Confiscation order – Proceeds of Crime Act 2002 – Appellant convicted of dishonestly obtaining money transfer – Transfer consisting of mortgage advance of 60% of purchase price to assist acquisition of residential property – Proper amount of confiscation order to deprive appellant of benefit obtained from criminal conduct – Award of 60% of market value of flat – Effect of Article 1 of First Protocol to European Convention on Human Rights – Appeal allowed In 2003, the appellant purchased a flat in London NW8 with the assistance of a mortgage that he obtained by making false statements about his employment record and earnings. The mortgage lender provided 60% of the £775,000 purchase price, namely £465,000. In 2005, the appellant redeemed the mortgage on repayment of the full sum secured and remortgaged the flat to a building society. The appellant was subsequently convicted of obtaining a money transfer by deception in relation to the first mortgage, contrary to section 15A of the Theft Act 1968. The respondent applied to the court for a property confiscation order, under Part 2 of the Proceeds of Crime Act 2002, in order to deprive the appellant of the benefit that he had received from his criminal conduct. The court made an order in the sum of £1.54m. That figure was calculated by taking the then market value of the flat, £1.85m, and deducting the sum of £310,000 that the appellant had paid for the flat out of his own resources. The amount of the order was subsequently reduced on appeal to £1.11m, representing 60% of the market value of the flat: see [2010] EWCA Crim 412. The Court of Appeal certified a question, for determination on an appeal to the Supreme Court, as to the nature and amount of the benefit obtained by a defendant who obtained a mortgage loan in the manner that the appellant had done. Issues arose as to how the benefit was to be calculated, and whether the provisions of the 2002 Act had to be read, under section 3(1) of the Human Rights Act 1998, in such a way as to avoid a confiscation order that was disproportionate, so ensuring compatibility with a defendant’s right to the peaceful enjoyment of his possessions under Article 1 of the First Protocol of the European Convention on Human Rights. Held: The appeal was allowed. (1) Article 1 of the First Protocol to the Convention imported a requirement for a reasonable relationship of proportionality between the means that the state employed in the deprivation of property as a form of penalty and the legitimate aim that it sought to realise by that deprivation: Jahn v Germany (2005) 42 EHRR 1084 applied. By section 3(1) of the 1998 Act, the 2002 Act had to be read and given effect in a manner that avoided any violation of Article 1. Accordingly, section 6(5) of the 2002 Act, requiring the court to make a confiscation order in respect of the amount that it determined to be recoverable, should be read as being subject to a qualification in respect of cases where such an order would be disproportionate and thus a breach of Article 1. A judge should, if confronted by an application for an order that would be disproportionate, refuse to make that order and instead accede only to an application for such sum as would be proportionate. In determining the issue of proportionality, consideration had to be given to the aim of the legislation and whether the means employed to achieve it were proportionate to that aim. The purpose of the 2002 Act was to impose on convicted defendants a severe regime for removing from them their proceeds of crime. Although the severity of the regime might have a deterrent effect on some would-be criminals, its deterrent qualities did not represent its essence and purpose. Instead, the purpose was to remove from criminals the pecuniary proceeds of their crime; a confiscation order therefore had to bear a proportionate relationship to that purpose. (2) In the instant case, there was no loss to the mortgage lender, but the appellant, by obtaining credit, had acquired the prospect of making a handsome capital gain if the market for high-grade residential property in London continued to rise, as it had done. Depriving the appellant of his prospective capital gain, or a proportionate part of it, was the appropriate way of making the confiscation order fit the crime. The provisions of the 2002 Act applied in that way on a fair and purposive construction that took into account section 3 of the 1998 Act and the need for proportionality under Article 1 of the First Protocol to the Convention. (3) The property that the appellant had obtained as a result of or in connection with his criminal conduct, within the meaning of section 76(4) of the 2002 Act, was not the whole leasehold interest in the flat, since that would ignore his own contribution of £310 in untainted funds. Nor was it the £465,000 amount of the mortgage advance. On a proper characterisation of the transaction, the