A Ltd & Orsi, R. v

This is an appeal by the Serious Fraud Office (SFO) against rulings on the admission of evidence made by His Honour Judge Pegden QC in the course of a trial at Southwark Crown Court.

A Ltd is a company incorporated in England and Wales which is part of a multinational conglomerate ("the Group") operating in the power generation and transport sectors. In November 2000, X was appointed chairman and chief executive of A Ltd; Y was managing an Indian subsidiary within the Group. BK, who was a director of A Ltd, is not a defendant as he is a Swiss national currently in Switzerland and, as is his right under Swiss law, refuses extradition. Moreover, he has refused to make any statements in respect of proceedings in England and Wales and has, we are informed, declined to assist not only the prosecution but also the defence.

In short, the Serious Fraud Office ("SFO") who are responsible for the conduct of this prosecution allege that, between June 2000 and November 2006, A Ltd via its directing minds X and BK paid bribes in order to secure various transport contracts for companies or divisions within the conglomerate. The bribes were all paid from an English bank account to officials or other agents of three foreign organisations in India, Poland and Tunisia. It is said that that the bribes were disguised as legitimate payments to 'consultants' for apparently genuine services. In aid of this subterfuge, A Ltd entered into so-called 'consultancy agreements' for the benefit of Group companies hoping to win business. In fact, no genuine consultancy services were rendered. The 'consultancy agreements' were merely a front to disguise the bribery.

The SFO allege that X was involved in the corrupt payments in both India and Poland and Y was involved in negotiating and arranging two false 'consultancy agreements' in India. As a result, the respondents now face a severed indictment of two offences of conspiracy, a third offence awaits resolution. We emphasise that these facts form the basis of these charges but have not yet been tested in any way by criminal trial and nothing in this judgment is to be construed as suggesting any conclusion as to their accuracy.

Owing to the importance of the case and the legal issues that have arisen, there has been a significant number of submissions, hearings and rulings before a trial has been able to commence. It is unnecessary to identify these preliminary issues in full but, in order to understand this appeal, some account of the history is necessary.

We start with a hearing took place on 4 and 5 May 2016 at which the defence, among other things, made an application pursuant to section 78 of the Police and Criminal Evidence Act 1984 ("PACE") to exclude all evidence of BK and another director, JL, whose evidence the prosecution relied upon as 'directing minds' of the company, A Ltd. It is not in issue that BK is and was a 'directing mind'.

In his ruling of 11 May 2016, the judge appeared to reject the defence application under section 78 to exclude the evidence of BK and JL, although the precise effect of his ruling has been the subject of argument and we shall return to it below. He explained his reasoning as follows:

This reasoning merely consisted of a citation from paragraphs 33-63 and 33-65 of Archbold Criminal Pleadings Evidence and Practice 2016 which deals specifically with acts and declarations in furtherance of the common design in the context of a case of conspiracy. The judge went on held:

The judge then dealt with hearsay evidence in the form of BK's interviews with Swiss police and case management. He put off further discussions of these issues to the commencement of the trial.

In light of this ruling, the prosecution considered afresh the contents of the jury bundle and a revised jury bundle index was served on 23 May 2016. Among the documents remaining in the jury bundle were BK's notebook entries and emails and other correspondence involving the conglomerate or its subsidies.

Subsequently, at hearings on 2 and 7 June 2016, Mr Cameron QC for A Ltd objected among other things to aspects of the revised jury bundle, in particular with regard to the notebook entries and email and other correspondence.

That resulted in a ruling of the judge on 8 June 2016 which was, in fact, supposed to be the third day of the trial (a jury having been selected although no other steps had been taken). The ruling began by the judge recounting the 11 May 2016 ruling to the extent that has been set out in this judgment as "background to the [8 June 2016] ruling" in respect of the notebook entries. With regard to those entries, the judge held:

With regard to the emails, the judge held them to be admissible as business records pursuant to section 117 of the Criminal Justice Act 2003 ("the 2003 Act"). However, "final scrutiny" was required to determine their reliability and to identify "the purpose for which the document is relied upon and ... the status of the author" (under section 117(7) of the 2003 Act).

