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Judgments - R v Islam (Respondent) (on appeal from the Court of Appeal Criminal Division)

HOUSE OF LORDS

SESSION 2008-09

[2009] UKHL 30

on appeal from:[2008] EWCA Crim 1740

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

R v Islam (Respondent) (on appeal from the Court of Appeal Criminal Division)

Appellate Committee

Lord Hope of Craighead

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

Lord Mance

Lord Neuberger of Abbotsbury

Counsel

Appellants:

David Perry QC

Mark Sutherland Williams

Charlotte Hadfied

(Instructed by Revenue and Customs Prosecutions Office)

Respondent:

Cheryl Drew

Abdul Gofur

(Instructed by Crescent & Co)

Hearing date:

23 MARCH 2009

ON

WEDNESDAY 10 JUNE 2009

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

R v Islam (Respondent) (on appeal from the Court of Appeal Criminal Division)

[2009] UKHL 30

LORD HOPE OF CRAIGHEAD

My Lords,

1.  This case raises a short but important point about the meaning of the expression “market value” in section 79 of the Proceeds of Crime Act 2002 (“POCA 2002”). The relevant subsections provide as follows:

“(1) This section applies for the purpose of deciding the value at any time of property then held by a person.

(2) Its value is the market value of the property at that time.”

The question on which the House granted leave to appeal has focussed the issue in this way:

“For the purpose of calculating a defendant’s benefit, as distinct from the available amount, in confiscation proceedings under the Proceeds of Crime Act 2002, must goods of an illegal nature obtained by him be treated as having no value?”

2.  My noble and learned friend Lord Mance has described the facts of this case and the statutory background. I gratefully adopt his account of them, and I agree with the reasons that he gives for allowing the appeal and answering this question in the negative. I have not found the issue an easy one to resolve however, and as we are not all of the same view I should like to set out briefly in my own words the reasons that have led me to this conclusion.

3.  Although the current provisions have become more complicated, the concepts on which the confiscation provisions in POCA 2002 are based have been part of the law for several decades. They can be traced back to the Drug Trafficking Offences Act 1986, which introduced a scheme for the making of confiscation orders against persons convicted of drug trafficking offences. A new general power to confiscate the proceeds of indictable offences other than those referred to as drug trafficking offences was introduced by Part VI of the Criminal Justice Act 1988. This was followed by a revised scheme for those convicted of drug trafficking offences in the Drug Trafficking Act 1994. Part VI of the 1988 Act and the scheme in the 1994 Act have in their turn been replaced by POCA 2002. This is a lengthy enactment which extends to 462 sections and twelve Schedules. Its length is attributable, at least in part, to the fact that it combines in a single statute provisions extending to all three jurisdictions of the United Kingdom and makes provision also for civil recovery orders against persons who are thought to hold recoverable property.

4.  The scheme which the 1986 Act provided for the calculation of a confiscation order was set out quite simply in sections 1 to 4, read together with section 5 which defined the principal terms used. The court was required first to determine whether the person in question had benefited from drug trafficking: section 1(2). If it determined that he had so benefited, the next step was to determine the amount to be recovered in his case: section 1(4). The amount to be recovered was the amount which the court assessed to be the value of his proceeds of drug trafficking: section 4(1). If the court was satisfied that the amount that might be realised at the time the confiscation order was made was less than the amount it assessed to be the value of the proceeds of his drug trafficking, the amount to be recovered was to be the amount that could be realised: section 4(3). Among the expressions that required definition were the amount that might be realised and the word “value". Section 5(3) described the amount that might be realised as the total of the values at that time of all of his realisable property. Section 5(4) set out what was meant by the word “value". It provided that the value of property in relation to any person holding the property, except where another person also held an interest in it, was to be its market value. No distinction was made as between the different parts of the calculation that this definition was to be applied to. Value was to be taken to be market value for all purposes.

5.  The same basic scheme is to be found in the relevant provisions of POCA 2002. On the one hand the court must assess the amount of the defendant’s benefit from the conduct concerned: section 6(4), read with section 8. For this purpose it must take account of his conduct up to the time it makes its decision and take account of property obtained up to that time. Prima facie the amount of his benefit, so assessed, is the recoverable amount: section 7(1). But if the available amount is less than the amount of his benefit, the recoverable amount is restricted to the amount that is available: section 7(2), read with section 9. The available amount, for the purposes of deciding the recoverable amount, is the total of the values of all the free property held by the defendant when the confiscation order is made: section 9(1). The basic rule about value is set out in section 79, as quoted above: see para 1. It is supplemented by section 80, which deals with the value of property obtained from conduct. There are two methods of calculating this figure: section 80(2). One is to determine the value of the property at the time the defendant obtained it, and then to adjust that figure to take account of changes in the value of money. The other applies where he still holds the property or holds other property which directly or indirectly represents it in his hands. It is to take the value of that property at the time the confiscation order is made. Here again no distinction is made as between the different parts of the calculation to which the word “value” is to be applied. For all purposes it is to be taken to be the market value of the property.

