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Expert evidence – updated Part 19 Criminal Procedure Rules 2015

(c) FreeFoto.comPart 19 of the Criminal Procedure Rules 2015 dealing with expert evidence in Crown Courts and Magistrates’ Courts in England & Wales has been updated with effect from 5 October 2015. For convenience the new materials are brought together in a single document here.

The Criminal Procedure Rules are in future to be referred to by the abbreviation CrimPR to distinguish them from the Civil Procedure Rules, see new rule 2.3.(2).

 

Expert evidence – guide to the amendments to the Rules

Part 19 (Expert evidence) is amended to include a new rule about an expert witness’ obligations to the court.  At the same time the Criminal Procedure Rules as a whole have been rearranged – the new Part 19 dealing with expert evidence previously appeared as Part 33 of the 2014 edition of the rules.

Rule 19.2 (Expert evidence; Expert’s duty to the court) now requires an expert witness, as part of her or his duty to the court, to help the court in some of the same ways as a party to the case, by complying with directions (for example, as to the time by when a report must be served), and by warning the court of any significant failure to act as required by a direction (for example, by warning of substantial delay in the preparation of a report).

In response to observations by the Court of Appeal in its judgment in R v Reynolds, R v Rosser [2014] EWCA Crim 2205, and in response to reports by Rule Committee members of increasing difficulties in obtaining expert reports within the same times as before, the Committee agreed that an expert’s implicit duty to the court to give a realistic estimate of the time within which expert evidence can be prepared, and to adhere to that estimate, should be made explicit.

 

Expert evidence – the Rules as amended

When this part applies
19.1.
(1) This Part applies where a party wants to introduce expert opinion evidence.

(2) A reference to an ‘expert’ in this Part is a reference to a person who is required to give or prepare expert evidence for the purpose of criminal proceedings, including evidence required to determine fitness to plead or for the purpose of sentencing.

Expert’s duty to the court

19.2.

(1) An expert must help the court to achieve the overriding objective —

    (a) by giving opinion which is —
      (i) objective and unbiased; and
      (ii) within the expert’s area or areas of expertise; and
    (b) by actively assisting the court in fulfilling its duty of case management under rule 3.2, in particular by —
      (i) complying with directions made by the court, and
      (ii) at once informing the court of any significant failure (by the expert or another) to take any step required by such a direction.

(2) This duty overrides any obligation to the person from whom the expert receives instructions or by whom the expert is paid.

(3) This duty includes obligations —

    (a) to define the expert’s area or areas of expertise —

      (i) in the expert’s report, and
      (ii) when giving evidence in person;
    (b) when giving evidence in person, to draw the court’s attention to any question to which the answer would be outside the expert’s area or areas of expertise; and
    (c) to inform all parties and the court if the expert’s opinion changes from that contained in a report served as evidence or given in a statement.

Introduction of expert evidence

19.3.
(1) A party who wants another party to admit as fact a summary of an expert’s conclusions must serve that summary —

    (a) on the court officer and on each party from whom that admission is sought;
    (b) as soon as practicable after the defendant whom it affects pleads not guilty.

(2) A party on whom such a summary is served must —

    (a) serve a response stating —
      (i) which, if any, of the expert’s conclusions are admitted as fact, and
      (ii) where a conclusion is not admitted, what are the disputed issues concerning that conclusion; and
    (b) serve the response —
      (i) on the court officer and on the party who served the summary,
      (ii) as soon as practicable, and in any event not more than 14 days after service of the summary.

(3) A party who wants to introduce expert evidence otherwise than as admitted fact must —

    (a) serve a report by the expert which complies with rule 19.4 (Content of expert’s report) on —
      (i) the court officer, and
      (ii) each other party;
    (b) serve the report as soon as practicable, and in any event with any application in support of which that party relies on that evidence;
    (c) serve with the report notice of anything of which the party serving it is aware which might reasonably be thought capable of detracting substantially from the credibility of that expert;
    (d) if another party so requires, give that party a copy of, or a reasonable opportunity to inspect —
      (i) a record of any examination, measurement, test or experiment on which the expert’s findings and opinion are based, or that were carried out in the course of reaching those findings and opinion, and
      (ii) anything on which any such examination, measurement, test or experiment was carried out.

(4) Unless the parties otherwise agree or the court directs, a party may not —

    (a) introduce expert evidence if that party has not complied with paragraph (3);
    (b) introduce in evidence an expert report if the expert does not give evidence in person.

Content of expert’s report

19.4.
Where rule 19.3(3) applies, an expert’s report must —

    (a) give details of the expert’s qualifications, relevant experience and accreditation;
    (b) give details of any literature or other information which the expert has relied on in making the report;
    (c) contain a statement setting out the substance of all facts given to the expert which are material to the opinions expressed in the report, or upon which those opinions are based;
    (d) make clear which of the facts stated in the report are within the expert’s own knowledge;
    (e) say who carried out any examination, measurement, test or experiment which the expert has used for the report and —
      (i) give the qualifications, relevant experience and accreditation of that person,
      (ii) say whether or not the examination, measurement, test or experiment was carried out under the expert’s supervision, and
      (iii) summarise the findings on which the expert relies;
    (f) where there is a range of opinion on the matters dealt with in the report —
      (i) summarise the range of opinion, and
      (ii) give reasons for the expert’s own opinion;
    (g) if the expert is not able to give an opinion without qualification, state the qualification;
    (h) include such information as the court may need to decide whether the expert’s opinion is sufficiently reliable to be admissible as evidence;
    (i) contain a summary of the conclusions reached;
    (j) contain a statement that the expert understands an expert’s duty to the court, and has complied and will continue to comply with that duty; and
    (k) contain the same declaration of truth as a witness statement.

Expert to be informed of service of report

19.5.
A party who serves on another party or on the court a report by an expert must, at once, inform that expert of that fact.

Pre-hearing discussion of expert evidence

19.6.
(1) This rule applies where more than one party wants to introduce expert evidence.

(2) The court may direct the experts to —

    (a) discuss the expert issues in the proceedings; and
    (b) prepare a statement for the court of the matters on which they agree and disagree, giving their reasons.

(3) Except for that statement, the content of that discussion must not be referred to without the court’s permission.

(4) A party may not introduce expert evidence without the court’s permission if the expert has not complied with a direction under this rule.

Court’s power to direct that evidence is to be given by a single joint expert

19.7.
(1) Where more than one defendant wants to introduce expert evidence on an issue at trial, the court may direct that the evidence on that issue is to be given by one expert only.

(2) Where the co-defendants cannot agree who should be the expert, the court may —

    (a) select the expert from a list prepared or identified by them; or
    (b) direct that the expert be selected in another way.

Instructions to a single joint expert

19.8.
(1) Where the court gives a direction under rule 19.7 for a single joint expert to be used, each of the co-defendants may give instructions to the expert.

(2) A co-defendant who gives instructions to the expert must, at the same time, send a copy of the instructions to each other co-defendant.

(3) The court may give directions about —

    (a) the payment of the expert’s fees and expenses; and
    (b) any examination, measurement, test or experiment which the expert wishes to carry out.

(4) The court may, before an expert is instructed, limit the amount that can be paid by way of fees and expenses to the expert.

(5) Unless the court otherwise directs, the instructing co-defendants are jointly and severally liable for the payment of the expert’s fees and expenses.

Court’s power to vary requirements under this Part

19.9.
(1) The court may extend (even after it has expired) a time limit under this Part.

(2) A party who wants an extension of time must —

    (a) apply when serving the report, summary or notice for which it is required; and
    (b) explain the delay.

 

Expert evidence – the Practice Direction

19A.1 Expert opinion evidence is admissible in criminal proceedings at common law if, in summary, (i) it is relevant to a matter in issue in the proceedings; (ii) it is needed to provide the court with information likely to be outside the court’s own knowledge and experience; and (iii) the witness is competent to give that opinion.

19A.2 Legislation relevant to the introduction and admissibility of such evidence includes section 30 of the Criminal Justice Act 1988, which provides that an expert report shall be admissible as evidence in criminal proceedings whether or not the person making it gives oral evidence, but that if he or she does not give oral evidence then the report is admissible only with the leave of the court; and CrimPR Part 19, which in exercise of the powers conferred by section 81 of the Police and Criminal Evidence Act 1984 and section 20 of the Criminal Procedure and Investigations Act 1996 requires the service of expert evidence in advance of trial in the terms required by those rules.

19A.3 In the Law Commission report entitled ‘Expert Evidence in Criminal Proceedings in England and Wales’, report number 325, published in March, 2011, the Commission recommended a statutory test for the admissibility of expert evidence. However, in its response the government declined to legislate. The common law, therefore, remains the source of the criteria by reference to which the court must assess the admissibility and weight of such evidence; and CrimPR 19.4 lists those matters with which an expert’s report must deal, so that the court can conduct an adequate such assessment.