Having informed the court that it intended to appeal and its agreement that, in respect of the offences which are the subject of appeal, the relevant defendant (in this case A Ltd) should be acquitted if leave to appeal is not obtained or the appeal is abandoned (see section 58(4) and (8)-(10) of the 2003 Act), the prosecution seeks to leave to appeal, and if successful, to appeal the judge's 8 June 2016 ruling in respect of the notebook entries under section 58 of the 2003 Act on the basis that the judge's conclusions were wrong. The general right of appeal is set out in section 58(1) and (2) and covers a ruling in relation to a trial on indictment relating to one or more offences included in the indictment. Setting out the powers of the court it is clear that a ruling may not be reversed on appeal unless it is satisfied (per s. 67 of the 2003 Act):

There are four main issues raised in this appeal:

The respondent raised as a preliminary point a question of jurisdiction. Mr Cameron QC submitted that the prosecutor's appeal had not been lodged within the strict time-frame permitted by section 58 of the 2003 Act and Part 38 of the Criminal Procedure Rules and the appeal was, therefore, time-barred (c .f. R v. NT [2010] 2 Crim App R 12). Mr Cameron contended that the prosecutor was, in truth, appealing the 11th May ruling rather than the 8 June ruling because it was the earlier ruling which, in substance, governed the decisions made in the later ruling, i.e. the latter ruling merely applied the former.

We can deal with this point comparatively shortly. The two rulings by the judge on 11 May and 8 June were in fact separate. The ruling which is avowedly under appeal is the latter ruling of 8 June which was the operative ruling which contained the judge's actual decisions to exclude specific documents and categories of evidence which the prosecutor now seeks to challenge by way of appeal. In the course of the earlier ruling, the judge was at pains to emphasise that the actual admissibility of the categories of evidence in the four draft bundles of documents would best be dealt with and decided at the trial (transcript, p. 69-71). Mr Farrell QC for the prosecutor also explained at the hearing on 7 June that the prosecution had not understand the judge to be saying that every document which was not in furtherance of the conspiracy that referred to BK was not admissible (transcript, p. 98).

The fact that the genesis of some of the reasoning of the 8 June ruling may be found in the 11 May ruling is not to the point. On any view, the 8 June ruling constituted a "ruling" within the meaning of section 75 of the 2003 Act and resulted in the exclusion of the BK diaries and the A Ltd e-mails. Section 75 Act defines a ruling as including "... a decision, determination, direction, finding, notice, order, refusal, rejection or requirement". The judge said, in terms, that the 11 May ruling was:

In 11 May 2016 ruling, the judge dealt inter alia with a defence application by A Ltd to exclude the evidence of BK and JL under section 78. On our reading of the ruling, the judge appeared to reject the section 78 application made by the defence. His rationale for doing so appears to have been that the acts and declarations of BK and JL 'in furtherance of the alleged conspiracy' were admissible to prove the participation and the guilt of other absent conspirators (i.e. absent when the acts or declarations were made), provided they satisfied what he called the 'three-pronged test', namely (i) they were made by a conspirator, (ii) they were reasonably open to the interpretation that they were made in furtherance of the alleged conspiracy, and (iii) that there was some evidence beyond the document or utterance itself to prove that the other person was a party to the agreement. The judge also indicated that careful scrutiny would be given at the trial to see if such material did satisfy the 'three-pronged test'.

Mr Cameron QC argues that the way in which this judgment should be interpreted is that far from rejecting the application, the judge exercised his discretion to limit the evidence available to the prosecution by reference to the three-prong test, thereby deliberately excluding other evidence which is admissible in law by reason of the identification principle. Although referring to the principles of admissibility concerning a directing mind, the judge's judgment does not deal with or apply that concept at all; neither does he provide any reasoning for exercising his discretion to dis-apply it. Mr Cameron concedes that the judge did not express himself as exercising his discretion under section 78; if Mr Cameron is right, therefore, we consider it a surprising failure by this experienced judge and we can understand why the prosecution did not so regard it.

