David McCluskey, a partner at Peters & Peters discusses R v Waya (Appellant) [2012] UKSC 51, on appeal from [2010] EWCA Crim 412.
In 2003 Mr Waya purchased a flat for £775,000 using £310,000 of his own money and £465,000 through a loan from his mortgage lender (‘the original loan’). He made false statements about his employment record and income when applying for the original loan.
In April 2005 Mr Waya remortgaged the flat with a different lender, redeeming the original loan.
In July 2007 Mr Waya was convicted of obtaining a money transfer by deception in relation to the false statements he made when applying for the original loan. In January 2008 a confiscation order was made in the sum of £1.54m. This was calculated by deducting Mr Waya's contribution of £310,000 from the increased market value of the flat.
In the Court of Appeal that order was reduced to £1.11m, 60% of the flat’s increased market value, on the basis that this was the percentage of the value of the flat provided by the mortgage lender through the original loan.
The points to be determined in the Supreme Court judgment were as follows:
- Where a mortgage is fraudulently obtained how is the benefit of that fraud to be calculated for confiscation purposes?
- Is the confiscation scheme under Part 2 of the Proceeds of Crime Act 2002 in England and Wales compliant with Article 1 of the First Protocol to the European Convention on Human Rights (referred to as ‘A1P1′)?
The Supreme Court unanimously allowed Mr Waya's appeal in relation to (2) but there was dissent in relation to how the figure should be calculated. The leading judgment reduced the confiscation order to £392,400.
The reasons for the judgment are as follows:
In order to comply with A1P1 and s3(1) Human Rights Act 1998, which requires that legislation must be read and given effect by the courts in a way that is compatible with human rights, the Crown Court should not make disproportionate orders given the circumstances of an individual case.
The aim of POCA is to 'remove from criminals the pecuniary proceeds of their crime', not as an additional punishment.
In this case, the Court identified the original loan obtained by Mr Waya 'as a result of, or in connection with' his crime (per s76(4) POCA) as a 'thing in action [which] had no market value at or immediately after completion.'
The Court noted that there would be cases where the 'thing in action does have a value', such as when dishonest representations were made about the value of a property but this was not the case here. The Court held that the original loan was never legally in the appellant's possession and thus could not be considered to be the benefit. To say that he obtained the whole flat as a result of his false statements would be disproportionate, as it would ignore his initial contribution of £310,000.
S80(3) POCA applies where a defendant derives further property (by sale or mortgage) from the property initially obtained through criminal acts. It enables the courts to trace derived property back to the initial illegally obtained property and thus to value the benefit of crime in such cases. There was no evidence that the appellant had any other assets which, at the confiscation date, represented the sum realised when he redeemed the original loan. It was assumed he had paid the sum redeemed back into the flat.
S79(3) POCA requires that lawfully co-existing interests in the property be valued separately. The Court held that Mr Waya’s interest in the flat was subject to the mortgage lender’s co-existing interest in the same.
The Court held that the benefit obtained by Mr Waya from his crime following completion of the purpose was 60 per cent of any increase in the flat’s market value over its acquisition price (as the original loan had been 60 per cent of the purchase price).
Lord Walker recalculated the value of Waya's benefit by deducting the value of the second mortgage (£862,000) from the current market price of the flat (£1,850,000). The equity that Waya had put into the first mortgage plus the sum of principal repaid (£333,400) was then deducted from this figure, giving an appreciation figure of £654,000. The final amount of benefit was £392,400 (60 per cent of £654,000).
Lord Walker and Sir Anthony Hughes allowed the appeal and substituted a confiscation order for £392,400. Lady Hale, Lord Judge, Lord Kerr, Lord Clarke and Lord Wilson agreed.
Lords Phillips and Reed agreed with the majority judgment in relation to the application of POCA in the light of A1P1 but dissented in relation to the way that the benefit should be calculated.