Reynolds & Ors, R, v [2017] EWCA Crim 1455

[2017] EWCA Crim 1455

Case No 201600371 B2, 201600372 B2, 201600377 B2, 201600375 B2)

IN THE COURT OF APPEAL (CRIMINAL DIVISION)

ON APPEAL FROM THE CROWN COURT AT LEICESTER

His Honour Judge Brown

T20127303

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

Date 06/10/2017

Before

LORD JUSTICE GROSS

MR JUSTICE GILBART

HIS HONOUR JUDGE AUBREY QC

(SITTING AS A JUDGE OF THE CACD)

Between

REGINAAppellant

(Transcript of the Handed Down Judgment.

Copies of this transcript are available from:

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Andrew Peet (instructed by the Crown Prosecution Service) for Crown

Adrian Harris (instructed by Artesian Law LLP) for First and Second Respondents

Tyrone Silcott (instructed by Walters Solicitors) for Third and Fourth Respondents

Hearing Hearing dates : 04 May, 2017

JudgmentAs Approved by the Court

Lord Justice Gross :

INTRODUCTION

[1]The Crown Prosecution Service (“the Appellant”) appeals to this Court against the valuation of benefit and, as will be explained, the provisions as to enforcement, in confiscation orders made by HHJ Brown on 21st December, 2015 (“the confiscation orders”), to which the Respondents were made subject. The confiscation proceedings themselves arose out of corruption in public sector contracting, a matter to be viewed very seriously indeed.

[2]On the 28th March, 2014, in the Crown Court at Leicester, before HHJ Brown, the Respondents were convicted of the offences listed below and, on the 9th May, 2014, before the same constitution, they were each sentenced as follows.

[3]Malcolm Farnish (“MF”) was convicted on 5 counts and sentenced in respect of each to 3 years’ imprisonment, concurrent. The counts were conspiracy to steal (count 2); conspiracy to commit fraud by abuse of position (count 3); conspiracy to convert criminal property (count 4); conspiracy to commit fraud by abuse of position (count 5); conspiracy to commit fraud by abuse of position (count 6). A further count (count 1), concerning misconduct in public office, was ordered to lie on the file in the usual terms.

[4]Stephen Reynolds (“SR”) was likewise convicted on counts 2 to 6 and was sentenced in respect of each to 2 years’ imprisonment, concurrent.

[5]Anna Reynolds (“AR”), the wife of SR, was also convicted on counts 2 to 6 and was sentenced in respect of each to 18 months’ imprisonment, suspended for 24 months, concurrent.

[6]Valerie Farnish (“VF”), the wife of MF, was convicted on counts 2 to 4 and sentenced to 12 months’ imprisonment, suspended for 24 months, concurrent. VF was acquitted by the jury on counts 5 and 6.

[7]Subsequently, the confiscation orders were made: i) In respect of MF, SR and AR, in the sum of £87,500, the order only to be enforced against each to the extent of one quarter, namely £21,875; ii) In respect of VF, in the sum of £50,000, the order only to be enforced against her to the same extent as against the other Respondents, namely, £21,875.

THE UNDERLYING FACTS

[8]Before the Judge and during the hearing before this Court, the matter proceeded on the basis that, between 8th December, 2004 and 11th October, 2010, a total of £381,978 was transferred into the account of Grounds Products Limited (“GPL”) from Leicestershire County Council (“LCC”). As will be seen below, some adjustment to the figures is now required but consideration of that adjustment is most conveniently deferred until later. GPL had been incorporated on 27th October, 2004, thus some 6 weeks before the first transfer. GPL’s sole customer over the next 6 years was LCC, a handful of de minimis individual supplies aside.

[9]Throughout this period, MF was employed by LCC. He was the Stores Controller within the LCC Highways Department and was responsible for sourcing and ordering, inter alia, industrial blades for use on the highway. VF was a part-time receptionist with the LCC; she was also, for a time, a director of GPL.

[10]The prosecution case was that GPL was established to supply highway blades solely to LCC. MF would order them on behalf of the LCC. GPL sold them to the LCC at a price between 2 and 4 times the cost price that had been paid for them.

[11]AR was a director of GPL. SR did not work for GPL but dealt with MF on his twice weekly visits to the LCC.

[12]The prosecution submitted that this was a case of two couples acting together in pairs. AR and SR would not have generated the income they did had it not been for MF working for the LCC. Equally, MF and VF would have made no gain had they not acted dishonestly.

[13]Some figures are indicative, if only by way of background. Although resigning her position with GPL, VF received £67,000 in dividends from GPL’s bank account. Over the material period, £113,800 in cash was paid into a joint bank account in the names of MF and VF – by contrast, in the six years prior to 8th December, 2004, £12,500 had been deposited in the same bank account. Taken together these dividends and cash deposits received by MF and VF amounted to approximately £181,000, thus 47% (or nearly half) of the total sums paid to GPL by LCC.

