P v HM Customs & Excise [2005] EWHC 877 (Admin)

[2005] EWHC 877 (Admin)Case No CJA/44/2005
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11/05/2005
Before
MR JUSTICE BEATSON
Between
PApplicantHM CUSTOMS AND EXCISERespondent
Mr D Leader (instructed by Black & Co) for ApplicantMr J Dennison (instructed by HM Customs & Excise) for RespondentHearing Hearing date: 26 April 2005
JudgmentMr Justice Beatson :
[1]On 25 November 1999 the applicant was convicted of smuggling cigarettes into the United Kingdom contrary to section 170(2) of the Customs and Excise Management Act 1979. He was subsequently sentenced to 4 years imprisonment. On 31 August 2000 at Leicester Crown Court Mr Recorder Jose made a confiscation order against him under Part VI of the Criminal Justice Act 1988 in respect of the benefit from the offence. The rules and presumptions governing confiscation orders in Part VI of the 1988 Act, described as “rather artificial” by Schiemann LJ in Re May Yoong Forwell [2003] EWCA Civ. 1608, paragraph 5, involve a two-stage process. The second stage requires the Court to value various assets, referred to as “realisable property”, which either are or are deemed to be within the possession and control of the defendant. The amount of the confiscation order is based on the value of what falls to be treated as the defendant’s “realisable property” under the statutory scheme. In some circumstances the Court may treat property which the defendant has given to others as if it had remained in his ownership and control. On 31 August 2000 the total value of the “realisable property” the applicant had or was deemed to have was held to be £50,031.33. He was ordered to pay this sum, or in default to serve a consecutive sentence of eighteen months imprisonment. Following further proceedings (on which see paragraph 6 below), on 2 June 2003 the sum to be paid was reduced to £26,964.83.[2]The Applicant has paid £20,508.06 of the sum due. He now applies for a certificate of inadequacy under section 83 of the 1988 Act on the ground that the “realisable property” is inadequate for the payment of the amount outstanding under the order. Where the High Court issues a certificate of inadequacy an application may be made to the Crown Court under section 83(3) of the 1988 Act for the amount to be recovered under the order to be reduced. By section 83(1):
“If, on an application by the defendant in respect of a confiscation order, the High Court is satisfied that the realisable property is inadequate for the payment of any amount remaining to be recovered under the order the court shall issue a certificate to that effect, giving the court’s reasons.”
Where the Court is so satisfied, subject to section 83(2), it must grant a certificate: see Re May Yoong Forwell, paragraph 20. Section 83(2)(a) concerns the realisable property of a person who is bankrupt and is not relevant in the present case.

(b) , for the purposes of section 83(1):

“the court may disregard any inadequacy in the realisable property which appears to the court to be attributable wholly or partly to anything done by the defendant for the purpose of preserving any property held by a person to whom the defendant had directly or indirectly made a gift caught by this part of the Act from any risk of realisation under this part of the Act.”
