Scottish High Court of Justiciary Decisons

Appellant: C Shead, M Mackenzie; Barony Law Practice, Edinburgh

Respondent: A Mackay, A.D.; Crown Agent

3 March 2010

The procedure

[1] The appellant stood trial at Cupar Sheriff Court on an indictment which contained three charges. The first was that between 1 October 1998 and 1 February 2002, whilst employed as a director of Jaguar Recordings Limited, he had on certain dates withdrawn certain sums from bank accounts operated by that company and did thus embezzle a sum in excess of £2 million. The second was that, his estate having been sequestrated on 25 February 2002, he had, being absolutely insolvent, within the twelve month period prior to that sequestration transferred to another certain properties belonging to him for an inadequate consideration, contrary to section 67(6) of the Bankruptcy (Scotland) Act 1985. The third was that, being disqualified from acting as a director and so from taking part in or being concerned in the promotion, formation or management of any company, he had over a four month period in 2003 acted on behalf of a company styled Jaguar Recordings UK Limited in management negotiations with another company (C & J Clark International Limited).

[2] After all the evidence had been led and the procurator fiscal depute had addressed the jury, counsel for the appellant submitted to the court that, as respects two of the three accounts from which monies were withdrawn, the Crown had failed to prove that these were accounts of Jaguar Recordings Limited. He accordingly invited the sheriff, if charge (1) was to remain before the jury at all, to direct them that a guilty verdict could not be returned other than as respects the one account which had been proved to be that of that company. He also submitted that, for reasons advanced, the jury should be directed to acquit the appellant on charge (1). The presiding sheriff rejected the latter submission but accepted the former. The result was that charge (1) went to the jury on a restricted sum of £460,000, being the aggregate of 11 withdrawals from one account (No. 307682), namely, £15,000 on 4 October 1999, £330,000 on 3 October 2000, £20,000 on 25 January 2001, £10,000 again on 25 January 2001, £5,000 on each of 12 April 2001, 2 July 2001, again 2 July 2001 and 6 July 2001, £8,000 on 13 July 2001, £50,000 on 3 October 2001 and £7,000 on 1 February 2002. The jury returned a verdict of guilty on charge (1) restricted to £453,000. They also returned verdicts of guilty on charges (2) and (3). The appellant was subsequently sentenced to two years' imprisonment on charge (1) and to six months' imprisonment on each of charges (2) and (3), all of these periods to run concurrently. He has served these sentences.

Background

[3] During the period to which charge (1) related the appellant was the sole director of Jaguar Recordings Limited, a private company in which he held 50% of the shares. The remaining 50% was owned by his estranged wife, Verona Humphrey. The company had been formed in about 1980. Initially Ms Humphrey was a director, but she resigned her directorship in about 1997 in anticipation of her shareholding being purchased. In the event that purchase did not go through. By 1997 Ms Humphrey and the appellant had become estranged. Protracted and acrimonious divorce proceedings followed. On the dates mentioned above the appellant withdrew, or caused to be withdrawn, the sums mentioned from the company's account and paid them, or caused them to be paid, into one or other of two personal accounts held by him. Although the company had been profitable, it latterly ceased to be so and went into liquidation in 2002. During the period of the restricted libel the appellant neglected the business. The monies withdrawn were used by him for gambling purposes and for speculative stock market dealings. These monies were recorded in the company's books as loans by the company to the appellant, though there was no evidence that the company had authorised or purported to authorise such transactions. At the material times the company was prohibited from lending to any director an aggregate amount exceeding £5,000 (Companies Act 1985 sections 330 and 334 (as amended)). The company's accountants were aware of the transactions (and their categorisation) but do not appear to have offered any objection. It was the practice of the appellant, at least in the earlier years, to repay these "loans" in whole or in part towards the end of the company's accounting period but to re-borrow them soon thereafter.

