The Supreme Court’s (SC) judgment in Waya ([2013] 1 A.C. 294) has been rightly lauded as a landmark decision in the field of post-conviction confiscation. It concerned a mortgage fraud which is dealt with below. However, the most important part of the ruling was the SC’s application of the principle of proportionality in confiscation proceedings (paragraphs 1-34) and the implications of the stance taken by a minority of the SC justices.

Confiscation Orders Must be Proportionate i.e. Fair

In short, the SC said that a sentencing judge was entitled to refuse to make a confiscation order if it was “disproportionate” because it breached Article 1 of the First Protocol the ECHR (referred to as “A1P1”). A1P1 guarantees the right to “peaceful enjoyment” of one’s possessions which can only be interfered with in limited circumstances in the public interest.

In itself this declaration adds nothing new to the law. Our courts are required to take account of the provisions of the ECHR as it was incorporated into English law with the passing of the Human Rights Act. What has changed as a consequence of the SC’s ruling is the requirement for a proportionality test to be applied to every confiscation order.

The SC was divided on what that test should be. The prevailing majority view has it’s limitations but still merits claims of a significant shift in the judiciary’s approach to confiscation orders.

Lord Philips described the identification of A1P1 as “novel and imaginative.” It is worth noting nonetheless that the SC’s decision echoes the submissions made in R v May by the Defence (Andrew Campbell Tiech QC). May was the leading House of Lords confiscation authority before Waya. Interestingly, Lord Philips and Baroness Hale presided over both appeals;

The submissions attractively advanced by Mr Campbell-Tiech QC for the appellant were in essence simple. Parliament intended to establish a confiscation regime which was effective but fair. It intended to strip wrongdoers of their ill-gotten gains but not to deprive them of that which they had never had, to permit recovery of the same sum against different defendants or to permit recovery of a sum exceeding what the victim had lost. Such results were oppressive and disproportionate, inconsistent with article 1 of the First Protocol to the European Convention on Human Rights

The Limits of Proportionality

No Return to Judicial Discretion

Many practitioners have expressed frustration at the “draconian” confiscation orders that often result from the operation of the mandatory provisions of POCA. To their dismay, the SC was careful to emphasise that it’s decision did not (and could not) confer Judges with any discretion as to the making or quantum of a confiscation order. Under the old law, s.71 of the Criminal Justice Act of 1988 allowed a Judge to make a confiscation order to “pay such sum as the court thinks fit” in certain circumstances. The SC hinted that it considered such a measure to be desirable however;

“The Crown Court has encountered many difficulties in applying POCA ‘s strict regime. Many of the complexities and difficulties of confiscation cases, arising from the extremely involved statutory language, would undoubtedly be avoided if a measure of discretion were restored, but whether to restore it, and if so in which form, is a matter for Parliament and not for the courts.”

Two further important qualifications applied to the Courts decision. First, the SC made it clear that A1P1 will have limited application to S.75 “lifestyle” cases where the assumptions are triggered. Second, the SC also upheld the House of Lords observations in May concerning an offenders benefit.

Proportionality in Lifestyle Cases

In certain cases POCA allows the court to assume that any property transferred to or held by an offender in a six year period prior to the commencement of the proceedings represents the proceeds of criminal conduct. The burden is on the offender to displace the assumption.

S10(6)(a) and (b) of POCA allows the court to disapply the assumptions if they can be shown to be incorrect or if making them would give rise to a serious risk of injustice.

In the SC’s opinion the operation of these “safety valve” provisions made it very unlikely that any order would “court the danger of being disproportionate because the assumptions will only by applied if they can be made without risk of serious injustice.”

