England and Wales Court of Appeal (Criminal Division) Decisions

Royal Courts of Justice

The Strand

London WC2

Tuesday 22nd April 1997

B E F O R E :

THE VICE PRESIDENT OF THE QUEEN'S BENCH DIVISION

LORD JUSTICE KENNEDY

MR JUSTICE HOOPER

and

HER HONOUR JUDGE ANN GODDARD QC

(Acting as a Judge of the CACD)

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R E G I N A

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ANITA GARDNER and PETER COTTON

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Computer Aided Transcript of the Stenograph Notes of

Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Tel No: 0171 831 3183 Fax No: 0171 831 8838

(Official Shorthand Writers to the Court)

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MR A STUTTARD appeared on behalf of the Applicant Gardner

MR J JACKSON appeared on behalf of the Applicant Cotton

MR C CHRUSZCZ QC appeared on behalf of the Crown

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JUDGMENT

( As Approved by the Court )

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Crown Copyright

MR JUSTICE HOOPER: On 6th December 1996 in the Crown Court at Manchester before His Honour Judge Tetlow and a jury, the appellants were convicted of a conspiracy to defraud. Additionally the appellant Cotton was convicted of two offences of taking part in the management of a company whilst an undischarged bankrupt. Each appeals their convictions for conspiracy to defraud by leave of the single judge.

The case concerned two limited liability companies North County Facilities Limited (NCF) and Northern Plant and Vehicles Limited (NPV). NCF was a finance broker. NPV was a supplier or purported supplier of goods. It was the prosecution's case that the two appellants were active in the management of both companies with the appellant Cotton playing the principal role.

Count 1 of the indictment alleged that they together with one Pilkington (acquitted by direction) and Geoffrey Peter Bowling, in 1991 and 1992 conspired together to defraud finance companies by dishonestly procuring the said finance companies to enter into leasing agreements with individuals and companies having misled the finance companies as to the purchase price of the items to be financed by the said companies and the identity of the suppliers of the equipment to be financed. Bowling pleaded guilty before the start of the trial and gave evidence for the prosecution. There were some four finance houses. Using their shorthand descriptions, they were DLL, Close Asset, NWS and Forward Asset.

The thrust of the prosecution's case was that the appellants agreed to conceal from the finance companies that NPV was making a profit on transactions knowing that, if the finance companies had realised this, they would not have entered into the transactions. The second substantial allegation was that they agreed to conceal from finance companies that the goods, the subject matter of the proposed financial arrangement, belonged to the proposed hirer or lessee, knowing that the finance companies would have refused finance had they known this. In simple terms the companies were reluctant to do "sale and leaseback" transactions otherwise known as "re-financing transactions".

In the draft opening prepared for the trial by the prosecution the fraud is described in paragraph 10. With some amendments which we have made to that in the light of the evidence that was called in the trial, it reads as follows:

