Cole, R. v

On 14 March 2008 in the Crown Court sitting at Isleworth the appellant pleaded guilty to a count of concealing criminal property, two counts of false accounting, a count of converting criminal property and a further charge of possession of a class A drug (heroin).

On 22 August 2008, he was sentenced to an overall term of 6 years’ imprisonment. A warrant to search a flat belonging to the appellant at Fauconberg Court in London W4 had been executed on 23 March 2007. During the course of this search £93,930 in cash was found under a bed and a further £580 in cash on the appellant. These items of cash, with a Cartier watch and a small amount of heroin, were seized.

A financial investigation was begun, which revealed that the flat at Fauconberg Court and another flat at Blenholme Court in Hampton had been purchased on the basis of false information. This discovery formed the basis of the charges and pleas to the two counts of false accounting, the count of concealing the cash which was criminal property and the count of converting cash that was paid into the appellant’s bank account which was also criminal property.

On 26 March 2009 a confiscation order (‘the 2009 Order’) was made under the Proceeds of Crime Act 2002 (‘POCA 2002’).

The 2009 Order was agreed between the parties on the following basis. The benefit figure was £575,000 which included the entire value of the fraudulent mortgage advances of £377,000 that had been used to buy the flats, as well as a number of high value cars. The available amount was £55,000. This represented the value of the Cartier watch (£2,000), the net equity in Fauconberg Court (£45,000) and the net equity in Blenholme Court (£8,000).

A confiscation order was made in the sum of £55,000 to be paid within 6 months, with a term of 6 months imprisonment in default.

It appears to have been envisaged that the properties would be sold to raise the sum due. In fact, the sum of £55,000 was paid in two tranches on 17 and 25 April 2009, not by the appellant, but by his mother and an associate.

In December 2013, a police surveillance operation led to the prosecution of the appellant and another man, Marlon Dunbar for drug and related offences. They were arrested on 13 December, shortly after the appellant got into Dunbar’s car. In a bag behind the driver’s seat the police discovered just under 1kg of heroin. The appellant was in possession of another bag containing £32,510 in cash.

The appellant was still living in the flat at Fauconberg Court and this was searched on the same day. The police found and seized £18,800 in cash.

On 9 September 2014, he pleaded guilty to offences of conspiracy to supply Class A drugs and entering into an arrangement to transfer criminal property (the cash); and, on 26 November 2014, he was sentenced to two concurrent terms of 5 years and 4 months imprisonment.

On 18 May 2017 argument in the resulting confiscation proceedings was heard by HHJ Griffith (‘the Judge’) at the Crown Court at Southwark. There were two aspects of the prosecution application: an application under s.22 of POCA 2002 to recalculate the available amount in respect of the 2009 Order and a confiscation application in relation to the 2014 offences.

In a ruling made on 8 June 2017, the Judge decided on the s.22 application that there was a further £471,547 of assets (in addition to the £55,000 already paid), which was available in respect of the assessed benefit of £575,000. This was made up of (i) £271,486 in respect of the equity in the flat at Fauconberg Court, (ii) £181,261 in respect of the equity in the flat at Blenholme Court, and (iii) £18,800 of cash seized.

Following this ruling, the Judge heard evidence and further legal argument in relation to the 2014 offences.

In a ruling of 23 June 2017, the Judge decided that there was a benefit of £222,091 made up of (i) rent received in respect of the properties at Fauconberg Court and Blenholme Court: £68,200 (ii) cash deposits in the appellant’s accounts: £102,581 and (iii) cash recovered from the appellant’s property on the day of his arrest: £18,800. The cash which had been brought to pay for the heroin (£32,510) was the subject of POCA proceedings against Dunbar and this was assessed as an asset of Dunbar. Accordingly, the Judge directed that it could not be recovered against the appellant.

In the light of his previous ruling on the s.22 application, the Judge gave effect to the common ground that there were no available assets. He therefore made a notional confiscation order in the sum of £1.

The appellant appeals against the ruling on the s.22 application with the leave of the Single Judge. The Single Judge refused leave to reopen the original 2009 Order (for which the appellant would have required an extension of time of 3,002 days) and also refused leave to appeal against the 23 June 2017 Confiscation Order in respect of the 2014 offences.

