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Crown Court for Northern Ireland Decisions
You are here: BAILII >> Databases >> Crown Court for Northern Ireland Decisions >> Mahood & Anor, R. v [2005] NICC 46 (25 February 2005)
URL: http://www.bailii.org/nie/cases/NICC/2006/46.html
Cite as: [2005] NICC 46
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Ref: MCLF5178
McLAUGHLIN J
[1] The defendants pleaded guilty to a single count of Conspiracy to defraud contrary to common law on Bill of Indictment No. 230/02 when re-arraigned on 20 September 2004. They had pleaded not guilty to the indictment as drafted originally in the following form:"IN THE CROWN COURT AT BELFAST NO. 230/02
THE QUEEN
-v-
DAVID LAWRENCE MAHOOD
JULIAN MICHAEL CUZNER-CHARLES
David Lawrence Mahood and Julian Michael Cuzner-Charles are charged as follows:
COUNT ONE
STATEMENT OF OFFENCE
Conspiracy to defraud contrary to common law
PARTICULARS OF OFFENCE
DAVID LAWRENCE MAHOOD and JULIAN MICHAEL CUZNER-CHARLES on divers dates between the first day of January 1994 and the 30th day of September 1999 in the County Court Division of Belfast and elsewhere in the jurisdiction of the Crown Court conspired together to defraud such corporations, companies, firms and persons as might invest funds in Atrium Trading Limited (Atrium) and Regal Brook Limited (RBL) by dishonestly:-
1. using money invested in Atrium and advanced to RBL for purposes other than as a variant of 'factoring' as represented to the investors orally, in the sales information and Trader Agreements namely by:
(a) purchasing stock, shares and/or goods;
(b) by making unsecured loans to other companies
and/or
2. making false representations orally, in sales information and Trader Agreements, that the transactions would be insured against bad debt whereas in fact the nature of the transactions meant that they could not be, or were not so insured."
When re-arraigned the portion of the indictment set out in italics was deleted and they pleaded guilty to the amended indictment.
[2] The case was prosecuted by the Serious Fraud Office and it prepared a Summary of the Case which set out in brief the gist of the prosecution case against the defendants. For convenience I shall set out the relevant portion:"In brief summary this case relates to an alleged fraud perpetrated on the investors in Atrium Trading Limited (Atrium). This was a company set up in 1994 to provide a vehicle for investing in a finance company called Regal Brook Limited (RBL). The Crown alleges that the accused controlled RBL and Atrium. RBL was initially located in Northern Ireland, before moving to England. Investors placed funds in Atrium/RBL between 1994 and 1999.
The fraud alleged against the accused, and each of them, is that the investors in Atrium/RBL were deceived in important areas in relation to the use to which their money would be put.
The scheme, as designed to work, consisted of the investors' (termed 'traders') money financing a variant of factoring known as 'merchant finance', a method of providing trading companies with immediate cash for goods they had sold to a third party. The vehicle for the investments was RBL. This was financed by Atrium which was set up, in the Isle of Man, to raise investment monies in a tax efficient manner.
What would happen was
a. RBL's client delivered goods direct to the customer as normal and sent RBL proof of delivery
b. The client then invoiced RBL, at a discount of typically 2 to 4%, and RBL immediately paid the client 80% and invoiced the customer for 100% of the sales value of the goods
c. The customer took normal credit terms and then paid RBL who in turn paid the client the remaining 20% less an additional charge for interest.
Most of the investors are resident in Northern Ireland. The preponderance of these investments were placed on the advice of Gordon Higham, who was a partner in the business of Aiken & Higham in Belfast. The investors ranged in age from students to retired people, some of whom were investing a large proportion of their life savings, legacies, gifts, redundancy payment etc. A number of investors live in the USA.
The Crown alleges that investors' money was used in ways which were contrary to representations made to them, in the Trader Agreements and elsewhere, as well as outside the terms of RBL's insurance. The investors understood that their money was to be used for the 'merchant financing' concept and that the trades would be insured with the result that their capital investment would be safe.
