Quillan & Ors, R. v

On 11 December 2014 we heard argument on this appeal by the prosecution against a ruling handed down on 5 December 2014 when His Honour Judge Simon Drew QC, sitting at the Birmingham Crown Court, upheld submissions of no case made by all nine defendants indicted in this case on all nine counts contained in the indictment. We announced our decision that the appeal would be dismissed and that reasons would be given in writing. These are those reasons.

The appeal is brought by the prosecution, by leave of the trial judge, under s.58 of the Criminal Justice Act 2003 (CJA 2003). It relates only to the six defendants Gary Quillan, Christopher Hoole, Peter Garrett, Gregory Garrett, Andrew Edmondson, and Neal Thompson; they are the respondents to this application, but for convenience we shall refer to them as the defendants. The prosecution does not appeal against fact specific decisions that there was no case to answer in respect of three other defendants who were tried with the six with whom we are concerned. If the appeal had succeeded in respect of any defendant and any count, it was intended that the trial would continue before the same jury.

The rulings are dealt with in more detail at paragraphs 44 and following below, but involved one pure point of law in relation to counts 2 and 8, and a rather more mixed question of fact and law on counts 1 and 7. The trial started on 1 September but did not involve the jury until the end of September. The jury therefore spent two months hearing evidence on which it was not ultimately required to make a decision.

This judgment contains:

The procedure under s.58 of the CJA 2003 requires this court, in circumstances of this kind, to reach decisions on issues in complex cases very quickly. Inevitably, the appeal court knows far less about the facts of the case than the trial judge who has listened to evidence over many weeks and who has had an opportunity throughout that time to reflect on the indictment and the sufficiency of the evidence which is said to support it.

The regime for preparatory hearings and determining issues before a trial starts

The regime for serious fraud cases allows for preparatory hearings under s.7 of the Criminal Justice Act 1987. There is a similar regime for other long complex or serious cases under Part III (ss.28-38) of the Criminal Procedure and Investigations Act 1996 (the 1996 Act). Each of these regimes allows the trial judge to make a ruling as to any question of law relating to the case (among other things), and provides for a right of appeal against such rulings with leave to this court.

One of the purposes of making an order for a preparatory hearing is to assist the judge’s management of the trial. Deciding issues such as those which arise on this appeal in advance of the trial, using this procedure, is often better than the course which has been adopted in this case. It allows the trial to proceed uninterrupted, if that is the result of the determination of the legal issue. If there is an appeal, it allows this court to determine issues without the pressure of time created by the need to ensure that the jury which has spent weeks dealing with the case is not further inconvenienced. Even more importantly, if the decision is that the judge was right to stop the case, then no trial is required at all and enormous public expenditure is saved.

Criminal proceedings are burdensome for all involved, particularly witnesses, jurors and other members of the public who become embroiled in them. In addition such prosecutions are a very considerable burden on public finances; a misconceived prosecution is therefore a very serious matter. If counts in the indictment are misconceived in law it is essential that this is determined at the earliest stage. It is sometimes the case that submissions of the kind made by the defendants in this case are made as late as possible in the hope that by the time the prosecution appreciates its difficulties it will be too late to amend the indictment or to take other steps to remedy them.

This court has given guidance in a number of cases particularly in R v I [2010] 1 WLR 1125, [2010] 1 Cr App R 10 as to the circumstances in which a preparatory hearing under Part III of the 1996 Act should be conducted. In giving the judgment of the court in R v I , the then Vice-President, Hughes LJ, said at paragraph 21:

“Virtually the only reason for directing such a hearing nowadays is if the judge is going to have to give a ruling which ought to be the subject of an interlocutory appeal. Such rulings are few and far between and do not extend to most rulings of law.”

Whilst that is almost invariably the position, there may be special circumstances where a trial will be very long and very costly and where a ruling on a point of law in relation to the legal basis on which a count in the indictment is founded may determine whether or not a trial is required at all. In such a case such a point of law should be determined well before any trial starts. That is not the same thing as saying that it must be resolved in a preparatory hearing. There is a power in any case under s.40 of the 1996 Act to hold a pre-trial hearing and to decide any question of law relating to the case concerned. This procedure does not involve any of the technicalities which have caused some difficulty in relation to preparatory hearings and there is no interlocutory right of appeal (except where the prosecution treats any ruling as a terminating ruling).

A further benefit of the preparatory hearing procedure is that the prosecution is not required to undertake that a defendant is entitled to be acquitted if an appeal it brings against a ruling in a preparatory hearing fails. Cases of real complexity are crucially affected by the charges the prosecution chooses to prefer and the way in which it formulates its case. In this case, it is most important to emphasise our decision does not mean that there is no offence disclosed by the conduct of the defendants as alleged by the prosecution. That is not an issue which this court can or should decide. It simply means that the conduct as set out in the indictment does not disclose the offences charged. It is obviously of benefit for such issues to be determined in advance of the trial so that, if it can be fairly done, the prosecution has an opportunity to reflect on any adverse ruling and to consider whether an amendment to the indictment should be sought.

The conduct of such a hearing

In a case of complexity where such issues arise, the trial judge should first consider what rulings to make and when, and then decide whether to do so in a preparatory hearing. It is axiomatic that important rulings should be made as early as they properly can be. The early identification of such issues will require vigorous case management by the judge and the assistance of the parties. It is important to stress that those representing defendants in criminal proceedings owe a duty to the court which has always existed as a matter of law, and which is now to be found in Crim PR 1 and the corresponding provisions of the Consolidated Criminal Practice Direction. It is unnecessary for us to set those provisions out as:

In general, as the court observed at paragraph 37 of R v C [2010] EWCA Crim 2578, [2011] 3 All E.R. 509, [2011] Crim. L.R. 396, the court should make an order for a preparatory hearing well in advance of the anticipated hearing in accordance with Crim PR 15 so that the advocates’ minds are concentrated on the issues. Nonetheless, the judge can always, subject to the constraints set out in R v C and R v YDG [2013] 1 WLR 2014, exceptionally at any stage during that hearing, decide to designate some or all of it as a preparatory hearing and give a ruling within that regime which can come to this court at the suit of the losing party.

The position in the present case

Those representing the defendants invited the judge to hold a preparatory hearing to consider, among other things, the form of the indictment and “Whether the pension scheme operated by Redswan fell within the terms of section 150(1) of the Finance Act 2004”. That is quite close to the point of law which the judge held on 5 December 2014, some months after the trial had begun, was fatal to counts 2 and 8, as will appear from our decision at paragraph 44 and following.

It is unnecessary to examine the way in which the case was being advanced at the date when the judge decided not to have a preparatory hearing. It is clear from the ruling which he gave when he decided not to do so that he was rightly concerned about the lack of a clear explanation of the indictment from the prosecution. He said

“In my view the prosecution should reflect further upon the contents of the indictment but I do not think that it requires any ruling at this stage, let alone one made at a preparatory hearing.”

As events were to prove, this invitation most regrettably did not force the prosecution to identify its final case and thereby to identify the real legal issues before a great deal of public money had been expended on the trial. We sympathise with the judge, who was grappling with a case which rightly troubled him. The two rulings which we have seen, namely that on the application for a preparatory hearing and that on the submissions of no case, are both conspicuously clear and very carefully reasoned. It was not in any way the fault of the judge that this case turned out as it did.

Nonetheless it is our view that the argument which took place at the conclusion of the prosecution case should have been conducted within a preparatory hearing under Part III of the 1996 Act. It is clear that the judge was unfortunately faced with a regrettable and avoidable lack of precision as to the way in which the prosecution case was being put. It was not put at the outset in the same way as it was by the conclusion of its case at trial. This lack of precision by the prosecution team made the early definition of the crucial issue difficult; it is something that should not have happened and it would be desirable for lessons to be learnt. Despite the position in which the prosecution had put the judge, we nevertheless consider that the judge should have held a pre-trial hearing to require the prosecution to set out its case in law and to hear argument about whether it was well founded in law. It would therefore probably have served a valuable purpose and saved a considerable amount of public money.

