McMillan-Smith, R. v [2009] EWCA Crim 732

[2009] EWCA Crim 732Case No 2008/00638Al*l
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM the Crown Court at York sitting in Bradford
HHJ JAMES SPENCER QC
Venue Royal Courts of Justice Strand,Date 08/04/2009
London, WC2A 2LL
Before
LORD JUSTICE HOOPERMRS JUSTICE COX DBESIR CHRISTOPHER HOLLAND
Between
The Attorney GeneralAppellantGeoffrey Paul McMillan-SmithAppellantGeoffrey Paul McMillan-SmithRespondentTheRespondentThe Attorney GeneralGeoffrey Paul McMillan-SmithGeoffrey Paul McMillan-SmithThe Crown
Miss Sarah Whitehouse, Mr Mark Sutherland Williams <BR>(instructed by the Treasury Solicitors) for Solicitor General on behalf of the Attorney-General <BR>and for the Crown (instructed by CPS)<BR>Mr Jonathan Fisher QC and Mr B Knight (instructed by Levys Solicitors) for Geoffrey McMillan-SmithHearing <BR>Hearing dates: 3 July 2008, 3 March 2009, 6 April 2009
Judgment
[1]At the conclusion of the hearing on 3 July 2008 we granted leave to the Solicitor General, who makes this reference on behalf of the Attorney General, to refer to this Court as unduly lenient the confiscation order made against the offender, Geoffrey Paul McMillan-Smith ("McMillan-Smith"). Because the two counsel for the offender had not been counsel at the hearing in the Crown Court and because we were concerned that there might be facts which could affect the outcome of the Reference and which were not known to counsel, we gave leave for further representations. For reasons associated with the difficulty of arranging to see the offender in prison, we gave leave for those representations to be made by the end of July and gave the Solicitor General an opportunity to reply. We also said that, having considered any representations, we would give judgment in September.[2]Those representing McMillan-Smith decided to apply for an extension of time in which to seek permission to appeal the confiscation order and for leave to appeal. Those applications, both of which we granted on 6 April 2009, had previously been listed on 3 March 2009. At that hearing we made it clear, for reasons to be given later, that the Reference had succeeded and that the judge should have found that McMillan-Smith had undisclosed hidden assets, he having failed to establish on the balance of probabilities that his realisable assets were less than the benefit which he had obtained.[3]It became clear on 3 March that McMillan-Smith did not and could not challenge the benefit figure. He wished, however, to challenge the conclusion that he had hidden assets. He faced the difficulty that he had not given or called evidence at the confiscation hearing. McMillan-Smith having waived privilege, we examined the legal advice given to him at that time (not by counsel or solicitors who now represent him). We decided that he had been advised not to give evidence and had not been fully advised that the judge would be obliged in law to find that he had failed to show that his realisable assets were less than the benefit which he had obtained. We granted him permission to give evidence.[4]On 6 April he gave evidence and produced a substantial quantity of documentation. He was cross-examined by Miss Whitehouse with considerable skill. However, at the conclusion of the hearing we announced that McMillan-Smith had satisfied us on the balance of probabilities that he had no hidden assets.[5]It is agreed now that the proper finding for the benefit is £1,971,923.83 and that the realisable assets are £215,000. We make a confiscation order in that amount. The figure representing realisable assets is made up in part of valuations of property. Should those valuations turn out to be too high then McMillan-Smith may return to the High Court for a certificate of inadequacy.[6]The default period of imprisonment is, as we announced, one of three years' imprisonment and McMillan-Smith will have six months from to-day to pay that sum.[7]In this judgment we shall give our reasons for our decision that the Reference succeeded and for our conclusion that McMillan-Smith had discharged the burden of proof on him to show that his realisable assets were only £215,000.[8]McMillan-Smith is 45 years of age having been born on 8 June 1962. He was charged, with two co-defendants, with conspiracy to produce cannabis between 8 March 2001 and 16 March 2005 contrary to section 1(1) of the Criminal Law Act 1977. He initially pleaded not guilty and his trial began on 23rd January 2006. On 6th February 2006, after he had begun giving evidence, he pleaded guilty. On 10th February 2006 he was sentenced to 7 years' imprisonment.[9]McMillan-Smith and the co-defendants were involved in producing cannabis over a period of four years from a 'factory' based at a farm in Lincolnshire. McMillan-Smith was the principal in the conspiracy.[10]The prosecution sought a confiscation order under the provisions of the Drug Trafficking Act 1994 and a confiscation hearing was held on 7thJanuary 2008. The learned judge held that McMillan-Smith had benefited from his criminal activities in the sum of £1,971,923.83. There is, as we have said, no challenge to that figure.