Revenue and Customs Prosecutions Office v Johnson

Part VI of the Criminal Justice Act 1988 applies ordinary property and trust law principles when identifying a defendant’s interest in realisable property. The prosecution must establish how the defendant acquired and held the alleged property interest. A contractual entitlement to a share in an aircraft does not necessarily create an immediate beneficial interest where another party owns the aircraft under a hire purchase agreement and contractual restrictions prevent the creation of such an interest. However, abandoning valuable contractual rights for substantially less than their value may constitute a tainted gift under section 74. The recoverable amount is the value transferred, assessed by reference to the rights surrendered and the consideration received.

The applicant sought enforcement of a confiscation order made against Craig Johnson by recovering value from an aircraft beneficially owned by John Backhouse. An enforcement receiver had been appointed under Part VI of the Criminal Justice Act 1988. Johnson had entered an operating agreement under which he acquired a 50 per cent stake in the aircraft and paid substantial sums towards its acquisition and operation. The applicant advanced three alternative bases: that Johnson owned a beneficial interest in the aircraft; that his payment remained realisable property; or that he had disposed of his interest at an undervalue. The central issues were whether Johnson acquired a beneficial interest and whether the later abandonment of his contractual rights was a tainted gift.

1. The application succeeded in part. The court held that $461,268.59 was recoverable by the enforcement receiver as a tainted gift under section 74 of the Criminal Justice Act 1988.

2. Part VI assumes the ordinary rules of property and trust law. The prosecution must therefore analyse how the defendant acquired and held the alleged interest in property said to be subject to confiscation.

3. The 21 December 2001 operating agreement was genuine and gave Johnson a 50 per cent stake in the aircraft, together with rights of use and obligations to contribute to expenses. The purported termination on 1 December 2003 was ineffective. Johnson had not simply received use of the aircraft and a share of sale proceeds.

4. Johnson did not obtain an immediate beneficial interest in the aircraft. Until 26 April 2004 Finova owned the aircraft and CFS was only the hirer. The hire purchase agreement contained restrictions on alienation, so Backhouse could not create a beneficial interest in the aircraft during that period. After CFS acquired the aircraft, the evidence did not establish how any beneficial interest could vest or whether it survived the subsequent sales.

5. The payment of $637,462 was not separately recoverable as Johnson’s realisable property. That argument depended on the operating agreement having no effect, whereas the court found that the agreement was genuine and commercially effective. A tracing exercise was therefore unnecessary.

6. When Johnson abandoned his rights under the operating agreement, he disposed of property for consideration significantly less than its value. His rights included use of the aircraft and a 50 per cent share. His payments and use could not have consumed the value of the $637,462 payment. Applying the statutory gift provisions, the recoverable value was calculated at $461,268.59.

First-instance application under an enforcement receivership order made by Munby J on 18 June 2009. No appeal or earlier decision in the present application is stated.