6.  The statute has refrained from defining precisely what is meant by the expression “market value". It can be assumed that greater precision on this matter was not thought to be necessary. A market, after all, is a place where goods are bought and sold. The market value of goods is the price that they will fetch in that market. It is the price which a willing seller will accept for them from a willing buyer. This is how transactions between traders in the market are carried on. Of course, the kind of market in which the property in question is commonly sold must first be identified. Some goods can only be bought and sold in markets that are hard to find or are highly specialised. The nature of the goods is likely to provide the best guide as to where or what this market is. This is a matter which will require to be determined by the court, if there is a dispute. So too is the figure that is to be taken to be the price that the property would fetch in that market. This is a question of fact which is left by the statute for determination by the court as the need arises.

7.  The statute does not say however that the market in which the price of the property must be determined must always be a legitimate one. At first sight this is not surprising, as confining the concept of market value in this way would be apt to distort the calculation in favour of a defendant who deals in illegal drugs at the stage of calculating the value of the benefit that he has derived from drug trafficking. In the ordinary case, of course, the market to which one naturally goes to determine the market value of a given item of property is the place where such items can be bought and sold legitimately. If there is a legitimate market, that is the market to which one should go to make the calculation. This is the position when attention is being directed, even in drug trafficking cases, to the stage of the formula which directs attention to the amount that is available. At this stage the court is contemplating property that can be realised legitimately when the confiscation order is made. This is not because the statute says that the market in which the value is struck must at all stages in the application of the formula be a legitimate one. It is because this is the kind of market in which the property that is being examined at this stage must be assumed to be being bought and sold.

8.  But what is to be done at the benefit stage of the formula if the property that was obtained, because of its nature, condition or quantity, had no value in any legitimate market at all? If it was indeed valueless in any market that can be imagined, then so be it. Its market value must be taken to be nil. But is one driven to the same conclusion in a case such as the present, where the heroin had an undoubted value in the market in which drugs of that kind are commonly bought and sold, simply because the market in which these transactions take place is not a legitimate one? If so, the result will be to restrict the amount of the benefit in a way that ignores the known facts. One would have to discount the value that the defendant could have obtained for the drugs in a market where he would certainly have found a willing buyer for them had his activities not been interrupted. I do not think that there is anything in the wording of the statute that drives one to that conclusion.

9.  The position becomes more complicated when one examines the authorities. But I think that it is possible to find a way through them that supports the Crown’s argument.

10.  I take as my starting point Building and Civil Engineering Holidays Scheme Management Ltd v Post Office [1966] 1 QB 247. In that case a question arose as to whether the stamps the Post Office lost, which if they had been stolen would have been sold in the thieves’ market, had a “market value” within the meaning of section 9(2)(b) of the Crown Proceedings Act 1947 and, if so, what the value was. Lord Denning MR said at p 264C-E that the market value meant the price at which the goods could be expected to be bought and sold as between a willing seller and willing buyer, even though there might be only one seller or one buyer, and even though one or both might be hypothetical rather than real. Applying that test he said that the value of the stamps was their face value:

“There was only one seller of these stamps (at any rate in the legitimate market) and that was the plaintiff company. They sold them at their face value. But there were thousands of buyers. And they all paid the face value. The market value was clearly the face value.”

11.  In R (Revenue and Customs Comrs) v Machell [2005] EWHC 2593 (Admin); [2006] 1 WLR 609, para 29 Stanley Burnton J said that in this passage Lord Denning had excluded illegitimate transactions from the determination of market value. He drew that same conclusion from the observations in the Post Office case of Pearson LJ at p 269A, where he too referred to legitimate transactions and of Russell LJ at p 272B-C, where he said that he would exclude the thieves’ market. But I think that it would be wrong to conclude from those observations that the court was laying down a rule that wherever one finds the phrase “market value” in a statute it must be taken to confine the inquiry to transactions that are legitimate.

12.  The following passage from Pearson LJ’s judgment at pp 268-269 helps to set the observations in the Post Office case into their proper context:

“For the purposes of the present case, I think it [the expression ‘market value'] could be sufficiently defined as the uniform or average price or consideration for which the article in question is ordinarily bought and sold or acquired and disposed of in legitimate transactions. In some other case it might be necessary to resort to surreptitious transactions in search of ‘market value': Mouat v Betts Motors Ltd [1959] AC 71, 82. There is no such necessity in this case, as there is a normal cycle of transactions, in which the ownership of the stamps is transferred and the price or consideration involved is always equal to the face value.”