The unnecessary representation by advocates on the appeal

Finally on matters of general significance we would observe that on the hearing of this appeal each defendant appeared by counsel. Mr Enoch QC and Mr Jebb appeared for Quillan, but made the necessary submissions on behalf of all defendants. The points were common to all and no possible conflict of interest arose. In these circumstances the court expects that counsel who do not wish to address the court will not attend. Arrangements must for the future in such cases be made for the appeal to be conducted by the preparation and presentation of one single set of submissions by one counsel, or, if the complexity of the case justifies it, by a team of two.

The contention of the defendants

Decisions of this court have established that in an appeal under s.58 of the CJA 2003 strict compliance with the requirements of that section by the prosecution is necessary before this court has jurisdiction to hear it.

In this case it is contended that the prosecution did not comply with those requirements because they did not, immediately after the ruling was made, either apply for an adjournment or inform the court that they intended to appeal under s.58(4) of the CJA 2003. It is not suggested that they failed to give what has become known as the “acquittal undertaking” at or before the time when they informed the court that they intended to appeal as required by s.58(8). It is therefore necessary to examine what happened.

The events at the Crown Court after the handing down of the ruling

After hearing submissions and taking some time to consider his ruling, the judge sent a draft to the parties by email on 4 December 2014. This was not subject to any embargo expressly, but was accompanied by a message from him which said that he might correct typographical errors and insert further citations from the Finance Act 2004 overnight, but the substance would not change.

The prosecution quite properly treated it as a draft and distributed it between counsel and the CPS lawyer with conduct of the case, but no further. The next morning a further corrected version was sent out by the judge. The prosecution properly decided not to give a copy of either draft to the representatives of Her Majesty’s Revenue and Customs (HMRC) before the hearing, in accordance with the way in which the court usually expects draft judgments to be treated. HMRC were not the prosecuting authority but had investigated this case and were initially interested in it. The effect of the ruling was to bring the case to an end.

When the court convened at about 10:44 the recording equipment did not work, but we have the benefit of an agreed note of what happened. It is as follows:-

“10:44

Judge: I emailed out a draft judgment last night. I emailed a perfected version this morning, which differs only in that I have corrected some typos and also inserted relevant sections of the Finance Act. I formally hand down the perfected version.

RS QC [Mr. Richard Sutton QC, Leading Counsel for the prosecution]: We did not forward the draft judgment emailed to counsel on to HMRC, as we took the view that was not appropriate to do so. HMRC have therefore not seen it. Now that Your Honour has handed it down, can I ask for 45 minutes to give HMRC an opportunity to read the judgment and consider it.

I am not asking for an adjournment under section 58(4), simply for time.

[One Defence Counsel suggests one hour sotto voce]

RSQC: I hear an hour being suggested. I hope there will be a resolution by the end of the morning and that I will not be applying to adjourn.

[Judge granted one hour]”

By the time the court next sat, the recording equipment had started to work; we have a transcript of what followed. The prosecution informed the court that it intended to appeal against the dismissal of counts 1, 2, 3, 7, 8 and 9 against the present six defendants but not against the ruling in the respect of the other three defendants in the trial and not in respect of counts 4, 5 and 6. After argument, the judge granted leave and ordered that the appeal be expedited.

Nothing at all happened between the first hearing and the second except that the prosecution team consulted with the HMRC lawyer and came to its decision. Mr Sutton told us that his team and the CPS lawyer had already decided what they were going to do. They needed only to acquaint HMRC with the terms of the ruling and to explain what they proposed to do about it. As HMRC was the investigating body in respect of this case, it stood in relation to the CPS and counsel in part in much the same position as the police do in other cases and in part as a complainant or victim as it was the body that had been the subject of the alleged fraud.

It is necessary only to quote the first part of the transcript.

“TRANSCRIPT FROM 11:41:58 – Court session begins at 11:49:00

HHJ Yes

RSQC Your Honour has made…three rulings in relation to three of the defendants specifically on the sufficiency of evidence. So far as those rulings are concerned in relation to whether there is a sufficiency of evidence in relation Mr. Barlow, Mr. Andrews and Luke Thompson, the Crown is not wishing to appeal those. Insofar as the remainder of Your Honour’s ruling and insofar as it is based upon the ruling on count 1, count 2, count 3 including count 3 because, although we’ve taken a view on count 3 as to how that should be dealt with, we were not going to offer no evidence so we’re including that as well. In relation to Mr. Quillan, Mr. Hoole, Mr. Peter Garrett, Mr. Gregory Garrett, Mr. Andrew Edmondson we would wish to appeal, in relation to Your Honour’s ruling in relation count 7, 8 and 9, in relation to Mr. Hoole and Mr. Neal Thompson we would wish to appeal. We have…in the process of drafting a notice which will be served upon the court during the course of this morning I hope but of course today, in accordance with the Criminal Justice Act 2003.

HHJ Yes.

RSQC It seemed to us that the first matter we had to deal with is informing court, we have now done that.”

The statutory provisions

Section 58(4) provides:

“The prosecution may not appeal in respect of the ruling unless—”

(a)

following the making of the ruling, it—

(i)

informs the court that it intends to appeal, or

(ii)

requests an adjournment to consider whether to appeal, and

(b)

if such an adjournment is granted, it informs the court following the adjournment that it intends to appeal.”

This provision is supplemented by Part 67 of Crim PR (Crim PR 67):-

“67.2.

Decision to appeal

(1)

An appellant must tell the Crown Court judge of any decision to appeal—

(a)

immediately after the ruling against which the appellant wants to appeal; or

(b)

on the expiry of the time to decide whether to appeal allowed under paragraph (2).

(2)

If an appellant wants time to decide whether to appeal—

(a)

the appellant must ask the Crown Court judge immediately after the ruling; and

(b)

the general rule is that the judge must not require the appellant to decide there and then but instead must allow until the next business day.”

The case law

Crim PR 67 which governs the process, subject to the terms of the Act, reflects the way in which s.58(4) had been construed by this court on a number of occasions. In R. v T(N) [2010] EWCA Crim 711; [2010] 2 Cr App R 12 (p.84) Lord Judge CJ presiding over a 5 judge court, said (at [13]):

“Section 58(4) does not expressly require that this information should be made ‘immediately’ after the questioned ruling. … [The provisions of Crim PR 67] plainly represent a correct interpretation of legislation which requires that the court be informed of the intention to appeal, or, alternatively, that an adjournment should be requested for the question to be considered. Postponement of both these alternatives is not an option. In other words, unless the prosecution informs the court of its intention to appeal immediately following the making of the ruling, or immediately requests an adjournment to consider whether to appeal, this first pre-condition to an appeal is not fulfilled.”

In R v Mian [2010] 1 WLR 2655, [2012] EWCA 792, [2012] 2 Cr App R 9, the court gave further consideration to the application of the provision in the CJA 2003 and Crim PR 67 to the particular facts in that case. There had been a delay of 10 minutes between the giving of the ruling and the prosecutor complying with s.58(4). During that time the judge had informed the defendant that as soon as the jury could be brought back into court he would be acquitted.

