England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2
		Tuesday, 27 July 2004

1. MR JUSTICE RICHARDS: On 11 March 2002 at the Crown Court at Birmingham, this appellant was convicted of an offence of cheating the Public Revenue. The effect of further orders made that day and on 4 July 2002 is that he was sentenced to 18 months' imprisonment and a Confiscation Order was made against him under section 71 of the Criminal Justice Act 1988 in the sum of £790,649 to be paid within 12 months, with a period of three years' imprisonment consecutive in default. He appeals by leave of the single judge against the Confiscation Order alone.
2. There were three co-defendants. Nicholas Skidmore pleaded guilty to four counts of cheating the Public Revenue. He was sentenced to seven years' imprisonment and a Confiscation Order in the sum of £643,783 was made against him. David Withers was convicted on two counts of cheating the Public Revenue. He was sentenced to six years' imprisonment and a Confiscation Order in the sum of £205,723 was made against him. Paul Burke pleaded guilty to two counts of cheating the Public Revenue. He was sentenced to three years' imprisonment and a Confiscation Order in the sum of £439,760 was made against him.
3. Skidmore and Withers had been involved in a company, Computerwise, which imported computer memory parts from the USA and the Far East. Their suppliers would dispatch the goods with invoices that gave a false description of goods and a deliberate undervalue of them. Import duty and VAT were paid on that understated value, though Computerwise would pay the suppliers the true value of the goods. Computerwise would then sell the goods on at a true value, in the main to a company called GSI, and the purchaser would be charged VAT on that true value.
4. In order to avoid accounting to the Commissioners of Customs and Excise for the difference between the low VAT paid on importation and the higher VAT charged on resale, Skidmore and Withers created false purchase invoices purporting to show that Computerwise had acquired the goods from a UK company at true value and had paid the requisite VAT. The VAT showed on those false invoices was then offset against the VAT owed to the Commissioners in respect of the resale of the imported parts. That was the origin of the fraud.
5. In 1997, Skidmore and Withers fell out and Skidmore could no longer use Computerwise to continue the fraud. He required a company through which the memory parts could be imported and supplied to GSI. It was under those circumstances that he approached the appellant. The appellant was a college lecturer teaching computer science. In 1996 he had set up a limited company called Cambridge Computer Supplies Limited (CCSL). He and his wife each held one share. Initially his wife was the director and he was the company secretary. The company was registered for VAT in April 1996. It had retail premises and also supplied parts and fully assembled computers by mail order. The judge accepted that CCSL had grown out of a legitimate business enterprise started by the appellant and that the company itself had been trading legitimately. But in about August 1997, as a result of Skidmore's approach to the appellant, CCSL took over the role formerly played by Computerwise in the fraud. Subject to that change, the fraud continued in essentially the same way as before. At some point Burke became involved in the fraud. It was decided that Burke would set up his own business to be used specifically and solely as a vehicle for the fraud. In 1998 once Burke's business was established, that business took over the role played by CCSL, and CCSL's involvement came to an end.
6. The appellant was arrested in 1999, following which a Restraining Order was made against him. Eventually he faced one count in the indictment on which he was convicted, which related to the period of CCSL's involvement in the fraud. Skidmore and Burke pleaded guilty to the same count, as well as pleading guilty to one or more counts relating to other periods of time. At the confiscation hearing before the judge (HHJ Stanley) it was agreed that, subject to his ruling on certain contested matters, the benefit figure relating to the relevant count was a sum of £2,008,715.40.
7. In his ruling, the judge considered three issues that had been raised before him. The first concerned the benefit. The appellant's case was that the benefit alleged to have accrued to him was in fact a benefit that accrued to the company, CCSL, and as such could not be attributed to him personally. The judge rejected that submission, holding that the appellant had allowed the company to be used as the vehicle for committing fraud and it was therefore appropriate to lift the company veil. On that point, he said this:

" ... having heard all the evidence in the case, particularly from Mr Omar himself, I am perfectly satisfied that CCL was his alter ego. He ran the company, he made all the decisions, he decided what properties were going to be bought, how the business was to be run, who was to be employed and how all the principal decisions were made. True it is that his wife was brought into the company, I think as the company secretary at one stage and certainly as shareholder. But again on all the evidence that is available to me, particularly from what I heard in the trial, she played absolutely no part in the day-to-day running of the company and made none of the important decisions about it. It is quite plain that she had nothing to do with the actual operation of the fraud. It has never been suggested that she did. But she does not feature in the running of the company at all."