[4] The appellant as sole director of the company had charge of its funds. The relationship between him and it was such that he owed to it a fiduciary duty with respect to the management of these funds. He, as director, secured the transfer into his personal accounts of substantial sums, in most if not all cases in contravention of the prohibition under section 330 of the Companies Act. No security was given for these advances nor do they appear to have been subject to any specific terms as to repayment. That these transfers were made was amply established and no question arises but that the actus reus of embezzlement (appropriation) was proved. The circumstance that the sums transferred were, in some instances, repaid is immaterial. The transfers, especially given the uses to which the appellant put the funds, put them at risk (HM Advocate v Lawrence (1872) 2 Couper 168, per Lord Neaves at page 173; HM Advocate v Wishart (1975) SCCR Supp. 78, per Lord McDonald at page 84). That suffices.

Ground of appeal 1(a)

[5] The appellant, however, maintains (as he did before the sheriff) that there was insufficient evidence of the mens rea of embezzlement. Reference was made to Gordon, Criminal Law (3^rd ed.) at para 17.33 and Stair Memorial Encyclopaedia, Re-issue, Criminal Law, paras 346 and 348 (Sheriff Stoddart). The latter author suggests that the leading modern authority (Allenby v HM Advocate 1938 JC 555) "leaves the law in rather a vague state". The authors of the 3^rd edition of Gordon opine that the mens rea of embezzlement is "essentially the same as the mens rea of theft". But as the same authors suggest that "it is now very difficult to find any principle to which the mens rea of theft conforms" (para 14-50), matters are not much advanced. In Allenby the High Court on appeal quashed the conviction because the sheriff had directed the jury that the utilisation by the accused of the funds (an inmixing of them) under his charge was embezzlement, without directing them explicitly that they must be satisfied that the appellant "had acted dishonestly" (Lord Justice-Clerk Aitchison at page 58). Lord Pitman observed that the sheriff did not give the jury a chance of considering "whether the accused was dishonest" (page 59). At the same page Lord Wark said:

"Speaking for myself, I do not think that there ever can be a conviction of embezzlement unless the jury find evidence of dishonest intention, although evidence of dishonest intention may be afforded either by acts which are deliberate or by acts which are reckless."

[6] The mental element of the crime of embezzlement was addressed in HM Advocate v City of Glasgow Bank Directors (1879) 4 Couper 161, where the relevancy of the libel was discussed. The charges against the individual directors were of obtaining or taking from the bank certain large advances by way of overdraft on their own individual accounts out of the monies with which they were entrusted for the purposes of the bank. Lord Justice-Clerk Moncrieff said at pages 187-9:

"My general opinion upon the matters submitted for discussion yesterday is, that it is not every violation or excess of the rights of directors, or persons in that position of trust, which will ground a criminal prosecution. It may quite well be that directors violate the conditions on which they hold their office by doing acts which are not sanctioned by the terms of their appointment. Such cases occur ever day in the civil Courts; and if directors in that position act beyond their powers, or in violation of their powers, they will be responsible in the civil consequences, and their acts will not have the validity of legal acts of the directors. But before this can be raised into a criminal offence, and be the subject of a criminal indictment, there must be superadded to the illegality of the act some element of bad faith, some corrupt motive, some guilty knowledge, some fraudulent intent, which shall raise that which, although illegal, was not a crime, into the category of a crime. These are familiar and elementary principles, and in cases of that kind the corrupt motive, the bad faith, is essential to the crime itself, and without it there is no crime.

Now, here I should not have been satisfied, although the duty of the directors had been clearly charged, and the trust reposed in them clearly expressed, and the averment of obligation, not to allow overdrafts on open account without security, quite precise, and the insufficiency of the security on which these advances were made clearly alleged, unless there had appeared in the charge something beyond these elements, namely, an element of want of faith, which would give a colour and character to all the rest; and I must fairly say that I could have wished that this had been more clearly and specifically expressed, nor do I altogether see why it was not so.

But, my Lords, upon further consideration of the whole of the argument, I am satisfied that, assuming those principles which I have now announced, and which I consider both elementary and important, such is not truly the nature of the charge that is made here; because there are some words which override all the facts alleged, and seem to me competently to raise the element of bad faith throughout the whole transaction, or, what is the same thing, to exclude the good faith of the parties in the proceeding; and that is, that these advances were obtained by the accused taking advantage of their position as directors.

