England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM CROWN COURT IN BIRMINGHAM
before HHJudge INMAN QC on 5 November 2010

		21/12/2011

Lord Justice Pitchford :

1. This is an appeal, brought with the leave of the single judge, against a conviction for conspiracy to cheat the Revenue.
2. The appellant was tried, together with Thomas Scragg ("Scragg"), Martin Scarratt, Robert Scarratt and Paul Scragg, before HHJ Inman QC at Birmingham Crown Court, upon an indictment which charged the defendants that they:

"...between the first day of December 2002 and the first day of April 2007, with intent to defraud and to the prejudice of Her Majesty the Queen and the Commissioners of Inland Revenue and Customs and Excise, conspired together, with James Tighe and with others to cheat Her Majesty the Queen and the Commissioners of Inland Revenue and Customs and Excise of public revenue by dishonestly:

(1) paying a workforce or procuring that a workforce be paid without deduction of tax and national insurance;

(2) failing to account to the Commissioners for tax and national insurance which should have been deducted from payments to that workforce;

(3) falsely representing that work had been subcontracted to companies for which payments including VAT had been made;

(4) failing to account to the Commissioners for VAT."

On 5 November 2010, following an 8 week trial, the appellant and Thomas Scragg were convicted unanimously, and the remaining defendants were acquitted.

3. The ground upon which the appeal is brought is that the trial judge wrongly refused the appellant leave under section 101(1)(e) Criminal Justice Act 2003 to adduce evidence of the bad character of his co-accused, Thomas Scragg and Paul Scragg. In consequence, it is argued that the appellant's trial was unfair and the verdict unsafe. The appeal raises the following issues:

(1) whether the evidence the appellant sought to adduce had "substantial probative value in relation to an important matter in issue between the defendant and a co-defendant" within the meaning of section 101(1)(e) Criminal Justice Act 2003;

(2) what, if any, discretion the trial judge possessed to decline to admit such evidence if and once the statutory criteria had been satisfied;

(3) whether the judge, having refused to admit the evidence, should have severed the appellant's trial from that of his co-accused;

(4) if the trial judge wrongly refused to admit the bad character evidence and/or wrongly failed to sever the appellant's trial from that of his co-accused, whether the safety of the appellant's conviction is undermined.

The prosecution case

4. The central prosecution allegation was that the conspirators were involved in a construction industry sub-contractors' exemption certificate fraud. Revenue regulations require a construction industry contractor to deduct from payments to his sub-contractor tax and employees' national insurance. If, however, the sub-contractor is the holder of a CIS6 certificate the contractor is exempt from making deductions and the payments to the sub-contractor may be made gross. If the payments are made gross, the sub-contractor is required to issue both to the contractor and to the Revenue a CIS24 voucher certifying receipt of the gross sum paid without Revenue deductions. The obligation to make the deductions thereupon falls on the sub-contractor.
5. The structure of the fraud was as follows:

(1) the main contractor paid the contract price to a CIS6 certificate holding company (for these purposes, 'the sub-contractor');

(2) the sub-contractor moved the money to a payroll company;

(3) the payroll company moved the money to an end-user company;

(4) the end-user company withdrew cash to make payments to the workforce;

(5) tax and national insurance due on payments to the workforce comprised approximately 18% of the gross. This sum was retained by the fraudulent members of the scheme and no account was made to the Revenue by any of the companies within the fraudulent structure. The sub-contractor, the payroll company and the end-user company were all vehicles for the fraud controlled by one or more of the conspirators.

6. While the indictment period was November 2002 to April 2007, the case against the appellant was that between November 2002 and September 2005, with Thomas Scragg, he managed the fraudulent scheme. He did so by being a director of and/or working for:

Three CIS6 sub-contractors: Construction Plus Limited (2002-2005), Ground Work Contracts Limited (2003-2004) and Midland Civil Engineering Limited (2004-2005); and

Two payroll companies: HPS Payroll Services Limited (2002) and Midland Payroll Services Limited (2003-2005).

Thomas Scragg was director and manager of two end-user companies: Freelance Construction Limited (2002-2004) and Groundwork Recruitment Limited (2004-2005). He was a bank signatory for both companies and also for Utility Recruitment Limited, a third end-user company, of which Martin Scarratt and Paul Scragg, his nephew, were directors and also signatories.

Construction Plus Limited traded from the appellant's business address at Ashbourne House, 21 Ashbourne Road, Ashbourne, Derbyshire. All three end-user companies were registered at the appellant's business address at Ashbourne House.

7. We have noted that the money filtered downwards from the main contractor to the end-user company. The invoices ascended in the opposite direction. The end-user invoiced the payroll company for its "work". The payroll company, in turn, invoiced the CIS6 sub-contractor, and the CIS6 sub-contractor invoiced the main contractor. The invoicing system was a sham. The fraudulent company structure was interposed between the main contractor and the workforce simply for the purpose of evading tax and national insurance. The appellant was responsible for the invoicing system. He also provided Thomas Scragg with the details required for cash to be withdrawn and pay packets in cash to be prepared. Thomas Scragg was responsible for gathering business to the fraudulent scheme and for the delivery of cash to the workforces on site around the country. The prosecution case was that between November 2002 and September 2005 a gross sum of approximately £60 million was laundered through the company structure in this way, enabling the fraudsters to retain £14 million which should have been accounted to the Revenue.
8. The appellant was the holder of a CIS6 certificate on behalf of the sub-contractor companies. He receipted the payment of money by contractors with CIS24 vouchers. The vast bulk of the money received was moved on to the payroll companies without deduction of tax and national insurance, despite the fact that the payroll companies had no CIS6 certificate entitling them to gross payments. The payroll companies made no returns to the Revenue to account for the onward payments to the end-user companies.
9. Thomas Scragg organised a Freelance Construction Limited cash account at the Allied Irish Bank. At a meeting with its manager, Mr Rogers, he represented that the payroll company worked out what was due for tax and national insurance and that the net sum would be transferred to the Freelance account by BACS for conversion to cash for wages and delivery to the workplace. However, Thomas Scragg's defence at trial was quite different. He asserted that the appellant would provide him with the precise sums to be inserted into each pay packet, gross. No deduction of tax and national insurance was made either by the payroll company or by the end-user company. Thomas Scragg gave evidence that he believed, when preparing and organising delivery of the pay packets, that the obligation for deduction of tax and national insurance was upon the foreman or ganger who was responsible for paying the men's wages on site. He said that he understood that the ganger sent a CIS24 voucher to the appellant. He thought, he said, that the gangers would make the 18% deduction from each of the wage packets before they were handed to the workmen for whom they were destined. He claimed that Mr Rogers' file note was inaccurate. He had made no claim that tax and national insurance was deducted by the payroll company.
10. The second limb of the fraud on the Revenue concerned the dishonest submission of VAT returns by the end-user companies. The prosecution demonstrated the appellant's close involvement in the affairs of the end-user companies by showing that he completed the Freelance Construction VAT returns which Thomas Scragg signed. Furthermore, when an HMRC inspector visited the Ashbourne Road premises on 4 June 2004 to seek assistance about two applications for VAT registration made on the same day by Martin Scarratt on behalf of the end-user companies, Groundwork Recruitment Limited and Utility Recruitment Limited, he was met by the appellant who represented himself as their financial advisor. The appellant informed the inspector, Mr Cook, that an end-user called Flightdean Limited had supplied labour to Groundwork Contracts Limited, who had in turn supplied labour to the payroll company, MPS. The prosecution case was that this information was, to the appellant's knowledge, false. The end-users in the scheme were Groundwork Recruitment Limited and Utility Recruitment Limited. The invoices issued by the recruitment companies were entirely bogus. Furthermore, those Groundwork Recruitment and Utility Recruitment VAT returns examined for handwriting were in the hand of the appellant. They did not conform with the information provided in the invoices. A short fall in VAT of just under £2 million was revealed.
11. The third form of fraud, "cash back", again involved the dishonest use of the CIS6 certificate. The CIS6 certificate, managed on behalf of the 'sub-contractor' by the appellant, was used simply for the purpose of laundering cash back to the contractor, introduced by Thomas Scragg, in order to pay his workforce. The tax and national insurance element of the gross payment was retained by the fraudulent scheme and shared between the conspirators and the contractors. Some of the contractors' representatives gave evidence for the prosecution. The contractors would receive cheques representing work done. They would transfer the funds to the sub-contractor in return for cash which amounted to the face value of the cheque less a commission charged by the CIS6 certificate holding company. The contractor would be supplied with CIS24 vouchers to cover the payment in gross. A bogus invoice from the CIS6 certificate holding sub-contractor company was provided from information provided by the contractor company. The CIS6 certificate holding companies used in the scheme were Construction Plus Limited, Midland Civil Engineering Limited and Groundwork Contracts Limited. During the indictment period the appellant was a director and bank signatory of Construction Plus Limited and Midland Civil Engineering Limited, and a bank signatory of Groundwork Contracts Limited.
12. The appellant's alleged involvement in the conspiracy ceased in September 2005. Thomas Scragg decided that he no longer wanted him involved. Scragg visited the appellant with two "security men". The appellant claimed that pressure was put on him, as a result of which he agreed to produce and did produce a severance agreement which was signed by both parties.

