Modjiri, R. v [2010] EWCA Crim 829

[2010] EWCA Crim 829

Case No 200902811 B5

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CRIMINAL DIVISION)

ON APPEAL FROM THE CROWN COURT AT BLACKFRIARS

HIS HONOUR JUDGE HILLEN

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 22/04/2010

Before

LORD JUSTICE STANLEY BURNTON

MR JUSTICE DAVIS

HIS HONOUR JUDGE ROBERTS QC

(sitting as a Judge of the Court of Appeal Criminal Division)

Between

THE QUEENAppellant

HASSAN MODJIRIRespondent

Martin Evans (instructed by Proceeds of Crime Unit, CPS Organised Crime Division) for Appellant

Howard Godfrey QC and Adam Budworth (instructed by Lound Mulrenan Jeffries Solicitors) for Respondent

Hearing Hearing dates: 9 March 2010

Judgment

Lord Justice Stanley Burnton :

Introduction

[1]This appeal raises a point of considerable practical importance under the Proceeds of Crime Act 2002 (“POCA”), and indeed the earlier legislation relating to the confiscation of proceeds of crime. It concerns the valuation of a beneficial interest held by the defendant in property, where that beneficial interest cannot be realised separately from the property. The respondent contends that for the purposes of POCA in such circumstances the defendant’s interest has no value. The appellant contends that the value to be attributed to the defendant’s interest is that proportion of the market value of the property that his beneficial interest bears to the whole of the property.

[2]The importance of the issue will be apparent once it is appreciated that, if the judgment below is correct, a defendant husband’s 50 per cent beneficial interest in a valuable mansion worth many millions is likely to be found to have no value, so that, if that is his only asset (and there have been no tainted gifts), the only confiscation order that could be made against him would be for a nominal amount.

The facts

[3]The relevant facts are not in dispute. The respondent Amir Hassan Modjiri, his brother Amir Hossein Modjiri and his sister Neda Modjiri are the registered proprietors, and thus the legal owners, of the long lease of the second floor flat in the house at 10 Gunterstone Road, London W14 9BU. We shall refer to the leasehold flat as “the Property” or as “the Flat”. It was purchased, quite legitimately, by the respondent’s sister in 1998 with her own moneys. Out of familial duty and generosity, she caused the Property to be conveyed into the joint names of the three siblings. On 26 September 1998, they executed a Declaration of Trust with regard to the Property, the substantive provisions of which were as follows: “(1) The Registered Proprietors hereby declare that henceforward they hold the Property upon trust for themselves beneficially as tenants in common in the following shares:(a) as to 50% for Neda Modjiri absolutely

(b) as to 25% for Amir Hossein Modjiri absolutely

(c) as to 25% for Amir Hassan Modjiri [i.e., the respondent] absolutely (2) The Registered Proprietors hereby declare that the Property shall not be assigned nor shall any mortgage charge or lease be granted without the consent of all the Registered Proprietors.” (a) as to 50% for Neda Modjiri absolutely (b) as to 25% for Amir Hossein Modjiri absolutely (c) as to 25% for Amir Hassan Modjiri [i.e., the respondent] absolutely

[4]On 22 November 2006 the respondent was sentenced by His Honour Judge Hillen, sitting in the Crown Court at Blackfriars, to 7 years’ imprisonment for possession of cocaine with intent to supply. His sentence was reduced on appeal to 6 years’ imprisonment.

[5]On 1 May 2009, His Honour Judge Hillen gave judgment on the prosecution’s application for a confiscation order against the respondent. He held that the respondent’s benefit from his criminal conduct was £83,958.46. The judge proceeded to find the available amount. The respondent and his partner had purchased a house at 54 Castelenau Gardens, London SW13 that was jointly owned and subject to a mortgage, and it was agreed that his share of the equity was worth £6,128.14.

