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Council loses appeal over £200 confiscation order in housing case when benefit said to be several hundreds of thousands of pounds

The London Borough of Islington has lost “a most unusual” Court of Appeal action in which it argued that a confiscation order in a housing overcrowding case was too lenient.

An order for only £200 had been made against landlord Arun Bajaj despite breaches of legislation on managing houses in multiple occupation, in part because erroneous drafting referred to the proceeds of crime on one day only.

Appeal judges warned other councils both against such incorrect drafting of charges and the limits of confiscation proceedings.

Islington sought leave to appeal under s.31 and s.89 (1) of the Proceeds of Crime Act 2002 against a confiscation order made by HHJ Peter Clarke QC at Reading Crown Court.

In London Borough of Islington, R (On the Application Of) v Bajaj [2020] EWCA Crim 1111 Lord Justice Davis observed: “This is a most unusual case. The essential point sought to be raised is that the judge misappraised the benefit obtained by [Mr] Bajaj.

“It is said that there should have been included in the benefit an amount, said to run to several hundreds of thousands of pounds, equal to the value of the pecuniary advantage said to have been obtained by reason of the respondent not properly housing the affected occupants of his property.”

Mr Bajaj owned two properties in Islington, which were managed by his co-accused Antonio Ferraiulo, who had made a number of substantial unauthorised alterations to both, which led to gross overcrowding.

The council intervened on discovering that 20 people were resident in one house where the lawful maximum was only eight, and there was a similar situation at the other.

Mr Bajaj argued that it was left to Mr Ferraiulo to manage at the properties and so he was not responsible for their condition.

Both men were charged with “numerous offences”, the court noted, including failure to maintain service supplies in proper condition and lack of proper fire precautions.

After being found guilty at Highbury Corner Magistrates Court, the case was committed to the Crown Court for confiscation and sentence.

Davis LJ noted the prosecution’s approach to confiscation was “highly complex [and] acquired even greater complexity when the prosecution advanced, with differing and extensive valuation evidence, several alternative hypotheses by reference to the asserted obligation of the respondent to provide suitable and safe accommodation for the 12 occupants who had exceeded the permitted number – whether by constructing an extension at the property, by acquisition of a new property or by lease of a new property, or by building a new property”.

He said HHJ Clarke had been faced with differing estimates from prosecution witnesses of the size of any confiscation order - including one of up to £917,000 - and “prosecution counsel described the quantum of savings as being a sum that the defendant saved ‘by not complying with his duty’".

HHJ Clarke had expressed “considerable reservations about the description of a ‘duty’ to house tenants to particular standards as being capable of giving rise to criminal proceeds or benefit”.

The confiscation order was set at £200, representing the amount of rents received for one day, the defence team having successfully argued that “by reference to the way in which the charges had been drafted, the relevant criminality as charged had taken place on a single occasion”.

Rejecting Islington’s appeal Davis LJ said aspects of the prosecution's arguments suggested that Mr Bajaj “should be hit very hard when engaging in conduct, and permitting squalid overcrowding, of this kind”.

But he said that was the function of punishment, not part of the confiscation process, “which is designed to require criminals to disgorge the proceeds of their criminality”.

Appeal judges were also “rather puzzled as to why this case had been conducted without any reference to the planning legislation” and said an enforcement notice might have been served over the alterations.

“We were told…the matter was first referred to the housing standards department within Islington Borough Council, and thereafter, it seems, was retained by it without consultation with the planning department,” Davis LJ said.

He concluded: “We do not think it a sustainable proposition that the (notional) costs of providing appropriate, regulation compliant, alternative accommodation for the 12 occupants is to be treated as a saving constituting a pecuniary advantage within the reach of s.76 of the 2002 Act.

“It is far too broad, indeed speculative, an approach to have sufficient connection with the conduct alleged.”

He said Mr Bajaj was not under any lawful obligation to house the 12 excess occupants and it was “wholly artificial, in such circumstances, to attribute to him as a pecuniary advantage the notional capital cost of acquiring or building a property with a view to properly housing those 12 occupants, when he had no obligation to house them”.

The proper target would have been the rents received during the period of the infringement of the regulations, but the way Islington framed the charges and confiscation proceedings precluded that, he said.

In conclusion Davis LJ said: “One cannot view such a result with any satisfaction. It means that the respondent has a confiscation order fixed by reference to one day's rental receipts.

“But it is not open to this court to put right the incorrect drafting (as conceded) of the charges. Nor should this court permit an artificial approach as to benefit to prevail over the correct approach simply in order to mark disapproval of the respondent's conduct.”

The judges certified their ruling as one which may be cited so that other local authorities “are aware of the prospective limitations on pursuing confiscation proceedings, in this particular context, in the way which occurred here” and were reminded of “the necessity for drafting the relevant charges appropriately and as a salutary warning as to the potential consequences if they are not”.

Mark Smulian

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