English and Welsh Courts - Miscellaneous

IN THE CROWN COURT
SITTING AT SOUTHWARK

		21 February 2014

Mr Justice Eder:

Introduction

1. In this criminal prosecution, Gyrus Group Ltd ("GGL") is charged with four offences and Olympus Corporation ("OC") with one offence, of making a statement to an auditor which was misleading, false or deceptive, contrary to s501(1) of the Companies Act 2006 (the "2006 Act").
2. In respect of each count on the indictment, the company which was the subject matter of the relevant audit was GGL. Throughout the period of each count, GGL was a subsidiary of OC, which was its ultimate parent company. OC was not a director of GGL.
3. The Defendants raise two points of law. First, on all five counts, the Defendants say that the offence prescribed by s501(1) of the 2006 Act is only capable of being committed by the categories of persons specified in s499(2) of the same Act; that these categories do not include the audited company itself, or the audited company's shareholders and/or parent; and that therefore neither GGL nor OC is capable in law of committing any of the offences charged. Second, in relation to counts 2 and 5 only (with which GGL is charged), the relevant "directors' report and financial statements" were not capable of constituting a statement made to the auditors for the purposes of s501(1); and that therefore such counts are inevitably doomed as a matter of law.
4. The parties agreed that it would be convenient to determine these issues at an early stage and on the Crown's application and with the Defendants' consent, I ordered a Preparatory Hearing for that purpose pursuant to s7 of the Criminal Justice Act 1987. Pursuant to s11 of that Act, the reporting of this Preparatory Hearing is automatically restricted until after the conclusion of the Defendants' trial, unless the restriction is specifically lifted pursuant to subsection 4. At the beginning of the Preparatory Hearing, I confirmed that such restriction was in place. This remains the position until further notice.
5. This is my Judgment in respect of the issues stated above.

Summary Background

6. The relevant background and a summary of the Crown's factual case was set out in Mr Caplan QC's helpful skeleton. However, given the nature of this Preparatory Hearing it seems to me inappropriate to set this out in detail and, in any event, it is not directly relevant to the issues which I have to consider. For present purposes, it is sufficient to note the following.
7. The background to this criminal prosecution is the well publicised accounting scandal in Japan concerning the failure of OC, a Tokyo-listed, Japanese public company, to report to the market losses on investments that dated back to the mid-1980s. In summary, following a change in accounting standards in the late 1990s, which required the investments to be marked-to-market, the resulting accrued losses were "separated" off-balance sheet and a scheme was put in place by which those losses remained off the balance sheet. The losses were eventually eliminated through a variety of mechanisms.
8. OC has been prosecuted, has admitted the facts of the case against it and has accordingly been convicted in Japan for making false statements in its securities reports, both in regulatory and criminal proceedings. It has been fined by the Japanese Courts and regulators. In addition, three directors of OC have been convicted of criminal offences in Japan in relation to these matters and received custodial sentences of up to 3 years, suspended for up to 5 years. One of the OC directors convicted and sentenced was Hisashi Mori. He was a Director of OC and GGL who signed the 5 documents which are the basis of this prosecution in England. I should say that the defendants have co-operated fully with the SFO's investigation in the UK although they do not accept that the s501 offence can as a matter of law be made out here.
9. The allegations in the present criminal proceedings concern the conduct of the two companies during the audit process of GGL within the United Kingdom between 2009 and 2011. Gyrus Group plc, a Berkshire based publicly-listed medical systems company was acquired by OC in 2008. In particular, it is the Crown's case that these companies i.e. GGL and OC (through their officers) made misleading statements to the auditors of GGL during the 2009 and 2010 audit process viz E&Y and KPMG respectively; that such statements were each misleading, false or deceptive and were designed to conceal the true nature, and the motivation behind, the issue of 176,981,106 preference shares in GGL shortly after its acquisition of GGL by OC, the grant of those shares to a Cayman Corporation called Axam Investment Ltd and the subsequent purchase back of the shares for $620m by an Olympus subsidiary, Olympus Finance UK Ltd; that those funds were thereafter recycled back into the Olympus Group, thereby enabling the circulation of funds for settling hidden losses within the Group; and that in the meantime, the United Kingdom auditors of GGL had been persistently misled despite repeated requests for information on this subject.
10. As stated above, there are 5 counts on the indictment. In summary, the subject-matter of three of those counts are statements made in certain representation letters dated 5 March 2010 (Count 1), February 2011 (Count 2) and 15 March 2011 (Count 4) each addressed to the auditors for the relevant period. The subject-matter of the other two counts (i.e. Counts 2 and 5) are statements contained in the directors' report and financial statements conveying information required for the particular audit in 2009 and 2010 respectively. In each case, the Crown says that such statements were misleading, false or deceptive in a material particular within the meaning of s501(1)(b) of the 2006 Act.
11. S501 forms part of Part 16, Chapter 3 of the 2006 Act. Part 16 is entitled "Audit". Chapter 3 is entitled "Functions of Auditor". Sections 499 to 501 are in the following terms:

"499 Auditor's general right to information

(1) An auditor of a company–

(a) has a right of access at all times to the company's books, accounts and vouchers (in whatever form they are held), and

(b) may require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.

