Kenny v R.

This appeal raises the question of whether a breach of a restraint order made under the Proceeds of Crime Act 2002 (“POCA”) is capable, without more (i.e. involving no illegality beyond the breach of the order itself), of constituting the offence of perverting the course of justice. The Appellant invites the answer “no” and submits that a breach of a restraint order simpliciter can only be punished by way of contempt proceedings. The Crown disagrees, inviting the answer “yes” to the question posed.

On the 13^th February, 2012, in the Crown Court at Birmingham before HHJ Henderson, the Appellant changed his plea to guilty to Conspiracy to Pervert the Course of Public Justice, after a jury had been sworn. On the 23^rd April, 2012, before the same Judge, the Appellant was sentenced to 13 months imprisonment. He was also disqualified under s.2 of the Company Directors Disqualification Act 1986, for a period of 2 years.

The Appellant pleaded not guilty to Entering into an Arrangement to Facilitate the Acquisition, Retention, Use or Control of Criminal Property, which was ordered to remain on the file in the usual terms, the jury having been discharged from delivering a verdict.

There were various co-accused, to whom, as necessary, some brief reference will be made below.

The Appellant appeals to this Court by leave of the single Judge.

There is no or no significant dispute as to the facts. One Scragg ran a highly profitable payroll business based in Wolverhampton which operated as a vehicle for large scale tax fraud. Insofar as material, the operation was run through a company called Moya (strictly, four separate companies but the distinctions between them were immaterial). The assets of both Moya and Scragg were almost entirely the proceeds of tax fraud.

On 7^th February, 2008, the CPS obtained orders under POCA restraining Scragg and two other directors of Moya from disposing of the assets of the company and restraining Scragg from disposing of his own personal assets. Scragg and others were arrested the following day. In April 2011, Scragg and two other directors were convicted of tax fraud.

The restraint order made no allowance for using the restrained funds to pay legal fees. This prohibition could not be lawfully circumvented by borrowing money, as to do so would simply be using Moya’s own funds indirectly to fund expenses as the lender would have to be repaid. It was, however, permissible for a third party to use their own money to meet a legal bill if it was a genuine gift and not a loan dressed up as a gift.

The Appellant, who had a background in financial services, was, until around 2006, a director of Annulment Funding Co. Ltd. (“AFC”), a company based in Birmingham whose business was to finance other possibly insolvent businesses. After stepping down as a director, the Appellant remained on the payroll and maintained day-to-day management of AFC.

Scragg approached the Appellant to see if he could obtain a loan through AFC to pay his legal fees. On 8^th March, 2008, Scragg entered a 12 month loan agreement to borrow £170,000 from AFC. Of that sum, £20,000 (or £25,000, the precise sum is unclear and it matters not) was to be an upfront fee to AFC. The loan was to have been secured against a second charge on Scragg’s cottage but no mortgage was ever registered. Instead, the loan was eventually secured by way of a payment of £145,000 from a company called Russell Blue into the account of a company called American Worldwide Investment Corp. (“AWIC”) of which the Appellant had been a director until November 2004.

On 10^th March, 2008, following a meeting between Scragg and the Appellant, £145,000 was transferred by AFC to its solicitors, England, Strickland, Neale (“ESN”). On 18^th March, £50,000 was forwarded by ESN to the Khan Partnership (“Khan”), the solicitors acting for Moya upon Scragg’s directions. There was an agreed basis of plea and the Crown accepted that, at this time, the Appellant was unaware that Scragg was subject to a restraint order.

On the 28^th May, 2008, £95,000 was transferred by ESN to Pannone LLP (“Pannones”), the firm of solicitors representing Scragg. Prior to this transfer, Scragg had met again with the Appellant and informed him that he was subject to a restraint order (“the restraint order”) and that Pannones would accept the money only if it was a gift and not a loan. Scragg asked the Appellant to tell a Mr. Hayes of Pannones that the money was a gift. The Appellant agreed to do so. In late May 2008, Mr. Hayes visited the AFC offices and was informed by the Appellant that the funding was a gift and, on that basis, Pannones accepted the money when it was transferred to them by ESN.

Subsequently, Mr. Sumner a solicitor with ESN told Mr. Hayes that the money was a loan not a gift and, in response, Mr. Hayes insisted that the money was a gift.