At issue in this application is whether the “realisable property” is indeed inadequate and, if so, whether the Court should disregard any of such inadequacy pursuant to its power under section 83(2)(b).[3]Before turning to the submissions on the application for a certificate of inadequacy, it is necessary to set out the basis upon which the Learned Recorder made the confiscation order and the reason it was subsequently varied. I have referred to the two-stage process involved in the making of a confiscation order under Part VI of the 1988 Act. The first stage, which is not relevant to the present application, requires the Crown Court to identify and value the benefit received from the offence. In this case 1.25 million cigarettes were smuggled and the benefit was held to be £187,343. Turning to the second stage, I have stated that, under the legislation, a person’s “realisable property” can include property not owned or under the control of that person. So, by section 74(1)(b) of the 1988 Act, the defendant’s “realisable property” includes property held by a person to whom the defendant has directly or indirectly made a gift caught by Part VI of the Act. By section 74(10) a gift is caught by Part VI of the Act if,(a) it was made by the defendant at any time after the commission of the offence, and(b) the Court considers it appropriate in all the circumstances to take the gift into account.[4]A significant part of the hearing before the Recorder concerned submissions made as to the position of the equity in a house, 60 Queens Road, Hinckley. This house is owned and occupied by the applicant’s former partner Ms IM. It was purchased in 1998 in Ms IM’s name after the commission of the offence by the applicant and his arrest in March 1997. The applicant had previously owned and occupied a property at Ridden Road. From 1994 he occupied that property with Ms IM and later with their child, but it remained registered in his name. The equity in the Queens Road house, valued at £42,000, was substantially derived from the sale of the Ridden Road property.[5]On this matter the issue before the Recorder was whether, in the exercise of his discretion under section 74(10), the equity in the Queens Road house was a gift caught by Part VI of the 1988 Act. After considering the circumstances and the timing of the gift and other factors, in particular that some £17,500 had been dissipated in the eighteen months prior to the confiscation hearing, he concluded that it was appropriate to take the gift into account. Accordingly, by section 74(1), the equity in the Queens Road house became one of the applicant’s realisable assets. The Recorder held the total value of the applicant’s realisable property to be £50,031.33. He arrived at this figure by adding to the £42,000 in respect of the equity in the Queens Road house, £261.93 in a National Westminster Bank account, and £7,769 in respect of an Abbey Life Insurance Policy. At the hearing it was said on behalf of the applicant that the policy was worth £7,769 and was due to mature in 2001. There was apparently no appeal from this order although, as I explain in the next paragraph, it was varied.[6]The Recorder gave the defendant 12 months to pay to allow for the sale of the Queens Road house. The house was not sold and the Respondent, H.M. Customs and Excise, now called H.M. Revenue and Customs, instituted receivership proceedings. Ms IM intervened in those proceedings and the matter came before Mitchell J. on 12, 13 and 14 February 2002. Mitchell J held that only £18,933.50 of the equity in the Queens Road house represented “a gift from the defendant to the intervener caught by Part VI [of the Act]”. His Lordship granted Ms IM permission to appeal, but she did not, according to Mr Leader because she was ill and the Applicant did not want to subject her to the stress of an appeal. The matter then came before the Leicester Crown Court on 4 June 2003. That Court reduced the confiscation order to a total of £26,964.83 to reflect Mitchell J’s decision that only £18,933.50 represented a gift from the applicant to Ms IM caught by Part VI of the Act and thus “realisable property” within the Act.[7]With this background, I return to the application that the Court issue a certificate of inadequacy. The applicant has made a witness statement dated 3 March 2005 in support of his application. Stephen Burton, a lawyer attached to the Revenue & Customs Prosecution Office, has made a statement in opposition to the application.[8]The material part of the applicant’s statement states:
“5. In so far as the sum of £18,933.50 is concerned, it should be noted that the Court declared this to have been a gift by me to Ms IM and comprises part of the monies invested in 60 Queens Road. That property is registered in the sole name of Ms IM and is the home of her and our 11 year old child. As such I am unable to realise whatever financial interest I may have in that property. 6. By February 2004 I had paid various monies to Hinckley Magistrates Court thereby reducing the balance then to £8,664.83. 7. In the course of the application for a confiscation order it had been identified that I had previously taken out a life insurance policy with Abbey Life and at that time the policy had a fund value of £7,769.40. That figure had, I believe, been taken into account when fixing the amount of the confiscation order. When I surrendered the policy it only had a surrender value of £2,208.06 and on 2 June 2004 I paid that sum to Hinckley Magistrates Court thereby reducing the balance to £6,456.77 at that time (i.e. £8,664.83 minus £2,208.06). 8. Had the surrender value (rather than the fund value) been taken into account in the calculation for the confiscation order, then the amount specified would have reduced by £5,561.34 (i.e. £7,769.40 minus £2,208.06) to £21,403.49.” 9. To date I have paid the sum of £20,508.06 towards the confiscation order leaving a balance outstanding of £6,456.77 (i.e. £26,964.83 minus £20,508.06). This balance would reduce to £895.43 if the figure were to be recalculated using the actual value of the Abbey Life Policy as referred to above (i.e. £21,403.49 minus £20,508.06). 12. I do not have the means to pay the outstanding balance of £6,456.77 or the interest. 13. My financial circumstances are that I have no capital (apart from my interest if any in 60 Queens Road), assets or resources of any kind, other than my personal clothing or adornments and other personal items which, if sold, would not realise any significant value.”