(2) Those persons are–

(a) any officer or employee of the company;

(b) any person holding or accountable for any of the company's books, accounts or vouchers;

(c) any subsidiary undertaking of the company which is a body corporate incorporated in the United Kingdom;

(d) any officer, employee or auditor of any such subsidiary undertaking or any person holding or accountable for any books, accounts or vouchers of any such subsidiary undertaking;

(e) any person who fell within any of paragraphs (a) to (d) at a time to which the information or explanations required by the auditor relates or relate.

(3) A statement made by a person in response to a requirement under this section may not be used in evidence against him in criminal proceedings except proceedings for an offence under section 501.

(4) Nothing in this section compels a person to disclose information in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.

500 Auditor's right to information from overseas subsidiaries

(1) Where a parent company has a subsidiary undertaking that is not a body corporate incorporated in the United Kingdom, the auditor of the parent company may require it to obtain from any of the following persons such information or explanations as he may reasonably require for the purposes of his duties as auditor.

(2) Those persons are–

(a) the undertaking;

(b) any officer, employee or auditor of the undertaking;

(c) any person holding or accountable for any of the undertaking's books, accounts or vouchers;

(d) any person who fell within paragraph (b) or (c) at a time to which the information or explanations relates or relate.

(3) If so required, the parent company must take all such steps as are reasonably open to it to obtain the information or explanations from the person concerned.

(4) A statement made by a person in response to a requirement under this section may not be used in evidence against him in criminal proceedings except proceedings for an offence under section 501.

(5) Nothing in this section compels a person to disclose information in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.

501 Auditor's rights to information: offences

(1) A person commits an offence who knowingly or recklessly makes to an auditor of a company a statement (oral or written) that–

(a) conveys or purports to convey any information or explanations which the auditor requires, or is entitled to require, under section 499, and

(b) is misleading, false or deceptive in a material particular.

(2) A person guilty of an offence under subsection (1) is liable–

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);

(b) on summary conviction–

(i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

(ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).

(3) A person who fails to comply with a requirement under section 499 without delay commits an offence unless it was not reasonably practicable for him to provide the required information or explanations.

(4) If a parent company fails to comply with section 500, an offence is committed by–

(a) the company, and

(b) every officer of the company who is in default.

(5) A person guilty of an offence under subsection (3) or (4) is liable on summary conviction to a fine not exceeding level 3 on the standard scale.

(6) Nothing in this section affects any right of an auditor to apply for an injunction (in Scotland, an interdict or an order for specific performance) to enforce any of his rights under section 499 or 500."

ISSUE 1: The meaning of "person" in s501(1) of the Companies Act 2006

12. In summary, Mr Caplan on behalf of the Crown submitted as follows:

i) The offence under s501 may be committed by any "person". The word person includes a "body of persons corporate ... in the United Kingdom" (Interpretation Act 1978 Schedule 1); the usual definition of person applies to this offence since no "contrary intention appears" (s5 Interpretation Act 1978). Indeed, the reverse is indicated, and the Explanatory Notes (Notes 760-1) to the provisions contained in the 2006 Act are explicitly to that effect. In this context, Mr Caplan relied on a number of authorities viz Blue Metal Industries Ltd v R. W Dilley [1970] AC 827; Floor v Davis [1980] AC 695; R v L [2009] 1 All ER 786

ii) Conventional principles of attribution mean that where the requirement to provide information is placed upon an officer of the company (under s499(2)(a)) who conveys information or an explanation which is misleading, false or deceptive in a material particular, assuming the principles governing attribution are satisfied (See Tesco Supermarkets v. Nattrass [1972] AC 153, Meridian Global Funds Management Asia v Securities Commission [1995] 2 AC 500 and Attorney General's Reference No. 2 of 1999 [200] Q.B. 809), liability for the offence accrues directly to the company.

iii) The word "person" is used in s501(5) to mean both a natural person and a company since either are expressly stated to be potential defendants in an offence contrary to s501(4).

iv) Equally, the fact that a subsidiary undertaking of the company may commit the offence contrary to s501(1) (by virtue of s499(2)(c)), indicates that there is no "contrary intention" to the normal rules of interpretation shown as to the meaning of the word "person" in s501.