19A.4 In its judgment in R v Dlugosz and Others [2013] EWCA Crim 2, the Court of Appeal observed (at paragraph 11): “It is essential to recall the principle which is applicable, namely in determining the issue of admissibility, the court must be satisfied that there is a sufficiently reliable scientific basis for the evidence to be admitted. If there is then the court leaves the opposing views to be tested before the jury.” Nothing at common law precludes assessment by the court of the reliability of an expert opinion by reference to substantially similar factors to those the Law Commission recommended as conditions of admissibility, and courts are encouraged actively to enquire into such factors.

19A.5 Therefore factors which the court may take into account in determining the reliability of expert opinion, and especially of expert scientific opinion, include:

    (a) the extent and quality of the data on which the expert’s opinion is based, and the validity of the methods by which they were obtained;
    (b) if the expert’s opinion relies on an inference from any findings, whether the opinion properly explains how safe or unsafe the inference is (whether by reference to statistical significance or in other appropriate terms);
    (c) if the expert’s opinion relies on the results of the use of any method (for instance, a test, measurement or survey), whether the opinion takes proper account of matters, such as the degree of precision or margin of uncertainty, affecting the accuracy or reliability of those results;
    (d) the extent to which any material upon which the expert’s opinion is based has been reviewed by others with relevant expertise (for instance, in peer-reviewed publications), and the views of those others on that material;
    (e) the extent to which the expert’s opinion is based on material falling outside the expert’s own field of expertise;
    (f) the completeness of the information which was available to the expert, and whether the expert took account of all relevant information in arriving at the opinion (including information as to the context of any facts to which the opinion relates);
    (g) if there is a range of expert opinion on the matter in question, where in the range the expert’s own opinion lies and whether the expert’s preference has been properly explained; and
    (h) whether the expert’s methods followed established practice in the field and, if they did not, whether the reason for the divergence has been properly explained.

19A.6 In addition, in considering reliability, and especially the reliability of expert scientific opinion, the court should be astute to identify potential flaws in such opinion which detract from its reliability, such as:

    (a) being based on a hypothesis which has not been subjected to sufficient scrutiny (including, where appropriate, experimental or other testing), or which has failed to stand up to scrutiny;
    (b) being based on an unjustifiable assumption;
    (c) being based on flawed data;
    (d) relying on an examination, technique, method or process which was not properly carried out or applied, or was not appropriate for use in the particular case; or
    (e) relying on an inference or conclusion which has not been properly reached.

NOTE: A previous article dealing with the 2014 revisions to the Criminal Procedure Rules can be found HERE.

Expert evidence – updated Part 33 Criminal Procedure Rules 2014

Photo 33 copyright David Winch 2014Part 33 of the Criminal Procedure Rules dealing with expert evidence in Crown Courts and Magistrates’ Courts in England & Wales has been updated with effect from 6 October 2014.  For convenience the new materials are brought together in a single document here.

 

Expert evidence – official guide to the amendments to the Rules

Part 33 (Expert evidence) is amended to include new rules about an expert witness’ duty to the court and about establishing the reliability of expert evidence.

Rule 33.1 is amended to redefine the scope of the Part.  Rule 33.2 is amended to redefine an expert’s duty to the court.  Rule 33.3 is amended to supply the procedure for introducing a summary of an expert’s conclusions, and to require service of information detrimental to an expert’s credibility.  Rule 33.4 is amended to require that an expert’s report must include information relevant to assessing the reliability of the expert’s opinion.

In Law Commission Report No. 325, entitled ‘Expert Evidence in Criminal Proceedings’, published in March, 2011, the Commission concluded that “special rules are required for assessing the reliability of expert evidence as a factor bearing on admissibility, and … opinion evidence with insufficient indicia of reliability (that is, pointers to reliability) ought not to be admitted in criminal proceedings … there should be further disclosure obligations in relation to all expert evidence, whether the evidence is relied on by the prosecution or by the defence” (from paragraphs 1.8 to 1.12 of the Report).

The Commission recommended that Parliament should enact legislation which, among other things, would contain a list of ‘indicia of reliability’.  The Government’s response was published last year.  Instead of introducing a Bill, it asked the Rule Committee to make changes to the Criminal Procedure Rules, so as to encourage the prompt introduction of expert evidence due to be relied upon at trial, in order that parties and courts would have enough time to consider it carefully, and so as to require that experts’ reports should deal explicitly with reliability, especially the reliability of scientific evidence.

In response, the Rule Committee has made a number of amendments to the rules accordingly, the purpose of all of which is to clarify what information the court must have so as to be able to make an informed decision about the admissibility of expert evidence, having regard to the reliability of the expert’s opinion and, where relevant, having regard to the expert’s credibility.

Where expert evidence is unlikely to be in dispute, the rules now provide for it to be introduced in a summary, with a full report required only if the conclusions are contested.  Although the rules do not list ‘indicia of reliability’ of the sort recommended by the Law Commission, the Rule Committee has asked the Lord Chief Justice to amend the Criminal Practice Directions that supplement Part 33 of the Rules to include such indicia and to give courts guidance on how to apply them.

[NOTE: A more recent article dealing with the further amendments effective from 5 October 2015 can be found HERE.]

 

Expert evidence – the Rules as amended

When this part applies
33.1.
(1) This Part applies where a party wants to introduce expert opinion evidence.

(2) A reference to an ‘expert’ in this Part is a reference to a person who is required to give or prepare expert evidence for the purpose of criminal proceedings, including evidence required to determine fitness to plead or for the purpose of sentencing.

Expert’s duty to the court

33.2.
(1) An expert must help the court to achieve the overriding objective by giving opinion which is —

    • (a) objective and unbiased; and
    • (b) within the expert’s area or areas of expertise.

(2) This duty overrides any obligation to the person from whom the expert receives instructions or by whom the expert is paid.

(3) This duty includes obligations —

      • (a) to define the expert’s area or areas of expertise —

        • (i) in the expert’s report, and
        • (ii) when giving evidence in person;

(b) when giving evidence in person, to draw the court’s attention to any question to which the answer would be outside the expert’s area or areas of expertise; and

(c) to inform all parties and the court if the expert’s opinion changes from that contained in a report served as evidence or given in a statement.

Introduction of expert evidence

33.3.
(1) A party who wants another party to admit as fact a summary of an expert’s conclusions must serve that summary —

    • (a) on the court officer and on each party from whom that admission is sought;
    • (b) as soon as practicable after the defendant whom it affects pleads not guilty.

(2) A party on whom such a summary is served must —

      • (a) serve a response stating —

        • (i) which, if any, of the expert’s conclusions are admitted as fact, and
        • (ii) where a conclusion is not admitted, what are the disputed issues concerning that conclusion; and

(b) serve the response —

      • (i) on the court officer and on the party who served the summary,
      • (ii) as soon as practicable, and in any event not more than 14 days after service of the summary.

(3) A party who wants to introduce expert evidence otherwise than as admitted fact must —

      • (a) serve a report by the expert which complies with rule 33.4 on —

        • (i) the court officer, and
        • (ii) each other party;

(b) serve the report as soon as practicable, and in any event with any application in support of which that party relies on that evidence;

(c) serve with the report notice of anything of which the party serving it is aware which might reasonably be thought capable of detracting substantially from the credibility of that expert;

(d) if another party so requires, give that party a copy of, or a reasonable opportunity to inspect —

      • (i) a record of any examination, measurement, test or experiment on which the expert’s findings and opinion are based, or that were carried out in the course of reaching those findings and opinion, and
      • (ii) anything on which any such examination, measurement, test or experiment was carried out.

(4) Unless the parties otherwise agree or the court directs, a party may not —

    • (a) introduce expert evidence if that party has not complied with paragraph (3);
    • (b) introduce in evidence an expert report if the expert does not give evidence in person.

Content of expert’s report

33.4.
Where rule 33.3(3) applies, an expert’s report must —

    • (a) give details of the expert’s qualifications, relevant experience and accreditation;
    • (b) give details of any literature or other information which the expert has relied on in making the report;
    • (c) contain a statement setting out the substance of all facts given to the expert which are material to the opinions expressed in the report, or upon which those opinions are based;
    • (d) make clear which of the facts stated in the report are within the expert’s own knowledge;
    • (e) say who carried out any examination, measurement, test or experiment which the expert has used for the report and —
      • (i) give the qualifications, relevant experience and accreditation of that person,
      • (ii) say whether or not the examination, measurement, test or experiment was carried out under the expert’s supervision, and
      • (iii) summarise the findings on which the expert relies;
    • (f) where there is a range of opinion on the matters dealt with in the report —
      • (i) summarise the range of opinion, and
      • (ii) give reasons for the expert’s own opinion;
    • (g) if the expert is not able to give an opinion without qualification, state the qualification;
    • (h) include such information as the court may need to decide whether the expert’s opinion is sufficiently reliable to be admissible as evidence;
    • (i) contain a summary of the conclusions reached;
    • (j) contain a statement that the expert understands an expert’s duty to the court, and has complied and will continue to comply with that duty; and
    • (k) contain the same declaration of truth as a witness statement.

