High hurdle in challenging no case to answer rulings (R v Bush and Scouler)

Jocelyn Ledward considers the learning points from the case of R v Bush and Scouler, in which the Serious Fraud Office (SFO) sought, unsuccessfully, to challenge the ruling of no case to answer in the high-profile fraud trial involving the ex-Tesco Stores Limited directors.

This article was first published on Lexis®PSL Corporate Crime on 25 February 2019. Click for a free trial of Lexis®PSL.

R v Bush and Scouler [2019] EWCA (Crim) 29, [2019] All ER (D) 11 (Feb)
What are the practical implications of this case?

The case of R v Bush and Scouler does not herald any new developments in relation to the law on prosecutorial appeals. The court reiterated that it can only intervene if the judge had erred in law or principle or had reached an unreasonable conclusion. The court emphasised the unique position of the trial judge, who is best placed to make an assessment of the evidence.

No new propositions of law were ventilated during the appeal and as such, viewed in isolation, the case is very much a decision on its own facts and a judgment as to whether a jury could be satisfied that the prosecution had proved what they had set out to prove.

There are lessons to be learned for prosecutors about mounting a complex charge of fraud without expert evidence (in this case, in accountancy), and relying solely on the respondents’ former work colleagues as witnesses of truth (as they were bound to do—the prosecution cannot impugn its own witnesses). In this case, the prosecution was hampered in their ability to prove both the nature of the underlying fraud and that the respondents had the requisite state of knowledge from which dishonesty could be inferred.

The more interesting question of law and practice is how the outcome of this case sits with the now-published deferred prosecution agreement, entered into by the SFO and Tesco Stores Ltd and approved by Leveson PQBD in SFO v Tesco Stores Ltd [2017] Lexis Citation 475, on the basis that one of the respondents and another co-defendant were directing minds of Tesco Stores Ltd, and were involved in false accounting, thus giving rise to the criminal liability of the company.

What was the background?

On 22 September 2014, Tesco Plc made a regulatory news service announcement, stating it had identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs. In the statement, the board expressed the belief that earlier guidance overstated the Group profits for the six months to 23 August 2014 by an estimated £250m. There followed an internal investigation, as well as a brief investigation by the Financial Conduct Authority (FCA), shortly taken over by the SFO into the ‘Tesco accounting scandal’. The alleged fraud involved inflating falsely the trading profits of Tesco Stores Ltd, the UK supermarket retail subsidiary of Tesco Plc, for any given accounting period, by the improper ‘pulling forward’ of commercial income (specifically ‘back margin’, raised by making a variety of complex deals with suppliers), from later accounting periods.

At the relevant time (February to August 2014), Bush was the managing director of Tesco Stores Ltd, Carl Rogberg was the finance director of Tesco Stores Ltd and John Scouler was the UK food commercial director, the head of the department in which the alleged fraud had taken place. All three were suspended, dismissed for gross misconduct and ultimately charged by the SFO with fraud by abuse of position, contrary to section 4 of the Fraud Act 2006 and false accounting, contrary to section 17 of the Theft Act 1968.

The prosecution case was that the three defendants knew that income was being recognised improperly and unlawfully, failed to correct the figures being reported to the market and continued to put pressure on employees below them to behave in the same way. They were also alleged to have concealed the fact of the fraud from their superiors and others within the company when it came to light.

The principal prosecution witness was Amit Soni, the finance director for commercial food, who reported directly to Carl Rogberg and worked closely on a day-to-day basis with John Scouler. He and his department were the ‘gatekeepers’ responsible for the application of the Tesco Group accounting policy and international accounting standards to ensure the proper recognition of income raised by the buyers and managers in Scouler’s UK food commercial department. Other prosecution witnesses included managers or directors within that department. They all gave evidence that they were not aware that income had been unlawfully recognised or that false documentation had been used, until late in the day when the underlying fraud came to light or at all.

All three defendants stood trial in the autumn of 2017. The jury in the first trial were discharged in early 2018 when Carl Rogberg suffered a heart attack. A re-trial took place before Sir John Royce, starting in October 2018. By that time, Carl Rogberg was not well enough to stand trial. Sir John Royce heard and granted a submission of no case to answer on behalf of the two remaining defendants. The SFO sought to appeal that decision, but the Court of Appeal refused leave to appeal after hearing full argument. Having considered the reasons set out in the draft judgment, the SFO decided to offer no evidence against Carl Rogberg.

What did the court decide?

Although there were five separate grounds of appeal, they were summarised by the court as being based on two principal factors. Firstly, the judge’s reliance on the prosecution’s alleged acceptance that they must prove that the respondents knew that income was being improperly and unlawfully recognised. Secondly, the judge’s analysis of the sufficiency of the evidence to meet the test set out in the second limb of R v Galbraith (1981) 73 Cr App R 124, [1981] 2 All ER 1060.

As to the first, the prosecution sought to argue that no such concession had ever been made and that the judge had been wrong to require them to prove that the respondents knew that any of the relevant accounting was done ‘unlawfully’ in the sense that it amounted to a criminal offence—all that ought to have been required was to prove the necessary intention and dishonesty.

As to the second, the prosecution sought to argue that the trial judge had not approached his task properly, failed to consider important elements of the case and evidence and had usurped the function of the jury.

The court found that the factual issue at the heart of the case—the ‘pulling forward’ of income—was far from straightforward. In the absence of independent accounting expertise, the prosecution was unable to differentiate between different kinds of ‘improperly’ recognised income (some, but not all of which, might amount to unlawful false accounting, of which their witnesses said they were not aware).

The court noted the history of the proceedings and the trial judge’s insistence on the prosecution identifying how they put their case as to the issue of the knowledge they were required to prove, given the (honest) state of mind of the prosecution witnesses. The court found that, on the facts and evidence in this case, the prosecution had no choice but to seek to prove their case against the respondents on the basis of knowledge of unlawfulness or false accounting and not just some other kind of wrongly or ‘improperly’ recognised income. That is what the trial judge had required them to do and he had been right to do so.

As to the second group of criticisms, the court went through them in detail and could find no material fault with the trial judge’s analysis of the evidence or reasoning, nor with his ultimate conclusion that the prosecution had failed to establish the necessary knowledge of the respondents.

Jocelyn Ledward was junior Defence Counsel for John Scouler, acquitted in the case. Her past highlights include representing a director defendant in the first prosecution by the Office of Fair Trading under the Cartel Offence provisions of the Enterprise Act 2002, following the landmark ‘Marine Hose’ plea agreement with the US Department of Justice. Ledward was junior prosecution counsel in the successful prosecution of Sterecycle for corporate manslaughter. She was also junior defence counsel for the acquitted former CEO of Carbon Capital.

Interviewed by Alex Heshmaty of Lexis Nexis.

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