Articles Criminal Regulatory 6th May 2015

Confiscation Regime – Case Update

R v McDowall & Singh [2015] EWCA Crim 173

This is an important case for regulatory lawyers. It deals with whether confiscation orders may be made against a person whose conduct involves a failure to register or obtain a licence. It also touches upon the topic of piercing the corporate veil, although on the facts, there was no need to “lift” or “pierce” it here.

The first appellant was an arms dealer. He had committed offences contrary Article 9 of the Trade in Goods (Control) Order 2003. In summary, he had negotiated the sale of certain military goods between two overseas countries, and earned for his company, of which he was sole director and shareholder, a handsome commission. Only then did he apply (successfully) to the Secretary of State for a controlled goods licence. The £2.5 million confiscation order represented commission receipts while the licence was not in place.

The second defendant, by contrast, was a scrap metal dealer. He had committed an offence contrary to section 1 of the Scrap Metal Dealers Act 1964 (now replaced by the 2013 Act), having failed to register with the Local Authority. Like the arms dealer, he was the sole director and shareholder of the company through which he conducted his trade. The Court rejected the suggestion that all regulatory offences should be treated in the same way, citing observations made in Sumal and Sons (Properties) Ltd v. LB of Newham [2012] EWCA Crim 1840, a case which concerned rental receipts obtained in breach of the licensing requirements under the Housing Act 2004. Whether or not benefit has been obtained depends on the terms of the statute or regulations creating the offence. The critical question is: What is the conduct made criminal: Is it the activity itself or failure to register or obtain a licence?

Here, the arms dealer was caught because the Court’s analysis revealed that the underlying conduct was unlawful. Turning to the second issue, it was unnecessary to “lift the corporate veil”. Quite simply, the Appellant was the beneficial owner of the company, and its receipts could be treated as his receipts. Fortunately for the scrap dealer, the Court found differently in his case. Unlike in the case of the arms trader, the relevant legislation did not prohibit activity for which a person could apply for an exemption; rather, the core of the offence was the failure to register. As a result, his confiscation order was quashed. (Whether or not the position will be the same under the Scrap Metal Dealers Act 2013, under which the registration system in the 1964 Act has been replaced with a licensing system, remains to be seen, though).

As demonstrated in these conjoined appeals, if it can be argued that a particular case falls the right side of what is a very fine line, it could prevent a multi-million pound confiscation order being made against one’s client. The relevant legislation must be scrutinised with utmost care in every case.

Hussain v London Borough of Brent [2015] HLR 8

This case is about the valuation of criminal benefit on breach of a Planning Enforcement Notice under Part 3 of the Town and Country Planning Act 1990; it also illustrates that property in possession of an agent is still “obtained” by the principal for the purposes of confiscation proceedings.

A property had been let to a number of tenants, contrary to the terms of planning permission granted in respect of the building. The Local Authority served an enforcement notice, which the Appellant failed to comply with. The value of the confiscation order represented housing benefits paid by the Respondents to agents, in respect of tenants.

The Appellant argued that he had not obtained the benefit, because an agent had not passed on the rental income to him. This argument was rejected. The agent acted on the Appellant’s behalf and had no right to retain or dispose of the income. The Appellant also argued that there was no causal link between his conduct and receipt of the money. This submission, too, was rejected. If he had complied with the enforcement notice, he would have brought the tenancies to the end and the rental income would not have been generated. In this case, Sumul and Sons (Properties) Ltd v LB Newham (2012) (also cited in McDowall, above), was distinguished. For example, the landlord in that case had lawfully let the properties which became subject to the licensing regime under the Housing Act 2004, and would have been granted a licence had he applied for it.

Finally, the Appellant submitted that the order made was disproportionate. His difficulty was that the case was, in reality, indistinguishable from R v Luigi Del Basso [2010] EWCA Crim 1119 (the “park and ride” case), also involving breach of an enforcement notice relating to use of land. The Appellant attempted to get around this by inviting the Court to re-visit this decision in light of R v Waya [2013] 1 AC 294, in which the Supreme Court considered whether a confiscation constituted a disproportionate interference with the person’s rights to property under Article 1 of the First Protocol of the ECHR. However, the Court rejected this submission as well, and found that the judge at first instance had carefully considered proportionality. The Appellant was not entitled to deduct expenses incurred. The case neatly illustrates the operation of POCA in the context of enforcement notices and similar regulatory mechanisms. Although decided before McDowall (above), it too exemplifies the importance of identifying the core of the criminal activity concerned when determining whether a person has benefitted as a result of or in connection with criminal conduct.

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