The court decided on the particular facts of the case that this was too long. Rix LJ referred at paragraph 9 to the decision of Lord Judge CJ in R v T(N) and to his own previous decision in R v C, M and H [2009] EWCA Crim 2614 about the need for an “acquittal agreement” to be given at the time that notice of intention to appeal was given. At paragraph 29, he went on to consider what the term “immediately after the ruling” meant. He said at paragraphs 28 and 30:

“In our judgment it means there and then and in any event before anything important has happened. We think that it would be going too far to say that it means simultaneously with the conclusion of the ruling, and s.58(3) suggests that the requirement has functional rather than merely temporal bite. Otherwise there would be no need for any provision to stop the clock (in the absence of an adjournment). But plainly there is no room whatsoever for temporising. We are content to apply what was said in C, M and H at [43], while emphasising the plain need for urgency:

If the alternative is an adjournment, there is plainly not much room for delay in the absence of an adjournment. Even so, it may be that the concept of immediacy cannot be reduced to split-second timing: however, it is only for as long as ‘the prosecution is able to take any steps under subsection (4)’ (see subsection (3)) that the clock is stopped: and there is plainly an argument that where something significant has first occurred, such as an acquittal, it becomes too late for the prosecution to inform the court of its intention to appeal or to seek an adjournment to prolong the time for it to make its decision.

…

30.

We would not over-emphasise in itself the way in which the judge was thus permitted to address the defendant, because it might be said that it was inherent in the judge's decision (of no case to answer) that the defendant would be entitled to be acquitted—at any rate barring an appeal. Even so, it is plainly going a stage further to tell a defendant that he will be acquitted as soon as the jury can be assembled, rather than to have to tell him that he would have been acquitted there and then but for the Crown's right to appeal. Perhaps there would be wisdom in judges being cautious not to jump the gun and anticipate even the most keyed up of prosecutors. It would be unfortunate if counsel were put in the position of having to interrupt the judge, where courtesy would naturally encourage counsel to defer to the judge's conduct of the proceedings, because the judge allowed no real opportunity to the prosecutor to gather his thoughts upon receiving the ruling. However, we emphasise: counsel can always ask for an adjournment to consider the impact of a ruling, and its validity, and to discuss such matters with those instructing him, and it takes very little to ask for an adjournment, even of a short while, for an initial consideration of the position; even if thereafter it is decided to ask for an adjournment until the following day.”

The Guidance given by the CPS

Unsurprisingly the Crown Prosecution Service has published guidance about the use of this right of appeal on its website. It explains the requirements very clearly and says under “Points to Consider”, the following:-

“Who is to exercise the right of appeal?

Part 9 of the [CJA 2003] provides the Crown Prosecution Service with formidable power to test the correctness of a judge's ruling. An appeal against a judge's ruling is a decision of such significance (generating a testing of the ruling to the Court of Appeal) that it should only be taken at an appropriate Area level by those with sufficient experience, responsibility and ownership of the consequences.

It is the responsibility of the CCP or DCCP, to decide whether the right of appeal should be exercised, after consultation with the prosecution advocate and any other appropriate person such as the reviewing lawyer and the officer in the case. The CCP or DCCP may seek advice, if necessary, from the Principal Legal Advisor and, if appropriate, from the DPP.

…….

It is important that prosecutors anticipate the possibility of adverse rulings in particularly important cases. Instructions to the prosecution advocate should identify or should request the prosecution advocate to identify possible adverse rulings. This will allow the CCP or DCCP to be notified in advance of a particular case and for the prosecution advocate to seek their preliminary view so that they are not consulted unexpectedly about a possible appeal on all occasions…….

In the unlikely event that a judge refuses an adjournment and the prosecution advocate is unable to consult with the CCP or DCCP, the prosecution advocate must make the decision, following these guidelines, whether or not to appeal. The decision of the prosecution advocate should be reviewed by the CCP or DCCP as soon as possible to determine whether to proceed with or abandon the appeal.

……..

How should the prosecution exercise the right of appeal?

By giving the prosecution this right of appeal it is hoped that this in itself will deter a judge from giving an unreasonable ruling and as a result mean that there are very few appeals.

Before launching an appeal, the prosecution will have to concede that should the appeal be lost, whether by refusal of leave or abandonment of the appeal, or if the Court of Appeal confirms the ruling, the accused will be acquitted. Even where the prosecution wins the appeal, it will be open to the Court of Appeal not to allow the case to resume or continue if it considers that the defendant could not receive a fair trial. The effect of the provisions will confine appeals to more serious cases where the prosecution have a very significant ground of complaint against the judge's findings. If it is not such a case leave to appeal is unlikely to be granted…..

The right of appeal should not be exercised automatically where the ruling is wrong or the judge's discretion is incorrect. The right of appeal is to be exercised sparingly and judiciously in order to prevent unmeritorious appeals.

In deciding whether or not to appeal a ruling the CCP or DCCP must be satisfied that the following criteria are met:

That the ruling meets the statutory requirements set out in Crim PR 67.

That there is a likelihood of the Court of Appeal reversing the ruling, and regardless of whether the Court of Appeal will find that the ruling is wrong or unreasonable that the public interest requires the prosecution to continue and that the court is likely to grant leave.”

Our conclusion

It is clear, in our view, that what constitutes immediate notice under s.58 and Crim PR 67 will depend upon the circumstances. The day after the ruling was sufficient compliance in O [2008] EWCA Crim 463,because of the extraordinary events of the previous day. Ten minutes was, however, too long in Mian. Three observations about Mian are necessary.

Furthermore, it must be recalled that, although the prosecutor ultimately has to take the decision, a criminal trial also involves complainants or alleged victims whose interests and views are material. In such circumstances it is necessary to allow time for the prosecutor to carry out the necessary consultation before the decision is made. In R v Killick [2011] EWCA Crim 1608 the court held at paragraph 41 that in determining whether to prosecute, the prosecutor had to take into account three interests – that of the state, that of the defendant and that of the alleged victim. As the decision not to appeal is a decision which is final for the complainant or alleged victim, the prosecutor should consult and must be afforded a proper opportunity of doing so.

In each case therefore a careful examination of the facts is required to determine whether the prosecution has acted “immediately” in the context of the case under consideration. Much will depend on the complexity of the case, whether the ruling is oral or handed down and whether the prosecutor has had an opportunity of discussing the position with the alleged victim or other interested parties. In simple cases, such a discussion can well be had, as the CPS guidance suggests, before the ruling. In other cases, where the issues are complex and the ruling complex, time must be afforded for proper consultation; the word “immediately” must therefore allow time for such consultation. A sensible allowance for the requirements of justice and the practicalities of criminal trials must therefore be made. What the prosecution must not do is to “temporise” and cause delay except in accordance with s.58(4) and the provisions of Crim PR 67.

In this case the judge’s ruling was handed down in writing. It was 56 pages long. It contained important rulings of law and also decisions on questions of fact. It would have taken a long time to read in open court, which is the traditional way of ensuring that all relevant parties, as well as the public, are aware of the decision of the court. The prosecution agreed that it did not need to be read. As a consequence HMRC did not know what had happened or why. The prosecutor told us he wanted to tell them. That was not simply his desire; it was his duty to tell them and consult them before he was in a position to give the court notice of his intention to appeal.

We therefore agree with the submission made by the prosecution that where this means of promulgating a ruling is chosen, the court should allow time for it to be read by those interested who had not seen the draft and the views of those interested ascertained. In the present case this required at least an hour, if not significantly longer. The hearing should then be resumed as soon as possible after that proper and reasonable time has elapsed and it is at that time that the prosecution becomes under an obligation under s.58(4) and Crim PR 67 either to inform the court or seek an adjournment. It follows that Mr Sutton did comply with s.58(4).

A good deal of court time would have been saved before us if the prosecution had simply asked for time under s.58(4) and Crim PR 67 to consider the position. A reasonable time would have been until the next business day – the default period set out in Crim PR 67. If they had, such a time would have been granted and no argument such as the present could have been mounted. The decision of Mr Sutton QC to say that he was not applying under s.58(4) has given rise to this argument. It appears likely that he had in mind that he wanted to tell the judge that it would not be necessary to adjourn under s.58(4) with the consequence under Crim PR 67(2)(b) that the judge must in general not require the appellant to decide there and then, but instead must generally allow until the next business day. Mr Sutton was saying, instead, that he could decide “there and then” but needed a short time to explain the ruling to the investigating body, which was also, after all, the alleged victim of counts 1 and 7 on the prosecution case and had to be consulted.