"The manner in which finance companies were misled was as follows. A client of NCF would seek help in obtaining finance. In many of the incidents you will hear that no purchase was desired, simply the borrowing of money against assets they already owned. NCF would obtain an invoice passing the property in the goods to NPV in consideration for the price paid for the goods or their apparent value. NCF would then submit a proposal to a finance company that the finance company enter into an agreement to assist the client to purchase the goods from a supplier company. When the finance company requested information on the value of the goods and the identity of the supplying company, they would receive a number of fraudulent documents created by or on behalf of NCF to mislead anyone looking at the documents. A paper chase was created in this way. Where the assets were already owned by the client seeking finance, the goods never physically moved from the client's possession. Having got an invoice from the client purporting to pass title to NPV for a sum of money which was never actually paid, further documents would be created to extend the chain of apparent sales. The staff would be told to produce a sales invoice from NPV to another company not apparently connected with NCF or NPV. The apparent sale would show the goods being sold on for the same price. A man called Harry Nuttall controlled three limited liability companies called Otterton Limited, Component Design Limited and A1 Products Limited. Harry Nuttall agreed to provide blank documents with the name and title to his companies printed on them to NCF. Every time one of these pieces of paper was used he would receive a payment. In that way NCF's staff could type in details of an apparent transaction between NPV and whichever one of the three companies were selected showing an apparent sale by NPV to the selected company. Then they could type out another document, a sales invoice from the selected company showing an apparent sale of the goods back to NPV at an inflated price. NCF would then be able to supply to the finance company concerned the end invoice from NPV and sales invoice to NPV both of which would show the value of the goods at the inflated price. The finance company would never know that the client had possession of the goods and they had never parted with possession. They would never know what the purchase price or value was. All they would know was that a supplier company had sold the goods to NPV and NPV were selling the goods at the same price to them. In this way NCF/NPV would make a secret profit on the transaction, that is the difference between the value on the client's original purported invoice of sale and final value disclosed to the finance company on the final NPV sale documents to the finance company. In some cases a valuation of the goods would be asked for by the finance company. NCF in such cases forged valuation certificates on headed note paper of other companies who had no knowledge that their paperwork was being used."

In terms of a flow chart, if one looks at the sale and leaseback transactions, the owner of the goods would purport to sell the goods to NPV for their current value or for some lesser value if the owner could not afford to put down the deposit required by the finance house. NPV would then make a fictitious sale to one of the Nuttall companies for which Mr Nuttall would receive £100 or so as commission. The Nuttall company would then sell the goods, again quite fictitiously, to NPV at an inflated price. That amount would then be used as the price at which NPV sold the goods to the finance company. The NPV invoice from the Nuttall company could then, if necessary, be presented to the finance company to support the untruth that this was an ordinary supply of goods by NPV, whereas it was, in fact, a sale and leaseback operation. Additionally because the sale was at an inflated price, NPV were able to make a profit on that sale which, with the commission paid to NPF in the case of the DLL transactions, put money into the hands of both NPV and NCF.

In a few a supplier would be found who was prepared to sell something to one of the NPF clients. There would then be brought into existence a document indicating a supply from that supplier to NPV at an inflated price. On about five occasions forged documents came into existence to support that supply. NPV was then able to sell the goods on to the finance company at the inflated price.

The evidence of Mr Bowling was that he was employed by NCF as a salesman and started work early in 1991. He describes the alleged fraud in the following way. NPV would buy in the equipment for onward sale to a finance company. This was an advantage to the customer as it speeded matters up. If the finance company declined to purchase, NPV kept the equipment on its own account. NPV would make a profit on the purchase and sale. NPV would sell on to a third party then buy it back before selling to the finance company. He was told that NPV bought new and used goods and that the company sometimes bought them from suppliers and sometimes from the owners of goods who were raising money by selling their equipment and leasing it back. He was told that he could do "sale and leaseback" and by the process of buying and selling through NPV they could pass good title and overcome any qualms of the finance company on that score. He learnt that whereas one of the finance companies would pay commission, that is DLL, the other finance companies alleged to be the victims of the fraud would not do so and would not normally use brokers. He learnt that the companies mainly involved with the arrangements for buying from and selling back to NPV were the Nuttall companies. These were the companies he learnt which were used to make the commercial profit of NPV and to disguise the fact, if it was the case, that a re-finance deal was being undertaken. He described obtaining blank letterheads from customers for use by the office as invoices. He referred to the commission being paid to some of the representatives of the finance companies. Sometimes commission was paid by paying for fictitious typing services provided by the representative's spouse. He gave evidence about using blank letterheads from customers to create what he described as discount invoices. These enabled the customer to avoid having to pay the deposit which the finance company would otherwise have required.

At the conclusion of his summary of the evidence given by Mr Bowling the learned judge said this:

"Bear in mind that in this case it is common ground between Mr Cotton and the prosecution that the system operated by Geoffrey Bowling was, in general, the system laid down at the end of the day the question is whether or not the system laid down was being used fraudulently as charged."

