Nadarajah v R

In a criminal-lifestyle confiscation, a mortgage advance obtained by the defendant may be property transferred to him even if the lender pays the vendor directly. The statutory assumption as to criminal origin may nevertheless be withheld where its late application would create a serious risk of injustice. A secured third-party interest must be reflected when benefit is assessed, so that benefit from property is its equity rather than its gross value. For valuation, Proceeds of Crime Act 2002 section 80 requires the greater of the value when acquired and when the confiscation order is made. Expenditure on drugs can be treated as criminal benefit where the factual finding of payment is justified.

The appellant had pleaded guilty in the Crown Court at Southwark to conspiracy to supply Class A controlled drugs. A confiscation order under the Proceeds of Crime Act 2002 was made and later varied to £1,251,696.26, with a consecutive default sentence.

He appealed on two permitted grounds. The issues were whether a £540,000 mortgage advance and the value of his interest in his home could be included in benefit, and whether £375,000 could be included as expenditure on the cocaine consignment delivered on 5 September 2003. The court also had to determine the proper stage at which the mortgagee's interest should be taken into account.

1. Appeal allowed in part. The confiscation order was reduced to £723,741.63. The consecutive sentence in default was reduced to five years' imprisonment.

2. The court rejected the submission that mortgage money could not be obtained by the appellant because it would ordinarily have been paid directly to the vendor. The appellant had obtained the advance and proof of mortgage fraud was unnecessary for the assumption in Proceeds of Crime Act 2002 section 10(2) to arise.

3. However, the prosecution could not, at that late stage, rely on the £540,000 advance as a discrete item of benefit. Had that case been advanced at the confiscation hearing, the mortgage and purchase documentation would have required investigation. The assumption might then have been shown incorrect, as illustrated by R v Walls [2003] 1 Cr. App R 510. Reliance on the assumption without that inquiry would create a serious risk of injustice under section 10(6)(b).

4. The mortgagee's current third-party interest had to be taken into account when assessing benefit, rather than only when calculating the later recoverable amount. Benefit from the home was therefore the appellant's equity. Under section 80, and consistently with R v Scragg [2006] EWCA Crim 2916, the relevant value was the greater of the value when the property was obtained and at the confiscation order. On the evidence properly determined at the hearing, that figure was £500,000.

5. The judge was entitled to find that the appellant, although not identified as “M” in the records, was a regular drug dealer and had paid £375,000 for the consignment. The judge's compressed reference to injustice did not invalidate the finding that this expenditure had been met from property obtained through general criminal conduct.

• Court of Appeal (Criminal Division): Allowed the appeal in part and substituted a confiscation order of £723,741.63: [2007] EWCA Crim 2688.
• Crown Court at Southwark: His Honour Judge McKinnon made a confiscation order on 25 November 2005, varied on 21 December 2005 to £1,251,696.26.