Now, no doubt, that places upon the prosecutor a very heavy burden of proof, but, I take it, these words signify that the directors obtained these advances under conditions in which, but for their character as directors, they could not have obtained them, - in other words, that they used their characters as directors to obtain advantages in regard to the money entrusted to themselves which an ordinary customer could not have obtained. That is the element which has led me to come to be of opinion that there is a sufficiently relevant case stated under these charges for investigation by a jury.

Doubtless the public prosecutor has a heavy task before him, because he must not only prove the trust, and prove the duty as he alleges it, and prove that the security which was offered or existed was manifestly insufficient, but he must also prove what he has alleged, I think in sufficient language, that all these things were done solely and entirely by taking advantage of the position of a director, and abusing that position to the effect of a result for which it never was conferred. If these things are proved - if it be shown that these advances were not in the ordinary course of business, and were not obtained in good faith, but were obtained solely and entirely in consequence of the position which the directors had on that board - if it be proved that these were advances which no ordinary customer could have obtained, and which, therefore, no director was in good faith to accept, I think that the logic of the indictment on this head is sufficient."

At page 192 Lord Mure added:

"I have no doubt of this as a general proposition, that if a bank agent or manager, who is entrusted with the money of the bank of which he is manager, avails himself of his position to get cheques passed on his own account with the bank to a large amount, without any regular security given to the bank, and without having any money at his credit, and applies the money so obtained to his own uses and purposes, he commits a criminal offence, if he does all this when in the knowledge that he has no money at his credit. That, I think, is quite settled ...

... Here we have to deal with [the case] of directors. But in this respect I do not think there is any essential distinction between the cases, if what the four directors are here charged with doing amounts substantially to what I have stated to be an offence, in my view of it, when done by a bank manager. Now, it is here distinctly alleged, and the Crown undertakes to prove, that the directors were entrusted with large sums of money to be employed in the ordinary business of banking, and that it was their duty not to allow overdrafts to be made on their own accounts without adequate security, which they nevertheless did, or caused or procured to be done, to a very large extent, in the way set out in the indictment, and did embezzle and appropriate the money to their own uses and purposes."

Lord Craighill concurred.

[7] There may be a degree of vagueness in the expressions used by the Lord Justice-Clerk, though he appears to distil them into "bad faith" or "want of good faith" and to have been heavily influenced by the circumstance that the directors were knowingly securing for themselves loan facilities which others, not in their position, could not have obtained. "Dishonesty", while not an expression of precise definition, may be thought compositely to express the notions referred to by the Lord Justice-Clerk - and to be something which, however imprecise, may readily be recognised by a jury. Hume - Commentaries Vol.I page 59, in distinguishing theft and embezzlement, speaks of (in the latter case) "the dishonest purpose" having arisen after the property was in the accused's legitimate possession; at page 61 he speaks of those having possession of money being punishable "for any dishonesty or malversation in their charge". Allison, Criminal Law Vol.I page 359 and McDonald, The Criminal Law of Scotland (5^th ed.) page 45 speak of the appropriation being "felonious".

[8] The Crown relied for proof of the requisite mental element in this charge on, in the first place, a statement which the appellant had allegedly made to the insolvency practitioner appointed by the Trustee in Bankruptcy to manage his sequestrated estate that he "was determined that his estranged wife would receive nothing, not a penny from him". That intent - to strip the company of its funds with a view to the interest of the other shareholder in it being rendered valueless - was clearly a "corrupt motive", something done in bad faith. Independently of that statement there was undisputed evidence as to the significant amounts withdrawn and the frequency of these withdrawals, pointing, in the absence of any bona fide explanation, to a dishonest intent. It was undisputed that the funds were withdrawn and used for the appellant's personal purposes of gambling and speculative investment - a use which was consistent with an intention to deprive the company and through it the other shareholder of the monies withdrawn. If, as Lord Wark opined, dishonest intention may be evidenced by reckless acts (upon which it is unnecessary for present purposes to express a view) the reckless purpose for which the funds were withdrawn may be an additional pointer to dishonesty. Further, although the withdrawals were recorded in the company's books - as "loans" - there was an absence of security and terms of repayment and the practice of repaying shortly before the year end and again withdrawing shortly after it was consistent with a measure of concealment on the appellant's part. In these circumstances there was, in our view, sufficient evidence of dishonesty in these transactions. This ground of appeal must be refused.