A major portion of the investors' money was used to fund a company called White Horse Foods ("WHF"). The alleged improper use of investors' funds was as follows:
(1) RBL's normal client arrangements with WHF changed allowing WHF or Delmar Seafoods Limited, a sister company, to receive payments from the end customer in place of RBL.
(2) In addition to providing its merchant finance service to WHF, RBL also purchased stock for WHF.
(3) RBL made direct loans to WHF. WHF went into liquidation in March 1999 owing RBL approximately £2.5 million.
(4) The accused had a financial interest in WHF which had not been disclosed to the investors.
RBL went into liquidation in September 1999. Owing to RBL's failure, Atrium went into liquidation of 17 September 1999. ….."
"R v DAVID MAHOOD AND MICHAEL CUZNER-CHARLES
BASIS OF PLEA
1. Both men are previously of good character.
2. There was no intention on the part of either of the accused at the outset to dishonestly take money from investors. It is accepted that the accused and others were initially involved in a bona fide investment scheme which was commercially viable.
3. There is no allegation of deceit (which is in any event not an essential ingredient of fraud).
4. There was initially no intention on the part of the accused to cause loss to the investors or foresight that would occur.
5. It is not alleged that either of the accused misappropriated the investors' money by siphoning it off into accounts for their own personal use.
6. The accused accept that they did acts which had a potential to risk investors' money and that the money was lost as a result."
Significance of plea
[7] Although when first arraigned the accused pleaded not guilty they changed their plea on re-arraignment. The first arraignment is normally taken to be the earliest point when a person might acknowledge his guilt. I accept that this was no ordinary case however. There is a huge amount of paperwork which has presented a daunting task for legal and accountancy advisors. The basis upon which the prosecution case was initially put forward was challenged by each defendant and, after submissions prepared on their behalf by their legal and financial teams, the Serious Fraud Office conceded ground, and the Basis of Plea was agreed and the indictment amended. This happened just before the trial was due to commence on 20 September 2004 and I propose therefore to proceed on the basis that the plea was proffered by the accused at the first realistic opportunity. [8] The case also presented many complex legal issues of which the outcome was by no means certain. It is appropriate to take that into account when permitting some reduction of sentence since in many cases where a plea is offered, even at a very early stage, it is done in the face of clear evidence of guilt. [9] Authorities also indicate I should take account of the public interest where savings of court time and public money result from an early plea of guilty. After being reviewed on a number of occasions it was considered that the trial might last approximately six months. This would have imposed an enormous burden on a jury and I consider that an estimated £1m have been saved as a result of a plea being entered. Those costs would have been incurred in addition to those already spent during the course of the lengthy investigations. [10] In the light of the above considerations I propose to allow full credit for the plea of guilty entered by each accused.Confiscation Order and/or Compensation Order
[11] The prosecution has invited me to consider my powers under the Criminal Justice (Confiscation) (Northern Ireland) Order 1990 and to exercise my discretion to make an Order thereunder. It was suggested to me however that if I should make a parallel Compensation Order under the Criminal Justice (Northern Ireland) Order 1994 then the sum payable under the latter provisions should be paid out of the sum which would be pre-recovered under the 1990 Order – a procedure envisaged in Article 8(3) of the Confiscation Order scheme. [12] Having regard to all the papers put before me I was satisfied that the proper course to adopt was to secure compensation for the investors as a first priority even though their whole, or even a large part of their losses, cannot be made up. I was satisfied that under the 1990 Order there was a very strong possibility (summarised in Mr Sefton's skeleton argument) that in strict law it might be said that the accused had benefited to the extent of £2.5m from the offence – that being the sum alleged put at risk by their offending. In light of the Basis of Plea document any such finding would have been entirely artificial and unfair. It is important to note that the policy of recovering or confiscating assets is generally concentrated on the amount of which the accused have benefited from the crime as it usually equates to the loss suffered. It is accepted however by the prosecution that neither accused siphoned off any of the losses for their own benefit so that a departure from the general policy is justified in this case. I was satisfied also that if I made both Orders the confiscated sum would be used to satisfied any Compensation Order as the one would have to offset the other, recovery of both being impossible. Further protracted hearings which involved more expense for no realistically achievable financial benefit led me to conclude that I should not make a Confiscation Order but rather should concentrate on the use of my powers under the 1994 Order. For that reason I refused to make a Confiscation Order.Background and circumstances of the accused
[13](i) Mahood
David Lawrence Mahood is now 65 years old, married with no children. He has a completely clear record. He left school at 16 and over a period of 45 years worked as a successful business man rising eventually to the position of chairmanship of LEDU. He has also devoted considerable time to charity work and has acted as a lay magistrate. His life's work and career have been distinguished except for this serious exception. I accept that he is remorseful, embarrassed and humiliated by these proceedings and that in his case these are more acutely felt because many of the investors are from Northern Ireland, were clients or acquaintances of his and he still encounters some of them. I also take account of the reference which has been provided by his present accountant and former colleague.