v) It follows that the word 'person' within s501 is applied explicitly in two separate instances to corporate defendants (a parent company committing the s501(4) offence, and a subsidiary undertaking committing the s501(1) offence). This is not surprising since normal principles of attribution already permit the attribution of liability to the company through the actions of its officers (who for the purposes of this offence may be subjected to the auditor's requirements – s499(2)(a)). A coherent reading of the section would allow for a company to be liable for the offence under s501(1) in respect of the actions, or failures to act, of its officers.

vi) It would be a bizarre result if whilst a subsidiary of the company under audit may commit the offence under s501 by making a misleading statement to the auditor, the company itself could not. Further, the purpose of the scheme of the legislation would not be served.

13. In the event, much of these submissions fell by the way because Mr Kelsey-Fry QC on behalf of the defendants did not dissent from Mr Caplan's general proposition that the reference to "person" in s501 was capable of referring to a body corporate. However, the nub of Mr Kelsey-Fry's submission was rather different i.e. it was his submission that s501(1) did not and could not include these particular defendants i.e. GGL and OC not because they were bodies corporate but because (i) as a matter of interpretation s501 was to be read in conjunction with s499 such that the only persons capable of committing the offences set out in s501 were those persons specifically identified in s499; and (ii) neither GGL nor OC fell into such category of persons. The central issues between the parties, therefore, were (i) whether the reference to "person" in s501 is to be interpreted as meaning any person, or whether it is to be read as being limited to those persons identified in s499; and (ii) whatever the proper construction, whether GGL or OC nevertheless fell within the category of persons in s499(2) by reason of general principles of attribution.
14. I accept that from a purely linguistic point of view, the argument that s501 is to be read as meaning any person cannot be dismissed out of hand. Indeed, such a view might be said to derive support from the editors of Buckley on the Companies Acts, 15^th Edition, [1307] where the following commentary with regard to s501 may be found:

"It is an offence for any person to provide an auditor with misleading information or explanations, again an important safeguard for the auditor. As with the auditor's rights under CA 2006, s 499, previously this offence could only be committed by officers of the company but may now be committed by other persons. This will apply to both information and explanations which an auditor has requested, and also explanations and information which he has not requested but which have nevertheless been given to him voluntarily (for example to ensure the statements required by CA 2006, s 418 can be made)."

15. However, I do not accept the wide interpretation advanced by Mr Caplan for the following reasons.

Proximity

16. First, although obvious, it is noteworthy that s501 and s499 appear close together in the same part of the 2006 Act. As such, it seems to me that there is at least some argument that they should be read as going hand-in-hand (as well as s500) although I accept, of course, that this is far from determinative. In particular, I fully recognise that although (i) s499 specifies the rights of the auditor to require information from certain persons and (ii) one might expect that any failure to provide truthful information in response to such requirement be the subject of an offence, it does not necessarily follow that there should not be a wider statutory offence to include any person who provides false information to an auditor regardless of whether he/she is a person who may be required to provide information; and I accept that there is no reason in principle why any person who voluntarily gives false information to an auditor should not be the subject of a criminal offence.

More natural construction

17. Second, whilst recognising the possible linguistic ambiguity, it seems to me that the language of s501(1)(a) ("… which the auditor requires, or is entitled to require, under s499 …") is more naturally read as referring back to s499 (and s500). In particular, although I agree that these words can be read as being limited to the subject-matter of the information required, it seems to me that the more natural construction is one which in effect specifies that the persons who may commit an offence under s501 are limited to those whom the auditor requires or may be entitled to require to provide information under s499 (or s500). Thus, it is my view that the editors of Buckley are plainly right when they say that an offence may be committed even if the false statement is made voluntarily provided, of course, such statement conveys or purports to convey any information or explanation which the auditor is entitled to require. However, I disagree with the editors of Buckley to the extent that the text suggests that the offence may be committed by "any person" if, by such wording, the editors intended to suggest that s501 applied even to a person not identified in s499 (or s500).

Section 501(3)

18. Third, it seems to me that this is – and indeed must be – the interpretation of the meaning of "person" in s501(3). Although I accept that this point is not necessarily determinative of the proper interpretation of s501(1), it would, in my view, be odd if the two subsections had a different scope and meaning.

