In this issue
Welcome
Ill-gotten gains and Unexplained Wealth Orders: A new game of hide and seek?
Co-operation need not lead to loss of privilege: SFO v ENRC revisited.
Assessing the Value of Benefit: Gross Turnover or Profit?
Business crime and the draft Sentencing Code
Regina v ALI BAHBAHANI [2018] EWCA Crim 95
R (on the application of Gibson) (Appellant) v Secretary of State for Justice (Respondent) [2018] UKSC 2
Assessing the Value of Benefit: Gross Turnover or Profit?
 
David Hislop QC
David Hislop QC

By David Hislop QC


In the recent Court of Appeal decision in R v Reynolds & Farnish [2017] EWCA Crim 1455 the CA dealt with the sometimes difficult problem in confiscation proceedings in valuing the benefit to a defendant of the criminal proceeds for the purposes of the making of a confiscation order.

 

This issue arises in confiscation proceedings when the Judge, asks the three principle questions as were summarised in R v May [2008] UKHL 28 (see Endnote) and recently repeated and affirmed in R v Ahmad and Fields [2014] UKSC 36 (see para.34):

  1. “Has the defendant benefited from relevant criminal conduct?
  2.  If so, what is the value of the benefit?
  3. What sum is recoverable?”

The issue plainly stated is do we value the benefit to offenders by reference to profit or turnover? Are expenses taken into account?

The legal framework is contained in POCA 2002. 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”.

 

Turning to authority in R v Waya [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.

 

It follows from the above that on the face of it in the majority of cases the value of benefit will be the “property obtained” and that will be the turnover or gross figure. But it may not always be the case. 

 

In Reynolds & Farnish over a six-year period, M and V worked for a local authority as a stores controller within the highways department and a receptionist respectively. During that period, M used one company to supply highway blades to the local authority. The company had been established with V and X as directors. S regularly visited M at the local authority. As its sole customer, the company sold the blades to the local authority at up to four times the cost price. The prosecution argued that the company was established for the sole purpose of supplying the blades to the local authority, that the two couples were acting together, that S and X would not have generated the income they did had M not worked for the local authority, and that M and V would have made no gain had they not acted dishonestly. In considering the confiscation orders, the judge relied on R v Sale [2013] EWCA crim 1306 saying that in Sale that the   court found that the order should be based on the defendant's profit rather than turnover. He noted that the goods supplied were legitimate and no complaint had been made as to their quality. The local authority's loss, and therefore the respondents' gain, was assessed at £87,500, such amount to be apportioned equally between them.

 

The Judge purporting to follow the case of Sale assessed the confiscation order as the amount of gain to the defendants the rationale for which the gain for the defendants equalled the Council’s Loss. The gain on the facts being, he said the profit.

 

 

The Prosecution contended that the confiscation orders should be made up of the turnover amount less expenses and thus a sum representing a profit figure which was considerably more than contended by the defendants and the Judge.

 

The Court of Appeal demonstrated that in fact there had been a misreading of the case of Sale.  In Sale the value of the benefit was not only the profit figure but also the value of the pecuniary advantage to the defendants obtained by their criminality. In the end however on the facts of Sale in fact the value of the benefit assigned was the profit only figure but only because no one had given a figure to the “pecuniary advantage” not because the latter was irrelevant.

 

However at paragraphs 47 and 48 of the Judgment the Court recognised that there may be cases where a profit only valuation is the properly proportionate approach. Such cases might be where the loser has been wholly restored to his or her original position or substantially so.

 

Conclusions:

 

  1. The confiscation order regime is and is intended to be severe - but not disproportionate: Waya.

 

  1. The purpose of confiscation orders is to deprive wrongdoers of the financial benefit obtained from their criminal conduct: Waya, at [21].

 

  1. 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.

 

  1. 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; King [2014] 2 Cr. App. R. (S.) 54

 

  1. 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].

 

  1. 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].