Articles Business Crime & Financial Services 23rd Jun 2020

HBOS: The final chapter?

HBOS: The final chapter?


Back in late February, a hearing at the Court of Appeal finally brought to a close the decade-long saga of the HBOS corruption case (‘Operation Hornet’, David Mills and others, see The Court’s recently published judgment ([2020] EWCA Crim 369) covers two areas of significance.


Secondary liability under s.458 of the Companies Act 1985

First, the Court grappled with the concept of secondary liability as it applies to the offence of Fraudulent Trading under section 458 of the Companies Act 1985 (‘s.458’). The material part of the section reads, ‘If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who was knowingly a party to the carrying on of the business in that manner is liable…’.


The appellant Cartwright was a mid-level offender (variously described as a ‘lieutenant’ or a ‘lapdog’) convicted for his part in the demise of a textile business heavily in debt to HBOS. The case against him on s.458 was left in the alternative; either he was guilty as a principal offender, party to the carrying on of the business, or as a secondary party, aiding and abetting his more senior co-defendants who were themselves indicted as principals.


Cartwright’s appeal was based on the decision of the Court of Appeal in Miles [1992] Crim LR 657 and various commentaries following it. In Miles, the Court considered whether a salesman who sold worthless shares but who was not a manager of the business could be guilty under s.458.  The Crown argued in the affirmative, not least because the 1985 Act had substituted ‘every person’ for the more restrictive ‘directors’ that had appeared in earlier but corresponding versions of the section.  However, the Court in Miles concluded that s.458 was, ‘designed to include those who exercise a controlling or managerial function or who, in Lord Lane’s phrase, are running the business.’


It was argued on Cartwright’s behalf that the case ought not to have been left against him in the alternative-that secondary liability must be precluded for the s.458 offence, otherwise the limitation placed on primary liability by the decision in Miles would effectively be rendered a nullity. The Court disagreed: Miles did not expressly decide the point and is therefore not authority for the proposition that the ordinary principles of secondary liability do not apply to s.458 (c.f. JC Smith’s commentary in the CLR, op.cit.).  The Court in Miles was likely to have simply been unwilling to uphold the conviction on a basis other than that on which the jury had been directed.  In any event, common law liability as a secondary party can only be excluded by express provision or necessary implication (Jefferson [1994] 99 Cr.App.R(S) 13); there was no question of the former and neither Miles nor any other authority provide the latter.  It would also be contrary to legitimate policy objectives if those, inside or outside the company, who were not capable of being indicted as principal but who nevertheless connived in the fraudulent running of the company could escape liability in this way.


A perhaps more fundamental question (but one upon which the Court did not reach a conclusive view, given its decision on the availability of secondary liability) is whether liability as a principal under s.458 should be as narrowly constrained as the judgment in Miles Archbold (2020 edition, 30-7) attributes the Lord Lane quote in Miles (‘running the business’) to the decision in Grantham 79 Cr App R 86, but in fact what Lord Lane said in Grantham was (emphasis added), In the present case it was open to the jury to find…that whoever was running this business was intending to deceive…’.  As the Court observed when considering Cartwright’s position, it was, ‘hard to see how the use of the phrase in that way, which was clearly a comment on the specific facts, was intended by Lord Lane to constitute a restriction on the ambit of…section 458.’


Some assistance can be derived from the civil jurisdiction. In the Chancery case of Morris v Banque Arabe Internationale d’Investissement SA (No.2) [2002] B.C.C. 407, the Court considered the ambit of s.213(2) of the Insolvency Act 1986, which attaches liability to, ‘any persons who were knowingly parties to the carrying on of the business’.  The Court found that Banque Arabe was capable of being party to the fraudulent carrying on of business by a separate legal entity, BCCI, by knowingly dealing with and assisting BCCI in an offending way.  The Court concluded that s.213(2) was not limited to those who perform a managerial or controlling role within the company concerned; indeed, as Neuberger J said, the phrase ‘any persons who were knowingly parties to the carrying on of the business’, ‘is a more natural reference to people who are not employed by the company at all, but who are third parties to the company.’ Regrettably, for s.458, the criminal jurisdiction has yet to follow this common-sense approach which does justice to the statutory language and legislative history of both Acts.


So, although the Court in the instant case was undoubtedly correct in confirming the potential liability of persons who aid or abet those engaged in Fraudulent Trading, the decision leaves the limited construction put upon ‘party’ by Miles This may still be significant in circumstances where none of the ‘controlling minds’ of the company are said to be complicit in the fraudulent behaviour and where an alternative charge (e.g. Theft) is not available.

Discount for delay not automatic or appropriate

Second, the Court considered submissions from two of the principal protagonists in the case that their very lengthy custodial sentences should have been tempered by the accepted substantial delay in bringing the case to trial. David Mills (60) and Michael Bancroft (73) received 15 and 10 years respectively in 2017.  They had first been arrested in 2010.


Although the sentencing Judge acknowledged the delay, he pithily concluded, ‘I am not entirely persuaded that this has really added anything to your plight. Had, for example, you admitted your offending to the police or pleaded guilty…the delay would…be of much greater significance and value to you…’.  In Mills’ case in particular, the Judge was ‘quite sure’ that he had, ‘smugly continued to enjoy the fruits of his wrongdoing and really could have no complaint about the delay….’.


The Court of Appeal were unmoved by submissions that this was too harsh an approach. Although the sentences were obviously severe, the Judge had been entitled to find that the impact of delay was mitigated by the conditions under which Mills and Bancroft lived and, in any event, had addressed the question of totality.  The exercise of reducing a sentence for delay is discretionary and purposive, not an automatic entitlement.  Indeed, the latest version of the Sentencing Council General Guideline: Overarching Principles (not in force at the time of the appellants’ sentence) makes it clear that a court may take delay into account, ‘if this has had a detrimental effect on the offender.’


Fundamentally, achieving any reduction in sentence for Mills was going to be difficult in circumstances where his offending was so egregious. The Court had only to quote the following passage from the sentencing remarks, ‘You are…a thoroughly corrupt and devious man, adept at exploiting the weaknesses of others…and…in getting others to do your dirty work for you…in your case…[for] a staggering financial advantage.’


Bancroft, meanwhile, had not helped his mitigation by sending the trial Judge a letter before the verdict (described by the Judge as ‘extraordinary’) in which he admitted his guilt and, although expressing remorse, offered no explanation for his conduct.


Angus Bunyan

Angus appeared for the Crown at the appeals; he was led by Brian O’Neill QC at trial.

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