SENTENCING OBSERVATIONS

[14]The focus of HHJ Brown’s sentencing observations rested upon the loss suffered by LCC, rather than the gain made by the Respondents – and need to be read with that in mind.

[15]Dealing first with MF, the Judge observed that he had been employed by LCC in “a significant position of trust”. MF had the power to order goods from a range of suppliers and a significant budget to spend. “ You abused that position by placing contracts with a company in which you had a direct financial interest. That company (Ground Products Ltd.) was ostensibly set up by Anna Reynolds to supply the country council. In reality, I’m satisfied that it was the company of Stephen Reynolds set up by him in his wife’s name to supply the council with the goods mentioned. You Malcolm Farnish, and you, Stephen Reynolds, knew that between you a good profit could be earned in this way. This was public money. You Malcolm Farnish, had a duty to safeguard it.”

[16]Turning to the rival contentions as to the quantum of LCC’s loss, the Judge took into account that MF was supplying LCC “with goods which were needed and for which the council would have had to pay”. There was no complaint as to the quality of the goods supplied. The Judge was, however, satisfied that LCC “paid more than it should have for these goods”. Accordingly, there had been a “clear benefit” to the Respondents “by this fraud”.

[17]The Judge was not satisfied that the loss to LCC was “anywhere near” the figure suggested by the prosecution. He then said this: “ I am asked by Mr Peet [counsel for the prosecution] to put a figure on my approach to sentencing. Doing the best I can on all the evidence….before me, I’ve concluded that the loss to the council – and therefore the gain by Malcolm Farnish, Stephen Reynolds, and Anna Reynolds – was in the region of £75,000 to £100,000. The quantum in the case of Valerie Farnish is significantly less.” [Italics added]

[Italics added]

[18]Pausing there, two points may be remarked upon. First, the Judge gave no reasons for equating the loss to LCC with the gain to the Respondents and indeed could only have done so if he regarded the Respondents’ gain as confined to the element of over-charging. Secondly, the Judge gave no reason for saying that the quantum in the case of VF was significantly less than the quantum in respect of the other Respondents.

[19]Coming to the individual Respondents,

the Judge addressed MF in this way:

“ it was your breach ….[of your]….position of trust that led to this fraud being possible. Without it, there wouldn’t have been a fraud.”

[20]As to SR, the Judge concluded that GPL was his company and that he was more culpable than AR. He continued as follows:

“ You, with Malcolm Farnish, set up this conspiracy. You knew the product, you knew the suppliers and the market, and you had the expertise necessary to source and price these items.”

[21]For present purposes, it is unnecessary to say more as to the Judge’s sentencing observations in respect of AR.

[22]So far as VF was concerned, the Judge said that she was the “least involved” of the Respondents; he was satisfied that she had not been “involved in fraud from the outset”.

THE CONFISCATION PROCEEDINGS

[23]The argument before the Judge, together with the reasons underpinning the confiscation orders, appear from the Judge’s ex tempore Ruling, dated 21st December, 2015 (“the Ruling”).

[24]To dispose of one matter at the outset, it was not in dispute that this was a lifestyle offence, within the meaning of s.75 of the Proceeds of Crime Act 2002 (“POCA”), so that the assumptions contained in s.10 of that Act were applicable. However, it was further undisputed that the Respondents had not derived any criminal benefit from any source other than the present offences on which they had been convicted. Accordingly nothing further need be said as to lifestyle offences.

[25]The Judge recorded the outline of the prosecution case as follows. First, the loss to LCC was not the same as the gain to the Respondents. Secondly, the establishment and operation of GPL was fraudulent, ab initio. Thirdly, all the Respondents were liable on a joint and several basis, for all the joint criminal benefit but “they concede it should be divided as to one quarter share between each defendant”.

[26]The Defence case was that GPL supplied goods to LCC that were of value and for which LCC was willing to pay. This was not a case of a company fraudulent ab initio. Instead:

“….this was a legitimate company providing important goods to the Council, in respect of which the Council makes no complaint. The activity was fraudulent only due to the position of Mr Farnish and his obvious conflict of interest…..”

The Judge should follow his conclusion in the sentencing observations and assess the benefit to the Respondents as equal to the loss to LCC, in an amount between £75,000 - £100,000.

[27]The Judge observed that, having conducted the four week trial and, as the parties accepted, he was “best placed” to assess the issue of gain and loss. He had been referred to a number of authorities, including R v Waya

[2012] UKSC 51

;

[2013] 1 AC 294

; R v Sale

[2013] EWCA Crim 1306

;

[2014] 1 WLR 663

; R v Ahmad and Fields

[2014] UKSC 36

;

[2015] AC 299

. As required by Ahmad, the Judge had to deal with three questions:

“ (1) Has the defendant benefited from criminal conduct? (2) What is the value of that benefit? (3) What is the sum payable?”

