Re L [2010] EWHC 1531 (Admin)

Case No DTA/43/2009[2010] EWHC 1531 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23 June 2010
THE HON MR JUSTICE HICKINBOTTOM
In the Matter of Re L
Hearing Hearing dates: 18 June 2010
Simon Gurney (instructed by Southerns) for the Applicant
Alex Mills (instructed by CPS Proceeds of Crime Unit) for the Crown
Judgment

Introduction

[1]The Applicant, L, seeks a certificate of inadequacy under section 17 of the Drug Trafficking Act 1994 in respect of his outstanding liability under a confiscation order made under section 2 of that Act by the Recorder of Burnley, His Honour Judge Bennett, in Burnley Crown Court on 27 May 2004. The application raises the important issue of how gifts caught by the Act should be treated in applications for a certificate of inadequacy.

The Relevant Statutory Provisions

[2]The confiscation provisions of the Drug Trafficking Act 1994 (and earlier statutes, in similar terms) have been substantially overtaken by the Proceeds of Crime Act 2002. However, where orders have been made under the 1994 Act, the scheme of that Act continues to apply. All statutory references in this judgment are to the 1994 Act, unless it appears otherwise.[3]Under the Act, where a defendant appears to be sentenced for a drug trafficking offence and the Crown seeks a confiscation order under the Act, the court is bound to determine whether the defendant has benefited from drug trafficking (section 2(2)). If it so determines, then the court is required to go on to determine “the amount to be recovered”, and make a money order against the defendant in that sum (section 2(4) and (5)).[4]The amount of the order is the amount the court assesses to be the value of the defendant’s proceeds of drug trafficking (section 5(1)). However, by section 5(3):
“If the court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of his proceeds of drug trafficking, the amount to be recovered in the defendant’s case under the confiscation order shall be (a) the amount appearing to the court to be the amount that might be so realised; …” (a) the amount appearing to the court to be the amount that might be so realised; …”
[5]“Amount that might be realised” is defined in section 6 (1):
“For the purposes of this Act the amount that might be realised at the time a confiscation order is made against the defendant is (a) the total of the values at that time of all the realisable property held by the defendant less (b) where there are obligations having priority at that time, the total amount payable in pursuance of such obligations, together with the total of the values at that time of all gifts caught by this Act.” “Realisable property” is defined in section 6(2) as: “(a) any property held by the defendant; and (b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Act.”
By section 8(1), a gift is “caught by this Act” if, amongst other things, “it was made by the defendant at any time since the beginning of the period of six years ending when the proceedings were instituted against him.…” (a) the total of the values at that time of all the realisable property held by the defendant less (b) where there are obligations having priority at that time, the total amount payable in pursuance of such obligations, “(a) any property held by the defendant; and (b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Act.”[6]Section 17(1) provides for circumstances in which the value of property as found by the court on making the order proves to be over-optimistic:
“If on an application made in respect of a confiscation order by [the defendant or an appointed receiver] the High Court is satisfied that the realisable property is inadequate for the payment of any amount remaining to be recovered under a confiscation order, the court shall issue a certificate to that effect, giving the court’s reasons.”
By section 17(3), where a certificate is granted, then the Defendant can apply to the Crown Court for the amount to be recovered under the order to be reduced.[7]All of those provisions relate to the amount of the confiscation order. The Act incorporates a number of provisions to facilitate enforcement of that order. A restraint order may be made against anyone restraining that person from dealing with any “realisable property” as defined in section 6(2), i.e. including any gifts caught by the Act (section 26). A charging order may be made on any such property for securing payment of funds due under a confiscation order (section 27): and a receiver may be appointed in respect of such property to realise assets towards sums due under a confiscation order (section 29). Furthermore, by section 9, the order may be enforced in the magistrates’ court against the defendant as if it were a fine imposed by the Crown Court, which itself is enforceable as a fine imposed by the magistrates’ court (section 41(1) of and schedule 9 to Administration of Justice Act 1970). One possible means of enforcement is by way of warrant committing the defaulter to prison (under section 76 of the Magistrates’ Courts Act 1980).