We start with the out of time application in relation to the 2009 order.

Mr Furlong submitted on behalf of the appellant, that the decision in R v. Waya [2014] 1 AC 294, materially transformed the law, so as to change the court’s approach to confiscation in cases of mortgage fraud. This changed approach required the Court to reappraise the 2009 Order.

We agree with the first proposition; but like Judge Griffith and the Single Judge we do not accept the second.

The first element of the decision in Waya was that, in limited circumstances, POCA 2002, as it was drafted at the time, was capable of leading to disproportionate results which breached article 1/protocol 1 of the European Convention on Human Rights. This part of the decision led to the amendment of s.6(5)(b) of POCA 2002 so that a confiscation order should only be made:

… if, or to the extent that, it would not be disproportionate to require the defendant to pay the recoverable amount.

The second element was to the effect that the benefit figure in mortgage fraud cases was not to be assessed on the basis of the mortgage which was fraudulently acquired, but on the basis of the benefit which the defendant derived from the use of the mortgage loan. It followed that the benefit had to be assessed on the appreciation in the value of the property represented by the percentage attributable to the mortgage, see [78] of Waya.

Mr Furlong argued that a ‘Waya-compliant’ assessment of the benefit figure in relation to the two properties would have been on the basis of the equity in the properties (£53,000) and not the entire £377,000 figure. It followed that the benefit figure should have been assessed at £575,000 less £377,000 (£198,000). Since the appellant had paid £55,000 towards this benefit, the further maximum liability should have been £198,000 less £55,000 (£143,000).

Mr Furlong accepted that a change in the law will not normally justify the grant of an extension of time, but submitted that the Court may do so where an applicant can demonstrate a substantial injustice, see for example R v. Jogee and others [2016] UKSC 8 at [100], cited in R v. Lewis Johnson [2016] EWCA Crim 1613 at [11] and following.

We are not persuaded that the appellant can establish any substantial injustice in relation to the 2009 Order. The Judge addressed the test of substantial injustice and was in our view fully entitled to conclude that the test was not met. The 2009 Order was an agreed order; and, if it were thought to give rise to substantial injustice, could have been challenged earlier. The reason this was not done was that the agreed order was fully met by the payment of £55,000 in the circumstances we have described. The fact that the appellant requires an extension of time of well over 8 years to challenge the 2009 Order simply highlights the lack of merit in the application.

As the Judge tellingly put it in his 8 June 2017 ruling:

There the matter would have stood had the [appellant], upon his release from the 6-year prison sentence passed at Isleworth, not committed further [drug trafficking] offences.

We agree with the Single Judge that there is no proper basis for granting leave to challenge the agreed 2009 Order. The renewed application for leave to challenge that order is accordingly dismissed.

We turn then to the ground of appeal in relation to the s. 22 order made in the 8 June 2017 ruling.

Following the appellant’s 26 November 2014 drug trafficking convictions, the prosecution discovered that the properties at Fauconberg Court and Blenholme Court had not been sold and the £55,000 confiscation order had been paid in cash. The prosecution calculated that in the intervening period the value of the properties had increased, so that the combined net equity was now £452,747. This figure, together with a cash sum of £18,800 (with certain adjustments), was said by the prosecution to lead to an available amount assessed at £471,547.

On this basis it applied under s.22 POCA 2002 for a reconsideration of the amount available to discharge the unsatisfied part of the benefit figure of £530,000 (£575,000 less the sum which had been paid £55,000).

Section 22 of POCA 2002 provides:

Order made: reconsideration of available amount

(1)

This section applies if -

(a)

a court has made a confiscation order,

(b)

the amount required to be paid was the amount found under section 7(2), and

(c)

an applicant falling within subsection (2) applies to the Crown Court to make a new calculation of the available amount.

(2)

These applicants fall within this subsection -

(a)

the prosecutor;

…

(3)

In a case where this section applies the court must make the new calculation, and in doing so it must apply section 9 as if references to the time the confiscation order is made were to the time of the new calculation and as if references to the date of the confiscation order were to the date of the new calculation.

(4)

If the amount found under the new calculation exceeds the relevant amount the court may vary the order by substituting for the amount required to be paid 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.

