Paul Edward Phillips v R
| Jurisdiction | England & Wales |
| Judge | Lord Justice Pitchford |
| Judgment Date | 21 December 2011 |
| Neutral Citation | [2011] EWCA Crim 2935 |
| Docket Number | Case No: 201006515D2 |
| Court | Court of Appeal (Criminal Division) |
| Date | 21 December 2011 |
[2011] EWCA Crim 2935
IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM CROWN COURT IN BIRMINGHAM
before HHJudge INMAN QC on 5 November 2010
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Pitchford
Mr Justice Andrew Smith
and
Mr Justice Popplewell
Case No: 201006515D2
G Carter-Stephenson QC and G Payne (instructed by Cartwright King—Solicitors) for the Appellant
D Farrer QC and A Wheeler (instructed by CPS) for the Respondent
Hearing date: 9 November 2011
This is an appeal, brought with the leave of the single judge, against a conviction for conspiracy to cheat the Revenue.
The appellant was tried, together with Thomas Scragg ("Scragg"), Martin Scarratt, Robert Scarratt and Paul Scragg, before HHJ Inman QC at Birmingham Crown Court, upon an indictment which charged the defendants that they:
"…between the first day of December 2002 and the first day of April 2007, with intent to defraud and to the prejudice of Her Majesty the Queen and the Commissioners of Inland Revenue and Customs and Excise, conspired together, with James Tighe and with others to cheat Her Majesty the Queen and the Commissioners of Inland Revenue and Customs and Excise of public revenue by dishonestly:
(1) paying a workforce or procuring that a workforce be paid without deduction of tax and national insurance;
(2) failing to account to the Commissioners for tax and national insurance which should have been deducted from payments to that workforce;
(3) falsely representing that work had been subcontracted to companies for which payments including VAT had been made;
(4) failing to account to the Commissioners for VAT."
On 5 November 2010, following an 8 week trial, the appellant and Thomas Scragg were convicted unanimously, and the remaining defendants were acquitted.
The ground upon which the appeal is brought is that the trial judge wrongly refused the appellant leave under section 101(1)(e) Criminal Justice Act 2003 to adduce evidence of the bad character of his co-accused, Thomas Scragg and Paul Scragg. In consequence, it is argued that the appellant's trial was unfair and the verdict unsafe. The appeal raises the following issues:
(1) whether the evidence the appellant sought to adduce had "substantial probative value in relation to an important matter in issue between the defendant and a co-defendant" within the meaning of section 101(1)(e) Criminal Justice Act 2003;
(2) what, if any, discretion the trial judge possessed to decline to admit such evidence if and once the statutory criteria had been satisfied;
(3) whether the judge, having refused to admit the evidence, should have severed the appellant's trial from that of his co-accused;
(4) if the trial judge wrongly refused to admit the bad character evidence and/or wrongly failed to sever the appellant's trial from that of his co-accused, whether the safety of the appellant's conviction is undermined.
The prosecution case
The central prosecution allegation was that the conspirators were involved in a construction industry sub-contractors' exemption certificate fraud. Revenue regulations require a construction industry contractor to deduct from payments to his sub-contractor tax and employees' national insurance. If, however, the sub-contractor is the holder of a CIS6 certificate the contractor is exempt from making deductions and the payments to the sub-contractor may be made gross. If the payments are made gross, the sub-contractor is required to issue both to the contractor and to the Revenue a CIS24 voucher certifying receipt of the gross sum paid without Revenue deductions. The obligation to make the deductions thereupon falls on the sub-contractor.
The structure of the fraud was as follows:
(1) the main contractor paid the contract price to a CIS6 certificate holding company (for these purposes, 'the sub-contractor');
(2) the sub-contractor moved the money to a payroll company;
(3) the payroll company moved the money to an end-user company;
(4) the end-user company withdrew cash to make payments to the workforce;
(5) tax and national insurance due on payments to the workforce comprised approximately 18% of the gross. This sum was retained by the fraudulent members of the scheme and no account was made to the Revenue by any of the companies within the fraudulent structure. The sub-contractor, the payroll company and the end-user company were all vehicles for the fraud controlled by one or more of the conspirators.