R v May Still Rings True

The SC was also at pains to state that the operation of A1P1 would not result in a new definition of an offender’s real benefit. Nor would it allow criminals to set off the expense of committing their crimes as if they were legitimate business costs against the sum they were required to pay to the court. The findings of the House of Lords in May still rang true and a “legitimate, and proportionate, confiscation order may have one or more of three effects:

(a) it may require the defendant to pay the whole of a sum which he has obtained jointly with

others;

(b) similarly it may require several defendants each to pay a sum which has been obtained,

successively, by each of them, as where one defendant pays another for criminal property;

(c) it may 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.”

When is an Order Disproportionate?

Unfortunately the SC gave scant guidance as to when it would be unfair to make a confiscation order. References were made to two past cases that the Court felt that should have been decided differently as examples of where in future a confiscation order “ought to be refused” by the Judge as a disproportionate measure.

Confiscation in Excess of the Victims Loss or Offenders Reward

Citing R v Shabir (a pharmacist overcharged the NHS by £464 but the Crown applied for a confiscation order in excess of £400,000) confiscation orders where the victim’s loss or offenders reward is disproportionate to the quantum of the order may be disproportionate.

Full Recovery

An order where the offender had repaid the sole victim the extent of his loss in full may also be disproportionate as in R v May.

While these examples give some clues as to the approach endorsed by the SC, the category of cases amenable to challenge must remain open and is likely to provide fertile ground for argument in the future. According to the editors of the CLR there are many decisions where confiscation orders have been upheld that may now be in question. They provide some pointers to the avenues that could be explored;

Where the Defendant repays an amount equivalent to the sum he receives from the fraud – query if the order should not be based on the sum obtained but the profit made from it – R v Farquhar

VAT evasion cases – where the goods liable to duty are seized and so any pecuniary advantage to the offender is purely notional

Money Laundering – should a launderer receiving a specific fee for allowing monies to wash through his account be liable for the entire sum passing through his hands (Allpress)

R v Neuberg – a business providing value to customers but operating under a name closely associated to another venture now in liquidation, should the order take into account it’s entire turnover

Mortgage Frauds – the Majority View

The SC’s decision on the facts of the case concerned a mortgage fraud and may be confined to similar factual circumstances. Here, the offender purchased an apartment having obtained a mortgage by lying about his income before it was subsequently re-mortgaged. In a rising market the value of the property appreciated considerably, so much so that the original mortgage advance could be repaid from the proceeds of sale. In this type of situation, where the deposit was untainted and the mortgage had been or could be repaid, the SC majority held that the benefit obtained by the offender was limited to the fraction of the appreciation attributable to the original mortgage.

The SC thus rejected the Crowns argument that the value of the benefit obtained should reflect the mortgage advance. It was held that the mortgage advance did not form part of the offender’s benefit as it never came into his control and possession following the dicta in May. Instead the defendant obtained a thing in action (in this case an equity in redemption) with no market value that could only be realised when the flat was sold.

The SC also emphasised that there will be other mortgage frauds with the thing in action may have a value (para.53). In these cases the Crown may be entitled to claim that the offender has benefitted to the value of the mortgage advance obtained. It therefore remains unclear if the formula adopted by the SC in calculating benefit can be applied by analogy in other mortgage frauds.

The Minority View – A True Revolution Averted

Lord Philips and Lord Reed dissented from the Majority view and suggested a completely different approach. When deciding the extent to which the offfender benfitted from his criminal conduct the Court should first ask what the POCA benefit is, then ask what the “real benefit” is (in the ordinary sense) and then decide if the POCA benefit was a proportionate one.

Applying this formula in Waya they believed the offenders benefit should be limited to “the money value of obtaining his financing on better terms than might otherwise have been available” when he obtained his original mortgage rather than any part of the increase in value of the flat.

The minority approach, with it’s emphasis on “real benefit” (a concept that is irrelevant to POCA) should be welcomed. It would give the courts far greater flexibility in determining an offenders benefit, thereby allowing some discretion to mitigate the main criticism levelled against the legislation which is that it often produces excessively harsh outcomes.

Waya has been heralded as the dawn of a new era in confiscation law. This description would have been all the more apposite had the minority, not the majority view prevailed.