[11]The figure was made up in the following way. £1,500,000 of the sum represented the total benefit from the production of cannabis at Longleys. At the premises the police found documents indicating that the earnings from the factory had been shared between McMillan-Smith and his co-defendants, with McMillan-Smith receiving 32.5% of the profits. Nonetheless the judge ruled that McMillan-Smith's had obtained the full benefit of £1,500,000. That finding is not and cannot be challenged by him. The balance of just under £500,000 was determined by applying the statutory assumptions set out in section 4 of the Drug Trafficking Act 1994.[12]The judge then went on to consider what the realisable amount might be. He accepted that McMillan-Smith owned property and, having made some minor adjustments to the calculations made by the financial investigator, he decided that a sum of £223,000.00 might be realised from those assets. He also made a finding that there were hidden assets, based in large part on the correspondence between McMillan-Smith and his family ("the Spanish letters") while he was in prison in Spain in 1995 and 1996. In the words of the judge:
"There are hidden assets, and I base that on what I have read in these appendices to Mr Whittleston's report. When the defendant was imprisoned in Spain in 1996 [for drug offences] he entered into correspondence with his wife, with his sister and also with his in-laws, the McMillans, and certain of those exchanges of correspondence are exhibited in an appendix to this report. It is quite clear that the defendant's way of life when he was dealing in cannabis in Spain was to set aside sums, to secrete them, so that the authorities would not become aware of them. And it was quite clear that those in correspondence with him knew that. And the purpose was obvious. If he needed to, he could always resort to those sums when times were hard. And that kind of prudence I am convinced will have continued during his benefiting from this production of cannabis up to 2005 when he was arrested, and IO am strengthened in that conclusion by the fact that his actual share of the £1.5 million, 32.5% of it if the figures we have seen in these documents is right, would have been very close to half a million pounds -32.5% of £1.5 million is just less than £500,000."
[13]The judge decided that the sum of hidden assets was £50,000.00. He gave no reasons for deciding on that amount rather than some greater amount.[14]Having reached this conclusion, he made a confiscation order in the sum of £273,000. It is submitted by Miss Whitehouse on behalf of the Solicitor General that the order is unduly lenient and she asked us to substitute for this figure the figure of £1,971,923.83, namely the value of the benefit obtained.[15]McMillan-Smith not only did not give evidence at the confiscation hearing but singularly failed in his written reply to meet any of the allegations in the report of the financial investigator that there were hidden assets.[16]Unless there was other evidence from which the judge could be satisfied, on the balance of probabilities, that his realisable assets were less than the benefit, then it is agreed that the judge was obliged to make a confiscation order in the sum of £1,971,923.83, being the figure representing the benefit obtained (see section 5 of the Drug Trafficking Act 1994). Miss Whitehouse submitted that there was no other evidence. Mr Hopmeier, who appeared for McMillan-Smith at the first hearing but not at later hearings, faced with an absence of reasons for the figure of £50,000 chosen by the judge, asks us to assume that he must have had good reasons for choosing that figure, albeit unexpressed. Mr Hopmeier was unable to help us as to how he reached that figure.[17]It seems to us clear that the judge, in a perhaps understandable attempt to alleviate the rigours of the Act, fell into error.

The judge said:

"So there is a tremendous shortfall between what he has actually had and what was able to be identified."
[19]He then went on to say that a lot of what he had received "will have been dissipated but not all of it". Having said that he was convinced that there were hidden assets, he said that a reasonable figure would be £50,000 to represent that which he had hidden.[20]To put it another way, he has received £500,000 as earnings from the drugs factory, he only has known realisable assets of £223,000, he will have dissipated some of it but a figure of £50,000 is a reasonable figure to represent the balance after dissipation.[21]As superficially attractive as that approach might be, it is wrong.

(S) 129, the Court said:

"37. We stress that the scheme of the Act requires the court to perform two distinct and discrete tasks. First, to determine the benefit. Secondly, to determine the amount that might be realised at the time the order is made, which may be very different. Further, the amount that might be realised may be quite unrelated to the identifiable proceeds of the offence, eg a lottery win, inheritance, or other lawfully acquired property. In the end, the task of the court at the second stage is to determine the amount 'appearing to the court' to be the amount that might be realised. But once the benefit has been proved, it is permissible and ought normally to be the approach of the court, to conclude that the benefit remains available until the defendant proves otherwise ... ."