[6]The prosecution contended that his 25 per cent beneficial interest in the Property was also part of his free property and therefore to be included in the available amount at 25 per cent of the market value of the Property. The respondent contended that his 25 per cent interest would be impossible to sell, by reason of the prohibition against realisation contained in the Trust Deed. His siblings were unwilling to agree to the sale of the Property. It followed, he submitted, that its value was nil. Both parties adduced valuation evidence. The prosecution’s valuer opined that the market value of the Property as a whole was £240,000. Although he said that “a part share in property due to its lack of liquidity” would be difficult if not impossible to sell in the open market” he said that the District Valuer’s practice was to apply a discount of 10 per cent when valuing a shared interest; on this basis the respondent’s 25 per cent interest, sold as a shared interest, was worth 25 per cent of the total value less the discount of 10 per cent, i.e., £54,000. The respondent’s valuer valued the Property as a whole at £210,000. However, he considered the respondent’s beneficial interest to be of no value because as a part interest it was in practice unsaleable.

[7]The judge accepted the respondent’s case, and held that his beneficial interest in the Property had no value for the purposes of POCA, unless and until the three siblings agreed that the Property should be and it was sold. It followed that the available amount was only £6,128.14. The judge did not resolve the dispute between the valuers as to the market value of the Property itself, and made no finding as to its value.

The contentions of the parties

[8]The prosecution appeals against the judge’s decision. Mr Evans, on its behalf, largely repeated the submissions made to HHJ Hillen. He contended that the Property itself could be sold; that if necessary the respondent could make an application under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (“TLATA”) for an order for its sale without the agreement of his co-trustees; and that the judge should have included 25 per cent of the market value of the Flat in the available amount.

[9]For the respondent, Mr Godfrey QC submitted that section 79(3) of POCA required the respondent’s interest in the flat to be valued as such, and its value was nil for the reasons given by the respondent’s valuation expert.

The statutory provisions

[10]POCA requires the court to determine the defendant’s benefit from his criminal conduct and the available amount. The provisions of POCA relating to the valuation of property are applicable to both the determination of his benefit (section 76(7)) and the determination of the available amount. The recoverable amount to be made the subject of a confiscation order is the amount of his benefit or, if less, the available amount. By section 9(1), the available amount is the aggregate of:

“(a) the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority, and (b) the total of the values (at that time) of all tainted gifts.”

[11]In the present case there were no obligations having priority within the meaning of section 9 and there were no tainted gifts. We are therefore concerned only with the total of the values of the free property held by the respondent. “Free property” is defined by section 82: property is free unless there is in force an order in respect of it under the statutory provisions specified in section 82. In the present case, there were no such orders. Section 84 defines property and explains the meaning of references to property being held by a person: “84 Property: general provisions(1) Property is all property wherever situated and includes-- (a) money; (b) all forms of real or personal property; (c) things in action and other intangible or incorporeal property.

(2) The following rules apply in relation to property-- (a) property is held by a person if he holds an interest in it; (b) property is obtained by a person if he obtains an interest in it; (c) property is transferred by one person to another if the first one transfers or grants an interest in it to the second; (d) references to property held by a person include references to property vested in his trustee in bankruptcy, permanent or interim trustee (within the meaning of the Bankruptcy (Scotland) Act 1985 (c 66)) or liquidator; (e) references to an interest held by a person beneficially in property include references to an interest which would be held by him beneficially if the property were not so vested; (f) references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest or power; (g) … (h) references to an interest, in relation to property other than land, include references to a right (including a right to possession). (a) money; (b) all forms of real or personal property; (c) things in action and other intangible or incorporeal property. (a) property is held by a person if he holds an interest in it; (b) property is obtained by a person if he obtains an interest in it; (c) property is transferred by one person to another if the first one transfers or grants an interest in it to the second; (d) references to property held by a person include references to property vested in his trustee in bankruptcy, permanent or interim trustee (within the meaning of the Bankruptcy (Scotland) Act 1985 (c 66)) or liquidator; (e) references to an interest held by a person beneficially in property include references to an interest which would be held by him beneficially if the property were not so vested; (f) references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest or power; (g) … (h) references to an interest, in relation to property other than land, include references to a right (including a right to possession).

