Bowles v R

In this application the applicant applies for permission to adduce fresh evidence in the form of a forensic accountancy report. He had previously applied for permission to do so before this Court, differently constituted, on 9 February 2010 (a Court presided over by Lord Judge, Chief Justice of England and Wales, with Moses LJ and Penry-Davy J). That Court dismissed one ground of appeal but gave the applicant further opportunity to explain why it was that a forensic accountancy report had not previously been obtained.

The applicant was convicted of cheating the Revenue on 1 June 2009 at Reading Crown Court. He was acquitted on two other counts which also alleged that he had cheated the Revenue. The essence of the case against him was that he had dishonestly failed to submit a VAT return for the period ending March 2004, due on 30 April 2004. The prosecution contended that the applicant as sole director of Sea Island Holdings Limited had dishonestly failed to disclose his liability, in that return, for output VAT in the sum of £1.37m. The applicant’s defence, both at interview and at trial, was that he believed that he was entitled to credit for input tax incurred in respect of reclamation of development land by Ocean Developments Limited, the lead company in a VAT group which had ceased to trade at the end of 2003, and whose VAT registration had been cancelled with effect from 1 January 2004. There is no dispute but that Ocean Developments Limited, which the applicant had founded, and of which he was sole director and shareholder, had purchased quantities of derelict land in the Cardiff area. It reclaimed the land and sold it to various development companies. The applicant also ran Air Freight Express Limited and AFX Handling Limited, an air freight business.

Since much of the business of the aircraft industry was zero-rated for VAT purposes the applicant undoubtedly had the benefit of credits for input tax due to that business. But before this Court it was never contended that any of the input tax attributable to those businesses would have extinguished the output liability, even if it had been open to credit such zero-rated transactions to the Sea Island Holdings Group. It is, therefore, unnecessary to detail the nature of the air freight business or, further, to consider the extent to which it would have added to credits to which one or other of the groups might have been entitled. We need focus only on the development of the Cardiff land and expense incurred in its reclamation.

On 9 January 2004 Sea Island Holdings sold a parcel of land to Vocalcastle Limited for £280,000 plus £49,000 VAT. On 20 January 2004 Sea Island Holdings sold another parcel of land, to George Wimpey, for £7.5m plus £1.312,500 VAT. On 21 January 2004 a further parcel of land was sold to Cardiff City Council for £73,500 plus £12,906.25 VAT. In February 2004 HMCE pressed the applicant for outstanding reclaims in respect of the Ocean Developments Limited Group and the applicant responded on 4 March 2004 saying that all the records were now available.

Jane Wyborne, appointed as Financial controller of Sea Island Holdings Ltd in May 2003, prepared a return for the VAT quarter ending 31 March 2004, the subject matter of count 3 in respect of which the applicant was convicted. On 30 June 2004 a return for the next quarter was prepared, claiming £5,897 repayment, but it was never submitted. An official of HMCE, Mr Aulak, realising that no return had been submitted for the period to March 2004, visited Sea Island Holdings’ premises on 28 July 2004, but was told by Jane Wyborne that she had only been in post for about a month and VAT returns had not been prepared. He was given provisional figures for the quarters ending June and September 2004, on 12 October 2004, and asked, in writing, on the same day, for company accounts and VAT returns for three outstanding periods including that which ended March 2004. Jane Wyborne left the company on 4 November 2004 and wrote to the applicant saying that she had left the outstanding VAT returns, due immediately, with another employee, Sarah Harrison. She had also drafted a letter to HMCE. She told the applicant that Sea Island Holdings owed in excess of £1.2m and had prepared a VAT status summary accordingly.

Aulak received no further information at that stage, despite chasing Sea Island Holdings with a further copy of the letter dated 12 October 2004 and a further letter dated 22 December 2004. It is worth observing, at this stage, that HMCE was not told of the substantial sale to George Wimpey at the beginning of the year or of the liability thereby arising of over £1m VAT. It was a check of Wimpey’s input claim in June 2005 that revealed that liability. HMCE told the applicant that the VAT output should have been declared. In August 2005, following HMCE’s assessment, the applicant wrote contending that some substantial amounts of input tax had not been claimed since 2001. From that date onwards he never provided details.

