England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2A 2LL
		14th October 2008

1. LORD JUSTICE TOULSON: On 16th May 2007 at Newcastle-upon-Tyne Crown Court before His Honour Judge Durham-Hall, this applicant was convicted of six counts of fraudulent trading. The first of those counts serves as a template for all of them.
2. The particulars of the offence were that he and others, including a man called Anthony Prudhoe, between 1st November 1995 and 29th March 1995, was knowingly party to the carrying on of the business of Beaver General Engineering Limited for a fraudulent purpose, namely to obtain payments of advances under invoice discounting facilities with Riggs AP Bank Limited and/or Riggs Bank Europe Limited and/or Riggs Bank MA dishonestly, by falsely representing that invoices were genuine records of debts. On 17th May 2007 he was sentenced to a total of 27 months' imprisonment. Prudhoe received a sentence, on the same day, of 7 years' imprisonment after having pleaded guilty.
3. On 21st January 2008 confiscation orders were made against the applicant and other co-defendants. The confiscation order made against the applicant was in the sum of £262,491.87. The confiscation order against Prudhoe was in the sum of 1p; this was because he had then no available assets but the prosecution wished to preserve its position in case he should subsequently be found to have a pot of previously undiscovered assets.
4. The applicant renews his application for permission to appeal against the confiscation order following refusal by the single judge. We have heard full argument on the matter by counsel for the applicant and the prosecution. We formally grant leave.

Mr Prudhoe had a controlling shareholding in a group of companies, some of which were wholly owned by him. His first company, Beaver Insulation Construction and Engineering Services Limited, of which he was the sole owner, was set up in the 1980s. It supplied goods and services in connection with work at the British Nuclear Fuel Limited site at Sellafield in Cumbria. Mr Prudhoe's business grew. More companies were set up under the umbrella of a holding company called Northumbria Capital Investments (NCI). The business spread into electrical engineering, pipe and cable work, insulation, heating, air conditioning and ventilation. The customers were usually large engineering concerns working on major projects in the offshore oil and gas power generation, petro-chemical and construction industries. Mr Prudhoe's companies would be brought in as specialist subcontractors to perform parts of the projects.

5. By the second half of the 1990s Mr Prudhoe had overreached himself and was in financial difficulties. By now the group was under the umbrella of a company called Engineering with Excellence Holdings Limited (EWEH), and there were a number of subsidiary companies. In practice the various companies were run as a single group and their bank accounts were used interchangeably depending on circumstances.
6. In 1996 Mr Prudhoe entered into an invoice discounting facility with Riggs Bank. This allowed NCI, EWEH and their subsidiaries to discount invoices to a combined limit of £1 million. Over the ensuing years similar discounting arrangements were entered into with other banks and the amounts of the facility agreements were increased. Between 1996 and 2000 three banks made payments of £41,767,714 to six of the companies in the Prudhoe group.
7. The appellant was the group financial director. He had a shareholding, albeit less then 5 per cent, in two of the companies, either directly or through a parent company, that is EWEH and Gowy Fabrications Scotland. He signed some of the facility agreements. As a quantity surveyor employed by the companies, he was involved in the pricing of the jobs. Therefore knew what sums the companies were due to receive and also on what jobs various members of the company's staff or subcontractors were working. As the commercial director he knew the company's financial position as well as what work it was doing. He was party to the submission of false invoices.
8. In his opening note Mr Coker QC, for the prosecution, summarised the position and motivation of the appellant as follows:

"It is plain that Mr Grainger was knowingly involved in the dishonest operation of the three discounting facilities, and what for?

- at the end of 1995 his salary was £27,000.

- by 2000, despite the group's growing debts, Mr Grainger's salary had risen to £50,000.

- on top of his salary he received expenses.

- the company also paid his mobile telephone bill and private health insurance.

- he was provided with a company car, a BMW in 1995, a Mercedes in 1996 and a Jaguar in 1998.

- he also benefited from the group's generous approach to corporate entertainment, footing the bill for both management and customers.

- he must also have believed that, if the group really did manage trade out of trouble using the funds cheated from the banks, he would own a valuable shareholding in the surviving company.

- Mr Prudhoe was it appears lining him up for a shareholding, albeit a minor one in Inter GB's replacement Finest Holding. It may well be that when he was first involved he told himself that it would do no more harm but the group would survive, he would keep his job and the bank would be repaid. But as time went by and the fraud grew he must have realised it had gone too far for that."

9. The prosecution's skeleton argument before the confiscation hearing invited the judge to adopt a broadbrush approach. In summary, it was submitted that the total benefits from the fraud were the amounts paid by the banks, adjusted to reflect the change in value in money, and that since all the defendants were parties to a joint enterprise, all were to be treated as having benefited equally from it. However, the prosecution invited the judge, as a matter of discretion, to apportion that benefit between the different defendants. The judge essentially adopted that approach. In his ruling he said as follows:

"Now, there is no doubt that there were different roles, different motivations, but all and each of these Defendants was 100% committed, as each were in turn seduced and corrupted by Mr Prudhoe in the involvement of this dishonest enterprise. The analogy of a ship which would have sank long ago is apposite. Although the money flowed indirectly to these Defendants, of course, into the various companies, the benefit is directly to be converted into the employment that continued; the increasingly generous salaries which each of these Defendants, under Mr Prudhoe, gave themselves and took; the expense accounts; the big cars, the BMWs and the Jaguars; the holidays, the trips and so on ...

