Kakkad, R v

This is an appeal brought with the leave of the single judge against a confiscation order made by HHJ Bray at Northampton Crown Court on 25th September 2013. Although this was a lifestyle confiscation case, the judge did not apply the assumptions set out in section 10 of the Proceeds of Crime Act 2002 (POCA). He assessed the value of the benefit from the particular criminal conduct of which the appellant had been convicted, namely conspiracy to supply class A and B drugs at £2,286,472.80 which represented his assessed value of quantities of drugs found in three different locations. He then assessed the recoverable amount at £324,184.53.

The appellant, on the day before the hearing, raised for the first time a jurisdictional point in relation to the confiscation order, based upon the fact that, when the judge sentenced the appellant on 8th March 2011, he also made an order under section 27 Misuse of Drugs Act 1971 for forfeiture and destruction of the drugs seized. The judge set a timetable for the confiscation proceedings under POCA.

The appellant needs permission to amend the grounds of appeal to include this new point. We grant leave because we have had to consider the relevant authorities where there is a conflict and it is desirable to clarify the position.

The submission was made for the appellant that, by reason of the provisions of sections 13, 14 and 15 of POCA, once a forfeiture order is made, there is no jurisdiction to make a confiscation order under that statute. Reliance was placed upon the decision of this Court in R v Lye [2006] EWCA Crim 1347, when this Court quashed a confiscation order made on 17th December 2004 in the following circumstances:

The Court of Appeal disagreed with the judge’s conclusion and referred to section 14(12) which provides that subsection (11) does not apply if, before the court made the confiscation order, it had made an order falling within the terms of section 13(3) of POCA. Section 13(3)(b) refers to an order for forfeiture under section 27 of the Misuse of Drugs Act 1971. Consequently, section 14(11) was of no assistance and it was held that the confiscation order for the cash should not have been made.

What the Court did not there spell out was why the court had no jurisdiction to make the confiscation order and on what basis it might be quashed, although it was obvious that the application had been made out of time.

The position has been more fully considered in subsequent decisions of this Court in R v Donohoe [2007] 1 Cr. App. R. (S) 88 and R v Paivarinta-Taylor [2010] 2 Cr. App. R. (S) 64, in the light of the decision in the House of Lords in Soneji [2006] 1 AC 340 which, in our judgment, conclude the point against the appellant, although the latter two decisions do not relate to POCA but to parallel legislation. In Soneji, the House had to consider the relevant provisions of the Criminal Justice Act 1988, as amended by the Proceeds of Crime Act 1995. It is clear from the terms of the speeches that the House considered that the confiscation provisions imposed a duty on the court to follow the procedure required for making a confiscation order and that the primary issue was not a question of retention of jurisdiction, but whether the duty upon the court had been dissolved (see paragraphs 40, 57 and 80). In the context of POCA, the duty arises under section 6.

Under POCA, confiscation proceedings may precede sentence and if this happens, the court must thereafter sentence without regard to the confiscation order, save that no fine or forfeiture should be ordered without taking account of the confiscation order. Confiscation orders may also be postponed until after sentence but primacy is still given to confiscation (see Soneji paragraphs 35, 36 and 70). Under POCA, section 15(2) provides that the court must not make a forfeiture order until after the court has considered confiscation. The reasons for this appear in paragraphs 35 and 36 of Soneji. Forfeiture orders and fines are to be tailored in the light of any confiscation order made.

However, as held in Soneji in relation to the Criminal Justice Act, nothing in the relevant statute dissolves the court’s duty to make a confiscation order if a fine or forfeiture order has been made prior to confiscation in breach of the provision of the statute. At paragraphs 39, 40, 52 and 70 the House of Lords explained that Parliament did not intend such breaches to dissolve the duty, save in cases of bad faith or prejudice.

