R v Modjiri

_G_02411

Chambers acted for the Proceeds of Crime Unit (CPS) in this appeal regarding the value of a trust fund in a confiscation order. The article below was written by Martin (who acted for the Crown) and Penny and make for useful reading.

This case raised the important question of how the market value of jointly owned property is to be determined when the defendant’s interest in it cannot be realised separately from the property.  Although the confiscation order was made under the Proceeds of Crime Act 2002, the conclusion reached by the Court of Appeal applies equally well to cases under the CJA and DTA.

The facts of the case were straightforward. D was convicted of drug trafficking offences committed in 2006.  The benefit figure of £83,958.46 was agreed.  As for realisable property, it was agreed that D had an interest in 2 flats. The first had been purchased by D and his girlfriend and was jointly owned; D’s 50% share of the equity was agreed to be worth £6,128.14.

Flat 2 [“the Flat”] had been purchased, quite legitimately, by D’s sister in 1998 with her own moneys.  In order to provide for her two brothers, she caused the Flat to be conveyed into the joint names of the three siblings. They executed a Declaration of Trust with regard to the Property, the substantive provisions of which were as follows:

The Registered Proprietors hereby declare that henceforward they hold the Property upon trust for themselves beneficially as tenants in common in the following shares:

(a) as to 50% for [sister] absolutely

(b) as to 25% for [first brother] absolutele

(c) as to 25% for [D] absolutely

The Registered Proprietors hereby declare that the Property shall not be assigned nor shall any mortgage charge or lease be granted without the consent of all the Registered Proprietors.”

In the confiscation proceedings, the prosecution contended that D’s 25% beneficial interest in the Flat was also part of his free property and therefore to be included in the available amount.   The value of his share was 25% of the market value of the Property. The respondent contended that his 25% interest would be impossible to sell, by reason of the prohibition against realisation contained in the Trust Deed. His siblings were unwilling to agree to the sale of the Property. It followed, he submitted, that its value was nil.

Both parties adduced valuation evidence. The prosecution’s valuer was of the opinion that the market value of the Flat as a whole was £240,000. Although he thought that “a part share in property due to its lack of liquidity would be difficult if not impossible to sell in the open market” he said that the District Valuer’s practice was to apply a discount of 10 per cent when valuing a shared interest; on this basis the D’s share was worth 25% of the total value less the discount of 10%, i.e. £54,000. D’s valuer valued the Flat at £210,000 and so as a matter of logic, D’s interest or share would be worth £52,500. However, he considered the D’s beneficial interest to be of no value because for practical purposes, it would be unsaleable:

“I consider that the market value of the 25% share under the Declaration is nil should the other two registered proprietors be unable or unwilling to consider a purchase.”

There was evidence from the other siblings that they would not consent to the sale of D’s share.

In the Crown Court, the judge formulated the issue in this way:

“The question arises, what is the value of something that would be impossible to sell.”

His conclusion was that such an interest had no value.  Accordingly, the confiscation order was made without reference to the Flat.  The Prosecution appealed (with leave).

In the appeal, it was submitted by the Prosecution that the Flat had a value because it could be sold; if D wanted to realise his share he could make an application under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”) for an order for its sale without the agreement of his co-trustees.  In any event, even if the Defendant couldn’t sell it an enforcement receiver could be appointed (under s.50) to realise the Defendant’s assets; the market value had to be calculated with the scheme of the Act in mind.  Accordingly, the judge should have included 25% of the market value of the whole property in the available amount (without deduction).  For D, although it was accepted that his interest in the Flat was ‘property’ within the meaning of s.82(2)(a), the evidence showed that his interest had no value because it could not be sold absent the agreement of his siblings; the market value was nil for the reasons accepted by the judge.  As the judge had to assess the ‘market value’ at the time the confiscation order was made (s.9(1)(a)), the fact that at a later stage the prosecution might seek the appointment of an enforcement receiver was irrelevant.

Discussion

The Court of Appeal acknowledged that:

• it might well be difficult to sell a part beneficial interest in a flat or house;

• might prove impossible to borrow moneys from a bank or other lending institution on the security of such a beneficial interest;

• other beneficial owners might well refuse to sell; and

without a sale, the beneficiary cannot realise the value of his interest.

However, the instant case was no different from that of any property vested in joint names on trust for the joint owners beneficially, including a matrimonial home.  Unless the joint owners agree, or an order is obtained for the sale of the property under section 14 TLATA, the property cannot be sold. The fact that the beneficiaries have expressly agreed that a property is not to be sold without their unanimous agreement is a factor that the court will take into account on an application under section 14, but it does not preclude the court from ordering a sale in appropriate circumstances.

In this case, HHJ Hillen accepted the evidence of D’s valuer.  However, had D not paid the confiscation order made by the judge (£6,128.14) an enforcement receiver could have been appointed over all his property (including the Flat); an order for sale (or an order under s.53(6)) could be obtained so as to satisfy the confiscation order.  The Court of Appeal rejected D’s argument because it would lead to an obvious inconsistency between the value of the property that may be included in a defendant’s free property for the purposes of the confiscation order and the value that may be realised by an enforcement receiver. There was no reason to believe that Parliament intended this outcome particularly since the result would be that almost any property held in a trust would be free property with a nil value; if D were right, then a 50% interest in a house worth £2 million would have no value unless the other owner agreed that the house should be sold in order to realise the value of D’s share.  This would put a premium on being uncooperative.

The court referred to a number of cases decided under the Criminal Justice Act 1988 in support of the proposition that the market value of a beneficial interest in property is equal to the proportion of the market value of the property as a whole that the part beneficial interest bears to the whole; a 50% interest in an asset is worth 50% of the value of the asset: R v Davis [2004] EWCA Crim 3380; R v Ahmed and Qureshi [2004] EWCA Crim 2599. There was no difference between the relevant parts of the 1988 Act and of the POCA that could justify a different result under the later legislation: Nottingham CPS v Rose [2008] EWCA Crim 239, per Richards LJ.

The error made by the Crown Court judge was to assume that section 79(3) of POCA is concerned with the realisation of property as well as its valuation. It is not. The court is not required to assume that a beneficial interest has to be sold separately as such. The court must proceed on the basis that the defendant can obtain an order under TLATA for the sale of the property as a whole, and that he will on a sale receive his due proportion of the proceeds of sale. A house does not have a market value of nil because a beneficial owner may not readily be able to obtain an order for its sale in order to realise its value. The judge should have included in the available amount 25% of the price at which the Flat would be expected to be sold less the costs of sale.  A distinction was therefore made between assets which are impossible to realise in which case a value cannot be included in the D’s recoverable amount and those which [as in the case of R (Ansen) v Liverpool Magistrates’ Court [1998] 1 All ER 692] may be difficult to realise in practical terms. The prosecutor’s appeal was upheld and the confiscation order was amended accordingly.

[Article by Martin Evans and Penny Small]