R v Bright (Michael John)
| Jurisdiction | England & Wales |
| Judge | President of the Queen's Bench Division: |
| Judgment Date | 06 March 2008 |
| Neutral Citation | [2008] EWCA Crim 462 |
| Docket Number | Case No: 2007 06102 A6 |
| Court | Court of Appeal (Criminal Division) |
| Date | 06 March 2008 |
[2008] EWCA Crim 462
The President of the Queen's Bench Division
Mr Justice Forbes and
Mr Justice Mackay
Case No: 2007 06102 A6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CROWN COURT AT SOUTHWARK
HIS HONOUR JUDGE RIVLIN
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Ian Winter QC and Mr J Barnard for the Appellant
Mr Andrew Baillie QC for the Crown, Mr Pavry and Miss Radcliffe for the Crown
Hearing dates: 27 th February 2008
On 22 nd October 2007 at the Crown Court at Southwark, before His Honour Judge Rivlin QC and a jury, after a trial lasting many weeks, Michael John Bright was convicted on two counts of conspiracy to defraud (count one and count five). This is his appeal against the sentence of 7 years' imprisonment on each count to run concurrently. He was also disqualified under section 2 of the Company Directors Disqualification Act 1986 for 12 years, but no appeal is brought against the disqualification order.
Philip Condon and Dennis Lomas, were also convicted, Condon on one count of conspiracy to defraud (count one) and Lomas on the same counts as Bright. Condon was sentenced to 3 years' imprisonment, and Lomas to 4 years' imprisonment on each count to run concurrently. They were both disqualified under section 2 for a period of 10 years.
These convictions arose from the notorious collapse of the Independent Insurance Group. Independent Insurance PLC was a public company quoted on the London Stock Exchange. Independent Insurance Limited was its principal trading subsidiary. The appellant started the business in 1988. It developed into the 9 th largest general insurance concern in the United Kingdom. In June 2001, both companies were put into liquidation.
The collapse was one of the most serious commercial disasters to have occurred in recent years. Although the liquidator's final accounts are unavailable, it is likely that the deficiency will be in the region of £1 billion. Approximately 1000 employees lost their jobs. Shares in the company became valueless. Not far short of £400 million has already been paid to policy holders by the Financial Services Compensation Scheme funded by the insurance industry, but not all claims will qualify for compensation.
It was never suggested that the company had been set up as a vehicle for fraud. The dishonesty began as a response to trading difficulties. What was unknown at first, but gradually became apparent to the conspirators, was that the company had been unprofitable over a period of years. It was then that the dishonesty began. The appellant was the Managing Director and Chief Executive Officer of the Independent Insurance Group of Companies. At the time when he was committing these offences, he was President of the Institute of Insurers. Condon was the Deputy Managing Director, and Lomas the Finance Director. The moving force behind the initial success of the business, and then the driver of the conspiracy was, as the judge found, this appellant.
The essential facts can be briefly summarised. This was a public company. Huge sums of money flowed in and out of it daily. The defendants were in a position of trust. Over a period covering at least two year end published accounts for 1999 and 2000, they dishonestly manipulated the company's reserves. These were described by both Condon and Lomas as “woefully inadequate” and the defendants arranged to hide the need to improve the reserves by keeping claims data off the computer system and the company's books of account. As Judge Rivlin summarised it, in the very simplest terms, this was achieved by instructions issued to senior employees so to manage the business that very many millions of pounds worth of claims were put on lists which were kept separate from the accounting systems. In this way they were concealed from the company's independent actuaries. Accurate information was of course required to enable the actuaries to make appropriate projections and advise both the company, the shareholders, and the public at large accurately about the state of the reserves. Effectively the actuaries were deliberately and dishonestly tricked, and basing their certification upon the representations made by the defendants in their capacity as directors, they certified that the reserves were sufficient, when the defendants knew perfectly well that the certification on which so many relied was the product of deliberate and systematic fraud.
The second aspect of dishonesty was reflected in count five. Once the company's considerable financial difficulties were appreciated, the appellant and Lomas negotiated three very substantial reinsurance contracts which had a corresponding beneficial effect on the accounts. These contracts were underpinned by several further, but unfavourable contracts. Assurances were given that the only contracts were the favourable ones. This was deliberately false. The effect was to alleviate concerns which would otherwise have troubled the company's actuaries and accountants. In the result, whereas the board of directors, and the public at large, were given detailed information about the beneficial contracts, the unfavourable contracts were entirely concealed.
In his report for the year end 2000, the appellant was able to assert that the business had a “unique level of comfort”. This was nonsense, and the appellant knew it. The 2000 year end accounts were manipulated into showing a profit before tax just in excess of £22 million. In reality if the accounting material relating to case estimates had been included in the accounts, this profit turned into a loss of fractionally short of £30 million. As Judge Rivlin explained in his sentencing remarks
“ the end result at least so far as these later accounts are concerned was that, if you add up the problems in terms of the undisclosed shortage of reserves created by the withheld data, it amounts to at the very least between £110 and £120 million, quite probably many millions more. If you add that to the improvement to the profit and loss account created by the reinsurance fraud, the second part of the case, which was admitted to amount to £100 million, your dishonesty had a massive impact on the accounts for that year of at least £210-£220 million, very probably much more.”
The judge was prepared to accept that these dishonest activities were not directly responsible for the collapse of Independent Insurance. However he was amply justified in reaching the conclusion that, as he put it, the effect of the conspiracies was to “put paid to any chance of mounting a legitimate rescue operation by the raising of fresh capital and, as the fraudulent conduct was prolonged, it must have played a significant part in the scale of the financial disaster that ensued”.
Numerous different categories of people were deceived. They included insiders, such as employees, other directors of the company, and the company's accountants and auditors, and those outside the company, such as shareholders, creditors and policy holders. The scale was vast. The fraudulent activity continued despite express warnings from other directors. As Judge Rivlin pointed out the dishonesty was set in motion by the appellant as the “architect and driving force” behind the fraud, who determined on a course of dishonesty which “steamrollered out of control under his clear instruction and with his full knowledge”. Judge Rivlin went on to observe that “the truth is that you corrupted a lot of people along the way including, I believe, your co-defendants”, and he described the “breezy manner” in which the appellant sought to blame able decent and hardworking employees for dishonest practices which he had himself introduced and put into operation. The appellant was the individual who led the dishonesty to a “new and exceedingly serious level” when he played the “hands on” control and leading role in the reinsurance aspect of the fraud covered by the second conspiracy count.
With that very brief summary of a complex fraud, the investigation into which required analysis of a million documents, we must come to the heart of the appeal. It is submitted by Mr Ian Winter QC on behalf of the appellant, that the sentence imposed on him was the maximum available sentence. For a variety of reasons, such a sentence was wrong in principle, and produced an overall sentence which was manifestly excessive. Pausing for a moment, however, before examining his argument, we should record that commendable efforts were made by all counsel and solicitors in this case to cooperate with the judge to enable him to exercise his case management responsibilities and to produce a trial which, notwithstanding the vast amount of material, took no longer than necessary.
At first the defendants' criminality was embodied in a single count of conspiracy to defraud. The Crown decided to add a number of substantive counts of fraudulent trading contrary to section 458 of the Companies Act 1985 to cater for the possibility that the jury might conclude that although no conspiracy was proved between the defendants, one or other of them was guilty of fraudulent trading. It also became apparent that the original conspiracy to defraud count covered dishonest conduct which had two distinct and separate features. It is an essential feature of the issues to be examined in the appeal that, at the outset of the trial, the chief concern of the Crown was the effective management of the case. Accordingly appropriate amendments to the indictment were...
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