McDowell & Anor v The Queen

This is a judgment of the court to which each member of the court has contributed. Christopher James McDowell renews his application for leave to appeal against a confiscation order; Harjit Sarana Singh appeals against a confiscation order with the leave of the single judge. Their cases have been listed together because they raise common issues concerning (1) the application of the test “property obtained as a result of or in connection with criminal conduct” in section 76(4) of the Proceeds of Crime Act 2002 (“POCA”), (2) the lifting of the corporate veil and (3) the application of Article 1 First Protocol ECHR (“A1P1”) in the assessment of ‘benefit’ for the purposes of section 6(4) POCA.

The cases have the following features in common:

Each of the appellants appeals against the Crown Court’s finding as to the sum of benefit obtained from his criminal conduct pursuant to section 6(4) and (5)(a) and section 7(1) POCA on the grounds that:

The respondent to the appeal of Singh argues that:

The appellant is an experienced arms dealer. He was the sole director, shareholder and controller of a company called Wellfind Limited (“Wellfind”). On 28 January 2013 at Guildford Crown Court, following a trial before his Honour Judge Critchlow, the Recorder of Guildford, he was convicted upon two counts (counts 5 and 6) of being knowingly concerned in the supply etc. of controlled goods with intent to evade the prohibition thereon, contrary to Article 9(2) of the Trade in Goods (Control) Order 2003. On 31 January 2013 the appellant was sentenced to a suspended sentence order (two years imprisonment suspended for two years) and ordered to pay £10,000 towards the prosecution’s costs. On 23 December 2013 in confiscation proceedings the applicant was found to have obtained benefit in the sum of £2,557,826.30. The available amount was £292,499.60 and a confiscation order was made in the latter sum, to be paid by 23 May 2014 with thirty months imprisonment in default.

Wellfind Limited was appointed agent in the Republic of Ghana on behalf of the China National Aero-Technology Import and Export Corporation (“CATIC”), a manufacturer of aircraft. On 15 June 2005 an agency contract was signed by which Wellfind was to be paid a fee upon sale of CATIC’s aircraft to Ghana. It was Wellfind’s responsibility under the contract to promote the sale of MA60, K-8 and Y-12 aircraft. Wellfind was given authority to agree a purchase price, subject to CATIC approval, and commission was payable in two tranches. A second agency agreement was signed between Wellfind and CATIC on 19 August 2006. The contract provided for the further promotion of K-8 aircraft to Ghana and again specified a commission payment schedule.

The Trade in Goods (Control) Order 2003 SI2765/2003 (“the 2003 Order”) regulates supply etc. of military goods. Its effect is to prohibit the activities of international dealers in military equipment between one overseas country and another. Article 4(2) provides:

“(2)

Subject to the provisions of this Order, no person shall

a)

arrange or negotiate; or

b)

agree to arrange or negotiate,

a contract for the acquisition or disposal of any controlled goods, where that person knows or has reason to believe that such a contract will or may result in the removal of those goods from one third country to another third country.”

Article 4(3) of the Order states;

“(3)

Subject to the provisions of this Order no person shall in return for a fee, commission or other consideration

a)

do any act, or

b)

agree to do any act

calculated to promote the arrangement or negotiation of a contract for the acquisition or disposal of controlled goods, where that person knows or has reason to believe that such a contract will or may result in the removal of those goods from one third country to another third country.”

There is no dispute for present purposes that “controlled goods” included the aircraft, accessories and ammunition the subject of Wellfind’s agency agreements.

Article 4(8) provides an exception to the prohibitions as follows:

“(8)

Nothing in paragraph (1), (2) or (3) shall be taken to prohibit any activities authorised by a licence in writing granted by the Secretary of State under this order or under any other order made under the Act, provided that all conditions attaching to the licence are complied with.

Article 5(1) provides that the Secretary of State may grant a licence authorising any act otherwise prohibited under the Order.

The offence created by Article 9(2) is as follows:

“(2)

Any person knowingly concerned in the supply, delivery, transfer, acquisition or disposal of any restricted or controlled goods with intent to evade any prohibition or restriction in Article 3(1) or 4 shall be guilty of an offence”.

By Article 9(4) a person convicted on indictment is liable to an unlimited fine or to a term of imprisonment not exceeding 10 years or both.

The jury by their verdicts found that the appellant agreed to negotiate and did negotiate the sale of aircraft, accessories and ammunition, being controlled goods, from China to Ghana contrary to Article 9(2). On 30 January 2007 the appellant provided CATIC with his bank details. On 7 February 2007 a payment of $1,214,392.40 was transferred to Wellfind’s Barclays bank account in payment of commission due for the sale of a K-8 jet. On 19 February 2007 the appellant, for the first time with regard to the present transactions, submitted a controlled goods licence application to the Secretary of State. On 7 March 2007 a second payment of $1,124,437.42 was transferred to Wellfind’s Barclays account. On 3 April 2007 the Department of Trade and Industry granted a licence permitting Wellfind to trade in the goods the subject of the application, valid between 3 April 2007 and 3 April 2009; thus, the licence was of current and not retrospective effect. On 4 February 2008 a third payment for $1,298,275.44 was deposited into Wellfind’s account. Finally, on 22 January 2009 the fourth and final payment due to Wellfind of $1,087,177.90 was transferred to its account. It follows that commission earned under the agreements (and therefore from the prohibited activity) totalled $4.7m, approximately half of which was received before a licence was granted and half of which was received after the licence was granted. The judge certified the benefit obtained in the (sterling) sum of the commission receipts, £2,557,826.30, and made a confiscation order in the agreed available amount of £292,499.60.

