Proportionate confiscation of proceeds of crime

You can't read the dissent of Lord Phillips and Lord Reed in R v Waya [2012] UKSC 51 (14 November 2012) without marvelling at its brilliance. Nor can you then read the majority judgment of seven other members of the Court without thinking it too is pretty good.

All judges agreed [1]-[34], [82] that the Proceeds of Crime Act 2002[UK] had to be interpreted to avoid the making of a confiscation order that was disproportionate. However the minority concluded that no order should be made at this stage because any order would be relatively modest, while the majority ordered payment of £392,400.

The key difference, although there were others, was that the majority did not accept that the governing consideration on proportionality was what the minority termed the "real benefit" obtained by the defendant through the offending [26].

The facts were simple: the defendant had purchased a flat which fell into the high end of the property market in London, paying 40% of the purchase price with his honestly obtained money and 60% by funds secured by a mortgage that he obtained by a false representation as to his income.

The dishonesty was minor and was dealt with in separate criminal proceedings by a modest community-based sentence. It was unclear how the lender would have reacted if the truth had been known. There was no risk to the lender's funds because of the size of the defendant's contribution and the unlikelihood of a decline in that part of the property market. The only loss that might have been suffered arose from the higher rate of interest that the lender might have charged. At the time relevant to confiscation, about 5 years after purchase, the flat was worth more than double the purchase price and the mortgage had been discharged, including an early payment penalty paid from clean funds. Substituted financial arrangements, all judges agreed, were not relevant.

The minority, applying the Act, concluded that the amount of the order – before modification by the proportionality requirement – would have been the current value of the flat minus the current mortgage on it. This came to £987,400. However, applying its "real benefit" approach, the minority reasoned that what the defendant really obtained dishonestly was a loan on more favourable terms that might otherwise have been required, and it would have ordered that the case be remitted to the lower court for that amount to be calculated. However in view of the stress that the proceedings must have caused the defendant, the minority would have simply quashed the confiscation order.

The majority interpreted the Act differently and calculated the amount of benefit dishonestly obtained by the defendant as the percentage of the increase in the defendant's equity in the property that he had obtained dishonestly (60%), and this was £392,400. In summarising this reasoning I am ignoring a minor complication arising from some repayments from clean funds made before the discharge of the mortgage. The majority saw no reason to view an order for £392,400 as disproportionate.

It might be controversial to treat movements in the property market as if they were proceeds of the defendant's dishonesty. The causal question is interesting: the defendant's dishonesty caused him to be able to purchase a property, but did it cause him to be able to make a profit? Perhaps it did. But should it then only be regarded as a contributing cause, very minor compared to market forces?

The generally important part of this case is its application of s 3 of the Human Rights Act 1998 [UK] to read in the requirement that an order not be disproportionate (applying Ghaidan v Godin-Mendoza [2004] 2 AC 557, discussed here 6 February 2005). I mean 'generally important' in the sense of important for the interpretation of this Act, for criminal proceeds legislation differs in various jurisdictions, as mentioned here on 16 May 2008. But the judgments also illustrate how senior judges can disagree over what is proportionate and how a fairly straightforward Act can be applied differently to fairly simple facts. Perhaps the complexity of the law of property is inescapable, but it is surprising to see judges differ so markedly over what is proportionate.

Update: for information on the behind-the-scenes difficulties experienced by the judges in deciding this case, see the book review posted here on 17 April 2015.