ON APPEAL FROM Ipswich Crown Court
His Honour Judge Goodin
T20117087
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE PITCHFORD
MR JUSTICE COOKE
and
MRS JUSTICE LANG DBE
Between :
The Crown Prosecution Service | Appellant/Respondent |
- -and - | |
Robert Doran -and- Patrick Gray | 1 st Respondent/Appellant 2 nd Respondent/Appellant |
Martin Evans (instructed by Crown Prosecution Service) for the Appellent/Respondent
David Perry QC and Jonathan Ashley-Norman (instructed by Bivonas Law LLP) for the Respondents/ Appellants
Hearing dates : 24 February 2015
Judgment
Lord Justice Pitchford :
The appeals
On 5 August 2011 at Ipswich Crown Court before His Honour Judge Goodin, the applicants, Robert Doran (now age 49) and Patrick Gray (now age 54), pleaded guilty to an indictment charging them with conspiracy to evade the duty payable on the importation of cigarettes, contrary to section 1 (1) of the Criminal Law Act 1977.
On 24 February 2012, following the trial of co-conspirators, the applicants were sentenced to four and a half years’ imprisonment.
Confiscation proceedings were held under the provisions of the Proceeds of Crime Act 2002 (“POCA”). On 29 July 2013 His Honour Judge Goodin found, under section 6 (4)(c) POCA, that the applicants had obtained “benefit” from their criminal conduct jointly with Paul O’Meara (deceased) in the sum of £4,368,975, comprising excise duty evaded (£3,379,668 updated to current values) and VAT unpaid (£506,950 also updated to current values). The judge apportioned the sum of benefit between the three principals in the conspiracy, the applicants Doran and Gray and the deceased O’Meara. That division produced a benefit figure for each man of £1,456,325.
The judge found, under section 7 POCA, that the “available amount” in the case of the applicant Doran was not less than the benefit figure. Accordingly, in Doran’s case he made a confiscation order for the “recoverable amount” of £1,456,325. In the applicant Gray’s case, the judge found that the available amount was less than the benefit figure and he made a confiscation order against him in the sum of £1,244,982.44.
On 21 August 2013 the Crown Prosecution Service (“CPS”) Proceeds of Crime Unit gave notice of an application pursuant to section 31 POCA for leave to appeal against the judge’s order on the single ground that the judge had been wrong to apportion benefit between the offenders. The single judge granted leave to appeal.
On 2 September 2013 the applicants gave notice of their applications for leave to appeal against the confiscation order made in each case. The single judge referred the applications to the full court. On 9 October 2014 counsel for the applicants submitted revised and perfected grounds. They do not oppose the prosecution’s ground of appeal consequent upon the decision of the Supreme Court in Ahmad and Fields [2014] UKSC 36, [2014] 3WLR 23, but they raised the following grounds of appeal of their own:
The judge was wrong to find that the applicants incurred a liability to pay excise duty and VAT;
On the facts no benefit was “obtained” for the purposes of POCA;
Upon scrutiny of the proposed order in the light of Article 1, First Protocol of the European Convention on Human Rights (“A1P1 ECHR”) the confiscation orders were disproportionate;
The second applicant’s Barbados property assets were over-valued during the assessment of the recoverable amount.
We shall grant leave to appeal against the confiscation orders upon Grounds 1 - 3. This is, accordingly, a judgment upon the merits of the appeal on those grounds and we shall henceforward refer to Doran and Gray as the appellants.
The facts
For the purposes of the appeal the parties are content to treat the prosecution’s case summary for the sentence hearing on 24 February 2012 (appeal bundle tab 3) and the schedule of agreed facts in relation to ground 1 of the appellants’ grounds (appeal bundle tab 10) as the material on which His Honour Judge Goodin was entitled to act in the confiscation proceedings. For present purposes it is necessary only to refer to a bare summary of the facts: The container vessel Sofie Maersk docked at Felixstowe on 9 November 2009. Two containers in its cargo were loaded with “M and J Originals” cigarettes that had been manufactured in Dubai, purchased by the appellants and O’Meara and consigned on their behalf for a journey by sea to the United Kingdom via Hong Kong. In the ship’s manifest and bills of lading the contents of the containers were listed as “toys”. Customs duty that was payable for a consignment of toys was about £10,000; excise duty payable for the cigarettes was £3,379,668 and VAT payable was £506,950.