This passage shows that the judges referred to legitimate transactions in that case because the conclusion that they drew from the facts was that this was the appropriate market to which to go to determine the market value of the articles in question, not because they thought that they were driven to it by the terms of the statute. In Mouat v Betts Motors Ltd [1959] AC 71, 82 Lord Denning, delivering the judgment of the Board, referred to British Motor Trade Association v Gilbert [1951] 2 All ER 641 as an example of a case where it was appropriate to go to what he described as a surreptitious market that was fed by persons who had broken their covenants.

13.  Further support for the view that there is no universal rule that a reference to market value must be taken to exclude illegitimate transactions, as Stanley Burnton J in R (Revenue and Customs Comrs) v Machell [2006] 1 WLR 609, para 28, suggested, is to be found in the observations of Lord Widgery CJ in Byrne v Low [1972] 1 WLR 1282. That was a case about the amount of the monetary penalty for a contravention of the prohibition on the importation of indecent goods. Section 305(2) of the Customs and Excise Act 1952 provided that this was to be calculated by reference to the price which the goods might reasonably be expected to have fetched if they had been sold in the open market. Lord Widgery CJ said at p 1285:

“It is contended before us today, and I think clearly the contention is correct, that in deciding what is the open market value of goods of this kind, one is not restricted by the distinction between the so-called black market and white market. What is being sought is the price which a willing seller would accept from a willing buyer for these goods as landed at the port or airport at which they were originally landed. If we can ascertain what is the price which would be paid by a willing buyer to a willing seller at the port of landing, then that is the open market value of the goods for present purposes, and the penalty accordingly can be up to a maximum of three times that value.”

The court accepted the evidence of an invoice that showed the price that the actual seller required from the actual buyer for the goods as landed, there being no open market in this country in the sense of a market free and above board, not conducted in an underground fashion, in which the goods of that kind could be sold.

14.  In R v Dore [1997] 2 Cr App R(S) 152 the issue was the amount of a confiscation order made under section 2 of the Drug Trafficking Act 1994. The judge had included, when he was assessing the proceeds of the defendant’s drug trafficking, the purchase price of the drugs which were in his possession when he was arrested and which had been forfeited. Lord Bingham CJ at p 158 said, approving of the decision in R v Thacker (1994) 16 Cr App R (S) 461, that as the drugs had been forfeited they were no longer the property of the former owner. So he was in no position to realise that property as an asset. He then added these comments:

“But even if the drugs had still been held by the defendant within the meaning of section 62(5)(a) of the 1994 Act - and this could well be the position where it was the police and not the Customs and Excise who seized the drugs - so that the property would on its face be realisable property within the meaning of section 6(2)(a) of the 1994 Act, the drugs would still be without value as realisable property. That is because, by virtue of section 7(1) of the 1994 Act to which we have already made reference, the value of the property is to be taken as its market value and the market value must be the market value if the property is sold lawfully. In the case of drugs, it is obvious that the drugs cannot be sold lawfully and therefore they have no market value.”

15.  Those observations were relied on by Stanley Burnton J, delivering the judgment of the Court of Appeal in R v Hussain [2006] EWCA Crim 621, paras 13 and 14, as authority for the proposition that drugs which it is illegal to buy and sell in this country had no “market value” for the purposes of the 1994 Act, and that as this expression was re-enacted in POCA 2002 Parliament must be taken to have appreciated that the Court of Appeal had already decided that “market value” meant value in a lawful market, in a market in which the goods could be bought and sold lawfully. It followed that the “benefit” which the defendant had obtained in that case was nil because that which could not lawfully be bought and sold had no market value: para 17. The Court of Appeal regarded itself as bound by that decision in the present case: [2008] EWCA Crim 1740. But I agree with Toulson LJ that in Hussain the Court of Appeal read too much into what Lord Bingham CJ said in Dore. This is because the issue which he was considering was whether the drugs were to be treated as having a realisable value, not the amount of the defendant’s benefit. As Toulson LJ said in para 23:

“When looking at the benefit historically gained by a criminal from drug dealing, as distinct from looking at what is his realisable property, it is not self-evident that the court should exclude the actual market value of goods in which it was unlawful for the defendant to deal.”

16.  In my opinion the earlier cases to which I have referred support this approach. I would reject the proposition that, in re-enacting the expression “market value” in section 79(2) of POCA 2002, Parliament was accepting that the inquiry was to be restricted to a market in which the goods could be bought and sold lawfully. Not only, as I have said, does this read too much into Lord Bingham CJ’s remarks in Dore. It overlooks the trend of the earlier cases which, albeit not in the same legislative context, indicate that the essence of market value is simply that it is the price that would be paid for the goods as between a willing buyer and a willing seller. The nature of the goods, and the context in which the assessment is to be made, will determine the nature of the market to which one should go to determine their market value. If the only market in which such a transaction can take place is an illegitimate one it should, unless the context shows otherwise, nevertheless be one to which regard can be had to determine the price that the goods would fetch.

