F, R v [2009] EWCA Crim 1639

Case No 200902819

[2009] EWCA Crim 1639

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CRIMINAL DIVISION)

ON APPEAL FROM KINGSTON CROWN COURT

HIS HONOUR JOHN SAMUELS QC

T 2007 0754

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 29/07/2009

Before

LORD JUSTICE PILL

MR JUSTICE BURNETT

SIR ROBERT NELSON

Between

ReginaAppellant

FRespondent

Mr A Donne QC , Miss H Malcolm QC and Miss S Webster (instructed by Serious Fraud Office) for Appellant

Mr I Glen QC and Miss J Dempster (instructed by Saunders Law Partnership) for Respondent

Hearing Hearing dates : 8, 9 & 10 July 2009

Judgment

Lord Justice Pill :

[1]This is an application for leave to appeal (with appeal to follow if leave granted), under section 58 of the Criminal Justice Act 2003 (“the 2003 Act”) against a decision of His Honour John Samuels QC sitting at Kingston Crown Court on 1 June 2009 to stay further proceedings against F (“the respondent”) on the ground that counts 1 to 8 of an indictment were an abuse of the process of the court. The judge declined to direct a stay on counts 9 to 16, alleging theft.

[2]The judge refused leave to appeal. For the prosecution, Mr Donne QC had submitted that there was no need to make application for leave to the judge and that application is made to this court. The judge ruled that application to him, as trial judge, was first required. It was accordingly made, and refused. The present application is, in the submission of Mr Donne, an application; if the judge is correct on the procedural issue it is a renewed application. We consider the issue after ruling on the merits.

The facts

[3]Counts 1 to 8 alleged offences contrary to the Financial Services and Markets Act 2000 (“the 2000 Act”). The application to stay was made on behalf of the respondent in effect at the close of the prosecution case though a voir dire prolonged over many days was interspersed with prosecution evidence in the presence of the jury. No application to stay had been made when the trial commenced, though much of the material now relied on was available then. The voir dire was held at the judge’s initiative. His ruling was very detailed and turned on the conduct of the Financial Services Authority (“the FSA”). Having made his ruling, the judge discharged the jury.

[4]The relevant counts alleged the establishment and operation, between 2000 and 2004, of an unlawful collective investment scheme (“CIS”) as a result of which about £34 million was obtained from 8,500 investors on the basis that the money would be used for the purposes of gambling and/or network marketing. The scheme was known as the KF Concept (“KFC”). A network of team managers assisted the respondent. Under its umbrella a number of schemes were operated including Corporate, Platinum, Stakes and Phase 9. A further scheme, Planline was not the respondent’s scheme but 93% of the money in it was KFC money transferred by him. The theft charges faced by the respondent are specimen counts of alleged expenditure of KFC money by the respondent on himself and his family totalling £1.8 million.

[5]The scheme was promoted at road shows throughout the country. The respondent claimed to be earning very large sums from his networks and high returns were promised. Some investors were paid their promised returns, and more, and there were some successful gambling ventures. However, the prosecution alleged, the payments were made largely from money coming in from new investors.

[6]Concern about the respondent’s activities came to the attention of the Kent Police in 2002 and 2003. In June 2003, a report was received from a potential investor of an invitation received from Mr R Fury, an independent financial adviser, to participate in KFC. Mr Hearne, an investigator in the Enforcement Division of FSA, visited Mr Fury’s office and subsequently wrote to him requesting further information. Mr Fury’s response was believed to have been to write a letter which reached Zurich Insurance by whom Mr Fury had been authorised to sell financial products. In December 2003, Mr Hearne received authority to investigate Mr Fury, pursuant to section 168 of the 2000 Act. Mr Fury instructed solicitors who wrote to Mr Hearne. Mr Fury was interviewed under compulsion by representatives of the FSA on 13 January 2004. He vigorously denied having written to Zurich.

[7]In September 2003, Kent Police had applied unsuccessfully to the Maidstone Crown Court for a production order in respect of the respondent’s bank account with Lloyds Bank Plc.

[8]On 18 January 2004, an article by Mr Tony Hetherington about the respondent appeared in the Mail On Sunday under the headline :

“Is this Cabby taking Investors for a Ride?”

On 15 January, Mr Hearne had provided Ms McDermott, solicitor and Head of Department FSA, with a report in which the impending article had been mentioned. On 19 January, in a carefully drafted submission, Mr Hearne applied for, and received, authority to use without notice investigatory powers to investigate the respondent, his wife and a Mr McNab, the authority being granted by Ms McDermott. The respondent was interviewed under compulsion by Mr Hearne, and another investigator Mr Ohlson, on 29 January 2004.