Heading

19. Fourth, this construction is fortified by the heading of s501 i.e. "Auditor's rights to information: offences". For the avoidance of doubt, I am satisfied that such heading may be considered in construing s501 although I bear well in mind that the function of this kind of heading is merely to serve as a brief, and therefore necessarily inaccurate, guide to the construction of the section: see Bennion on Statutory Interpretation, 6^th Ed, Section 255 and the cases there cited including R v Montilla [2004] UKHL 50; [2005] 1 All ER 113. In particular, it seems to me that this heading makes clear that the intent of s501 is to prescribe the offences that may be committed in relation to the auditor's rights to information. Such "rights" are, of course, those set out in s499 (and s500). Thus, in my judgment, the heading is inconsistent with Mr Caplan's argument that s501 creates offences in relation to any person who provides a false statement to the auditor even if the auditor has no "right" to require that person to provide such or indeed any information or explanation.

Purpose

20. Fifth, it is, I think, legitimate to ask: why is it that the audited company itself (or its parent) is not one of the listed persons in s499? Mr Caplan submitted, in effect, that it was not necessary to include the audited company or its parent in the list of specified persons in s499 because the auditor had sufficient rights to require information or explanation from the specified individuals or entities but that there was no good reason why such entities should be excluded from possible prosecution under s501; and that the purpose of the scheme of the legislation would not be served if I were to reject the construction advanced by the Crown.
21. Although the answer to the question posed is not immediately obvious, I do not accept that submission. In particular, it seems to me that a possible reason for the non-inclusion of the audited company (and its parent) in s499 may lie in the fact that the purpose (or at least one of the purposes) of the audit is ultimately to protect the shareholders of the audited company; and that the possibility that the audited company itself might be subject to criminal prosecution would be contrary to that purpose. Mr Caplan submitted that this reasoning was flawed in particular because (i) it is difficult to square, for example, with s499(2)(c) whereby a subsidiary undertaking of the audited company which is incorporated in the UK is a specified person; and (ii) the exercise of an audit has a much wider purpose i.e. notwithstanding the rule in Caparo, the purpose of an audit is not only to protect shareholders but also creditors and investors, including potential investors. However, this explanation is, I think, consistent with the observations in paras 15.35-15.36 of the review commissioned by the Department of Trade and Industry led by an independent steering group entitled Modern Company Law for a Competitive Economy (2001) (the "2001 Review") which forms part of the legislative history – although I recognise that this material may be inadmissible as an aid to construction.
22. In any event and notwithstanding Mr Caplan's arguments, it is plain that an auditor is not entitled under s499 to require information or explanations from the audited company itself. As submitted by Mr Kelsey-Fry, this is perhaps not surprising given that it is the company's accounts which are the subject of the audit and the auditors need to obtain information or explanations about them from those actually responsible for running the company; and I agree that these observations lend at least some support to the case advanced by him on behalf of the defendants.

Overall scheme of the 2006 Act

23. Sixth, this conclusion is one which is consistent with the overall scheme of the 2006 Act for the reasons set out by Mr Kelsey-Fry in his skeleton which were as follows:

i) The Companies Act 2006 is not a criminal statute. It is not concerned primarily with proscribing immoral or anti-social conduct. To state the obvious, it is a statute which is all about the company.

ii) In this case, the company is GGL. The Companies Act is the statute which allows for GGL's creation and existence as a legal person. It provides for certain functions necessary to the proper regulation of the company, such as the making and keeping of accounts and reports (Part 15) and the function of an audit (Part 16). It also apportions responsibility for each of these functions, as between GGL itself and other (often natural) persons.

iii) Because apportionment of responsibility for different functions necessary to the life and regulation of the company is one of the principal concerns of the Companies Act, it is hardly surprising that the statute specifies – with precision – who is liable for any failure to perform each function as required by the Act. This includes very clear distinctions between those liabilities which attach to the company itself (here GGL) and those which do not. These distinctions may, in some instances, appear to be artificial, but that is inevitable: the Act is concerned with the creation of the "legal fiction" of corporate personhood.

iv) For example, the responsibility to keep a register of the company's secretaries lies with the company (see s275(1)). Consequently, the company itself (as well as every officer of the company who is in default) is liable explicitly for the criminal offence of defaulting on this responsibility (see s275(6)). Likewise, it is the company which is responsible for sending copies of its annual report and accounts to its members (see s423). Consequently, the company itself (as well as every officer in default) is explicitly criminally liable if this does not occur (see s425). On the other hand, it is the duty of the company's directors – and not the duty of the company – to file the company's annual accounts with the register (see s441). Consequently, criminal liability for failing to comply with this duty explicitly lies with the directors only and not with the company (see s451(1)). To take another example, it is the directors' duty to prepare a directors' report for each financial year of the company (see s415(1)). Consequently, criminal liability for failing to comply with this duty explicitly lies with the directors only, and not with the company (s415(4)). Criminal liability for any false statement contained in the directors' report also vests explicitly and exclusively with the directors, and not with the company (see s418(5)).