There was no dispute that each Respondent had benefited from their criminal conduct. Accordingly, the material questions were (2) and (3). In approaching these questions, the Judge had in mind the important principle enshrined in Waya, namely, that the Judge had “….both the power and indeed the duty to ensure that when making an order for confiscation, that such order is not disproportionate”.

[28]The Judge was significantly influenced by the decision of this Court in Sale, to which we shall return in more detail below. The Judge noted that, in Sale, the Court found that the confiscation order should be based on the profit of the defendant, rather than the turnover of the defendant company. This was:

“notwithstanding the fact that all of the company’s contracts with Network Rail derived from the corrupt conduct of the defendant, and without whose criminal behaviour, there would have been no contractual arrangement with Network Rail and the defendant company at all.”

[29]The prosecution submitted that the Judge should rule that GPL was formed purely for the purpose of this fraud and that “all monies derived from the contractual dealing between the defendants, GPL, and LCC, are part of the criminal gain”. The Judge rejected this approach, saying that he preferred the approach of this Court in Sale.

[30]The Judge reiterated that GPL had provided a good product, which the LCC had needed; there had been no complaint as to the product/s on the part of LCC. The Judge then went on to say this:

“ Just as in …. Sale …., I find that on the facts of this case, the correct figure for the amount of gain to the defendants is the same figure which has been found to be the loss of the Council, in other words, the overpayment by the Council.”

On the specific facts of the case, though not always so, the loss to the LCC was the same as the gain of the Respondents.

[31]The Judge assessed that figure as between £75,000 - £100,000 and took the middle figure, i.e., £87,500. That figure applied to MF, SR and AR. In the case of VF, her benefit figure was £50,000. The benefit figure was to be apportioned equally between the Respondents, in the amount of £21,875. As the Judge made clear, enforcement against each Respondent was to be limited to that figure of £21,875. The entirety of the order was to be paid by way of compensation, because the premise of the Judge’s decision was that the Respondents’ benefit equalled the loss to the LCC.

THE RIVAL CASES ON THE APPEAL

[32]For the prosecution, Mr Peet submitted that the Judge had fallen into error on the value of the benefit. It was not disputed that over the period in question £381,978 had been paid by the LCC to GPL and thus to the Respondents jointly. Mr Peet did not, however, contend that the confiscation orders should have been made in this sum, reflecting GPL’s turnover. Instead, he contended that the confiscation orders should have been made in the amount of £381,978 less £94,421, reflecting expenses incurred by GPL in supplying the goods in question – so resulting in a figure of £287,557 representing the profit made by GPL on its sales to the LCC. That figure correctly reflected the benefit to the Respondents from the conduct in question. In rejecting the profit figure – in favour of amount ordered, equivalent to LCC’s loss – Mr Peet submitted that the Judge had erred in law. The effect of the confiscation orders, as made by the Judge, was to allow the Respondents to retain between them all but £87,500 of the £287,557 in profits generated by their criminal conduct. That could not be right nor was it intended by any of the authorities to which reference was made.

[33]On the Judge’s approach, the sum of £287,557 should be divided by 4, equally between the Respondents, producing a confiscation order to be enforced in the amount of £71,889 against each Respondent. There was, moreover, no evidential basis for distinguishing between VF and the other Respondents. In this respect too, the Judge had erred in law.

[34]On the question of enforcement against each Respondent, the Court questioned the approach adopted by the Judge and hitherto acquiesced in by the prosecution. On reflection, Mr Peet sought leave to amend so as to contend that the confiscation orders, if his appeal was otherwise allowed, should be capable of 100% enforcement against each Respondent subject only to the order precluding double (or multiple) recovery.

[35]For MF and VF, Mr Silcott submitted that there had been here, to begin with, a bona fide relationship; the vice lay in the over-charging on some but no means all, of the transactions. LCC would or, at least, could have been perfectly happy with some of the transactions (where there had been no over-charging), “…save…[for]…the fact that they were not informed of the conflict of interest” arising from MF’s position. The Judge had not found that the relationship was criminal from the beginning or that each and every transaction was tainted with criminality. Against this background, quantification was a difficult matter and the Judge’s equation of the benefit to the Respondents with the loss suffered by LCC constituted a fact specific conclusion. There had been no error of law and the Judge’s decision was to be upheld, both in respect of the valuation of the benefit and the question of enforcement; it was proportionate and in accordance with the authorities. The prosecution case involved going behind the Judge’s findings of fact.