[12]The respondent’s beneficial interest in the Flat was clearly property within this definition (indeed, that is not disputed). By virtue of section 84(a), for the purposes of the Act the respondent is to be taken as holding the Flat itself.

[13]Section 79 is the important provision relied upon by the respondent. So far as material, it is as follows:

“79 Value: the basic rule (1) This section applies for the purpose of deciding the value at any time of property then held by a person. (2) Its value is the market value of the property at that time. (3) But if at that time another person holds an interest in the property its value, in relation to the person mentioned in subsection (1), is the market value of his interest at that time, ignoring any charging order under a provision listed in subsection (4). (4) …”

There were in this case no charging orders.

[14]The provisions of the Act as to enforcement receivers are relevant. Sections 50 and 51, so far as relevant, are as follows:

“50 Appointment (1) This section applies if— (a) a confiscation order is made, (b) it is not satisfied, and (c) it is not subject to appeal. (2) On the application of the prosecutor the Crown Court may by order appoint a receiver in respect of realisable property. 51 Powers (1) If the court appoints a receiver under section 50 it may act under this section on the application of the prosecutor. (2) The court may by order confer on the receiver the following powers in relation to the realisable property— (a) power to take possession of the property; (b) power to manage or otherwise deal with the property; (c) power to realise the property, in such manner as the court may specify; (d) power to start, carry on or defend any legal proceedings in respect of the property. (3) … (4) The court may by order authorise the receiver to do any of the following for the purpose of the exercise of his functions— (a) hold property; (b) enter into contracts; (c) sue and be sued; (d) employ agents; (e) execute powers of attorney, deeds or other instruments; (f) take any other steps the court thinks appropriate. (5) The court may order any person who has possession of realisable property to give possession of it to the receiver. (6) The court— (a) may order a person holding an interest in realisable property to make to the receiver such payment as the court specifies in respect of a beneficial interest held by the defendant or the recipient of a tainted gift; (b) may (on the payment being made) by order transfer, grant or extinguish any interest in the property. (7) … (10) Managing or otherwise dealing with property includes— (a) selling the property or any part of it or interest in it; (b) carrying on or arranging for another person to carry on any trade or business the assets of which are or are part of the property; (c) incurring capital expenditure in respect of the property.” (a) a confiscation order is made, (b) it is not satisfied, and (c) it is not subject to appeal. (a) power to take possession of the property; (b) power to manage or otherwise deal with the property; (c) power to realise the property, in such manner as the court may specify; (d) power to start, carry on or defend any legal proceedings in respect of the property. (3) … (a) hold property; (b) enter into contracts; (c) sue and be sued; (d) employ agents; (e) execute powers of attorney, deeds or other instruments; (f) take any other steps the court thinks appropriate. (a) may order a person holding an interest in realisable property to make to the receiver such payment as the court specifies in respect of a beneficial interest held by the defendant or the recipient of a tainted gift; (b) may (on the payment being made) by order transfer, grant or extinguish any interest in the property. (a) selling the property or any part of it or interest in it; (b) carrying on or arranging for another person to carry on any trade or business the assets of which are or are part of the property; (c) incurring capital expenditure in respect of the property.”

[15]“Realisable property” is defined by section 83 as “any free property held by the defendant” and “any free property held by the recipient of a tainted gift”.