8. He thus concluded that the benefit was that of the appellant and not the company, though the appellant was of course responsible together with Skidmore and Burke in relation to that benefit.
9. The second issue was the need to guard against injustice. The judge cited passages in R v Benjafield [2003] 1 AC 1099. He cited passages both from Lord Woolf CJ in the Court of Appeal and Lord Steyn in the House of Lords, to the effect that a judge must not make a Confiscation Order if there is, or might be, a serious or real risk of unfairness or injustice. The judge observed that those principles were relevant to the question of double recovery. Although the matter was complicated by his having to deal with Confiscation Orders piecemeal so that he did not have final figures in relation to the co-defendants, he concluded that the amount recoverable by way of Confiscation Orders against Skidmore and Burke in respect of the relevant count would be no more than £700,000 and £400,000 respectively, that is a total of £1.1 million. That would leave £900,000 out of the total benefit unsatisfied. The assets of the appellant taken at their highest would not exceed that figure. He therefore considered that there was no potential problem of double recovery, and the court did not need to moderate its order to avoid the risk of double recovery.
10. The third issue is what assets were available to the appellant himself. The question concerned a number of properties that had been bought out of the profits made by CCSL prior to the operation of the fraud. The properties had been registered in the appellant's sole name or the joint names of himself and his wife, though it appears that in the case of those in the joint names of himself and his wife only 50 per cent of the value of the property was being taken into account, thus leaving out of account the 50 per cent that might be attributable to his wife.
11. The submission for the appellant was that none of the value of those properties should be taken into account. It had always been the intention to treat them all as company assets. The judge heard from a chartered accountant, Mr Williams, who said that he had been instructed that the properties had been bought for company trading premises or as investments, and that after various enquiries he had satisfied the Inland Revenue that they were company assets. The judge said that he did not feel bound by the decision reached by the Inland Revenue about that. He also referred to certain correspondence and declarations of trust in 1999 and 2001 which treated the properties as company assets, though it is fair to say that he expressed a degree of scepticism about those documents, having regard to their timing.
12. Having examined the evidence, the judge accepted the prosecution approach, which was expressed in these terms:

" ... look at the reality of the matter and conclude that these properties, however they are treated for the purposes of accounting and revenue, were in reality the assets available to and controlled by Mr Omar ...

Mr Omar plainly treated these properties as under his control. There were various manoeuvrings of the properties for accounting and revenue purpose which obviously made sense from his point of view, but I reject the submission of the defence that they should be treated as company assets."

13. Accordingly, he concluded that their value was to be taken into account for the purposes of setting the amount of the Confiscation Order against the appellant. It was upon that basis that he concluded that the Confiscation Order should be in the sum of £790,649, a figure that had been agreed subject to his ruling on the contested issues to which we have referred.
14. Mr Kelly, appearing before us today on behalf of the appellant, raises a number of grounds of challenge to the judge's decision. He submits, first, that the judge was wrong to lift the corporate veil and to treat the benefit as attributable to the appellant rather than to the company, CCSL. A similar point arose in R v Dimsey and Allen [2001] Cr App R (S) 497, also a case on cheating the Public Revenue and involving a Confiscation Order under s.71 of the 1988 Act. It was argued in that case that any pecuniary advantage that had arisen was that of certain offshore companies and not of the appellant. The Court of Appeal dismissed that argument in robust terms, stating:

"It is plain from authorities cited by the Crown that the corporate veil may fall to be lifted where companies are used as a vehicle for fraud. Here the companies in question were the appellant's alter ego ...

On this part of the case it seems to us that the Crown's position is simply incontestable."