His wife is extremely ill. Out of respect for her right to privacy I shall not detail her medical state, but I have read the comprehensive medical report and assessment of Dr John Weaver, a distinguished retired consultant physician who is well known to all of the judges of this court, and I accept that her predicament is such that she requires constant care and specially adapted living accommodation. Mr Mahood's sister, who is widowed, has also suffered significant ill-health in the recent past and will rely increasingly upon him for assistance.
His main assets are his house, its contents and a pension fund. These appear to me to be consistent with his long previous career and do not stem from the direct misuse of investors funds. They do, however, provide a potential source from which to provide some compensation for the investors. Since the Basis of Plea document makes it clear that he did not siphon funds for his own direct benefit then the loss of any of these assets would be a very considerable punishment indeed.
I also take account of the fact that he has been unemployed since June 2002 and that it is unlikely that he will be able to enjoy gainful employment in the future given his age, his plea of guilty to this offence and the fact that his criminal record will tell against him being able to operate in the financial services field. The question of disqualification from acting as a Director, with which I shall deal in due course, will constitute a further significant penalty in this respect.
Background and circumstances of the accused
[14](ii) Cuzner-Charles
Julian Michael Cuzner-Charles is 51 and he too has a complete clear criminal record. He is chartered accountant by profession, married with two daughters. I understand there have been serious strains on his marriage, no doubt contributed to by his entanglements with the criminal law, and that a divorce is presently in prospect. Throughout his working life he has been involved in the financial services sector but he too has been unemployed since June 2002. Prior to that he had never been unemployed. I acknowledge the practical certainty that this conviction will disqualify him from pursuing his profession as an accountant again. His main assets are his house, a pension fund and money held in bank or building society accounts.
[15] The assets of both men were made subject of Restraint Orders by me in June 2002. Since that time they have been unable to deal with any of their assets. This is a very considerable penalty and I am willing to accept that, coupled with the inevitable delays in a complex case of this nature, they have suffered considerable distress since the time of their arrests. Their lives have been put on hold for approximately 2½ years, perhaps longer, as they were first interviewed by the police in December 2001 and January 2002. Given the family background of Mr Mahood I can accept readily that the uncertainty has been particularly acute.Sentence
[16] An offence such as this, which involved putting at risk the assets of investors, many of them small time and unsophisticated, especially when so much money is involved, is clearly one which is so serious that it warrants a prison sentence. Once that is established I must then consider whether it would be proper to suspend the operation of such a sentence in the overall circumstances. In addition I have other options open to me which I propose to exercise so I shall deal with these first.(a) Compensation
I have already stated that I propose to impose a compensation order so that some monies may be recovered for the benefit of the investors. Having regard to the recoverable assets, their individual means, the degree of criminality involved in bringing about the losses and allowing for the fact that even in the best regulated investment scheme losses can result, I have decided that each of you should pay a Compensation Order in the sum of £125,000 thus making available a sum of £250,000 to provide some recompense for the investors. In default of payment of those sums within 12 months a sentence of 12 months imprisonment shall be imposed in lieu.