[22]Thus the amount of the realisable assets may be quite unrelated to the identifiable proceeds of the particular drug trafficking activities of which the defendant has been convicted.[23]Given, in particular, the fact that McMillan-Smith appeared to have a history of concealing assets, the judge ought not to have concentrated just on what assets he might still have as a result of the cannabis factory. It was for the defendant to satisfy the judge that his realisable assets were less than the benefit. This he had singularly failed to do, notwithstanding that he knew that the prosecution were alleging that he had hidden assets.[24]For these reasons, we quash the confiscation order made and, but for the appeal against the confiscation order, would have substituted for it a confiscation order in the sum of £1,971,923.83.[25]We turn to the appeal against the confiscation order. We approach the evidence of McMillan-Smith with considerable caution. He had lied in his trial, he accepted that had tried to obtain a mortgage by deception and he had not given to the court the account which he was now giving us. There were references in the documents seized on his arrest to receiving advice about off shore accounts. McMillan-Smith said to us that he did seek advice to reduce possible tax liabilities but that nothing had come of that advice. Amongst the documents seized was no document evidencing an off shore account and in the many bank statements from many different accounts examined by the Asset Recovery Team there was no evidence of a transfer to an off shore bank account.[26]Miss Whitehouse put to McMillan-Smith that there were significant sums of money unaccounted for and that the Spanish letters showed, as the judge had found, that he had been concealing assets. We shall consider the second of those first.[27]McMillan-Smith lost his employment as a building estimator/surveyor in 1992. He became self-employed establishing his own firm of builders, McMillan Homes. He undertook various building projects and was able to claim back VAT as the construction work enjoyed zero VAT status. The company had a bank account with a High Street bank in Northallerton. The records of that account, closed in 1996-1997 are no longer available and no record relating to the account was found during the extensive police searches which followed his arrest for the index offences. From 1993 until 1996 McMillan-Smith was also a partner with D in a small firm, B and G Builders and Shopfitters.[28]In February 1996 McMillan-Smith was sentenced to 6 years' imprisonment by a Spanish Court, the six years being later reduced to four years. He had been arrested in 1995 and had spent time in custody on remand. He remained in prison for about two years. McMillan-Smith gave evidence to us that he had been a lorry driver acting as a courier of some 275 kilos of cannabis and was not otherwise involved with the drugs. This account received some support from some of the Spanish letters. We accept his account. The importance of this is that there is nothing to suggest that McMillan-Smith had assets which had been obtained through criminal conduct prior to the index offences.[29]Whilst in prison McMillan-Smith's wife received state benefits. McMillan-Smith told us, and we accept, that without access to money life in a Spanish prison was "dire". He had the McMillan Homes chequebook with him and he would write out a cheque, send it to his wife who would cash it, buy a Post Office giro and return it to him. He needed about £30 per week to survive. In one letter dated 19 August 1996, McMillan-Smith was asked by his wife whether he thought that the money he had in his prison account will last until the beginning of January. This question suggests that there was not a lot of extra money in the household. In another letter he refers to there being about £400.00 in the prison account. McMillan Smith told us that he was fined as well as imprisoned and that, if he paid the fine, he would be released early. He had insufficient funds to pay the fine.[30]It is clear from some of the letters that he blamed D (who has previous convictions) for having been arrested. A letter also refers to D having arranged for McMillan-Smith to be beaten up. According to McMillan-Smith this was to "force" him out of the firm.[31]Following his arrest, D, on McMillan-Smith's account to us, used an account held by D and McMillan-Smith at Jewsons to obtain construction material. D then not only not paid but informed Jewsons that McMillan-Smith was responsible for the debt. This led to bailiffs coming to the house to enforce that debt of about £6000.00 and a debt for business rates in the sum of £1,450 on the B and G property. The Spanish letters reveal the anguish which that caused the family. One letter refers to McMillan-Smith's wife and her father going to the bailiff seeking to enforce the business rates debt. She wrote: "Dad and I have been to see them this afternoon and from now on any letters or visits from the bailiffs will go to your honourable partners (GIT FEATURES) whom she later described in the letter as "that UNMENTIONABLE BASTARD".[32]The respondent gave notice of an intention to call D to refute the evidence that D had been wrongly using the Jewsons account and had re-directed the bailiffs towards Mrs McMillan-Smith. Unsurprisingly perhaps, D made it clear that he did not intend to come and give oral evidence in support of his statement.