R v Waya 2012 UKSC 51 (confiscation orders)

In R v Waya the Supreme Court were concerned with a defendant who had put £310,000 of his own money, honestly obtained, into a flat purchase, but who had told a few lies in his mortgage application. Years later his equity in the flat was worth £1.1m. The question was should he be ordered to pay an amount equivalent to his entire interest in that flat in confiscation proceedings under the proceeds of Crime Act 2002.

The Supreme Court ruled that he should not. It held that not only should defendants in such cases be allowed to keep the portion of the equity in their property at the time of the confiscation hearing equal to their original deposit, but they should also be allowed to keep the portion of the increase in the value of the property attributable to their original deposit.

Not only that but, where cash had been taken out of the equity in the flat by a second, honestly obtained mortgage, and that cash had been spent, the Supreme Court rule that the authorities should not be able to recover a sum of money equal to that cash.

The Waya judgment is long and complicated. All most practitioners will want to know is what the effect is. Here is my summary, with references in square brackets to the relevant paragraph numbers in the official transcript:

i. In order to comply with Article 1 Protocol 1 of the European Convention on Human Rights, section 6 of the Proceeds of Crime Act, the section requiring a court to make a confiscation order equal to a defendant’s “recoverable” benefit from crime, must be read as though it included the words “save insofar as such an order would be disproportionate” [16].

ii. Therefore judges should refuse to make confiscation orders that are disproportionate and should substitute orders they regard as proportionate [16].

iii. In giving guidance as to what might be “disproportionate” the court said:

o The operation of the “lifestyle assumptions” in the Act would not usually be disproportionate because they are applied only if doing so does not create a risk of serious injustice [25]. One inference that might be drawn therefore is that practitioners should pay a lot more attention as to whether the circumstances of their case might create a serious risk of injustice were the assumptions to be applied.

o The rule in R v May, allowing “double-recovery” in certain circumstances, and preventing defendants setting off expenses incurred in obtaining their benefit from crime is not disproportionate [26].

o Where all the benefit obtained by a defendant has been restored to the loser a confiscation order will be disproportionate [28].

o Situations analogous to the case of the benefit being fully restored to the loser “will have to be resolved on a case by case basis” [34].

o In cases such as Waya a proportionate confiscation order is likely to be “the benefit that the defendant has derived from his use of the loan, namely the increase in the value of the property attributable to the loan.” [35].

iv. The court did not give a view as to the situation in tax avoidance cases such as R v Smith (David)[33]. As regards its ruling on the facts of Waya itself the members of the Supreme Court was split. Seven of the nine members of the panel, led by Lord Walker and Sir Anthony Hughes, found as follows:

v. As a result of his fraudulent mortgage application, Mr Waya “obtained” a valueless chose in action in the £465,000 money transfer sent by his mortgage providers to the flat vendors [53][62].

vi. When the flat purchase completed that valueless right became represented by an interest in the flat. The value of that interest was the proportion of the total flat cost purchased by the mortgage, but minus the interest in the flat belonging to the mortgage company. Therefore the interest in the flat obtained by the fraud was initially £0. However, that interest would be worth 60% of any appreciation in the value of the property (the other 40% of the appreciation in value being attributed to the deposit)[70], [71].

vii. Following the remortgage, any money taken out of the property, and not reinvested in it by way of home improvements, would also represent the defendant’s benefit provided those funds could be identified at the time of the confiscation hearing. In this case the destination of the funds taken out of the flat by the remortgage could not be identified at the time of the confiscation hearing and therefore the defendant’s benefit did not include these funds [74].

viii. Where there had been a repayment of the outstanding mortgage (not by a remortgage but by the payment of untainted money by the defendant) that should be deducted from the benefit figure. Therefore where a defendant fraudulently obtains a repayment mortgage and then gradually reduces the amount of the outstanding mortgage by regular payments of untainted money the SC suggested counsel should be able to agree an adjustment to the final benefit figure to take account of this [77].

ix. The majority’s reasoning is summarised in [78 – 81]. It made a confiscation order of £392,400, reduced from the £1.1m order made by the Court of Appeal. The minority, Lord Phillips and Lord Reed, agreed with the analysis of how section 6 of POCA had to be read to comply with the Human Rights Act, see (i – iv) above. However, in relation to the application of the Proceeds of Act to the facts of the case the minority reasoned as follows:

x. The property initially obtained by Mr Waya was his equity in the flat purchased, i.e. around 40% of the property’s value [106].

xi. However, making a confiscation order on the basis of Mr Waya’s interest in the flat at the time of the confiscation hearing would be disproportionate because Mr Waya had paid a deposit of 40% of the original purchase price with funds that were untainted.

xii. Therefore the judge should determine Mr Waya’s “real benefit” and make an adjustment to ensure the final confiscation order was proportionate [114].

xiii. The “real benefit” would depend on the nature of the mortgage fraud. On the facts of this case the real benefit was advantage obtained in the terms of the mortgage Mr Waya obtained as opposed to the terms which would have been offered had he been truthful in his application [124].

xiv. There was no evidence as to what mortgage terms would have been offered had Mr Waya been truthful in his application. Therefore it was not possible to assess his real benefit from the fraud. However, given the lapse of the time it would not be appropriate to remit the matter to the Crown Court for a redetermination of the benefit. Therefore the minority would simply have quashed the confiscation order [125].