Repayments on the loan to AFC were made indirectly via one of the co-accused (Sheamar), who, over a period of time pre-dating the restraint order, had received £360,000 from Moya on the basis of fraudulent invoices. In January 2009 a company linked to Sheamar transferred £300,000 to AWIC, who, in turn, paid over the £145,000 owed to AFC. Hence, Scragg was using restrained Moya funds paid out month-by-month to Sheamar to fund his own and Moya’s legal expenses while giving the appearance of having received the monies from the Appellant as a gift.

The prosecution case was that the Appellant had wrongfully interfered with the proper course of justice by dishonestly removing or attempting to remove from the Court’s control assets which should have remained restrained and available for confiscation upon the conviction of Scragg.

The defence submitted that a breach of a restraint order made under POCA, involving no illegality beyond the breach of the order itself, should be punished by way of contempt proceedings alone rather than by a prosecution for perverting the course of justice. The defence relied on an unreported ruling made by HHJ Head, dated 11^th October, 2011, in R v Ludlam et al. There was, accordingly, no case to answer.

In a careful ruling, HHJ Henderson underlined the practical consequences if the (now) Appellant’s submissions were well-founded. First, the allegations would be tried by a Judge alone. Secondly, that the sentence on conviction would be limited to two years’ imprisonment (the maximum sentence for contempt of court), however “enormous the sums thereby moved in breach of orders might be” (ruling, at p.2).

The Judge ruled (“the ruling”) that Ludlam was distinguishable on the basis that it was specifically limited to the regime for High Court restraint orders under s.77 Criminal Justice Act 1988 (“the CJA 1988”), rather than POCA restraint orders. Accordingly, HHJ Head’s observations in Ludlam, to the effect that he was not satisfied that the same regime should not apply under POCA, were obiter.

HHJ Henderson next turned to the Criminal Procedure Rules 2011 (“the CPR”), rule 59 (6), which provided as follows:

“ Restraint and ancillary orders

…..

(6)

An order must include a statement that disobedience of the order, either by a person to whom the order is addressed, or by another person, may be contempt of court and the order must include details of the possible consequences of being held in contempt of court. ”

The Judge held that this rule was merely permissive; it did not state that enforcement in the case of breach must be by way of proceedings for contempt. As the Judge put it (ruling at p.5), there was “…no exclusive jurisdiction in enforcing a …[POCA]…restraint order by limiting it to contempt proceedings…”.

Having regard to a number of authorities and, in particular, the decision of the Jersey Court of Appeal in Justin Michel v The A-G of Jersey [2011] JCA 145 (to which we return later), HHJ Henderson came to a different conclusion from that reached by HHJ Head in Ludlam. He held instead that it was proper, at least in the present case, to charge a simple breach of a POCA restraint order as acts tending to pervert the course of justice.

As already foreshadowed, following the ruling, the Appellant changed his plea to guilty.

For the Appellant, Mr. Bell QC essentially relied on the ruling and reasoning of HHJ Head in Ludlam. To justify prosecution for perverting the course of justice, there needed to be some free-standing criminality apart from the breach of the restraint order simpliciter; Michel was such a case and accordingly distinguishable. The Judge here had been in error and the appeal should be allowed.

For the Crown, Mr. Farrer QC submitted that, by a deliberate act, the Appellant had diminished the assets available for confiscation; it was difficult to think of a more obvious way of perverting the course of justice. Prosecution in the present case for conspiracy to pervert the course of justice was permissible and appropriate, having regard to the pattern of misconduct as a whole. But even if every breach of a restraint order amounted to a perversion of the course of justice, prosecutors could and should be trusted not to prosecute when inappropriate. This Court was of course not bound by the ruling in Ludlam; in any event, this Court should prefer the reasoning of the Jersey Court of Appeal in Michel. HHJ Henderson’s ruling was correct and should be upheld; the appeal should be dismissed.

(1) Introduction: As already established, there was here no or no real dispute as to the facts and no doubt that the Appellant’s actions constituted contempt of court – had such proceedings been brought. The only question is whether HHJ Henderson was correct to rule that the Appellant’s actions were capable of constituting the offence of perverting the course of justice.

On the facts, that question falls to be considered against the background of the Appellant – apparently with others – taking a carefully planned series of steps to reduce the funds available to satisfy a confiscation order (if made) against Scragg. We shall return to this feature of the case in due course but this was in no sense a spur of the moment spontaneous breach of the restraint order.