The Judge, applying s.22(3), made a new calculation of the available amount in the sum of £452,747.

The questions that then arose under s.22(4)(a) were: (i) whether the new calculation of the available amount exceeded the previous calculation of available amount (which it did); (ii) if so, what amount the Court believed was just to be paid, subject to the limit of the benefit figure; and (iii) whether the court should in the exercise of the discretion (implicit in the use of the word, ‘may’) vary the order?

In relation to questions (ii) and (iii), the Judge identified the two objections raised by the appellant to making the order under s.22.

First, since the defrauded banks had been content to allow the mortgages to stay in place, it would be disproportionate to deprive the appellant of the properties.

Secondly, objection that we have previously identified in relation to the 2009 Order: namely that, if the 2009 Order had been made after Waya rather than before, the benefit figure would not have included the mortgage advances procured by fraud and would have been reduced pro tanto to a figure of £198,000 (£575,000 less £377,000). As £55,000 had already been paid, the limit on the just amount was £143,000.

The Judge considered these arguments. He referred to R v. Padda [2014] 2 Cr App R (S) 22, and to the principle emphasised in that and other cases: that the legislative intent of POCA 2002 is to deprive criminals of the benefit that they have achieved from their crimes. He then set out what he described as a number of competing arguments: (1) the passage of time since the 2009 Order, (2) the available assets being the result of the mortgage frauds, (3) the fact that some of the mortgage payments had been made from letting the property, (4) although it was not said at the time that he had hidden assets, the appellant had been able to access cash to satisfy the confiscation order, and (5) since then the values of the properties had increased to almost half a million pounds, all ultimately derived from the fraudulent mortgage applications.

The Judge rejected the first objection: the argument based on the bank’s permitting the mortgages to continue. He concluded that decisions taken by banks in their own commercial interests had no bearing on the Court’s approach to confiscation orders, whose underlying purpose was to give effect to the statutory intent of POCA 2002.

We agree with both his reasoning and conclusion on this point.

So far as the Waya argument was concerned, (the second objection). The Judge referred to the cases on substantial injustice and concluded at §21:

It seems to me that Mr Furlong has a valid argument that I should consider myself limited to the ‘Waya-compliant’ amount of [£143,000].

He then went on to consider whether it was just to order the s.22 revised figure and whether there would be substantial injustice if he did not ‘amend’ the benefit figure to comply with the Waya principle. In his view the two considerations were bound up together.

The Judge concluded in this way at §23:

In my view, bearing in mind the history of this matter, I do not consider that there will be substantial injustice to the defendant if I consider the original benefit figure rather than the reduced benefit figure. In any event, bearing in mind the submissions made by the defence, I do not consider that making an order in the sum sought by the Crown will be unjust and am prepared to make such an order.

Mr Furlong submitted that the Court should have considered whether the prosecution has unreasonably delayed in making its s.22 application, relying on the decisions in Padda (above), R v. Leon John [2014] 2 Cr App R (S) 73 and Re Peacock [2012] UKSC 5.

So far as this point is concerned, we do not view the period between September 2014 and May 2017 as such as to give rise to objectionable complaint, see for example R v. Mundy [2018] EWCA Crim 105 at [27].

We turn then to Mr Furlong’s remaining submission that s.22(4) of POCA 2002 requires the Court to make an order which is ‘just’. The issue for the Judge was whether it was just to allow the s.22 application so as to enable recovery of sums up to a benefit figure which was substantially in excess of the ‘Waya-compliant figure’. He submitted that the Judge effectively ignored the fact that there had been a change in the law in the appellant’s favour.