In our judgment the application for “time” which Mr Sutton made during the first hearing could, if necessary, be regarded in substance and effect, as an application under s.58(4) even though he said it was not. The obligation on the prosecution is either to inform the court that it intends to appeal or to request an adjournment to consider whether to appeal. It would be possible to view Mr Sutton QC’s statement as a request for an adjournment to enable a proposed appeal to be discussed with HMRC which had a legitimate interest in being consulted about it. His choice of words was plainly maladroit, but his intention entirely commendable. He was simply saying that he did not need the usual 24 hours but believed he could complete the matter before lunch. On the assumption, contrary to what we have already decided, that there was an obligation under s.58(4) and Crim PR 67 to inform the court before there had been a reasonable opportunity to read the judgment and consult HMRC, we consider that he did make an application to adjourn as required by the CJA 2003 during the first hearing. He set in motion a two stage process involving a short adjournment followed, only if necessary, by the longer adjournment envisaged by the Crim PR 67. That is what he meant when he said

“I hope there will be a resolution by the end of the morning and that I will not be applying to adjourn.”

The third ground of our decision is that even if Mr Sutton failed to comply with s.58(4) during the first hearing at 10:44 and even if that was the time the obligation arose under s.58(4), we are in no doubt that his compliance during the second hearing at 11:49 was “immediate”. In those circumstances we consider the whole course of conduct of Mr Sutton QC did amount to immediate compliance with the requirement to inform the court that he was intending to appeal or to seek an adjournment under s.58(4). He did not temporise, rather the reverse. Had he wanted a 24 hour period to take a decision, this would have been available to him. Nothing that the court wished to do was in any way delayed by his chosen course.

The very strict approach to the word “immediate” was prompted by a concern that the prosecution might misuse its new right of appeal and flood this court with work which could not sensibly be accommodated. Trials might routinely be delayed while decisions were taken. In the experience of this court this has not happened. We have set out above the CPS Guidance on the subject. Prosecuting authorities are expected to use this power with restraint and discrimination. Where they do so, the court should be slow to decline to hear appeals by implying into the word “immediate” a wholly unrealistic approach in a complex case. This does not undermine the importance of compliance with the s.58 procedure, but does suggest that an approach which gives effect to the overriding objective of dealing with a case justly should be followed.

In the present case, the prosecution announced its concluded decision in a complex case within 1 hour of the handing down of the judgment which the judge had taken many days to write. As this case shows, careful compliance with the section and Crim PR 67(2) is not difficult to achieve and prevents this kind of problem from arising. It should be achievable and achieved. Any failure which causes any significant difficulty in the proceedings may well result in this court declining to entertain the appeal.

For these reasons we hold that this court did have jurisdiction to hear this appeal. We now move on to determine its merits.

The nature of the case and evidence against the defendants

The structure of the indictment

As the indictment in this case was a complex document, we must at the outset encapsulate the allegations it made as briefly as we can in order to simplify what follows. Essentially the allegations against the defendants were that two schemes were set up (one following the other) with the dishonest intention of securing the payment of Income Tax relief at source (RAS) from HMRC by paying the same sum of money into pension schemes over and over again, each time causing the payment of tax relief from HMRC to the scheme. The circular nature of the transactions was set out in a chart which was shown to the jury as Figure 3.1 to the Report of Daniel Ryan of Berkeley Research Group as part of the prosecution case.

The indictment contained 9 counts. Counts 1-3 relate to Scheme 1 and counts 7-9 relate to Scheme 2. Counts 1 and 7 are allegations of Conspiracy to Defraud, count 1 in relation to Scheme 1 and count 7 in relation to Scheme 2. Counts 2 and 8 charge Conspiracy to Cheat, count 2 in relation to Scheme 1 and count 8 in relation to Scheme 2. Counts 3 and 9 are counts of Conspiracy to Launder Money, one in relation to each scheme. Counts 4-6 are charges of False Accounting; which were charged as alternatives to counts 1-3 and related specifically to the Pension Administrators of Scheme 1.

This appeal concerned only counts 1 and 7, and 2 and 8. That is because it was agreed that counts 3 and 9 depend upon the outcome of the submission on these counts, and because the judge ruled that there was no case to answer on counts 4, 5 and 6 on evidential grounds and there is no appeal against that part of his ruling.

The emergence of the prosecution case

After what appears to have been a great deal of debate at trial, the prosecution case eventually became clear during the submissions of no case. It was that the conspiracy to cheat counts (2 and 8) alleged that the schemes were fraudulent from the outset because the sums paid as RAS were never lawfully due. The conspiracy to defraud counts (1 and 7) were intended to cover the possibility that the RAS may have been paid lawfully, and then diverted because it was extracted from the pension schemes and not used to make any investment or provide any benefit to the supposed member of the scheme, but instead paid out to, among others, the defendants who had set up the schemes. The judge set out the history of the way in which the prosecution case achieved this degree of clarity in his ruling, but it is not necessary for us to rehearse it.

Counts 1 and 7; Counts 2 and 8

Counts 1 and 7 were in the following terms:

“Count One

Statement of Offence

CONSPIRACY TO DEFRAUD contrary to Common Law

Particulars of Offence

Gary Quillan, Christopher Hoole, Peter Garrett, Gregory Garrett, Andrew Edmondson, Mark Andrews and Richard Barlow between the 1^st. day of October 2006 and the 30^th. day of June 2009 conspired together and with others to defraud Her Majesty’s Commissioners of Revenue and Customs and such other persons as might be persuaded to provide monies or monies’ worth towards the provision of pensions by dishonestly diverting monies or monies’ worth that had been obtained to invest in pensions schemes to their own use.

Count Seven

Statement of Offence

CONSPIRACY TO DEFRAUD contrary to Common Law

Particulars of Offence

Christopher Hoole, Neil Thompson and Luke Thompson, between the 1^st day of January 2008 and the 30^th. day of June 2009 conspired together and with others to defraud Her Majesty’s Commissioners of Revenue and Customs and such other persons as might be persuaded to provide monies towards the provision of pensions by dishonestly diverting monies or monies’ worth that had been obtained to invest in pensions schemes to their own use.

Counts 2 and 8 were in the following terms:

“Count Two

Statement of Offence

CONSPIRACY TO CHEAT contrary to s. 1 Criminal Law Act 1977

Particulars of Offence

Gary Quillan, Christopher Hoole, Peter Garrett, Gregory Garrett, Andrew Edmondson, Mark Andrews and Richard Barlow between the 1^st. day of October 2006 and the 30^th. day of June 2009 fraudulently and to the prejudice of Her Majesty the Queen and the Commissioners of Revenue and Customs conspired together and with others to cheat Her Majesty the Queen and the Commissioners of Revenue and Customs of such monies or monies’ worth as might be obtained from the said Commissioners as tax relief on relievable pension contributions in respect of what purported to be pension schemes which, had the true nature of such schemes been disclosed, would not have been provided by the said Commissioners.

Count Eight

Statement of Offence

CONSPIRACY TO CHEAT Contrary to s. 1 Criminal Law Act 1977

Particulars of Offence

Christopher Hoole, Neil Thompson and Luke Thompson between the 1^st day of January 2008 and the 30^th. day of June 2009 fraudulently and to the prejudice of Her Majesty the Queen and the Commissioners of Revenue and Customs conspired together and with others to cheat Her Majesty the Queen and the Commissioners of Revenue and Customs of such monies or monies’ worth as could be obtained from the said Commissioners by way of tax relief in respect of what purported to be pension schemes which, had the true nature of such schemes been disclosed, would not have been provided by the said Commissioners.