In my previous article on Waya I suggested how the Supreme Court should resolve the case, my reasoning was very close to that adopted by the minority. Now that the judgment has been given here are my thoughts on it:

The most important point in Waya of course is the “Human Rights point”. The Supreme Court held that in order to comply with the Article 1 Protocol 1 of the European Convention on Human Rights, which Parliament must have intended, section 6 of POCA must be read as though it included words stipulating that all confiscation orders must be proportionate.

The basis for that conclusion is not as obvious as you might expect. Nowhere in Article 1 Protocol 1 of the Convention does it say that interference with the peaceful enjoyment of property (which is the human right that article 1 protects) must be proportionate. The word “proportionate” isn’t mentioned at all. The concept of “proportionality” is an interpretation that has been placed upon the wording of Article 1 by the European Court of Human Rights and which therefore all other courts feel bound to adopt.

However, whatever its origins, it is now relatively clear law that the confiscation regime must be “proportionate”. In any event, in my opinion the fact that the Supreme Court held that the Proceeds of Crime Act must be applied in a way that is proportionate is not what is significant about the judgment. The significance is in what appears to be the changing attitude of the Supreme Court as to what is, and what is not, proportionate.

Before I come to that let me ask you a question: did you know that the “Human Rights Act point” in Waya wasn’t raised at all in the Court of Appeal? It even seems to have been a bit of an afterthought in the original arguments before the Supreme Court.

There is a reason for that.

The Supreme Court, or House of Lords as it then was, considered the question of proportionality in relation to the confiscation regime in the UK in the leading cases on confiscation prior to Waya: R v Jennings, R v Green, R v May. These were three cases heard by the same panel of judges and in which judgments were all given on the same day, 14th May 2008.

Back in 2008 it seems that the Supreme Court had a somewhat different view of proportionality. In those cases the court held that where a defendant had obtained the proceeds of drug-trafficking, or VAT evasion, jointly with co-conspirators, it was not disproportionate and was therefore entirely in accordance with the Human Rights Act to make a confiscation order against each defendant to the full value of the property obtained. In Green and May Article 1 Protocol 1 was referred to in their Lordships speeches. To be fair, in May the House of Lords said that there might be cases where such “double-recovery” might be disproportionate. In Green the court was more definite. It said:

“The [court] cannot, however, regard it as disproportionate to make an order depriving a defendant of a benefit that he has in fact and in law obtained, within the limits of his realisable assets”.

There is an argument that, four years later, and admittedly on very different facts, this is exactly what the Supreme Court has done: as a result of the mortgage application, as well as the deposit he put down, Mr Waya obtained in fact and in law a 40% share in the value of the flat. However, the court found that it would be disproportionate to order him to pay a sum of money equivalent to the present day value of that.

The majority of the court in Waya might disagree. They might argue that on their reasoning the only benefit that Mr Waya obtained as a result of his crime was the modest interest in the property that they identified. However it is clear from their reasoning that they came to this conclusion because they interpreted the words of the Act in accordance with their notion of what was proportionate or “fair”.

The problem at the root of all this in my opinion is that the provisions of the Proceeds of Crime Act as they appear on their face were never designed to be 100% “fair”.

Instead, POCA is designed to provide for the payment of sums of money to the public purse by those convicted of acquisitive crime. The amount of the sum of money was intended, in typical circumstances, to approximate what the defendant had received from his criminal activity, and it was to be no more than the defendant could actually afford, but to a certain extent it was an arbitrary figure.

The facts of Waya happened to be an example of one instance where the operation of the provisions of the Act, on the face of them, produced an acutely “unfair” result. This ruling of the Supreme Court cures the perceived unfairness in these circumstances. Furthermore, the Supreme Court has identified a second species of case where the operation of the Act may produce an “unfair” result; cases where all of the benefit from the offence has been returned to the loser. The court said that any confiscation order would be disproportionate in such cases.

However, having identified two sorts of cases where it has held that perceived unfairness should be remedied by applying the proportionality test, I think it will be very difficult for courts to avoid gradually moving to a position where in every case the test as to what the level of the confiscation order should be is simply: what is the fair, or “proportionate” order? Therefore the courts will be under pressure to move further and further away from the statement of the law as it stood in 2008; that depriving a defendant of a benefit which he had in fact and in law obtained was not disproportionate.

In conclusion, it is crucial to bear in mind that no system of confiscation of the proceeds of crime will be perfect. In particular, there is an inevitable trade-off between efficiency, and fairness. The balance in our system has shifted towards increased fairness.