Discussion

[16]The result of the judge’s finding is, in our judgment, surprising and there is illogicality in his conclusion, and indeed in the respondent’s case. We readily accept that it would be difficult to sell a part beneficial interest in a flat or house: leaving aside real estate investment trusts, which are formally constituted investment vehicles, there is no market in such interests. We doubt too whether it would be possible to borrow moneys from a bank or other lending institution on the security of such a beneficial interest. The flat or house in which the beneficiary has an interest will, of course, have a market value, but unless the trustees agree to the sale of the flat or house, the beneficiary cannot realise the value of his interest. In this respect, however, the situation of the Property in the present case is no different from that of any property vested in joint names on trust for the joint owners beneficially. Unless the joint owners agree, or an order is obtained for the sale of the property under section 14 of TLATA, the property cannot be sold. The fact that the beneficiaries have expressly agreed that a property is not to be sold without their unanimous agreement is a factor that the court will take into account on an application under section 14, but it does not preclude the court from ordering a sale in appropriate circumstances.

[17]Unless, therefore, the respondent’s partner had agreed to the sale of 54 Castelenau Gardens (and whether she had done so is not mentioned in the judgment), it was illogical to include half the value of the equity in that property in the available amount, while excluding totally the value of the respondent’s interest in the Property in question. We were told by Mr Godfrey that she had in fact agreed to the

[18]Furthermore, and perhaps more importantly, on the respondent’s case there is an unexplained difference between the provisions of POCA as to the value of the assets that may be included in the available amount and the provisions for enforcement of confiscation orders. In the present case, if the order made by the judge stands, once the respondent has satisfied the order by paying the amount of the order, £6,128.14, he may retain his beneficial interest in the Property until it is sold. If it is sold within 6 years of his conviction, and if the prosecution learn of the sale, they may apply for reconsideration of the order under section 21; but otherwise he may retain his interest, and after 6 years the Property may be sold and he may retain his proportion of the sale proceeds free of any confiscation order. Yet if the court makes a confiscation order on the basis that the realisable amount includes 25 per cent of the value of the Property, and the respondent does not satisfy it, the prosecution may apply for the appointment of an enforcement receiver under section 50. Once appointed, the receiver may take possession of and sell the Property under section 51, since his powers extend to the realisable property, which includes any free property held by the defendant, and by virtue of section 84(2) the Property itself is held by him by reason of his interest in it. Indeed, an enforcement receiver could seek an order under section 51(6) that the respondent’s siblings buy out his beneficial interest.

[19]Mr Godfrey accepted that the consequence of his submissions in the present case is that there is a disparity between the value of the property that may be included in the respondent’s free property for the purposes of the confiscation order and the value that may be realised by an enforcement receiver. He could not suggest any reason why Parliament should have intended there to be such a disparity. Its irrationality is emphasised by the fact that if the respondent failed to satisfy the present confiscation order, the prosecution could seek the appointment of an enforcement receiver who could decide to satisfy it by realising the respondent’s interest in the Property. Thus the curious position that has been reached is that if the market value of a beneficial interest in property is included in the calculation of available assets at its proportion of the market value of the property as a whole, the beneficial interest may be realised; but if it is not, it cannot be unless the defendant fails to satisfy a confiscation order the amount of which has been determined by reference to other assets. We do not think that Parliament intended this consequence.

[20]The effect of the respondent’s submissions is that a criminal who uses his proceeds of crime to acquire a part beneficial interest in property held on terms similar to those of the declaration of trust of 26 September 1998 must be assessed as having free property of nil value. Again, we do not think that Parliament could have so intended.

[21]Numerous confiscation orders made under POCA and earlier legislation have been made on the assumption that the market value of a part beneficial interest in real property is that proportion of the market value of the property as a whole that the part beneficial interest bears to the whole. In Davies

[2004] EWCA Crim 3380

, for example, the confiscation order had been made under the provisions of the Criminal Justice Act 1988. The defendant’s 50 per cent beneficial interest in the matrimonial home was valued at 50 per cent of the value of the house: the issue in the appeal was whether the costs of selling the house (and not, it will be noted, the costs of realising the beneficial interest in the house) should have been deducted from the anticipated sale price in arriving at the amount of the confiscation order. It was held that they should have been. In Ahmed and Qureshi