At 2.21 pm on 9 November 2009 the vessel arrived at the port of Felixstowe. On the afternoon of 10 November both containers were discharged from the vessel. On the quayside an x-ray scanner was used which indicated the presence within the containers of cigarettes. Upon production of the bills of lading on the appellants’ behalf the containers were released. The first container, 898 travelled from Felixstowe to Tilbury whence it was collected and delivered to a warehouse in Upminster acquired by the conspirators for the purpose of onward distribution in smaller loads to Suffolk. The second container, 804, was due for delivery on 13 November. The first container was seized at the Upminster warehouse on 12 November and the second was seized at Tilbury. Had the purpose of the conspiracy been fulfilled the profit to be made on resale of the cigarettes was over £2m.
The particulars of the offence to which the applicants pleaded guilty was as follows:
“ [The applicants] between the 1st July 2009 and 13th November 2009, together with [others], conspired fraudulently to evade the duty chargeable on the importation of a quantity of cigarettes by virtue of the Tobacco Products Duty Act 1979, in contravention of section 170 (2)(a) of the Customs and Excise Act 1979.”
No issue is taken with regard to the calculation (paragraphs 3 and 7 above) of excise duty and VAT payable at the port of entry which formed the basis of the judge’s assessment of benefit.
Liability to pay excise duty
Section 170 (2)(a) of the Customs and Excise Management Act 1979 creates an offence of being in any way knowingly concerned in any fraudulent evasion or attempt at evasion of any duty chargeable on goods. The appellants pleaded guilty to conspiracy to commit the full offence.
Excise duty is due on tobacco products pursuant to section 2 (1) of the Tobacco Products Duty Act 1979 (as amended by the Finance Act 1981, schedule 19, Part III). Section 2 (1) of the 1979 Act provides that tobacco products manufactured in or imported into the United Kingdom are subject to a duty of excise at rates set out in the table contained in schedule 1.
Section 1 (1) of the Finance (No 2) Act 1992 provides the Commissioners of Revenue and Customs (now “HMRC”) with authority to fix an “excise duty point”. The excise duty point determines the moment when duty becomes payable. Section 1 (4) of the 1992 Act provides that the Commissioners may also make a provision:
“(a) Specifying the person or persons on whom the liability to pay duty is to fall at the excise duty point (being the person or persons having the prescribed connection with the goods at that point or at such other time, falling no earlier than when the goods became chargeable with the duty, as may be prescribed)”
The Tobacco Products Regulations 2001 (SI 2001/1712) were made under the powers given by sections 1 and 2 of the Finance (No 2) Act 1992. By regulation 12 (1):
“(1) subject to the provisions of this Regulation, the excise duty point for tobacco products is the time when the tobacco products are charged with duty.”
The time referred to in regulation 12 (1) is, in relation to imported tobacco, the point of importation into the UK. The point of importation by sea is deemed, by section 5 (2)(a) of the Customs and Exercise Management Act 1979, to be the moment when the vessel enters the limits of a port.
Regulation 13 makes provision as to the “person liable to pay the duty”. The relevant parts of regulation 13 are as follows:
“13(1) The person liable to pay the duty is the person holding the tobacco products at the excise duty point.
(2) Any person (not being the person specified in paragraph (1) above) who is described in paragraph (3) below is jointly and severally liable to pay the duty with the person specified in paragraph (1) above.
(3) Paragraph (2) above applies to –
…
(e) Any person who caused the tobacco products to reach an excise duty point.”
The appellants’ plea of guilty to conspiracy did not of itself constitute an admission that the duty had been evaded. Therefore, the first issue for His Honour Judge Goodin’s decision was whether either or both of the appellants were liable to pay duty on the consignment of cigarettes that docked in Felixstowe on 9 November 2009. This question was to be answered by an assessment, on a balance of probabilities, whether, under regulation 13(1) of the 2001 Regulations, the appellants were “holding the tobacco products” when the vessel entered the limits of Felixstowe port or, under regulation 13(2) and (3)(e), they caused the tobacco products to enter the limits of the port. It is common ground that the terms of the enabling section (section 1(4) of the Finance (No 2) Act 1992 – paragraph 13 above) require that the person liable to pay the duty under regulation 13(3)(e) shall be a person having “the prescribed connection with the goods” at the excise duty point.