Mr Giles Bedloe argued that the appellant was convicted of a “regulatory” offence. The underlying trading was lawful but for the absence of a licence. He sought to derive support for the proposition that no benefit had accrued for the purpose of section 76(4) POCA either to the company or to the appellant, by relying on the decision of this court in Sumal and Sons (Properties) Limited v The Crown (London Borough of Newham) [2012] EWCA Crim 1840; [2013] 1 WLR 2078. In the alternative, it was argued that there was no evidence before the judge that Wellfind was incorporated for the purpose of concealing the appellant’s activity or evading his responsibility as its controller. For that reason there was no occasion for lifting the corporate veil for the purpose of attributing to the appellant personally the full sum of commission receipts without reference to the cost of the trading which attracted that commission. In the further alternative, applying the proportionality principle introduced to confiscation proceedings by the decision of the Supreme Court in Waya [2012] UKSC 51; [2013] 1 AC 294, Mr Bedloe argued that it would be disproportionate to order payment of gross receipts for trading otherwise lawful when the actual benefit to the company (and therefore the appellant) was no more than the gross profit of trading. In this regard the appellant sought further support from the decision of this court in Sale [2013] EWCA Crim 1306. Finally, Mr Bedloe submitted that it would be disproportionate to deprive the appellant of commission payments received after the application for or grant of the licence.

Included in the costs of earning the commission received was a payment of £1,959,693.57 to Wellfind’s agent in Ghana. The company’s gross profits for the years in which its commission was received (which it is probable included the profits/losses of some other trading) were:

On 9 February 2012 the appellant appeared before Leicester Magistrates Court where he pleaded guilty to an offence contrary to section 1(1) and (7) of the Scrap Metal Dealers Act 1964. He was committed to the Crown Court for sentence under section 6 of the Powers of Criminal Courts (Sentencing) Act 2000 (which limited the Crown Court to the sentencing powers of the Magistrates Court), and under section 70 POCA for consideration by the Crown Court of the making of a confiscation order. He was sentenced in the Crown Court to a fine of £350.

Section 1(1) of the Scrap Metal Dealers Act 1964 provides:

“(1)

Every local authority shall maintain a register of persons carrying on business in their area as scrap metal dealers; and, after the expiration of three months beginning with the commencement of this Act, no person shall carry on business as a scrap metal dealer in the area of a local authority unless the appropriate particulars relating to him are for the time being entered in the register maintained by the authority under this section.”

It is common ground that any person wishing to carry on business as a scrap metal dealer shall, by section 1(3) of the Act, if he provides the necessary particulars relating to him, be entitled to have his particulars entered in the register (at no cost). The section 1 offence is as follows:

“(7)

Any person who carries on business as a scrap metal dealer in contravention of subsection (1) of this section, or who fails to comply with the requirements of subsection (5) shall be guilty of an offence and liable on summary conviction to a fine [on scale 3].”

The offence of failure to comply with the requirements of subsection (5) is committed if the defendant, whose particulars have been registered, fails to notify the local authority of a material change in the relevant particulars or fails to inform the local authority that he has ceased business. The maximum fine on scale 3 is £1,000.

The charge to which the appellant pleaded guilty in the Magistrates Court was:

“Between 25 June 2009 and 22 August 2011 at Leicester [you] carried on the business of scrap metal dealer…when the appropriate particulars relating to you were not for the time being entered in the register maintained by the said authority under section 1 of the Scrap Metal Dealers Act 1964.”

Following his arrest on or about 22 August 2011 the appellant continued to trade unregistered until 14 March 2012. His receipts during the charge period were £468,912. On arrest the police found £45,700 in cash and stock valued at £7,475. His (unregistered) trading receipts following arrest were £297,737.

On 10 August 2012 His Honour Judge Head found that the appellant had benefited from his criminal conduct, namely carrying on business as a scrap metal dealer without registering the required particulars, for a period in excess of six months. It was therefore a criminal lifestyle offence. The judge found that the appellant was the sole shareholder and director of his trading company, Pro Catalytic Recycling Limited. The company was wholly the creature of the appellant and should therefore be identified with the appellant personally. The judge found that the appellant had benefited in the sum of £965,838.84, being the receipts of the company during the whole period of trading while unregistered. The available amount was £176,218.11 and the judge made a confiscation order in that sum.

Mr Prior, on behalf of the appellant, advances three grounds of appeal. First, he argues that the appellant’s business was lawful but for the absence of registration under section 1 of the 1964 Act; any benefit obtained within the meaning of section 76(4) was obtained through lawful trading and not from the criminal failure to register the business. The POCA regime did not apply to the receipts of such trading by analogy with this court’s decision in Sumal and Sons (Properties) Limited and the decision of Tugendhat J in Director of Assets Recovery Agency v John [2007] EWHC 360 (QB). Secondly, the judge should not have lifted the corporate veil; accordingly, the appellant’s benefit cannot have comprised the gross receipts of the company. Thirdly, the finding of benefit was disproportionate on application of the principles identified by the Supreme Court in Waya and this court in Sale.

Mr Prior provided this court with unauthenticated gross profit figures for trading for the years 2010 and 2011:

It is a feature of both these appeals that the benefit as found by the Crown Court vastly exceeded the amount of the confiscation order. In both cases the sum of the appellant’s available assets was agreed. The question arises: what interest does the appellant have in challenging the benefit decision? There are two answers. The first is that the appellants contend that POCA did not apply at all, so that there should have been no order. Secondly, and alternatively, both these appellants continue to trade, McDowell with the appropriate licences and Singh with the appropriate registration. The prosecutor is entitled to further recovery from the appellants of a sum up to the limit of the benefit figure in a future application made under section 22 POCA.