Christine Langton gave evidence for the prosecution. She worked for NCF as an administrative assistant under the supervision of the appellant Gardner. Later she became the appellant Cotton's assistant. In summarising her evidence the learned judge said this:

"She confirmed what you may think by now is common ground, namely that suppliers of equipment would sell it to NPV. This was to ensure that the equipment was not lost to the customer. It gave NCF an edge as NPV bought the equipment before the finance company had decided whether to buy, sometimes NPV was stuck with the goods. NPV would inflate the price to the finance company either to make money or to assist the customer who could not afford the deposit or advance rental.

To that end there was a practice she told you of altering the invoice from the supplier to show the increased price... There was also to that end of inflating the price, the practice of using Otterton or CDM invoices. A stock of those invoices being kept at NCF's offices and thereby Otterton or CDM masqueraded as the original supplier."

There were even different daisy wheels for the typewriter to be used depending on which company's invoices were being used for the particular invoice. Nuttall himself gave evidence of the use of his company's paperwork and the fact that he received a minimum commission of £100 plus VAT for each transaction. He said that none of the goods the subject matter of the financing through his companies ever came into the possession of them.

As to the customers the learned judge said with one or two notable exceptions they were content with what had happened.

The appellant Cotton gave evidence. In so far as the profit made by NPV is concerned, it was his case that the finance house, DLL, knew about it. In so far as the sale and leaseback was concerned he said that he did not know that the finance companies were reluctant to do it. His explanation for the false paper trail involving NPV was to prevent the finance companies knowing how much profit NPV was making. In so far as the sale and leaseback arrangements were concerned it was to make the finance company confident that they did in fact have good title. The prosecution's answers to those two propositions may be found succinctly set out at pages 90 to 91 of the summing-up. As to altering supplier's invoices he accepted that the supplier did not see or authorise the altered version and his case was that even though the price was increased, DLL would still have done the deal. He said:

"If a man is good for £22,000, he is good for £25,000."

It has been submitted to us today that the appellant Cotton's case was that he was not acting dishonestly and that that was the principal issue for the jury. Having read, however, the way that the learned judge summarised the appellant's evidence to the jury, it seems to us that the appellant was saying also that he had not intended to mislead the finance companies. In order to convict him the prosecution had to show that he had entered into an agreement by which the finance companies would be misled. If the prosecution were able to prove that, then it might not be too difficult for a jury to reach the conclusion that the appellant was acting dishonestly.

The appellant Gardner gave evidence. She was a director of NCF and NPV. According to the judge in his summing-up he said this about her evidence:

"You may find little difficulty in concluding that she is an able administrator with a keen sense of how the books should be kept, and with a good nose for error."

He said that she would check nine-tenths of what went out of the office to the finance company DLL. It was her case that she did not know anything about the alteration of invoices or creation of invoices. Although Christine Langton must have known of the improper alteration of documents she, Gardner, never had any hint from Christine Langton that this was being done. In so far as the profits were concerned it was her evidence that there was nothing wrong with NPV making a profit. She like Cotton felt that the requirement for the use of the different daisy wheels had come from Mr Nuttall. She was not aware of any reluctance on the part of the finance companies to do sale and leaseback business and nor was she aware of any embargo imposed by DLL upon NPV not to make profits.

We turn to the grounds of appeal. In ground one of her grounds of appeal the appellant Gardner submits that the learned judge was wrong in allowing the prosecution to adduce evidence of the guilty plea of the co-accused Bowling to prove the existence of a conspiracy, when it was not clear from his evidence why he had pleaded guilty and the basis of his plea, which in any event had not been accepted by the prosecution. Reliance is placed upon the decision of this court in Manzur Times Law Reports, December 6th 1996, at page 699. We can dispose of that authority quickly. In that case the prosecution was seeking to rely upon the plea of guilty of a person who had not given evidence. The court pointed out that it was essential for the jury to know the basis of the plea of guilty. That decision has no application in this case at all because Bowling gave evidence and was examined-in-chief and cross-examined at length about his involvement in these transactions.