15. Earlier, in re H [1996] 2 All ER 391, a case involving the making of a Restraint Order and the appointment of a receiver under the provisions of the 1988 Act, the court carried out a somewhat more detailed review of the authorities and concluded that as a matter of law the corporate veil could clearly be lifted in appropriate cases. In that case, the evidence was said to provide a prima facie case that the defendants controlled the companies in question, that the companies had been used for fraud, in particular the evasion of excise duty on a large scale, that the defendants regarded the companies as carrying on a family business and that company cash had benefited the defendants in substantial amounts. In all the circumstances it was considered appropriate to lift the corporate veil and to treat the company's assets as property held by the defendants.
16. Mr Kelly understandably concedes that a corporate veil can be lifted in appropriate circumstances. He submits that the present circumstances were not appropriate and he seeks to distinguish the two cases to which we have referred. He says that the company acted in the present case as a conduit. The monies unlawfully obtained were in fact passed through to, and dissipated by, the other defendants. It is not shown what, if any, monies were received by the appellant personally as a result of the fraud, and it would be unfair for the corporate veil to be lifted and the company's benefit to be attributed to him in those circumstances. The benefit, to the extent that it was derived by either the company or the appellant, was derived by the company.
17. Further, it is submitted that the properties that had been purchased were the property of the company, which was a legitimate company set up for a legitimate purpose. The evidence demonstrated that it was always the intention that there should be a separation between CCSL and the appellant in relation to the properties which were regarded as properties of the company long before the appellant's arrest and the making of a Restraint Order against him. Although legal title in the properties was in the appellant's name or joint names of himself and his wife, they were all purchased with company funds and were either occupied by the company or purchased as an investment for the company. The profits from one of them, a hotel, were included in the company's accounts. The properties were shown on the company's balance sheet. The accountant, Mr Williams, produced a calculation that shareholders' funds would be in deficit to the sum of almost £200,000 if the net book value of the properties were excluded. Mr Williams had also, when instructed in about 1998, produced accounts which, because they showed a much higher profit than hitherto, triggered an Inland Revenue investigation, but during that investigation, the Revenue accepted that the properties had been paid for by and belonged to the company. So one sees in all of that, it is said, the operation of a legitimate business, acquiring property with the profits of that business. The company was plainly not a mere facade; it was not a sham. Prior to the participation in the fraud, it was trading properly and the properties were purchased before that participation in the fraud. In all those circumstances, it is submitted the lifting of the corporate veil was not appropriate.
18. We have no hesitation in rejecting those submissions. In our judgment, it can make no difference whether the company was set up as a sham in the first place or is an existing legitimate company that is then deployed for the purposes of fraud. The important point in the present case is that the company was used by the appellant for the purposes of fraud and that, as the judge found, it was the appellant's alter ego, with the appellant running it and making all the decisions, including decisions on the purchase of the properties. The judge's findings on those matters were all properly open to him on the evidence. They meant that he was fully entitled to lift the corporate veil and to treat the benefit accruing during the period of the company's involvement in the fraud as a benefit of the appellant. Once the corporate veil was lifted, subject to the arguments that we will consider in a moment as to unfairness, he was entitled on the facts to treat the properties as assets of the appellant, even though they had been purchased with company money.
19. The second broad ground advanced by Mr Kelly is one of unfairness, that is to say that it was unfair in the circumstances for the judge to make the Confiscation Order in the terms he did. There are really two aspects to that argument. The first concerns the position of the appellant's wife. It is said that it was wrong, if the corporate veil was to be lifted, to attribute to the appellant the whole of the value of the company's properties. The mere fact that the company's properties were realisable assets did not mean that they should be attributed to him. The judge should have considered whether there were any other incumbencies or interests, as Mr Kelly put it, in respect of the property. It seems to us from the rest of his submissions that he was not there talking about incumbencies or interests over the properties themselves, but the broader point that the appellant's wife was an equal shareholder in the company. It is submitted that, in those circumstances, she should have had attributed to her half the value of the company's assets rather than that the entirety, or nearly the entirety, be attributed to the appellant. In support of that submission, reference is made to the fact that the Crown had accepted in relation to the individual properties in joint ownership that only 50 per cent of the value should be taken into account.
20. It is submitted by reference to Benjafield that what was done by the judge created injustice or a risk of serious injustice. Again, that is a submission that we reject. It seems to us that, once the corporate veil was lifted as it properly was, then, having regard to the judge's findings of fact, there was no unfairness in his treating the properties as assets of the appellant to the extent that he did. It is plain that the wife's involvement in the company was simply nominal. She had no active part in it and no part in the decision making. Although she was a shareholder apparently from the start, all the relevant decisions, including the decisions to purchase the relevant properties, were made by the appellant. It is difficult to see on what basis it could be said to have given rise to an unfairness or a risk of serious injustice for the properties in question to be treated as assets of the appellant to the extent that they were.
21. The second element of the case on unfairness concerns the relative positions of the appellant and the co-defendants. What is said is that the certified benefit for the other defendants far exceeded that for the appellant. The total benefit in the case of Skidmore was in the sum of £34 million or thereabouts, and in the case of Burke, in the sum of some £7 million. That is a figure that takes account of their involvement in the fraud in respect of other periods beyond those when the appellant and CCSL got involved.
22. It is submitted that, although the judge considered the principles of fairness referred to in Benjafield, he treated them as relevant only to the question of double recovery, that is to say whether the total amount to be confiscated from the appellant, Skidmore and Burke would exceed the amount of benefit relating to the relevant account, namely just over £2 million. It is submitted that the principle has a wider application and that where a number of defendants have been convicted of an offence of this nature, the total benefit should be divided in equal shares in the absence of evidence to the contrary. In this case, there was no evidence to the contrary because there was nothing to show how the total benefit had been divided between the individual defendants. To divide it in equal shares would have meant that the amount of the Confiscation Order in the case of the appellant would have been no more than one third of the total benefit, a sum of approximately £670,000. To order this rather than the higher sum of £790,000 or so actually ordered, would have gone some way to avoid or reduce the risk of injustice. In support of that submission, reference is made to R v McKechnie and Gibbons [2002] EWCA Crim 3161, in the course of which the court was considering the way in which to deal with benefit where there were a number of conspirators and it had not been shown how much total benefit had been enjoyed by each of the individual conspirators. In paragraph 62, it was stated:

"In our judgment, where there is clear evidence of movement of money to conspirators as in this case and in the absence of any evidence as to how the benefit of the conspiracy has been divided between individuals, dividing the total amount between those identified is as good a starting point as any."

23. In that way the court upheld the approach that had been adopted towards the calculation of benefit by the judge in that particular case. It is submitted that the same approach should have been adopted here.
24. These various arguments on unfairness now advanced before us by Mr Kelly were not those which were advanced before the judge. The appellant's reply to the prosecution statement under the 1998 Act simply put the prosecution to strict proof that the same benefit was not being claimed from each of the appellant, Skidmore and Burke on the basis that the Crown cannot recover the same total benefit for more than one person. That is also how it was argued on the appellant's behalf at the confiscation hearing; the example being given was that if there were a £1 million fraud and four people were involved, it would be unfair to order confiscation of £4 million and to recover £1 million from each of them. It would also be contrary to the purpose of the Act, which is to remove ill-gotten gains and not to punish. That is the point that the judge dealt with in the course of his ruling when checking that the Confiscation Orders would not lead to double recovery. In our judgment, he dealt with it properly and he cannot be criticised, and we think is not actually criticised by Mr Kelly for having concentrated on the particular point canvassed when dealing with the issue of fairness. Nor, we would stress, could it be inferred that he regarded that as the only aspect of fairness that fell to be considered in accordance with Benjafield principles. It is plain from his ruling that he had those principles very clearly in mind. Given that and the evident care with which the judge approached the whole matter, the reasonable inference is that he was satisfied that to make the orders he did would not give rise to a serious risk of unfairness or injustice. It seems to us that that view was one reasonably open to him on the evidence.
25. The particular suggestion that the total benefit of just over £2 million should have been divided equally between the appellant, Skidmore and Burke is again not a suggestion that was advanced before the judge. Mr Kelly does not seek to suggest that it is in any way a rule that must be adopted in cases of this kind. In the case of Mckechnie and Gibbon, it was adopted as a good starting point by the judge below, a view with which this court agreed. It was not suggested that this is the only way of going about it.
26. In the circumstances of this case, given that the matter was not ventilated below and that one has to look generally at whether the result achieved by the judge was one that offended the principles of fairness stated in Benjafield, it suffices to say that, in our judgment, the order made by the judge was one that was neither unfair nor created a risk of serious injustice.
27. We should also stress that the fact that the appellant ended up paying more than his co-defendants does not affect the position. He paid more because he had more assets. It is plainly not the intention of the draconian regime under the 1988 Act that if one co-defendant has few assets then another co-defendant with large assets may have the Confiscation Order against him reduced in order to reflect the lack of assets of his co-defendant. A so-called proportionality exercise of that kind would not be an appropriate approach under the Act.
28. In the result, we are satisfied that the order that was made by the judge in this case was well within his discretion, and this appeal is dismissed.