On the findings of the Crown Court a profit generated by any future trading will be untainted by the criminality considered in the present confiscation proceedings. But the prosecutor may proceed under section 22 POCA to seek from the court a reconsideration of the “available amount”. To the extent that the new calculation produces an amount that exceeds the existing confiscation order, the court may vary the order by substituting for the amount of the confiscation order such sum as it believes to be “just” but does not exceed the amount found as the defendant’s benefit from the conduct concerned (section 22(4)). For these purposes, the benefit figure is not ordinarily reopened. It follows that the Crown Court’s initial assessment engages the correctness and proportionality of the certified benefit sum.

Section 6(5) POCA requires the court to make a confiscation order in “the recoverable amount” which, by section 7(1), is “an amount equal to the defendant’s benefit from the conduct concerned”, unless (section 7(2)) the defendant shows that the “available amount” is less than the benefit, in which case the recoverable amount is the available amount or a nominal amount. The terms of section 6(4)(b) and (c) show that the conduct concerned is either the offender’s “general criminal conduct” (in a ‘criminal lifestyle’ case – see paragraph 25 below) or his “particular criminal conduct”.

By section 76(1)(a) “criminal conduct” is conduct which constitutes an offence in England and Wales or would constitute such an offence if it occurred in England and Wales. By section 76(2) the “general criminal conduct” of the defendant is all his criminal conduct.

Section 6(4) requires the court to decide whether the defendant has “a criminal lifestyle” and, if so, whether he has benefited from his “general criminal conduct”. Section 75(2) provides that a defendant who commits an offence over a period of least six months and has benefited from the conduct which constitutes the offence has a criminal lifestyle for the purpose of the Act. By section 10(1), if the court decides that the defendant has a criminal lifestyle it must make the four statutory assumptions, including (subsection (2)) that any property transferred to the defendant was “obtained” as a result of his general criminal conduct unless, by subsection (6), the assumption is shown to be incorrect or there would be a serious risk of injustice if the assumption was made.

In McDowell’s case the Crown Court assessed benefit obtained from the appellant’s particular criminal conduct. In Singh’s case the Crown Court found that the appellant had a criminal lifestyle and applied the section 10(2) assumption to catch all the appellant’s trading receipts, including those received between 22 August 2011 and 14 March 2012 (paragraph 17 above).

It follows from this analysis that the first step in the assessment of whether the offender has benefited from his criminal conduct must be to identify his criminal conduct, whether general or particular.

Section 76(4) POCA provides that “a person benefits from conduct if he obtains property as a result of or in connection with the conduct”. In both these cases the appellant contends that his receipts were lawfully received. They rely on the obiter dictum of Tugendhat J in Director of Assets Recovery Agency v John [2007] EWHC 360 (QB) to the effect that the underlying trading was lawful and, for that reason, property was not obtained through criminal conduct. In a civil recovery case, section 240 POCA enables the enforcement authority to recover in civil proceedings “property obtained through unlawful conduct”. By section 242 a person obtains property through unlawful conduct “if he obtains property by or in return for the conduct”.

Schedule 4 of the Local Government (Miscellaneous Provisions) Act 1982 created a scheme by which local authorities could designate streets as ‘prohibited’, ‘licence’ or ‘consent’ streets and, on application, grant licences or consents, as appropriate, to permit trading in those streets under conditions set by the local authority. Paragraph 10 of schedule 4 created the following offence:

“(1)

A person who –

...

(b)

engages in street trading in a licence street...without being authorised to do so under this Schedule...

shall be guilty of an offence.”

The defendant had been trading in a ‘licence’ street in Leeds city centre without being authorised under the schedule (for which he was fined £50 for each occasion) and the issue before the judge was whether he had obtained property through his criminal conduct. The argument for the claimant was that the defendant had obtained property by unlicensed trading. The claimant identified the unlicensed trading as the defendant’s criminal conduct. Tugendhat J was referred to the Explanatory Notes to POCA, at paragraph 294, which gave examples of property obtained in return for conduct, such as taking a payment to commit a criminal offence, or taking a bribe, or corruptly awarding a contract. In the judge’s view unlicensed trading was not conduct in return for which the trader received property; he received the property in return for trading in goods. At paragraph 77 Tugendhat J said:

“77.

I do not have to decide the scope of section 242(1). For the purposes of this case it would be sufficient for me to decide (as I would if it were necessary for me to do so) that money received in exchange for goods sold, where the sales are not otherwise unlawful, does not become property obtained by unlawful conduct solely because it is a criminal offence if the sales are conducted without a licence in a place where trading is required to be licensed. I do not by that intend to suggest that unlicensed trading could never give rise to a civil recovery order. Whether it can or not, and if so, in what circumstances, is a point I leave open.”

It was unnecessary for the judge to reach a concluded opinion upon section 242(1) because he had already concluded that the property in the hands of the defendant was arguably the result of dealing in cannabis. However, it was the judge’s preliminary view that the property acquired by the defendant through unlicensed trading was obtained by the selling of the goods rather than through the failure to apply for a licence. The appellants argue that, by a parity of reasoning, the causative link between their criminal conduct and the receipts of their trading was also missing. Their benefit arose not from the criminal conduct of failing to obtain a licence or to register but from lawful trading.

By contrast this court has held that trading in criminal breach of a prohibition is criminal conduct from which benefit may be derived. In del Basso [2010] EWCA Crim 1119; [2011] 1 Cr App R (S) 41 the appellants created and ran a ‘park-and-ride’ business on land in contravention of planning restrictions. An enforcement notice was issued that ordered the appellants to cease the activity but they failed to comply. Subsequently, they pleaded guilty to an offence contrary to section 179 of the Town and Country Planning Act 1990 of failing to comply with an enforcement notice. The court held that the business was an illegal operation whose benefits were represented by its turnover. At paragraph 46, Leveson LJ, delivering the judgment of the court, expressly approved the following passage in the judgment of His Honour Judge Michael Baker QC in the Crown Court:

“… Those who choose to run operations in disregard of planning enforcement requirements are at risk of having the gross receipts of their illegal businesses confiscated. This may greatly exceed their personal profits. In this respect they are in the same position as thieves, fraudsters and drug dealers.”