This was one huge sham resulting in a huge, indeed a - I hesitate to use over-florid language, but it was a substantial waterfall, not a trickle of money, which it is not appropriate to pick apart in relation to every account, every company benefited or to say precisely who was controlling this and that. It is inappropriate to wage role and action against the other. I find that in fact joint control, with Prudhoe at the head, and, far more importantly, joint and fully active responsibility."

Then he turned to the issue of benefit. He directed himself that benefit meant any property or derivative which the defendant had been instrumental in getting out of the crime, whether or not for himself. All he said was required was that the defendant's acts should have contributed a non-trivial, that is to a not de minimis extent. To the getting of the property. He continued:

"There is clearly benefit, in my judgment... of which employment, the cars, the salaries (which would have cut off at an earlier stage) are all aspects and it is entirely inappropriate to argue that the reality is that these persons would have in any other sense benefited in similar terms, in terms of wage, job, cars, salaries and so forth."

Having so directed himself, he concluded that the assessment of the benefit could be up to, in each case, the total amount of the property obtained from the payments by the bank in respect of false invoices but, exercising his discretion, he proposed to limit the amount of the benefit in the case of the appellant to one and twelfth of that sum. This would have come to £4.1 million. The amount of the confiscation order made was less because the appellant's available assets were less.

10. Mr Stuart, on behalf of the appellant, submitted that the judge misdirected himself. He delivered his ruling prior to the decisions of the House of Lords in the recent trio of cases: R v May [2008] UKHL 28; R v Jennings [2008] UKHL 29 and R v Green [2008] UKHL 30. In the light of those judgments, and more recent judgments of this court, Mr Coker does not in all respects seek to uphold the judge's reasoning. It is necessary to draw a distinction between legal culpability, which goes to punishment, and benefit, which goes to the issue of confiscation. The confiscation regime is not intended to be additional punishment but is intended to deprive an offender of the benefit which he has received. The judge misdirected himself in accepting the proposition that anybody whose conduct contributed in a more than de minimis way to the obtaining of benefit was to be treated as having obtained such benefit. What benefit an offender has obtained is a question of fact to be determined in each case, applying the language of the statute in a common sense way.
11. Where the benefit is said to be in the form of the receipt of property, it is necessary to examine what in reality the offender obtained. In the present case the payments in question were made to Mr Prudhoe's companies. The appellant was instrumental with others in causing those payments to be made, but it does not follow that he obtained a direct benefit in the amount of those payments.
12. Mr Coker relied strongly on the sentence in the ruling on benefit, in which the judge said:

"I find that in fact joint control, with Mr Prudhoe at the head, and, far more importantly, joint and fully active responsibility."

In our judgment, that is not an adequate basis for finding that the monies paid to the companies under the false invoices were in truth monies which this appellant received or in which he had any direct beneficial interest.

13. That the appellant derived benefit from his fraudulent conduct is plain. The judge himself described the true nature of the benefit which he obtained by way of employment in a company which would otherwise have gone into liquidation and a variety of fringe benefits. That being, in the judge's view, the true nature of the benefit actually obtained by this appellant in connection with his criminal behaviour, it would have been possible for the judge to have placed a value upon it. He is not to be criticised for not doing so, because the prosecution never invited him to approach the case in that way.
14. The moral is that in such cases it is essential, first, for the prosecution and then for the judge to look to see what real benefit the offender has obtained and to examine the evidence relating to it in order to arrive at a fair valuation. In our judgment, there is no obvious or indeed logical link between the benefit which the judge described and a twelfth share of the sums obtained by the companies.
15. The confiscation order based on treating the payments by the banks to the companies as equivalent to payments to the appellant cannot, in our judgment, stand. It should not be thought that it follows from this that offenders can shelter behind companies with impunity. If an offender chooses to use a company as a shield to hide his benefits from crime, it is open to the court to look behind the corporate veil in order to ascertain the true position. Again, it is necessary in each case for the prosecution in the first instance and then the judge to examine the facts in order to see what benefit the offender has in truth obtained and how it should be valued.
16. It follows that the confiscation order must be quashed and the appeal allowed. This appellant is fortunate that the prosecution did not present its case on confiscation to the judge in an alternative way, which would have enabled the judge to evaluate the real benefit which he received. We have considered whether it is open to us to do so on the material before us, but it is not. The role of this court is that of court of review. It would involve a primary fact finding exercise which we are not in a satisfactory position to conduct.
17. For those reasons this appeal is allowed.
18. MR STUART: My Lord knows this was an application for leave. Would my Lord grant a representation order?
19. LORD JUSTICE TOULSON: Yes.
20. MR STUART: Thank you very much.