The evidence as to how the schemes were set up and operated

We are indebted to the judge for his clear and careful analysis of the evidence which we can summarise as follows.

This case centred on the activities of Gary Quillan (“GQ”) and Christopher Hoole (“CH”). They were both Independent Financial Advisers (“IFAs”). They came together towards the latter part of 2006 in order to market a Self Invested Personal Pension scheme (“SIPP”), which had originally been devised by GQ. The original scheme, Scheme 1, which used a registered pension scheme latterly called Redswan, resulted in counts 1 and 2. That activity continued until June 2009. During the latter part of that period, CH established a second scheme, Scheme 2, which was the subject of counts 7 and 8. This scheme used a registered pension scheme called MW Pensions. The indictment period is a little under 3 years.

The schemes operated in what appears to have been a novel way. They involved borrowing and lending money in a more or less circular manner. The essential structure of the schemes appears to have been as follows:

The role played by the defendants in the schemes was:

Between October 2006 and February 2007 a firm of IFAs, Clear Blue Finance, introduced 22 SIPP clients to Zurich Financial Services Ltd. Their SIPP contributions were funded by the taking out of loans either directly from the defendants or from companies that they controlled, plus what RAS claimed from HMRC. An examination of their gross contributions reveals that most contributed at or near to their declared yearly earnings. By February 2008 all 22 had transferred their funds away from Zurich to another pension provider, The Purplecircle Private Pension Plan. In total some £557,881 of investments was transferred to Purplecircle, which later changed its name to Redswan.

In order to get the scheme going the defendants needed capital with which they could make the initial loans to the SIPP clients. The SIPP funds transferred to Redswan from Zurich were used as that capital. Although the prosecution have only been able to trace what happened to £427,187 of those funds, all of that sum was invested in buying shares in Jav, one of the unquoted companies. The capital generated by the sale of shares was then distributed as follows: £15,000 was paid to AE; £33,000 was paid to Bright Ltd, a company controlled by GQ and CH and which had provided some of the original funding to make loans to the Zurich SIPP clients; £375,000 was lent to the off-shore loan company Smoothrock. Smoothrock then lent that money to new SIPP clients of GQ and CH who then used the funds to contribute to new SIPP schemes administered by Redswan. Redswan then claimed RAS and then both the initial contribution and RAS was invested in the unquoted UK companies controlled by the defendants. And so the cycle went on.

Once the scheme was up and running other off-shore loan companies were used to lend money to new clients. New unquoted UK companies were invested in by the SIPP. The common theme was that all of the companies were controlled by the defendants.

The “curious” features of the schemes

The purpose of a SIPP is to invest the clients’ contributions, including the RAS, in such a way so as to generate a fund which can then be used to finance a pension. One of the most obvious “curiosities” of the GQ scheme was that it did not obviously do that. This was because the SIPP clients borrowed money to make their contributions at a rate of interest that was higher than the rate of interest at which the unquoted UK companies, into which they had invested, lent. Thus, on the face of it, they were never going to generate enough money to repay their initial loans plus interest let alone generate a fund for a pension.

According to what GQ said in interview, that was to be overcome by investing the RAS in land/property developments and bridging finance, both of which he expected to yield high returns. Whether or not that was really his intention, and if so whether or not the return on those investments was ever likely to generate sufficient funds to repay the loans, plus interest, and generate a pension fund, were factual issues in the case. There was evidence from an actuary who gave expert evidence as to the likely pension outcome from the scheme that the projected rates of return (15-18%) involved “a brave assumption” but were not impossible. However, it would need a rate of return of this order over many years if there was ever to be a fund sufficient to provide a pension.

There were several other “curious” features of the scheme:

However, their positions were protected by a further “curious” feature of the scheme. The SIPP holders were informed that they would never have to put any money into the scheme, whatever happened to the investments. In essence it was risk free.

The loans taken out by the SIPP holders were renewable annually. When they entered into the initial loan agreements, and when they renewed those agreements, they were also given what was called a “conversion option”. That was the option to enter into a further agreement with the loan company. That agreement allowed the SIPP holder, at the expense of paying a higher rate of interest, to cap the amount he had to repay on the loan. That cap, another “curious” feature of the scheme was, in essence, the value of the SIPP fund on maturity.

Therefore the effect of entering into the conversion option agreement was to extinguish the SIPP holder’s liability to repay any sum by which the amount of the unpaid loan and any unpaid interest exceeded the value of the fund. Thus he was absolved from making any contribution to the SIPP at any time. If the conversion option was exercised, as it always was, the chance of a pension ultimately being paid was reduced still further by the higher rate of interest now charged.

A final “curious” feature of the scheme was that, as a further inducement to enter into the scheme, the clients were offered the payment of “cashback”, ranging from a few hundred to a few thousand pounds, for entering into the scheme. As a result about 100 people entered into the Redswan scheme. Some of them gave evidence. They had various degrees of knowledge and understanding of the scheme and financial matters in general. The common theme was that they all said they thought that the scheme was legitimate.

The establishment of Scheme 2

Towards the end of 2007 GQ and CH appear to have had a difference of opinion as to how the scheme should be operated. As a result CH set up his own scheme, using MW Pensions, although he appears to have paid GQ some sort of commission or franchise payment in order to base his scheme on the scheme GQ had devised. The Redswan scheme was referred to at trial as Scheme 1 and the MW Pensions scheme as Scheme 2.

Scheme 2 operated in essentially the same way as Scheme 1. Over the first four months of Scheme 2 £322,750 was introduced into the scheme from various sources: £156,000 from SPO, a company CH owned; £26,500 from CH himself; £90,000 from Andrew Sweeney’s business Premier Financial; and £50,000 from Andrew Sweeney himself. CH promoted the scheme to potential clients, and he received some help in doing so in the North East of England from Luke Thompson. His principal assistant was Neal Thompson. He was the director of the off-shore loan company Prospect Investments, and indeed prior to Prospect setting up a bank account he allowed his First Reserve bank account to be used in order to provide investors with loans using the money that came in from SPO etc, on what he called an agency basis. He was also the director of the unquoted UK companies Atrium Investments Ltd and Axiom Investments Ltd. The same recycling of funds took place in Scheme 2 as in Scheme 1, and the same extracting of RAS. As a result all of the money that had originally been introduced into the scheme was then repaid over time from the RAS. There were however two differences between the schemes. The Pension Administrators were MW Pensions; and the only use to which the share sale proceeds was put was in lending to new SIPP holders, thus there was no investing in any other enterprise.

Scheme 2 also attracted clients, in excess of thirty, and some of them gave evidence. They too had varying levels of understanding of the scheme, but once again they all said that they had thought that the scheme was a legitimate one.

The FSA investigation

In 2008 the FSA started an investigation into the operation of both schemes. On 22 June 2009 these defendants were all arrested. Their homes and business premises were searched and a large quantity of documents and computers was seized. They were bailed and then re-interviewed in January and February 2010. In interview all denied any wrong doing.

The law relating to SIPPS

During the indictment period the operation of SIPPs was principally governed by Part 4 of the Finance Act 2004. The key features of the legislation as it applied to SIPPs were as follows:

On retirement, death, reaching a particular age or on the onset of serious ill health or incapacity the SIPP holder or his estate was then entitled to draw on the pension fund.

The parts of the Finance Act 2004 which are central to the argument are as follows:

“150 Meaning of “pension scheme”

(1)

In this Part “pension scheme” means a scheme or other arrangements, comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of persons—

(a)

on retirement,

(b)

on death,

(c)

on having reached a particular age,

(d)

on the onset of serious ill-health or incapacity, or

(e)

in similar circumstances.