On 23 January 2006 the applicant told Aulak that he had secured a loan for £1.7m to pay back amounts owing and asserted that he had started litigation against liquidators of Ocean Developments Limited to compel the production of records. He was arrested on 20 July 2006 and in interview asserted that, prior to the interview, he had believed he could claim input tax in respect of the group of which Ocean Developments Limited was the lead company. In his defence statement he reiterated that his belief was that the “aggregate VAT position of the group including Ocean’s VAT should be taken into account when considering output tax liability”, and he believed that “there would be no net liability for VAT overall”. Thus his defence throughout has been that he had not acted dishonestly because he believed that, by virtue of input tax previously incurred by the Ocean Developments Limited VAT group, no output tax was owed by Sea Island Holdings Ltd.

This application has focussed on the question as to whether forensic accountancy reports prepared by Mr Woolford on behalf of Lawford Company, Chartered Accountants, could have been obtained for use at trial and, if not, whether their content undermines the safety of the jury’s verdict.

We can deal with the first issue shortly. In response to the directions given by the Lord Chief Justice, we have had the opportunity to read transcripts of a number of applications made to different judges in which those previously instructed by the applicant had sought for further time to obtain the evidence of forensic accountants and obtain legal aid for that purpose. We note, in particular during the hearing before Her Honour Judge Zoe Smith, that different judges considering the issue were sceptical as to the need for a full report: what was required was evidence that input tax had been incurred in respect of reclamation work and that input tax had not been claimed to offset any output tax liability. Since the question of whether the evidence was more readily and cogently to be obtained from contractors who had actually carried out the work and charged VAT is relevant to the second issue, we need not labour it.

Fundamental to the contention that it was no fault of the applicant that the evidence which he wished to call had not been called, is the issue as to how any such evidence was to be paid for. It seems plain that the legal aid authorities were unwilling to commit the sort of expense which the accountants said they needed to prepare and submit a full report. The applicant says he would have been willing to pay for it out of his own funds but was prevented by reason of a restraint order under the Criminal Justice Act 1988. The evidence of Mr Simon Rose, a partner in Morgan Rose Solicitors, reveals a serious misapprehension on the part of solicitors previously instructed by Mr Bowles. His previous solicitors believed that the applicant’s funds had been restrained under the Proceeds of Crime Act 2002 and that therefore, by virtue of s.41, there was no possibility of his having access to his own funds to pay for a forensic accountancy report. In fact, the applicant had been charged with offences which pre-dated the commencement of the Proceeds of Crime Act 2002 and the restraint order was changed to reflect that fact. Had that been realised earlier, the applicant would have been allowed to make an application to use his own funds to obtain a forensic accountancy report. Indeed, when Mr Rose reviewed the restraint orders, he could find no prohibition preventing Mr Bowles from using his own assets for that purpose.

Whilst we fully understand the reluctance of judges hearing applications prior to the date of trial and indeed of the trial judge in adjourning the matter further for a full report to be obtained, it does appear that the applicant was not advised he could use his own funds. We accept that the applicant was anxious to obtain such a report in order to provide substance to his contention that the explanation for his failure to submit a return was his belief that the input tax exceeded any output tax liability. In those circumstances, we think there has been a sufficient explanation of the failure to adduce the forensic accountancy reports, which we now have, at trial, and in those circumstances we shall focus on the substance of those reports and the evidence which they reveal.

In his first forensic accounting report, dated 4 December 2009, Mr Woolford came to the conclusion that repayment in respect of input tax was owed to Ocean Developments Limited and Sea Island Holdings in the sum of £4,971. He reached that conclusion on the basis of a letter from a Mr Terry Gordon, then an associate of Ove Arup, contained in a letter dated 17 July 2009, in which he estimated a figure of £350,000 per acre in respect of what he described as a complex type of site remediation. Thus remediation costs for 24.94 acres at £350,000 per acre gave rise to input tax of £1,527,575, less a figure recorded in Sage between 1 October 1999 and 31 December 2002 of £87,917.