The appellant Cotton relies upon a very similar ground, although it is expressed over a number of paragraphs. It is said that the learned judge erred when he failed to require the prosecution to amend the indictment to include as conspirators "others unknown". He failed to exclude under section 78 of the Police and Criminal Evidence Act the guilty plea of Bowling. He ought not to have admitted the evidence of the guilty plea at a time when the Crown did not accept the basis of the plea. The learned judge misdirected the jury as to the way in which they could treat the evidence of the conviction. The learned judge failed to direct the jury adequately or at all as to the provisions of section 74(2) of the Police and Criminal Evidence Act.

As we have already indicated, Bowling pleaded guilty before the start of the trial. In opening the case to the jury counsel for the prosecution said nothing about that plea. During the trial the prosecution sought a ruling from the judge that the plea of Bowling could be admitted pursuant to section 74 of the Police and Criminal Evidence Act. The learned judge found in favour of the prosecution contrary to the submissions that were being made by the defendants. The first reference to Bowling having pleaded guilty appears at the close of the prosecution's examination-in-chief of Bowling. He said that he had pleaded guilty, and parts of the cross-examination were thereafter devoted to that plea.

In his final speech to the jury counsel for the appellant Cotton made reference to the effect of section 74. He had obviously anticipated in accordance with the ruling that a direction along the lines of section 74 and particularly subsection (2) would be made to the jury. In fact the learned judge did not sum up to the jury in that manner. We start at page 13 of the transcript:

"There is evidence that there was a conspiracy to defraud finance companies by dishonestly procuring the finance companies to enter into leasing agreements, in the words on the indictment. That evidence is provided by the plea of guilty to Geoffrey Bowling to such a charge.

I should tell you this: Mr Jackson said that he had difficulty with the concept; I hope you do not. It is evidence merely that there was such a conspiracy to defraud and that Geoffrey Bowling was a party to it. By itself - and I stress that - it is evidence of nothing more. It is not evidence I against either defendant in any way that they were, or either of them were, a party to such conspiracy. It is not evidence as to when the conspiracy was made, how long it lasted or what (if anything) was done pursuant to it. It is not even evidence as to Geoffrey Bowling's part in it. It does not go to prove any of the items of alleged fraud in the schedule."

The learned judge summarised the evidence of Bowling starting at page 33. At page 37 he said this about Mr Bowling's evidence:

"...that he believed the finance companies were being misled and that profit was being disguised and refinance deals were being done which, had they known, they probably would not have lent. He believed it was wrong in that sense."

The learned judge also pointed out, however, that in cross-examination he had said this:

"I suppose I would say I was not guilty if told I had to know I was acting dishonestly at the time."

As the learned judge pointed out, there was therefore some conflict between what he was saying in evidence and the plea of guilty which he had earlier tendered and about which the jury now knew. The learned judge then went on to say this:

"It is a matter for you whether you think it important to decide

(a) whether and (if so) when Mr Bowling thought the system of disguised profits and/or disguised refinance deals was wrong;

(b) whether, in thinking that the system was wrong and in continuing to be a party to that system, he was acting dishonestly; (c) whether or not he was acting dishonestly, whether that assists you, in fact, as to anyone else's state of mind; it does not necessarily follow that because Mr Bowling was being dishonest, another participator in the system was also dishonest, and vice versa, of course;

(d) it is a matter for you whether you think it is important to decide whether the fact that he did not know until later that such activity could be labelled 'conspiracy' or 'criminal conspiracy' makes any difference."

He returns to the matter at page 40:

"[Bowling] told you that he had pleaded guilty to conspiracy to defraud finance companies. I have already dealt with how you should look at that plea.

