Confiscation orders based on black market value

The defendant pleaded guilty on February 1, 2006, to two counts of being knowingly concerned in the fraudulent evasion of the prohibition on the importation of goods, contrary to section 170(2) of the Customs and Excise Management Act 1979, and was imprisoned for nine years. The counts concerned the importation of 3.53kg of heroin through Southampton on or about February 14, 2005, and 0.438kg of heroin through Felixstowe on or about March 1, 2005.

Both consignments were seized by the Revenue and Customs, the latter consignment after a controlled delivery to a location selected by the defendant. The courts below held, and it was not now challenged, that the defendant obtained the heroin at the moment of its importation as a result of or in connection with his illegal conduct.

Section 79 of the Proceeds of Crime Act 2002 provides:

“(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.”

Mr David Perry, QC, Mr Mark Sutherland Williams and Ms Charlotte Hadfield for the prosecution; Ms Cheryl Drew and Mr Abdul Gofur for the defendant.

LORD HOPE said that the case raised the short but important point about the meaning of the expression “market value” in section 79 of the 2002 Act. The statute had refrained from defining precisely what was meant by that expression. It could be assumed that greater precision on that matter was not thought to be necessary.

A market was after all a place where goods were bought and sold. The market value of goods was the price that they would fetch in that market. It was the price which a willing seller would accept from a willing buyer.

The kind of market in which the property in question was commonly sold must first be identified as well as the figure that was to be taken to be the price that the property would fetch in that market. Those were questions of fact which were left by the statute for determination by the court as the need arose.

The statute did not say that the market in which the price of the property was to be determined must always be a legitimate one. At first sight that was not surprising, as confining the concept of market value in that way would be apt to distort the calculation in favour of a defendant who dealt in illegal drugs at the stage of calculating the value of the benefit that he had derived from drug trafficking.In the ordinary case, the market to which one naturally went to determine the market value of a given item was the place where such items could be bought and sold legitimately. If there was a legitimate market, that was the market to which one should go to make the calculation.

That was not because the statute said that the market in which the value was struck must at all stages in the application of the formula be a legitimate one. It was because that was the kind of market in which the property that was being examined at that stage must be assumed to be being bought and sold.

But what was 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 could be imagined, its market value must be taken to be nil.

But was 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 were commonly bought and sold, simply because the market in which the transactions took place was not a legitimate one?

If so, the result would be to restrict the amount of benefit in a way that ignored 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.

There was nothing in the wording of the statute that drove one to that conclusion.

In R v Hussain ([2006] EWCA Crim 621) the Court of Appeal relied on the proposition that drugs which it was illegal to buy and sell in this country had no “market value” for the purposes of the Drug Trafficking Act 1994, and as that expression was re-enacted in the 2002 Act, Parliament must be taken to have decided that “market value” meant value in a lawful market where the goods could be bought and sold lawfully.

His Lordship rejected the proposition that in re-enacting the expression “market value” in section 79(2) of the 2002 Act, Parliament was accepting that the inquiry was to be restricted to a market in which the goods could be bought and sold lawfully.

The nature of the goods and the context in which the assessment was to be made, would 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 could take place was an illegitimate one it should, unless the context showed otherwise, nevertheless be one to which regard could be had to determine the price that the goods would fetch.

LORD WALKER, dissenting, said that Parliament had made quite clear that the market value test was to apply for all the purposes of the calculations required by two key provisions of the 2002 Act: the quantum of benefit from crime under section 8, and the quantum of available assets under section 9.

Yet the Crown sought to give a different meaning to section 79 for the purposes of section 8 from that which it had for the purposes of section 9. In relation to section 9 it was conceded that smuggled heroin could not have a market value for reasons given in R v Thacker ((1995) 16 Cr App R(S) 461) and R v Dore ([1997] 2 Cr App R(S) 152). But the Crown resisted the same reasoning being applied to market value when section 8 was in point.

Parliament in considering the Bill which became the 2002 Act, could not possibly have overlooked:

(i) that one of the most serious and prevalent offences aimed at by the 2002 Act was trafficking in heroin and other class A drugs;

(ii) that because there was no lawful market for such drugs in the United Kingdom, discounting 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.

LORD MANCE, agreeing with Lord Hope, said that it was argued that the word “lawful” must be understood as read into section 79(2) before “market value”. If that argument postulated an absolute rule that the law or Parliament never concerned itself with black market values, his Lordship rejected it.

Heroin might have a black market value when it was imported and obtained, which it would no longer possess when the confiscation order was made.

Hussain, which the Court of Appeal applied, was wrong and should be overruled.

Lady Hale delivered a speech agreeing with Lord Hope and Lord Mance. Lord Neuberger delivered a dissenting speech.

Solicitors: Solicitor, Revenue and Customs; Crescent & Co, Finsbury Park.