v) It is in this context that the specification of particular categories of person within s499 must be understood. The responsibility to provide information to the auditor of the company's accounts is not imposed upon all "persons"; the responsibility is defined with reference to specific categories of person in s499(2). It is entirely consistent with the pattern established throughout the Act, that this responsibility is enforced with criminal sanctions which attach, not to the general population, but to the same, specified categories of persons with whom the duty rests. Since that duty did not rest with GGL or OC, neither Defendant was capable of committing an offence under s501(1) in relation to the audit of GGL's accounts.

vi) Where the intention is to make the company which is the subject matter of the entire Act itself responsible for a particular obligation, this is explicitly stated. Where the intention is to impose criminal liability on the company for default in compliance with those obligations, this is explicitly stated too. The explicit statutory language typically deployed in the 2006 Act to denote that the company is responsible for a particular obligation, or is criminally liable for default on that obligation, is absent from the wording of ss499 and 501.

24. In my judgment, these arguments are most compelling and strongly support the case advanced on behalf of the Defendants.
25. Moreover, it seems to me that the carefully structured overall scheme of the 2006 Act is inconsistent with Mr Caplan's general submissions based upon what he described as conventional principles of attribution as summarised above. In particular, if, as a matter of construction, s501(1) is to be read as referring back to s499 (and s500) such that the persons who may commit an offence are limited to those persons identified in those sections, it would, in my judgment, be wrong in principle to impose criminal liability on persons not specifically identified. To my mind, there is nothing in the cases cited by Mr Caplan to lead to a different conclusion.

Legislative History

26. Seventh, the Defendants' case is, in my judgment, also supported by the legislative history. For the avoidance of doubt, I am satisfied that such legislative history is admissible as an aid to construction. In particular, as stated in the preamble, the 2006 Act is a consolidating statute in relevant part; and the authorities make plain that the court may have regard to the legislative history of a consolidating statute at least where the provisions which fall to be construed are either "ambiguous", "obscure" or "difficult": see Farrell v Alexander [1977] AC 59; R v Heron [1982] 1 WLR 451 at p459C; and R v Bristol City Council ex p Everett [1999] 1 WLR 92.
27. As submitted by Mr Kelsey-Fry, the 2006 Act is the latest in a long line of similar enactments made over the course of the last 169 years. Within this history, there has since 1989 at the latest been a specific statutory offence of misleading an auditor. This was introduced by s118 and s120 of the Companies Act 1989 which provided for the insertion of a new provision into the Companies Act 1985 (the "1985 Act") The new provision (s389A of the 1985 Act) read:

"389A Rights to information.

(1) The auditors of a company have a right of access at all times to the company's books, accounts and vouchers, and are entitled to require from the company's officers such information and explanations as they think necessary for the performance of their duties as auditors.

(2) An officer of a company commits an offence if he knowingly or recklessly makes to the company's auditors a statement (whether written or oral) which—

a. conveys or purports to convey any information or explanations which the auditors require, or are entitled to require, as auditors of the company, and

b. is misleading, false or deceptive in a material particular.

A person guilty of an offence under this subsection is liable to imprisonment or a fine, or both."

28. Subsection (1) of this provision is the original version of what is today s499(1) and (2) of the 2006 Act. Subsection (2) of the above provision is the original version of what is today s501(1) of the 2006 Act. S774 of the 1985 Act defined "officer" to include a "director, manager or secretary."
29. In this original statutory form, the auditors' right to require information for the purpose of an audit was thus limited to the audited company's officers. The parasitic criminal offence was explicitly limited to the same class of persons.
30. The above original provisions were amended by the Companies (Audit, Investigations and Community Enterprise) Act 2004 (the "2004 Act"). This Act replaced the original s389A of the 1985 Act with a new s389A and s389B, which provided:

"389A Rights to information

An auditor of a company–

has a right of access at all times to the company's books, accounts and vouchers (in whatever form they are held), and

may require any of the persons mentioned in subsection (2) to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.

Those persons are–

any officer or employee of the company;

any person holding or accountable for any of the company's books, accounts or vouchers;

any subsidiary undertaking of the company which is a body corporate incorporated in Great Britain;

any officer, employee or auditor of any such subsidiary undertaking or any person holding or accountable for any books, accounts or vouchers of any such subsidiary undertaking;

any person who fell within any of paragraphs (a) to (d) at a time to which the information or explanations required by the auditor relates or relate.

…

389B Offences relating to the provision of information to auditors

If a person knowingly or recklessly makes to an auditor of a company a statement (oral or written) that–

conveys or purports to convey any information or explanations which the auditor requires, or is entitled to require, under section 389A(1)(b), and

is misleading, false or deceptive in a material particular,

the person is guilty of an offence and liable to imprisonment or a fine, or both."