[9]Mr Leader, on behalf of the Applicant, stated that since the applicant has no further assets he inevitably faces a return to custody in default of payment. Had the insurance policy yielded the amount estimated at the time, or had the surrender value rather than the fund value been taken into account in valuing the policy, when the confiscation order was made the outstanding balance would only be £895.43. Interest must be added to the sum outstanding. Mr Leader stated that the interest to the date of the hearing amounts to approximately £9,200. The applicant’s understanding when he made his statement (see paragraph 10) was that the interest calculation by the Magistrates Court was made by reference to the original sum specified in the confiscation order and takes no account of the payments made by him.[10]Mr Leader submitted the inadequacy of the realisable property arises because the surrender of the defendant’s Abbey Life policy on 2 June 2004 realised £5,561.34 less than the value placed on the policy by the Recorder when he made the confiscation order, and because the Queens Road property is not an asset within the Applicant’s control. Mr Leader submitted that, unless the Court exercises its discretion under section 83(2)(b) to disregard any inadequacy, it is manifest that the realisable property is inadequate. Mr Leader submitted, relying on the decision in Re May Yoong Forwell, that the Court should not so exercise its discretion.[11]Mr Dennison, on behalf of the Respondent, submitted that the application should not be granted because it is in effect an attempt to appeal against the orders made. The proper way to do this was by appeal, and there was no appeal against the order of the Recorder to the Court of Appeal (Criminal Division) or against the order of Mitchell J to the Court of Appeal. In any event he submits, this Court has no power to issue a certificate of inadequacy because the applicant has been deemed to have realisable assets of a sufficient value to satisfy the order and that could be so used.[12]Mr Leader took the sum received under the insurance policy as his starting point of his submissions, and I deal with his submissions on this first. It is, however, the status and treatment of the portion of the equity in the Queens Road house that has been held to be the applicant’s “realisable property” that is of central importance to the application. This is because the outstanding balance due on the order is less the value of that portion of the equity in the Queens Road house. It would appear that this is the position because the applicant has made payments on account of the order from sources that were not included in the calculation of his realisable property when the confiscation order was made.[13]The insurance policy was surrendered on 2 June 2004 in order to satisfy the outstanding balance of the confiscation order following discussions and correspondence between his solicitors and HM Customs and Excise. Mr Leader submitted that it was on the basis of advice by the Customs and Excise that the applicant surrendered the policy and applied for a certificate of inadequacy. He argued that it was implicit in the correspondence between his solicitors and the Customs and Excise that they would not oppose his application for a certificate of inadequacy. Once the policy was surrendered and this application was made, however, they decided to oppose it. Mr Leader argued that in these circumstances the applicant should be granted a certificate of inadequacy. He relied on a fax dated 31 March 2004 and a letter dated 12 May 2004 from Jeanelize Maritz of the Customs and Excise Solicitor’s Office to the applicant’s solicitors.[14]In my judgment there is nothing in the correspondence or in the evidence before me to justify the inference that Mr Leader invited me to make. There is nothing in the correspondence to justify the inference that HM Customs and Excise would not object to a certificate of inadequacy being granted. The fax was sent in response to a letter of 11 March from the applicant’s solicitors which is not before me. The material part of the fax states:
“I assume from your letter that you are referring to the cash free lump sum of £2,165.69 when you suggest the payment of the ‘entire benefit of the Abbey Life policy’ by your client towards payment of his confiscation order. Please note that these funds have to be paid to the Leicester Magistrates’ Court and not to HM Customs & Excise (“HMCE”). HMCE does not have the necessary authority to accept this offer in full and final settlement of the confiscation order. In terms of the Drug Trafficking Act 1994 any shortfall in terms of the confiscation order can only be rectified by applying to the High Court for a Certificate of Inadequacy and thereafter by referring the matter to the Crown Court to arrange for the amendment of the original order.”