Expert to be informed of service of report

33.5.
A party who serves on another party or on the court a report by an expert must, at once, inform that expert of that fact.

Pre-hearing discussion of expert evidence

33.6.
(1) This rule applies where more than one party wants to introduce expert evidence.

(2) The court may direct the experts to —

    • (a) discuss the expert issues in the proceedings; and
    • (b) prepare a statement for the court of the matters on which they agree and disagree, giving their reasons.

(3) Except for that statement, the content of that discussion must not be referred to without the court’s permission.

(4) A party may not introduce expert evidence without the court’s permission if the expert has not complied with a direction under this rule.

Court’s power to direct that evidence is to be given by a single joint expert

33.7.
(1) Where more than one defendant wants to introduce expert evidence on an issue at trial, the court may direct that the evidence on that issue is to be given by one expert only.

(2) Where the co-defendants cannot agree who should be the expert, the court may —

    • (a) select the expert from a list prepared or identified by them; or
    • (b) direct that the expert be selected in another way.

Instructions to a single joint expert

33.8.
(1) Where the court gives a direction under rule 33.7 for a single joint expert to be used, each of the co-defendants may give instructions to the expert.

(2) A co-defendant who gives instructions to the expert must, at the same time, send a copy of the instructions to each other co-defendant.

(3) The court may give directions about —

    • (a) the payment of the expert’s fees and expenses; and
    • (b) any examination, measurement, test or experiment which the expert wishes to carry out.

(4) The court may, before an expert is instructed, limit the amount that can be paid by way of fees and expenses to the expert.

(5) Unless the court otherwise directs, the instructing co-defendants are jointly and severally liable for the payment of the expert’s fees and expenses.

Court’s power to vary requirements under this Part

33.9.
(1) The court may extend (even after it has expired) a time limit under this Part.

(2) A party who wants an extension of time must —

    • (a) apply when serving the report, summary or notice for which it is required; and
    • (b) explain the delay.

 

Expert evidence – the new Practice Direction

33A.1 Expert opinion evidence is admissible in criminal proceedings at common law if, in summary, (i) it is relevant to a matter in issue in the proceedings; (ii) it is needed to provide the court with information likely to be outside the court’s own knowledge and experience; and (iii) the witness is competent to give that opinion.

33A.2 Legislation relevant to the introduction and admissibility of such evidence includes section 30 of the Criminal Justice Act 1988, which provides that an expert report shall be admissible as evidence in criminal proceedings whether or not the person making it gives oral evidence, but that if he or she does not give oral evidence then the report is admissible only with the leave of the court; and Part 33 of the Criminal Procedure Rules, which in exercise of the powers conferred by section 81 of the Police and Criminal Evidence Act 1984 and section 20 of the Criminal Procedure and Investigations Act 1996 requires the service of expert evidence in advance of trial in the terms required by those rules.

33A.3 In the Law Commission report entitled ‘Expert Evidence in Criminal Proceedings in England and Wales’, report number 325, published in March, 2011, the Commission recommended a statutory test for the admissibility of expert evidence. However, in its response the government declined to legislate. The common law, therefore, remains the source of the criteria by reference to which the court must assess the admissibility and weight of such evidence; and rule 33.4 of the Criminal Procedure Rules lists those matters with which an expert’s report must deal, so that the court can conduct an adequate such assessment.

33A.4 In its judgment in R v Dlugosz and Others [2013] EWCA Crim 2, the Court of Appeal observed (at paragraph 11): “It is essential to recall the principle which is applicable, namely in determining the issue of admissibility, the court must be satisfied that there is a sufficiently reliable scientific basis for the evidence to be admitted. If there is then the court leaves the opposing views to be tested before the jury.” Nothing at common law precludes assessment by the court of the reliability of an expert opinion by reference to substantially similar factors to those the Law Commission recommended as conditions of admissibility, and courts are encouraged actively to enquire into such factors.

33A.5 Therefore factors which the court may take into account in determining the reliability of expert opinion, and especially of expert scientific opinion, include:

    (a) the extent and quality of the data on which the expert’s opinion is based, and the validity of the methods by which they were obtained;
    (b) if the expert’s opinion relies on an inference from any findings, whether the opinion properly explains how safe or unsafe the inference is (whether by reference to statistical significance or in other appropriate terms);
    (c) if the expert’s opinion relies on the results of the use of any method (for instance, a test, measurement or survey), whether the opinion takes proper account of matters, such as the degree of precision or margin of uncertainty, affecting the accuracy or reliability of those results;
    (d) the extent to which any material upon which the expert’s opinion is based has been reviewed by others with relevant expertise (for instance, in peer-reviewed publications), and the views of those others on that material;
    (e) the extent to which the expert’s opinion is based on material falling outside the expert’s own field of expertise;
    (f) the completeness of the information which was available to the expert, and whether the expert took account of all relevant information in arriving at the opinion (including information as to the context of any facts to which the opinion relates);
    (g) if there is a range of expert opinion on the matter in question, where in the range the expert’s own opinion lies and whether the expert’s preference has been properly explained; and
    (h) whether the expert’s methods followed established practice in the field and, if they did not, whether the reason for the divergence has been properly explained.

33A.6 In addition, in considering reliability, and especially the reliability of expert scientific opinion, the court should be astute to identify potential flaws in such opinion which detract from its reliability, such as:

    (a) being based on a hypothesis which has not been subjected to sufficient scrutiny (including, where appropriate, experimental or other testing), or which has failed to stand up to scrutiny;
    (b) being based on an unjustifiable assumption;
    (c) being based on flawed data;
    (d) relying on an examination, technique, method or process which was not properly carried out or applied, or was not appropriate for use in the particular case; or
    (e) relying on an inference or conclusion which has not been properly reached.

Accountant sentenced to 7 years for cheat & fraud

Legal wig copyright David Winch 2014An accountant has been sentenced to 7 years’ imprisonment for cheating HMRC and defrauding his clients.

Simon Terry Pearce, 48, who held no recognised accountancy qualifications, ran S T Pearce Accountants from offices in St Austell, Cornwall.  He was convicted on 26 charges after a ten week trial at Truro Crown Court.  The prosecution evidence assembled by HM Revenue & Customs ran to approaching 40,000 pages and, in total, 51 prosecution witnesses were called to give evidence.

 

The allegations

It was alleged that over a period of several years Mr Pearce had operated his practice dishonestly by preparing tax returns for his clients which overstated their business expenses and the tax which they had suffered under the Construction Industry Scheme (CIS tax), overclaimed capital allowances particularly in relation to cars and – in relation to Capital Gains Tax – understated the sales proceeds of properties.  In many cases Mr Pearce had revised previous years’ tax returns for new clients.  The result of all this was that his clients’ tax liabilities were dishonestly understated and tax refunds were generated falsely.

It was further alleged that Mr Pearce had forged clients’ signatures and dishonestly abused HMRC’s Structured Action Request online system for taxpayers and their authorised agents with the result that clients’ tax refunds were paid by HMRC into his bank account rather than to the clients.  Whilst in some cases these refunds were forwarded to clients fully and reasonably promptly, in many cases refund payments were delayed (sometimes by a period of years), or paid on only in part, or not paid on at all.

Finally it was alleged that in relation to Mr Pearce’s own tax returns he had dishonestly understated his fee income and that he had failed to register his business for VAT at the appropriate time.

 

Mr Pearce’s defence

Mr Pearce said that he had not been dishonest. The tax returns which he had prepared for clients reflected the information which clients had provided to himself and his staff at interviews with them.  He had included fair estimates of expenditures for which the clients had no documentary evidence, particularly in relation to travelling and subsistence.  He had misunderstood tax law in relation to motor cars, believing that 100% first year allowances or annual investment allowances were available, and the abolition of CGT taper relief in 2008 had not come to his attention.

He had arranged for clients’ tax refunds to be paid to his bank account when fees were due to him.  His failure to pass the balance of refunds on to clients was as a result of inadequate and misleading information received from HMRC, poor record keeping in his office and pressure of work resulting from having taken on too many clients.  He had fobbed off clients who had enquired about their refunds and had given them excuses and explanations for delays which were untrue.  He accepted that he had used HMRC’s online Structured Action Request facility to arrange refunds to be paid to him but believed he was entitled to do so.

He asserted that clients’ income tax returns were only submitted to HMRC after clients knew what was on them, albeit that the clients may have received and signed paper copies of the returns only after they had been filed online with HMRC.