Before turning to the law in a little more detail, it is as well to mention one matter, if only to dispose of it. That a breach of a restraint order involves a civil contempt (see, Director of the Serious Fraud Office v B [2012] EWCA Crim 67; [2012] 1 WLR 3170) is neither here nor there. First, it is settled law and obvious that the offence of perverting the course of justice is capable of being committed in otherwise wholly civil proceedings: see, the striking example of R v Vreones [1891] 1 QB 360 which concerned the preparation of false evidence for use in an arbitration. Secondly and in any event, the object of the restraint order was to preserve funds for satisfaction of the confiscation order – and confiscation proceeding are themselves broadly criminal in nature: see, R v Clipston (Vincent) [2011] EWCA Crim 446; [2011] 2 Crim App R(S) 101.

(2) Authority: Perverting the course of justice is a common law offence. It is committed where a person:

A variety of conduct is capable of constituting the offence of perverting the course of justice. Familiar examples include falsifying evidence, fabricating evidence, tampering with evidence, destroying evidence, together with the list given in Archbold, at 28-2 et seq. The word “include” is deliberately chosen - there is no:

“ …closed list of acts which may give rise to the offence and it would be wrong to confine it to the specific instances or categories which have so far appeared in the reported cases. ”

R v Clark (Mark) [2003] EWCA Crim 991; [2003] 2 Cr App R 23, at [10], per Tuckey LJ. Moreover, the fact of overlap with other offences, or – at the least and importantly for our purposes – contempt of court, does not of itself mean that the offence of perverting the course of justice will not have been committed:

“ ….the ambit of the offence is not inhibited by express statutory provision. The same acts may tend to pervert the course of justice and also be contrary to specific statutory provisions or amount to contempt of court….. ”

Clark, at [15]. Any qualification to this passage required by R v Rimmington [2005] UKHL 63; [2006] 1 AC 459 is neither here nor there for present purposes, as are instances such as perjury (Archbold, at 28-4) where restrictions on the prosecution of this offence are appropriately warranted.

However, caution is required in extending the ambit of this offence: R v Selvage [1982] 1 QB 372, at p. 381. In accepting “this counsel of caution” from Selvage, Tuckey LJ said this in Clark, at [13]:

“ The common law has always developed incrementally and if the ambit of this common law offence is to be enlarged it must be done step by step on a case by case basis and not with one large leap. The need for caution is underlined by Article 7 of the European Convention on Human Rights which requires any criminal offence to be clearly defined by law…. ”

(3) Ludlam: We acknowledge with respect HHJ Head’s careful and detailed ruling in Ludlam. It is, however, plainly distinguishable and, in any event, we regret we disagree insofar as it suggests a limitation on the offence of perverting the course of justice - in the context of breaches of restraint orders - to acts which constitute independent criminal offences. We are of course not bound by HHJ Head’s ruling. Our reasons follow.

First, much of HHJ Head’s reasoning is focused on the CJA 1988 regime and is thus, on any view, distinguishable. Thus, plainly, under POCA, where restraint orders are granted and enforced in the Crown Court, there can be no need to guard against the circumventing of the High Court’s enforcement jurisdiction contained in the CJA 1988: cf. Ludlam, at [11] – [15]. For the avoidance of doubt, there is no need for present purposes to express any view on HHJ Head’s conclusions as to the jurisdictional arguments which arise under the CJA 1988 and we do not do so.

Secondly. with respect to HHJ Head’s conclusion to the contrary (at [16]), we are unable to accept that the express provisions in a restraint order (under whatever regime) warning of the sanction of contempt of court for breach of the order precludes the pursuit of other criminal proceedings. It is fanciful to suppose that a person contemplating disobedience to a restraint order acts on the basis that he will only be punished for contempt of court, whereas he would have desisted had he but realised that he might by so doing commit some further offence; there is no relevant expectation here. Equally, we would respectfully disagree with HHJ Head’s obiter observations as to the POCA regime (at [17]), based on CPR, rule 59(6) (set out above). As to rule 59(6), we agree with HHJ Henderson that its provisions are permissive rather than exclusive or exhaustive. All of this, in our judgment, points to contempt of court being the obvious sanction for breach of a restraint order; none of this, however, makes good that it is the only sanction for a breach of a restraint order, even one not involving other independent criminal conduct.