31. S389A as amended had the effect of expanding the class of persons from whom the auditors had a right to require information or explanations – from officers of the audited company, to include other employees of the company, its book-keepers and accountants, and any of its subsidiaries (and the subsidiaries' officers etc). To reflect this change, the new offence-containing provision (s389B), rather than beginning with the words of its statutory predecessor ("An officer of a company commits an offence if …"), which mirrored the wording of those subject to the duty, instead contained the words, "If a person…the person is guilty of an offence …".
32. In my view, it is difficult to accept that this change in the wording of the statute and, in particular, the creation of a separate section to specify the "offences" was anything more than a convenience for the draughtsman or that it was intended to disengage the specified offences from the earlier specified auditors' rights and thereby introduce a radical change with regard to those persons who might be prosecuted. Rather, as submitted by Mr Kelsey-Fry, it seems to me that this change from "an officer" to "a person" was simply to ensure that all persons within the newly expanded class from whom the auditors were entitled to require information would carry liability for the associated criminal offence rather than to impose criminal liability on any person outside the categories specified in (the new) s389A(2).
33. As part of the legislative history, I have also been referred to certain other documents including the 2001 Review referred above – in particular, the Foreword, paras 3.29, 4.45, 8.119 and 8.127; and two White Papers viz Modernising Company Law, Cm 5553-I (2002) – in particular Part II paras 4.1 and 4.47 – and Company Law Reform (2005) – in particular, Chapter 2, Chapter 3.5 and Chapter 4.6. In general terms, I am prepared to assume that this material is, at least in part, admissible as an aid to construction. However, it is unnecessary to set out these passages in full. For present purposes, it is, I think, sufficient to say that in my view such material provides little, if any, assistance with regard to the particular issue which arises for determination although I would again note the comments in Chapter 15 of the 2001 Review specifically paras 15.35-15.52 where the question who should be liable for breach of the Companies Acts requirements is considered. It is unnecessary to consider these comments in detail. However, in broad terms and insofar as such material is admissible as an aid to construction, it seems to me that these comments provide at least some support for the defendants' case.
34. In further support of the Defendants' case, Mr Kelsey-Fry also sought to rely upon the relevant part of the Explanatory Note to the 2004 Act which he said made the intended effect clear. The Note, which was on its face prepared by the Department of Trade and Industry in order to assist the reader in understanding the Act, read (in its relevant paragraphs, with added emphasis underlined):

"45. The [new section 389A] is intended to help auditors to carry out their duties by strengthening their right to require information or explanations, with the aim of increasing the reliability of, and confidence in, company accounts.

46. It does this in two ways:

• it entitles the auditor to require information and explanations from a wider group of people. Specifically, it reflects a recommendation in the Company Law Review that those required to provide information and explanations to auditors should include employees ( Modern Company Law for a Competitive Economy , Final Report July 2001, URN 01/942, paragraph 8.119 first bullet);

• it makes it a criminal offence to fail to provide information or explanations required by the auditor.

47. Section 8 substitutes new sections 389A and 389B for the previous sections 389A in the Companies Act 1985.

48. In new section 389A, subsections (1) and (2):

• re-enact the auditor's right to access relevant material; and

• add to the category of people from whom the auditor may require information. Auditors previously had the right to require "officers" of the company (which includes directors, managers and company secretaries) to provide information and explanations necessary for their work. However, others, in particular employees who are not "managers", may hold relevant information. Those to whom the requirement to provide information applies are set out in subsection (2).

49. Subsection (3)-(5)in new section 389A re-enact previous provisions dealing with information and explanations concerning non-GB subsidiaries, extended to include employees and certain others. It is neither desirable nor effective to place a direct responsibility on a non-GB subsidiary and those associated with it to give information and explanations to a UK auditor. The responsibility is therefore placed on the parent company to do what is reasonable to obtain the required information and explanations from the subsidiaries.