 

My role

I was instructed by Mr Pearce’s solicitors and counsel to advise them on generally accepted conduct by accountants in relation to the preparation of accounts and tax returns for clients, relevant tax law and practice, the proper treatment of clients’ tax refunds, and to examine Mr Pearce’s own business records and those of certain of his clients, together with the associated accounts and tax computations, to advise whether tax liabilities had been understated.

I attended court and advised the defence team throughout the presentation of the prosecution case but I was not myself called to give evidence.  The only witness called by the defence was Mr Pearce himself.

 

The clients’ evidence

The clients typically gave evidence to the effect that they relied upon and trusted Mr Pearce as their accountant to deal properly with their accounts and tax affairs.  In many cases they denied providing Mr Pearce with information which he claimed to have received from them.

They did not themselves understand accounts or tax and believed that their tax returns were being correctly prepared and that they were entitled to any refunds which they had received.  They were devastated when they learned that they were required to repay substantial sums to HMRC.

 

The outcome

The jury found Mr Pearce guilty on 26 of the 30 counts which he faced.  Clearly the jury considered him to have been thoroughly dishonest over a period of years.

 

The lessons to be learned

Mr Pearce frequently received tax refunds on behalf of clients but did not operate a client bank account.  In practice refunds received were swallowed up by business and private expenses leaving Mr Pearce unable to pass on to clients the monies which were due to them.

The firm’s working papers and interview notes in support of figures in the accounts and tax returns were inadequate to demonstrate persuasively which figures were based on information that had been provided by clients and which were based on estimates made by Mr Pearce apparently based on his general knowledge of his clients’ activities – or to refute the allegations that some increases in claimed expenses arose purely from fabrications by Mr Pearce.

In many cases business expenses in accounts and returns had apparently been compiled based only on an examination of paid bills and discussions with clients – and without examination of clients’ bank statements.  In the majority of cases which I examined Balance Sheets had not been prepared.  Had the accountancy work been more thorough then many mis-statements which were made on tax returns, for example from duplication of genuine expenditures, could have been avoided.

Either Mr Pearce’s knowledge of tax law and practice was faulty and out of date in important respects or he was claiming allowances and reliefs for his clients which he knew were not available to them.

 

Overview

This was a very significant prosecution by HMRC, the biggest case ever prosecuted by them in Cornwall, and a major case by any standards.  Few Crown Court trials run to ten weeks or involve over 50 witnesses and few criminal investigations generate approaching 40,000 pages of exhibits.  The prosecution asserted that Mr Pearce had ultimately retained £170,000 in refunds due to his clients and that overall HMRC had lost between £1 million and £2 million as a result of his activities.

I have no doubt that my advice was valuable to the defence in professionally examining the prosecution evidence and ensuring that it was appropriately challenged.  Ultimately the weight of evidence against Mr Pearce was overwhelming and the jury were sure that he had been dishonest.

David

(Note: This article refers to a criminal prosecution in England and Wales. There are a number of additional issues which could be relevant to criminal proceedings in particular cases which it is not possible to deal with in an article such as this. Appropriate professional advice should be sought in each individual case.)

Criminal lifestyle confiscation and output VAT

The Court of Appeal have recently handed down a judgment in the ‘criminal lifestyle’ confiscation case of R v Harvey [2013] EWCA Crim 1104.

This was a case in which I had been instructed by the defendant’s solicitors in the confiscation proceedings in the Crown Court.

 

Background

The defendant was a director and majority shareholder in a limited company engaged in hire of plant and equipment (sometimes with drivers, sometimes just the plant itself).

A number of items of plant used by the company were found to be stolen property and the defendant pleaded guilty to 9 counts of ‘handling’ contrary to s22 Theft Act 1968.  A further 30 counts were left to lie on the file.

The defendant was subject to confiscation under PoCA 2002 on the basis that he had a ‘criminal lifestyle’ and that the veil of incorporation of the company should be pierced.

 

Benefit for confiscation purposes

The prosecution contention initially in a statement under s16 PoCA 2002 was that the entirety of the gross receipts of the company (inclusive of VAT) since the ‘relevant day’ constituted assumed ‘benefit’ of the defendant for the purposes of confiscation.

By the time of the hearing in the Crown Court the prosecution had changed its position.  Whilst it was unable to put a figure on the proportion of company receipts which were derived from criminal conduct, it was significant that the police had inspected 91 items of plant (both large and small) and considered 39 of those items to be stolen property (that is approximately 42.8% on an ‘item count’ basis).

 

The decision in the Crown Court

At Crown Court the judge held that 38% of the company’s gross receipts (inclusive of VAT) since the ‘relevant day’ were to be regarded as ‘benefit’.  Those gross receipts included not just trading income but also receipts from the sale of plant.

This 38% figure was based on the 42.8% on an ‘item count’ basis, reduced to recognise the greater earning power of the (legitimate) larger and more expensive items of plant.  The judge concluded that the defendant had known that all 39 items of plant (not just the 9 items in relation to which he had pleaded guilty to ‘handling’) were stolen property.

The Crown Court judge did not accept that he should be guided by a detailed analysis of a representative sample of company sales invoices over the period since the ‘relevant day’ which appeared to show a much smaller proportion of the company’s income was derived from the stolen plant.  He concluded that the defendant was dishonest and his company records did not reflect the entirety of the transactions of the business and so figures based on company records were not persuasive.

The benefit found by the judge was calculated accordingly at approximately £2.2m (based on the value of the 39 stolen items plus 38% of gross receipts of the company since the ‘relevant day’) and he set a default term of 10 years.

 

The appeal to the Court of Appeal

The defendant appealed on the grounds that:

  1. VAT charged to customers and accounted for to HMRC should be excluded from the gross receipts figure.
  2. Stolen plant had been recovered by the police and returned (sometimes after many years of use) to its rightful owners, but no reduction had been made in the benefit figure to reflect this.
  3. The 38% figure was too high on the facts and, in particular, had been applied to all receipts including demonstrably legitimate income from the sale of legitimately acquired plant.
  4. The default sentence of 10 years was excessive.

The Court of Appeal reduced the default term to 8 years but otherwise upheld the confiscation order in full, dismissing the appeal on each of the first three grounds.

The Court of Appeal took the opportunity to review and comment upon various confiscation cases – some very recent, some older – in the light of the decision of the Supreme Court in R v Waya.  In particular the Court of Appeal opined that the decision in R v Del Basso and Goodwin [2010] EWCA Crim 1119 now “does seem excessively harsh and may arguably be characterised as disproportionate”.

Defendants and accountants may be disappointed to note the Appeal Court’s decision (even after the Waya case) that output VAT charged on the (assumed) illegitimate receipts of a legitimate business is to be regarded as a component of benefit in a ‘criminal lifestyle’ confiscation – even where that output VAT has been properly accounted for and paid over to HMRC.  The Court of Appeal considered that there was nothing in Waya which called into question the manner in which the Court of Appeal in Del Basso dealt with VAT and that therefore Del Basso was binding authority on that point.

But the Court of Appeal in any event approved this approach, commenting, “It would be wrong in principle to carry out an accounting exercise in respect of VAT which [the business] collected through the use of stolen property”.  The total monies paid by customers, including the VAT charged, constituted property obtained by criminal conduct.

[UPDATE:  On 16 December 2015 the UK Supreme Court upheld Mr Harvey’s appeal against this element in the calculation of his benefit for confiscation purposes.  The UKSC held that where VAT has been accounted for to HMRC it would be disproportionate under A1P1 to make a confiscation order calculated on the basis that the VAT, or a sum equivalent, was “obtained” by the defendant for the purposes of PoCA 2002.]

The Court of Appeal’s view must, by implication, be taken to be that they did not consider the confiscation order of £2.2m to be disproportionate in all the circumstances.

David

(Note: This article applies to confiscation orders under the provisions of Part 2 of the Proceeds of Crime Act 2002 in England and Wales. There are a number of additional issues which could be relevant to a defendant’s confiscation order in particular cases which it is not possible to deal with in a relatively short article such as this. Appropriate professional advice should be sought in each individual case.)

A book-keeper accused of stealing

Beatrix was Mr McGregor’s book-keeper – or more correctly she was a self-employed book-keeper and Company Secretary working for Mr McGregor’s company, which was an agency supplying circus acts and finding ‘C’ list celebrities to open supermarkets and the like.  But times were tough and it seemed like, however hard Mr McGregor worked, he was just scraping by.

Fortunately Mr McGregor could rely on the faithful Beatrix to look after the paperwork and pay the bills and the part-time staff.  One Sunday Mr McGregor was wondering how much there was in the company’s accounts with the District Bank and the Provincial.  So, unusually for him, he had a look at the bank statements.

He was shocked by what he saw.  Not only was there next to nothing in either of the company bank accounts but a quick check of the bank statements showed numerous transfers in the past month or two to Beatrix and to her daughter, and payments to Rentaphone and CloudsTV (neither of which Mr McGregor knew anything about) as well as several cash machine withdrawals and petrol purchases.