The meaning of the term “the person holding” tobacco products was considered by this court in Bajwa [2011] EWCA Crim. 1093, [2012] 1WLR 601 (Aikens LJ, Irwin J and His Honour Judge Roberts QC). At paragraph 77 of his judgment delivered on behalf of the court Aikens LJ said:
“77. The first question is whether any defendant was “holding” the counterfeit cigarettes at the time that the vessel entered the port of Felixstowe on 22 September 2004. As the law currently stands, that depends on whether any of them had possession or control of the cigarettes at that point. Obviously none of them was physically in possession of the cigarettes at the time. However, it is elementary commercial law that if a person is the lawful holder of a bill of lading then he has “symbolic” or “constructive” possession of the goods that are identified in the bill of lading, such that he can demand the delivery by the ship owner at the completion of the contractual voyage. We are prepared to assume, without deciding the point, that for the purposes of Regulation [13(1)] of the 2001 Regulations, a person who is the lawful holder of a bill of lading for the goods which he intends to import will be “holding” those goods whether or not he is the consignor or consignee named in the bill of lading.”
The meaning of the term “holding” tobacco products was again considered by this court in Taylor and Wood [2013] EWCA Crim. 1151 (Leveson LJ, Kenneth Parker J and Sir David Clarke). It does not appear that Bajwa was cited to the court in Taylor and Wood which did not consider expressly the status of the holder of a bill of lading. The court concluded that the focus was on the person or persons “who were exercising control over the cigarettes at the excise duty point”. The court found that the appellants had exercised “de facto and legal control over the cigarettes” through innocent agents who were not themselves liable for the duty.
In Bajwa the court also considered the meaning of regulation 13 (2) and (3)(e) and at paragraph 39 noted that:
“The upshot of the decision in Mitchell [2009] 2 Cr App R(S) 463 and White [2010] EWCA Crim. 978, [2010] STC 1965 appears to be that under regulation 13 a person cannot be liable to pay duty on tobacco imported by sea in a ship unless one of two conditions is satisfied. Either he must be “holding” the tobacco at the excise duty point, or he must both have “caused” the tobacco products to reach the excise duty point and he must also have retained connection with the goods at that point … It will be a question of fact in each case whether the person has “caused” the product to reach the excise duty point and whether that person retains a connection with the goods at the point of importation.”
In Taylor and Wood, Kenneth Parker J delivering the judgment of the court, noted at paragraph 23 that the court in White had proceeded upon a concession by the prosecution that the prescribed connection had to be present at the excise duty point. In the view of the court in Taylor and Wood this was not an appropriate concession. Having examined the decision of the House of Lords in Greenalls Management Limited v Customs and Excise Commissioners [2005] UKHL 34, [2005] 1 WLR 1574 the court concluded that provided the defendants were responsible for bringing the goods to the excise duty point it did not matter whether they retained or had ceased their connection with the goods before the excise duty point was reached. Since the court held that, as a matter of fact, the defendants had continued to exercise control over the goods up to and beyond the excise duty point this observation was obiter. Mr Martin Evans on behalf of the respondent in the present appeal did not seek to support this construction of Regulation 13 and, in view of its possible impact upon the issues arising upon ground 1, we should deal with it.
In Greenalls the House of Lords was concerned with the meaning of regulations 4 (2) and 5 (4) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 (also made under the Finance (No 2) Act 1992 and transposing into UK law the effect of Council Directive 92/12/EEC). By section 5 of the Alcoholic Liquor Duties Act 1979 alcohol was chargeable to duty at the point of manufacture. The 1992 Regulations applied to the duty payable in respect of alcoholic liquor. Although under the 1979 Act duty was chargeable at the time of manufacture, the obligation to pay excise duty point could, in respect of goods manufactured in the UK subject to duty suspension arrangements, be postponed.