After stating that she had asked for an adjournment of an enforcement hearing scheduled for the next day Ms Maritz stated that she looked forward to hearing from the applicant’s solicitors regarding the issues raised in the fax as a matter of urgency. The letter dated 12 May 2004 states:
“I refer to my telephone conversation of 31 March 2004 with your Mr Black, during which conversation the possibility of your client utilising the cash lump sum from his Abbey Life policy (approximately £2,000) for payment of his confiscation order and applying for a certificate of inadequacy in respect of the outstanding balance. I note that to date this office has not received any firm proposals from your client regarding payment of his outstanding confiscation order. In the circumstances I should be grateful if you would revert to me in this regard as a matter of urgency.”
[15]Mr Leader gets no support from the applicant’s statement. The applicant does not state that he relied on HM Customs and Excise not opposing this application when he surrendered his policy. Nor is there evidence from his solicitors to this effect. In view of the nature of Mr Leader’s submission, the absence of any evidence by the applicant’s solicitor as to the exchanges with the Respondent and their understanding of them is surprising. In any event, section 83(1) requires the Court to be satisfied that the realisable property is inadequate. It is not a matter that can be determined by exchanges between the subject of the order and the prosecuting authority.[16]The fundamental point here is that the fact that the policy realised less than anticipated when the order was made cannot in itself enable the Court to grant a certificate of inadequacy. Even taking account of the smaller than anticipated sum from the insurance policy, the outstanding balance of £6,456.77 is less than the £18,933.50 Mitchell J held represented a gift from the applicant to Ms IM caught by Part VI of the 1988 Act and thus part of his “realisable property”. This remains the position if the estimated £9,200 interest due is added. The resulting total of £15,656.77 is still less than the portion of the equity in the Queens Road house that has been held to be the applicant’s realisable property. Section 83(1) requires the Court to be satisfied that the realisable property is inadequate and, since the value of the remaining property held to be part of the applicant’s realisable property exceeds the amount outstanding, the Court cannot be so satisfied. That this is so is shown by the decision of the Divisional Court in R v Liverpool Magistrates Court, ex p. Ansen [1998] 1 All ER 692. In that case sums held to the applicant’s account by others and treated as his realisable property exceeded the amount unpaid on the order. May J, with whom Astill J agreed, stated (at p. 702) that in the light of this, there was no need for it to consider whether there was any inadequacy in other items of realisable property, or whether to disregard that under section 14(2)b of the Drug Trafficking Offences Act 1986, the equivalent of section 83(2(b) of the 1988 Act. This was because, in May J’s words, on the facts of that case “the applicant fail[ed] to establish the conditions necessary for a certificate of inadequacy”. During the course of the hearing Mr Leader in effect accepted that the shortfall in the insurance policy did not in itself justify issuing a certificate. He invited me to take account of the shortfall and the circumstances surrounding the surrender of the policy as part of the wider picture in considering whether to disregard any part of any inadequacy pursuant to section 83(2)(b). I therefore turn to the position of the Queens Road house.[17]In putting the fact that Queens Road property is not an asset within the Applicant’s control at the core of his submission that it is manifest that the realisable property is inadequate, Mr Leader recognised that the authorities are against him. This is clearly so. In giving the judgment of the Court of Appeal (Criminal Division) in R v Tighe [1996] 1 CrAppR(S) 314 concerning the 1988 Act, Leggatt LJ stated (at p. 316) “It is plain that Parliament was prepared to contemplate that money might be and continue to be realisable even if it had been the subject of gift or gifts by the defendant. And so it is, that a fact that gifts have been made will not save a defendant from the making of a confiscation order. That demonstrates, in our judgment, that the recovery of money in these circumstances is only one factor which the Court must take into account in exercising its discretion.” I have referred to R v Liverpool Magistrates Court, ex p. Ansen which concerned the identically worded provisions in the Drug Trafficking Offences Act 1986. May J stated ([1998] 1 All ER 692, at p. 701) that the inclusion of gifts as realisable property caught by that 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.”