 

The police

Mr McGregor phoned the police and arranged an interview with Detective Constable Carrott.  He made a formal statement alleging that Beatrix had stolen money from the company.

DC Carrott interviewed Beatrix who said that all the expenditures were legitimate and had been authorised by Mr McGregor who had agreed that the company should pay Beatrix’s phone and TV subscriptions and her petrol bills.  The cash had been drawn on Mr McGregor’s instructions.  Some had been used to pay company bills in cash and the rest had been handed over to him.  There was nothing in writing because Beatrix and Mr McGregor had a relationship based on trust.  Beatrix denied any wrongdoing.

DC Carrott met with Mr McGregor again.  He denied authorising payment of any of Beatrix’s bills and he denied receiving any of the cash.

Mr McGregor now produced to DC Carrott bank statements and voluminous accounting records going back over more than two years revealing a stream of unauthorised payments and withdrawals made by Beatrix.  In total over £40,000 had been stolen, he alleged.

Meanwhile DC Carrott did a little digging and found that, while she was working for Mr McGregor’s company, Beatrix had been receiving Job Seeker’s Allowance and Council Tax Benefit on the basis that she was not working and had no earnings.

Beatrix was charged with theft of cash and fraud by abuse of position in relation to Mr McGregor’s company and making false representations to obtain Job Seeker’s Allowance and Council Tax Benefit.

 

The solicitor

After consulting her solicitor Beatrix decided to plead guilty to making false representations to obtain benefits but continued to deny any wrongdoing in relation to Mr McGregor’s company.  She told her solicitor that Mr McGregor was being untruthful and that it was inconceivable that Mr McGregor had (as he claimed) been unaware of the payments to her (which she sometimes had made direct to her daughter’s bank account to save time) and of her bills for phone, TV and petrol.  The business was a small one and the bank statements went direct to Mr McGregor who also had an accountant check everything and prepare annual accounts.

The solicitor contacted us and asked us to prepare a report based on an examination of the prosecution evidence (amounting to over 1,200 pages) and Beatrix’s responses.

 

Our involvement

We provided a fee quotation to enable the solicitor to obtain a prior authority from the Legal Aid Agency.  We also, at this initial stage, wrote to the solicitor outlining the sort of further documentary evidence which would assist us if it were available and indicating that, in our experience of other small businesses, allegations of theft by trusted members of staff were not a rarity and that this indicated that all too often in practice business owners failed to exercise sensible supervision over book-keepers and others with control over company monies.

When we examined the prosecution exhibits we found amongst them copies of emails which had apparently routinely been sent by Beatrix to Mr McGregor each week setting out the payments she was making out of the business accounts, and the monies received from customers.  The listed payments included staff wages and payments to Beatrix (in relation to which she had submitted sequentially numbered invoices as she was technically self-employed).

But whilst the emails showed one weekly payment to Beatrix, she was typically taking a dozen or more payments per month.  Often more than one payment to Beatrix referred to payment of the same invoice.  Sometimes the same invoice had been paid out of both of the two company bank accounts.  So although the amount of any one payment was not unreasonable the number of these payments and their total value was clearly inconsistent with the information which Beatrix was emailing to Mr McGregor.

We reported that we were simply unable to say what had happened to the cash withdrawn from the company bank accounts as there was no evidence beyond the contrasting assertions of Beatrix and Mr McGregor.

However the prosecution estimate of the amount of ‘wages’ legitimately due to Beatrix was, in our view, a significant underestimate.  The prosecution figure was based on £85 per week whereas the emails clearly showed payments of up to £175 per week to Beatrix (of which Mr McGregor must have been aware and which he had, by implication, approved).  Taking that into account the prosecution figure of the amount stolen was, in our view, overstated by £10,490.

Attached to our expert witness report were schedules detailing the amounts paid from the company bank accounts to Beatrix and members of her family, the amounts reported as paid to her on her emails to Mr McGregor, and the cash withdrawals from the bank accounts.

 

The outcome

The solicitor discussed our report with Beatrix.  After thinking it over for a few days Beatrix decided to plead guilty at Liverpool Crown Court to theft and fraud in relation to Mr McGregor’s company (as well as the benefit fraud offences).  She was given a suspended prison sentence, ordered to do 180 hours unpaid work and required to pay compensation of £1,200 to Mr McGregor’s company.

That is undoubtedly a better result than she would have obtained had she gone to trial and been convicted.

David

N.B. Names and certain other details have been changed to protect client confidentiality.

(Note: This article relates to a criminal prosecution in England and Wales. There are a large number of additional issues which could be relevant to criminal proceedings in particular cases which it is not possible to deal with in a relatively short article such as this. Appropriate professional advice should be sought in each individual case.)

Expert evidence from outside the witness box

What is the position where a jury or tribunal has arrived at its conclusion based on expert evidence from outside the witness box – where a juror or tribunal member has relevant expert knowledge?

Juries and tribunals are generally required to decide matters based on the evidence which they hear in the course of the legal proceedings. But in the Crown Court the jury might include someone with prior knowledge relevant to the general circumstances and issues in the case. Would there be any objection to that juror sharing his knowledge and insight with other jury members when they retire to consider their verdict?

Tribunal members for professional regulation hearings and dealing with other specialist areas of law (such as tax appeals) are selected expressly because they already have expert knowledge and experience which may be relevant to the matters to be considered by them. Could there be any objection to the tribunal reaching its conclusion on the basis of the expertise of the tribunal members?

 

Jurors in the Crown Court

A recent case in the Court of Appeal, Pouladian-Kari v R [2013] EWCA Crim 158 (22 February 2013), highlighted the issue with regard to the prior expert knowledge and experience of a juror in the Crown Court.

The defendant had been charged with being knowingly concerned in an attempt to export prohibited or restricted goods, namely, electrical switchgear, contrary to s68(2) of the Customs and Excise Management Act 1979.  This related to an attempted export of goods from the UK to Iran.  When the matter came to trial in the Crown Court an issue was whether the defendant knew that he required a licence to export this switchgear to Iran because the switchgear might have a military use.

As it happened one of the jurors was himself employed in a merchant bank in a role which involved supervision of exports to the Middle East – similar to the transactions in which the defendant had been engaged.  Having heard some of the prosecution evidence this juror wrote a note to the judge on the second day of the trial explaining his background and commenting that as a jury member he would find “it difficult to forget about specific details of the case that at least in my professional environment are definite red signals”.

Furthermore he was concerned that “I may drive the discussions and conclusions of my fellow jury members in my own conclusions right or wrong”.

The juror offered to remain on the jury if the judge considered that he could properly do so, but had felt it appropriate to alert the judge to the situation in the interest of a fair trial.

The judge consulted with both counsel.  He decided that he should speak to the jury.  He told them that one member of the jury had sent him a note explaining that the juror had some professional knowledge of the freight forwarding position about which evidence had been adduced during the last two days.  He stated that every juror brought his or her own experience of life and common sense to the jury system which was one of the strengths of the system.  As a result, there was no impediment in sitting on a case in which a juror might have some professional understanding.  Indeed, it might be of some benefit.  However, the case was to be tried on the evidence given in the courtroom and not on any other evidence.  That didn’t mean that jurors could not bring their own commonsense to bear on the evidence adduced in the trial upon which the case was to be decided.  He thanked the juror who had written the note.  He told the juror it was the right thing to have done.  He concluded by saying that, in the circumstances, the case could carry on with all of the jury.

The case continued and the defendant was convicted.  He appealed his conviction.

The Court of Appeal quashed the conviction.  The appeal court criticised the judge’s guidance to the jury about the previous knowledge of one juror insofar as it indicated that “the knowledge and experience that he had might be of benefit to their discussions.
That direction did not alert the jury as a whole to the caution they should exercise in relation to any views being expressed by the juror who had written the note.  If anything, it did the reverse”.

In general terms the difficulty is that the jury in the course of their deliberations might be swayed by expert ‘evidence’ from the juror which was not part of the evidence in the trial and was not subject to the rigours of cross-examination by counsel.  That would be unacceptable.

While it is generally acceptable for persons with expertise to sit on a jury it is not appropriate for them to provide expert ‘evidence’ to other jury members.  The verdict of the jury should be based on the evidence which they hear in court.

 

Expertise of Tribunal members

In a similar vein, in the case of Lawrence v The General Medical Council [2012] EWHC 464 (Admin) the High Court quashed a decision by a Fitness to Practise Panel of the General Medical Council which had conducted a hearing into allegations that Dr Lawrence acted in various ways which were said to have been inappropriate, not in the best interests of his patient and an abuse of his professional position.