Regulation 4 of the 1992 Regulations provided alternative tests for identification of the excise duty point for goods in suspension, the earliest of which was to apply. Regulation 4 (2)(a) provided that the excise duty point should be the time when, inter alia, the goods were “otherwise made available for consumption”.
Greenalls permitted a consignment of liquor that been the subject of suspension arrangements to leave their warehouse on the understanding that the goods would be delivered for export. Had the export occurred, the excise duty point would have remained postponed. However, the goods were diverted by unknown persons and the issue was whether, under regulation 5 (4) the authorised warehouse keeper, Greenalls, was liable to pay the duty under regulation 4 (2)(a). The Court of Appeal held, for reasons as to which members of the court differed, that they were not. The power to make regulations was also subject to section 1 (4) of the Finance (No. 2) Act 1992 (paragraph 13 above). Carnwath LJ as he then was, held that if Greenalls were to be treated as liable for the duty under regulations 5 (4) and 4 (2)(e) then the regulations exceeded the power given by section 1 (4). At the time when the goods left their warehouse (the excise duty point) there was no longer a “prescribed connection” with the goods. In the House of Lords this view was rejected by Lord Hoffman, with whom their other Lordships agreed. Since the bracketed words in section 1 (4) made it clear that the prescribed connection had to exist either at the excise duty point or at such at other time no earlier than when the goods became chargeable (i.e. the date of manufacture), no question of ultra vires arose. At paragraph 30 Lord Hoffman concluded:
“30 … In my opinion a warehouse keeper has a connection with goods which leave his warehouse under movement suspension arrangements. The fact that this connection lies in the past when the goods are diverted does not mean that it cannot be prescribed as a ground for liability.”
In Taylor and Wood the court treated Lord Hoffman’s reasoning as contradictory of the concession made by the prosecution in the 2010 appeal of White and held that its construction of regulation 13 should be followed in future cases. With respect to the court in Taylor and Wood we are not persuaded that there is any inconsistency between Greenhalls and White, at least in a case of importation of tobacco products by sea. Section 1 (4) of the 1992 Act requires the Commissioners to specify the person or persons on whom liability to pay duty is to fall at the excise duty point. That must be the person who has the prescribed connection with the goods either at that point or at such other time which must not itself be earlier than the time when the goods become chargeable with the duty. In the case of tobacco products delivered by sea the time when the goods become chargeable is the same time as the excise duty point, namely when the vessel enters the limits of a port in the United Kingdom. In that event the connection must exist at the time when the vessel enters port. We cannot concur with the observation made by Kenneth Parker J at paragraph 33 of his judgment that “it would not have mattered if their involvement with the goods had ceased by the time that the cigarettes had reached the excise duty point”. We consider, in agreement with the court in Bajwa, that the prosecution must establish either (i) that the defendant was the holder of the goods at the excise duty point or (ii) that the appellants caused the goods to reach the excise duty point and that their connection with the goods was retained when the excise duty point was reached.
Regulation 13 was also considered in the Northern Ireland appeal to the Supreme Court of Mackle & Others [2014] UKSC 5, [2014] 2 WLR 267. White and Bajwa were both cited to the Supreme Court, while Taylor and Wood and Greenalls were not. The view of the Supreme Court as to the meaning of regulation 13(3)(e) is encapsulated in the judgment of Lord Kerr of Tonaghmore JSC at paragraph 32:
“32 … In this connection it should be noted that the Court of Appeal in White held (correctly in my view) that Regulation 13 (3)(e) must be interpreted in conformity with section 1 (4) of the Finance (No 2) Act 1992, so that a person who has caused the tobacco products to reach an excise duty point is not liable for the duty unless he has retained a connection with the goods at the excise duty point. As Aikens LJ said in R v Bajwa [2012] 1 WLR 602, para. 39, the “upshot” of the relevant decisions on Regulation 13 is that a person cannot be liable to pay duty on tobacco imported by sea in a ship unless one of two conditions is satisfied. Either he must be “holding” the tobacco at the excise duty point, or he must have both “caused” the tobacco products to reach the excise duty point and he must also have retained a connection with the goods at that point.”
For present purposes the definitive, if obiter, approval by the Supreme Court of the decisions in White and Bajwa puts the issue beyond doubt.