Ground 5

[9] Several criticisms were made under this ground of the sheriff's directions to the jury in respect of charge (1). Particular emphasis was placed on subparagraph (c) - which asserts that the sheriff had, in effect, directed the jury that the doing of a legal act for an immoral purpose was a sufficient basis for embezzlement. Perusal of the passage referred to discloses that the sheriff did not use the term "immoral" or anything like it. He directed the jury, rightly in our view, that an overall purpose of the appellant of defeating his wife's claims was a mental state apt for the purposes of embezzlement. Mr Shead criticised the sheriff's use of "bad faith" and "corrupt motive" but these, of course, have the imprimatur of the Lord Justice-Clerk in HM Advocate v City of Glasgow Bank Directors. He cited no authority which disapproved of them. Depending on the context they may still be useful expressions. In subparagraph 5(a) criticism is made of directions by the sheriff that the jury could have regard to, and draw inferences from, certain financial transactions - particularly the timing of withdrawals and the return of funds from bank accounts. Despite a suggestion in the Note of Appeal that there was no evidential basis for this, it was not suggested to us that these documents had not been spoken to in evidence. The inferences to be drawn from them were matters legitimately for the jury. Subparagraph 5(b) was not pressed. Subparagraph 5(e) (added by Supplementary Grounds) - there is no subparagraph 5(d) - suggests a form of direction which we find neither helpful nor accurate. Finally, a criticism was made of the sheriff's direction that the crime was complete once the act of appropriation had placed the funds at risk. As explained above under reference to HM Advocate v Lawrence and HM Advocate v Wishart, that direction was sound. None of these criticisms has any merit.

Ground 1(b)

[10] Under this ground the appellant contends (as he did before the sheriff) that there was insufficient evidence on which he could be convicted of charge (2). The contention is that there was no evidence of the true values of the two properties alleged to have been transferred for an inadequate consideration. There is no substance in this contention. There was evidence that the properties were purchased by the appellant for a "keen" price of £161,000 some ten months prior to the relevant transaction, that missives had been entered into for the sale by the appellant to Ms Morag Stewart, his then partner, for a price of £165,900 but that the only consideration which Ms Stewart had in the event given was to assume responsibility for a mortgage of £120,880. That transfer on its face was clearly for an inadequate consideration.

Ground 1(c)

[11] Under this ground the appellant contends (as he did before the sheriff) that there was insufficient evidence on which he could be convicted of charge (3). The issue relates to whether there was sufficient evidence that the appellant, an undischarged bankrupt, was concerned in the management of a company, within the meaning of section 11(1) of the Company Directors Disqualification Act 1986 - in particular in "management negotiations" with another company. At the time in question a company controlled by Ms Stewart and known as Jaguar Recordings UK Limited was seeking to recover a sum in excess of £50,000 (in respect of unreturned equipment) from another company, C & J Clark International Limited. A Mr Barry Mosely was an officer of the latter company. He gave evidence of his dealings with the appellant in relation to this claim. Although he did not specify in much detail what particular things were done by the appellant in that respect, he stated that his interpretation was that "Mr Moore was negotiating a settlement for his company on behalf of himself as director of Jaguar". He had earlier spoken of "quite lengthy negotiations between Mr Moore and myself trying to resolve payment for this equipment", that is, for equipment which had been hired to C & J Clark International and not returned on the termination of the hire. Mr Mosely had not been informed that the assets of Jaguar Recordings Limited (of which the appellant had been the director) had been transferred to Jaguar Recordings UK Limited. While Jaguar Recordings Limited had been trading, contractual issues between it and C & J Clark International Limited were dealt with by the appellant and Mr Mosely respectively. The ground of appeal accepts that Mr Mosely's testimony was one source of evidence that the appellant was acting in a management capacity - his conduct was such as to suggest that he was dealing qua director on behalf of the creditor company, although the true creditor was not disclosed. The only issue is whether there was corroboration of that evidence. Ms Stewart, who was the managing director of Jaguar Recordings UK Limited, testified that the appellant had, with her knowledge, had communication with Mr Mosely and another employee of C & J Clark International Limited in relation to this claim but she disputed that he was "negotiating a settlement" with that company. She characterised the appellant's activities as "debt collecting" only. She accepted that she was content that the appellant, who knew Mr Mosely from their prior dealings, should "nudge it along a bit and see what you can do". It was clear that she did nothing to disabuse Mr Mosely of his belief that the appellant was acting as director for his company. Ultimately, after a matter of months, a settlement, in excess of £50,000 (a not inconsiderable sum for the creditor company) was reached between Jaguar Recordings UK Limited and C & J Clark International Limited.