Under section 15 of POCA, if the court postpones section 6 Confiscation Proceedings, it may proceed to sentence, as happened in the present case. Under section 15(2) however, the court must not when sentencing the offender in the postponement period, make an order falling within section 13(3), which, as we have said, includes a forfeiture order under the Misuse of Drugs Act. The making of such an order, however, does not deprive the court of jurisdiction to make a later confiscation order, whether by reason of section 14(12) or otherwise.

The overall scheme of the 2002 Act is clear. The court must take account of any confiscation order made before imposing any forfeiture order under the 1971 Act. Under section 13(1) if the court makes a confiscation order, it must proceed in accordance with sub-sections 2 and 4 of that section. Section 13(2) provides that the court must take account of the confiscation order before imposing a fine or making an order of the kind referred to in section 13(3). As McCombe J (as he then was) put it in Donohoe (ibid.):

“The 2002 Act envisages that the machinery under the Act will take precedence in resolving questions of what property will be confiscated. Where a substantive sentence is passed and confiscation postponed, the court is enjoined from making a forfeiture order under other legislation.”

He went on to say:

“There is nothing in the remaining provisions of the Act which say that if the court makes an order in contravention of s.15(2), it may no longer proceed to hear the application for a confiscation order under s.6. What the Act does say in s.14(11) and (12) is that a confiscation order must not be “quashed” on the grounds that (sic- of) the procedural defect or error, except if that error was the imposition of a fine, compensation order, forfeiture order or the like within s.13(3). When the Act speaks of quashing of an order it seems to propose an order has been made and an application is made to quash it, presumably on an appeal. On their face, therefore, these two subsections appear to provide that an appellate court may quash a confiscation order even on procedural grounds if, for example, an order for forfeiture has been made under s.27 of the 1971 Act, before the making of the confiscation order. The subsections do not say directly that the court at first instance cannot make a confiscation order in such circumstances. Are they however saying so indirectly?

It seems to us that these two subsections are allowing the appellate court, if it sees fit, to quash a compensation (sic – confiscation) order on procedural grounds where, for example, there is a danger of double counting or double penalty because the court had made an earlier order of an expropriating nature against a defendant and it should not have done so. The subsections are not imposing a prohibition on the trial court from proceeding with the confiscation proceedings which it has validly postponed. In an appropriate case an appellate court could vary a confiscation under the 2002 Act and exclude from its ambit an asset wrongly made subject to an earlier forfeiture order under the 1971 Act which remains unrevoked. Alternatively, the court could allow an appeal, if necessary, out of time, against the order made erroneously in breach of the prohibition in s.15(2). Further, the court hearing the confiscation proceedings at first instance is entitled and may be obliged to leave out of account assets wrongly made the subject of an earlier order.

We do not consider therefore that either s.15(2), or ss.14(11) and (12) had the effect of depriving the court of jurisdiction to make a confiscation order when there had been a failure to observe the prohibition in s.15(2). None of these provisions state this to be the consequence.”

The point on jurisdiction under POCA is concluded by Donohoe in the light of Soneji as is the position under the Criminal Justice Act, as held in Paivarinta-Taylor, following Soneji.

We turn then to the grounds of appeal which relate to assessment of the benefit to the appellant. Criticism was made of the ruling by the judge on the basis that it was not rigorous in its analysis and failed adequately to state good reasons for the conclusions reached. We see some force in that but consider that the Judge’s reasons for his conclusions sufficiently appear from his findings of fact.

The first issue taken relates to the value of the benefit from the Appellant’s conduct as assessed by the judge under sections 6, 8 and 76 of POCA. Section 76(4) provides that a person benefits from conduct if he obtains property as a result of or in connection with the conduct, whilst section 76(7) provides that if a person benefits from his conduct, his benefit is the value of the property obtained.

The history of the relevant events leading to conviction is as follows.

There was a statement before the judge from Stephen Holme who had expertise in drug distribution and drug valuation. His evidence was that the cocaine which was seized in Ramsgate and at the applicant’s home was of approximately 80% purity and that this would commonly be cut to 8% purity (one tenth of its seized purity) and then be sold retail by street dealers to users. The wholesale value of the seized cocaine at its 80% level of purity was approximately £52,500 per kg. He also gave values for the cannabis and the amphetamine.