In the 8 June 2016 ruling, the judge dealt with the admissibility of various categories of documents, including BK's diaries. The judge held that the notebook entries were not admissible as business records or hearsay and could not be regarded as "acts and declarations in furtherance of the conspiracy"; he went on to rule that the entries were inadmissible as mere evidence of the state of mind of an absent co-conspirator. To that extent he was right but he went on to say that they were inadmissible against the company "to prove the company's guilt by the identification principle". As a matter of pure law, that is incorrect and, yet again, the judge did not say that he had ruled or was purporting to rule that this evidence inadmissible solely in the exercise of his discretion. Whilst the judge cited extensively the 11 May ruling in his 8 June ruling, the subject matter of the two rulings was, as a matter of fact, materially different.

For these reasons, in our judgment, the prosecutor's appeal under section 58 of the Criminal Justice Act 2003 is brought in time. Accordingly, we reject the argument that this court has no jurisdiction to hear either the application for leave to appeal or the substantive appeal.

We must emphasise that this conclusion is not to encourage attempts to re-run arguments that have been unsuccessful in an effort to generate a late appeal. However, in the context of this case, we reject the submission that the Crown are seeking to take that course. At its lowest, the ruling was ambiguous, having failed specifically to deal with the issues arising out of the identification principle and failing in any sense to demonstrate that this decision was the exercise of the judge's discretion.

We turn to the second issue, and the heart of this appeal, namely the challenge to the judge's ruling that the BK diary entries were "inadmissible". The judge's reasoning for this decision appears to have been twofold. First, the BK diaries entries or notebooks merely went "to the state of mind of an absent co-conspirator" and were, therefore, inadmissible. Second, BK diary entries could not be used "to prove the guilt of the separate legal entity company" unless they satisfied the 'three-pronged test' governing the admissibility of acts and declarations, and he concluded that they did not do so. In coming to the latter conclusion, the judge said this (transcript, pp. 4-5):

That appears to be a hard edged decision of law rather than one that flows from the exercise of discretion. In our judgment, it is clear from this latter passage that the judge confused or eliding two quite separate concepts, namely (a) the 'identification' principle which is used to identify the directing mind and will of a corporate body and (b) the so-called 'three-pronged test' governing the admissibility of acts and declarations made by one co-conspirator in the absence of another. In doing so, the judge fell into error for the reasons we set out below.

The 'identification' principle is a well-established principle of law whereby corporate bodies are deemed to act and acquire knowledge through those individuals who can be identified as "the directing mind and will of the corporation" (per Viscount Haldane LC in Lennard's Carrying Company Limited v Asiatic Petroleum Company Limited [1915] AC 705, at page 713; and see Tesco Supermarkets Ltd v Nattrass [1972] AC 153) in which Viscount Dilhorne stated the test at page 187:

This principle was analysed and restated in its application to offences requiring proof of mens rea by this Court in R v St Regis Paper Co Ltd [2011] EWCA Crim 2527; [2012] Cr App R 14. Save in those cases where consideration of the legislation creating the offence in question leads to a different and perhaps broader approach, as discussed in Meridian Global Funds Management Asia Ltd v The Securities Commission [1995] 2 AC 500, the test for the determining those individuals whose actions and state of mind are to be attributed to a corporate body remains that established in Tesco Supermarkets Ltd v Nattrass, to which we have already referred.

The prosecution deployed the 'identification' principle to prove the guilt of A Ltd. It alleged that BK (a director of A Ltd) was a (or the) "directing mind and will" of A Ltd and pointed to the guilty acts and knowledge both of BK and X (both directors of A Ltd) to prove the company's guilt: in that regard, it is not in issue that each is properly to be regarded as "the directing mind and will" of A Ltd. Thus, the Prosecution sought to rely on BK's diary or notebook entries to prove BK's guilty state of mind and, ergo, the company's guilty state of mind. In this regards, the prosecution's approach was entirely orthodox and unobjectionable.