50. New section 389B sets out criminal offences relating to the provision of information to auditors. Subsection (1) re-enacts the previous offence in section 389A (2) of the Companies Act 1985 of providing false or misleading information or explanations to an auditor. The subsection also applies this offence to the new categories of people from whom the auditor may require information under new section 389A…"

35. I agree that this Explanatory Note – in particular paragraph 50 – supports Mr Kelsey-Fry's submission. However, in my view, it is inadmissible for the purpose relied upon by him for the following reasons. The use that the courts may make of Explanatory Notes as an aid to construction was explained in R (Westminster City Council) v NASS [2002] UKHL 38 in particular by Lord Steyn at [2]-[6], [2002] 1 WLR 2956, R v Montilla [2004] UKHL 50, [2005] 1 All ER 113 in particular by Lord Hope at [35] and summarised by Brooke LJ in Flora v Wakom (Heathrow) Ltd [2006] EWCA 1103 at [15]-[17]. See also Bennion Section 219. In light of those authorities, I readily accept that the text of a statute does not have to be "ambiguous" before reference may be made to an Explanatory Note; and that an Explanatory Note may be admissible to explain, for example, the context, legislative history or mischief. I also note that, according to Lord Hope in R v Montilla at [35], it has apparently become common practice for their Lordships to ask to be shown the Explanatory Notes when issues are raised about the meaning of words used in an enactment; and that there are numerous recent examples of the Court of Appeal referring to Explanatory Notes as an aid to statutory interpretation including Director of the Serious Fraud Office v B (No 2) [2012] 1 WLR 3188, R v Chinn [2012] 1 WLR 3401 and R (on the application of Nicklinson) v Ministry of Justice [2013] EWCA Civ 961. However, consistent with the speech of Lord Steyn in R v NASS, it seems to me that the views expressed in paragraph 50 of the Explanatory Note to the 2004 Act fall on the wrong side of the line and are not admissible as an aid to construction. Rather, such views are, in truth, no more than the wishes and desires of the Government (or at least those of the individuals responsible for drafting such wording) about the scope of the statutory language as reflecting the will of Parliament. As stated by Lord Steyn in R v NASS: "… The aims of the Government in respect of the meaning of clauses as revealed in Explanatory Notes cannot be attributed to Parliament. The object is to see what is the intention expressed by the words enacted."
36. The Explanatory Note relied upon by Mr Kelsey-Fry relates to the 2004 Act. I have considered the question whether, even if (as I have concluded) it is inadmissible as an aid to the construction of the relevant wording of that Act, it might nevertheless be admissible as an aid to the construction of the 2006 Act on the basis that it is or at least may be part of the legislative history to that later Act. However, I have decided that that is a question of some difficulty which it is unnecessary to determine in the present case; and which I would propose to leave for another day.
37. On behalf of the Crown, Mr Caplan submitted that consistent with the passage from the judgment of Brooke LJ in Flora v Wakom (Heathrow) Ltd [2007] 1 WLR 482, the court is entitled to take into account both the 2004 and the 2006 Explanatory notes as material casting light on the objective setting or contextual scene of the statutes, and the mischief at which they were aimed. On that basis, Mr Caplan submitted:

i) The 2004 notes are helpful in indicating that section 389A was "intended to help auditors to carry out their duties by strengthening their right to require information or explanations, with the aim of increasing the reliability of, and confidence in, company accounts (Note 45)".

ii) There is no doubt that the 2004 amendments expanded the categories of people from whom the auditor might request information or explanations (adding, for example, employees of the company); by the same token, the perceived mischief to be addressed appears to have been unreliability in, and a lack of confidence in, company accounts.

iii) The Explanatory Notes to Sections 498 to 502 of the 2006 Act are said to "restate the existing law on the auditor's duties …. and on the auditor's rights to be provided with appropriate information" (Note 758)". Mr Caplan also sought to rely on Notes 760 and 761.

I am prepared to assume that those parts of the Explanatory Notes are admissible as an aid to construction for the purpose stated by Mr Caplan. Even so, it does not seem to me that they assist the Crown on the particular issue that arises for determination.

38. Be all this as it may, what is plain is that s501(1) of the 2006 Act is virtually identical to s389B of the Companies Act 1985, as inserted (by amendment) in 2004; that s499 of the 2006 Act is virtually identical to s389A of the 1985 Act as amended in 2004; that in all material respects, the 2006 provisions are the same as their immediate predecessors; that there is no indication that Parliament intended to effect any change in the law in relation to this criminal offence when it enacted the 2006 Act; and that just like the "person" specified in what was s389B(1), the "person" specified in s501(1) of the 2006 Act is intended to refer to any person among the categories of persons listed in what is now s499(2). Thus, Mr Kelsey-Fry submitted that to argue that "a person" in s501(1) refers to any person whatsoever, is as misconceived as it would have been to argue, in respect of the original offence contained in the 1985 Act, that "an officer of a company" referred to an officer of any company whatsoever. I agree.

Conclusion on Issue 1

39. For all these reasons, it is my conclusion that in the agreed circumstances of the present case, GGL and OC both fall outside the class of persons who are liable to prosecution for an offence under s501(1) of the 2006 Act; and that therefore this prosecution is inevitably doomed as a matter of law.