Background Facts

[8]The confiscation order in respect of which the Applicant now seeks a certificate of inadequacy under section 17 was made following the Applicant’s conviction on 19 December 2003 of conspiring to supply drugs, for which he received a substantive sentence of 3 years’ imprisonment. One of the Applicant’s alleged co-conspirators was W, a woman with whom he had had an earlier relationship and with whom he had a young child. In respect of W, she pleaded guilty to simple possession: the charge of conspiracy to supply was ordered to lie on the court file: and no confiscation order was made against her.[9]However, on 27 May 2004, a confiscation order was made against the Applicant by Judge Bennett, who found that the Applicant had benefited from drug trafficking. He assessed the value of the benefit obtained by the Applicant to have been £122,404.18 and determined that “the amount that might be realised when the confiscation order was made” was £26,711.53. An order was consequently made in these terms:
“On 27 May 2004 the [Applicant] was ordered: Confiscation Order under s2 Drug Trafficking Act 1994 for £26,711.53 or in default to serve 18 months’ imprisonment consecutive to any term of custody which [he] is liable to serve for the substantive offence…”
The Applicant sought to appeal against that order, but, following an oral hearing, the Court of Appeal refused leave on 21 November 2006.[10]Of the £26,711.53, the majority was at the time of the confiscation hearing already in the hands of the authorities in cash, but £12,183 represented a payment made by the Applicant to W in the following circumstances.[11]In September 2002, after the relationship between W and him had ended, the Applicant paid £10,000 to W by way of a deposit on a property in Colne, together with £2,183 in solicitor’s fees for the purchase. The property was purchased and registered in the sole name of W, and the Applicant has never lived there. W did not work, and had had no income since having the child. Both L and W claimed that this advance was a gift, and was part of the Applicant’s support of W and their child. They accepted that the gift was “caught by the [1994] Act”, in that it had been made within 6 years before the commencement of the confiscation proceedings (section 8). The Crown appear at one stage to have suggested that the advance was not a gift at all (paragraph 8 of the section 11 statement, 4 February 2004).[12]At law, the advance could have been either(i) an unconditional, outright gift, or(ii) an advance to assist the purchase of the property for the joint benefit of the Applicant and W. In the former case, the Applicant would have divested himself of all interest in the money, and would have had no interest in the property. It is trite law that, once an unconditional gift has been made, a donor cannot retrospectively attach a trust to it. However, in the latter case, if the Applicant advanced monies for the joint purchase of the property, then the usual presumption of a resulting trust in his favour would have applied. In those circumstances, the general principle is that the legal title is held on trust for the purchasers in the proportions in which they contributed to the purchase price. The purchasers have a concurrent interest in the property such that they can claim their due proportion on any future sale of the property.[13]The nature of the advance was considered to an extent at the 27 May 2004 confiscation hearing. The judge asked (at page 3A-B of the transcript) whether he was being requested “to make a formal finding that [the Applicant’s] interest in the house is limited to £12,183”. All three counsel - representing the prosecution, the Applicant and W respectively - agreed that that was the case. The judge then “declared that the interest of [the Applicant was] in the sum of £12,183 so, if the house is sold, that’s the sum that she will owe to [the Applicant]”. That appears confused because, if the advance had been a gift, the Applicant would have had no interest in the property: and if it had been a resulting trust, then the interest ought to have been, not the sum advanced, but a part of the value of the property pro rata to the sum advanced as a proportion of the value at the time of purchase.[14]If the Applicant did have an interest in the property, he has failed to take all reasonable steps to realise that interest and hence he would not be entitled to a certificate of inadequacy. However, before me it was common ground between the Applicant and the Crown that the advance was a gift. Further, on the evidence before me, it is still W’s view that it was a gift. In a letter of 2 March 2005, she indicated to the Crown that the money was given to her by L, and she had no intention of paying it back. Any proceedings to recover it, she said, would be “defended vigorously”. That letter was written in terms that appear to reflect a mind made up.

The Basis of the Application

[15]On the basis of that letter, Mr Gurney for the Applicant contends with force that the court can be satisfied that W will not voluntarily make any payment towards the confiscation order. Furthermore, he submitted that(i) as the advance was a gift, the Applicant has no basis upon which he can sue W to recover the money; and(ii) the Crown have indicated that they do not intend taking enforcement proceedings against W because such proceedings would not be commercially worthwhile. Consequently, it was submitted by Mr Gurney that the court can be satisfied that “the realisable property is inadequate for the payment of any amount remaining to be recovered under the confiscation order” - because the gift made is not “realisable property” - and therefore, under section 17 of the Act, the court is bound to certify inadequacy.[16]The issue is regarded as one of some importance by the Applicant, because he currently faces enforcement proceedings in relation to the confiscation order which may result in him being required to serve part of the default term of imprisonment (12 months being the appropriate part for the amount outstanding on the order).