It followed that the criminal conduct comprised carrying out an activity that was prohibited as a result of or in connection with which benefit was obtained.

In Sumal and Sons (Properties) Limited v London Borough of Newham [2012] EWCA Crim 1840; [2013] 1 WLR 2078 a property company let a dwelling house in contravention of a statutory requirement that the letting should be licensed under the Housing Act 2004. Section 95(1) of the 2004 Act created the following offence:

“(1)

A person commits an offence if he is a person having control of or managing a house which is required to be licensed under this Part (see section 85(1)) but is not so licensed.”

The company pleaded guilty in the Magistrates Court. This court (Davis LJ, Burton and Langstaff JJ) held that although the letting was unlawful the receipt of rent was not. At paragraph 38 the court emphasised (as in DAR v John) that the criminal conduct was the failure to obtain the licence, not the receipt of rent. The statutory scheme made it clear that, although a property was let without a licence, the landlord retained his contractual right to recover the rent from the tenant. Furthermore, the Act contained its own code for the making of a rent recovery order by the tribunal in an appropriate case. Accordingly, the rent did not comprise a benefit for the purpose of section 76 POCA. In common with the court in del Basso the court expressly rejected an argument that there was, necessarily, a difference between a “regulatory offence” and other criminality for the purposes of confiscation. At paragraph 30 Davis LJ, delivering the judgment of the court said:

“30.

As an initial observation, [counsel for the appellant] re-emphasised that the present case involves what he calls a “regulatory offence” – it is not a case of dishonestly obtaining property by dishonest means, such as by the importation of illegal drugs or the importation of alcohol and tobacco without paying the applicable duties (to take two very familiar examples). That may be so. But it cannot of itself answer the question arising. Whether what may be styled a regulatory offence can, when committed, give rise to the availability of a confiscation order will depend on the terms of the statute or regulations creating the offence, read with the terms of the 2002 Act and set in the context of the facts of the case.” [emphasis added]

In our judgment these decisions of the court further demonstrate the importance of identifying the criminal conduct of the offender at the first stage of the assessment. It is not sufficient to treat ‘regulatory’ offences as creating a single category of offence to which POCA is uniformly applied. We respectfully agree with the conclusion of the court in Sumal that the question whether benefit has been obtained from criminal conduct must first depend upon an analysis of the terms of the statute that creates the offence and, by that means, upon an identification of the criminal conduct admitted or proved. It may be that, as in Sumal, the wider statutory context of the offence will assist to answer the critical question: what is the conduct made criminal by the statute – is it the activity itself or is it the failure to register, or obtain a licence for, the activity? In our judgment, there is a narrow but critical distinction to be made between an offence that prohibits and makes criminal the very activity admitted by the offender or proved against him (as in del Basso) and an offence comprised in the failure to obtain a licence to carry out an activity otherwise lawful (as in Sumal).

It is commonplace in confiscation proceedings for the court, when the criminal activity is conducted through a company, to examine the relationship between the individual criminal and the company, whether the company has been charged or not. Issues of attribution and causation of benefit inevitably arise. In Seager and Blatch [2009] EWCA Crim 1303; [2010] 1 WLR 815, this court (Aikens LJ, Hedley and Hickinbottom JJ) examined the question: what was the appellants’ benefit when, contrary to section 13 of the Company Directors Disqualification Act 1986, and having been disqualified, they acted as shadow directors behind companies that paid them a salary? In the Crown Court it had been held that they had benefited by the amount of turnover earned by the companies behind which they stood. The court held that on the facts of the case the Crown Court’s conclusions were wrong in law. The benefit received, if any, comprised sums paid by the companies to the directors. Aikens LJ, delivering the judgment of the court, summarised, at paragraph 76, the circumstances in which the court was entitled to lift the corporate veil:

“76 There was no major disagreement between counsel on the legal principles by reference to which a court is entitled to “pierce” or “rend” or “remove” the “corporate veil”. It is “hornbook” law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders: Salomon v A Salomon and Company Limited [1897] AC 22; referred to by Rose LJ in In Re H (Restraint Order; Realisable Property) [1996] 2 All ER 391, 401. A court can “pierce” the carapace of the corporate identity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not just the form. In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced. First, if an offender attempts to shelter behind a corporate façade or veil, to hide his crime and his benefits from it: see In re H, at page 402, per Rose LJ; Director of Public Prosecutions v Compton [2002] EWCA Civ 1720, paragraphs 44-48, per Simon Browne LJ and R v Grainger [2008] EWCA Crim 2506 at paragraph 15, per Toulson LJ. Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender’s conviction, then “the veil of incorporation has been not so much pierced as rudely torn away”: per Lord Bingham in Jennings v Crown Prosecution Service [2008] AC 104, paragraph 16. Thirdly, where the transaction or business structures constitute a “device”, “cloak” or “sham”, i.e., an attempt to disguise the true nature of the transaction or structure so as to deceive third parties or the courts: R v Dimsey [2000] QB 744, 772, per Laws LJ, applying Snook v London and West Riding Investment Limited [1967] 2 QB 786, 802, per Diplock LJ”.

The court in Seager and Blatch concluded that the criminal activity of the appellants was limited to acting as a director when disqualified. In neither case was the company involved in any unlawful trading activity or prosecuted for participation in any offence contrary to the Company Directors Disqualification Act 1986. It was inappropriate to pierce the corporate veil; the trading turnover of the companies could not be treated as the benefit obtained by the appellants. Merely because a director had control of funds on behalf of a company, it could not be said that he had “obtained” those funds save in his capacity as the company’s employee. We observe that the need to identify the capacity in which a defendant received and handled the proceeds of crime had been emphasised by the court in Sivaraman [2008] EWCA Crim 1736; [2009] 2 Cr App R (S) 399, since approved by the Supreme Court in Ahmed and Fields [2014] UKSC 36; [2014] 3 WLR 23.