(b) Under the Company Directors Disqualification (NI) Order 1992 I propose to disqualify each of you from acting as company directors for a period of seven years. I realise that the maximum period for which you might be disqualified is more than double that but I take into account the fact that you have in reality been disabled from acting as a Director or in the management of a company for the last 2½ years during which you assets were frozen and the trial has been pending. I also intend the disqualification period to reflect the fact that there is little time left for you to pursue alternative careers.
(c) Having regard to the scale of the losses and the substantial departures from the trading scheme that was first initiated, I consider that the proper sentence of imprisonment in this case is one of three years. In the light of all of the circumstances which I have set out above and having regard to the principles of fairness, totality of sentence and proportionality, I consider that I can suspend that sentence for a period of two years. I do so having regard to the substantial financial and professional penalties which you will suffer by way of the Compensation and Disqualification Orders which I have made. A suspended sentence in this case matches the nature of the offending and the many special features detailed in the Basis of Plea. If therefore you do not commit a criminal offence for a period of two years then you will not be subject to the risk of imprisonment. If on the other hand you do commit any offence, and I emphasise the word "any" then you will be liable to be brought back before this court when the sentence of three years imprisonment will be activated in addition to any penalty which may be imposed for the subsequent offence. Do you understand the effect of a suspended sentence and agree to comply with its terms?
ADDENDUM
The above remarks were prepared after I heard the pleas in mitigation and I intended to deliver them on 20 January 2005.
Just prior to doing so, however, I received a copy letter from SFO dated 19 January which indicated they intended to seek an adjournment as "information has just came to light which the prosecution intends to disclose to the defence", as the information would take time to consider it was considered that an adjournment was inevitable.
I sat on 20th as previously arranged and was informed by Mr Sefton that a SFO team involved in another inquiry had found materials which might be relevant to his case and some time was needed to collate these and to assess their significance. I then conducted a hearing in chambers so that I could receive further details which if disclosed in public might affect the integrity of proceedings in the other case, and to protect the reputation of a named person who was a vital prosecution witness in the present case.
I sat in open court immediately after and explained in broad outline what has transpired and why I had decided to conduct the hearing in chambers.
I reviewed the progress of the case on 4th February 2005. Again I sat in chambers for part of the time and followed a procedure similar to that adopted on 20th January 2005. I then set Monday 21st February for sentence.
A further adjournment until today's date then became necessary in order to facilitate one of the defendants. As I considered this desirable I granted the application without a formal court sitting.
At the hearing on 4th February, counsel for both defendants addressed me on the issues arising from the further disclosed material. It was said that although the Basis of Plea ruled out deceit by either or both of them, and therefore false representations by the prosecution witness (if any) would not affect the case against them, that nonetheless the defendants had pleaded guilty only upon advice that they had crossed the line between non-criminal and criminal behaviour, the decision had been a very difficult one and that had the information been available earlier their ultimate decision to plead (i) might have been different, or (ii) should be seen as being of enhanced significance and should attract great credit still with the potential of reducing their sentences further.
I am satisfied that the new information would not have affected the correctness of their pleas of guilty given the Basis of Plea that was put before me. I can see that any further perceived weakness in the prosecution case might have increased their hopes of acquittal but nothing more than that. I do accept that their pleas of guilty in the circumstances would have entitled them to the full credit possible by way of discount.
For that reason I hope that the approach I have taken will be sufficiently transparent to demonstrate fairness by the court. The sentencing remarks made earlier were handed to the court registrar and sealed on January 20th and re-opened today.
I have reconsidered the sentences, orders and penalties I intended to impose in view of the developments outlined just now. Having done so concluded that I had given the accused the fullest possible credit for their earlier pleas and I ought not to alter the decisions I made at that time. I consider these to be the least I could impose in view of the serious losses sustained.
• Suspended sentence explained.
• Default provisions if compensation not paid explained.
• List of investors to benefit from Compensation Order.