[9]The interview lasted 43 minutes and was taped. It was submitted on behalf of the respondent that, had the guidance in the FSA’s own documents, the Procter memorandum, been followed, the respondent would have been cautioned and offered legal advice. The interviewers formed the view that the respondent had failed to cooperate at interview. The judge found, at paragraph 72, that the respondent “was less than forthcoming; and that the investigators might reasonably have concluded that he was objectively obstructive” but in the judge’s view that did not justify the steps subsequently taken.

[10]On 30 January 2004, Mr Peter Willsher was appointed as project manager in the investigation of KFC. He is a case manager, Enforcement Division. On 2 February, Mr Willsher applied to Ms McDermott for powers to secure disclosure of activity on a bank account held by KFC at Barclays Bank Plc. The Bank told him that over £1 million had passed through the account in January 2004 and over £11 million between April and December 2003.

[11]On 2 February, Mr Willsher made a lengthy submission to Ms McDermott seeking powers to act under the 2000 Act. On the morning of 4 February, Mr Willsher prepared a submission for consideration by the Deputy Chairman of FSA’s Regulatory Decisions Committee, Sir Anthony Holland. There was an 18 minute long telephone conference between them beginning at 1300 hrs.

[12]Authority was granted to seek a search warrant in relation to the respondent’s premises and to seek a freezing order over his assets and those of his wife and a Mr McNab. Responsibility for the applications was divided; in-house counsel made the application to the City of London Magistrates for a search warrant and, on the same day, leading counsel applied in the Chancery Division of the High Court for an injunction and freezing order. Affidavits were submitted to support the applications. No notice was given to the respondent. The High Court Judge was told of the unsuccessful application to the Maidstone Crown Court in September 2003 but the City of London Magistrates were not. Both applications were granted. On the following day, Kent Police, in conjunction with FSA representatives, executed the search warrant.

[13]On 11 February 2004, a letter from the FSA was sent to the 87 KFC team leaders and team managers whose contact details had been obtained during the search on 5 February. The judge found that the letter was “couched in threatening terms”; and that it was objectively inappropriate to require an immediate response from the recipients, “on pain of committal if a response was not forthcoming within 7 days” (paragraph 76). That approach was to be contrasted with the Procter template form, stated the judge.

[14]On 9 February 2004, Mr Willsher contacted the Serious Fraud Office (“SFO”) and gave them notice of an intended early referral to them. The prosecution case was that KFC was a collective investment scheme (CIS) rather than a deposit-taking scheme and that the authority of the FSA was required to operate it. A meeting was held on 11 February and, on 15 February, the SFO accepted the referral.

[15]In early August 2004, the Concept Members Action Group was formed to represent the interests of members of KFC (“CMAG”). The Chairman, Mr Hunt, was also a team manager as were other members of CMAG. On 29 September 2004, there was a lengthy meeting between representatives of the FSA (including Mr Willsher) and representatives of CMAG. It will be necessary to refer to a meeting of team managers held at a hotel in Coventry on 5 December 2004. On the following day, a delegation of team managers met representatives of FSA at their offices in Canary Wharf. On 15 January 2005, extracts of affidavits of Mr Willsher and the respondent were sent to solicitors acting for CMAG. A further meeting of team managers, at which FSA was represented, was held in Northampton.

[16]The respondent was arrested and interviewed under caution on 17 August 2004. Between February and July 2005, the FSA published what the judge described (paragraph 83) as “a series of communiqués on its website relating to the progress of its civil proceedings against F”.

[17]On 5 July 2005, following service of a statutory demand, the respondent was adjudged bankrupt in the High Court.

The appeal

[18]Section 67 of the 2003 Act provides:

“The Court of Appeal may not reverse a ruling on an appeal under this Part unless it is satisfied— (a) that the ruling was wrong in law, (b) that the ruling involved an error of law or principle, or (c) that the ruling was a ruling that it was not reasonable for the judge to have made.”

[19]In construing the section, Mr Glen QC, for the respondent, relied on the statement of Sir Igor

Judge P in R v B [2008] EWCA Crim 1144:

“Leave to appeal under section 67 of the 2003 Act will not be given by this court unless it is seriously arguable, not that the discretionary jurisdiction might have been exercised differently, but that it was unreasonable for it to have been exercised in the way that it was.”