The response of the chartered accountant, Mr Rakesh Aggarwal, on behalf of HMRC, raised questions as to the dates when remediation work had taken place. Mr Aggarwal pointed out that Mr Woolford’s report of 4 December 2009 did not take into account the fact that demolition works started before 10 March 1999 and thus input VAT may have been reclaimed on remediation costs incurred before 30 September 1999.

In his response dated 4 February 2010 Mr Woolford records Ove Arup’s confirmation that substantial remediation work was undertaken between October 2000 and October 2001 and a certificate was issued on 2 July 2002. Furthermore, witness statements from those present during remediation work include repeated references to a large number of machines on site between 2000 and 2003.

We are prepared to accept that remediation work did continue during the period identified by Mr Woolford. But there is a far more significant difficulty with the substance of Mr Woolford’s report. The report, as we have pointed out, is based upon a letter from Mr Gordon of Ove Arup dated 17 July 2009. He emphasises that Ove Arup has no knowledge of the contract costs but estimates a figure of at least £350,000 per acre. Mr Gordon could not give evidence and has left employment due to ill health. Mr Woolford, however, was unaware and, apparently, remained unaware up to the hearing of the application of a letter from Mr Gordon dated 22 May 2002 estimating reclamation costs of between £100,000 - £150,000 per acre. The mystery is compounded by a further letter from Mr Gordon dated 9 September 2003 which suggests that remediation to part of the site was successfully carried out “in house” by the applicant which afforded potential cost savings and estimated the cost of the remediation of the Dumballs Road site, Cardiff, at £100,000, that is, approximately £20,000 per acre. On the basis of those figures, on which Mr Woolford had no opportunity to comment, there would have remained a liability for output VAT to HMRC of either £1.17m, £937,929, or £1.5m.

Mr Woolford counters that suggestion by reference to witness statements from sub-contractors. Those sub-contractors confirm expenditure of £945,941. That expenditure is not to be found in any bank payments recorded, nor in any expenditure included in Sage.

On the basis of that evidence Mr Clegg QC suggests that whether it is possible to prove that the total of unclaimed VAT extinguishes the liability to output tax is beside the point. Once evidence has emerged of unrecorded expenditure and unclaimed input tax of more than insignificant sums it is possible to demonstrate an evidential foundation for the applicant’s belief. Had the jury been aware that there was unrecorded and unclaimed expenditure in respect of which input tax could have been but was not claimed then a jury might have taken the view that the applicant had not behaved dishonestly. The jury had, after all, acquitted the applicant on the other two counts.

There seem to us insuperable difficulties in relying upon what has now emerged in Mr Woolford’s report.

We leave aside the legal difficulty of which Mr Bowles asserts he was ignorant. There could have been no legal basis for claiming input tax incurred by the Ocean Developments Limited VAT Group to offset the output tax liability of a different VAT group, namely, the Sea Island Holdings Group. Let it be assumed, however charitable the assumption, that Mr Bowles believed that Sea Island Holdings could claim repayment in respect of the by now unregistered Ocean Developments Limited Group’s input tax.

There are, however, a number of substantial questions to which Mr Woolford’s report give rise. Foremost amongst those arises from the cost of work which would have had to be incurred in order to give rise to the amount of £1.5m input VAT for which the applicant contends. If the cost of remediation gave rise to figures of that order then the net remediation costs would be in the region of £8.9m. That is a VAT inclusive figure of £10.4m. HMCE have obtained details of all known bank accounts through which such sums might have been paid. Mr Woolford reports that substantially all sub-contractor payments were made from Cardiff bank accounts. Mr Aggarwal discovered a total of only £117,832 which could possibly relate to payments for remediation costs not recorded in the Sage records. Thus there has never been and remains no evidence whatever to demonstrate that those sums were paid on behalf of Ocean Developments Limited or any associated companies. There is not now and there never has been evidence of any payments which can be shown to be payments for remediation work such as give rise to an entitlement to input VAT repayment. It is startling that even at the stage of the adjourned application no such evidence or material or even a hint of such material in the form of an unknown bank account or bank accounts has been forthcoming.