The case was a complex one and the judgment is lengthy, but one issue concerned a decision by the Panel which began, “From its own expertise the Panel reasoned that . . .” .    On behalf of Dr Lawrence it was submitted that this statement revealed an illegitimate reliance by the Panel on expertise which it did not have and showed that it reached a conclusion on an issue which had not been raised by either of the parties at the hearing and on which Dr Lawrence was therefore unfairly deprived of the opportunity of calling evidence or making submissions.

In quashing the Panel’s decision the High Court judge accepted that had been the case.  The Panel should have based its decision on the evidence it had heard – not based on its own reasoning related to an issue which had not been raised in evidence by either side.

 

Conclusion

The general rule therefore appears to be that juries and tribunals should not base their decisions on expert ‘evidence’ from outside the witness box.

David

(Note: This article applies to proceedings in England and Wales.  Appropriate professional advice should be sought in each individual case.)

When an expert is challenged concerning his expertise

What should be done if one side considers that the expert instructed by the other side lacks the necessary expertise to support his opinion? That issue arose in a recent case before the Court of Appeal.

 

Violence and death

The case of R v Clarke and Morabir [2013] EWCA Crim 162 was a case of murder in which both prosecution and defence had instructed expert pathologists. It was alleged that at some time on 6 November 2010 the victim, Bradley Hamilton, had been subjected to very serious violence as a result of which he suffered multiple injuries. At 11:27 p.m. on that day the defendants called the emergency services. Paramedics arrived at 11:33 p.m. and unsuccessfully attempted to resuscitate Mr Hamilton for about 20 minutes but then pronounced him dead.

 

The prosecution case

The Crown’s case was that Mr Clarke had attacked Mr Hamilton in the early part of the evening of 6 November and that, as a result of the injuries suffered in the attack, Mr Hamilton had either died, or was near to death, at the time that Mr Clarke left Mr Hamilton’s flat at about 9.30 p.m. that evening. The prosecution case was that Ms Morabir remained in the flat with the dead or dying Mr Hamilton whilst Mr Clarke was out and that she was in touch with him by mobile telephone. It was alleged that events after 10.30 p.m., in which both defendants were involved, were an elaborate cover up.

 

The defence case

The case for Mr Clarke at the trial was that he admitted that he had assaulted Mr Hamilton early in the evening but not so as to inflict any injuries that could have led to his death. Mr Clarke’s case was that he had left the flat at about 9.30 p.m. and when he returned Mr Hamilton was lying on the living room floor unconscious. Mr Clarke asserted that he had attempted, clumsily, to apply resuscitation to Mr Hamilton for over 20 minutes but without success. He and Ms Morabir then called the emergency services at 11.27 p.m.

 

A key issue

A key issue was whether Mr Hamilton’s death had been caused by Mr Clarke’s assault earlier in the evening or was the inadvertent result of Mr Clarke’s clumsy attempts at resuscitation of the unconscious Mr Hamilton. It was undisputed that Mr Hamilton had underlying medical problems of osteoporosis and cirrhosis of the liver as a consequence of a long history of alcohol dependency.

Mr Hamilton had a number of broken ribs and other injuries – but which injuries were occasioned by the initial assault and which by the resuscitation attempts? Expert evidence was to be called by both sides concerning the length of time which appeared to have elapsed between Mr Hamilton suffering the broken ribs and his death and as to whether the initial assault led to injuries which were the cause of Mr Hamilton’s death.

 

The defence expert’s written report

A Professor Freemont, instructed by the defence, had provided a written report in which he said that: “The fractures to the lower left ribs could not, of themselves, have led directly to death and there is no evidence that they indirectly led to death as there is no report of significant damage to adjacent vital organs. There is therefore evidence of two fracturing episodes, one at or immediately around the time of death and the other that happened within 3 to 4 hours of death. The earlier injury is extremely unlikely of itself to have caused death. The second, because of the degree of osteoporosis, could have been caused by overenthusiastic CPR [resuscitation attempts]”.

 

The prosecution’s objection

The case came to trial and, on the final day of the trial, Professor Freemont was to be called by the defence – but the prosecution raised an objection. They submitted that Professor Freemont was an expert on bone fractures and, though he was perfectly entitled to express an opinion on the bone fractures and how long prior to death they had occurred, he did not have the necessary expertise to voice an opinion to the jury as to the cause of Mr Hamilton’s death. That, said the prosecution, was a matter outside his field of expertise.

Professor Freemont was questioned in the absence of the jury in a process known as voir dire. He had carried out many autopsies in cases of death by unnatural causes, including cases of sudden and violent death – for example as a result of a road accident or a suicide – but had never carried out a post-mortem in a case of suspected murder and, since he was not a ‘Home Office Pathologist’, it would not be appropriate for him to do so.

 

The judge’s ruling

In the light of the voir dire the judge ruled that Professor Freemont “is not an expert who is able to give evidence on the cause of death in this case, save and beyond that it might be immediately apparent from the particular ribs he examined in the course of his task on behalf the defence”.

As a result the jury remained unaware of Professor Freemont’s opinion that the earlier injuries were extremely unlikely to have been the cause of Mr Hamilton’s death.

Both defendants were convicted and appealed to the Court of Appeal.

 

The Court of Appeal’s comments

Both appeals were dismissed, but the court did have something to say about the conduct of both prosecution and defence in the original trial. They were concerned that the challenge to the expertise of the defence expert was only made immediately before he was due to give his evidence.

The Court of Appeal said: “if one side intended to challenge the expertise of an expert witness of the other side, then written notice, together with the reasons for the challenge, should have been given as soon as possible so that the other side could consider what it would do. Even if that were not done, it should have been obvious to the defence once it had seen the note of the [prosecution’s] medical conference of 20 January 2011 that there was a strong possibility that the expertise of Professor Freemont would be challenged. Defence counsel should have taken the initiative immediately and asked the prosecution whether it was going to challenge the professor’s expertise”.

 

Conclusion

Expert witnesses are used in a wide range of Crown Court cases but it is unusual for the relevant expertise, experience or qualifications of an expert witness to be challenged in the criminal courts of England and Wales.  (Applications to exclude expert evidence are more common in the Federal Courts of the United States following the US Supreme Court’s landmark opinion in Daubert v. Merrell Dow Pharmaceuticals Inc.)

There are lessons to be learned here for both prosecution and defence teams in future cases where such a challenge is anticipated.

David

(Note: This article refers to expert witness evidence in the criminal courts in England and Wales. There are a number of additional issues which could be relevant to expert evidence in particular cases which it is not possible to deal with in a relatively short article such as this. Appropriate professional advice should be sought in each individual case.)

Mortgage fraud – but by whom?

Police lamp copyright David Winch 2014Ted Kelly was no stranger to the inside of a police station or the Crown Court dock. He had had many brushes with the law, but being charged with financial crime was a new experience.

Ted’s home had been searched by the police more than once in the course of an investigation into serious crimes and the police had found documents concerning a buy-to-let property in Liverpool which Ted owned. A search at the English Land Registry turned up a mortgage from Borset Building Society and enquiries there revealed the mortgage application had been submitted online by a mortgage broker, Adrian Broke.

Attached to the application were two years accounts for the business prepared by Peter Addit & Co

The mortgage application indicated that Ted was a self-employed joiner, trading as Kelly’s Joinery Services. Attached to the application were two years accounts for the business, prepared by Peter Addit & Co – members of a leading professional body of accountants, and signed both by Mr Addit and by Ted.

Ted’s self-employment came as a surprise to the police (who understood him to make his living from less legitimate activities) and, sure enough, a check with HM Revenue & Customs revealed that they had no knowledge of Ted’s self employment either.

 

Gotcha!

“Gotcha!” said DC Lund to himself. To assemble his case DC Lund interviewed Adrian Broke and Peter Addit concerning their dealings with Ted

“Gotcha!” said DC Lund to himself. To assemble his case DC Lund interviewed Adrian Broke and Peter Addit concerning their dealings with Ted. They confirmed that Ted had approached Mr Addit in June 2008 to have accounts prepared – just a simple Profit & Loss Account. Mr Addit had not been instructed to do any tax work for Ted. He assumed Ted wanted the accounts for his bank or was dealing with his tax himself. Ted produced his passport and driving licence (which Mr Addit photocopied) and had handed Mr Addit a list of work done and expenses from which Mr Addit had prepared the P & L account. The fee was less than £200.

The following year Ted had returned with a similar schedule and Mr Addit had produced the 2009 accounts for him then and there, for a similar fee. The net profit each year shown on the accounts was in the region of £40,000. At the June 2009 meeting there had been some discussion of a property purchase and Mr Addit had recommended the services of Mr Broke the mortgage broker (who was also a client of his).

Mr Broke confirmed that in July 2009 Ted had contacted him about obtaining a mortgage to buy a home for himself. He had produced his passport and driving licence (which Mr Broke photocopied) and two years accounts prepared by Mr Addit. Mr Broke had carried out a fact find and then recommended a mortgage from Borset Building Society and some life and critical illness policies as well as property and contents insurance. Ted had accepted these recommendations and Mr Broke had completed the mortgage application online based on the information and accounts Ted had provided.