The prosecution submitted, the judge found, and we agree, that the unavoidable inference from the evidence, was that the appellant’s home address was the centre for wholesale distribution of cocaine, cannabis and amphetamine which had been imported by him with his co-conspirators. The intention was that the cocaine would be cut with benzococaine by the appellant before being onsold.

The appellant submits that the Maksimov drugs in the lorry seized at Ramsgate were never “property obtained” by him. It is said that the drugs never came into his possession or control. In evidence in the confiscation proceedings, as well as at trial, the appellant denied that he had any knowledge of the existence of the consignment at all. In his judgment, the judge rejected that submission and said:

“I find the defendant was fully aware of the Maksimov drugs. They were being brought to join the other kilos of cocaine already stored at his house and which had similar logos on them. The defendant’s fingerprints were found on items containing drugs both at his own address and at [the Kotecha address] and, after the Maksimov arrest, the defendant visited Holland, together with Ravi Kotecha, in order, as I find, to sort out the supply of cocaine which had been interrupted by the arrest. These drugs found in the Maksimov lorry and the other drugs found at the two addresses were all part of an operation to purchase and import and then to process and distribute large quantities of drugs. The defendant played a substantial part in the operation; as I find, equal to that of the Kotechas; and he was sentenced on that basis. The same arguments are repeated as to the drugs found at [the appellant’s address] and [the Kotechas address] and I reject them for the same reasons.”

Whilst it is true to say that the existence of the conspiracy did not in itself establish that the Maksimov consignment of drugs was “obtained” by the appellant, it was open to the judge to find as he did and that the drugs had been obtained by the appellant within the meaning of the term as explained in R v Ahmad and Fields [2014] 3 WLR 23. The judge was entitled to find that the appellant had a power of disposition or control over the consignment, playing an equal role to that of the Kotechas who were his co-conspirators. Reference should be made to paragraphs 41 and 45-46 of Ahmad in this context. Questions of passing of property in the consignment from any third party supplier were not argued before the Judge because the appellant affected to have no knowledge of the consignment at all, a point upon which he was disbelieved. It was merely said that the consignment was not “attributable” to him. In such circumstances the judge was entitled to conclude that the consignment had been obtained by him.

The second and third issues are interrelated but turn on question of seizure of the drugs by the authorities. Put shortly, it is said that, whether or not the appellant obtained property because he had the requisite power of disposition or control, once the drugs were seized, whether at Ramsgate, the appellant’s premises or that of his co-conspirators, it would be disproportionate to make a confiscation order by reference to their value, because the authorities had taken possession of the drugs and the appellant’s benefit had been extinguished. A confiscation order in such circumstances would not then have the purpose for which the legislation was designed, namely “to deprive the criminal directly or indirectly of what he has gained”, but would have the effect of imposing an additional financial penalty, akin to a fine, which as stated in R v May [2008] 1 AC 1028, should not be the case.

In support of this argument, it was submitted that drug trafficking offences occupy no special place within the confiscation scheme and that, other than triggering the lifestyle provisions where appropriate, the degree of criminality or venality of the underlying offence is irrelevant in considering the effect of the confiscation provisions. Although the confiscation scheme has been described as “draconian” or “punitive”, confiscation is not an additional sentence. The sole purpose is to deprive the offender of his unlawful gain and, where the offender has been deprived by seizure or surrender of property that has been gained, the legislation does not require that he be additionally liable in confiscation for a sum equal to the value of that property. An order made in such circumstances would amount to a financial penalty in circumstances where confiscation is not to operate by way of fine.