[12] In our view there was corroboration of Mr Mosely's testimony. The jury would have been entitled to reject Ms Stewart's characterisation of the appellant's activities as "merely debt collecting" and to accept her evidence that he personally took an active hand in progressing a significant settlement with C & J Clark International Limited. Subject to appropriate directions, it was a question for the jury whether the proper inference from the primary facts was that the appellant was concerned in the management of Jaguar Recordings UK Limited (R v Doring [2003] 1 Cr. App. R. 9, per Buxton LJ at page 149). This ground of appeal must be refused.

Ground 7

[13] Under this ground the appellant criticises certain directions given by the presiding sheriff in relation to charge (3).

[14] Subparagraph (a), which is concerned with sufficiency of evidence, has already been dealt with.

[15] Subparagraph (b) is concerned with the treatment by the sheriff of the "divergence in testimony" of Mr Mosely and Ms Stewart. It was maintained that what was important was not Mr Mosely's perception but what the appellant in fact did. Mr Mosely was not asked in detail about what dealings he had with the appellant but it is clear that the contract in question had been entered into with Jaguar Recordings Limited of which the appellant was the sole director and that Mr Mosely had been given no information, by the appellant or anyone else, that the contract had been assigned to Jaguar Recordings UK Limited or that the appellant in his dealings with him was acting otherwise than in a managing role. In the absence of challenge the court was entitled to proceed on the basis that the impression which Mr Mosely formed was reasonably based on the appellant's dealings with him. Ground of appeal 1(c), rightly in our view, proceeds upon the basis that Mr Mosely's evidence was capable of supporting the assertion that the appellant was concerned in the management of a company. The sheriff's charge adequately draws the jury's attention to the different characterisations of the appellant's role given by Mr Mosely and Ms Stewart respectively and leaves it to them to draw such inferences as they thought fit. He makes it clear (page 39) that they were entitled to accept Ms Stewart's account in whole or to accept it in part and to reject it in part.

[16] Subparagraph (c) is concerned with an alleged omission to direct the jury as to what they should do if they disbelieved Ms Stewart - in particular that this did not prove the opposite, namely, that Mr Mosely was telling the truth. While the conventional direction - that disbelief of a witness's testimony does not justify an inference that the opposite is true - would have been appropriate here (and perhaps more generally), this omission was not, in our view, sufficiently material to give rise to or to contribute towards a miscarriage of justice.

[17] Subparagraph 7(d) includes a contention that the sheriff misdirected the jury by telling them that it was open to them to convict of charge (3) if the appellant was "trading on his former position as the director of the old company". It is contended that the appellant was entitled so to trade. But the background, as is clear from Ms Stewart's evidence, is that the debt had been transferred to the new company and the matter was being progressed by it for recovery. The appellant did not disclose to Mr Mosely that the old company had gone into liquidation, that he was no longer a director of it and that he was accordingly no longer acting in a directorial capacity. If the appellant, acting as if director of the old company but in fact acting for the new, behaved as would a director of the creditor company, he was guilty of the offence. There was no error in the sheriff's direction.