Discussion

[17]The submissions of Mr Gurney were eloquently put, but they were apparently based upon the premise that a confiscation order is effectively an order in respect of specific property in the power or control of the defendant such that, if that property proves not to be realisable, then the order fails and the defendant is entitled to a certificate of inadequacy followed by a reduction in his liability under the order. That premise is false, and appears to be based upon a fundamental misunderstanding of the nature of a confiscation order and indeed the confiscation scheme in the Act as a whole. It fails to acknowledge the distinction drawn in the Act between how the amount of the certificate is calculated and (in the face of an application for a certificate of inadequacy) effectively maintained, and how that value may be realised.[18]A confiscation order is a money order against the defendant (section 2(5)(a)). It is an order in personam. Following an order, the Crown do not acquire any proprietary interest in any of the defendant’s assets: hence the need for restraint orders, prohibiting dealings with those assets (section 26).[19]It is true that the amount of any order is “the amount that might be realised” (section 5(3)): but that is defined in terms of the value of the defendant’s realisable assets net of charges on those assets “together with the total of the values at that time of all gifts caught by this Act” (section 6(1)). In relation to gifts caught by the Act, the scheme could have reinvested them in the donor defendant, but that is not the approach the Act takes (see, e.g., R v Richards [2008] EWCA Crim 1841; and Larkfield Ltd v HM Customs & Revenue Prosecution Office [2010] EWCA Civ 521 at [31] per Etherton LJ in relation to the substantively similar provisions of the Criminal Justice Act 1988). Reflecting the fact that a confiscation order does not interfere with the proprietary rights of the defendant himself, neither does it interfere with the proprietary interests of a donee in respect of such gifts. Until it comes to actual enforcement, the scheme of the Act works through orders in personam, not in rem.[20]However, in relation to gifts caught by the Act, the scheme does two things, directed towards the defendant donor and the donee respectively.[21]First, it includes the value of such gifts in the confiscation order made against the defendant (section 6(1). That order is a money order in an amount which the defendant is required to pay.[22]Second, it includes the actual gift as “realisable property” in the hands of the donee (section 6(2)), so that the Crown may (although they are not required to) take enforcement steps against the donee, in the form of a charging order or receivership which may attach to any such “realisable assets”.[23]It is therefore inherent in the scheme that the amount of a confiscation order may exceed the value of the defendant’s realisable assets, because that amount is “the amount which might be realised” which is defined not just in terms of the value of realisable assets in the power or control of the defendant but also the value of gifts caught by the Act. Gifts, by definition, cannot be in the power or control of the defendant for the purposes of realisation. The obligation to pay imposed on the defendant by the confiscation order on the one hand, and the enforcement steps available to satisfy that money sum (including the ability to recover from the donee of a gift caught by the Act) on the other, are entirely discrete matters under the scheme of the Act.[24]It seems to me that the construction I have identified - that the value of gifts must be included in a confiscation order, although those gifts are not themselves realisable by the defendant - is clear from the face of the Act itself. It is in my judgment unambiguously clear from the wording of section 6(1) when looked at alone, but also from the scheme as a whole.[25]Authority in relation to the point is not abundant and is largely obiter, but, such as it is, it supports that construction, without always holding firm and clear the distinction I have drawn between(i) gifts caught by the Act which are “realisable property” even in the hands of the donee (section 6(2)), and(ii) the value of such gifts which goes towards the “amount that might be realised” and hence the amount of the confiscation order made against the defendant (section 6(1)).[26]In R v Liverpool Magistrates Court ex parte Ansen [1998] 1 All ER 692 at page 701, May J said that the inclusion of gifts in the identically worded scheme of the Drug Trafficking Offences Act 1986:
“… 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.”
[27]R v Tighe [1996] 1 Cr App R (S) 314 is to similar effect. At page 316, Leggatt LJ said of the substantively identical terms of the Criminal

Justice Act 1988:

“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 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.”
[28]Mr Gurney sought to rely upon Re Houssam Ali [2002] EWCA Civ 1450 as support for the proposition that, where a section 17 applicant is able to prove “irrecoverability” then he is entitled to a certificate of inadequacy: but the comments of Dyson LJ (as he then was) in that case were in respect of a debt, not a gift. A gift is of course by definition in law “irrecoverable” by the donor. That, however, for the reasons I have given, does not prevent the value of a gift being included in the amount of a confiscation order. Houssam Ali does not give any support to the case advanced by Mr Gurney.[29]Mr Gurney submitted that, even if the original confiscation order properly took into account the value of the gift to W (and, in the face of section 6(1), he was minded to concede that it did), on an application for a certificate of inadequacy it is wrong to do so because the essential purpose of the confiscation jurisdiction is to ensure that defendants do not profit from their drug dealing, and to deprive a person of the profits of such dealing. Given that purpose, a certificate of inadequacy should (he submitted) be made if there is no possibility of the subject defendant being able to satisfy the order from assets that are in his power or control.[30]However, the submission again fails to construe section 17 in the context of the scheme as a whole. It is well-established that an application under section 17 cannot be used as a device for upsetting an original finding that an item is either “realisable property” within section 6(2) or that its value falls within “amount that might be realised” and hence within the amount of the confiscation order (section 6(1)) (see, e.g., Ansen at page 397c, Gokal v Serous Fraud Office [2001] EWCA Civ 368 at [17] and [24]). “Realisable property” is not restricted to “realisable property in the power or control of the defendant”. The “inadequacy” referred to in section 17 is the inadequacy of realisable property as valued at the time of the order. On an application for a certificate of inadequacy, the applicant must show what has happened in the position of or value in the realisable property since the making of the confiscation order - and why that has led to a diminution of value of the assets which informed the amount in the order (P v HM Customs & Excise [2005] EWHC 877 (Admin) at [20] per Beatson J). That must be so to make sense of the scheme as a whole - the scheme cannot have intended to include in a confiscation order the value of property over which the defendant does not have power or control, only to enable him to obtain a certificate of inadequacy in respect of that value because he has no power or control enabling him to realise that as an asset - and to avoid an application for a certificate of inadequacy being used effectively as an appeal mechanism against the original order.[31]In this case, there is no evidence that the position or value of the relevant property (including the gist to W) has changed since the making of the order. That W has been less cooperative in returning the gift than the Applicant might have hoped is not a matter that affects the value of the gift for the purposes of section 6(1), or the position or value of the “realisable property” in the hands of the Applicant or W for the purposes of section 6(2).[32]Therefore, in my judgment, where the value of a gift has been included in the amount of a confiscation order, it is not open to a defendant later to seek a certificate of inadequacy on the basis that he cannot realise or recover that gift. It is implicit in the statutory scheme that, where a defendant is unable to satisfy an order including the value of such a gift because he cannot himself realise that gift, the confiscation order will remain unsatisfied and the “realisable property” (which includes the gift in the hands of the donee) will not be inadequate for the purposes of section 17.[33]For those reasons, in my judgment the application for a certificate of inadequacy in legally misconceived, and the application is refused.

Note on Enforcement

[34]I make any comments on enforcement diffidently because, as I have explained, the amount of a confiscation order and available steps to satisfy the money sum are dealt with as separate matters in the scheme of the Act - and the issue before me did not concern enforcement steps, and I did not hear submissions on enforcement issues.[35]However, it seems to me that my conclusion with regard to how gifts caught by the Act are dealt with in confiscation orders and certificates of inadequacy does not necessarily mean that a defendant will face a term of imprisonment in default if he is unable to satisfy the confiscation order solely as a result of his inability to realise a gift caught by the Act that he has made. Section 31 requires powers conferred by the Act on the High Court, county court or a receiver to be exercised “with a view to making available for satisfying the confiscation order… the value for the time being of realisable property held by any person, by means of realisation of such property.” That does not apply directly to the exercise of powers by magistrates: but it seems to me that that mandatory steer in the Act should inform the exercise of those powers.[36]Enforcing magistrates are bound by the findings of the Crown Court which made the original order (including the finding that there is realisable property to satisfy the order) but, before issuing a warrant to commit, given that the primary purpose of a confiscation order is to deprive a convicted drug trafficker of the proceeds of his crime, “it is incumbent on justices to consider all methods of enforcement short of issuing a warrant of commitment in a [Drug Trafficking Act] case before doing so”, particularly when enquiries reveal that the value of remaining “realisable property” is still sufficient to satisfy the order the court is required to enforce: “The court should have considered all other methods of enforcing payment prior to the issue of a warrant of commitment which would have had the effect of abating the amount to be received under the order once the warrant of commitment took effect”. (R v Harrow Justices ex parte Director of Public Prosecutions [1991] 1 WLR 395 at page 398D-H per Stuart-Smith LJ).[37]I reiterate that these are not matters for me in this application - they do not bear upon the issue of how gifts should be considered in the context of an application for a certificate of inadequacy, which is the only issue before me - but they are matters which those enforcing the order may need to consider in due course in exercising their powers in respect of enforcement steps against the Applicant, including any warrant of committal.

Conclusion

[38]However, for the reasons I have given, this application for a certificate of inadequacy is refused.[39]The hearing of this application was in private, but this judgment is open and may be reported.

Cited in 1 later judgment