Liability to pay VAT
It is common ground that the liability to pay VAT is for present purposes co-terminous with the liability to pay excise duty. Section 1 (1) of the Value Added Tax Act 1994 provides that VAT shall be charged on the importation of goods from outside the European Union. By sections 1 (1)(c), (4) and 6(1) of the 1994 Act the VAT is charged and payable as if it was a duty of customs.
Ground 1: no liability for excise duty or VAT
The prosecution case was, and the judge found, that the benefit obtained by the appellants comprised the excise duty and VAT evaded. By section 76 POCA:
“(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.”
In Smith (David) [2001] UKHL 68, [2002] 1 WLR 54, the House of Lords held that an evasion of payment of excise duty constituted a pecuniary advantage for the purposes of the materially identical provisions in section 71 (4) and (5) of the Criminal Justice Act 1988. Lord Roger, with whose speech their Lordships agreed, summarised the effect of these provisions as follows, at paragraph 21:
“By treating persons who derive a pecuniary advantage as persons who have obtained property, Parliament had indicated that, for the purpose of confiscation orders, the same approach is to be applied to both types of offender.”
The fact that the goods themselves may have been seized or destroyed so as to deprive the offender of their value (thus frustrating the conspirators’ attempt to realise their profit) has no effect upon the pecuniary advantage already obtained through the evasion of liability to pay the duty.
For the purposes of Ground 1 it is unnecessary for the appellants the challenge the correctness of the decision of the House of Lords in Smith (David). The appellants contend that no pecuniary advantage was obtained because no liability for duty arose under the Tobacco Products Duty Act 1979 and the 2001 regulations.
The appellants rely on the admission made by the prosecution that intelligence was received by the relevant authorities at the end of October 2009 that a consignment of contraband cigarettes loaded in two containers was due to dock at Felixstowe on 9 November 2009. When the Sophie Maersk docked at 2.21pm on that day O’Meara was already under surveillance. The indicative presence of cigarettes in the containers was revealed by the scanning exercise performed on the quayside. The appellants contend that this was in effect a controlled delivery in respect of which they had lost control of the goods to officers of HMRC. At the moment the vessel entered port it was no longer possible for the appellants to achieve the purpose of the conspiracy. The appellants rely on the court’s conclusion in Bajwa by way of comparison and analogy.
In Bajwa the prosecution failed to establish that the appellants were in actual or constructive possession of the tobacco products at the time they reached the excise duty point (see paragraphs 78 and 79 of Bajwa). They were not in physical possession and they were not in constructive possession by means of the bills of lading. One of the bills of lading had undoubtedly been seized by HMRC eight days before the vessel entered port on 21 September 2004 and there was no evidence as to who was in possession of the other two. The court found that the appellants had caused the goods to reach the duty point (paragraph 84) but by 14 September 2004 all of the appellants had been arrested, seven days before the vessel entered port. The court concluded (at paragraph 87) that the inference was obvious: the appellants had abandoned any connection they had with the cigarettes by 21 September 2004. The prosecution could not establish that the conspirators had retained any connection with the tobacco products at the moment they passed the duty point.
The appellants also seek to make a comparison with the facts in Olubitan [2003] EWCA Crim. 2940, [2004] 2 Cr App R S (14). A company that had been defrauded by dishonest orders for computer parts and mobile telephones, upon receiving a further order, arranged a dummy consignment for delivery in order that the police could follow the goods and make arrests. The defendant received the dummy consignment and subsequently pleaded guilty to an offence of conspiracy on the basis that he had joined solely in order to receive the final consignment. The court held that the defendant could not be found to have obtained a pecuniary advantage in respect of a delivery that did not in fact take place because it was a dummy. May LJ at paragraph 25 of his judgment given on behalf of the court concluded:
“25… In many cases, an equal division of the benefit which the conspirators as a whole obtained between the defendants before the court may constitute a fair and reasonable inference. But in our judgment, the section [section 71 (1A) and (5) of the Criminal Justice Act 1988] is not to be construed so that a person may be held to have obtained property or derived a pecuniary advantage when the proper view of the evidence demonstrates that he has not in fact done so. … As we have indicated, in the present case the proper finding of fact in the evidence was that the appellant had obtained nothing from his participation in this conspiracy. …”
In our judgment, the appellants can derive no comfort from either of these decisions. The respondent correctly argues that Bajwa is readily distinguishable. First, there was no seizure of the bills of lading for these two containers. They were held by the conspirators’ agent, Terry Bonner, the Notify Party, until surrendered to the shippers on 12 November to secure the release of the containers. There had been no intervention by HMRC; they merely kept the consignment under observation until it entered port. The bills of lading constituted, through their agents, the conspirators’ evidence of title that they used to take physical possession of the containers three days after the vessel docked.