The advantage of the Supreme Court’s decision in Waya is that it ends the situation whereby defendants with large deposits who make fraudulent mortgage applications, and defendants whose benefit from their offences has been returned in full to their victims, should nevertheless pay a very high price for their criminality.

A further advantage of the Supreme Court’s decision, it might be said, is that it avoided the additional costs and delay that would otherwise have been incurred by a further appeal of Mr Waya’s case to the European Court of Human Rights which, it might be argued, would have resulted in the same ultimate conclusion.

The disadvantages of the decision are that, first of all it means that the determination of the correct level of a confiscation order turns out to be significantly more complicated that was thought hitherto. That means the extent of the investigation and the legal work involved in many confiscation cases will increase.

Secondly, overall the amount of money the public might expect to receive by the operation of the Act will drop significantly.

Finally, at least for the next five years or so, there is likely to be a large increase in the number of confiscation orders that are contested in the Crown Court, and the number that are appealed to the Court of Appeal. The hearing of the 1st appeal in Waya took two years. That backlog looks likely to increase.

Written by David Allan.

David is a barrister at 23 Essex Street. He specialises in financial and organised crime and confiscation proceedings.

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11 thoughts on “R v Waya 2012 UKSC 51 (confiscation orders)

  1. David Winch

    Of course what a judge might consider to be not disproportionate might not accord with the view of the defendant (or his legal representatives) or with the view of the man in the street. The Supreme Court did add that an order would not be disproportionate merely because it involved “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”.

    Although it appears in Mr Waya’s case that – since he was permitted to retain part of the increase in the value of the residential property – the confiscation order did not attempt to restore him to his status quo ante.

    Reply
  2. David Allan (@DavidAllanLegal)

    Thanks David. I quite agree. You have got me thinking about the many parallels between the current system, of human rights law sitting alongside our UK statute law, and the now somewhat antiquated system in England and Wales of the law of “equity” sitting alongside the common law.

    Both human rights law and equity are designed to iron out unfairness caused by too strict adherence to “black-letter law”, both are based on broad principles and both can be criticised for being too uncertain.

    I like this criticism of equity from the C17th jurist John Seldon (courtesy of wikipedia):

    ‘Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one as if they should make the standard for the measure we call a foot, a Chancellor’s foot; what an uncertain measure would this be? One Chancellor has a long foot, another a short foot, a third an indifferent foot: ‘tis the same thing in a Chancellor’s conscience.

    His words could equally apply to the new concept of what is “disproportionate” could they not?

    Reply
  3. Dan Bunting

    Isn’t something disproportionate if the person assessing it disagrees with it?

    What surprised me was how readily the Supreme Court ‘read in’ words under the HRA (especially A1P1 which is so hard to succeed on). I think that this may come back to haunt them in future cases in other areas of law …

    Reply
  4. David Allan (@DavidAllanLegal)

    Quite right Dan, thanks for the comment. You’re right – “proportionality” doesn’t even appear in A1P1 so it is a bit of a surprise that the Supreme Court should be so ready to read it into POCA. I don’t think the point was argued as it was conceded on all sides before the Supreme Court that POCA should be read in that way.

    The big question is definitely going to be: what should we now take the requirement of proportionality to mean?

    Reply
    1. Dan Bunting

      I think it’s clear that proportionality is an aspect of it, but very surprised it seems to have been done so readily. Oh well! Interesting to compare to the whole life tariff case today where the LCJ was clear cut about the will of Parliament.

      One thing about Waya that I find very surprising is that there was no mention of the powers to take a compensation order out of a confiscation order where there is not enough for both, which seems to make it clear that Parliament had in mind orders being made that were disproportionate.

      Reply
    2. Dan Bunting

      “The big question is definitely going to be: what should we now take the requirement of proportionality to mean?”

      Something is disproportionate if the Judge doesn’t like it, proportionate if they do, and within the range of proportionality (is that a word?!) if the Judge isn’t sure?

      Reply
    1. David Winch

      My understanding is that confiscations are dealt with in the Crown Court and LSC funding for confiscations is (still) on an hourly rate basis (not a fixed fee). Funding for a forensic accountant’s report is under LSC prior authority. Funding for the forensic accountant’s attendance at Crown Court is via an application (by the witness, not the solicitor) direct to the court.

      In a case of any complexity it is, in my view, always worth considering instructing a forensic accountant (such as myself) to prepare a report. It gives equality of arms (or better!) with the financial investigator who has prepared the s16 report for the prosecution.

      David

      Reply
      1. Dan Bunting

        It is certainly a good idea in a case of any complexity to instruct a forensic accountant!

        I would be interested in seeing the total costs of all confiscation cases (defence, prosecution and court) versus how much these have recovered … I suspect that the ‘profit’ figure could be quite embarassing…

  5. Pingback: £1 confiscation order for Nicholas Levene, city financier guilty of £32 fraud | UK Criminal Law Blog

  6. Ged duffy

    What’s the situation where funds that have already been assessed in two other persons case, and orders made. Can these funds then be reassessed in a separate civil action

    Reply

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