The appellant relies upon the Supreme Court decision in R v Waya [2013] 1 AC 294 and in particular upon paragraphs 32 and 33, which include the following:

“An order based … solely on the momentary benefit of obtaining goods that had been restored intact to the true owners, … would be disproportionate and ought not to be made … An order in the same sum again would simply impose an additional financial penalty upon him … A confiscation order in such a case is not compelled by the House of Lords decision in … Smith … although the contrary appears often to be asserted … The House was not, however, considering the case where the criminal property obtained has been restored to its owner undamaged.”

Reliance was also placed upon the decision of this Court in Jawad [2014] 1 Cr. App. R. (S) 16 at paragraph 21 where the effect of Waya was summarised by saying that the court was required to consider whether a POCA confiscation order would be disproportionate. The court said that it would generally be disproportionate if it required the defendant to pay for a second time money which he had fully restored to the loser.

It was submitted that there was no difference in principle between restoration of property to the owner and seizure by the state which often would precede such a restoration.

As matters stand on the authorities, the courts have drawn a distinction between those two situations. Relying on R v Smith (David) [2002] 1 Cr. App. R. 35, which was a pecuniary advantage case of avoidance of excise duty, the prosecution submitted to us that a seizure was an occupational hazard of drug dealing, resulting in a failure to retain, which had nothing to do with the obtaining of property in the first place. Seizure was to be treated in the same manner as drugs being passed on to a co-defendant, stolen by a rival gang or lost during shipment. In all such cases the offender had obtained the drugs and the failure to retain them did not make an order disproportionate. Those other situations are referred to in Smith as being irrelevant to the question of “obtaining” a benefit in the first place.

What is clear in our judgment from the authorities, to which we turn in a moment, is that the question of proportionality is closely tied to the definition of “benefit” and the “obtaining of property” as provided for by sections 6, 8 and 76 of POCA. The statutory language must be given a fair and purposive construction in order to give effect to legislative policy. Where the wording is clear and explained by authority, there can be no gainsaying the submission made by the prosecution.

In R v Islam [2009] 1 AC 706, the Supreme Court considered what was meant by the market value of the goods in section 79 of POCA. In doing so they necessarily considered what was meant by benefit and the ambit of the provisions with which we are here concerned. Lord Mance delivered the leading speech for the majority and approved (paragraph 35) the earlier decision of the House of Lords in Smith where Lord Rodger, in giving the judgment of the House stated at paragraph 23:

“23.

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

Lord Mance rejected the argument that, because the drugs had been seized, the defendant did not receive any benefit. At paragraphs 34-35 he said:

“34.

As to the second argument, heroin may have a black market value when it is imported and obtained, which it will no longer possess when the confiscation order is made. At the latter point, the heroin will commonly have been forfeited by HMRC or be in the hands of other authorities, about to be forfeited and incapable of being realised on any market. The statutory scheme distinguishes between valuations in different contexts and for different purposes. When assessing benefit, the heroin is to be valued by reference to the market value “at the time the person obtained it” (section 80(2)(a) read with section 79(2)), although in an alternative (not relevant on the facts of this case) by reference to the market value (if greater) of any such heroin obtained and still held or traceable into other property at the date of the court’s decision. When assessing the available amount, the market value is taken “at the time the confiscation order is made” of any “free property then held by the defendant” (section 9(1) read with section 79(1) and (2)). Where HMRC have seized goods, forfeiture is automatic, and in that case the goods will no longer be property held by the defendant at the time of the confiscation order within section 84(2): see R v Dore [1997] 2 Cr. App. R. (S) 152, 158, under section 62(5)(a) of the 1994 Act. But, in other cases, the confiscation order will precede any order for forfeiture under section 27 of the Misuse of Drugs Act 1971 (see above). The heroin may then continue in law to be “free property then held by the defendant” at the time of the confiscation order within the meaning of section 84(2), although physically in the possession of the authorities and destined in due course to be the subject of a forfeiture order. In such circumstances, it would however be impossible to regard it as having any market value for the purposes of assessing the available amount; it would not (because it could not) ever be bought or sold on any market.

35.