In Prest v Petrodel Resources Limited and Others (Prest v Prest) [2013] UKSC 34; [2013] 2 AC 415 the Supreme Court addressed the question to what extent the court was entitled in family proceedings to order the transfer of property whose legal title was held by a company controlled by the husband. The court ordered that the property should be transferred provided that the beneficial interest was held by the husband. That was a route to enforcement that did not depend upon the concept of lifting the corporate veil. In considering the rationale for the practice the court, obiter, approved the analysis of Munby J, as he then was, in Ben Hashem v Al Shayif [2009] 1 FLR 115 at paragraphs 159-164. The six principles identified by Munby J were summarised by Lord Sumption in Prest at paragraph 25 and approved by the court as follows:

“25 … (i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) the court cannot pierce the corporate veil even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) the corporate veil can be pierced only if there is some impropriety; (iv) the impropriety in question must, as Sir Andrew Morritt had said in the Trustor case [2001] 1 WLR 1177, be “linked to the use of the company structure to avoid or conceal liability”; (v) to justify piercing the corporate veil there must be “both control of the company by the wrong doer(s) and impropriety, that is (mis) use of the company by them as a device or façade to conceal their wrongdoing”; and (vi) the company may be a “façade” even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.”

At paragraphs 27 and 28 Lord Sumption reached his own classification of circumstances in which the corporate veil may be lifted or pierced:

“27.

In my view, the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrong doing is well established in the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstance is necessary if the law is not to be disarmed in the face of abuse. I also think that provided the limits are recognised and respected, it is consistent with the general approach of English Law to the problems raised by the use of legal concepts to defeat mandatory rules of law.

28.

The difficulty is to identify what is a relevant wrongdoing. References to a “façade” or “sham” beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the “façade”, but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company’s involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. This may be illustrated by reference to those cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil.”

At paragraph 35 Lord Sumption concluded with the following statement:

“35.

I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. I therefore disagree with the Court of Appeal in VTB Capital v Nutritek [2012] 2 Lloyd’s Rep 313 who suggested otherwise at para 79. For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy.”

We observe that the context for examination of the control of corporate property in Prest was similar to that of criminal confiscation proceedings. The court was enquiring into the ownership of property and the ability of the husband to acquire and dispose of its value. That the legal title was held by the company did not prevent the court making a finding as to the beneficial interest in the property. It was simply not necessary to resort to the veil-lifting device. Examination of true ownership or control of property is the bread and butter of confiscation proceedings, although it is correct to say that judges frequently speak of lifting or piercing the corporate veil when doing so. In Jennings v Crown Prosecution Service [2008] UKHL 29; [2008] AC 1046, the appellant sought the discharge of a restraint order made under section 77(1) of the Criminal Justice Act 1988 in anticipation of confiscation proceedings. The appellant was awaiting trial on a charge of conspiracy to defraud, jointly with others. The conspiracy was described as an advance fee fraud carried out through a company, UK Finance (Europe) Limited, which had been converted for the purpose, having originally been a legitimate business selling second hand cars and arranging finance for purchasers. The appellant’s co-accused, Philips, the sole director and controlling shareholder of the company had pleaded guilty to the fraud. The appellant was neither a director nor a shareholder. He was throughout an employee and received salary and other payments. It was, however, the prosecution case that he too was a prime mover in the conspiracy. It was contended that each of the conspirators had benefited in the sum of the total obtained by the fraud. The appellant contended that he could not have received more than £50,000 comprising his salary, a payment from the company’s loan account and some postal orders that he had cashed.

Here were circumstances in which it was necessary to pierce the corporate veil of the company in order to ascertain the true position. At paragraph 16 Lord Bingham of Cornhill said this:

“In the ordinary way acts done in the name of and on behalf of a limited company are treated in law as the acts of the company, not of the individuals who do them. That is the veil which incorporation confers. But here the acts done by the appellant and his associate Mr Philips in the name of the company have led to the conviction of one and a plea of guilty by the other. Thus the veil of incorporation has been not so much pierced but rudely torn away. The crux of the appellant’s case, moreover, is that the prime mover in the company was Mr Philips, not himself, a case which can only be explored by examining the internal management of the company, an examination inconsistent with the treatment of the relevant acts as those of the company. There is no merit in this point.”

Jennings is powerful authority for the proposition that when a company is manipulated for the purposes of fraud the court will not be restrained by the knowledge that in law the fruits of the fraud were received by the company. The corporate veil will be lifted for the purpose of ascertaining who was in control and who “obtained” the benefit. Jennings was not considered by the Supreme Court in Prest but it seems to us to be a classic example of the concealment principle – the appellant was a mere employee whom the prosecution accused of being a prime mover in a fraud whose modus was to use the company for the conspirators’ criminal activities.

Seagar and Blatch, Jennings and Prest were considered by this court (Treacey LJ, MacDuff and Dingemans JJ) in Sale [2013] EWCA Crim 1306; [2014] 1 WLR 663. The appellant was the sole director and shareholder of a successful engineering company. The company secured additional contracts with Network Rail by bribing its contracts manager. The work was done to a satisfactory standard. It was accepted that the company had not been incorporated or acquired as a vehicle for crime. The issue was: what benefit had been obtained by the appellant from the contracts unlawfully procured? Treacey LJ noted that Jennings had not been cited in Prest. The court treated the use (one might say manipulation) of the company to perform work pursuant to contracts obtained unlawfully as sitting within Lord Sumption’s concealment category. As Treacey LJ put it at paragraph 40:

“40.