[20]In DPP v Humphrys

[1977] AC 1

, Lord Salmon stated, at page 46:

“I respectfully agree with [Lord Dilhorne] that a judge has not and should not appear to have any responsibility for the institution of prosecutions; nor has he any power to refuse to allow a prosecution to proceed merely because he considers that, as a matter of policy, it ought not to have been brought. It is only if the prosecution amounts to an abuse of the process of the court and is oppressive and vexatious that the judge has the power to intervene. Fortunately, such prosecutions are hardly ever brought but the power of the court to prevent them is, in my view, of great constitutional importance and should be jealously preserved. For a man to be harassed and be put to the expense of perhaps a long trial and then given an absolute discharge is hardly from any point of view an effective substitute for the exercise by the court of the power to which I have referred.”

In Hui Chi-Ming v R

[1992] 1 AC 34

(Privy Council), abuse of process was defined, at page 57B, as “something so unfair and wrong the court should not allow the prosecutor to proceed with what is in all other respects a regular proceeding”. The judge’s ruling

[21]Following his detailed consideration of the evidence, the judge stated his conclusions on the application for a stay. Rather than attempt to extract each of the conclusions reached, we set out the conclusions in full. Mr Glen urged the court not to go beyond the findings in those paragraphs when assessing the merits or demerits of the appeal. Some other references have been and are necessary but we bear in mind that submission:

“94. Whether or not the FSA was entitled to treat F and the KF Concept as falling within its remit for investigation remains an open question. Objectively the operation had more of the characteristics of a pyramid, which would have been the responsibility of the Department of Trade and Industry at that time, than a CIS or an unauthorised deposit-taking scheme, which would have drawn it within the remit of the FSA. Doubts properly expressed by Mr Vosser in this respect went unheeded within the FSA. Money-laundering, which had initially attracted the attention of Kent Police, has not been suggested in relation to the source of any of the funds invested in the KF Concept (albeit it might have been more actively considered in relation to one prosecution witness, who invested over £1 million with minimal inquiry). In the absence of any complaint that any investor had lost money, prior to the FSA action on 5th February 2004, allegations of fraud simpliciter were at that time going nowhere. 95. The FSA, and specifically Mr Hearne, was not entitled to invoke the use of statutory powers against Mr Fury. By early September 2003 Mr Fury had acknowledged his error as an independent financial adviser in contacting clients to invest in an unauthorised scheme, namely the KF Concept; had provided on a voluntary basis to the FSA all the information which they had required; and had been dismissed. Ms McDermott was misled by Mr Hearne’s report of 2nd December, 2003; and his earlier correspondence with Mr Fury was disingenuous. Mr Hearne’s purpose in seeking statutory powers was the collateral one of investigating F and the KF Concept, when he knew or should have known that the police investigation had been discontinued, following the failure of the Kent Police to obtain a production order. 96. The new approach to those suspected of criminal offences when invoking statutory powers identified in the Procter memorandum, with immediate effect from 2nd December, 2003, was ignored by all within Ms McDermott’s team at all material times. Had it been adopted, F could not have been approached as he was (whether without notice, as authorised by Ms McDermott, or on notice, as in fact happened); but would have been entitled to legal advice, and to an interview under caution. The team leaders and team managers, whose details were obtained in consequence of the search on 5th February 2004 and would not have been the subject of the threatening letter of 11th February 2004; but would have received an informal letter, inviting their co-operation. I do not overlook the submission of Mr Donne that F would inevitably have been prosecuted, whether or not the FSA had acted as I find that they did. That submission was made in the face of concessions, properly made, and there were a series of omission for which the FSA must bear responsibility. The answer to that submission is that in the event of such a prosecution F would have been in a far stronger position to resist the prosecution by assembling a solid phalanx of supporting witnesses than has in the result been the case, which in my judgment is at least in part a consequence of improper coercion and persuasion applied by the FSA to such witnesses. 97. I cannot accept that Mr Hearne’s report of 19th January 2004 to Ms McDermott was unconnected with the publication of the Hetherington article in the Mail on Sunday the previous day. Mr Hearne knew about the anticipated appearance of the article, and stated as much in his memorandum to Ms McDermott on 15th January; and I think it likely, despite Mr Hearne’s denial, that Mr Hearne had co-operated with Mr Hetherington in relation to its reaction. The fact that Ms McDermott asked for an urgent report for the Fines and Markets Committee meeting on 16th January on the Fury case, which in her mind was linked to F and the KF Concept, leads only to the conclusion that there was about to be Press interest in the topic; and the subsequent lack of any discussion of that topic at the meeting, despite being an agenda item (as shown by the Minutes), or even the attendance of Ms McDermott, suggests to me that it was decided not to minute the discussion, rather than that it was simply ignored. Subsequent contact between the FSA and Mr Hetherington (see paragraph 86) satisfies me that I have not been told the whole truth about what preceded the report of 19th January, 2004. 