[36]For SR and AR, Mr Harris submitted that the Judge’s findings and decisions properly applied the law and were consistent with the evidence in the case. Mr Harris emphasised that LCC needed the products supplied by GPL and those products were of an appropriate quality. The sales were “entirely proper”. The “associated illegality that tainted the contracts” lay in the “inflated price” charged over and above that which would have been charged by another supplier. The Judge’s approach had been correctly proportionate. GPL had not been founded for fraud – and had sought customers other than LCC, albeit he conceded that (effectively) 100% of sales had been made to LCC. As to enforcement, Mr Harris (with the support of Mr Silcott, as we understood it) resisted the prosecution’s application for leave to amend and any departure from the Judge’s conclusion as to the limits of enforcement. The Respondents had an expectation that enforcement against each of them would be limited to 25% of the total figure.

FINAL FIGURES – THE POST-HEARING NOTE

[37]In the course of the hearing before us, the question of VAT paid by GPL was raised – but without prior notice. We indicated that we would deal with this topic in our judgment and directed that a note be supplied, containing an “agreed schedule of turnover, expenses and VAT payments”. Such a note, agreed between counsel and dated 17th May, 2017 (“the Note”), was duly furnished.

[38]These figures – agreed as figures - were as follows: i) Gross turnover for GPL was £386,166.39 – a figure slightly higher than that used during the proceedings. ii) Expenses incurred by GPL, net of VAT, were £94,421 – the same figure as that utilised during the proceedings. iii) GPL paid VAT in an amount of £38,323.60. iv) GPL paid Corporation Tax in an amount of £45,764.31 – a matter volunteered in the Note and not previously flagged at the hearing.

[39]For completeness, the Note further included a figure for “gross expenses” in an amount of £108,849.29. Plainly the difference between “net” and “gross” expenses cannot be explained by the amount of VAT paid. No explanation was offered for the difference between gross and net expenses and we proceed on the footing that GPL incurred expenses in the amount of £94,421 – the figure agreed in the proceedings.

DISCUSSION

[40]Despite the industry of counsel and the care taken by the Judge, we are, with respect, clearly of the view that there were errors of law in the Ruling and that it cannot stand. In reaching this conclusion, we are very mindful that the Judge had the conduct of the trial and that some at least of his conclusions were acquiesced in by all concerned. Our reasons are best expressed under two broad headings:(i) (I) Valuation of the benefit;

(ii) (II) Enforcement.

I. Valuation of the benefit

[41](1) The legal framework: We begin with the statutory provisions, all contained in POCA. Where a defendant has a criminal lifestyle and the Court determines that he has benefited from his criminal conduct, the Court must decide the recoverable amount and make a confiscation order requiring him to pay that amount: ss. 6(4) and (5). The “recoverable amount” for the purposes of s.6 is “an amount equal to the defendant’s benefit from the conduct concerned”: s.7(1). There is a protection for a defendant, where he shows that the “available amount” is less than his benefit from the conduct concerned, with the result that the confiscation order is “capped” so as not to exceed the available amount: s.7(2).

[42]Under s.76(4), a person “benefits from conduct” if he “obtains property as a result of or in connection with the conduct”. Further, by s.76(7), if a person benefits from conduct, “his benefit is the value of the property obtained”.

[43]Turning to authority, we start with the decision of the Supreme Court in R vWaya

[2012] UKSC 51

;

[2013] 1 AC 294

. For present purposes, the importance of Waya lies principally in its treatment of the essence and purpose of confiscation orders, together with the requirement that such orders should be proportionate.

[44]The judgment of Lord Walker of Gestingthorpe JSC and Hughes LJ (as he then was) set out Article 1 of the First Protocol to the European Convention on Human Rights (“A1P1” and the “ECHR” respectively), which provides as follows:

“ Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. ”

The judgment then continued, as follows:

“12. It is clear law and was common ground between the parties, that this imports, via the rule of fair balance, the requirement that there must be a reasonable relationship of proportionality between the means employed by the state in, inter alia, the deprivation of property as a form of penalty, and the legitimate aim which is sought to be realised by the deprivation.”

[45]The judgment then furnishes an authoritative summary of the essence and purpose of confiscation orders:

“ 21. Both Mr Perry and Lord Pannick [for the Crown and the Home Secretary, respectively] submitted that it would be very unusual for orders sought under the statute to be disproportionate. Both drew attention to the severity of the regime and commended is deterrent effect. The purpose of the legislation is plainly, and has repeatedly been held to be, to impose upon convicted defendants a severe regime for removing from them their proceeds of crime….. It does not, however, follow that its deterrent qualities represent the essence ….of the legislation. They are no doubt an incident of it, but they not its essence. Its essence, and its frequently declared purpose, is to remove from criminals the pecuniary proceeds of their crime. Just one example of such declarations is afforded by the Explanatory Notes to the statute (paragraph 4): ‘The purpose of confiscation proceedings is to recover the financial benefit that the offender has obtained from his criminal conduct.”