Standing back and looking at Geoffrey Bowling's evidence, how do you assess and regard it? He has pleaded guilty to a charge of conspiracy, but nonetheless, as I have already mentioned to you, his evidence is to some extent inconsistent in itself as to his blameworthiness. That in itself should make you cautious as to his general reliability.

It is perhaps understandable that a person who has pleaded guilty should try...to minimise the part that he played in it. He might also, to that end, wrongly seek to implicate others or seek to exaggerate the actions of others. There may be other reasons which are not apparent. There may be a grudge or something like that.

It is obvious, and must be obvious in such circumstances, that the evidence of Geoffrey Peter Bowling should be looked at with caution and circumspection. It would also be sensible to look to see whether and (if so) in what respects his evidence is supported by other evidence independent of his. It would be wise to examine and weigh his evidence in that way carefully before any decision to rely on it, if that be your decision, should be made.

Bear in mind that in this case it is common ground between Mr Cotton and the prosecution that the system operated by Geoffrey Bowling was, in general, the system laid down."

Mr Jackson, who appears for the appellant Cotton, says that putting aside section 74 there was nothing really wrong with the passages in the summing-up. Indeed, he said in argument that he would at common law have been delighted with a direction of the kind to which we have just made reference. Mr Stuttard appearing for the appellant Gardner said that what the judge did here was to water down section 74 and in effect give the direction that would have been appropriate at common law prior to the enactment of section 74. He complains that the trial judge did not rely upon section 74(2) and did not remind them of the provisions of that subsection. For our part we find no merit in that submission at all. The use of the rebuttal provision in section 74(2) could not have assisted the appellants in any way at all.

Given that the jury were properly directed in accordance with the position that would have been appropriate prior to the enactment of section 74, we cannot see how in any way the convictions can be said to be unsafe for this reason. We have not heard arguments from counsel for the prosecution about why the application under section 74 was made, but for our part we see no good reason why it should ever have been made. Bowling was going to give evidence. In giving evidence he would always have been entitled to say that he had pleaded guilty and the judge, quite apart from section 74, was entitled to sum the matter up to the jury in the way that he did in the passages to which we have made reference. We find no merit in that ground at all.

The appellant Gardner raises two further grounds. It is submitted that the learned judge was wrong to reject the submissions to the effect that the NWS and Close Asset transactions should not have been left to the jury as evidence of the alleged conspiracy when it was clear that their representatives Hinde and Waine had been deceiving their employers, matters of which it was not alleged that she had any knowledge. Mr Stuttard had submitted to the judge at the close of the prosecution case, on the basis of the civil authorities, that the knowledge of Hinde and Waine should be imputed to the companies which were employing them. In our judgment those authorities have no relevance at all. What the prosecution had to prove as against the appellant Gardner was that she knew that the finance companies were being decieved. By their verdicts the jury must have been so satisfied. There is no merit in this ground.

Finally, it is said that the learned judge failed to remind the jury sufficiently of the evidence of Christine Langton to the effect that she had nothing to do with the alteration of any documents. At page 45 the learned judge in summarising the evidence of Christine Langton recalled her evidence that the particular alterations were done on the instructions of Mr Cotton. The fact that the learned judge did not appear to go on and say that it was not done on the instructions of this appellant is neither here nor there. Even if there was an error it would not be such as to make this conviction unsafe. For those reasons these appeals against conviction are dismissed.

(There then followed applications in relation to sentence)

LORD JUSTICE KENNEDY: Formally we give you leave. Is there anything more you want to say having been granted leave?

MR JACKSON: My Lord, no.

MR JUSTICE HOOPER: We now give our reasons in relation to the two appeals against sentence.