[18] Under paragraph 7(e) (added by Supplementary Grounds) a complaint is made that certain directions were apt to suggest that proof of "nudging the settlement along" was sufficient to establish guilt. But the sheriff does not say that. He says that such "nudging could be found to be a matter of high concern to the management of the new company and that is a management matter". It was accordingly left to the jury to infer (or not to infer) that the subject-matter of the appellant's dealings was such as to make it of such concern to the new management as to make it a management matter. In the circumstances that did not constitute a misdirection. It is also complained that at a later stage (page 35) the sheriff usurped the jury's function. However, while at one point he says that in certain circumstances "I think [the appellant] would be guilty of the offence", he immediately reminds the jury that the issue was "entirely up to you".

Ground 4

[19] Under this ground the appellant complains that certain general directions commonly given to juries - (1) that all issues of credibility and reliability are for them, (2) how they should deal with rejected evidence and (3) the respective functions of judge and jury - were not given to this jury. The sheriff at an early stage of his directions pointed out to the jury that it is up to him "to outline to you the legal framework in which you require to reach your verdict". This goes at least some way to answering the third complaint. The sheriff's only explanation for not otherwise including the standard directions is that "it was a fairly lengthy charge ... and I wanted to keep it to a bare minimum". This is hardly satisfactory. Standard directions are there because they are ordinarily important to assist the jury to approach their task in accordance with law. On the other hand, it will depend on the circumstances of the case whether any omission to include any of them amounts to a material misdirection. Not without some hesitation, we are satisfied that these omissions did not give rise to a miscarriage of justice in this case. Much of the primary evidence in the case was uncontroversial, the issues being the inferences to be drawn from that evidence; where it was possibly controversial (as between Mr Mosely and Ms Stewart) the jury were given express directions; the appellant did not give evidence - so that no issues arose between any expressed belief on his part of the innocence of his actings and any contrary inference to be drawn from the Crown evidence. The issues for the jury's determination were focused.

Ground 2

[20] Paragraphs (a)-(d) were not insisted in.

[21] Paragraph (e) complains of an observation made by the sheriff in the presence of the jury and in the context of an objection taken by counsel for the appellant to a question put by the procurator fiscal depute. The question put (in effect as to whether a loan by a company to a director up to a maximum of £5,000 would be in accordance with company law) was a question of law and the objection was rightly sustained by the sheriff. Thereafter counsel complained that the very putting of the question was prejudicial to the accused. In that context the sheriff said "You can't imagine this is the lynch pin in the defence or anything like it". (The ground of appeal suggests that the sheriff said "I can't imagine ..." but this is inconsistent with the transcript.) It was no doubt unwise for the sheriff, on this second day of a thirteen day trial, to make an observation about what might be or might not be important in the appellant's defence. But on no view was it nor could it have been disputed that £5,000 was the maximum which a company could lawfully lend to one of its directors. The remark, while unfortunate, does not begin to be significant in any question of a miscarriage of justice.

[22] Subparagraph (f) complains again of an observation made by the sheriff in the presence of the jury. The context was a further objection taken to a question put to a witness (a solicitor) by the procurator fiscal depute. The sheriff said that a solicitor was "bound to take an independent view of such a matter". He appears to contrast that position with bankers and accountants "who may be in cahoots with the person (inaudible)". Again the expression is unfortunate but in the context of this case, where there was no question of the appellant or anyone else being "in cahoots with" bankers or accountants, it did not amount, nor did it contribute to, a miscarriage of justice.

Ground 3

[23] This ground concerns whether the appellant's counsel was, before addressing the jury, left in doubt as to the sheriff's ruling that the jury would be entitled to consider only withdrawals from one account as against the three referred to in the schedule to the indictment. It is clear from the transcript and from the minutes that there was no basis for entertaining any such doubt. This ground of appeal was not seriously pressed.

Disposal

[24] In the whole circumstances this appeal must be refused.