Defence evidence

13. The appellant was a man of good character, married with three children. He had a background in engineering, having started as an apprentice and become a director. His company was placed in liquidation. The appellant used his experience to offer his services as an advisor and company assessor. In 1999 he formed a company called BCOL Limited. He was the tenant of offices at Ashbourne House. In the course of his work he was introduced to a company called HCS Payroll Limited. Thinking that he might obtain work in the field of payroll management he formed Construction Plus Limited and HPS Limited. These are the first two CIS6 contractor companies with which the jury was concerned. While doing payroll work for HCS the appellant said that he was asked by his contact there to see Thomas Scragg, who wanted advice upon the future of his company, Stylish (2001) Limited. The appellant advised that it should be liquidated. It was apparent that Mr Scragg was well connected in the construction payroll industry. The appellant said he was interested in forming a "composite company". The appellant understood that by making workmen shareholders of the company for whom they worked tax advantages could be obtained, which meant that the payroll bill could be reduced. According to the appellant, it was on that basis that he and Thomas Scragg agreed to go into business together.
14. The immediate business arrangement was, however, that Thomas Scragg would, through his company Freelance Construction Limited, introduce business. Freelance would invoice Construction Plus Limited gross for work done via HPS Limited, the agent or introducer of Freelance to Construction Plus Limited. Freelance, the appellant claimed, was independent of him. He managed the administration, invoicing and banking for Construction Plus and HPS. He said that he had nothing to do with the administration of Freelance Limited.
15. The appellant said that work was introduced to the scheme by both Thomas Scragg and his associate, James Tighe, named as a conspirator in the indictment. Construction Plus Limited would invoice the main contractor. The invoice would be paid gross using his CIS6 certificate and the appellant would issue the CIS24 vouchers. The money would be transferred via the payroll company, HPS, to Freelance less 5%, 2½% for each of the two companies. In return, Freelance would send its invoice as provider of labour to HPS. HPS would send its invoices as introducer to Construction Plus. As the appellant put it "I was not involved in Freelance paperwork or had any access to their bank. I only knew what HPS paid to them".
16. As for the composite company scheme, the appellant said he was advised by an accounting firm called Spencer Bradley Meeson ("SBM"), which shared the office space at Ashbourne House, to incorporate new companies. The appellant acquired further off-the-shelf companies, Midland Civil Engineering Limited, Midland Payroll Services Limited, Groundwork Recruitment Limited, and Utility Recruitment Limited. The first of these companies became a SIC6 certificate holder, the second a payroll company and the last two became end-user companies in the fraudulent scheme. The prosecution accepted that steps were taken to implement the composite company scheme but maintained that the fraudulent scheme continued alongside regardless.
17. The appellant's case was that as far as he was concerned the sums received by Construction Plus Limited from its clients were paid via the payroll company to the end-user without deductions save for the 5% fee. What happened after the money reached the end-user was nothing to do with him. On a weekly basis he provided by fax from Ashbourne House to Thomas Scragg, at his headquarters at Fullard House, Wolverhampton, sheets of figures on which were itemised in respect of each workman to be paid (i) the gross sum due, (ii) tax and national insurance deductible, and (iii) the net sum payable to the workman. His belief was that the 18% due to the Revenue was being deducted by the end-user company for whose management Thomas Scragg was responsible. As to the cash back scheme, the appellant said that he knew nothing about it. As to VAT he admitted that he had completed VAT returns for the end-user companies but maintained that he did so only from figures supplied by Thomas Scragg on a piece of paper. He noticed that the VAT return would be for a sum which he knew was very considerably less than was to be expected having regard to his knowledge of the sums going into the end-user company's account. He raised the matter with Thomas Scragg who told him, he said, that the figures required were not turnover but gross profit. The appellant said that he accepted Scragg's explanation. When asked why he had fielded enquiries from Mr Cook of HMRC he said that Thomas Scragg had asked him to help out Martin Scarratt who would not have sufficient understanding to provide answers himself. He denied that he lied to Mr Cook.
18. Thomas Scragg's defence was that he knew nothing about the organisation and management of the scheme. He left the documents and the figures to the appellant and the firm, SBM. As he understood it, Freelance Construction Limited was getting money direct from Construction Plus Limited and he did not realise that HPS Limited was an intermediary. He was provided by the appellant with sheets which itemised the sums payable to the workforces in respect of whom payment had been made to Construction Plus. As far as he was concerned, they were gross sums. It was up to the gangers to deduct what was due to the Revenue. He now realised, having seen the prosecution evidence, that a fraud was going on. He had nothing to do with it. All such questions must be addressed to the appellant and to the accountants, SBM. As to VAT returns, Thomas Scragg gave evidence that he signed the returns in blank for the appellant to complete. He too denied being knowingly involved in a "cash back" scheme.
19. It follows that the defence cases of the appellant and of Thomas Scragg were inconsistent. While each of them accepted that a fraud must have been in progress, each denied responsibility. The appellant claimed that the 18% deduction for tax and national insurance must have been syphoned off by the end-user company without his knowledge, while Thomas Scragg maintained that the tax and national insurance element of the payments, by arrangements of which he was unaware, must have been retained by the gangers.
20. As to the sheets which each accused accepted were provided by the appellant to Scragg for the purpose of preparing the workmen's pay packets, and were faxed every week from one office to the other, none survived searches at either office. There was a complete lack of documentary evidence supporting one account or the other. What must have been clear to the jury, which returned its verdicts after two hours deliberation, was that the whole scheme was fraudulent.

Defence application to adduce bad character evidence

21. The trial commenced on 13 September 2010; on 27 September Mr Carter-Stephenson QC made an application to adduce evidence of Thomas Scragg's bad character. The grounds for the application were that it had become apparent the jury would have to decide whether one or other or both of the defendants were engaged in fraud. Thomas Scragg was, Mr Carter-Stephenson wanted to establish, a fraudster and a liar. When considering whether it may be that the appellant's denial was true and Thomas Scragg's denial was false, Scragg's propensity for fraud and untruthfulness was not only a relevant factor but, in the appellant's submission, substantially probative upon the issue of Scragg's guilt and the possibility of the appellant's innocence. Mr Carter-Stephenson renewed his application on 22 October 2010. By this time counsel on behalf of Paul Scragg had asserted to the appellant in cross examination that, contrary to the appellant's assertion, he was intimately involved in the running of the end-user companies. The effect of the cross examination was to suggest that it was the appellant who was, with Thomas Scragg, the responsible manager and not Paul Scragg who was a nominal director only.

The bad character evidence

22. The evidence which the appellant sought to adduce was as follows:

(1)(a) On 28 June 2005 Thomas Scragg, at Birmingham Crown Court, pleaded guilty to an indictment charging him with conspiracy, between 1999 and 2001, to defraud. Stylish Resurfacing Limited, a Scragg company, submitted inflated day work sheets to J Murphy and Sons. By this means he obtained an overpayment of £96,000 for work not done by two fictitious employees, R Davies and S Jones. His accomplice was John Sheehy, an employee of J Murphy and Sons who countersigned the day work sheets, to whom Scragg made cash payments. The fraud was revealed when Scragg found that he had incurred a tax liability which his company could not meet.

1(b) Scragg had previous convictions on 28 May 1992 for using threatening or abusive words or behaviour with intent to cause fear of violence; on 18 June 1993 for criminal damage and affray; and on 20 April 1995 for destroying property and for using threatening words or behaviour with the intention of causing fear of violence.

(2) On Tuesday, 12 March 2002 Scragg was stopped at Belfast City airport on his way to the mainland. He was in possession of two copy Inland Revenue CIS24 vouchers held by Thomas Scragg of Stylish Resurfacing Limited; one had been completed and issued to "R. McKinnie" under Scragg's signature in respect of a gross payment received within a period of the month to 5.3.02 of £357,446; the other was largely blank. Scragg stated they were for his business but was not forthcoming as to their purpose. By 12 May 2003 HMRC were in possession of a further copy of the first voucher and a completed copy of the second, they having been submitted to the Revenue by McKinnie. The second purported to be a receipt for a gross sum of £607,318 paid by R McKinnie during the month to 5.4.02. Scragg was interviewed about these vouchers at Steel House Lane police station, Birmingham, on 12 May 2003. Scragg accepted that Stylish Resurfacing Limited was placed in liquidation in late 2001 (in fact 14 December 2001). He was asked how the vouchers could have been issued in respect of a period during which the company could not trade. He told the investigating officers, Judi Price and Richard Long, that he had handed blank but signed vouchers to an accountant, Bill Jefferies, of Drummond Management in Scotland, when Mr Jefferies was "see[ing] what he could do with the books". He should have sent them back to the Revenue. He claimed that he had never met a man called Alan Connell. On 8 July Scragg was interviewed again. This time he denied recognising the name McKinnie; he denied knowing Connell or James Tighe. He claimed that he had never seen a McKinnie voucher completed. Scragg hinted that he had learned that copies of his Stylish CIS24 vouchers had been in circulation in south London, implying that Bill Jefferies had been responsible. Scragg offered to help the officers with their investigation into Jeffreys. Scragg did, however, admit that he knew Connell and Tighe, whom the Revenue believed were implicated in a CIS6 Revenue fraud involving these vouchers. Scragg would not reveal how he had come by the completed voucher in his possession in Belfast.