The assessment under section 80(2)(a) of the benefit consisting of the market value of property obtained looks simply to the objective value of the property if put up for sale on the market. Here, that means (under section 80(2)(a)) at the time when the defendant obtained it, i.e. at the moment of importation. In another case, it might (under section 80(2)(b) and (3)) mean at the date of the confiscation order. In either case, whether the importation is ever going to reach its intended market or the importation going to yield any profit at all would be irrelevant. …”

At paragraph 44 he went on to say:

“…..the statement that “the drugs having been seized, the defendant has received and enjoys no benefit by reason of the drugs themselves” refers, at best, to matters relevant to the exercise of assessing what available property the defendant held at the time of the confiscation order and, at worst, introduces irrelevant considerations into the earlier exercise of assessment of the benefit obtained by his criminality. A defendant may obtain property and, for the statutory purposes, benefit, even though his criminal activities are under close surveillance as a result of which the property he obtains is destined to be and is seized by the authorities. This is illustrated by the House’s decision in R v. Smith (David) [2002] 1 WLR 54 …”

In R v Waya the majority of the Supreme Court appears at paragraph 33 also to approve paragraph 23 of Lord Rodger’s speech in Smith and to distinguish the case where property is restored by an offender to a victim from the case where contraband has been seized by the authorities. Different policy considerations may arise in the different classes of case, regardless of the appellant’s contention that the principle should be no different. Encouragement of restoration to the loser is an obvious policy consideration. What is clear from paragraph 23 of Smith and paragraph 27 of Waya, in line with Islam, is that section 76 is directed to the “obtaining” of property, not the “retaining” of property.

We consider that we are bound by the decisions of the House of Lords and the Supreme Court and that the reasoning in Smith, which it was submitted by the appellant should be consigned to its own result in relation to pecuniary advantage alone, cannot be so restricted. The points made in Waya at paragraphs 32-33 are restricted to the position of goods which are restored to the owner. The position on seizure remains governed by what is said in Smith and Islam.

Proportionality must in any event, in the context of the final order made, be considered in the context of the legislation as a whole. The amount confiscated is limited to the recoverable amount which may cater for this aspect. Under section 7 of POCA, the recoverable amount is the lesser of the defendant’s benefits and the available amount, as calculated in accordance with section 9. Self-evidently, property seized and forfeited would no longer be part of the available amount. Its value would not be part of the value of all the free property held by the appellant, as pointed out in Islam. There is, as that decision makes plain, a clear distinction between assessing the market value of the benefit obtained, on the one hand, and the value of the amount available to the offender, on the other, for the purpose of making a confiscation order.

The last ground put forward in relation to the question of benefit, relates to the value of the cocaine as assessed by the judge. He dealt with the matter shortly in this way:

“The next submission relates to the value of the drugs. The prosecution valuation is based on the wholesale value of the cocaine once it had been cut with benzococaine, large quantities of which were found at the two addresses. The defence seek to argue that the value of the cocaine should be assessed as if it were not diluted and sold on uncut. I accept the prosecution valuation. These drugs were plainly intended to be cut with benzococaine so as to maximise profit, and the value should be assessed as the benefit that would have been obtained on resale in that form. There is no argument, I understand, on the wholesale value of the cannabis or the other smaller amounts. I therefore accept the prosecution figure for benefit in the sum sought.”

The point taken by the appellant is that the judge assessed the value of the cocaine, not in its existing state but at the value which would have been obtained after cutting with benzococaine and that this was unjustified, whether or not the inference that it would have been so cut and sold in the market at a lesser purity was well founded.

Section 79 of POCA provides that for the purpose of deciding the value at any time of property then held by a person, its value is the market value of the property at that time. In R v Islam (ibid.) the majority held, by reference to section 79, that the value of the illegally imported drugs was to be assessed at the time the person obtained it. The majority also held that the market value could be assessed by reference to the black market in which the offender had intended to dispose of the drugs – see Lord Hope at paragraph 17, Baroness Hale at paragraph 25 and Lord Mance at paragraph 35. The difficulty which arises here is that although the judge was entitled to infer (and the inference was overwhelming) that the intention was to dispose of the drug after cutting to reduce its purity in order to increase the profit, that had not been done at the point when the market value fell to be assessed. Processing was required before the increased market value could be obtained.