[46]The ramifications of this regime appear from the following passage in the judgment:

“ 26. It is apparent from the decision in R v May [i.e., [2008] UKHL 28; [2008] AC 1028] that 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 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. These propositions are not difficult to understand. To embark upon an accounting exercise in which the defendant is entitled to set off the cost of committing his crime would be to treat his criminal enterprise as if it were a legitimate business and confiscation as a form of business taxation. To treat (for example) a bribe paid to an official to look the other way, whether at home or abroad, as reducing the proceeds of crime would be offensive, as well as frequently impossible of accurate determination…… Although these propositions 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, they are consistent with the statute’s objective and represent proportionate means of achieving it… 27. Similarly, it can be accepted that the scheme of the Act…. Is to focus on the value of the defendant’s obtained proceeds of crime, whether retained or not. It is an important part of the scheme that even if the proceeds have been spent, a confiscation order up to the value of the proceeds will follow against legitimately acquired assets to the extent that they are available for realisation.”

[47]Different considerations, however, applied where the benefit obtained by the defendant has been wholly restored to the loser. In such a case (at [29]), a confiscation order requiring the defendant to pay the same sum again did not achieve the object of the legislation but amounted to a fine and was therefore disproportionate. Moreover (at [34]), there might be other cases, analogous to those where goods and money had been entirely restored to the loser, where the making of a confiscation order might be disproportionate; those would need to be resolved on a case by case basis. “ Such a case might include, for example, the defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained. He ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration. ”

[48]This passage introduces the approach of valuing the benefit in some cases on the basis of the profits made by the defendant, rather than his turnover – as contemplated in (c) at [26]. The approach based on turnover leaves the defendant’s expenses out of account; the approach based on profits, permits the defendant to deduct his expenses (or some of them).

[49]R v Sale

[2013] EWCA Crim 1306

;

[2014] 1 WLR 663

was a decision of this Court, applying the profits based approach. The facts appear sufficiently from the head note:

“ In return for gifts and hospitality an employee of Network Rail arranged for the award of several high value commercial contracts to a company of which the defendant was the managing director and sole shareholder. The defendant was convicted of offences of corruption and fraud. The prosecution applied for a confiscation order… The company had carried out the work concerned without criticism as to its price or quality. In relation to the contracts the total sum paid to the company was a little over £1.9m, the gross value of the company’s profit was nearly £200,000 and the defendant’s personal benefit was £125,000. The sentencing judge held that when calculating the defendant’s benefit from his criminal conduct….the corporate veil should be lifted, with the result that the defendant’s benefit would be assessed as being the same as the total sum paid to the company under the contracts…..”

The defendant appealed, first, on the ground that the corporate veil should not have been lifted. He failed on that ground and we are not concerned with it. Secondly, the defendant appealed, successfully, on the ground that, in the light of Waya, the benefit figure had been assessed in a disproportionate amount. A proper understanding of that ground is of the first importance for the present appeal.

[50]The question for the Court was whether a confiscation order in the whole amount of the invoices paid to the company (some £1.9 million) was proportionate and, if not, in what sum the confiscation order should be made.

[51]Giving the judgment of the Court, Treacy LJ recounted the argument advanced by the appellant as follows (at [48]):

“ In seeking to persuade us that the figure of £1.9m would be disproportionate, great emphasis was laid upon the fact that, apart from the corruption underlying the offence, the contracts had been properly carried out and given full value to Network Rail. The expenses incurred in carrying out those contract by the company, some 90% of the total invoice price, were expenses which would have been incurred in the performance of any legitimately obtained contract. Those expenses represented management, administration, labour, materials, and other ordinary business overheads. Such payments were to be distinguished from the expenses of criminal activity itself, such as the cost of the bribes or favours for which no credit was claimed.”

[52]After carefully considering Waya, Treacy LJ observed (at [52]) that Sale was not a case “analogous to one where goods or money have been entirely restored to the loser”. While it was true that Network Rail had obtained value for money:

“…the defendant had obtained contracts for his company by corrupt means on a continuing basis so that every contract obtained was tainted by it. Moreover, in a case of this nature it is wholly unrealistic to regard Network Rail as the only victim of the crime. Corruption of this nature clearly impacts on others. The company obtained contracts with a client with whom it had no previous business relationship. Existing contractors with Network Rail were cheated out of the tendering process. The substantial market in Network Rail contracts of this type was distorted, with the company gaining a market share to the detriment of others. Tendering costs were avoided. ”

[53]After further consideration of Waya, Treacy LJ expressed his conclusions as follows:

“ 56. ….had this been an offence whose only criminal effect was upon Network Rail which had been provided with value for money achieved by the performance of a contract which required the company to expend moneys in the ordinary course of business, it would have seemed to us proportionate to limit the confiscation order to the profit made, and to treat the full value given under the contract as analogous to full restoration to the loser. 57. However, we have already alluded to the pecuniary advantage gained by obtaining market share, excluding competitors, and saving on the costs of preparing proper tenders. A proportionate confiscation order would need to reflect those additional pecuniary advantages and, it seems to us, that an order for profit gained under these contracts, together with the value of pecuniary advantage obtained, would represent a proportionate order which would avoid double counting…. ”

[54]In short, a proportionate confiscation would have extended to both(1) the profit made by the appellant’s company plus

(2) the pecuniary advantage gained by the market distortion achieved through the corruption tainting every contract obtained. However (at [58]), the Court was prevented from making a confiscation order in respect of (2), because no analysis had been undertaken in respect of pecuniary advantage. The Court only had before it figures for turnover (£1.9m), company profits (£197,000) and the defendant’s personal benefit (£125,000).

[55]In those circumstances and given its (with respect, wholly understandable) unwillingness to direct a rehearing, the Court (at [60]) opted for a confiscation order in the amount of company profits (£197,000 odd). That was generous to the appellant as it failed to take account of the pecuniary advantage identified above (ibid) but the Court had no material enabling it to put a value on that advantage and thus to increase the amount of the confiscation order. Treacy LJ added this (ibid):

“ In cases of this nature in the future, it is to be hoped that prosecutors will be alert to this aspect of the case, so that the real benefit or pecuniary advantage derived by the wrongdoer can be identified. ”

[56]In the upshot, the Court quashed, as disproportionate, the confiscation order made in the amount of the turnover figure (£1.9 million odd) and replaced it with a confiscation order in the amount of the profits concerned (approximately £197,000).

[57]In R v King (Scott)

[2014] EWCA Crim 621

; [2014] 2 Cr App R (S), the Court, held, on the facts, that the business conducted by the appellant was founded on illegality. It was severe but not disproportionate to remove the gross takings of this inherently unlawful business: see, [33] – [34]. For present purposes, the interest in this decision lies in the distinction to which Fulford LJ alluded, at [32]:

“ The authorities reveal that there is a clear distinction to be drawn between cases in which the goods or services are provided by way of a lawful contract (or when payment is properly paid for legitimate services) but the transaction is tainted by associated illegality (e.g. the overcharging in Shabir or the bribery in Sale), and cases in which the entire undertaking is unlawful (e.g. a business which is conducted illegally, as in Beazley). When making a confiscation order, the court will need to consider, amongst other things, the difference between these two types of cases. It is to be stressed, however, that this divide is not necessarily determinative because cases differ to a great extent, but it is a relevant factor to be taken into account when deciding whether to make an order that reflects the gross takings of the business.”

[58]Pulling the threads together for present purposes: i) The confiscation order regime is and is intended to be severe - but not disproportionate: Waya, passim. ii) As is clear from both statute and authority, the purpose of confiscation orders is to deprive wrongdoers of the financial benefit obtained from their criminal conduct: Waya, at [21]. iii) At first blush, certainly in a great many POCA cases where the Court is concerned with what is no more and no less than a criminal enterprise, turnover (i.e., the gross proceeds received) will provide the proper measure of the wrongdoer’s benefit. In such cases, the expenses incurred by the wrongdoer will be disregarded: Waya, at [26]. This proposition was vigorously endorsed in the still more recent Supreme Court decision, R v Harvey

[2015] UKSC 73

;

[2017] AC 105

, especially but not only in the dissenting judgments of Lord Hughes and Lord Toulson JJSC, at [54] – [57] and [98] – [100] respectively. iv) In some cases, for example, where legitimate goods or services are supplied but the business or transaction in question is otherwise tainted, it may be appropriate to make a confiscation order in the amount of the wrongdoer’s profits (i.e., net proceeds), permitting him to deduct the expenses incurred in supplying the goods or services in question: Sale (passim); King, at [32]. (For completeness, whether the true scope for the application of the “profits” approach may at some stage require revisiting in the light of the observations in Harvey, is not a question arising for consideration in this case.) v) In cases where business has been obtained by corruption, prosecutors should be alert to the pecuniary advantage likely to have been obtained by market distortion and thus forming an additional benefit to the wrongdoer, capable (if properly quantifiable) of increasing the amount of a confiscation order where the measure adopted has otherwise been limited to the amount of the wrongdoer’s profits: Sale, at [60]. vi) The amount lost by the loser is generally irrelevant save(a) where, coincidentally, it equals the amount of the wrongdoer’s benefit; and/or

(b) where the wrongdoer has fully restored the benefit to the loser, so that to require the wrongdoer to pay the same amount again would be disproportionate: Waya, at [29].

