Know your memes – Waya and the Supreme Court (Part One)

On 14th November 2012 the Supreme Court gave judgment in the case of R. v. Waya [2012] UKSC 51.  A nine-Justice court delivered a majority decision, split 7-2.  We’ll go through both the majority and dissenting minority decisions, but what the dissenting minority (Lord Phillips and Lord Reed) seem to think of the majority decision can be neatly summarised thus:

Don’t know what I’m on about?  If Google can’t help you, I’ll tell you at the end.

Back to Waya.  The facts, in outline, are that the defendant was convicted of mortgage fraud (by making false statements about his employment history and earnings and thereby obtaining a mortgage on terms he wouldn’t otherwise have been offered).  Confiscation was pursued by the prosecution and an order made.  That confiscation order was then the subject of an appeal to the Court of Appeal and then again to the Supreme Court.  And so here we are.  Argument was focussed on the impact and effect of Article 1 of the First Protocol to the European Convention on Human Rights on confiscation proceedings under the Proceeds of Crime Act 2002 (‘POCA‘).  For ease of reference the Court summarised that as ‘A1P1’ (para 11) – a shorthand which I’m also going to adopt for similar ease.  The short point being that proportionality is required between the means employed in the deprivation of property by the State and the legitimate aim(s) being sought to be realised by that deprivation.

Let’s start by setting out what Waya does not do (paragraph references refer to paragraphs in the text of the judgment).  For those who have read previously about confiscation (and you all have, haven’t you?) Waya is not a ‘criminal lifestyle’ case (para 6).

Having said that, the majority did note that the statutory assumptions to be made in ‘lifestyle’ cases (s10 POCA) are often determinative of the outcome (para 6).  The majority also agreed that in ‘lifestyle’ cases, because the assumptions should not be made where it would give rise to a risk of serious injustice, it would only be in very unusual circumstances that a court would be in danger of making a disproportionate confiscation order (para 25).

The majority also accepted that a confiscation order may be legitimate and proportionate and also have one or more of these three effects (para 26):

1. It may require the defendant to pay the whole of a sum which he has obtained jointly with others;
2. It may require several defendants each to pay a sum which has been obtained, successively, by each of them, as where one defendant pays another for criminal property;
3. It may require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime.

So, for clarity, after Waya legitimate and proportionate confiscation orders can achieve one or more of these three effects and in a ‘lifestyle’ case the proper application of the s10 assumptions will rarely (if ever, in my view) result in a disproportionate order.  I’ll let you all meditate on that for a bit longer.  Breathe out…and relax.

And if that wasn’t comfort enough for you, Lord Walker and Sir Anthony Hughes continued to observe that this may involve the possibility of removing (by confiscation) a sum larger than the defendant’s ‘net proceeds of crime’ and that the application of A1P1 does not amount to creating a new governing concept of ‘real benefit’ (para 26).  So in the best Chicken Little style, the sky has not fallen on the prosecution for confiscation orders as a result of Waya.  Maybe.

So what did happen?

Firstly the case of Rose [2008] 1 WLR 2113 has been partially overruled.  The court in Waya determined that the recovery and restoration intact of stolen property was relevant to the making of a confiscation order and to the extent that Rose held otherwise it should no longer be followed (para 30).

Secondly, the majority in Waya adopted an analysis of the facts of the alleged mortgage fraud which, the dissenting minority noted, arose from a ‘novel’ starting point.  The minority also noted that the choice said ‘novel starting point’ by the majority remained unexplained (para 89).

Lord Phillips (dissenting) also noted that the ‘novel starting point’ adopted by the majority was at odds with all other decisions (bar one) applying POCA in the context of mortgage frauds (para 89).  The minority are “fundamentally at odds with the majority in respect of [their] analysis” (para 86) and did not agree with the conclusion as to the real benefit obtained by the defendant.

What is this ‘novel’ analysis and what are the real effects for prosecutors and defendants?

Previously, in mortgage fraud cases, the ‘property obtained’ as a result of or in connection with the fraud has been the physical property purchased (flat, house, whatever).  However the majority in Waya determined that actually the ‘property obtained’ in a mortgage fraud case is a bundle of contractual rights and responsibilities, not the physical property.

As Lord Phillips (dissenting) notes, the majority do not explain why they have chosen this novel starting point (para 89) and that this choice injects a degree of complication into mortgage frauds which is at odds with the simple scheme of the Act (para 92).  I’m inclined to agree.

The practical effect is that on the majority’s reasoning there is no benefit in the actual fraudulent obtaining of the mortgage (the bundle of rights and responsibilities) but where the monies obtained are then applied to purchase a property then there may be a benefit should the property so purchased increase in value.  And on the facts of Waya the benefit was the proportion of the increase in value purchased with the fraudulently obtained monies.

Note the important part in the above paragraph – “...on the facts of Waya…”.  In Waya the defendant contributed his own legitimate funds towards the property he purchased.  As noted by other commentators, a different approach would be needed were (for example) other criminal monies to have been applied in purchasing the property, or had the mortgage fraud taken a different form (e.g. by ‘over-valuing’ the property intended to be purchased and thereby obtaining a greater mortgage advance).

The majority realised that the problem with their approach would be how to practically accommodate a defendant in Waya’s position who had made repayments on the fraudulent mortgage from legitimate funds (see e.g. para 77) but unfortunately for POCA practitioners concluded that:

“Elaborate and precise calculations would not be called for; in many cases experienced Counsel would be able to agree on the appropriate adjustment and invite the judge to adopt it.”

Really?  Time for another picture to explain:

Or as more eloquently put by Lord Phillips (para 101):

“The task of computing on confiscation day the value of the benefit derived by Mr Waya from his criminal conduct would be near impossible, which is no doubt why the majority state, somewhat optimistically, that elaborate and precise calculations would not be called for because experienced counsel would in many cases be able to agree upon an appropriate adjustment. Whatever the final figure agreed upon in the way suggested, we do not see how it could be described as “property” held by Mr Waya on confiscation day that “represented” the chose in action that he initially obtained.”

So far so good (ish) if you’re dealing with mortgage fraud.  But what effects for planning enforcement and confiscation?  Find out next time.

Scott

p.s. the dog picture?  It’s the “I have no idea what I’m doing” meme.  Find it on Google.