In the present case the Recorder, after due consideration, concluded that it was appropriate to treat the equity in the Queens Road house as a gift caught by Part VI of the 1988 Act. The effect of Mitchell J’s order was that only a proportion of the equity was to be so treated. There was no appeal from either decision.[18]The second hurdle for Mr Leader is that it is well established that the procedure under section 83(1) and analogous provisions in other confiscation legislation is not to be used as a device to appeal against the original finding that an item of property is realisable property within the legislation: See R v Liverpool Magistrates Court, ex p. Ansen,at p 697 c-d; Gokal v Serious Fraud Office [2001] EWCA Civ. 368, paragraphs 17 and 24; Re O’Donoghue [2004] EWCA Civ. 1800 paragraphs 3 and 12. It is also clear that in an application under section 83(1) and analogous provisions in other confiscation legislation it is equally improper to seek to show that it was inappropriate for the confiscation order to include a gift as a person’s realisable property: Gokal v Serious Fraud Office, paragraph 37; R v Liverpool Magistrates Court, ex p. Ansen,at p. 701. In Gokal’s case the Court of Appeal affirmed the decision of Newman J striking out an application for a certificate of inadequacy which was an attempt to go behind the original confiscation order as an abuse of process.[19]Mr Leader’s skeleton argument states that this application does not represent an attempt to go behind the findings made by previous courts but is made on the basis that the Respondent is inviting the Court to exercise its discretion under section 83(2)(b). He relied on the decision of the Court of Appeal in Re May Yoong Forwell. Section 83(2)(b) and the discretion under it, however, only come into play once the Court is satisfied that the “realisable property” is inadequate. In Re May Yoong Forwell Schiemann LJ stated (at paragraph 19) this to be the “primary task” of the Court. Before the Court can consider whether to “disregard any inadequacy” an inadequacy must be established. Dyson J in Re S (unreported) 10 October 1994 stated in a passage quoted in Mitchell, Taylor and Talbot on Confiscation and the Proceeds of Crime paragraph 7.006 that the function of the Court involved:
“a factual inquiry into the value of the realisable property at the time the matter comes before the court…. The realisable property either is or is not adequate. If it is inadequate, the court is required to issue a certificate and give its reasons.”
Accordingly I accept Mr Dennison’s argument that the power in section 83(2)(b) and the principles as to its exercise it contained in Re May Yoong Forwell are only relevant if section 83(1) is engaged.[20]In applying for a certificate of inadequacy an applicant must show what has happened to the realisable property or to part of it since the making of the confiscation order. In Gokal’s case it was said (paragraph 24) that evidence as to this is “crucial” to the grant of a certificate of inadequacy. In the present case the only change that has been shown is to the insurance policy and in the light of the valuation by Mitchell J of that part of the equity in the Queens Road house that he held to be a gift caught by the Act and thus realisable property, that change does not suffice to demonstrate an inadequacy. The applicant has shown no change since the confiscation order in the position of or value of the equity in the Queens Road house or the position or value of the portion that Mitchell J held to be a gift caught by the Act.[21]Apart from his submissions based on the shortfall in the proceeds from the insurance policy and the circumstances surrounding its surrender, which I have rejected (see paragraphs 13 – 16 above), Mr Leader submitted a certificate of inadequacy should be issued in this case for the following reasons. First, the gift was to enable the applicant’s then partner and their child to house themselves. If the house has to be sold it is not clear that Ms IM would be able to house herself and her daughter. Secondly, unlike the applicant in ex p. Ansen, the applicant has no means of realising assets to pay the outstanding sum. Thirdly, the applicant has tried to satisfy the order and has paid the lion’s share. None of these concern the value of the portion of the equity in the house held to be his realisable property, and the first two reasons are matters that were apparent to the Learned Recorder and taken into account by him when he made the original order. As far as the third reason is concerned, as I have noted it does appear that the applicant has made payments on account of the order from sources that were not included in the calculation of his realisable property when the confiscation order was made. But, adapting what May J stated in R v Liverpool Magistrates Court, ex p. Ansen (at p. 701) in the context of drug trafficking, the purpose of these draconian provisions is obvious, they are intended to make it as difficult as possible for those who profit from the specified criminal activity, here smuggling, to get away with the proceeds of that smuggling and to winkle out proceeds that have been hidden. Subject to consideration of the decision in Re May Yoong Forwell it thus appears that in substance this application is indeed an attempt to go behind the finding that £18,933.50 of the equity is a gift caught by the Act and is thus the applicant’s realisable property.