Secondly, the inference of abandonment drawn by the court in Bajwa was not available on the present facts. O’Meara was kept under surveillance between 9 and 12 November but the surveillance was covert and the conspirators were unaware of it. While the containers were located on board and surveillance continued HMRC simply watched the development of the conspiracy. In our judgment the conspirators remained in possession or control of the containers until HMRC intervened on 12 November. The conspirators were actively pursuing their common purpose well after the moment the containers had been released into their possession. Furthermore, this was a consignment of a cargo of cigarettes, not a dummy replacement for cigarettes.
Mr Perry QC did not seek to challenge the respondent’s argument that the appellants qualified on the facts as holders of the tobacco products within the meaning of regulation 13 (1) through their legal entitlement to the bills of lading, although this was not the basis upon which the judge reached his decision. Mr Perry’s argument was that the prosecution had been unable to establish the “prescribed” connection (section 1 (4) of the Finance (No. 2) Act 1992) between the appellants and the goods at the excise duty point. In his ruling on 22 March 2013 the judge, who heard the evidence in the trial of other conspirators, found that the appellants were the financial backers of the conspiracy. It was undeniable and, it seemed to the judge, accepted, that both men had a hand in causing the cigarettes to reach the duty point and retained a real interest in and connection to the smuggled goods. The appellants had proceeded without knowledge that the consignment was under suspicion. For that reason preparations were advanced for the receipt of the consignment in Upminster for onward delivery to the distribution centre in Suffolk. Mr Perry submitted that, objectively viewed, this was an importation that was doomed. The appropriate conclusion was that, unknown to them, the appellants had relinquished control and therefore connection with the goods that, admittedly, they had caused to reach the duty point.
We concur with the views of the court in Olubitan and Bajwa that the question whether the defendants obtained property (or a pecuniary advantage and therefore property) is, in the first instance, one of fact.
In our judgment His Honour Judge Goodin was entitled to reach the decision he did. Merely because the consignment was under suspicion and a surveillance operation had been mounted does not, in our view, result in a disconnection between the goods and the appellants for the purpose of regulation 13 of the 2001 Order. It is clear that HMRC were monitoring the import but they were not controlling it. Furthermore, it is our view that the judge would have been entitled to find that the appellants were “holding” the goods within the meaning of regulation 13(1) and, by that means, retained their connection at the excise duty point. Despite the cautious approach of the court in Bajwa (paragraph 78) we are not discouraged from this view by the fact that the bills of lading referred to toys rather than cigarettes. As we understand it, there was no issue between the CPS and the appellants at the confiscation hearing that the bills related to containers that to their knowledge were loaded with cigarettes, nor that the bills entitled them to possession of those containers. We accept that a person cannot be holding the goods if he has relinquished his connection with or control over them. However, on the evidence it seems to us that the appellants had done nothing to relinquish their connection with or their control over the goods for the purpose of regulation 13, notwithstanding the probability that HMRC would intercept them before they were placed for resale.
The facts of this case are materially similar to those of Smith (David). On two occasions customs officers had watched while unlawful consignments of cigarettes were run from Heligoland to Goole via the North Sea and the River Ouse. They boarded only after the vessel had docked at the completion of the second voyage. As Lord Mance observed in Islam [2009] UKHL 30, [2009] 1 AC 1076 at paragraph 44;
“The defendant was held to have benefited in the amount of duty evaded, although he was, at all times unbeknown to him, under customs surveillance and the cigarettes were duly seized and forfeited before he could realise any of them.”