ISSUE 2: The meaning of "… information and explanations …" in s499(1) of the 2006 Act

40. If I am right on Issue 1, this second point does not arise. However, the point was argued and I will deal with it shortly. As stated above, the point concerns only counts 2 and 5 because it is in respect of those counts alone that the Crown relies on what it says are falsities contained in "the directors' report and the financial statements" in respect of the audit years. In summary, Mr Kelsey-Fry submitted that neither is a statement within s499 and accordingly GGL should be acquitted on counts 2 and 5 for this reason.
41. In particular, Mr Kelsey-Fry submitted as follows:

i) S499 gives the auditor, under sub-section 499(1)(a), the right of access to the books and records of the company itself, and the discretionary power, under s499(1)(b) to require "such information or explanations as he thinks necessary for the performance of his duties as auditor" from the persons listed in s499(2).

ii) A directors' report and financial statements are not "information or explanations" that the auditor can, in his discretion, decide to ask for to perform his duties. Instead, they are required to have been brought into existence as a result of other requirements in the Companies Act. There can be no question of the auditor thinking he needs to have them to complete the audit: he is required to have them so he can report on them. They are the subject matter of the whole process. They are what he is reporting on through his audit process.

iii) The position is rather complicated because for Count 2 (audit for the year ended 31 March 2009) the relevant provisions of the Companies Act 1985 applied, as the equivalent provisions of the 2006 Act applied only to financial years beginning on or after 6 April 2008. Those provisions therefore apply to consideration of Count 5 for the audit for the year ended 31 March 2010.

iv) A directors' report is required by s415(1) of the 2006 Act/s234(1) of the 1985 Act; and the directors commit an offence if they do not produce one: s415(4) 2006 Act/s234(5) 1985 Act. A further specific offence is committed by a director if the report contains a statement as to disclosure to auditors which he knows is false or is reckless as to whether it was false and he failed to take reasonable steps to prevent approval of the report: s418(5) 2006 Act/ s234ZA(6) 1985 Act. The obligation on the auditor to report on the directors report is found in s496 2006 Act/235(3) 1985 Act. The financial statements of a company are required by s394 2006 Act/s226(1) 1985 Act.

v) The scheme for the content and form of those accounts are given shape by much of the rest of Part 15, Chapter 4, including the requirement that the balance sheet and profit and loss account give a "true and fair view" (s396(2) 2006 Act/s226A(2) 1985 Act). A director who approves accounts which he knew did not comply with the requirements of the Act or is reckless as to whether they complied and he failed to take reasonable steps to secure compliance or to prevent the accounts from being approved commits an offence (s414(4) 2006 Act/ s233(5) 1985 Act). The obligation on the auditor to report on the accounts is found in s495(1) 2006 Act/s235(1) 1985 Act.

vi) It is clear from these provisions that the directors' report and financial statements of a company (a) are produced by the directors of the company as a result of specific statutory requirements other than s499 and (b) that they are positively required to be given to the auditors because the auditors themselves are under a statutory duty to report on them. It follows that they cannot be "information or explanations" that an auditor "thinks necessary for the performance of his duty as auditor". To suggest otherwise is nonsensical.

42. I readily accept that the various statutory provisions referred to above create criminal offences which may be committed by individual directors in connection with the directors' report and the financial statements. (I also accept that it may be that, in a particular case, the information or explanations contained in such documents would not fall within s499. Ultimately, I suppose that would be a matter for the jury.) However, I am not persuaded that for that reason alone the statements made in such documents cannot as a matter of law amount to "a statement (oral or written) made convey[ing] or purport[ing] to convey ... information or an explanation which the auditor requires ... under section 499". As submitted by Mr Caplan, the fact that the same or similar criminal conduct may be described in differing ways through prosecution for differing criminal offences against different defendants is commonplace; it does not fetter the prosecutor's discretion to bring charges for offence A when offence B might be deployed (save for the type of exceptional circumstances involving common law offences, identified by the House of Lords in R v Rimmington [2006] 1 AC 459 which have no application to this case). For these brief reasons, I would hold in favour of the Crown on this issue.
43. Further, there is, in my view, an additional fundamental flaw in Mr Kelsey-Fry's argument on this second point. As I have said, this point only arises (at least in this case) if I am wrong on Issue 1 i.e. if, contrary to my decision, GGL and OC are capable of being prosecuted under s501(1) of the 2006 Act. In such circumstances, the existence of other possible criminal offences by the directors or officers seems even more irrelevant.

Overall Conclusion

44. For the reasons stated earlier in relation to the first issue, it is my conclusion that these criminal proceedings are inevitably doomed as a matter of law. Accordingly, Counsel are requested to draw up an order which I hope can be agreed for my approval. Failing agreement, I will deal with any outstanding issues.