Armed with these facts DC Lund arrested Ted, interviewed him, and then charged him with fraud by false representation in that he had dishonestly made a false representation to Adrian Broke that the accounts were true, with the intention of obtaining the mortgage advance, contrary to s2 Fraud Act 2006.

 

Ted’s version of events

But Ted’s version of events was very different. He said he had never met Mr Addit, had never instructed him to prepare any accounts, and had never been self employed as a joiner

But Ted’s version of events was very different. He said he had never met Mr Addit, had never instructed him to prepare any accounts, and had never been self employed as a joiner. He had been wanting to buy a property in Liverpool to let out and his cousin had recommended the mortgage broker Mr Broke. Ted went to see Mr Broke. Although Ted had no regular employment Mr Broke had assured him this would be no problem. All that would be needed would be his passport and driving licence. Ted took these to a second meeting with Mr Broke who asked him to sign numerous documents – all of which he signed, without reading, where Mr Broke pointed. Mr Broke also took photocopies of his passport and driving licence.

Shortly afterwards the mortgage came through and Ted was able to purchase the property and let it out to tenants. The rental income more than covered the mortgage payments (which he always paid on time). Ted also found he was paying for some insurances by direct debit, and he cancelled those.

When the matter came to court DC Lund, Mr Broke and Mr Addit were called by the prosecution and gave evidence.

 

Cross-examination

Under cross-examination Mr Broke confirmed that Mr Addit was his accountant, that he and Mr Addit referred clients to each other from time to time (but without any referral fee) and that he knew Ted’s cousin. He also confirmed that as a result of Ted’s property purchase he would receive payments from Borset Building Society, from the conveyancing solicitor whom he had recommended to Ted, and from the insurance companies. Had the mortgage not gone ahead he would have received none of these payments, which he estimated at less than £2,000 in total. But he confirmed the statement he had given to DC Lund.

Mr Addit also confirmed the evidence in the statement he had given DC Lund. But under cross-examination he accepted that he had at first given the police a statement saying Ted had approached him initially for two years accounts to be prepared. That had been based on a mistaken recollection which he had corrected in his second statement. Mr Addit had not asked for, nor seen, any bills or receipts in relation to Ted’s self employment. He had relied on the schedule presented to him by Ted. He had returned the schedule to Ted and not kept a copy. Mr Addit had believed the accounts to be true based on the information supplied to him by Ted.

Mr Addit had recently moved to a new computerised system and had not retained his diaries for 2008 and 2009

Indeed since Ted was no longer a client his files had been destroyed. Mr Addit had not sent Ted an engagement letter. Mr Addit had recently moved to a new computerised system and had not retained his diaries for 2008 and 2009. He had not contacted HM Revenue & Customs in relation to Ted’s self employment as he was not instructed to deal with Ted’s tax affairs.

It transpired that Ted had not paid Mr Addit for the preparation of either the 2008 or the 2009 accounts. In fact Mr Addit had not invoiced Ted for these accounts as he expected Ted to pay without an invoice. The only documentary evidence which Mr Addit held in relation to his dealings with Ted was the photocopies he had of Ted’s passport and driving licence (the same documents which Mr Broke had copied in July 2009).

He accepted that the date on which the 2008 accounts were shown as having been signed in June 2008 was a Sunday. He said the actual date of signing would be within a day or two of that.

The accounts were not prepared for tax purposes. The word “Allowable” which appeared against certain expense headings was on his standard word processing template for such accounts.

He denied however that he had backdated the accounts, or that he had prepared them on the instructions of Mr Broke rather than Ted, or that Mr Broke had paid him anything in connection with Ted’s accounts.

 

The computer files

Immediately after Mr Addit had completed his evidence DC Lund asked him if he would still have on his computer system the Microsoft Word files for the 2008 and 2009 accounts. Mr Addit thought he could have and that he would be able to access them there and then using a Wi-Fi link from the court building.

The Word files for both the 2008 and 2009 accounts showed a ‘creation date’ on the evening before the day on which Mr Broke had filed Ted’s online mortgage application in July 2009

When he did so it was discovered that the Word files for both the 2008 and 2009 accounts showed a ‘creation date’ on the evening before the day on which Mr Broke had filed Ted’s online mortgage application in July 2009. The creation dates were approximately two minutes apart.  These files also each had a later ‘modified date’.  In one case the modified date was approximately two hours later the same evening.

DC Lund passed this information to prosecuting counsel, and then it was passed on to defence counsel and the judge.

Mr Addit was recalled to the witness box and questioned about this. He maintained that in fact the accounts had been prepared earlier and that perhaps what was now being seen were Word files for later copies of the accounts. He denied that the later ‘modified dates’ showed that these were in fact the original working copies of the accounts.

 

No case to answer

That brought the prosecution case to a close. Whilst the jury were excluded defence counsel asked the judge to dismiss the case on the basis that Ted had ‘no case to answer’.

The judge agreed that the trial should be halted and Ted should be acquitted

The judge agreed that the trial should be halted and Ted should be acquitted. The case against him had become so weak and tenuous that the jury could not possibly find that Ted had dishonestly represented to Mr Broke that the accounts prepared by Mr Addit were true – which was the basis on which Ted had been charged.  What’s more there was a danger that the jury might convict Ted because they did NOT believe the prosecution witnesses and that was a possibility the judge was unwilling to countenance.

So, as things turned out, it was not necessary to hear any evidence from the defence witnesses (including myself).  In any event the matters and issues which I had drawn to the attention of the defence team – and which had been set out in an expert witness forensic accountant’s report filed at court in advance of the trial – had largely been aired before the court already by defence counsel in his cross-examination of Mr Addit.

David

N.B.  Names and certain other details have been changed to protect client confidentiality.

Criminal lifestyle confiscation – a case study

Brian considered himself unlucky.  Some friends of his had come under police observation.  He had been having a coffee with them in Starbucks in Wolverhampton one morning when the police swooped and arrested everyone, Brian included.

Then the police searched the car in which Brian and some of his friends had driven to Starbucks – finding £24,000 in a bag in the boot.  The police also searched the homes of all the persons arrested.  Brian had had £2,000 worth of cocaine (with an 8% purity) in a kitchen drawer at home, which he had foolishly agreed to look after for a friend.  There was also another £10,000 in cash at Brian’s house and a couple of valuable watches.  The police seized the drugs, the cash, the watches and Brian’s mobile phone.

Brian and the others from Starbucks were charged with a serious drugs conspiracy involving an organised criminal enterprise importing and supplying drugs over a wide region.

But the cash in Brian’s house was not contaminated with drugs and there were no suspicious messages on Brian’s mobile phone.  Although the alleged conspirators had been under observation for some time, Brian had not been observed with any of them prior to that morning at Starbucks.  Brian had no criminal record.

Brian was advised to plead guilty to possession of the cocaine with intent to supply

Brian was advised to plead guilty to possession of the cocaine found in his kitchen with intent to supply and possession of the cash found in the car boot (possession of criminal property).  The serious conspiracy charges against him were dropped.  He was sentenced to 3 years imprisonment.

Confiscation proceedings followed.  Although he had no previous criminal convictions Brian was deemed to have a ‘criminal lifestyle’ for confiscation purposes because he had been convicted of the cocaine offence.

The prosecution had obtained copies of Brian’s bank statements, from the two banks he had accounts with, going back to the ‘relevant day’ (which was 6 years prior to the date on which Brian had been charged) and his tax records from HMRC.  They also had Land Registry records showing the purchase of his home, the price he had paid and the mortgages on it (Brian had taken out a second mortgage because his business was struggling).

A prosecutor’s s16(3) PoCA 2002 statement was prepared which, to Brian’s amazement, showed Brian’s benefit from criminal conduct to be over £500,000 and his available amount to be over £100,000.  Brian told his solicitors that he had, in truth, had no benefit from crime and he was broke.  Now he was faced with a demand for £500,000 with the threat of an additional 5 year default sentence for non-payment.

Attached to the prosecutor’s statement were, amongst other things, spreadsheets listing all the deposits in Brian’s bank accounts since the relevant day (both cash and cheques), a valuation of the two watches of £900 in total, and a calculation of the value his home based on the price he had paid for it some years ago uplifted by a national house prices index.

Brian’s solicitors contacted me for help.  I submitted a fee quotation to them for them to obtain a prior authority from the Legal Services Commission

Brian’s solicitors contacted me for help.  I submitted a fee quotation to them for them to obtain a prior authority from the Legal Services Commission.  I asked them to obtain from the prosecution electronic copies of the spreadsheets of bank credits and to obtain a professional valuation of Brian’s home.  I also asked them to obtain from Brian his explanations of the credits to his bank accounts (with any supporting evidence he could provide) and a letter of authority to enable me to obtain further detailed information from his accountant (who had prepared his tax returns).