mortgage advance had remained in the beneficial ownership of the lender until completion, when it passed direct to the vendor. The mortgage lender had security for its mortgage advance from the moment of completion and the appellant never held more than an equity of redemption that corresponded in value to his own untainted contribution of £310,000: Abbey National Building Society v Cann [1991] 1 AC 56 applied. What the appellant obtained from the lender was a thing in action consisting of the right to have the mortgage advance applied in the acquisition of his flat, subject from the moment of completion to the mortgage lender’s security to ensure the repayment of the advance. (4) After the completion of the purchase, the appellant no longer had that original thing in action; accordingly, the tracing provisions of section 80(3) of the 2002 Act applied to determine what property in his hands now represented it. The property that represented the original thing in action was a fractional part of the appellant’s total interest in the flat, corresponding to the part of the original purchase price that had been financed by the dishonestly obtained mortgage. However, fairness required that the mortgage liability, which was deductible under section 79(3), should be matched to that interest, with the result that the benefit obtained by the appellant was initially nil. The interest that fairly represented the appellant’s original thing in action was therefore 60% of the market value of the flat from time to time, less the whole of the mortgage liability; in other words, 60% of any increase in the flat’s value over its acquisition price. That represented the reality of what the appellant had obtained from his crime and was a proportionate order to make by way of confiscation: R v Rose [2008] EWCA Crim 239; [2008] 1 WLR 2113 considered. A confiscation order calculated on that basis should be substituted. Ivan Krolick, Oliver Grimwood and Stephen Akinsanya (instructed by Central Law Practice Solicitors, of Wembley) appeared for the appellant; David Perry QC and William Hays (instructed by the Crown Prosecution Service) appeared for the respondent; Jonathan Swift QC and Duncan Penny (instructed by the Treasury Solicitor appeared as advocates to the court; Lord Pannick QC, Mark Vinall and Emily Neill (instructed by the Treasury Solicitor) appeared for the Secretary of State for the Home Department, as intervener. Sally Dobson, barrister
Confiscation order – Proceeds of Crime Act 2002 – Appellant convicted of dishonestly obtaining money transfer – Transfer consisting of mortgage advance of 60% of purchase price to assist acquisition of residential property – Proper amount of confiscation order to deprive appellant of benefit obtained from criminal conduct – Award of 60% of market value of flat – Effect of Article 1 of First Protocol to European Convention on Human Rights – Appeal allowed In 2003, the appellant purchased a flat in London NW8 with the assistance of a mortgage that he obtained by making false statements about his employment record and earnings. The mortgage lender provided 60% of the £775,000 purchase price, namely £465,000. In 2005, the appellant redeemed the mortgage on repayment of the full sum secured and remortgaged the flat to a building society. The appellant was subsequently convicted of obtaining a money transfer by deception in relation to the first mortgage, contrary to section 15A of the Theft Act 1968. The respondent applied to the court for a property confiscation order, under Part 2 of the Proceeds of Crime Act 2002, in order to deprive the appellant of the benefit that he had received from his criminal conduct. The court made an order in the sum of £1.54m. That figure was calculated by taking the then market value of the flat, £1.85m, and deducting the sum of £310,000 that the appellant had paid for the flat out of his own resources. The amount of the order was subsequently reduced on appeal to £1.11m, representing 60% of the market value of the flat: see [2010] EWCA Crim 412. The Court of Appeal certified a question, for determination on an appeal to the Supreme Court, as to the nature and amount of the benefit obtained by a defendant who obtained a mortgage loan in the manner that the appellant had done. Issues arose as to how the benefit was to be calculated, and whether the provisions of the 2002 Act had to be read, under section 3(1) of the Human Rights Act 1998, in such a way as to avoid a confiscation order that was disproportionate, so ensuring compatibility with a defendant’s right to the peaceful enjoyment of his possessions under Article 1 of the First Protocol of the European Convention on Human Rights. Held: The appeal was allowed. (1) Article 1 of the First Protocol to the Convention imported a requirement for a reasonable relationship of proportionality between the means that the state employed in the deprivation of