It is well-established that the acts and declarations of one conspirator in furtherance of the common design may be admissible against a co-conspirator. This is so whether or not the evidence is hearsay evidence, because such evidence is an exception to the rule against hearsay (see section 118 of the 2003 Act). By way of contrast, matters merely recorded by a conspirator for his convenience, or mere narratives, descriptions of past events or records made after the conclusion of the conspiracy are not declarations 'in furtherance of the common design' and cannot be used to prove the guilt of any person other than the maker. That also is a reference to the same paragraph of Archbold to which the learned judge referred and may itself have caused him to misunderstand its application in the context of this case.

Acts and declarations in furtherance of a common design are admissible for one of the three purposes: (i) to establish the existence of the conspiracy; (ii) to establish the involvement of the conspirator who made the acts and declarations; and (iii) is to establish the involvement of another co-conspirator not present when the things were said or done (Archbold, ibid, [33-64]). That the learned judge identified in his subsequent citation from Archbold.

Where evidence is relied upon for the third purpose, that is to say to establish the involvement of another co-conspirator not present when things were said or done a 'narrower' test must be applied (referred to by the judge as the 'three-pronged test'). To be admissible under this test the trial judge must be satisfied that the act or declaration (a) was made by a conspirator, (b) was reasonably open to the interpretation that it was made in furtherance of the alleged agreement, and (c) there is some further evidence beyond the document or utterance itself to prove that the other was a party to the agreement (Archbold, ibid, 33-66; and see Ahern v The Queen [1988] 65 CLR 87 for a comprehensible discussion of the general principles).

We start by going back to first principles. The error of the judge on the face of the rulings was to consider the evidence only through the prism of co-conspirators. It is, of course, true that a director and a corporation comprise separate legal personalities and, if only one mind is involved, they cannot in law conspire together. In R v McDonnell [1966] 1 QB 233, 50 Cr App R 5, Nield J put the matter in this way (at 246):

The situation here, however, is different. There is no question of only one human mind being implicated and, as against the company, the evidence of the directing minds is admissible as direct evidence against the company. The only relevant principle or test to be applied as between BK and A Ltd was the 'identification' principle, i.e. proof of the guilt of the directing mind and will (BK) was probative of the guilt of the corporation (A Ltd). Thus, insofar as the diary entries of BK were probative of his guilty state of mind at the relevant time, they were relevant and admissible also to prove the guilt of A Ltd, since he (BK) was a directing mind and will of A Ltd. In our judgment, the judge should have admitted the diary entries of BK on this simple basis.

It follows that the 'three-pronged test' has no application in relation to the direct evidence against A Ltd. It is only relevant as between the co-conspirators, i.e. proof of the acts and declarations of one conspirator (BK) may establish the involvement of other co-conspirators absent at the time of the acts or declarations (e.g. RJ and X). Neither, without careful reasons, is it appropriate to use that test as a tool to cleave the evidence as an apparent exercise of discretion.

Mr Cameron QC accepted that the sole director of a one-man company cannot conspire with that company because he would, in effect, be conspiring with himself; but he submitted in writing that a directing mind of one company can conspire with that company if he is acting in some other capacity, for example, as the directing mind of another company. Mr Cameron QC further submitted that although BK may have been acting as the directing mind of A Ltd when he was acting in his capacity as a director of A Ltd, he was not acting as the directing mind of A Ltd when he was acting in his capacity as the head of the compliance department of a parent or associate company. While true as far as it goes, this submission does not assist A Ltd. The critical question is to examine the knowledge and state of mind of BK when acting for A Ltd. That is not confined only to such knowledge and other mental elements as he may have acquired while acting for A Ltd. He brings to his actions on behalf of A Ltd all the knowledge which he had by then acquired, in whatever capacity. It would be absurd to suggest that, although he formed an intention to pay a bribe while acting as head of compliance for a parent or associated company (A S.A.), this intention was to be ignored when, acting as a director of A Ltd, he put that intention into practice.