(3) A search was carried out at Scragg's home on 24 September 2002. The Revenue discovered documents which appeared to demonstrate that Scragg's successor company, Stylish (2001) Limited, a CIS6 certificate holder, had in April 2002 taken over from Alan Connell as labour supplier to JSM Construction Limited. Martin Scarratt and Paul Scragg were directors of Stylish (2001) Limited. Also found were cheque stubs which recorded payments drawn in large sums of cash from Stylish (2001) Limited's account as "cuts" to various individuals including Tommy, Bill (Scotland), Paul, Martin, and 'Maren'.

(4) Also found during the search was a sheet of paper on which was written "Cover" and sums of cash for the months of May (£200,000 + VAT) , June (£260,000 + VAT) and July (£495,000 + VAT), together with invoices from Graham Contractors Limited which corresponded. Graham Contractors Limited blank invoices were found together with a fax cover sheet from Drummond Management Consultants in Glasgow.

All the foregoing evidence related to events during the period before the appellant was alleged to have formed or joined a conspiracy with Thomas Scragg. The following evidence related in the main to the post-indictment period:

(5) In April 2007 legislation outlawed the composite company scheme (see paragraph 13 above). Henceforward 'sub-contract' workmen were to be employed and thus subject to normal PAYE requirements. However, workmen's expenses were not taxable. The employer would be required to submit a form P11D annually in which were justified all payments of expenses to workmen (and, therefore, the payment in gross of those expenses). It was open to employers to seek a 'dispensation' from the P11D procedure. The employer had to satisfy the Revenue that it habitually made payments to its workforce for recurrent non-taxable expenses. Thomas Scragg, with others, utilised his 'Moya' group of companies to apply for a 'dispensation'. No such dispensation was ever provided. However, Moya offered payroll services to its customers free of charge upon the representation that the dispensation had been or was going to be obtained. Between April 2007 and February 2008 'Moya' received a total sum of £47.5m. It purported to take onto its books 3,000 – 4,000 employees from contractors seeking its 'free' payroll services. The fraud on the Revenue was perpetrated by purporting to pay the workforce the minimum wage rate, the balance of the workmen's wage packets being made up with non-taxable expenses. By this means the conspirators yielded £10.7m which should have been paid to the Revenue in tax, national insurance and undeclared VAT. The payroll services were free because the scheme was intended to make its profit by fraud. The chief conspirators were Thomas Scragg, Andrew Savin, (in-house accountant responsible for 'expenses'), David Wilson-Gill ('payroll' manager) and Alfred Namutolo (independent accountant practising as Namusti & Co, Walsall). During the 10 month period of the fraud Scragg personally received £440,000 from Moya accounts, Savin received £468,000, Wilson-Gill received £480,000 and Namutolo received £470,000. Very considerable sums were, in addition, expended by Moya to afford the conspirators a lavish lifestyle. The investigation into the fraud, which culminated in arrests from February 2008, was named "Raiment 1". At the time the appellant made his application to adduce this evidence the conspirators were awaiting trial. Those named, including Thomas Scragg, were convicted after a trial in 2011.

(6) On 7 February 2008 HH Judge Gregory granted restraint orders against Thomas Scragg and others suspected of involvement in the Raiment 1 fraud. Scragg managed to persuade the court to vary the restraint orders so as to install supervising accountants in place of a management receiver. By various means Scragg and others deceived the supervising accountants and diverted substantial assets which otherwise would have been available to contribute towards Moya's liabilities. These matters formed part of an investigation called Raiment 2.

23. The appellant identified the issues to which the bad character evidence was relevant as (and we paraphrase):

(i) the existence of an on-going CIS6 certificate fraud in which Thomas and Paul Scragg were conspirators before the appellant joined his business scheme in November 2002; Thomas Scragg's participation in later and entirely separate frauds, one of which involved deceiving accountants; accordingly,

(ii) the truth or falsity of Scragg's assertion that he was ignorant of the indictment fraud;

(iii) the truth or falsity of Thomas and Paul Scragg's implied assertion that the appellant was responsible for the indictment fraud;

(iv) the truth or falsity of the appellant's claim to have been threatened in September 2005;

(v) the truth or falsity of the appellant's defence that he was an innocent front man in Scragg's CIS6 certificate fraud.

24. It was asserted that each of these issues was material to the ultimate question identified in Randall [2003] UKHL 69 and Rafiq [2005] EWCA Crim 1423, namely whether the appellant's account was, as between himself and Thomas Scragg, the more probable.
25. The probative value of the bad character evidence was identified as its capacity to demonstrate (again we paraphrase):

(a) Thomas and Paul Scragg's propensity to engage in Construction Industry Scheme frauds;

(b) Scragg's pre-existing conspiracy with persons other than the appellant, notably James Tighe;

(c) that Scragg operated 'front' companies;

(d) Scragg's propensity to use and deceive professional people;

(e) Scragg's willingness to use threats and violence to achieve his own ends.

The judge's ruling

26. The judge identified the issue between the defendants as follows (transcript 27 September 2010, page 5B):

"Mr Phillip's defence is that he was not aware of any fraud being perpetrated. If there was, it was being run by others which must include Mr Scragg. Mr Scragg's defence is that he was not aware of any fraud being perpetrated. If there was, it was being done by another. By inference, that would point towards Mr Phillips."

A "cash back" witness, Steven Watts, had been cross examined on 17 September, to the effect that the invitation to participate came from the appellant and not from Scragg. The judge concluded that the issue was, as between the two: who was responsible for the cash back fraud? It was, the judge concluded, an important issue for the purpose of section 112 Criminal Justice Act 2003.

27. The judge first considered the admissibility of the conviction described at paragraph 22(1) above. He ruled that the facts underlying the conviction were capable of demonstrating "a propensity on the part of Mr Scragg to commit fraud, and that would be capable of having substantial probative value on the important issue between the defendants that I have identified". The application had not been made within the time limited by Crim PR 35.5 but no prejudice was caused to Mr Scragg and, accordingly, the evidence of the conviction would be admitted.
28. The judge next turned to the evidence described at paragraph 22(2)-(4) above. Assuming, as required by section 109, that the evidence was true, the judge concluded that it was admissible for reasons identical to those which applied to the previous conviction for fraud. Nevertheless, he ruled against its admission. The judge noted that the criminal behaviour alleged had never been the subject of a charge. The judge considered that even if Scragg was given time he would have difficulty defending himself against those allegations. He would be engaged in defending one fraud allegation during the trial of another. The allegation made was denied. The evidence could not be introduced solely in the form of admissions; documents would have to be considered. The issues raised would further complicate an already complex trial for the jury. The judge concluded that the evidence should not be admitted on the grounds that it created undesirable satellite litigation.
29. The judge turned to the Raiment 1 and Raiment 2 evidence summarised at paragraph 22(5) and (6) above. He expressed the view that the evidence of payroll fraud (Raiment 1) was (transcript, page 15A) "capable of having substantial probative value on the issue between [Mr Scragg] and Mr Phillips...because it would be evidence from which a jury could conclude, if they wished, that he has a propensity to be untruthful and, secondly, that the facts of it again relate to the misuse of a limited company in relation to payroll schemes which were dishonest and, in my judgment, the facts would be relevant as potentially demonstrating a propensity by Mr Scragg to commit fraud on the Revenue". These were not, however, convictions. Raiment 1 had been listed for trial and the time estimate was 3 months or thereabouts. Raiment 2 would also be a substantial trial. It had been proposed to adduce evidence or formal admissions as to the structure and method of the Raiment 1 fraud. Raiment 2 would not, in the judge's view, demonstrate a relevant tendency to CIS6 certificate fraud but it would be substantially probative of a propensity towards untruthfulness. It was proposed to adduce evidence of documentation and to rely on admissions or witnesses to establish Scragg's perversion of the course of justice. The judge concluded that if he was to permit the evidence to be adduced it would render the trial "wholly unmanageable". The jury could not be expected to reach decisions which another jury or juries would be required to consider in separate trials to be held in 2011. The judge declined to admit the Raiment 1 and Raiment 2 evidence.
30. Finally, the judge considered the convictions for disorder and damage. While the convictions may have been relevant to the evidence of a confrontation between the appellant and Scragg on 16 September 2005, the judge was "quite satisfied" that the issue between them was not a matter of substantial importance in the context of the case as a whole. Furthermore, the convictions were elderly and it could not be said that they were substantially probative upon the issue of Scragg's behaviour at the meeting.
31. It follows that the learned judge declined to admit the non-conviction evidence of Scragg's alleged fraudulent behaviour between 1999 and 2002, and the evidence gathered during Raiment 1 and 2, on the sole ground that it would be unreasonable to expect the co-accused and the jury to deal with it. In his consideration of the law which applied to his exercise of judgment the judge followed the guidance given by the Court of Appeal in O'Dowd [2009] EWCA Crim 905 at §2:

"2. A major reason for the length of the trial was the introduction of bad character evidence admitted pursuant to the Criminal Justice Act 2003 (hereafter "the CJA 2003") concerning three other allegations of rape, two of which related to events that occurred 22 and 17 years before the indicted charges. The first of these allegations, by RL, resulted in an acquittal, the second, by JD, in a conviction, and the third, by LB, was stayed on the ground of abuse of process. If ever there is a case to illustrate the dangers of satellite litigation through the introduction of bad character evidence this is it."