We do, however, consider that in the circumstances of this case, the effect of POCA is that this matter falls within the concealment principle. Thus, we accept the prosecutions argument, rather than that put forward by Mr Goose, who himself accepted that the matter was one of fact and degree. In the circumstances of this case, where the defendant was the sole controller of the company, and where there was a very close inter-relationship between the corrupt actions of the defendant and steps taken by the company in advancing those corrupt acts and intentions, the reality is that the activities of both the defendant and the company are so interlinked as to be indivisible. Both entities are acting together in the corruption.

41.

Accordingly, in so far as the company was involved, what it did serve to hide was what the defendant was doing. Although the Supreme Court did not consider R v Seager [2010] 1 WLR 815, there is in our judgment, nothing inconsistent in the approach taken at para 76 of that case with Prest v Prest. It may be that the three situations identified by the court in R v Seager might be prefaced as if the preceding sentence read as follows:

“In the context of criminal cases the courts have identified at least three situations when a benefit obtained by a company is also treated in law by POCA as a benefit obtained by the individual criminal.”

42.

The italicised phrase replaces the words “the corporate veil can be pierced”. It seems to us that the three situations identified in R v Seager do not necessarily involve a piercing of the corporate veil in the normal limited sense of the evasion principle. They appear to be consistent with the operation of the concealment principle. We see no reason why the analysis relevant to criminal confiscation proceedings made at para 76 of R v Seager should not continue to apply in criminal proceedings, subject to an understanding of Prest v Prest.

43.

What is clear to us in this case is that the court is entitled to look to see what were the realities of this defendant’s criminal conduct. We are satisfied that such an exercise, consistent with the objectives of POCA, is to seek to discover the facts which the existence of the corporate structure would otherwise conceal so as properly to identify the defendant’s true benefit.”

Both appellants argue that the sum certified by the Crown Court as benefit obtained from criminal conduct was disproportionate. Article 1 of the first protocol to the ECHR (“A1P1”) states:

“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 the state to enforce such laws as it seems 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.”

The calculation of benefit obtained from criminal conduct is an integral part of the process of assessing the sum of a confiscation order. As we have said (at paragraph 22), it not only represents the ceiling for the confiscation order; it also fixes the sum of benefit for the purpose of further applications by the prosecutor under section 22 of the Act (where the amount of the confiscation order was, under section 7(2), for less than the amount of the benefit). By section 22(2) only the prosecutor or the receiver appointed under section 50 may make an application for reconsideration of the available amount. By subsection (3) the court is required to make a new calculation of the available amount under section 9 of the Act as if the date of the new calculation were the date of a fresh confiscation order. By subsection (4), if the amount found under the new calculation exceeds the amount found at the confiscation hearing, the court may vary the original order by requiring the defendant to pay such amount as “(a) it believes is just but (b) does not exceed the amount found as the defendant’s benefit from the conduct concerned”. It seems to us to be a necessary component of the first POCA hearing that the test of proportionality is applied to the assessment of benefit. If it is not, the justness of a further order under section 22 may be put in doubt.

In Waya [2012] UKSC 51; [2013] 1 AC 294, the Supreme Court discussed the impact of A1P1 in confiscation proceedings. The court’s focus was on the proportionality of the finding of benefit and upon the accurate identification and valuation of the property or interest in property obtained from the defendant’s particular criminal conduct (paragraphs 43-71). The majority (at paragraphs 76-77) adjusted the sum of benefit obtained so that “justice can be done”, while the minority (at paragraph 123) found that it would have been "unjust and disproportionate” to deprive the defendant of the benefit he had obtained (increase in value of real property) by the use of money for which he had paid (by making interest payments).

During their review of the cases the majority drew attention to the decision of the European Court of Human Rights (“ECtHR”) in Jahn v Germany [2006] 42 EHRR 1084 (at paragraph 93). The ECtHR found that there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by any measure depriving a person of his possessions, in respect of which, however, the state enjoys a wide margin of appreciation. At paragraph 16 the majority in Waya found it “plainly possible” to read section 6(5)(b) POCA (the duty to make an order in the “recoverable amount” which by section 7 is, prima facie, the amount of benefit) subject to a requirement that the confiscation order should be proportionate. At paragraph 24 the majority in Waya emphasised that the application of A1P1 did not mean that the judge exercises a general discretion as to what confiscation order would be appropriate. The duty of the court is to fulfil the Parliamentary objective so far as it is proportionate to do so. At paragraph 25 the court observed that the proper application of the section 6(6) savings “ought to mean” that the application of the lifestyle assumptions would not lead to a disproportionate result.

At paragraphs 26 and 27 of Waya, the court pointed out that “the legitimate, and proportionate, confiscation order” may require a defendant to pay the whole sum “obtained by crime” without deduction of “the expenses of crime”. The proceeds were to be recovered from the defendant whether they had been spent or retained and could properly be recovered from legitimately acquired assets. However, the court proceeded to examine the proportionality of double recovery, where the defendant had already returned property or its value to “the loser”. To require the defendant to pay twice for the same wrong would be disproportionate (paragraphs 28-33). The court recognised at paragraph 34 the direction in which the risk of double recovery, and therefore the disproportion of a confiscation order, could take the judge:

“34.

There may be other cases of disproportion analogous to that of goods or money entirely restored to the loser. That will have to be resolved case by case as the need arises. Such a case might include, for example, the defendant who, by deception, induced someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained. He ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration. Counsel’s submissions also touched very lightly on cases of employment obtained by deception, where it may well be that difficult questions of causation may arise, quite apart from any argument based upon disproportion. Those issues were not the subject of argument in this case and must await an appeal in which they directly arise; moreover related issues are understood to be currently before the Strasbourg Court.”