While the indictment period was November 2002 to April 2007, the case against the appellant was that between November 2002 and September 2005, with Thomas Scragg, he managed the fraudulent scheme. He did so by being a director of and/or working for:
Three CIS6 sub-contractors: Construction Plus Limited (2002–2005), Ground Work Contracts Limited (2003–2004) and Midland Civil Engineering Limited (2004–2005); and
Two payroll companies: HPS Payroll Services Limited (2002) and Midland Payroll Services Limited (2003–2005).
Thomas Scragg was director and manager of two end-user companies: Freelance Construction Limited (2002–2004) and Groundwork Recruitment Limited (2004–2005). He was a bank signatory for both companies and also for Utility Recruitment Limited, a third end-user company, of which Martin Scarratt and Paul Scragg, his nephew, were directors and also signatories.
Construction Plus Limited traded from the appellant's business address at Ashbourne House, 21 Ashbourne Road, Ashbourne, Derbyshire. All three end-user companies were registered at the appellant's business address at Ashbourne House.
We have noted that the money filtered downwards from the main contractor to the end-user company. The invoices ascended in the opposite direction. The end-user invoiced the payroll company for its "work". The payroll company, in turn, invoiced the CIS6 sub-contractor, and the CIS6 sub-contractor invoiced the main contractor. The invoicing system was a sham. The fraudulent company structure was interposed between the main contractor and the workforce simply for the purpose of evading tax and national insurance. The appellant was responsible for the invoicing system. He also provided Thomas Scragg with the details required for cash to be withdrawn and pay packets in cash to be prepared. Thomas Scragg was responsible for gathering business to the fraudulent scheme and for the delivery of cash to the workforces on site around the country. The prosecution case was that between November 2002 and September 2005 a gross sum of approximately £60 million was laundered through the company structure in this way, enabling the fraudsters to retain £14 million which should have been accounted to the Revenue.
The appellant was the holder of a CIS6 certificate on behalf of the sub-contractor companies. He receipted the payment of money by contractors with CIS24 vouchers. The vast bulk of the money received was moved on to the payroll companies without deduction of tax and national insurance, despite the fact that the payroll companies had no CIS6 certificate entitling them to gross payments. The payroll companies made no returns to the Revenue to account for the onward payments to the end-user companies.
Thomas Scragg organised a Freelance Construction Limited cash account at the Allied Irish Bank. At a meeting with its manager, Mr Rogers, he represented that the payroll company worked out what was due for tax and national insurance and that the net sum would be transferred to the Freelance account by BACS for conversion to cash for wages and delivery to the workplace. However, Thomas Scragg's defence at trial was quite different. He asserted that the appellant would provide him with the precise sums to be inserted into each pay packet, gross. No deduction of tax and national insurance was made either by the payroll company or by the end-user company. Thomas Scragg gave evidence that he believed, when preparing and organising delivery of the pay packets, that the obligation for deduction of tax and national insurance was upon the foreman or ganger who was responsible for paying the men's wages on site. He said that he understood that the ganger sent a CIS24 voucher to the appellant. He thought, he said, that the gangers would make the 18% deduction from each of the wage packets before they were handed to the workmen for whom they were destined. He claimed that Mr Rogers' file note was inaccurate. He had made no claim that tax and national insurance was deducted by the payroll company.
The second limb of the fraud on the Revenue concerned the dishonest submission of VAT returns by the end-user companies. The prosecution demonstrated the appellant's close involvement in the affairs of the end-user companies by showing that he completed the Freelance Construction VAT returns which Thomas Scragg signed. Furthermore, when an HMRC inspector visited the Ashbourne Road premises on 4 June 2004 to seek assistance about two applications for VAT registration made on the same day by Martin Scarratt on behalf of the end-user companies, Groundwork Recruitment Limited and Utility Recruitment Limited, he was met by the appellant who represented himself as their financial advisor. The appellant informed the inspector, Mr Cook, that an end-user called Flightdean Limited had supplied labour to Groundwork Contracts Limited, who had in turn supplied labour to the payroll company, MPS. The prosecution case was that this information was, to the appellant's knowledge, false. The end-users in the scheme were Groundwork Recruitment Limited and Utility Recruitment...
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