhetorically why 38% rather than some other percentage?

Our answer to that rhetorical question is that having regard to the statutory assumptions and his findings of fact, the judge was being generous to the appellant. On the date of the police raid some 42% of the plant at the appellant’s premises was found to be stolen. The judge found that the appellant had been using other stolen plant throughout the relevant period. On the basis of the reasoning in Xu and Xu the judge would have been quite entitled to hold that 42% of JHL’s receipts comprised property obtained as a result of criminal conduct. Mr Evans might be right that the court could have taken a higher percentage, but we do not need to go into that aspect.

We therefore reject the general attack on the judge’s approach to assessing benefit.

To be fair to Mr Boyce, he did not dwell for long upon his general attack. He soon focused his submissions under ground 3 on one specific point. This was that the turnover figure for JHL included sums received from sales of plant totalling £578,175. Mr Boyce submitted that all of the plant sold was, or probably was, legitimate. Therefore the sum of £578,175 should have been deducted before the judge applied his chosen percentage of 38%.

In support of this argument Mr Boyce produced a list of plant sales. The sale prices range between £4,112 for the sale of a five ton dumper to £287,500 for the sale of a planer.

We are not persuaded by these submissions. There is no reason to believe that all the plant which JHL sold was legitimate. Much of it was stolen. The judge found that JHL had been using other stolen items of plant in addition to those found on 6^th May 2009. It is striking that in two cases the purchaser is shown on the list as Mr B.T Wood. He is a man whom the judge found to be a dishonest witness.

Mr Boyce makes the point that there are invoices which attest to the plant sales and the transactions are recorded in the company’s books. In our view this does not alter the position. It was the appellant’s practice to falsify documents when advantageous to do so. The fact that plant sales are recorded in the company’s books casts no light on whether the plant was stolen or legitimate.

Mr Boyce may well be correct in saying that the planer, which is the thirteenth item on the list, was not stolen. That, however, is not an answer to the prosecution case. The judge was perfectly correct to treat the proceeds of plant sales collectively as part of the total receipts of the company. Since the corporate veil was pierced, these were also the receipts of the appellant.

Let us now draw the threads together. In our view the basis of assessment adopted by the judge was a proper one. Furthermore the judge was correct to include the proceeds from plant sales as part of the total receipts of the company and therefore of the appellant. Accordingly we dismiss the third ground of appeal.

The judge set the term in default, in the event that the appellant did not pay the sum confiscated, at ten years. Unfortunately the judge was not referred to any of the relevant authorities on this issue.

Mr Boyce now submits that a term of ten years is too long. He relies upon two recent decisions of this court namely R v Whiteway-Wilkinson [2012] EWCA Crim 35 and R v Castillo [2011] EWCA Crim 3173. In Whiteway-Wilkinson there was confiscation order in the sum of £2.1 million. The Court of Appeal substituted a default term of eight years. In Castillo the confiscation order was for £3 million. The Court of Appeal substituted a default term of nine years.

We will not extend this judgment with any detailed analysis of those authorities, even though the judgment in Castillo is replete with learning. We accept the thrust of Mr Boyce’s submissions. The purpose of a term in default is not to impose additional punishment, but to secure compliance with the confiscation order.

The present position is that the appellant has paid about £1 million in respect of the confiscation order. We are told that he plans to sell various properties in order to pay off the balance.

In the light of the authorities mentioned above and the circumstances of the present case, we consider that eight years imprisonment is the proper term in default. Accordingly we shall substitute that term.

For the reasons set out in Parts 6, 7 and 8 above, we uphold the judge’s assessment of the recoverable amount, namely £2,275,454.40.

We do not grant any further time to pay, even if we have jurisdiction to do so in circumstances where we are upholding the confiscation order made by the Crown Court. We see no reason why interest should not accrue as from the latest date for payment under the judge’s order, namely 16^th April 2013.

For the reasons set out in Part 9 above, we reduce the term of imprisonment in default from ten years to eight years. To that extent only we allow the appellant’s appeal.