The judge also relied upon the observations of the Vice President, Rose LJ in Hanson [2005] EWCA Crim 824, [2005] 2 Cr App R 21 at §12 when he said:

"12. Where past events are disputed the judge must take care not to permit the trial unreasonably to be diverted into an investigation of matters not charged on the indictment."

Lastly, the judge referred to McKenzie [2008] EWCA Crim 758 in which the Court was considering the admissibility of non-conviction evidence in proof of propensity, upon the application of the prosecution under section 101(1)(d) of the 2003 Act. Having referred to the Hanson criteria for admissibility Toulson LJ continued at §22 and §23:

"22. In formulating those criteria the court referred to convictions, because the evidence of bad character in the cases which it was considering consisted of convictions which fell within s103(2). Where the prosecution seeks to prove propensity to commit offences by evidence other than previous convictions, the application of those criteria may in the nature of things present particular difficulties, and the judge may also have to consider whether the admission of the evidence would result in the trial becoming unnecessarily and undesirably complex even if not unfair.

23. In the first place, where there has been a conviction, it follows that the defendant's guilt must have been established either by his own admission or by evidence which satisfied the court to the requisite standard after a criminal investigation and trial. Section 103(2) enables evidence of the conviction to be given as evidence of guilt and thus of propensity to commit offences of such a kind (subject to the other provisions of the Act). In short, the conviction operates as launch pad for establishing propensity. Without such a launch pad, proof of the previous alleged misconduct requires the trial of a collateral or satellite issue as part of the trial of the defendant for the offence with which he is charged. Trials of collateral issues have the dangers not only of adding to the length and cost of the trial, but of complicating the issues which the jury has to decide and taking the focus away from the most important issue or issues."

32. The appellant's case is that none of these observations apply to an application made by one accused to adduce in evidence the bad character of a co-accused; the sole criteria are specified in section 101(1)(e) Criminal Justice Act 2003. Once the statutory criteria have been met and a deliberate breach of CrimPR 35.5 has not, in the judgment of the trial judge, taken place, he has no discretion whether to admit the evidence. The respondent concedes that the appellant's argument is right. At trial Mr David Farrer QC supported the appellant's application to adduce evidence of pre-indictment fraud but declined to support the admission of post-indictment fraud on the ground that it did not meet the statutory criteria. His approach on appeal has been to demonstrate that the appellant's conviction was safe.
33. On 28 September 2010 the learned judge ruled against the appellant's application for a separate trial to enable him to adduce in evidence the bad character of Scragg without the risk of prejudice to Scragg.
34. On 22 October 2010 the learned judge rejected Mr Carter-Stephenson's renewed application in respect both of Thomas Scragg and Paul Scragg. He concluded that in the case of Thomas Scragg the same considerations applied with equal force; in the case of Paul Scragg the issue which arose between the appellant and Paul Scragg was not of substantial importance in the context of the trial as a whole. We think it right to re-examine the appellant's application from first principles.

Section 101(1)(e) CJA 2003

35. The relevant parts of section 101 are:

"101(1) In criminal proceedings evidence of the defendant's bad character is admissible if, but only if-

...

(e) it has substantial probative value in relation to an important matter in issue between the defendant and a co-defendant."

The definition section, section 112 states:

"112(1) In this Chapter-

...

"important matter" means a matter of substantial importance in the context of the case as a whole..."

Section 101(3) [adverse effect upon the fairness of the proceedings] does not apply to admission of evidence under section 101(1)(e). Section 104 provides:

"104(1) Evidence which is relevant to the question whether the defendant has a propensity to be untruthful is admissible on that basis under section 101(1)(e) only if the nature or conduct of his defence is such as to undermine the co-defendant's defence."

By section 109:

"109(1) Subject to subsection (2), a reference in this Chapter to the relevance or probative value of evidence is a reference to its relevance or probative value on the assumption that it is true.

(2) In assessing the relevance or probative value of an item of evidence for any purpose of this Chapter, a court need not assume that the evidence is true if it appears, on the basis of any material before the court (including any evidence it decides to hear on the matter), that no court or jury could reasonably find it to be true."

Discussion

"Substantial probative value in relation to a matter of substantial importance in the context of the case as a whole"

36. In Randall [2004] UKHL 69, [2004] 1 WLR 56 at page 62G, Lord Steyn explained the "relevance" of evidence as follows:

"A judge ruling on a point of admissibility involving an issue of relevance has to decide whether the evidence is capable of increasing or diminishing the probability of the existence of a fact in issue."

Evidence is "probative" of a fact in issue if it is capable of having the tendency to which Lord Steyn was referring; in other words, evidence is probative if it tends towards proof or disproof of a fact in issue. The probative "value" of evidence is a description of the strength of its tendency towards proof or disproof of the fact in issue. In Braithwaite [2010] EWCA Crim 1082 (a section 100 case) the Vice President referred to the term "substantial probative value" as a test of its "force". The Criminal Justice Act employs the terms "probative value" (section 100(3), section 109 and section 112), "substantial probative value" (section 100(1)(b) and section 101(1)(e)) and "highly probative" (section 78(3)(c)). In the latter case, when the court is considering whether there is "new and compelling evidence against an acquitted person", evidence is compelling if it is reliable, substantial and appears "highly probative" of the case against the acquitted person.

37. The Law Commission, in its report "Evidence of Bad Character in Criminal Proceedings" (Law Com 273, 2001), adopted the term "substantial probative value" to describe an "enhanced relevance". At Part XIV, "The Co-Defendant Exception", paragraph 14 (application to admit the bad character of a co-accused), the Commission recommended:

"14.41 In common with our other recommendations, if a defendant wishes to adduce evidence about another defendant which goes outside the central set of facts then the leave of the court must be obtained.

14.42 Consistent with our recommendations in respect of adducing evidence of the defendant's character by the prosecution, or of a non defendant's character by any party, such leave will only be given if the evidence is of substantial probative value to an issue between the defendants, which issue is itself of substantial importance in the context of the case as a whole.

14.43 This recommendation mirrors our other recommendations in respect of evidence sought to be adduced about bad character evidence outside the central set of facts. The enhanced relevance test is designed to prevent evidence of bad character extraneous to the events in question being admitted where it is of only minimal relevance to a central issue, or where the issue to which it is relevant is itself marginal to the case.

14.44 In this way the court will require each defendant who wishes to attack the character of a co-defendant, by drawing attention to character evidence which is extraneous to the central set of facts, specifically to justify its introduction. In so doing we aim to avoid material of great potential prejudice to another defendant being placed before the fact-finders for no reason other than that it may be of some marginal relevance, or relevant to some marginal issue or, as at present, because a defendant has been unwise enough to step across a line in the evidence given against that co-defendant.

14.45 If, however, the material does satisfy the test of enhanced relevance, then, because the defendant has the right to have his or her case presented, there is a right to have it adduced. There is no exclusionary discretion, such as we propose in the case of the prosecution seeking to introduce evidence of the defendant's bad character, requiring the court to have regard to the prejudicial impact of the evidence.

14.46 Where, however, the issue between D1 and D2 is whether D1 has a propensity to be untruthful, leave may only be given if, in addition to the other requirements, the nature or the conduct of D1's defence is such as to undermine D2's defence." [emphasis added]

There is, it seems to us, room for confusion here between two separate concepts, namely the capacity of the evidence to prove a fact in issue, on the one hand, and the importance (or enhanced relevance) of the fact in issue in the trial, on the other. In our opinion, an assessment of probative value is an assessment of the capacity of the evidence to establish the fact in issue. The addition of the word "substantial" signifies, we think, an enhancement of the capacity of the evidence to prove or disprove the fact in issue, whether the fact in issue is important (or has enhanced relevance in the trial) or not. We reach this conclusion in relation to section 101(1)(e) because paragraph (e) and section 112 require separate consideration of the questions, first, whether the evidence has substantial probative value and, second, whether the matter in respect of which the evidence is substantially probative is a matter of substantial importance in the context of the case as a whole (see further Lawson paragraph 39 below).