Thirdly, we respectfully disagree with HHJ Head’s conclusion, at [27] of Ludlam that “merely acting in ways which would otherwise be lawful but which constitute a breach of an RO cannot amount to the necessary ingredients of Perverting”.

(4) Michel: If we are right so far, then a detailed review of Michel is unnecessary. For our part, we also think it idle to attempt an analysis of whether some other offence was or may have been committed in that case. Suffice to say that the reasoning of the Jersey Court of Appeal does not hinge on any such considerations, at least on our reading of the President’s detailed judgment: see, especially, at [24] – [31] and [33] – [44]. As is made clear at [33], the applicant’s submission (of no case to answer) did not challenge the existence and sufficiency of the evidence as to the acts in question; instead, the argument was that the acts “of which the evidence was undisputed” were incapable of establishing the requisite tendency. We can see no basis for distinguishing Michel on the ground suggested by Mr. Bell QC – regardless of whether or not there was independent criminality in that case. It is the reasoning in Michel, which is in point, as observed by HHJ Henderson (at p.5 of the ruling).

(5) Pulling the threads together: For present purposes, the state of the law concerning the offence of perverting the course of justice may be summarised as follows:

We have reached these conclusions as to the scope of the offence in the light of principle and existing authority; reliance on the good sense of prosecutors has played no part in it. However, having formed the views already outlined, we add this. In cases of breach of restraint orders, nothing we have said should encourage prosecutors to charge perverting the course of justice where it is unnecessary to do so; ordinarily the sanction of contempt of court will suffice. We would respectfully echo the observations in Archbold, at 28-2, themselves founded on R v Sookoo [2002] EWCA Crim 800, that in such cases the offence of perverting the course of justice should only be charged where there are serious aggravating features. Sensibly applied, such an approach permits the offence of perverting the course of justice to be charged where it is appropriate to reflect the gravity or complexity of the wrongdoing in question and where it may be thought (whatever the ultimate outcome) that the maximum sentence for contempt may prove insufficient. We are not persuaded that our conclusion involves any extension of the offence, save that, Michel perhaps aside, neither party has found any reported case precisely in point. If, however, our conclusion does involve an extension of the offence, we are amply satisfied that it is no more than incremental and, on any view, not open-ended.

For completeness, we record that we were referred to R v Abbas Hussain [2012] EWCA Crim 1714, a decision of this Court on a renewed application for leave to appeal. Although the conclusion supports the views already expressed, the matter was (understandably) dealt with too briefly to take the present debate further.

(6) Decision: In the light of our conclusions as to the state of the law, our decision on the appeal will be apparent and can be briefly stated.

The central plank of the Appellant’s argument disappears with our inability to accept the correctness and/or applicability of HHJ Head’s ruling in Ludlam. We can see no basis for interfering with HHJ Henderson’s ruling that the prosecution were entitled, as a matter of law, to charge perverting the course of justice in this case.

Nor so far as factual or discretionary considerations are at all relevant, do we think that it was inappropriate for perverting the course of justice to be charged here. Although this judgment has been focused on the somewhat narrow point under appeal, the context should not be overlooked; as already observed, the Appellant’s actions formed part of a carefully orchestrated and planned series of measures, designed to frustrate the intended effect of the restraint order – viz., to preserve Scragg’s assets to satisfy a confiscation order (if made). This was determined and sophisticated criminal conduct. There is a very strong public policy interest in ensuring that restraint orders are obeyed and confiscation orders enforced. Condign punishment for contempt would undoubtedly have been available; the Appellant, however, can have no legitimate complaint that the Crown did not leave matters there and instead pursued the charge of perverting the course of justice – unless prevented by law from doing so, which we have concluded it is not.

We return to the question posed in the opening paragraph of this judgment: namely, whether a breach of a restraint order made under POCA is capable, without more (i.e., involving no illegality beyond the breach of the order itself), of constituting the offence of perverting the course of justice. For the reasons given, we answer this question “yes” and, accordingly, dismiss the appeal.

By way of postscript, we underline that the question of whether any particular breach of a restraint order does give rise to the offence of perverting the course of justice depends on the facts and circumstances of the individual case. In the present case, it will be recollected that the Appellant changed his plea to guilty following the Judge’s ruling as to law.