Mr Smith for the prosecution made a number of points in answer to the appellant’s ‘Waya-compliant’ submission. First, notwithstanding the change in the understanding of the law in Waya, the £55,000 confiscation order had been paid off, with the appellant retaining the flats. He had benefitted from the increase in their value and from the rental income produced. The s.22 application was to give effect to the 2009 Order and to deprive the appellant of the financial benefits of his criminality. Second, the prosecution did not accept that, if the confiscation order had been made post-Waya, it would necessarily have resulted in an order in the terms for which Mr Furlong had argued. For example, there had been no detailed enquiry about the Blenholme Court flat. If it was being let at the time, this could have given rise to a higher benefit figure. Third, and alternatively, if the Court were to find that it was just to assess the benefit figure for the purposes of the s.22 application on the Waya approach, then the correct way to assess it would have been at the time of the s.22 application. By that time, the Waya-compliant figure would have been considerably more than when the order was made in the light of the increase in value of the properties, and would include the rental income obtained. At the time of the s.22 application (June 2017), the total available equity in the two properties was £434,621 and a very substantial s.22 increase would have been made in any event. Finally, he submitted that any equity in the properties that was not caught by the s.22 application could have become available to meet the unchallenged elements in the 2014 confiscation proceedings. The confiscation order of £1 was only made in that amount because of the success of the s.22 application.

We have considered these submissions. The Judge’s conclusion on the 2009 Order left open the questions that arose on the s.22 application: whether it would be just to substitute the amount to be paid under the 2009 Order and whether he should exercise his discretion to make such an order. The Judge concluded that it would ‘not be unjust’ to make the order. Although this sounds as if it is the question which arises under s.22(4)(a), it is in fact the answer to a slightly different question involving a different starting position.

The initial question is whether it would be just to make the order. As has been pointed out by this Court on a number of occasions, what is ‘just’ in this context is a general question and not one simply directed to the position of a defendant.

We recognise the force of the prosecution submission that, if a defendant is entitled to a ‘Waya-compliant’ assessment of the benefit, the prosecution should be entitled to rely on the value of the properties at the date of the s.22 application; and we accept that the appellant’s argument involves ‘unstitching’ the 2009 Order. We also recognise that it was an agreed order with benefits to both sides and that consequently the underlying use of the properties was not fully investigated. Nevertheless, in our view, once it is accepted that the benefit figure in this type of case falls to be calculated in accordance with the decision in Waya the Court should not have proceeded under s.22 of POCA 2002 as if Waya had not been decided when considering whether it was just to make an order under s.22.

We understand that the parties agreed that, on this basis, the 2009 benefit figure would be £198,000 of which £55,000 had been paid. Accordingly, we allow the appeal on the s.22 application to this extent.

The Judge decided that the rent payable in respect of the two properties obtained through the mortgage fraud was obtained as a result of criminal conduct and was a benefit. He assessed that element of the benefit at £68,200. He did not treat it as a realisable asset because it had played an indirect part in the increase in value of the properties which had been reflected in the s.22 Order, and consequently he excluded it from the realisable amount in the 2017 Order.

Mr Furlong submitted that it was wrong in law and in fact to treat the rent payable as part of the benefit.

He argued that it was wrong in law because section 10(9)(b) of POCA 2002 provides that the second assumption (s.10(3)) does not apply to any property held by a defendant before the relevant day, which is defined by s.10(9)(a) as the day when the defendant’s benefit was calculated for the purposes of the last confiscation order. Thus, he argued, the properties could not fall within the assumption since they were held already on the date of the previous confiscation order.

He argued that it was wrong in fact because the mortgage contracts had been allowed to continue by the banks, and therefore it could not be said that the rent payments were property obtained as a result of criminal conduct.

In our judgment neither of these points are sound.

First, the decision of this Court in R v. Oyebola [2013] EWCA Crim 1052 at [38]-[39] is directly contrary to, and disposes of, the legal argument. The rental income from the properties obtained by mortgage fraud involves a separate analysis to that in relation to the benefit deriving from the acquisition of such properties; and does not fall to be excluded by s.10(9)(b).

Second, as we have already observed, the position of the banks is irrelevant to the Court’s consideration of the confiscation provisions of POCA 2002.

For these reasons, which were largely those of the Single Judge, we refuse leave in relation to this ground.

In the light of our decision on the s.22 application, it is necessary to address the consequential effect on the 2017 Order. As we have noted, the Judge assessed the benefit figure as £222,091, but concluded that there were no available assets in view of his decision on the s.22 application. In the light of our judgment on that issue this conclusion may have to be revisited. Having received the parties’ submissions on the point, we consider that that the appropriate course is for the prosecution to make a s.22 application to vary the available amount in the 2017 Order, if it wishes to do so.