The appellant Cotton, for the offence of conspiracy to defraud, received a sentence of three years' imprisonment. For the other two counts relating to acting in a company whilst an undischarged bankrupt, he received sentences of one year's imprisonment concurrent with each other but consecutive to the sentence on count 1. The total sentence was one therefore of four years' imprisonment with an order of disqualification of five years. He appeals against that sentence of imprisonment.

The appellant Gardner, for the one offence of conspiracy to defraud, received a sentence of two-and-a-half years' imprisonment. She was also disqualified for a period of five years under section 2 and she appeals against the sentence of imprisonment.

Cotton is aged 48. Gardner is aged 32. Neither of them have any previous convictions. The pre-sentence report for the appellant Cotton referred to his previously unblemished character and industrious lifestyle and the social and personal responsibilities particularly relating to his ageing parents. The author said the proceedings had had a traumatic effect on him and would have a lasting deterrent effect against any further offending. So far as the appellant Gardner is concerned her report showed, as indeed the learned judge had told the jury, that she is a woman of enormous potential. She was not regarded as a risk of reoffending.

In sentencing the two appellants the learned judge directed first of all these remarks to both of them:

"This was...a case of abusing the trust which quite plainly had been posed with you and your business, the trust that you would deal honestly and cleanly and without use of guile. You abused that trust and took steps to ensure that the truth should not unfold to those whose trust you had abused."

In so far as the appellant Cotton is concerned, the learned judge described him as having a forceful personality and a persuasive one. He saw him as the prime mover in this deliberate and prolonged fraud. He continued:

"In effect, you put forward risks to finance houses which they would not have accepted had they known the truth. That is the proper context within which one should look at these matters. Not that they were lending more than they otherwise would have done or that they were making more profits than they otherwise would have done. Time and again they said, 'Had we known, we would not have dealt with this sort of business. It is too risky.'"

In so far as both appellants were concerned he accepted that the finance houses had not lost on the transactions which were the subject matter of the indictment. He pointed out that NCF and NPV had enriched themselves to figures of over £200,000. He reached the conclusion that custodial sentences were inevitable and passed the sentences to which we have already made reference.

In so far as the appellant Gardner is concerned he said this:

"I can accept that, but for your association with [Cotton], you may well not have been tempted to transgress. But the fact is you did come across him and I am satisfied you then having been introduced to those plans or the scheme, embraced it wholeheartedly and devised and put and kept in position the operation of a system of bookkeeping, which would conceal the truth from the outside observer such as the finance house. I am satisfied that you undoubtedly misused your substantial intelligence. You misused it to cheat.

You too obtained a good living from his fraud and by your acts put others at financial risk."

It is said on her behalf that the sentence was excessive for the following reasons. First, the fact that there had been no assessable loss to the finance companies. Secondly, that the sentence was out of proportion to that imposed on Cotton; it is said on her behalf that he was the brains behind the company and the appellant Gardner merely administered a system which had been devised by him. It is further said that in so far as the sentence passed on Bowling is concerned, namely one of eight months' imprisonment, that there was disparity in that respect.

In so far as the appellant Cotton is concerned, it is said that there being no loss to the finance houses the sentence was excessive. Although it was accepted that a consecutive sentence of imprisonment for counts 2 and 3 was justified, it is submitted on his behalf that by making the sentence one of 12 months consecutive to a period of three years, the total sentence was excessive.

In so far as the appellant Cotton is concerned we find no merit in either of the grounds that have been put forward. For the reasons expressed by the learned judge the sentences he passed were amply justified.

Turning to the appellant Gardner, we find no merit in a suggested disparity between her and the co-defendant Bowling. Bowling pleaded guilty before the trial and gave evidence for the prosecution and was not a director of the company. In so far as the suggested disparity with Peter Cotton is concerned, in our judgment the trial judge was the best person to assess the responsibility of the two appellants having heard the case and seen both of them giving evidence. We find no fault in a decision to pass a sentence of two-and-a-half years' imprisonment upon her and in those circumstances these appeals are dismissed.