17.  I appreciate, with great respect, the force of the point that my noble and learned friend Lord Walker makes that the same meaning should be given to the expression “market value” at all stages of the calculation, in the absence of any indication to the contrary. But I think that the answer to it lies in the fact that the contexts in which the expression is used at the benefit and the realisation stages are different. On the one hand the court is looking for the value that the goods had in the hands of the defendant at the time when he obtained the benefit. It does not seem out of place in that context to look at the market to which he would have been expected to go to sell the drugs, even although this was an illicit one, especially as this was the only market in which he could have derived any significant benefit from them. On the other hand when the court is assessing realisable value it is looking for the amount that the defendant can be expected to pay under the confiscation order. The assumption is that he will have to realise his property if it is not already available to him in the form of cash. The only market that can properly be considered for this purpose is one in which it will be lawful for him to engage in. The court cannot expect him to resort to transactions that are illegal to find the money that he will need to satisfy the terms of the confiscation order. I should add, in response to points made by my noble and learned friend Lord Neuberger of Abbotsbury, that I am not to be taken as suggesting that recourse should be had to black market values to inflate the price at the realisation stage if there is a lawful market in which goods of the kind in question are normally bought and sold. Nor am I suggesting that the difference as to the effect of the expression “market value” arises simply because the dates are different. The difference in effect is due to the fact that the contexts are different. I do not for my part, with respect, think that this approach gives rise to any logical difficulty.

18.  For these reasons I would hold that R v Hussain was wrongly decided and that it should be overruled. The market that has to be contemplated for the assessment of the available amount under section 9 of POCA 2002 must be taken to be one to which the defendant can resort to realise his assets without acting illegally. But no such restriction applies at the stage of calculating the amount of his benefit under section 8. At that stage the nature of the goods and the market in which they are ordinarily bought and sold will determine the market to which it is proper to go to discover the amount that a willing buyer would pay to a willing seller for them.

LORD WALKER OF GESTINGTHORPE

My Lords,

19.  I have the misfortune to differ from your Lordships as to the disposal of this appeal. It would be inappropriate to set out my reasons at length. In any case the point is a short point of construction: the meaning of the words “market value” in section 79(2) of the Proceeds of Crime Act 2002 (“PCA 2002”).

20.  Section 79(2) applies (see subsection (1)) “for the purpose of deciding the value at any time of property then held by a person” (emphasis applied). That echoes the language of section 9 (available amount), subsection (1)(a) of which refers to “all the free property then held by the defendant” (subject to a possible deduction for prior statutory obligations). It also echoes, less directly, the language of section 8 (defendant’s benefit): section 8(2) refers to “property obtained” up to the time of the Court’s decision, and section 80 explains that by reference to (among other things) the situation where “the person holds the property obtained” (section 80(3)(a)). Moreover section 80(4) leaves no doubt but that section 79 applies for all the purposes of section 80 (and so for the purposes of section 8). There is a similar pattern in section 81 (value of tainted gifts): tainted gifts come in under section 9(1)(b).

21.  In short, Parliament has made quite clear that the market value test is to apply for all the purposes of the calculations required by the two key provisions, that is quantum of benefit from crime under section 8 and quantum of available assets under section 9. Yet the Crown seeks to give a different meaning to section 79 for the purposes of section 8 from that which it has for the purposes of section 9. In relation to section 9 it is conceded that smuggled heroin cannot have a market value, for the reasons given by Ebsworth J in R v Thacker (1995) 16 Cr App R (S) 461, 463, and by Lord Bingham of Cornhill CJ in R v Dore [1997] 2 Cr App R(S) 152, 158. But the Crown resists the same reasoning being applied to the expression when section 8 is in point.

22.  When Parliament was considering the Bill which became the PCA 2002 this point had already been recognised in Thacker, in Dore, and in R v Berry [2000] 1 Cr App R(S) 352, 356. I would not rely (as the Court of Appeal did in R v Hussain [2006] EWCA Crim 362, para 14) on the presumption that Parliament, in considering the Bill, treated the law as settled by the decisions mentioned above. But there are to my mind some points which Parliament cannot possibly have overlooked, that is (i) that one of the most serious and prevalent offences aimed at by the PCA 2002 is trafficking in heroin and other class A drugs; (ii) that because there is no lawful market for such drugs in the United Kingdom (discounting, as I would, the limited supplies lawfully imported for medical use) the expression “market value” was not apt as a method of valuation; and (iii) an appropriate form of words could easily have been found if different methods of valuation had been intended under section 8 (on the one hand) and under section 9 (on the other hand).

 
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