(2)

A pension scheme is a registered pension scheme for the purposes of this Part at any time if it is at that time registered under Chapter 2.

151

Meaning of “member”

(1)

In this Part “member” in relation to a pension scheme, means any active member, pensioner member, deferred member or pension credit member of the pension scheme.

(2)

For the purposes of this Part a person is an active member of a pension scheme if there are presently arrangements made under the pension scheme for the accrual of benefits to or in respect of the person.

152

Meaning of “arrangement”

(1)

In this Part “arrangement”, in relation to a member of a pension scheme, means an arrangement relating to the member under the pension scheme.

(2)

For the purposes of this Part an arrangement is a “money purchase arrangement” at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance benefits or other money purchase benefits.

(3)

For the purposes of this Part a money purchase arrangement is a “cash balance arrangement” at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance benefits.

(4)

In this Part “money purchase benefits”, in relation to a member of a pension scheme, means benefits the rate or amount of which is calculated by reference to an amount available for the provision of benefits to or in respect of the member (whether the amount so available is calculated by reference to payments made under the pension scheme by the member or any other person in respect of the member or any other factor).

(5)

In this Part “cash balance benefits” means benefits the rate or amount of which is calculated by reference to an amount available for the provision of benefits to or in respect of the member calculated otherwise than wholly by reference to payments made under the arrangement by the member or by any other person in respect of the member (or transfers or other credits).

(6)

For the purposes of this Part an arrangement is a “defined benefits arrangement” at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are defined benefits.

(7)

In this Part “defined benefits”, in relation to a member of a pension scheme, means benefits which are not money purchase benefits (but which are calculated by reference to earnings or service of the member or any other factor other than an amount available for their provision).

(8)

For the purposes of this Part an arrangement is a “hybrid arrangement” at any time if, at that time, all of the benefits that may be provided to or in respect of the member under the arrangement are, depending on the circumstances, to be of one of any two or three of the following varieties—

(a)

cash balance benefits,

(b)

other money purchase benefits, and

(c)

defined benefits.

(9)

Where not all of the benefits that may be provided under an arrangement to or in respect of the member are of the same one of those varieties of benefits, the arrangement is to be treated for the purposes of this Part as being two or three separate arrangements one of which relates to each of the two or three varieties of benefits that may be so provided.

188

Relief for contributions

(1)

An individual who is an active member of a registered pension scheme is entitled to relief under this section in respect of relievable pension contributions paid during a tax year if the individual is a relevant UK individual for that year.

(2)

In this Part “relievable pension contributions”, in relation to an individual and a pension scheme, means contributions by or on behalf of the individual under the pension scheme other than contributions to which subsection (3) applies. [subsection (3) is not material].

192

Relief at source

(1)

Where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution under a pension scheme, the individual or other person by whom the contribution is paid is entitled, on making the payment, to deduct and retain out of it a sum equal to income tax on the contribution at the basic rate for the tax year in which the payment is made.

(2)

If a sum is deducted from the payment of the contribution—

(a)

the scheme administrator must allow the deduction on receipt of the residue,

(b)

the individual or other person is acquitted and discharged of so much money as is represented by the deduction as if the sum had actually been paid, and

(c)

the sum deducted is to be treated as income tax paid by the scheme administrator.

(3)When the payment of the contribution is received—

(a)

the scheme administrator is entitled to recover from the Board of Inland Revenue the amount which is treated as income tax paid by the scheme administrator in relation to the contribution, and

(b)

any amount so recovered is to be treated for the purposes of the Tax Acts in the same manner as the payment of the contribution.”

The prosecution case as finally advanced

The judge had to grapple with a number of different documents which contained somewhat different explanations of how the prosecution put its case. We are not concerned with that history, because we are only concerned to determine whether he was right to say that the case which the prosecution wished to advance at the conclusion of its case was a case which disclosed the offences alleged in counts 1 and 7 and 2 and 8 on the indictment.

It was the prosecution case that both schemes were a sham.

Whatever may have been the position at other stages of the case, by the close of the prosecution case, the prosecution firmly told the judge that counts 1 and 7 related to the extraction of RAS after it had been legitimately paid to the schemes, if that was the finding of the jury. He proceeded on that basis, as do we.

This means that the logical order in which to consider the submissions is first to decide whether there was evidence on which a jury could properly conclude that the RAS was obtained unlawfully in the first place (counts 2 and 8) and then whether there was evidence that, even if it was lawfully obtained, the extraction of the money from the pension schemes constituted a fraud on either HMRC or the SIPP investors (counts 1 and 7).

Was there a case on Counts 2 and 8?

The prosecution case

By the time of the argument before the judge, the prosecution put its case on the lawfulness of the obtaining of RAS (counts 2 and 8) in two ways:

Defence submissions before the judge

The general defence submission that the claims for RAS were lawful can be summarised as follows:

The judge’s decision: were there contributions?

“Relievable pension contributions” are defined in s.188(2) of the Act as “contributions by or on behalf of the individual under the pension scheme other than contributions to which subsection (3) applies”. It was not suggested that subsection (3) applied here. The judge decided that the word “contribution” simply means a payment. Thus in order to satisfy s.188(2) of the Act there must be:

The judge said that it was not in dispute that all of the SIPP holders were enrolled as members of a registered SIPP. It was also not in dispute that payments were made into the SIPP clients’ pension scheme accounts from the loan companies via the SIPP schemes’ bank accounts, by or on the SIPP clients’ behalf. The judge held that whatever the underlying value of the investments in the pension scheme were, those transfers or payments were of real money. The Bath Building Society bank statements showed those transfers.

The second prosecution submission concerned the correct interpretation of “active member” in s.151(2). The prosecution submitted that according to s.188(1) before an individual can claim RAS he must be an active member of a registered SIPP scheme. The prosecution’s argument is that the requirement that “there are presently arrangements made under the pension scheme for the accrual of benefits to or in respect of the person” in s.151(2) was a requirement that there should be an examination of the particular arrangements that were in place between the SIPP holder and the pension scheme to see if benefits were in fact accruing under the SIPP scheme at the time when the contribution was made. Only if there were could the claimant be “an active member” of the pension scheme. On this appeal, the prosecution disavow that formulation of its case, contending that the prosecution argument is that the entitlement to tax relief has to be examined on an individual basis and by reference to the nature of the pension scheme to which he makes his contribution. Whether or not the method by which tax relief (where appropriate) is given is efficient or costly is not to the point. The point is whether, on a proper construction of the individual’s position, he is entitled to the relief. If he is not entitled to the relief and he has been given it either in error or as a result of fraud, the method by which he obtained it is immaterial.

The judge decided that the term “arrangement” in s.151(2) means agreement. He relied on the Explanatory Notes to the Finance Bill 2004 (as it then was). This contains the following:-

“DETAILS OF THE CLAUSE

3.

Subsection (1) defines “arrangement”. An arrangement is the agreement between the member and the registered pension scheme. Arrangements give formal recognition of membership of a scheme.”

Thus the judge held that a person will be an active member of a pension scheme if there is an agreement in place between the SIPP holder and the pension scheme which is for the accrual of benefits. He found that there were such agreements in place in this case. In relation to Scheme 1 the terms of those agreements are contained within and evidenced by such documents as the SIPP Application forms, the letters of acceptance, the Appointment of a non-regulated Intermediary forms, and the instructions given to the trustees as to where to invest the funds. In relation to Scheme 2 the terms of the agreements are contained within and evidenced by such documents as the SIPP Application forms, the CHF SIPP proposal letters and forms, and the Unquoted Investments Purchase Application forms.