38. In Musone [2007] EWCA Crim 1237 the Court, expressing the view that section 101(1)(e) "imposes a higher requirement than that of mere relevance", (§46) noted that the Explanatory Notes accompanying the Criminal Justice Bill anticipated the exclusion of evidence which was of marginal or trivial value. In Scott [2009] EWCA Crim 2457, Aikens LJ expressed the view of the Court that:

"45...In the context of section 100 of the 2003 Act, we think that the word "substantial" must mean that the evidence concerned has something more than trivial probative value but it is not necessarily of conclusive probative value."

While both section 100(1)(b) and section 101(1)(e) share the requirement for evidence of "substantial probative value", section 100 concerns an application by a defendant to adduce in evidence the bad character of a non-defendant. Section 100(3) requires the court to have regard to specific factors which may be relevant to the assessment of probative value, while section 101(1)(e) contains no such requirement. However, the legal meaning of the term "substantial probative value" must be the same in each case. The Court in Apabhai and Others [2011] EWCA Crim 917, a case which concerned the application of section 101(1)(e), agreed with and adopted, at §42, the Scott approach to the meaning of "substantial probative value".

39. We conclude that the term "substantial probative value" must mean that the evidence has an enhanced capability of proving or disproving a matter in issue. While preferring not to find terms synonymous with the statutory language, the Vice President in Braithwaite, at §15, pointed out that what needs to be borne in mind is the distinction between simple relevance and substantial value. We would respectfully endorse the further opinion expressed by the Vice President in Lawson [2006] EWCA Crim 2572 (a section 101(1)(e) case), at §29, that while there is an element of overlap in the evaluation whether evidence has substantial probative value and a consideration of the importance of the matter in issue, it is necessary that the questions "be addressed seriatim", particularly, we think, in cases such as the present where the bad character evidence relates not to the bare fact of a conviction but to detailed allegations of previous behaviour, and where there are multiple factual issues arising between the defendants.
40. The term "more than trivial probative value" is, in our view, capable of being misleading and we note that in neither Lawson nor Braithwaite did the Court attempt to improve on the statutory language. If by the term evidence of "trivial" probative value is meant evidence which is barely probative, we think the term "substantial" may be deprived of its intended statutory meaning as requiring evidence which is more than merely probative/relevant. We do not doubt that the Court in both Scott and Apabhai had no intention of diluting the statutory threshold. It is important, in our view, that the threshold for admissibility is not understated. The purpose of the requirement is to ensure so far as possible that the probative strength of the evidence removes the risk of unfair prejudice. This matters to trial judges who are frequently required to evaluate contested evidence which, it is claimed, is capable of proving convicted or non-convicted criminal or other reprehensible conduct by a co-accused. As the present appeal demonstrates, sections 100(1) and 101(1)(e) have the capacity to change the landscape of a trial. Before the 2003 Act a defendant was at liberty to cross examine a witness or co-accused as to credit, but, save in exceptional circumstances, usually where the subject of cross examination was central to the case, the defendant was bound by the answer. One of those circumstances was considered by the House of Lords in the pre-2003 Act case of Randall. The House held that in a trial for murder, where each defendant blamed the other, the judge should have directed the jury that they might consider the bad character upon the issue whether one was more likely to have been the attacker than the other. Now, however, if the statutory test is met, not only may the witness be cross examined but evidence may be led to prove the bad character alleged. That evidence need not be evidence of convictions for criminal offences (see Musone at §44, Apabhai at §40). The jury may, therefore, be required to make a multiplicity of judgments about a co-accused's behaviour on other occasions before reaching their conclusion as to the guilt of either defendant of the offence charged. The scope for satellite issues has significantly increased. The fairness of permitting the prosecution to introduce such issues is a factor which the judge is required to consider under section 101(1)(d) and (g) and section 101(3). No such limitation is imposed by the 2003 Act upon applications made under section 100 and section 101(1)(e). For these reasons, it is important, in our view, that sight is not lost of the rigour of the statutory test of substantial probative value upon a matter in issue between the defendants which is of substantial importance in the context of the trial as a whole.

Substantial probative value in relation to what matter in issue?

41. The issue upon which the bad character evidence must be substantially probative is an issue between the defendants. It is not the issue whether the evidence itself is true because that must be assumed (subject to clear cases) under section 109 for the purpose of considering the application. Neither, in our view, is the matter in issue the question whether the co-accused has a propensity to commit similar offences or for untruthfulness. Those matters are irrelevant as between the defendants unless such a propensity would be probative of a matter in issue between them. The matter in issue is a fact in issue between the defendants in the trial. In the present case, the principal factual issue raised by the appellant, contested by Scragg at trial, was that he was an innocent recruit to an existing dishonest scheme. There were subsidiary issues, namely whether Scragg was telling the truth when he blamed the appellant for the corrupt invoicing system, the cash back fraud and the dishonest VAT returns. There may be a large number of factual issues between defendants at their trial, important and trivial. The first question for the judge is whether the evidence it is proposed should be admitted is substantially probative of the fact in issue between the defendants. Thus, where the defendant is seeking to prove a relevant propensity he must first establish that, assuming the evidence is true, the evidence is substantially probative of the propensity and that the propensity alleged is substantially probative of the fact in issue.

An issue of substantial importance in the context of the case as a whole

42. Not only must the evidence possess substantial probative value but the matter in respect of which it possesses that value must be "a matter of substantial importance in the context of the case as a whole" as between the defendant and a co-defendant. It seems to us that the judge is required to make an assessment of the importance of the issue between the defendants in the context of the case as a whole. Where an applicant is seeking to prove only a propensity to untruthfulness, section 101(1)(e) does not apply at all unless the nature or conduct of the co-accused's defence is such as to undermine the defence of the defendant. The ultimate issue between them will usually, but not necessarily, be whether one or other or both of the defendants committed the alleged offence. The defendant will, as in the present case, seek to establish his co-accused's propensity to act in a particular way, or his propensity for untruthfulness, or he may simply wish to establish that the bad character of his co-accused undermines the worth of his co-accused's allegation against him. However the defendant defines the issue and the means of proof, he must establish both the substantial importance of the issue in the case and that the evidence which he seeks to introduce is of substantial probative value upon that issue. As the facts of the present case demonstrate, an issue may arise between defendants which is important as between themselves but of little or no importance in the context of the case as a whole. Each judgment as to what issues between the defendants are of substantial importance in the context of the case as a whole is fact sensitive.

Evaluation of evidence

43. When examining the terms of section 100(1) in Braithwaite, the Vice President considered the effect of the diminishing return of the probative value of evidence upon an issue of substantial importance "in the context of the trial as a whole" at §12:

"12...This assessment is, by definition, highly fact-sensitive in each case. It is an assessment of whether the evidence in question substantially goes to show (prove) the point which the applicant wishes to prove on the issue in question. The issue will often, but not always, be either the propensity of the person against whom the application is made to behave in a particular way, or his credibility. The probative value of the evidence advanced falls to be assessed in the context of the case as a whole. That means that it may in some cases be appropriate to consider whether or not it adds significantly to other more probative evidence directed to the same issue." [bold emphasis added]

44. We agree. The important matter in issue in a "cut-throat" case may, as in the present case, be the issue whether either or both defendants committed the offence and, accordingly, whether one is falsely (expressly or by implication) blaming the other. The evidence which the defendant wishes to deploy may be probative in the sense that it tends towards establishing the co-accused's propensity for similar criminal behaviour or for untruthfulness. The judge is, as we have said, required to evaluate the capacity of the evidence to establish the relevant propensity. Where there is already before the jury evidence which has the same probative effect, the judge is entitled to assess whether further evidence has substantial probative value in relation to the same issue. A judgment may be required as to whether, in the light of "more probative evidence already before the jury" (per Hughes LJ, paragraph 43 above), the further disputed evidence has substantial probative force. Mr Carter-Stephenson QC argued that any evidence which is capable of proving the relevant propensity is admissible provided that it possesses the quality of substantial probative value, whether or not there exists other evidence in the case whose value is to the same effect. In our view, Mr Carter-Stephenson's argument begs the question whether evidence is substantially probative of the matter in issue between the defendants. It is our judgment that the judge is not required, when assessing whether the probative value of the evidence is substantial, to examine each piece of evidence going to the same effect in isolation of the rest of the evidence. What evidence is of substantial probative value should be judged in a fact-sensitive manner in the context of the trial as it appears at the time the application is made. So, where a defendant seeks to adduce evidence of his co-accused's behaviour on several other occasions, the judge is entitled to assess the probative value of the evidence in respect of each incident in the context of the other evidence which has been admitted or which the judge proposes to admit. He may, for example, conclude that, having regard to evidence which is or will be before the jury, further evidence going to support an alleged propensity to act in a particular way, or for untruthfulness, fails to meet the "substantial probative value" test. Substantial probative value is, as we have said, a description of the capacity of the evidence to prove or disprove a fact in issue. It is a relative, not an absolute term.