[59](2) Applying the law to the facts: We begin by emphatically rejecting the attempt by counsel for the Respondents to characterise the essential vice here as the over-charging of LCC in respect of some but not all transactions. Over-charging was indeed a vice in those transactions where it occurred – but it was a part only of a taint which extended to the entirety of the transactions between GPL and LCC. That taint lay in the betrayal by MF of his position of trust arising from his employment by the LCC, upon which the entire conspiracy was founded. It was that betrayal of trust which facilitated the corrupt placing of orders with GPL; it involved a conflict of interest which infected all the transactions in question and resulted in the earning of secret profits. That the LCC might have done business with GPL had it known the truth and that the products supplied were legitimate goods required by LCC and for which it would otherwise have had to pay other suppliers, is neither here nor there at this stage of the argument. This is hornbook law and any suggestion to the contrary is untenable.

[60]The relevance of the products being legitimate and that there was no complaint as to their quality – as distinct from the pricing of some transactions – is that it properly raised the question of whether the measure of the Respondents’ benefit should be confined to profits (net of expenses) rather than turnover (gross proceeds). In the event, the prosecution disclaimed seeking a confiscation order in the amount of GPL’s turnover (i.e., £386,166.39, as finally established). Instead the prosecution sought a confiscation order in the amount of GPL’s turnover less its quantified expenses (i.e., £94,421). Given that corruption of this nature is, at the very least, inherently and overwhelmingly likely to distort the market and given that (notwithstanding Treacy LJ’s observations in Sale, supra) no exercise had been undertaken to quantify any pecuniary advantage thus gained by the Respondents, the measure for which the prosecution contended was inherently generous to the Respondents.

[61]It follows, in our judgment, that (subject to any adjustment required in respect of VAT or Corporation Tax payments, dealt with below) there was no answer to the prosecution contention that the value of the benefit accruing to the Respondents jointly was £386,166.39 less £94,421 = £291,745.39.

[62]Once the case is thus analysed, we are, with respect, driven to conclude that the Judge erred in law and that the Ruling cannot stand: i) First, the Ruling appears to overlook the Judge’s earlier sentencing observations which, rightly, spoke of MF’s abuse of a significant position of trust as the foundation for the placing of contracts with GPL, a company in which MF had a direct financial interest. It is implicit in those sentencing observations that MF’s abuse of his position of trust lay at the heart of the conspiracy. If so, it is inescapable that all the transactions in question were thus tainted. ii) Secondly, it may be that the Judge, in the Ruling, misunderstood the prosecution case, thinking that Mr Peet was arguing for confiscation orders based on turnover. It is, however, clear that that was not the prosecution’s case. iii) Thirdly, that the products were good and that no complaint had been made as to their quality was or might have been a good answer to a case (had one been made) for a confiscation order based on turnover; but it was not a good or any answer to a case for a confiscation order based on profits. iv) Fourthly, the Ruling betrayed a misunderstanding of the decision in Sale. The decision in Sale did not equate the benefit to the defendant with the loss to Network Rail; as already discussed, on the material available to the Court in Sale, the confiscation order in that case was confined to the defendant’s profits. There was no discussion of the loss to Network Rail. v) Fifthly, though couched as a conclusion of fact, there was no material before the Judge capable of supporting his decision that the correct figure for the gain to the Respondents was the same figure as the loss sustained by LCC. Such a conclusion would be striking indeed; it would confine the confiscation order to the amount of the Respondents’ over-charging - and would permit the Respondents’ retention of all but £87,500 of the £291,745.39 profit generated by their criminal conduct. No doubt there can be cases where the benefit to the wrongdoer equates to the loss sustained by the loser. However, for that to be so here would require a remarkable coincidence and the absence of any profit element, other than in respect of the over-charging. The evidence here is, however, quite to the contrary.

[63]On the view we take, there is plainly no scope for any different valuation of the benefit obtained by VF. Accordingly, that part of the Ruling which held that VF’s benefit was confined to £50,000 is unsustainable. It was, with respect, wrong in law and unsupported by any evidence.

[64](3) VAT and Corporation Tax: Before coming to our final conclusion as to the figure for the Respondents’ joint benefit, it is necessary to address the GPL payments of VAT and Corporation Tax, addressed in the (post-hearing) Note. As will be recollected, GPL paid VAT in an amount of £38,323.60 and Corporation Tax in an amount of £45,764.31.