The judge also held that s.152(2) did not impose a requirement that the current investment activity under the pension scheme needs to be examined on an individual basis each time a person seeks to claim RAS, as he held must be the case if the prosecution submission were correct. Accordingly he found that the RAS payments were all lawfully obtained from HMRC and therefore that there is no evidence from which it could be inferred that the defendants conspired to cheat HMRC and that there is no case for any of the defendants to answer on counts 2 and 8.

Our conclusion

The fundamental problem faced by the prosecution in relation to these two counts may be simply stated. The claims for RAS were made, in accordance with the specified statutory procedure, by the duly appointed scheme administrators of the registered pension schemes (Redswan and MW Pensions) of which the clients of Scheme 1 and Scheme 2 were admittedly members. The claims were made in respect of contributions paid into the registered pension schemes by the clients, funded by the loans which they had taken out with the relevant offshore loan companies. The movements of the money can be traced in the documentation, and are reflected (for example) in the bank statements of the accounts held by Bath Building Society with the NatWest Bank, which the scheme administrators of the Redswan SIPP had specified to HMRC as the bank account to which payments of RAS should be made. How, then, could it plausibly be argued that the RAS was not in fact due in respect of the contributions thus made by the clients to the registered pension schemes of which they were at all material times members?

The fact that the contributions were made with borrowed money cannot in itself be an objection, because everybody agrees that an individual active member of a registered pension scheme may fund his relievable pension contributions (up to the yearly ceiling laid down in the legislation) by borrowing for the purpose. Nor, on the face of it, are the terms on which the money was borrowed of any relevance, because that is a matter between the lender and the client, outside the purview of the pension scheme. Once the money was paid into the pension scheme, the purposes for which it could then be paid or applied were in many respects closely regulated, although the whole point of a SIPP was that it allowed a wide degree of freedom in how the member’s fund was invested. But again, none of that appears to have any obvious bearing on the entitlement of the member to tax relief on his contribution under s.188 of the Act, or on the right of the scheme administrators to claim RAS pursuant to s.192.

The first way in which the prosecution sought to confront these difficulties was by arguing that the arrangements made under Scheme 1 and Scheme 2 were sham. Unfortunately, however, this contention was throughout advanced at a very high level of generality, without any attempt being made to analyse the precise respects in which it is alleged that the arrangements were sham, or to identify the real underlying transaction which it is said that the parties were in fact undertaking.

The concept of sham has a well-established legal meaning, the classic statement of which is to be found in the judgment of Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802:

“As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a “sham”, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between parties the legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure (1882) 21 Ch.D. 309 and Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537), that for acts or documents to be a “sham”, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a “shammer” affect the rights of a party whom he deceived.”

This definition has been repeatedly applied by courts and tribunals in the context of tax cases: see, for example, the judgment of the Court of Appeal (which was not cited to us, but is well known to practitioners in the field) in Hitch v Stone [2001] EWCA Civ 63, [2001] STC 214. Delivering the only reasoned judgment (with which Sir Martin Nourse and Kay LJ agreed), Arden LJ encapsulated the relevant law as follows:

“63.

The particular type of sham transaction with which we are concerned is that described by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786. It is of the essence of this type of sham transaction that the parties to a transaction intend to create one set of rights and obligations but do acts or enter into documents which they intend should give third parties, in this case the Revenue, or the court, the appearance of creating different rights and obligations. The passage from Diplock LJ’s judgment set out above has been applied in many subsequent decisions and treated as encapsulating the legal concept of this type of sham …

64.

An enquiry as to whether an act or document is a sham requires careful analysis of the facts and the following points emerge from the authorities.

65.

First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties’ explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties.

66.

Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties.

67.

Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.

68.

Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agree to vary their agreement and that they have become bound by the agreement as varied …

69.

Fifth, the intention must be a common intention (see Snook).”

In the light of these principles, it is in our judgment clear that a high-level and unparticularised invocation by the prosecution of the concept of sham is not good enough, and could never have provided safe grounds for a conviction on counts 2 or 8. If the prosecution wished to establish that the arrangements which the promoters of Schemes 1 and 2 made with the clients did not generate relievable pension contributions, it would have been necessary for them to satisfy the jury, to the criminal standard of proof, that the contributions lacked any true legal substance, notwithstanding their payment into the registered pension schemes of which the clients were members.

In our judgment it would have been impossible to make good any contention of this nature without also establishing that the clients were conscious participators in the sham transactions, with the intention (for example) that their apparent contributions should be no more than movements of money in a fraudulent plan designed to extract RAS from the Revenue. If there is one thing which the authorities insist upon, it is that a sham must reflect the common intention of all the parties to the impugned transaction. Yet the prosecution had throughout studiously refrained from alleging that the clients were necessarily implicated in the alleged fraud. As the judge aptly remarked in paragraph 64 of his ruling, albeit in the context of counts 1 and 7, the prosecution’s stance in relation to the SIPP clients “has remained throughout this trial as one of studied neutrality if not masterly inactivity”. For this reason, if no other, the sham allegation is in our judgment a hopeless one which could never have been permitted to go before the jury. For the purposes of counts 2 and 8 the prosecution, in our judgment, needed to show that the clients were knowing parties to a sham transaction, but as will appear below for the purposes of counts 1 and 7 they sought to show that the clients were the victims of the fraud. This illustrates, in a nutshell, a central difficulty in this case.

The prosecution’s second argument focused on the definition of “active member” in s.151(2) of the Act. If the client was not an active member of the registered pension scheme which he joined, he could not have been entitled to tax relief for his contributions under s.188(1) because relief is granted only to “[a]n individual who is an active member of a registered pension scheme”. So much, as the judge said, was common ground. But since each client was admittedly a member of the pension scheme in question, what basis could there be for denying that he was an active member? S.151(1) defines “member”, in relation to a pension scheme, as meaning “any active member, pensioner member, deferred member or pension credit member of the pension scheme”. It is clear that the clients did not fall into the second, third or fourth of these categories, so by a process of elimination alone it would seem to follow that their membership must have been as active members.

S.151(2) says that for the purposes of Part 4 of the Act:

“a person is an active member of a pension scheme if there are presently arrangements made under the pension scheme for the accrual of benefits to or in respect of the person.”

It is important to stress that this definition, like those of the other three categories of member, is of general application to pension schemes of all kinds. It seems clear to us, as it did to the judge, that the question whether there were arrangements in existence under the scheme for the accrual of benefits to or in respect of each client can only be answered by examining the terms of the pension scheme. Rather to our surprise, the full trust deeds and rules of the two registered schemes were not contained anywhere in the voluminous jury bundles, presumably on the basis that nothing was thought to turn on the small print of the arrangements. But there can be no doubt, in our judgment, that the terms of each pension scheme provided for the accrual of benefits in respect of each member’s individual SIPP held under the scheme. As Mr Enoch QC reminded us, HMRC never sought to challenge the validity of the registered schemes themselves; they continue in existence today, with many members other than those who were introduced by the present defendants.

A sufficient indication of the relevant contractual arrangements can, we think, be gained from the application forms filled in by the clients, several of which were included in the bundle. Thus, the application form for membership of the Purplecircle/Redswan private pension plan contained the following declarations to be made by the applicant:

“(i)

I hereby apply for membership of the Plan and agree to be bound by its trust deed and rules …

…

(iv)

I understand that there is a single Plan within which are held separate, segregated assets for my benefit forming my “membership”

(v)

I request the Plan Trustees to provide such benefits in line with my funds as may be required from time to time in accordance with HMRC requirements

(vi)

In return for the services to be provided, I agree and authorise the payment of the charges as detailed in the Fee Agreement & Terms of Business document current at the date of this application and any superseding it … ”

It appears, therefore, that the contributions made by each member were held separately by the pension scheme trustees, and were held by the trustees to provide the member with benefits in accordance with HMRC requirements. Arrangements of this nature were in our view clearly arrangements made under the scheme for the accrual of benefits to or in respect of the member within the meaning of s.151(2). Accordingly, the conclusion that the clients were active members is reached not only by a process of elimination, but (more positively) by application of the test laid down in s.151(2) itself.