In Paulet [2009] EWCA Crim 288 (Lord Judge CJ, Wyn Williams and Holroyd JJ), the appellant pleaded guilty to offences of obtaining a pecuniary advantage by deception. He had obtained employment by misrepresenting his immigration status in the United Kingdom. His employers gave evidence that had they known the truth they would not have employed him. The appellant had made savings from his salary in a total sum just short of £30,000. A confiscation order in that sum was made. The court found that it was bound by the decision in Carter and Others [2006] EWCA Crim 416 to the effect (in the case of the appellant Denis Lyashkov) that salary earned by employment obtained by false representations was benefit obtained as a result of or in connection with criminal conduct. At a later hearing on 28 July 2009 the court held that the confiscation order made against Mr Paulet did not constitute an abuse of the process of the court. Mr Paulet subsequently made an application to the ECtHR (application number 6219/08, 13 May 2014). He argued that on the facts of his case the order was disproportionate. The source of his earnings was not criminal in the sense that a drug trafficker profited from the supply of drugs or a thief from the proceeds of articles stolen: he had performed work for his employers in return for which he received his earnings. The Fourth Section did not rule on the proportionality of the confiscation order but confirmed the domestic court’s responsibility to apply A1P1 and to determine “whether the requisite balance was maintained in a manner consonant with the applicant’s right to the peaceful enjoyment of his possessions” (see Sporrong and Lönnroth v Sweden 24 October 1986, paragraph 69). The Court of Appeal had carried out a narrow examination as to whether the proceedings constituted an abuse of process or were oppressive but had not considered the fair balance requirement of A1P1. The Fourth Section concluded that there had been, for this reason, a violation of A1P1.

In Sale the court observed that the terms of section 76(4) of POCA were wide enough to capture the whole of the invoices paid by Network Rail in the total sum of about £1.9m. In addition, the appellant had obtained a pecuniary advantage, under section 76(5), of the amount by which his company’s position in the market place had been enhanced by the contracts obtained unlawfully. Before the decision in Waya, no criticism could have been made of a finding of benefit in excess of the company’s profits. Since Waya, however, the order must be proportionate. The expenses incurred in carrying out the contracts were some 90% of the invoice value. Although the case could not be treated as one of full restoration to the loser, the proportionate course would be to assess the benefit as the sum of the gross receipts before taxes “and to treat the full value given under the contract as analogous to full restoration to the loser” (paragraph 56 Sale). The court would also have treated the enhanced value of the company as a benefit had there been evidence on which that benefit could be valued.

In Jawad [2013] EWCA Crim 644; [2013] 1 WLR 3861 the issue was whether double recovery was permitted by means of a compensation order and a confiscation order in a larger sum that included the amount of the compensation ordered. If the appellant paid the compensation and the confiscation order there would be double recovery of the compensation amount - £64,000 odd. The court made an order which provided that if the appellant paid the compensation ordered to the loser the confiscation order would be reduced by the equivalent sum. At paragraph 21 of his judgment on behalf of the court, the then Vice President, Hughes LJ, said:

“21.

Waya requires the court to consider whether a POCA confiscation order is disproportionate. We are satisfied that it generally will be disproportionate if it will require the defendant to pay for a second time money which he has fully restored to the loser. If there is no additional benefit beyond that sum, any POCA confiscation order is likely to be disproportionate. If there is additional benefit, an order which double counts the sum which has been repaid is likely, to that extent to be disproportionate, and an order for the lesser sum which excludes the double counting ought generally to be the right order. But, for the reasons explained above, we do not agree that the mere fact that a compensation order is made for an outstanding sum due to the loser, and thus that that money may be restored, is enough to render disproportionate a POCA confiscation order which includes that sum. What will bring disproportion is the certainty of double payment. If it remains uncertain whether the loser will be repaid, a POCA confiscation order which includes the sum in question will not ordinarily be disproportionate.”

It seems to us that the application of the proportionality assessment requires examination (as in Sale) as to whether the finding of benefit the defendant is liable to repay is a proportionate means of achieving the legitimate objective of depriving him of the proceeds of his criminal conduct. As the court observed in Waya the judge may need to examine both causation under section 76(4) (paragraph 34) and the certainty of double recovery (paragraph 29). With respect, we agree with the approach in Sale: in a case in which the underlying transactions producing the appellant’s receipts are lawful and not criminal, the cost of those transactions to the defendant may, on the grounds of proportionality, properly be treated as consideration given by the appellant for the benefit ‘obtained’. There may be no “loser” as contemplated by the Supreme Court in Waya and by the Vice President in Jawad, but the underlying principle is the same – the defendant has not gained by his conduct to the extent that he has given value for his receipts. Each case must be decided according to its particular facts.

At paragraph 34 above we have emphasised that, as the first step in a POCA assessment, the court needs to identify the offender’s criminal conduct admitted or proved, since it is by this means that the court may judge what property the offender has obtained as a result of or in connection with that conduct.

The appellant McDowell was “knowingly concerned in the supply, delivery, transfer, acquisition or disposal of…controlled goods with intent to evade” the prohibition in Article 4 of the 2003 Order. Contrary to the submission made on behalf of Mr McDowell the underlying transactions were, on analysis, prohibited and unlawful. It is, in our view, not arguable that the appellant did not benefit from his criminal conduct.

Neither is it arguable that, because commission payments were received after a licence was applied for or granted, they did not comprise benefit from criminal conduct under POCA or that their inclusion in the certification of benefit was disproportionate. The commission payments were received as consideration for the prohibited activity and the licence was not retrospective in effect.

