(iii) Obstacles to Restitutionary Claims Founded on Crimes
If the victim does bring a claim to obtain the proceeds of the crime there are three main obstacles which must first be surmounted, which will dramatically limit the scope of any claim.
(1) Causation and Remoteness
The general rule of causation in respect of wrongs is the ‘but for’ test.31 The application of this test to a claim for restitution of the proceeds of crime means that the victim must show that, but for the commission of the crime, the benefit would not have been obtained by the defendant. For reasons of consistency with most other claims for restitution for wrongs, this test of causation should apply to claims to the proceeds of crime. Similarly, the general principle of remoteness should apply to claims for restitution of the proceeds of crime, namely that the benefit must have arisen directly from the commission of the wrong. This was recognized in Halifax Building Society v Thomas,32 where the defendant had obtained a mortgage advance by deception and had used this to purchase a flat which had subsequently increased in value. Peter Gibson LJ said:33
Further I am not satisfied that in the circumstances of the present case it would be right to treat the unjust enrichment of [the criminal] as having been gained ‘at the expense of ’ [the claimant], even allowing for the possibility of an extended meaning for those words to apply to cases of non-subtractive restitution for a wrong... I do not overlook the fact that the policy of law is to view with disfavour a wrongdoer benefiting from his wrong, the more so when the wrong amounts to fraud, but it cannot be suggested that there is a universally applicable principle that in every case there will be restitution of benefit from a wrong . . .
On the facts of the present case . . . the fraud is not in itself a sufficient factor to allow [the plaintiff] to require [the criminal] to account for it.
This was therefore a case in which the claimant could not simply rely on the fact that it was the victim of a fraud to obtain the proceeds of the crime. The explanation for this can be found in the earlier decision in Chief Constable of Leicestershire v M,34 the facts of which were almost identical to those of Halifax Building Society v Thomas, in that the offender had made profits from the sale of properties he had purchased with the assistance of a mortgage advance which he had obtained by deception. Hoffmann J did not accept that these profits constituted the proceeds of crime, because they were not obtained by deception but rather arose from the loan which was obtained by deception. In other words, the profit was too remote from the crime.
It follows that if the victim is to recover the proceeds of crime from the criminal it must be shown that they were obtained directly from the crime, rather than indirectly, as will occur where the criminal has profited from investing the proceeds of the crime. This strict approach to the question of remoteness of benefit is at least consistent with the approach which is adopted where the claimant’s restitutionary action is founded on tort.35 If the victim of a crime can recover only those benefits which the defendant obtained directly from the commission of the offence, it follows that the victim should recover all those benefits which the criminal obtained directly from the victim, and presumably also those benefits which the criminal was promised as an inducement to commit the crime, such as a payment to commit a battery, simply because the bribe was only paid to the criminal to ensure that the crime was committed.
If, however, the court concludes that, by virtue of the defendant’s fraudulent conduct, he or she holds the proceeds of crime on constructive trust for the claimant, the question of remoteness of benefit will be much less important. This is because all profits obtained as a result of the crime will be subject to the constructive trust, regardless of whether they arose directly or indirectly. This is illustrated by the decision of the Privy Council in Attorney-General for Hong Kong v Reid36 where the court concluded that the defendant held the bribe he had received on constructive trust for the claimant. This meant that the claimant had an equitable proprietary interest in the bribe and subsequently the property which had been purchased with the bribe. In fact, the recognition of a constructive trust would have avoided the problem of remoteness in Halifax Building Society v Thomas,37 because it could have been concluded that the property which the defendant purchased using the mortgage advance was held on constructive trust for the claimant building society, since the defendant had obtained the mortgage advance by fraud. If the property was held on constructive trust it would follow that the proceeds of the sale of the house would also be held on the constructive trust, regardless of the fact that the property had increased in value.
(2) The Operation of the Illegality Defence
It is an accepted principle of the law of restitution that no court will allow a restitutionary claim to be brought which is founded on an illegal act.[1] This is known as the illegality defence. In principle this means that the victim would not be able to rely on the commission of a crime to obtain restitution from the criminal. This will not, however, usually be the case, because there is an accepted exception to this defence where the parties are not equally responsible for the illegal act.[2] Usually the victim will not have participated in the commission of the crime and so will not have been tainted by the illegality.[3]
(3) The Human Rights Act 1998
Would the imposition of civil liability on the defendant to make restitution of the proceeds of crime to the victim infringe the European Convention on Human Rights (ECHR), which was incorporated into English law by the Human Rights Act 1998? It might be concluded that such civil liability does infringe the European Convention because the defendant is being treated as a criminal, even though he or she had not been convicted of a crime.[4] This imposition of civil liability lacks the safeguards of criminal procedure, most notably the different standards of proof; the civil standard of proof being on the balance of probabilities, whereas the criminal standard is proof beyond reasonable doubt. Whether such civil restitutionary liability will be considered to infringe the criminal’s human rights is a matter of some uncertainty. The preferable view is that, because restitutionary liability is a civil liability which does not involve the defendant being convicted of an offence and because the restitutionary remedy does not seek to punish the defendant, the imposition of such liability should not be considered to infringe the rights of the criminal which are protected by the ECHR.
- [1] Holman v Johnson (1775) 1 Cowp 341, 343; 98 ER 1120, 1121 (Lord Mansfield). See Chapter 27.
- [2] See p 720, below. 3 See Kiriri Cotton Co Ltd v Dewani [1960] AC 192.
- [3] 41 See, in particular, Article 6(2) of the ECHR: ‘Everyone charged with a criminal offence shall be presumed
- [4] innocent until proved guilty according to law.’ 42 (1986) 25 DLR (4th) 472.