We would add that, in reaching this conclusion, we do not consider it necessary to have regard to the Explanatory Notes to clause 142 of the Finance Bill 2004, which was enacted as s.152 of the Act. On the other hand, the terms of s.152 itself make it clear that the “arrangement” in relation to a member of the scheme means “an arrangement relating to the member under the pension scheme”. This therefore reinforces the point that one has to look at the terms of the pension scheme itself in order to identify the relevant arrangements. Although nothing turns on the point, we think that the arrangements relating to the client members must have been “money purchase arrangements” as defined in ss.152(2), (4) and (5).

For these reasons, which are essentially the same as those given by the judge, we consider that he was clearly correct to uphold the submissions of no case to answer on counts 2 and 8.

Was there a case to answer on counts 1 and 7?

The way the prosecution case was put

Counts 1 and 7 allege that the fraudulent agreement was to divert the RAS money away from the pension scheme once it had been lawfully obtained. The only point of counts 1 and 7 was to seek to set up that case if necessary.

The judge dealt with the diversion of RAS first. He decided that on the evidence as it currently stood it was open to the jury to infer that there was an agreement that the defendants could put the RAS, or at least some of it, “to their own use”. He also decided that it was open to the jury to conclude that the agreement to divert funds in this way was dishonest.

He then turned to the question of who the victim of this conspiracy was. The prosecution, by that stage, was contending that it was both HMRC and the SIPP clients. The defence submitted that neither HMRC nor the SIPP clients could have been defrauded and thus there was no case to answer on these counts.

The judge was referred to the analysis of the offence of conspiracy to defraud by Hickinbottom J in the case of R v Evans and others [2014] 1 WLR 2817. At paragraphs 28-48 of that judgment there is an examination of the scope of the offence of conspiracy to defraud in the light of the analysis of the late Professor Sir John Smith, in his Law of Theft 2007 Edition at paragraph 5.12:

“There are two versions of the offence of conspiracy to defraud:”

(i)

agreeing dishonestly to prejudice another’s economic interest; or

(ii)

agreeing to mislead a person with intent to cause him to act contrary to his duty.”

It was on the basis of the first version that the prosecution put their case. They said that both HMRC and the clients had an economic interest in the RAS and that any agreement to divert it would have been to prejudice their economic interests. The second version, which might otherwise be appropriate, requires a deception and requires the person who is deceived to act otherwise than in accordance with their duty. Given the judge’s ruling on counts 2 and 8, HMRC had no alternative but to pay the RAS and were not deceived.

Were HMRC “victims”?

The defence submitted that once RAS was paid into the SIPP holder’s bank account HMRC ceased to have any proprietary or economic interest in it. Thus a conspiracy to divert RAS from the pension was not one to defraud HMRC.

The prosecution submitted that HMRC retained an economic interest in the RAS after it was paid to the SIPP holder. They submitted that there was an obligation to invest the RAS for the purpose of a pension and that if it was not so invested and was used for some other purpose then HMRC’s economic interests were or might be put at risk. They did not contend that HMRC had a proprietary interest in the RAS (which they obviously did not). Instead they submitted that HMRC had an economic interest in the RAS which was analogous to those deemed to exist pursuant to s.5(3) of the Theft Act 1968 and section 4 of the Fraud Act 2006.

The prosecution cited a number of authorities both to the judge and to us which they submitted supported this contention. They were R v Hall (1972) 56 Cr App R 547, Wakeman v Farrar [1974] CLR 136, R v Meech & Ors (1974) 58 Cr App R74, R v McHugh [1993] 97 Cr App R 335, R v Wain [1995] 2 Cr App R 660, Klineberg v Marsden [1999] 1 Cr App R 427, R v Floyd (2000) CLR 411, and Re Holmes [2005] 1 Cr App R 16. It is unnecessary to burden this judgment with an analysis of these decisions. None of them comes close to establishing any principle of the kind contended for.

S.5 of the Theft Act 1968 provides

“5.

“Belonging to another”.

(1)

Property shall be regarded as belonging to any person having possession or control of it, or having in it any proprietary right or interest (not being an equitable interest arising only from an agreement to transfer or grant an interest).

(2)

Where property is subject to a trust, the persons to whom it belongs shall be regarded as including any person having a right to enforce the trust, and an intention to defeat the trust shall be regarded accordingly as an intention to deprive of the property any person having that right.

(3)

Where a person receives property from or on account of another, and is under an obligation to the other to retain and deal with that property or its proceeds in a particular way, the property or proceeds shall be regarded (as against him) as belonging to the other.

Section 4 of the Fraud Act 2006 provides:

“4.

Fraud by abuse of position

(1)

A person is in breach of this section if he–

(a)

occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,

(b)

dishonestly abuses that position, and

(c)

intends, by means of the abuse of that position–

(i)

to make a gain for himself or another, or

(ii)

to cause loss to another or to expose another to a risk of loss.

(2)

A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.”

The judge rejected the suggestion that these provisions were capable of establishing that HMRC had any economic interest in the destination of RAS which they had lawfully paid into a registered pension scheme, as do we. Those are provisions which create or define an element of statutory offences which were not charged in this case. They are simply irrelevant to the definition of the kind of economic interest which must exist before the offence of conspiracy to defraud can be committed.

Accordingly the judge was right to hold that they were of no value in the current exercise. HMRC were under an obligation in this respect to make a payment of RAS in circumstances where it was due. Thereafter HMRC had no further continuing interest in that money at all. In those circumstances it follows that in this case any agreement to extract RAS from the SIPP clients’ pension schemes was not one to prejudice the economic interests of HMRC and could not, as a matter of law, be a conspiracy to defraud HMRC.

Were the SIPP clients victims?

The prosecution conceded that the jury might find that all of the SIPP clients were parties to the conspiracy. A number of the clients of both schemes were called by the prosecution to give evidence. They all said that so far as they were concerned they were involved in a genuine scheme. The judge remarked that “they would say that, wouldn’t they”. He said that the jury might accept what they said, but they would be equally entitled to conclude that the SIPP clients knew full well what was going on, that they joined in the conspiracy willingly and that the “cashback” payments amounted to their “cut”. If that was so, the judge held that the jury could not be sure that some or all of the SIPP clients were victims and not co-conspirators. We have referred to this passage of the judge’s reasoning at paragraph 89 above.

In reality, the jury could not exclude the possibility that the SIPP clients had simply received a payment for doing nothing. They never invested any money in any pension and were not exposed to any financial risk because of the “conversion option”. It is highly likely that none of them will ever receive a pension because the money has been diverted and not invested on their behalf. The jury may have found that there were some who thought that a scheme in which they had never invested a penny would provide them with a pension. The prosecution could not, however, prove that. If they were conspirators, knowing exactly what was going on, it cannot be said that their economic interests were injured or put at risk in any way. Similarly, if they thought that the schemes were legitimate methods of enriching the promoters of the schemes at the taxpayers’ expense but did not expect to get anything except their initial cashback payment out of it, then they could not be described as “victims” in that sense. Conspiracy to defraud of the first variety cannot be committed without a victim with, in this case, an interest in the money which was diverted.

It is not for us, as we have said at paragraph 11, to determine anything more than whether the case as eventually put by the prosecution gave rise to a case to answer. We are not concerned in any way with any other issue about the schemes nor with any regulatory matter arising from the schemes. We have concluded simply that the judge was correct in his ruling and that the way in which the prosecution eventually put their case was misconceived. Although that is the narrow ambit of our decision, it followed that the appeal was dismissed and the undertaking given by the prosecution (which was required in this form of appeal) took effect. The prosecution were not entitled to amend their case or put it any other way.