Smith & Anor, R. v

Under the third assumption in section 10(4) of the Proceeds of Crime Act 2002, a court must determine the expenditure actually incurred by each defendant. A joint criminal venture does not permit the full purchase price of drugs to be treated as expenditure by every participant. Equal involvement may support a factual inference that each paid an equal share, absent contrary evidence.

If a contrary construction would attribute the whole expenditure to each participant, the resulting illogical double counting would create a serious risk of injustice under section 10(6). A default term for non-payment must also remain within the maximum fixed by the amount of the confiscation order.

Smith and Christian were convicted of, or pleaded guilty to, possession of heroin with intent to supply. The heroin, weighing just over two kilograms and of 100 per cent purity, was found in the car in which they had travelled together.

At confiscation proceedings in Isleworth Crown Court, the judge found that both had a criminal lifestyle and applied the statutory assumptions under the Proceeds of Crime Act 2002. She treated each appellant as having incurred the full purchase price of the drugs. She also imposed a five-year default term on Christian and made financial reporting orders against both men.

The appeals concerned the proper application of the third statutory assumption, the lawful default period, and the financial reporting orders.

1. The appeals were allowed to a limited extent. The court reduced each appellant's assessed benefit by half of £82,500, but the confiscation orders themselves remained unchanged because the revised benefit figures still exceeded the realisable assets. It quashed Christian's five-year default term and substituted two years. The renewed applications for permission to appeal against the financial reporting orders were refused.

2. The court accepted the established approach in Hussain [2006] EWCA Crim 621: illegally held drugs are treated as having nil value when directly assessing benefit or available assets. The prosecution therefore had to rely on the third assumption in section 10(4), rather than treating the drugs as property obtained under the first assumption.

3. Section 10(4) concerns expenditure actually incurred by the individual defendant. It was wrong to reason from the appellants' joint possession of the drugs to a conclusion that each had spent the entire £82,500 purchase price. The principle concerning jointly obtained property in May [2005] UKHL 28 addressed joint title to property, not the factual source of funds used for a purchase.

4. As the judge found equal involvement and there was no contrary evidence, she could infer as a fact that each appellant had paid half the purchase price. Alternatively, attributing the whole expenditure to each would create a serious risk of injustice under section 10(6), because it would double count a single expenditure.

5. By section 36 of the Proceeds of Crime Act 2002 and section 139 of the Powers of Criminal Courts (Sentencing) Act 2000, Christian's order, being below £100,000, carried a maximum default period of two years. Given the appellants' records, there was no arguable complaint about the orders under section 76 of the Serious Organised Crime and Police Act 2005.

• Court of Appeal (Criminal Division). In [2008] EWCA Crim 2373, the court allowed the confiscation appeals to the limited extent of reducing the benefit figures, substituted a two-year default term for Christian, and refused renewed permission to challenge the financial reporting orders.

• Isleworth Crown Court. Christian pleaded guilty on 3 November 2006 and Smith was convicted on 30 November 2006 of possession of heroin with intent to supply. Sentences were imposed on 5 December 2006. Confiscation and financial reporting orders were made on 18 January 2008.