Issues between the defendants at trial

45. The prosecution case was that the appellant and Thomas Scragg were both essential to the perpetration of the fraud on the Revenue. The appellant managed the sham invoicing system and the calculation of the sum which would be retained from the sums paid gross by the main contractor to the CIS6 certificate holding company. Thomas Scragg found the contractors who were prepared to make payments in gross to the CIS6 certificate holding company and handled the cash which was withdrawn from the bank to pay the workmen.
46. Each defendant denied dishonest involvement in the fraud. The appellant's case was that he was an innocent dupe, brought by Scragg into an existing fraudulent scheme as a "front man". He understood that the necessary deductions for tax and national insurance were being made by Scragg's end-user companies and that payment was being made to the Revenue. Scragg's case was that there was no fraud. He thought he was required only to make gross payments to the workforce for later deduction of tax and national insurance by the gangers. All of the paperwork was the appellant's responsibility. If there was a fraud perpetrated by means of sham paperwork, as the prosecution alleged, that was the responsibility of the appellant and/or the accountants, SBM. As to "cash back" arrangements, if the witnesses were telling the truth someone in the organisation was implicated. Neither man admitted involvement. By implication each blamed the other. As to VAT returns, the appellant said he completed the returns using figures provided to him by Scragg. Scragg's case was that he signed the forms in blank for completion by the appellant. The appellant was the person who prepared the figures. He had no involvement.
47. This was not, therefore, a case in which there were full scale "cut throat" defences, as when each defendant blames the other for committing the actus reus of the offence, when one, on the prosecution case, must have been acting as principal and the other as a secondary party. Each was concerned to and did deny his own dishonest involvement in the fraud, but the implication of their denials was that the other was responsible. Several times during cross examination, Thomas Scragg emphasised that while he was inviting counsel to address his questions to the appellant or to the accountants, he was not saying, nor could he say, that the appellant had committed the fraud.
48. In our judgment, the main issues between the defendants at trial were whether the appellant was recruited by Thomas Scragg to perpetuate an existing fraud and, if so, whether he was recruited as an innocent front man. These were issues of substantial importance in the context of the case as a whole. It seems to us, as it did to the judge, that the evidence summarised at paragraph 22(2)-(4) above undoubtedly amounted to evidence of substantial probative value in relation to the issue whether Scragg was, in the months preceding the present fraud, engaged with others, including his nephew Paul, in the fraudulent use of a CIS6 certificate. That would, of course, come nowhere near establishing that the appellant's recruitment by Scragg was cynical in the sense that the appellant had no knowledge of his true role and, in our view, the evidence was not substantially probative of that issue. If, however, the appellant could persuade the jury that he was recruited to an existing fraud the thrust of Scragg's denial might be undermined. Subject to the existence of any residual discretion to refuse the admission of the evidence, it should in our view have been admitted.
49. Paul Scragg did not give evidence, but he did, through his counsel, adopt the prosecution case against the appellant when suggesting that the appellant was more involved in the management of the end-user companies than he was admitting. We agree with the conclusion of the judge. While this may have been an issue between Paul Scragg and the appellant (because Paul Scragg denied knowing involvement), it was not an issue of substantial importance in the context of the case as a whole. There was direct evidence of the appellant's involvement in the financial management of the end-users. Furthermore, it is our view that the mere fact Paul Scragg and, indeed, Martin Scarratt were directors of Stylish (2001) Limited and that their names appeared on cheque stubs as the recipient of a "cut" was not evidence of substantial probative value upon the issue whether the appellant was or was not intimately connected with the activities of the indictment end-user companies, the only significant issue arising between them.
50. Thomas Scragg's alleged involvement in a later fraud between April 2007 and February 2008, while evidence of a propensity to defraud the Revenue, was not, in our view, of substantial probative value in relation to a matter of substantial importance between the appellant and Thomas Scragg. It should be remembered that the indictment period in Thomas Scragg's case, was 2002 - 2007. The prosecution adduced evidence that, following the appellant's departure in 2005, the fraud continued uninterrupted. That evidence provided the strongest possible indication that, contrary to Scragg's case, he was implicated in the fraud throughout. The fraud instituted in April 2007 was, however, of a different type. There was nothing about the evidence which suggested that an innocent professional man may have been unknowingly implicated in it. The evidence had the capacity to prove Scragg's propensity for unscrupulous deception and untruthfulness, but there was already before the jury an abundance of evidence to the same effect, including, had it been admitted, the evidence of his lies to the Revenue officers who interviewed him about his possession of CIS24 vouchers. Had the judge admitted the evidence, Scragg would have contested the assertion that he was guilty of the fraud. We consider that the judge would have been entitled to decline leave to adduce this evidence on the ground that it was not of substantial probative value in relation to an important matter in issue between the defendants.
51. The evidence that Thomas Scragg placed Moya assets beyond the reach of the supervising accountants by exercising a deception upon them was, in our view, evidence of Scragg's willingness to engage for his own ends in deception upon professional people and, indeed, a court. However, the circumstances were so far removed from those which attended the appellant's business arrangement with Thomas Scragg that it was of marginal, if any, probative value upon the important issues between them at trial. Leave to adduce this evidence too could, and in our view should, have been refused for want of significant probative value upon an important matter in issue between the defendants.
52. We agree with the judge that the issue whether Scragg used threats and intimidation to secure the appellant's severance from the payroll scheme was of marginal significance in the context of the case as a whole. The judge rightly, in our view, declined to admit evidence of Scragg's previous convictions for intimidatory behaviour.

Did the judge have a residual discretion to exclude?

53. It is settled that, while the statutory criteria must be met to their full effect, once they are met there is no discretion under 101(3) or (4) or any other statutory provision, such as section 78 Police and Criminal Evidence Act 1984 (because the application is made by a defendant and not the prosecution), to exclude it on the grounds of unfair prejudice or some other unfairness (see, for example, Edwards and Others [2005] EWCA Crim 3244, [2006] 2 Cr App R 4 (page 62) at §26; Lawson [2006] EWCA Crim 2572 at §31; Jarvis [2008] EWCA Crim 488 at §33; Musone [2007] EWCA Crim 1237 at §47 and §52; Apabhai [2011] EWCA Crim 917 at §30). The underlying assumption is that if the statutory test of enhanced probative value upon a matter of substantial importance is met the scope for unfairness is removed (see Musone, paragraph 53 below).
54. The single remaining bar to admissibility may arise under Art 6 ECHR and the CrimPR. In Musone a serving prisoner, Wayne Reid, was stabbed to death. The appellant wished to establish that his co-accused, Chaudry, and not he, had committed the offence of murder. Each blamed the other. The appellant wished to adduce in evidence Chaudry's confession to him of an earlier murder of which he, Chaudry, had previously been acquitted. The Court (Moses LJ, Underhill J and HH Judge Stewart QC) agreed with the trial judge's assessment that, if true, Chaudry's confession to an earlier murder had substantial probative value upon the issue as to which of them had stabbed the deceased, Reid. At §47 the Court accepted that once the statutory criteria were met there was no discretion to exclude the evidence. The Court proceeded to examine the question whether the trial judge had been right to exclude the evidence on the grounds of Art 6 fairness to Chaudry. At §52 Moses LJ said:

"52. We do not think that it is possible to identify a power to exclude evidence which, ex hypothesi, has substantial probative value, in reliance on Article 6. The question whether such a power exists only arises in circumstances where the court has already concluded that the evidence of the defendant's bad character does have substantial probative value in relation to a matter of substantial importance in the context of the case as a whole. Once substantial probative value has been established it is difficult to envisage circumstances where it would be unfair to admit evidence of that quality, subject to the procedural protection contained in the Rules. That is reflected in the structure of the section itself which excludes from the scope of section 101(3) evidence of substantial probative value in relation to an important matter. In short, it is difficult to envisage room for invoking the right to a fair trial enshrined in Article 6. Once the judge concluded that the evidence was of substantial probative value, he had no power, absent the application of the rules made under section 111, to exclude the evidence on the basis that to admit it would be to infringe Chaudry's right to a fair trial under Article 6. The only apparent control on the deployment of evidence by one defendant against another is that which is contained in section 101(1)(e). Admissibility rests solely on the court's assessment of the probative quality of that evidence.

53. We conclude that the judge erred in purporting to exercise a power to exclude evidence which reached the standard imposed by section 101(1)(e) for admissibility. Admissibility under that sub-section depends solely on the quality of the evidence. The judge had no power under that section to exclude the evidence on the grounds of unfairness."