We do not consider that it is necessary to lift the corporate veil to ascertain whether and to what extent the appellant has benefited. The appellant did not attempt to hide his trading behind the cloak of his company, Wellfind, or seek to evade responsibility for his criminal acts by interposing the company between himself and those criminal acts. He was, however, the company’s sole controller. As the judge put it he was the alter ego of the company. He used it openly as his trading vehicle in these transactions. We agree with the court in Sale that the Crown Court was entitled to examine the receipts and profits of the company for the purpose of ascertaining the benefit obtained from the criminal conduct of the appellant personally. He was the beneficial owner. The court would be justified in treating the company’s receipts as the appellant’s benefit subject to the issue of proportionality.

The transactions were, we have held, criminal. In our judgment, it was a proportionate pursuit of the legitimate aim to deprive the appellant of his receipts from his criminal conduct without regard to the expenses incurred in performing those transactions (see paragraphs 26 and 27 of Waya). Furthermore, we have summarised at paragraph 14 above the information made available to HH Judge Critchlow in the Crown Court. The appellant did not himself give evidence to explain the circumstances in which he came to make a payment to his agent in Ghana, referred to in the appellant’s section 17 POCA response as his “business partner”; nor was any evidence placed before the judge or this court as to any other ‘expenses’ incurred in performing the illegal transactions. We were informed only that the company’s accounts revealed the gross profit made by the company in consequence of all its trading. In these circumstances, even if, in principle, the court had been prepared to entertain a submission that the appellant’s benefit was for a lesser sum than his receipts, he had manifestly failed to discharge the burden of proof.

We conclude that Mr McDowell’s grounds have no prospect of success and the renewed application is refused.

The appellant Singh was required, by section 1(1) of the Scrap Metal Dealer’s Act 1964, before he carried on business as a scrap metal dealer, to register his particulars with the local authority. The section did not create or define a prohibited activity for which authorisation might be obtained upon application. The appellant was entitled to register his particulars free of cost. The appellant carried on business as a scrap metal dealer without first registering his particulars. Thus, he committed an offence under subsection (7) of carrying on a scrap metal business in breach of subsection (1).

In a fully reasoned judgment of 10 August 2013, for which we are grateful, HH Judge Head observed that the purpose of the provision was to discourage metal theft and handling. We agree that the public interest requires that scrap metal dealing should be accountable, subject to periodical inspection and therefore registered. The judge found that the offence was “a positive act, carrying on business each time he did that from day to day while remaining unregistered...This is an offence committed by a whole series of positive acts... the transactions which comprised carrying on business”. The judge found that the offence was one of trading while unregistered. There was no distinction to be made between a scrap dealer trading while unregistered and a drug dealer receiving money in return for the sale of drugs, except in the seriousness of the forbidden conduct. Every transaction was unlawful.

With respect we disagree with this analysis. We do not accept the submission made by Mr Talbot, on behalf of the respondent, that the appellant’s trading activity was criminal conduct from which benefit accrued. The criminal conduct was the failure to register before carrying on business on each day when business was carried on. There were repeated failures to register but the offence was still comprised in the failure to register. However, the appellant’s trading receipts were obtained as a result of or in connection with trading activity that was lawful in itself and not from the failure to register the particulars of the business that comprised the criminal offence. We derive some support for our identification of the nature of the criminal conduct from the alternative means by which the offence may be committed: failing to notify a change of circumstances in breach of section 1(5). It would be an odd and inconsistent result if one means of committing the offence attracted a POCA benefit finding while the other did not. This is, we recognise, a distinction drawn from a close examination of the terms of the statute that creates the offence, including the words used to define the criminal conduct admitted, but, as we have said, this is an essential first step in the analysis of whether the appellant benefited from his criminal conduct.

The fact that the judge was conditionally obliged to make the section 10(2) POCA assumption in a criminal lifestyle case does not, in our judgment, serve to change the appellant’s position. Since, as a matter of causation, we have concluded that the appellant’s trading receipts were not obtained as a result of or in connection with his failure to register his particulars, we also conclude that section 75(2) served to exclude the criminal lifestyle provisions.

Before we leave this aspect of the appeal we should draw attention to the fact that the Scrap Metal Dealers Act 1964 has since been replaced by the Scrap Metal Dealers Act 2013. The new Act replaces the former system of free registration with a new scheme of licensing. The licensing authority will not issue a licence except to suitable persons. While the legislative history may be of some relevance, the question whether the conduct criminalised under the new provisions is the trading activity or the failure to obtain a licence will have to be resolved when it arises in a future case.

Had we concluded that the appellant’s trading was criminal conduct we would have treated the receipts of the company as the receipts from criminal conduct of the appellant personally, since he also was the sole controller of his trading company. No issue arises in Mr Singh’s case as to the beneficial interest in the company’s assets.

In a further judgment of 13 September 2013 HH Judge Head found that the entire business of the appellant was criminal. The judge did not accept that the application of A1P1 required that any allowance should be given for the costs and expenses of running the business. It was represented to the judge that the benefit figure should be assessed at some 20% of turnover. However, there was no attempt to substantiate the figure by adducing evidence. At the hearing of the appeal Mr Prior advanced figures from unaudited accounts (paragraph 20 above) and proposed an appropriate figure for benefit. The burden was upon the appellant to establish that the benefit figure was less than the appellant’s receipts and the means by which he sought to do so was, it seems to us, completely inadequate.

Had we concluded that the appellant benefited from his criminal conduct we would have posed the question, following Sale, whether, since the underlying trading was lawful, it would be proportionate to seek to recover all the appellant’s receipts without regard to the value provided to customers with whom he traded. In the absence of the necessary evidence we would have been unable to identify what credit should be given for that value.

However, for the reasons we have given at paragraphs 58 – 61 above, we conclude that Mr Singh’s appeal should be allowed and the confiscation order quashed.