We recognise that an important distinguishing feature in Smith (David) to which Lord Bingham drew attention in May [2008] UKHL 28, [2008] 1 AC 1028, at paragraph 18, is that the evasion of the obligation to pay excise duty was established by the defendant’s plea of guilty. In the present case the appellants pleaded guilty not to the completed offence but to conspiracy. Nonetheless, it seems to us that there was ample evidence upon which the judge could hold, as he did, that the appellants caused the tobacco products to pass the duty point while retaining a significant connection with those goods.
Ground 2: no benefit obtained
In their second ground of appeal the appellants argued that the “orthodoxy” of Smith (David) may be open to challenge on the basis that, as the Supreme Court observed in Waya [2012] UKSC 51 [2013] 1 AC 294, at paragraph 33:
“The true analysis of tax or excise avoidance does not arise in this appeal and ought to await full argument when it does.”
Mr Perry QC acknowledges that this court is bound by the decision in Smith (David). In deference to his argument we will state it shortly.
Ground 2 proceeds on the assumption that the judge rightly held that the appellants evaded the excise duty and VAT payable in respect of the tobacco products. The appellants contend that the reasoning of the Court of Appeal in Smith (David) [David Cadman Smith] [2001] 1 Cr App R (S) 2010 is arguably to be preferred when the assessment of benefit from criminal conduct is viewed through the lens of proportionality. Giving judgment on behalf of the court in the Court of Appeal, Burton J had referred to the reasoning of Laws LJ in Dimsey and Allen [2000] 1 Cr App R (S) 497. Dimsey and Allen concerned a tax fraud. By concealing his assets in offshore companies the appellant had evaded his liability for over £4 million in tax. The court reasoned that during the period of his evasion the appellant had the use of the money for which he should have accounted to the Revenue. He evaded, and therefore deferred, liability constituting a pecuniary advantage within the ordinary meaning of that term. At paragraph 31 Burton J continued:
“31. It appears to us that the position in this case is very different. It is true to say that the liability for duty on the cigarettes was incurred, in the light of our conclusion, and was evaded, and indeed is still due because, although the cigarettes themselves were forfeited, the appellant remains liable to the duty on those forfeited cigarettes. But there was, and is, in the view of this court no benefit to the appellant as a result of that deferment. He has never had or sold on the cigarettes; he has not retained the sum from which he could be said to have benefited and indeed he now remains liable for the duty. In so far as he has not paid over a sum to the Customs and Excise as yet (for which he remains liable), it is, in the view of this court, difficult to say that there has been a benefit in connection with the commission of the offence, and the unpaid duty certainly could not be said, as Laws LJ so persuasively said in Dimsey & Allen in relation to the monies that the appellant retained, to have been the proceeds of the offence.
32. In those circumstances, we are satisfied that the position is that if the cigarettes had been retained by the appellant, then the duty payable would have been part of the profit that he made as a result of selling on the cigarettes. Given that the cigarettes were immediately forfeited, there remains the liability for duty, but the liability which remains can neither be said to be the proceeds of the crime nor indeed a benefit which arises to him in connection with the commission of the crime.”
It was this analysis that, in a well known passage at paragraphs 17 – 19 of Lord Rogers’ speech in Smith (David), was comprehensively rejected. There is, it is clear, a conceptual gulf between the two approaches to section 76 (5) POCA. The House of Lords held that if the defendant derives a pecuniary advantage in consequence of the evasion of a debt, even a fleeting advantage, then, by section 76 (5) he is to be treated as having received that pecuniary advantage as property valued at the sum of the debt deferred. Only if the value of that advantage is treated, as Mr Perry QC put it, as illusory, and therefore valueless, does it seem that the gulf can be bridged. Mr Perry submits that, properly viewed, the pecuniary advantage obtained by a criminal who evades a liability to pay excise duty but whose goods are seized has no “value” within the meaning of section 76 (5) because it is worth nothing. He has simply acquired an obligation to pay a debt. There may, on Mr Perry’s analysis, be a distinction to be drawn between non-payment of an excise duty and a failure to declare income on which tax is payable, but it is a fine one and in view of the parties’ mutual concession we do not consider it profitable to embark on a consideration of it.
We accept the approach of the parties that we are bound by Smith (David) in the House of Lords and must therefore reject this ground.