[22]Re May Yoong Forwell concerned the provisions of the Drug Trafficking Offences Act 1986. Sections 14(1) and 14(2)(b) of the 1986 Act are in identical terms to sections 83(1) and 83(2)(b) of the 1988 Act. Gibbs J refused to grant the applicant, the former wife of a major drug trafficker, a certificate of inadequacy. Pursuant to section 14(2)(b) of the 1986 Act, he disregarded an inadequacy in sums in a bank account in the Far East which had constituted a gift caught by the 1986 Act and thus the applicant’s realisable property. The inadequacy arose because sums had been withdrawn from the account and used for the support and education of the applicant’s children. Gibbs J disregarded the inadequacy because he decided that following the making of the confiscation order, the applicant substantially contributed to those funds being placed beyond the reach of the confiscation order. The Court of Appealheld that Gibbs J had not sufficiently articulated his reasons for disregarding the inadequacy in the light of the fact that an applicant who dissipates her own assets after the making of the confiscation order is entitled to a certificate of inadequacy. It stated (paragraph 23) that it was inclined to construe the discretion in section 14(2)(b) to disregard any inadequacy attributable to anything done by the defendant for the purpose of preserving any gift caught by the Act from any risk of realisation narrowly.[23]I have, however, concluded that this decision does not assist the applicant. Although the Court of Appeal proceeded (see paragraph 18) on the basis that at least in relation to some of the sums which had been held by the sentencing Court to be part of the “realisable property” there had been no material change since the date of the making of the confiscation order, its primary focus was on the money that had been spent after the confiscation order was made. In paragraph 14 of its judgment the Court stated that Parliament undoubtedly made provision “for situations in which there has been a change in circumstances since the date of the making of the confiscation order”, and the headings before paragraphs 13 and 19 of the judgment refer to “change since the making of the confiscation order”. Moreover, paragraph 31 of the judgment considers a contrast (considered to be without a moral distinction) between the position of an applicant who dissipates her own assets after the making of the confiscation order, who is entitled to a certificate of inadequacy, and one who facilitates their disposition by a person to whom she has given them. Gibbs J also proceeded on the basis that the money was spent after the confiscation order was made: see the references to disposition of the money after the date of the order in paragraphs 27 and 31 of his judgment, set out in paragraph 28 of the judgment of the Court of Appeal.[24]Moreover, the treatment of Gokal’s case, which was before the Court of Appeal in Re May Yoong Forwell, suggests that in the latter case the Court was concerned with post-confiscation order events. After referring to Gokal’s case and the cases cited in paragraph 7.007 of Mitchell, Taylor and Talbot on Confiscation and the Proceeds of Crime, the Court stated that it was proceeding on the basis that a challenge to the conclusions of a sentencing court in making a confiscation order can only be by way of an appeal to the Court of Appeal (Criminal Division) and that to do so by an application for a certificate of inadequacy amounts to an abuse of process: see paragraphs 16-18. Even if some of the money was withdrawn before the confiscation order was made, it seems clear that some was withdrawn and used for the benefit of the children after the date of the order. Since in Re May Yoong Forwell withdrawals from the account occurred after the confiscation order was made, it is distinguishable from the present case where there is no evidence of any change affecting the equity in the Queens Road house or its value after the order was made.[25]I therefore conclude that the applicant has shown no change in the position of the portion of the equity in the Queens Road house that has been held to be a gift caught by the 1988 Act since the date of the confiscation order. As its £18,933.50 value is greater than the amount outstanding on the order, the property validly deemed to be realisable property is not inadequate for the payment of that amount. Accordingly, section 83(1) of the 1988 Act is not engaged. As was the case in R v Liverpool Magistrates Court, ex p. Ansen (see paragraph 16 above), on the facts of this case the applicant has failed to establish the conditions necessary for a certificate of inadequacy. This application is misconceived and is dismissed.[26]The hearing of this application was in private but this judgment is given in open court and may be reported.

Cited in 1 later judgment