[2004] EWCA Crim 2599

[2005] 1 WLR 122

, another decision under the 1988 Act, the appellants’ half shares in the family homes were taken into account in determining their realisable assets, notwithstanding that their homes would have to be sold to meet the confiscation orders. There is no difference between the wording of the applicable provisions of the 1988 Act and the wording of POCA that could justify a different result under the later legislation, and no reason for Parliament to have made a change has been put forward. Richards LJ pointed out in Nottingham CPS v Rose

[2008] EWCA Crim 239

: 67. The 2002 Act brought together, within a single framework, the existing confiscation provisions relating respectively to drug trafficking and non-drug offences; but it can safely be assumed that Parliament, in enacting the legislation, did not intend to weaken the application of the existing confiscation regime or to exclude from it thieves and handlers of stolen goods. The Explanatory Notes to the Bill referred to the relevant part of the 2002 Act as "replacing separate drug trafficking and criminal justice legislation with a consolidated and updated set of provisions", and to clauses 79-81 as "broadly reproduc[ing] the property valuation principles set out in the existing legislation".

[22]The wording of section 79(3) is not crystal clear. Whether one construes “its value” as the value of the property or of the interest, the effect of the subsection is that it is only the value of the interest that is taken into account: otherwise the subsection would be otiose. “The market value of his interest” refers to the value of the interest of the person mentioned in subsection (1) rather than that of “another person”. The meaning and effect of the subsection have received little if any analysis by the text book writers. However, Current Law Statutes, annotated by David Thomas QC and others, states:

“The market value of the property is its market value at the time in question, less the market value of any interest held by another person in the property at that time.”

This is a statement of the effect of the subsection rather than an analysis of its wording. In fact, the equivalent provisions of the earlier legislation were clearer. Section 74(4) of the Criminal

Justice Act 1988 provided:

“… the value of property (other than cash) in relation to any person holding the property– (a) where any other person holds an interest in the property, is– (i) the market value of the first-mentioned person’s beneficial interest in the property, less (ii) the amount required to discharge any incumbrance (other than a charging order) on that interest; and (b) in any other case, is its market value.”

The wording of section 7(1) of the Drug Trafficking Act 1994 was so far as material the same. As already mentioned, no difference of substance was made by POCA. (a) where any other person holds an interest in the property, is– (i) the market value of the first-mentioned person’s beneficial interest in the property, less (ii) the amount required to discharge any incumbrance (other than a charging order) on that interest; and (b) in any other case, is its market value.”

[23]In our judgment, the error made by the judge in this case was to assume that section 79(3) of POCA is concerned with the realisation of property as well as its valuation. It is not. It does not require the court to assume that a beneficial interest has to be sold separately as such. The court must proceed on the basis that the defendant can obtain an order under TLATA (the provisions of which were not brought to the attention of the judge) for the sale of the property as a whole, and that he will on a sale receive his due proportion of the proceeds of sale. It follows that no discount such as that suggested by the prosecution’s valuer falls to be applied. The possibility that the defendant will not obtain an order for the sale of the property as a whole does not affect or diminish its market value (although the costs of obtaining the order may be relevant). A house does not have a market value of nil because a beneficial owner may not readily be able to obtain an order for its sale in order to realise its value. The same applies to the market value of a beneficial interest in the house. The suggestion that the market value of the beneficial interest is nil confuses market value (for the purposes of a valuation under POCA) with an individual’s personal difficulty in putting the house on the market or otherwise realising his interest in it.

[24]This conclusion is consistent with the decision of the Divisional Court in R (Ansen) v Liverpool Magistrates’ Court

[1998] 1 All ER 692

. In that case, the court had to consider a confiscation order made under the Drug Trafficking Offences Act 1986. There is no material difference between the provisions of the 1986 Act and those of POCA. May J, in a judgment with which Astill J agreed, said:

“Mr Talbot submits that the fact that an asset may be difficult to realise is simply not relevant. The provisions of the Act, he submits, define 'realisable property' in terms of s 5 and do not address any question of whether in practical terms it is difficult to recover the money. I agree with that submission for two reasons. Firstly, the definition of 'realisable property' includes property held by the defendant and by definition 'property' is held by any person if he holds an interest in it and the 'interest' in property includes a right. Accordingly, if, as Mr Ansen's affidavit indicates, the sum of approximately £8,500 held by agents in Germany is an amount which he is entitled to recover, then it is realisable property by definition irrespective of any difficulty in its actual recovery. Secondly, s 5(1)(b) of the 1986 Act, referring, as it does, to 'realisable property' including 'gifts caught by the Act', necessarily means that circumstances may arise where gifts which an applicant has made may be practically, even legally, irrecoverable, but they are nevertheless still regarded as realisable property under this draconian Act. The purpose of these draconian procedures is obvious: they are intended, as has often been said, to make it as difficult as possible for those who traffic in drugs to get away with the proceeds of that traffic. Accordingly, in my judgment, Mr Talbot is correct in his submission that the £8,500 paid in relation to this summer house is to be taken as realisable property.”

[25]It follows that the judge misinterpreted section 79(3). He should have included in the available amount 25 per cent of the market value of the Property, i.e. 25 per cent of the price at which the Flat would be expected to be sold less the costs of sale.

[26]In any event, we think that on an application made by the respondent under TLATA, if he could show that he had no other means of satisfying the confiscation order, the court would order the sale of the Property notwithstanding the provisions of the Declaration of Trust. The court would take clause (2) into account, but would also take into account the confiscation order, the policy of POCA and the likelihood that if an order for sale were not made an enforcement receiver would be appointed who would sell the Property. The policy of POCA was explained by this Court in Panesar

[2008] EWCA Crim 1643

: “8. The legislative policy of the 2002 Act and its predecessors is now very clear. Many decisions of this court have spoken of the draconian nature of the legislation. In Glatt

[2006] EWCA Crim 605

, Tugendhat, J, giving the judgment of the court, said of the Criminal Justice Act 1988 ‘A confiscation

[27]It is clear that if a defendant proves that it is impossible to realise an asset, what is contended as its value cannot be included in the defendant’s recoverable amount: see, e.g., Houssam Ali

[2002] EWCA Civ 1450

at paragraph 11; Chen

[2009] EWCA Crim 2669

at paragraph 27. But that is not this case. Similarly, such impossibility may justify a variation of the order under section 23.

[28]In May

[2009] EWHC 1826 (QB)

, His Honour

Judge Mackie QC, sitting a a judge of the High Court, said:

“18. … Once assets have been identified as relevant realisable property they may be recovered, subject to the protection afforded by sections 80(8) and 82(4) [of the Criminal Justice Act 1988]. They may be recovered from any trust or company irrespective of any legal obstacles or protections for the direct or indirect benefit of the Defendant which would otherwise arise under company or trust law. … If the position were otherwise, as I put it to Mr Casey, a master criminal, before embarking on a serious financial crime would be able to protect his assets, other than those directly obtained from the crime he was about the commit, by placing them all in trust. It cannot have been the intention of Parliament to make that possible leaving the victims with only the potential weapon of the law of insolvency to rely upon.”

We agree.

Conclusion

[29]For the above reasons, we shall allow the prosecutors’ appeal. We shall set aside the confiscation order made by the judge. Since the judge did not make a finding as to the market value of the Property, unless the parties are able to agree it will be necessary for this Court to determine it. We would hope that the parties can agree a figure. If they cannot, a short hearing may be required to decide when and on what evidence the determination should be made.

order

but the comment is still good. order:(1) is a penalty, and is a measure to which Article 1 of Protocol 1 is applicable;

(2) is designed to deter those who consider embarking upon criminal conduct;

(3) is designed to deprive a person of profits received from criminal conduct and to remove the value of the proceeds received from criminal conduct from possible use in criminal conduct;

(4) is designed essentially to impoverish defendants, not to enrich the Crown’ These sentiments apply equally to the 2002 legislation. See, for example, Nottingham CPS v. Rose