Posted: 16 / 11 / 2012

The UK Supreme Court judgment in the confiscation case of R v Waya [2012] UKSC 51 has added another layer of complexity to confiscation cases in England & Wales.

The judgment addressed two issues: (i) Where a mortgage is fraudulently obtained how is the benefit of that fraud to be calculated for confiscation purposes? (ii) Is the confiscation scheme under Part 2 of the Proceeds of Crime Act 2002 in England and Wales compliant with Article 1 of the First Protocol to the European Convention on Human Rights (referred to as ‘A1P1’)?

 

Mortgage fraud

The Supreme Court’s answer to the mortgage fraud question is rather different from that previously adopted in the Crown Court and Court of Appeal.

It boils down to this.  No benefit arises from the actual obtaining of the mortgage itself, but a benefit can arise when the property purchased with that mortgage increases in value.

An example illustrates how this is to be worked out.  Suppose a defendant, call him Mark, buys a property for £775,000.  He puts up a 40% deposit from his own (legitimate) money, that’s £310,000.  The remaining 60%, or £465,000, he obtains fraudulently by giving false details of his income to the lender.  Mark is convicted of mortgage fraud and is then subject to confiscation proceedings.  At the time of the confiscation hearing the property has increased in value to £1,200,000 and there is still the original £465,000 outstanding on the mortgage.

The increase in the value of the property has been £425,000 (the difference between £775,000 and £1,200,000) and the fraudulently obtained mortgage was 60% of the purchase price.  So the benefit is 60% of the increase in value – which works out to be £255,000.

That is not the way that benefit in mortgage fraud cases was calculated before this judgment was published on 14 November 2012, but from now on this is the way that the calculation should be done.

But note that Waya was a case in which the defendant’s own money was legitimate and only the mortgage money was derived from crime.  A different approach is needed in cases where the defendant’s own money is derived from (other) crime and the mortgage advance is legitimately obtained.  A different approach would also have been needed if the property being purchased had been fraudulently over-valued in connection with the obtaining of the mortgage resulting in the mortgage advance being greater than the true market value of the property being purchased.

The calculations get more complicated where some of the original mortgage advance has been repaid before the date of the confiscation, or where the property has been subject to a re-mortgage and further borrowing.  It is not possible to deal with those complexities in a short article such as this.

 

Human Rights

The Supreme Court also addressed the issue of compliance with A1P1, Article 1 of the First Protocol to the European Convention on Human Rights.

Essentially the Supreme Court recognised that there are cases in which simply calculating the ‘recoverable amount’ (the amount that the defendant is ordered to pay by the confiscation order) by strictly following the wording of Part 2 PoCA 2002 produces a result which is disproportionate and would therefore infringe the defendant’s human rights.  That cannot be permitted.

The judgment makes it clear that in order to prevent that happening Crown Court judges must reduce the amount of a disproportionate confiscation order below the figure calculated in accordance with PoCA 2002.

However the Supreme Court said that a confiscation order should not be regarded as disproportionate simply because it would “involve the possibility of removing from the defendant by way of confiscation order a sum larger than may in fact represent his net proceeds of crime”.

In particular the Supreme Court said that it would not be disproportionate to:

  1. require the defendant to pay the whole of a sum which he has obtained jointly with others;
  2. require several defendants each to pay a sum which has been obtained, successively, by each of them; or
  3. require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime.

In relation to ‘criminal lifestyle’ cases the Supreme Court drew particular attention to s10(6)(b) PoCA 2002 which requires that “the court must not make a required assumption in relation to particular property or expenditure if . . . there would be a serious risk of injustice if the assumption were made”.  As a result of applying s10(6)(b) the Supreme Court suggested that the courts ought not normally to be at risk of making disproportionate confiscation orders in ‘criminal lifestyle’ cases.  I have previously considered the operation of s10(6)(b) in ‘criminal lifestyle’ confiscation cases in my blog article Confiscation: a serious risk of injustice.

The new approach does not amount to the re-creation of a general discretion for judges in confiscation cases, nor does it introduce a new regime in which the confiscation order must be governed by the “real benefit” obtained by the defendant.

By way of example, the Supreme Court indicated that in, say, a theft case in which goods had been stolen but recovered intact and returned to their owners it might be disproportionate for a confiscation order to be made based on the value of those stolen goods, although a strict reading of PoCA 2002 would require that.

 

The practical effects

There is, in my view at least, a very real danger that this judgment will create more complexities and difficulties for the Crown Courts and Court of Appeal whilst doing very little to introduce more justice and common sense into the confiscation regime.

The judgment may breathe new life into s10(6)(b) in ‘criminal lifestyle’ cases and we may see judges adopting more frequently a broad brush reduction in the defendant’s benefit figure as exemplified by the case of R v Deprince [2004] EWCA Crim 524 (a case not referred to in the Supreme Court judgment).

I would suggest that if the confiscation case of Del Basso & Goodwin v R [2010] EWCA Crim 1119 were to be heard today the confiscation order against Mr Del Basso might be scaled back to a level related to the profit of the business (which was essentially legitimate) rather than its turnover, in the light of the comments at paragraph [34] of the judgment in Waya.

Of course the Court of Appeal now has power to send a confiscation case back to the Crown Court for rehearing under s140 Coroners and Justice Act 2009, particularly where it is appropriate to make further findings of fact.

In new cases the judgment may provide encouragement for defendants, and their legal representatives, to routinely argue in the Crown Court that a proposed confiscation order would be disproportionate and infringe the defendant’s A1P1 rights.  There would appear to be nothing to be lost by making that submission even where it may have little prospect of success.

On the other hand the judgment seems to offer nothing to encourage prosecutors – their lives are undoubtedly going to be made harder by it.

David

(Note: This article applies to confiscation orders under the provisions of Part 2 of the Proceeds of Crime Act 2002 in England and Wales. There are a number of additional issues which could be relevant to a defendant’s confiscation order in particular cases which it is not possible to deal with in a relatively short article such as this.  Appropriate professional advice should be sought in each individual case.)