Ground 3: proportionality
The judge in his ruling concluded:
“It cannot in my judgment be disproportionate for those who are deemed to have obtained that advantage as a matter of law to be required to pay it.”
The appellants argue that in so concluding the judge failed to confront the A1P1 issue which is whether the confiscation order based on the benefit so assessed was a proportionate means of securing the legitimate aim of depriving the criminal of benefit from his criminal conduct.
Mr Perry drew our attention to paragraphs 21 and 22 of the judgments of the majority in Waya, with which all their Lordships agreed:
“21 … It is not to be doubted that this severe regime goes further than the schoolboy concept of confiscation, as Lord Bingham explained in R v May [2008] AC 1028. Nor is it to be doubted that the severity of the regime will have a deterrent effect on at least some would-be criminals. It does not, however, follow that its deterrent qualities represent the essence (or the “grain”) of the legislation. They are, no doubt, an incident of it, but they are not its essence. Its essence, and its frequently declared purpose, is to remove from criminals the pecuniary proceeds of their crime. Just one example of such declarations is afforded by the Explanatory Notes to the statute (paragraph 4):
“The purpose of confiscation proceedings is to recover the financial benefit that the offender has obtained from his criminal conduct.”
22. A confiscation order must therefore bear a proportionate relationship to this purpose. Lord Bingham recognised this in his seminal speech in R v May, in adding to his “End note” or overview of the regime, at paragraph 48, two balancing propositions:
“The legislation …. does not provide for confiscation in the sense understood by school children and others, but nor does it operate by way of fine.” ”
There is, we recognise, an attraction to the appellants’ argument. They obtained nothing but a debt to the state. The alternative view is that they invested a large sum of money in a criminal enterprise from which they hoped to profit to the tune of £2 million or more by evading their liability to pay duty on smuggled goods. They went to elaborate lengths to evade the excise duty and VAT payable on the importation in order to realise that profit. They were unsuccessful but in the process evaded (at the excise duty point) liability to pay some £4.37 million to the Revenue. It is not in doubt, on current authority, that the appellants acquired a pecuniary advantage whose value is to be treated as the amount of the debt that was deferred. As the law stands this is not a case in which double recovery is possible. HMRC will not levy its own penalty upon the appellants while the court pursues recovery in confiscation proceedings. It does seem to us unsatisfactory that the issue of proportionality should be decided upon the decision of the state not to pursue alternative means of recovery. However, provided this remains the position it is argued on behalf of the respondent that there is nothing excessive about requiring the criminal to disgorge the amount of the debt criminally evaded. That the goods themselves were seized is irrelevant for the reasons given by the House of Lords in Smith (David).
It seems to this court that the issue whether the confiscation orders were proportionate is closely bound to the question whether the value of the pecuniary advantage obtained was the face value of the debt incurred. If it was not, then no question of proportionality arises. If it was, then provided there is no risk of double recovery by HMRC a confiscation order in the amount of the pecuniary advantage obtained is, we think, a proportionate means of ensuring that the appellants do not gain from their criminal conduct. We consider ourselves bound to reject Ground 3 for the reason we have given in respect of Ground 2.
Conclusion
We therefore dismiss the appeals upon Grounds 1, 2 and 3. For good pragmatic reasons, at the request of the parties we adjourn generally consideration of the application in respect of Ground 4 in respect of Patrick Gray.
The prosecution appeal
It is common ground between the parties that in the light of our decision the judge’s order apportioning the benefit between the appellants and Paul O’Meara should be quashed. Therefore, we shall substitute a benefit figure in respect of each appellant in the sum of £4,368,975. We shall substitute in the case of the appellant Doran a confiscation order in the same sum. In the case of the appellant Gray, it not being contested that his realisable assets are now reduced, we will substitute a confiscation order in the sum of £148,107.44. In each case our order will be subject to re-listing of the renewed application in respect of Ground 4. We shall need assistance as to terms on which the parties should be put as to the date for re-listing. Finally, in compliance with the decision of the Supreme Court in Ahmad and Fields we shall add a rider to our order to the effect that the prosecution may not enforce these orders against the appellants in a way that constitutes double recovery of the benefit we have certified.