From the section 16 statement, it appears that 3.154 kgs of benzococaine were available to the appellant which, the judge rightly inferred, would have been used to dilute the cocaine from 80% purity to 40% purity, which was the basis upon which the judge assessed the benefit. There were however 18 kgs of cocaine so that the available benzococaine would not have been sufficient for this purpose. The existing quantities of benzococaine present at the conspirators’ premises were built into the calculations put before the judge but no assessment was made of any additional cost of purchase of benzococaine to match the remaining undiluted cocaine in order to take advantage of the black market price that he assessed. A further 14.846 kg of benzococaine would have been required and which would therefore have to be obtained.

We consider that that the judge was entitled to hold that the market value of the cocaine, to the extent that it was matched by available benzococaine was that which would have been obtained by cutting it with that available benzococaine, because its value could not be seen in isolation from the cutting agent in the hands of the conspirators. Processing was required but would inevitably occur and in such circumstances a wholesale value would be inappropriate. It would fall to be valued alongside and together with the available benzococaine. We do not see however, how that can be said in relation to the 14.846 kgs of cocaine for which there was no matching benzococaine. We are conscious of what is said in paragraph 26 of Waya and 23 of Smith about not treating criminal enterprise expenditure as if it were a legitimate deductible business expense and about the necessity to avoid looking at questions of profit and the like, but the fact remains that the value of the cocaine which was not matched by an equivalent amount of benzococaine in the appellant’s control could not, in our judgment, be properly valued on any basis than its undiluted wholesale form. It could not be given a value alongside matching benzococaine with which it would be mixed.

It is true to say, as the prosecution point out, that the judge, in finding that the 18 kg of cocaine would have been cut with an equal quantity of benzococaine (reducing purity from 80% to 40%) and thus doubling the black market value, did not go the whole hog and find, as he might have, that the cocaine was to be valued at street level, when the evidence showed that at street level purity, cocaine is often found at 8%, which would have resulted in a much increased figure for market value. Proceeding as he did, we consider that he erred in relation to the unmatched cocaine. We do not see how the market value of cocaine unmatched by benzococaine can be assessed in anything other than its undiluted wholesale value.

The effect of this is that, on the undisputed figures put forward in the section 16 statement, the value of the 3.154 kgs of cocaine which were matched by the equivalent quantity of benzococaine was £331,170, whereas the value of the 14.846 kgs which were unmatched was £779,415. The overall benefit therefore, once these figures are taken into account, alongside the other drugs, amounts to £1,106,672.80.

The last ground of appeal relates to the recoverable and available amounts. We can deal with this point shortly. The judge found at paragraph 4F-6G of his judgment that the appellant had lied in evidence to him about the payment of £75,000 to a Mr Kirmira and that there was no good explanation for the whereabouts of over £400,000 spent by the appellant. On the facts, the judge was entitled to conclude that the payments represented assets which the appellant was seeking to conceal and the submission that such a finding was perverse because of the existence of other debts of the appellant at the time the confiscation order was made is not sustainable. In order to ensure that there was no unfairness to the appellant in relation to any of this expenditure, the judge reduced the relevant sum by 25%, even though the appellant had 2 ½ years to produce cheques and other evidence showing the destination of the payments. Thus he arrived at the figure just short of £325,000 to which we have referred, as the recoverable amount.

We find nothing wrong with the judge’s approach on this point.

We conclude therefore that the judge was wrong in his assessment of the value of the cocaine which was unmatched by possession of an equivalent amount of diluting agent and that the benefit figure falls to be reduced accordingly. To that extent and to that extent only, the appeal succeeds. In all other respects we reject the appellant’s submissions.