Before parting from this issue, we ought to address what was Mr Cameron's underlying argument namely that it was unfair for A Ltd to have to address allegations of its criminality when its controlling mind whose behaviour was relied upon as proving its guilt was not also charged with crime and had been unwilling to assist in the preparation of its defence. These facts were at the forefront of the argument that evidence relating to BK should be ruled inadmissible pursuant to section 78 of PACE. In reality, however, a corporation can only operate through its directing mind or minds and their knowledge is, and must remain, the knowledge of the corporation. The presence or otherwise of a directing mind at the trial is irrelevant. Were it otherwise, as the judge observed, had the directing mind died, become incapacitated (as well as one whose attendance at trial could not be secured, perhaps because he had deliberately absented himself), it would not be possible to prosecute the relevant corporation however egregious the conduct. The description of BK's diary entries as "musings" which may or may not be difficult to interpret could indeed be correct; that, however, should be a matter for the jury after careful direction by the judge.

We turn to the third issue, namely, whether the judge's ruling that the A Ltd e-mails were admissible as hearsay was correct in law. The judge held that the A Ltd e-mails and other correspondence with BK were prima facie admissible as "business records" pursuant to section 117 of the 2003 Act because they comprised correspondence between employees, copied to BK, and therefore fell within the relevant exception to the rule against hearsay.

In so ruling, the judge implicitly rejected the prosecutor's submission that this evidence did not constitute hearsay because it was being relied upon to prove BK's own state of mind (and, therefore, the guilty of A Ltd). To this extent, the judge appears again to have fallen into error and indeed this finding may provide a window on the judge's thinking in relation to the earlier issue. It is not apparent from his ruling that he appreciated that the A Ltd e-mails were being relied upon for the purpose of proving BK's state of mind, or that he regarded them as admissible for this purpose.

Mr Farrell QC, for the prosecutor, submitted that the A Ltd e-mails were relevant to BK's knowledge and state of mind at the time and were admissible as such. We agree. By way of example, in one an e-mail dated 8 March 2002 in which BK was informed that the Hong Kong office of the corrupt consultants had "no managers (and perhaps no activity either in HK)". We accept Mr Farrell's submission that this e-mail was relevant as to whether BK believed the activities of the consultant company were genuine or a sham, regardless of the truth of the statement.

It would appear that the judge was led into error by the same flawed reasoning as governed his decision in respect of the notebook entries, namely that the A Ltd e-mails did not satisfy the 'three-pronged test'.

In view of our decision on issues (2) and (3) above, it is not necessary to deal with the fourth issue, whether judge's 8 June 2016 ruling was, in any event, unfair and arbitrary in the circumstances.

For the above reasons, we give permission to appeal and allow the prosecution appeal on the grounds that the ruling was wrong in law, involving errors both of law and principle. The matter must now proceed to trial: see section 61(5) of the 2003 Act. We add only that it is unfortunate that this question of law, clearly of very real importance to the way in which the trial would be conducted, was not sufficiently identified or resolved until the jury had been sworn so that it could, if necessary, be tested by way of appeal under section 9(11) of the Criminal Justice Act 1987. The cost of not doing so has been substantial.

We will hear submissions as to the appropriate directions to be given in relation to the future conduct of this trial. In particular, given that the initial appeal has been reported, and that the particulars continue to be summarised in oblique form, we invite submissions on whether the provisions of section 71 of the 2003 Act should continue to apply to the judgment in this case.

An application is made pursuant to section 61(4) that the court should order that a fresh trial take place in the Crown Court for the offences which have been the subject of this appeal. The respondent to the appeal, that is to say the defendant in the trial with whom a co-defendant, who has not appeared in the appeal but who has been allowed to make submissions to the court, both argue that the proceedings ought to be resumed in the Crown Court before Judge Pegden.

For the avoidance of all doubt, we see no reason why Judge Pegden should not continue to conduct this trial and assuming that it can be organised in good time, that would obviously be the better course and the trial will be resumed. However, although the general rule is that a trial once commenced before a judge who conducts a preparatory hearing should continue before that judge there can properly be exceptions to that rule. If when the matter is considered in the course of case management, the trial can be conducted more expeditiously before a different judge, there is no reason why that should not take place. But we make no order requiring the judge to be a different judge.

In anonymised form, the judgment may be published. In the meantime, we give permission for the parties to use it in proceedings and indeed for the SFO and anyone else who has otherwise lawfully obtained a copy to use it in any other proceedings. The Crown’s application for costs should be made in writing with a response by Mr Cameron: that issue will be resolved next term.