[65]We propose to deal with these topics almost summarily. Not only did they arise, as it were, by way of afterthought and without any or any detailed argument before us but their treatment has been authoritatively considered by the Supreme Court in R v Harvey (supra), itself a “turnover” case. In a nutshell, the Supreme Court highlighted the well-established principle that the POCA regime is concerned with what is obtained not what is retained: Lord Hughes, dissenting but not on this point, at [54]; see too, Waya, at [27]. Accordingly, the fact that income tax or corporation tax had been paid in respect of a sum of money or an asset acquired as a result of criminal conduct could not be invoked to reduce the value of the benefit obtained by the wrongdoer. The position as to VAT would have been the same but, as held by the majority, for the impact of A1P1, which resulted in different considerations applying. Where a defendant discharged the burden of establishing that he had accurately accounted to Her Majesty’s Revenue and Customs (“HMRC”) for VAT, it would be disproportionate to include the same amount in the confiscation order – that would give rise to unacceptable double-counting.

[66]We accordingly conclude that the amount of the benefit jointly obtained by the Respondents from their criminal conduct must be reduced by £38,323.60, reflecting the VAT paid by GPL but that no further reduction is to be made in respect of the Corporation Tax paid by GPL.

[67](4) Conclusion on valuation of benefit: For the reasons already given, we conclude that the benefit jointly obtained by the Respondents from their criminal conduct is to be valued as £291,745.39 less £38,323.60 = £253,421.79.

II. Enforcement

[68]This is a short point. It will be recollected that the Ruling limited enforcement against each Respondent to one quarter of the total benefit jointly obtained (and a higher proportion in the case of VF, given the lower valuation of the benefit accruing to her). In fairness to the Judge, in this regard, he was following the approach adopted by the prosecution.

[69]For our part, this approach to enforcement was plainly untenable in law and we accordingly grant the prosecution’s application for leave to appeal. We can see no unfairness to the Respondents in doing so, apart (at most) from some very minor adjustment in terms of the costs of the appeal.

[70]The true principle appears clearly from the Supreme Court decision in R v Ahmad and Fields

[2014] UKSC 36

;

[2015] AC 299

, at [71] et seq, in the judgment of Lord Neuberger PSC, Lord Hughes and Lord Toulson JJSC. While the legitimate aim of the confiscation order regime would not be served by permitting the State to take the same proceeds twice over (and A1P1 would be violated if such a course was followed), the solution does not lie in limiting enforcement against each defendant to a percentage of the benefit jointly obtained. Instead:

“ 74. ….where a finding of joint obtaining is made, whether against a single defendant or more than one, the confiscation order should be made for the whole value of the benefit thus obtained, but should provide that it is not to be enforced to the extent that a sum has been recovered by way of satisfaction of another confiscation order made in relation to the same benefit…… 75. ….the confiscation order will be for the full amount obtained by the conspirators against each defendant, but its enforcement more than once will be prevented.”

[71]Earlier, that judgment in Ahmad had already disposed of the argument that this approach might produce “inequity” between criminal conspirators, because some might obtain a “windfall” if the confiscation order was paid by another or others. However:

“ 73. ….that is an inherent feature of joint criminality. If the victim of a fraud were to sue the conspirators and to obtain judgments against them, he would be entitled to enforce against whichever defendant he most easily could. The losses must lie where they fall, and there is nothing surprising, let alone wrong, in the criminal courts adopting that approach.”

[72]It follows that, in principle, the confiscation orders in the present case should be made in the full amount of £253,421.79 against each Respondent but with a suitably drafted proviso that its enforcement more than once will be prevented.

[73]Furthermore, the Court has very recently (indeed, subsequent to circulating the draft judgment) been made aware that there are concerns as to whether confiscation orders in the full amount of the joint benefit (i.e., £253,421.79) will exceed the available amount in respect of at least some of the Respondents, at the date of this judgment. In the circumstances, the Court will give the parties a short period of time (indicated below) to agree the available amount in respect of each Respondent at the date of this judgment, failing which the issue of the available amount will need to be remitted to the Crown Court for determination.

III. Overall conclusion and form of order

[74]To the extent indicated, we allow the appeal in respect of both the valuation of the benefit and enforcement. The correct valuation of the benefit is £253,421.79, not £87,500 or £50,000 (in the case of VF). The confiscation orders are enforceable in full against each Respondent subject to: i) Enforcement not exceeding the available amount in respect of any Respondent at the date of this judgment; ii) Preventing enforcement more than once.

[75]With regard to the available amount at the date of this judgment, the parties should have 14 days from the date of this judgment to agree the amount/s in question – i.e., until close of business on Friday 20th October. Failing such agreement, this issue will be remitted to the Crown Court for determination.

[76]We would be grateful for the assistance of counsel in drawing up an order giving effect to these conclusions. Furthermore, the order should reflect that whereas the entirety of the Judge’s order was to be paid by way of compensation – given his equation of the Respondents’ benefit with the LCC’s loss – that will no longer be the case. Finally, the order as drawn up should of course take into account any sums already paid.