[33]McMillan-Smith explained to us that he and his wife were concerned that the bailiffs would find out that they had assets and have them seized, particularly the matrimonial home, the McMillan Homes account and a piece of land at Aiskew. He wrote "it is best if people think we have nothing". He wrote to his wife about putting the matrimonial home in her name. He answered a number of questions from Miss Whitehouse about the account against the background of letters in April and September 1995 which dealt with sums of money in the account. One suggested that "20" and another "40" were coming, £2000 and £4000 according to McMillan-Smith in evidence. There was also reference in the September letter to a VAT return which she was being asked to post and being asked to "Keep away from D". There was a reference to her cashing a cheque for £20,000 which he said that he had written out and to the fact that, if there were insufficient funds, she should re-present it. McMillan-Smith explained this by saying to us that he was owed money by a customer. It also, so it appears to us, may have been a VAT credit. The fact that she might have to represent the cheque again suggests that the account was not one containing substantial funds. The land at Aiskew had been bought some time earlier for £25,000 with building permission. It was later sold for £27,000. Miss Whitehouse queried that. McMillan-Smith explained that he had bought it with planning permission, that it had gone up in value and then lost most of the value when the planning permission expired and the village plans had been changed.[34]In the letter of 19 August wife also refers to the fact that "we" are thinking about moving quite a bit of money and the worry that if one moves a large amount of money banks and building societies may inform the police. "We" appears to have been a reference to herself and her parents. McMillan-Smith explained to us that his father-in-law had read an article about money laundering, had over-reacted and was trying to assist his daughter. He also said that this was a reference to getting out money to him in Spain to cope with prison.[35]In one letter written whilst McMillan-Smith was awaiting trial, Mrs McMillan-Smith wrote that there was no money in an account, referred to an earlier letter from him and "By the way that was part of the letter I destroyed, as you put something in it about Canada." Miss Whitehouse suggested to McMillan-Smith that that was reference to an account in Canada. He denied that and said that it was reference to plans to emigrate to Canada.[36]Miss Whitehouse also cross-examined McMillan-Smith about a letter from a "Heather". Heather, he explained, was the name of his sister, recently deceased, whom he had helped with a £5,000.00 loan to buy a house in Ireland, a loan which she had repaid before her death.[37]Having considered the letters carefully and the explanation given by McMillan-Smith we have reached the conclusion that they do not reveal hidden assets.[38]We turn to the first point made by Miss Whitehouse, namely that during the period of the cannabis conspiracy there were significant sums of money unaccounted for. There was no dispute that McMillan-Smith lived a very extravagant lifestyle- with an expensive house, his three boys at private school and four motor vehicles. He has produced a substantial quantity of documents and schedules, using the material seized from him by the police. He produced detailed figures showing the costs of the cannabis factory - excluding the costs of electricity, the meter having been bypassed. Those figures showed earnings for him of some £350,000, a significant quantity of which went in to his bank accounts. Cash transfers into the accounts amounted to some £210,000. He received mortgage drawdowns of £500,000 and an insurance payout on a fire at the matrimonial home, much of it was then spent on substantial renovations to the home increasing the value of it and enabling him to pay off the mortgage when he sold it. McMillan-Smith produced a detailed schedule explaining how he had spent the money coming into him from all sources, including the cannabis factory. This showed for example £7,500.00 paid in cash for school fees, £31,200 for petrol over four years and some £52,000 over that period to pay for clothes, meals out etc (he estimated £250.00 per week in cash for these expenses). The thrust of the cross-examination was that he had received more cash from building work than he had admitted and that at least some of the money had been used to buy assets which he had not disclosed and of which there was no record in the material seized from him.[39]Whilst bearing in mind that McMillan-Smith is a proven liar and criminal, we believed his account of his extravagant lifestyle. Indeed the fact that he had an extravagant lifestyle was part of the prosecution case against him at trial. On the prosecution's case he must have been running the cannabis factory to pay for the life style.[40]For all these reasons we allow the appeal against the confiscation order and, as we have said the order of the court will be: i) The benefit figure of £1,971,923.83 is confirmed. ii) The realisable assets are £215,000. iii) The confiscation order will be in the amount of £215,000 with three years in default and six months to pay.

Cited in 1 later judgment