property as a form of penalty and the legitimate aim that it sought to realise by that deprivation: Jahn v Germany (2005) 42 EHRR 1084 applied. By section 3(1) of the 1998 Act, the 2002 Act had to be read and given effect in a manner that avoided any violation of Article 1. Accordingly, section 6(5) of the 2002 Act, requiring the court to make a confiscation order in respect of the amount that it determined to be recoverable, should be read as being subject to a qualification in respect of cases where such an order would be disproportionate and thus a breach of Article 1. A judge should, if confronted by an application for an order that would be disproportionate, refuse to make that order and instead accede only to an application for such sum as would be proportionate. In determining the issue of proportionality, consideration had to be given to the aim of the legislation and whether the means employed to achieve it were proportionate to that aim. The purpose of the 2002 Act was to impose on convicted defendants a severe regime for removing from them their proceeds of crime. Although the severity of the regime might have a deterrent effect on some would-be criminals, its deterrent qualities did not represent its essence and purpose. Instead, the purpose was to remove from criminals the pecuniary proceeds of their crime; a confiscation order therefore had to bear a proportionate relationship to that purpose. (2) In the instant case, there was no loss to the mortgage lender, but the appellant, by obtaining credit, had acquired the prospect of making a handsome capital gain if the market for high-grade residential property in London continued to rise, as it had done. Depriving the appellant of his prospective capital gain, or a proportionate part of it, was the appropriate way of making the confiscation order fit the crime. The provisions of the 2002 Act applied in that way on a fair and purposive construction that took into account section 3 of the 1998 Act and the need for proportionality under Article 1 of the First Protocol to the Convention. (3) The property that the appellant had obtained as a result of or in connection with his criminal conduct, within the meaning of section 76(4) of the 2002 Act, was not the whole leasehold interest in the flat, since that would ignore his own contribution of £310 in untainted funds. Nor was it the £465,000 amount of the mortgage advance. On a proper characterisation of the transaction, the mortgage advance had remained in the beneficial ownership of the lender until completion, when it passed direct to the vendor. The mortgage lender had security for its mortgage advance from the moment of completion and the appellant never held more than an equity of redemption that corresponded in value to his own untainted contribution of £310,000: Abbey National Building Society v Cann [1991] 1 AC 56 applied. What the appellant obtained from the lender was a thing in action consisting of the right to have the mortgage advance applied in the acquisition of his flat, subject from the moment of completion to the mortgage lender’s security to ensure the repayment of the advance. (4) After the completion of the purchase, the appellant no longer had that original thing in action; accordingly, the tracing provisions of section 80(3) of the 2002 Act applied to determine what property in his hands now represented it. The property that represented the original thing in action was a fractional part of the appellant’s total interest in the flat, corresponding to the part of the original purchase price that had been financed by the dishonestly obtained mortgage. However, fairness required that the mortgage liability, which was deductible under section 79(3), should be matched to that interest, with the result that the benefit obtained by the appellant was initially nil. The interest that fairly represented the appellant’s original thing in action was therefore 60% of the market value of the flat from time to time, less the whole of the mortgage liability; in other words, 60% of any increase in the flat’s value over its acquisition price. That represented the reality of what the appellant had obtained from his crime and was a proportionate order to make by way of confiscation: R v Rose [2008] EWCA Crim 239; [2008] 1 WLR 2113 considered. A confiscation order calculated on that basis should be substituted. Ivan Krolick, Oliver Grimwood and Stephen Akinsanya (instructed by Central Law Practice Solicitors, of Wembley) appeared for the appellant; David Perry QC and William Hays (instructed by the Crown Prosecution Service) appeared for the respondent; Jonathan Swift QC and Duncan Penny (instructed by the Treasury Solicitor appeared as advocates to the court; Lord Pannick QC, Mark Vinall and Emily Neill (instructed by the Treasury Solicitor) appeared for the Secretary of State for the Home Department, as intervener. Sally Dobson, barrister