Brian had been a self-employed electrician.  It transpired that his accountants had prepared tax returns for him based on limited business records and Brian’s verbal explanations concerning his earnings and expenditures.  They had seen his bank statements for one of his accounts but not the other.  They had not prepared annual Balance Sheets as these were not required for tax purposes.

Brian told his solicitors that not all his earnings had been banked in the account for which he had shown the statements to his accountants, but he had told them of all his earnings (or at least he had given them a fair estimate of them).  He sometimes had to juggle money between the two banks to keep within overdraft limits and have sufficient to pay his mortgage and other direct debits.  So he would take cash out from one bank and put cash in the other.  On these occasions the dates and amounts of cash drawn and deposited would be more or less the same, but the amounts drawn and deposited might not be identical and, although the transactions would be within a few days of each other, they would probably not be on the same day.

Also he had done some work as an electrician for builders who had paid him cash in hand and not bothered to go through the cumbersome CIS (construction industry scheme) tax procedures.  Those builders would probably not want to come forward and give evidence of this in court.

Brian was confident that he could ‘prove’ at least three-quarters of the deposits were legitimate.

Nevertheless Brian confirmed that none of the bank deposits were drug related and he was confident that he could ‘prove’ at least three-quarters of them were legitimate.

The watches seized by the police had belonged to his late father and were of considerable sentimental value.  Brian did not think the watches would have been listed in his father’s probate papers.

I obtained further details from Brian’s accountants, checked the prosecution’s s16(3) statement figures and looked for evidence of deposits in one bank account possibly being linked to withdrawals from another.

I prepared a report bringing together all the defence evidence in relation to benefit and available amount.  The property valuation had shown that Brian’s home was in negative equity – the current value being far below that indicated by the national house prices index used by the prosecution.

When the matter came to be heard I attended the Crown Court ready to give evidence.  However, as is usual in such cases, negotiations got underway that morning with both sides exploring the possibility of reaching an agreement that would avoid a lengthy hearing before the judge.

The Crown were persuaded to considerably reduce their benefit figure

The Crown were persuaded to considerably reduce their benefit figure to recognise that cheque deposits were unlikely to be proceeds of crime and that at least part of the cash was likely to be from Brian’s work as an electrician.  They accepted that there was no evidence of tax evasion as Brian had given his accountants information in addition to the bank statements on the one account.

The Crown also accepted, to a limited extent, that some cash deposits could be cash drawn from the other bank.  As a result Brian’s benefit figure would be reduced to £180,000.

In relation to Brian’s available amount the Crown accepted that there was no equity in Brian’s house and they agreed that Brian’s mother could purchase the watches back (at their expert’s valuation).

Brian accepted, for the purposes of confiscation, that his available amount included the cash seized from the car and from his house (which was already in police possession), the balances in his bank accounts and the market value of the watches and his car.  In total this was nearly £45,000.  This would be the amount Brian would be ordered to pay.

Brian was not happy with the outcome – but he did recognise that things could have been a great deal worse!

A brief hearing followed in which the judge was invited to make a confiscation order in the agreed figures.  Brian was given 6 months to pay (although in practice he signed over the cash already held by the police at the conclusion of the hearing, meaning there was only £11,000 left to pay) with a 15 month sentence in default (although in practice that would be reduced pro-rata to reflect the £34,000 already effectively paid).

Brian was not happy with the outcome – but he did recognise that things could have been a great deal worse!

David

Names, locations and certain other details have been changed to protect the identities of those involved.

A club treasurer called to account for the money

It is often difficult to find someone willing to act as honorary treasurer for a local club or voluntary organisation and Upper Slagbank’s Over 60s Club was no exception.  When the current treasurer died the club cast about for a new ‘volunteer’.  The accounts had got into a bit of a mess and accounting procedures, if you can call them that, were a bit lax – but probably no more so than many other similar organisations up and down the country.  Finally Peter was persuaded to take on the responsibility, although he was only in his 50s and held no professional qualifications.

He used to work in a bank, so he knew about money, and he was well respected in the community.

Peter was a local man who now ran his own recruitment agency for top-flight executives.  He used to work in a bank, so he knew about money, and he was well respected in the community.  But life was about to take a turn for the worse for Peter.  A few months after he became treasurer his home was repossessed by the mortgage company (business had actually not been going too well for a while) and his wife, surprised to find herself out on the street, left him.

Vera, the club chairwoman, asked him if in the circumstances he no longer wished to be treasurer, but Peter said it gave him some continuity and normality in a turbulent time and he was willing to continue.

The club held several fund-raising events each year and had income from membership fees and contributions to the costs of excursions.  Its expenditure was on the outings themselves and the costs of speakers, entertainers, room hire and food and drink for evening meetings.  The club also made donations to good causes.  The management team (for want of a better description) met from time to time and there was the annual AGM.

Peter produced some figures on individual fund-raising events for the management team meetings and annual accounts for the club AGM, which were accepted without demur.  The figures took the form of an income and expenditure account resulting in a net surplus or deficit.  They did not show the bank balances or cash on hand.

Peter explained that due to some confusion between the two club bank accounts some cheques had bounced, but he was sorting it out.

After about 18 months William, the club’s President, began to hear grumblings in the village about club bills not being paid.  He had a word with Peter who explained that due to some confusion between the two club bank accounts some cheques had bounced, but Peter was sorting it out.

But things went from bad to worse until finally Vera and William demanded that Peter surrender all the books and records.  A Tesco carrier bag full of jumbled receipts, bills, bank statements, cheque books and some cash was left on William’s doorstep next morning.

William went through these in a meticulous manner, preparing his own schedules of club receipts and payments over the period for which Peter had been their treasurer.  Vera compared the bank statements to the accounts which Peter had presented to management meetings dealing with the fund-raising events.  They were horrified to find that the club’s finances were in a most unhealthy state.  On numerous occasions cash had been drawn from the bank – even in August when the club had no activities!  In fact the only time no cash was being drawn from the bank seemed to be when there was no cash in the bank to be drawn.

Profits from fund-raising events had not been paid into the bank.

Amongst the receipts in the bag were two post office chits for the purchase of Peter’s TV licences – bought with club cheques.

The police were contacted and Vera and William accused Peter of stealing over £7,000 from the club.

The police were contacted and Vera and William made statements.  William handed over the schedules he had prepared.  Vera and William accused Peter of stealing over £7,000 from the club.

Following a police investigation Peter was charged with the theft of cash drawn from the bank on over 30 occasions, theft of profits from the fund-raising events which had not been banked, and fraud in relation to the cheques used to purchase the TV licences.

Peter denied any wrongdoing.  He admitted the records were in a muddle but he vigorously denied any thefts.  Indeed on occasion he had found it necessary to put his hand into his own pocket to meet club bills.  It was because the club owed him money that he had used the club cheques to buy his TV licences.

There had been a lot of cash expenditures on this and that and he was not always given receipts.  Because of the cash expenditures, which arose unpredictably, he did not bank the surpluses from the fund-raising events but retained a tin of club cash.  He did bank ‘surplus’ cash from time to time.

He had not kept a cash book (and neither had the previous treasurer).  The records had been in a mess when he first received them and, to his regret, he had muddled along without ever really getting a ‘grip’ on things.

I was instructed by Peter’s lawyers to see if the evidence did support the theft and fraud charges.

It seemed to me that there was evidence to show substantial cash expenditures and that the fact that the surpluses from individual fund-raising events had not been banked separately did not necessarily indicate those surpluses had been stolen.

In the absence of a cash book it was not clear how cash drawn from the bank had been spent.

In the absence of a cash book it was not clear how cash drawn from the bank had been spent.  However it did seem, based on the annual accounts presented to the AGM by Peter, that he would have to have drawn at least some cash from the bank to pay those expenses which had not been paid by cheque.

It was not unreasonable to suppose that some of those expenses had needed to be paid in August, although there were no club activities that month.

William had prepared two sets of schedules.  One set based on the bank statements, the other set based on the receipts in the carrier bag.  There was at least one bona fide expenditure on the bank statement schedule which was not reflected on the other schedule – presumably because there was no receipt for it in the carrier bag.

Without a cash book it was not possible to exclude the possibility that there were further bona fide expenditures, which had been paid by cash, and for which the receipt had been lost (or never obtained).

I could not be sure that any monies had been misappropriated.

In the circumstances I could not be sure that any monies had been misappropriated.  Nor could I be sure whether, overall, Peter owed money to the club or they owed money to Peter.  In other words, I did not think the evidence proved that any crime had been committed.

When the matter came to trial Peter was acquitted of all the charges against him.

 

David

Names, locations and certain other details have been changed to protect the identities of those involved.