55. The Court noted that section 111(2) of the 2003 Act conferred a power to make rules requiring a co-defendant to serve notice of an intention to adduce evidence of another defendant's character. Noting that the equivalent provision for hearsay evidence in section 132(5) prohibited a party in breach of a requirement of the rules from adducing hearsay evidence except with the court's leave, Moses LJ continued:

"56. Notwithstanding the absence of any such specific provision within section 111, we take the view that the rules made under section 111, in relation to bad character evidence, do confer power on a court to exclude such evidence in circumstances where there has been a breach of a prescribed requirement. The appellant was under an obligation to give notice of the evidence he wished to give of the confession or of his intention to cross-examine Chaudry about it not more than 14 days after the prosecutor had complied with his primary disclosure obligation (see rule 35.5 of the 2005 Rules). The judge concluded that his failure to do so was not due to an oversight but because of a deliberate intention to ambush his co-defendant. There was no other explanation for not raising the issue earlier. In our judgment the judge was entitled to exclude that evidence in circumstances where he concluded that the appellant had deliberately manipulated the trial process so as to give his co-defendant no opportunity of dealing properly with the allegation.

57. We recognise that Part 35 contains no express provision for dealing with a sanction for failure to comply. It merely confers power upon the court to shorten the time limit or to extend it (see rule 35.8). But it must be recalled that section 111(6) provides:-

"Nothing in this section prejudices the generality of any enactment conferring power to make rules of court; and no particular provision of this section prejudices any general provision of it."

58. The power to make the rules contained in the 2005 Rules is conferred by section 69 of the Courts Act 2003. By section 69(4):-

"Any power to make…criminal procedure rules is to be exercised with a view to securing that –

(a) the criminal justice system is accessible, fair and efficient…"

In furtherance of that objective, Rule 1.1 provides:-

"(1) The overriding objective of this new code is that criminal cases be dealt with justly.

(2) Dealing with a criminal justly includes -

(c) recognising the rights of a defendant, particularly those under article 6 of the European Convention on Human Rights."

Rule 1.2(1) provides:-

"Each participant, in the conduct of each case, must –

(a) conduct the case in accordance with the overriding objective."

The court is required to further the overriding objective in interpreting any rule (see 1.3).

59. In our view it is not possible to see how the overriding objective can be achieved if a court has no power to prevent a deliberate manipulation of the rules by refusing to admit evidence which it is sought to adduce in deliberate breach of those rules.

60. We emphasise that cases in which a breach of the procedural rules will entitle a court to exclude evidence of substantial probative value will be rare. A court should be most reluctant to exclude evidence of that quality by reason of a breach of the procedural code. Nonetheless, there will be cases, of which the instant appeal is an example, where the only way in which the court can ensure fairness is by excluding evidence, even when it reaches the quality described in section 101(1)(e). It should be remembered that the court was compelled to assume the truth of the evidence that Chaudry confessed to murder. Section 109 gives rise to a stark choice between either an assumption that the evidence is true or rejection of its truth on the grounds that no court or jury could reasonably find it to be true. But in reality, as the judge himself remarked in his ruling, there will be evidence which, although capable of belief, is improbable and unlikely to be believed. Whilst the judge is compelled to assume the truth of such evidence for the purposes of section 101(1)(e), he need not take so extreme a view when considering whether to prevent the unfair effect of a breach of the procedural rules by excluding the evidence. The more credible the evidence, the less likely it is that the judge will exclude it on grounds of a breach of a procedural requirement. But where, as in the instant case, the evidence is improbable, the judge is entitled to take that factor into account in deciding whether to exclude it, in circumstances where the rules have been deliberately breached.

61. We acknowledge that one remedy which the judge ought to consider is whether to discharge the jury so as to give the co-defendant a proper opportunity of dealing with the new allegation advanced without any notice. But in many cases, and certainly in this appeal, to discharge the jury in such circumstances would be wrong. It would be unfair to the prosecution and might be a great unfairness to a co-defendant whose case might be faring rather better than that of the defendant seeking to adduce the surprise evidence at the last minute. Indeed, to discharge the jury at that stage may be to give the defendant manipulating the rules the very thing he is seeking to achieve.

62. We conclude that the requirements of a fair trial for all defendants, enshrined in Article 6, are met by the proper application of the 2005 Rules, contained within Part 35 and Part 1."

Thus, the Court decided Musone's appeal on the narrow ground that rule 35.5 was itself the Art 6 safeguard. Otherwise, evidence which was admissible because it was of substantial probative value upon an important matter in issue between the defendants would not be inadmissible on Art 6 grounds.

56. In his ruling of 27 September 2010 HH Judge Inman referred to the overriding objective to deal with cases justly which included the obligation to proceed efficiently and expeditiously. While notice had not, strictly, been given in accordance with the rules, the judge did not consider that Mr Scragg had been prejudiced by late notice and, we would add, there was no suggestion that this appellant had engaged in tactical late disclosure of the application. As to the non-conviction evidence, however, the judge said (transcript 27 September 2010, page 10E):

"Even if given time, it is very difficult to see how Mr Scragg could defend himself within the context of the present trial properly against those other allegations. There would, in short, be another fraud trial going on as between Mr Scragg and Mr Phillips. I have to consider what effect this would have on this trial. It is submitted on behalf of Mr Phillips, as I shall come to, ... could be dealt with in a day and a half, or something of that nature. No doubt if everything was agreed, it may be that one and a half days would be sufficient to read out admissions and look at documents...but...they are not agreed and...it's not simply the length of time these matters would take, it's whether or not they would make a complex case yet more complex for the jury, who already have to consider the trading of a number of companies and five defendants over a period of nearly five years.

If the issues raised in the application were to be fairly decided by the jury, both sides...should be free to call whatever necessary relevant evidence. Quite apart from it being an extremely difficult job for the jury to understand...all of these obvious practical difficulties simply reflect that the bad character provisions...must be applied so as avoid...two fraud trials being run concurrently, one between the prosecution and the five defendants and one between two defendants."

As to the Raiment 1 and Raiment 2 evidence the judge, having regard to Mr Carter-Stephenson QC's proposal to adduce the evidence by way of admissions or evidence, oral or documentary, said (transcript, page 16G):

"Now I am quite satisfied that if that evidence was to be admitted in front of this jury, ... this trial would not only become over-complicated, it would become wholly unmanageable. It would be impossible for a jury to properly determine the context of this case, what another jury will have to grapple with over some months next year. I am quite satisfied that the reality is that if I were to admit Raiment 1 and 2 and the earlier fraud or frauds, there would be three, arguably four, other frauds all being before the jury, for them to try and get to grips with. It would be impossible and, in my judgment, would be considerably more complex than the situation which, for example, the Court of Appeal made very clear in O'Dowd ... should not be permitted."

57. We conclude that the judge had no discretion to exclude the evidence on 'fairness' or 'case management' grounds. Had the appellant made a tactically late application or if there had been unexplained delay which created incurable unfairness to Thomas Scraggs then the judge may have been entitled to refuse the application on Article 6 grounds. We say at once that we identify with this experienced judge's view of the likely impact of untried satellite fraud issues upon the trial of an already complicated Revenue fraud. These are, when the prosecution is the applicant, case management considerations of magnitude and importance. The Court in O'Dowd drew attention to the risks attending a trial of satellite issues. In that case the charge was one of rape and previous complainants were called to give evidence of similar complaints. At §56 Scott Baker LJ said:

"56. This was not a case like McKenzie [2008] EWCA Crim 758, in which the allegations of prior misconduct had never been investigated by the police and the incidents had not been drawn to the defendant's attention at the time they were said to have happened. What was said in that case about the difficulties is, however, relevant. Delivering the judgment of this court, Toulson LJ referred to three potential difficulties that need to be considered in such cases. The first is the need to consider whether admission of such evidence would result in the trial "becoming unnecessarily an undesirably complex even if not unfair": [2008] EWCA Crim 758 at [22]. The second is the danger of a trial of collateral issues not only adding to the length and cost of the trial but "complicating the issues which the jury has to decide and taking the focus away from the most important issue or issues"(ibid at [23]). The third is what the court described as the dilemma that "…if allegations of previous misconduct are few in number, they may well fail to show propensity even if they are true, but the greater the plethora of collateral allegations, the greater the risk of the trial losing its proper focus": (ibid at [22-24])."

At §62 Scott Baker LJ noted the Protocol for the Control and Management of Heavy Fraud and Complex Criminal Cases handed down by the Lord Woolf CJ on 22 March 2005. Three months was the desirable outer limit for the length of such a trial. In O'Dowd, the trial judge had been informed that the additional evidence the prosecution sought to adduce would produce a trial some four months in length, a revelation which Court found "should have rung alarm bells". In the present case the estimate was three months before the defence application was made. In fact the trial was completed in eight weeks, probably because not all of the defendants elected to give evidence. All these considerations and others identified by the Court in O'Dowd cannot logically apply to bad character applications made by the prosecution without also applying to applications made by defendants. As the Court noted in DM [2008] EWCA Crim 1544 at §22 the jury would first be required to reach conclusions about the bad character evidence before deciding whether the relevant propensities may have been established.