Further problems remain unexplained. Whilst it is true that the applicant seemed to be intent on obtaining a forensic accounting report, there has never been any explanation as to why he did not approach any sub-contractor to give evidence at his trial to make good his claim that he had incurred input VAT which had not appeared in a Sage account and which had not been claimed from HMCE. When it became apparent that he was going to be in difficulty in obtaining such a report in time for the trial it makes it even more mysterious that he did not obtain live evidence from sub-contractors. It is equally strange that he did not seek to obtain from them copies of invoices which might have demonstrated the VAT his company had been charged. This raises a further question. There was ample evidence that, in the past, correct claims for input tax, backed by appropriate invoices, had been made. The applicant was not unaware of the requirement to support any claim for VAT and had demonstrated his knowledge of the requirements of the legislation. The VAT return history of the Ocean Developments Group during 1999 shows a significant number of input tax claims. For the 9 months to September 1999 Ocean Developments Limited claimed £204,868. The evidence of Jane Wyborne, the accountant employed as financial controller for the Sea Island Group, demonstrates the involvement of the applicant in the preparation of the VAT returns. She told the jury that the applicant had said to her that she was not to communicate with the PAYE or VAT authorities without him. She had discussed with him VAT returns. When she advised him that returns had to be submitted whether details of input payments were available or not, he had said that he believed that the returns did not need to be submitted and he refused to sign them.

Jane Wyborne told the jury that the applicant devised a strategy to deal with “easy VAT returns” which the applicant would sign off. The applicant had recognised that problems lay with the two returns on which large sums of money were owed. She had copied a letter she had written to the applicant dated 4 November 2004 because she was concerned. She had told him that he needed to deal with and sign the returns; she had completed the original VAT return for the period ending March 2004 so that he could complete it in her absence. She had told the applicant that the returns were correct and that the figures would not alter. She had told him in that letter that Sea Island Holdings owed £1,227,646.60. She attached a letter in draft to Mr Aulak of HMCE stating that all purchases in the return for the period 03.04 related to physical work done on the land. She told the jury that every decision had to go through the applicant. She told the jury that there was no VAT repayable to the company:-

“£1m was payable. £1m payable to Customs and Excise was about right. The scale was to reduce the figure by about £100,000 maximum. We had a white board in the boardroom to understand the money that was coming in and going out and the figure was always about £1.2-£1.3m and Mr Bowles always spoke of that as the VAT figure.”

The applicant’s own subsequent behaviour confirms his acknowledgement of the debt the company owed in respect of VAT.

Despite that knowledge, the evidence shows that the applicant suppressed disclosure of the sale of the land to Wimpey which gave rise to the liability of £1.3m VAT. He knew, because Jane Wyborne had told him, that the best she could do was to establish £100,000 worth of VAT inputs. She had, according to her evidence, given the applicant the opportunity to find any further invoices and she told the jury that she was surprised he did not do so. In those circumstances, there is no sensible explanation as to why, if he genuinely believed that Sea Island could claim more VAT input, he did not approach sub-contractors for invoices, either then, thereafter or at trial.

On the contrary, he suppressed the sale and when an estimated assessment was raised, agreed to pay the figure which at that time HMCE believed was owed. That conduct was powerful evidence of dishonesty. Nothing that we have seen in the accountancy reports now obtained can stand to undermine the inferences which can reasonably be drawn from his behaviour and which the jury clearly drew.

In those circumstances, we take the view that the evidence now obtained does not and could not undermine the safety of the jury’s verdict and this application is dismissed.