58. Yet the trial judge does not, as we have demonstrated, enjoy a discretionary power to exclude bad character evidence when a defendant has established the statutory criteria for admission of the evidence against a co-accused. This would, in our view, be an unfortunate omission from the 2003 Act if the result was lengthy trials of satellite issues. We understand why there is no power. Before the Act, the circumstances in which satellite evidence could arise out of cross examination under section 1(3)(iii) Criminal Evidence Act 1898 were limited (see the analysis of Professor JR Spencer in his work, Evidence of Bad Character, 2^nd edition at paragraphs 4.90-4.93). Randall and Thompson and Others [1995] 2 Cr App R 589 were exceptions, where the evidence was directly relevant to the issue between the defendants. Satellite issues such as those which arise in the present case were not anticipated; the imposition of the enhanced threshold for the admission of such evidence provided by section 101(1)(e) would discourage them; hence, as we have suggested at paragraphs 36 – 44 above, the need to give full effect to the statutory criteria for admissibility.

How could the judge control the management of the evidence admitted?

59. The judge is entitled to take steps to minimise the risk that by reason of the admission of bad character evidence the focus of the trial is lost. First, the judge can control the scope of the evidence, and the manner in which the evidence is introduced to the jury. Evidence of Scragg's previous involvement in CIS certificate fraud could have been limited to (i) the customs officers who stopped Mr Scragg at Belfast airport, (ii) the edited record of interviews subsequently conducted with Mr Scragg and (iii) the discovery of incriminating documents at Mr Scragg's home. Second, the judge can impose a timetable upon the defendant's deployment of the evidence. Third, the judge has a responsibility to explain to the jury the issues upon which the evidence was relevant and the need for a sequential approach to it: (i) is it true? (ii) does it establish the propensity claimed? (iii) Does it assist in resolving the issues between the defendants? (iv) Does a resolution of the issue between the defendants assist the jury to reach their decision as to guilt of one or other or both of them. It does not seem to us that the admission of the pre-indictment evidence would have resulted in unfairness to the co-accused, Thomas Scragg.

Should the judge have severed the appellant's trial from those of his co-accused?

60. There is a compelling public interest in ensuring that when alleged co-conspirators blame each other the jury consider their cases in a joint trial. It is undesirable that defendants jointly charged with conspiracy in the same indictment should be enabled to make uncontested allegations against one another in separate trials. If they were, each jury would be deprived of the proper opportunity to judge the effect of the cut-throat defences raised in their true perspective. Separate trials in these circumstances would create a risk of inconsistent conclusions of fact. Nevertheless, had the judge been required to find that the Raiment 1 and Raiment 2 evidence was substantially probative upon an issue of substantial importance as between the defendants, we accept that the judge would also have been required to consider whether separate trials was the only way in which the integrity of Scragg's trial could have been assured. Having reached the conclusion that the Raiment 1 and Raiment 2 evidence did not pass the section 101(1)(e) threshold, however, we consider that the issue of severance did not arise.

Was the verdict safe?

61. We have concluded that the appellant was wrongly deprived of the opportunity to adduce evidence of substantial probative value upon an issue of substantial importance as between the defendants in the context of the case as a whole. That evidence went to the establishment of Scragg's pre-existing propensity to carry out CIS certificate fraud. Proof of that propensity did not, however, make any significant contribution to the question whether the appellant was a knowing or unknowing participant in the fraud charged in the indictment. Had the Raiment 1 and Raiment 2 evidence been admissible, it too would have tended to establish Scragg's propensity for involving himself in fraud with persons other than the appellant. It was not Scragg's defence to the Raiment 1 indictment of which he was convicted that he was innocently involved in someone else's fraud. His defence, in common with the others, was that the scheme was genuine. The bad character evidence did not, in other words, go to the central issue in the appellant's case, namely whether he was, or may have been, Scragg's innocent front man. At best it would have damaged Scragg's defence to the indictment. As we have already concluded, the Raiment 2 evidence was of marginal significance to the issues between the defendants and between the prosecution and the appellant.
62. There was compelling evidence before the jury that once the appellant had been excluded from the fraudulent scheme, it continued as before between 2005 and 2007. Scragg's defence was that it must, unknown to him, have been continued by the accountants SBM. He was plainly disbelieved. In other words, that part of Scragg's defence which depended upon the assertion that someone else was managing the fraud without his involvement was not accepted by the jury.
63. It was common ground that Scragg had the connections within the industry to make contact, and that he did make contact, with contractors prepared to engage in the 'payroll' scheme. He claimed, however, that he did not realise that the purpose of the three company structure was to make payments to the workforce. He could not explain why Robert Scarratt, who, he accepted, had no relevant skills, was installed as director of Groundworks Contracts Limited after the departure of the appellant. Scragg was unable to reconcile his assertion that cash was paid gross to the workmen with his own gain of some £800,000 together with additional cash benefits. Scragg was the point of contact for those wishing to make use of the 'cash back' facility. There was compelling documentary (email) evidence to this effect. It was obvious that the end-user company VAT returns, signed by him, grossly understated their turnover. Scragg said he had never seen a completed VAT return. Following the appellant's departure the VAT fraud was continued. The only beneficiary of such a fraud was Scragg himself. We conclude that there was abundant evidence before the jury of Scragg's knowing involvement in the fraud, his use of others to achieve his purpose, and of his untruthfulness. Robert Scarratt, Martin Scarratt and Paul Scragg were all acquitted. The jury was, accordingly, ready to find that Thomas Scragg placed others who were not complicit in the fraud in positions of responsibility within the three company structure.
64. The evidence which implicated the appellant, quite apart from Scragg's implied assertion against him, included the following. The appellant was a director of Construction Plus Limited (a SIC6 subcontractor) until November 2002. He admittedly remained responsible for that company's invoicing and was a bank signatory. The appellant was a director of HPS Payroll Services Limited (a payroll company) until September 2002. He admittedly remained responsible for running the company, managing its invoices and signing company cheques. There was no explanation why, if this was an honest scheme, the appellant would have needed to resign his directorships in 2002. He was plainly attempting to give an appearance of distance between himself and the company. While he was not a director of the end-user companies the appellant eventually had to accept that he was responsible for the movement of funds to them and for invoicing. The appellant could not identify any honest reason why the three company structure was required at all.
65. The prosecution demonstrated that the movement of funds routinely preceded the preparation of invoices which were back-dated. Invoices were prepared by the appellant and members of his family. This was established by, among other things, an email message sent by Helen Phillips to David Wilson-Gill on 6 February 2004: "I am still creating Freelance invoices…Have you designed invoices for MPS to Midland Civil". It was clear that the invoices, batches of which were recovered, were prepared for the purpose of covering gross transfers of money and did not represent genuine demands for payment for work done. The ultimate purpose of such a scheme can only have been to camouflage gross payments of cash to workmen.
66. As to "cash back" the prosecution demonstrated that the appellant's own records of cash payments to contractors contradicted his case. The records demonstrated that the contractor made payments to a scheme company; the contractor received an invoice and a CIS24 voucher. The scheme company usually retained 5% of the sums paid by the contractor and repaid the balance in cash. Two of the prosecution witnesses, McDermott and Watts, gave evidence that it was the appellant who explained how the system worked.
67. As to VAT returns, the appellant's explanation that he accepted Scragg's figures as genuine was wholly implausible.
68. Found among the documents recovered from the appellant's house was a note from his wife warning him as to his involvement of their daughter. It read, "Do not involve MPS [payroll company] with any hookie [sic] activities at all. Helen is Company Secretary for that company and I will never forgive you. Please bear in mind that not all of us want money or status. I for one want to live a life of I work, I receive, I do what I want with the proceeds honestly". In the period 3 December 2002 to 16 September 2005 payments totalling £1.6m were made by scheme companies into the appellant's BCol Capital Limited bank account. Despite the appellant's denial of financial involvement in the end-user companies he received deposits totalling £140,000 from two of them. He received an additional £170,000 from Tighe companies. From these receipts a total of about £250,000 was returned to scheme companies, £96,000 was paid to family members, £650,000 was transferred to private accounts in the name of the appellant and his wife, £200,000 was transferred to other 'Phillips' accounts and £542,637 was expended by cheque for unknown purposes. A further £27,000 in cash was found in the appellant's personal safe whose existence he, at first, denied. These receipts could not be explained as the proceeds of an honest payroll scheme such as described by the appellant in his evidence.
69. In our judgment, the evidence against the appellant was powerful. We do not consider that the evidence wrongly excluded, going primarily to the issue of Scragg's pre-existing propensity to commit CIS fraud, affected the fairness of the appellant's trial or the safety of the verdict in his case. The appeal is dismissed.