98. Ms McDermott’s use of powers to require the production of information from banks was informal and inappropriate. It failed adequately to take into account the fact that a similar application for a production order had been rejected by a Crown Court judge; yet not only was she in effect disregarding that decision, but giving blanket authority for the use of statutory powers in the future (see paragraph 62). 99. The information presented to the Magistrates’ Court in support of the application for a search warrant deliberately withheld the fact that a previous application for a production order had been made and had failed. That is the only proper inference from its omission from the final information, when it had been included in the draft submitted for the approval of Mr Procter (see paragraph 71). Against the background that it was envisaged on 30th January that there was going to be a search of F’s home, and that the application for a search warrant was for practical purposes a formality, this is a serious omission. It is unclear to me whether the information presented to the Chancery Division in support of the freezing order, where there was a duty of candid disclosure, equally suppressed this fact. 100. Whether by design or otherwise the allegiance owned by the overwhelming majority of the membership of the KF Concept, their belief that their activities were proper, and that F had done nothing unlawful, was gradually eroded, with the result that a number of formerly supportive potential witnesses for F became prosecution witnesses. The dates of their respective witness statements, as rehearsed in paragraph 78, will emphasise the point: it is the only proper inference from the fact that their statements were made at so late a stage, when their identity and their involvement was known to the FSA and the SFO in February 2004. The opinions of these potential witnesses for the defence were thus undermined not only by the contents of the public statements issued by the FSA on its website, and the provision of the evidence filed in the civil proceedings to CMAG (the dissemination of which to the wider membership was not the prime responsibility of the FSA), but by the participation of the investigators in secret meetings with such witnesses, and being prepared to treat them, in circumstances which seem with hindsight questionable, as CHIS. That cavalier approach to public statements is to be contrasted with the careful direction by Mr Gabriel Moss QC in FSA v Dobb White and Co [2004] BPIR 479, in which the deputy judge reminded himself that where “the subject matter of the petitions for bankruptcy in whole or in part relate to matters which were at that time the subject of an investigation by the SFO, and in order to be careful not to create any prejudice for any future possible criminal proceedings”, he proposed not to go into the evidence to demonstrate how the FSA had made out their case. In other words he was declining to put that evidence into the public domain. It is relevant to note that this decision was made on 2nd December, 2003; and that counsel for the FSA was the same counsel as the FSA engaged throughout the contested bankruptcy proceedings in 2004-2005. Whether the FSA sought the advice of counsel in relation to whether they should publish as they did has not been investigated by me. 101. The coup de grace in relation to the probable persuasion of potential witnesses not to give evidence for F was delivered by Mr Willsher’s participation in the Welsh ITV film in November 2005. The objective contrast between Mr Willsher’s appearance in the calm splendour of the FSA offices in Canary Wharf and the bizarre appearance of F, wearing a wig, at the barred gates of his Kent home, created visual images which would have been unforgettable for all who saw the film, which I have no doubt included many of the team managers. Mr Copland kept a DVD of this film; and it is likely that this would have been copied and circulated among interested members. 102. I am driven to the conclusion that, viewed cumulatively, the action of the FSA for which collective responsibility must be assumed have so distorted the fairness of this prosecution that it is no longer possible to say that there has been due process. Those aspects of the trial which relate to alleged breaches of FSMA, and depend on the evidence of team managers and members of the KF Concept, are in my judgment so contaminated by the errors and omissions which I have described that it is no longer appropriate that they should be tried. I therefore stay counts 1 to 8 inclusive, all of which in my judgment have become irretrievably contaminated by this prosecutorial impropriety.”

Submissions by the prosecution

[22]For the prosecution, Mr Donne QC submitted that it came down to a single point:

“The sole basis for the decision was that prosecution witnesses had been turned against the respondent by the FSA.”

The judge stated that it was when they were “viewed cumulatively” that the actions of the FSA had so distorted the fairness of the prosecution that it was no longer possible to say that there had been due process. The judge also had other conduct in mind. While we do not fully accept Mr Donne’s submission, the issue defined by him was central to and a very important part of the judge’s reasoning and decision. Paragraph 100 in particular refers:

“the opinions of particular witnesses for the defence were undermined by public statements issued by the FSA on its website, the supply of evidence filed in the civil proceedings to the CMAG, formed in August 2004, and the participation of FSA investigators in “secret” meetings with potential witnesses for the defence”

. The judge appears to have viewed the other factors as contributing to the “undermining” which he regarded as central to the case.

[23]In order to contest the finding, fundamental to the judge’s conclusion, that the conduct of the FSA undermined potential witnesses, Mr Donne has drawn attention to the evidence given at the trial (or in the voir dire) by managers and members of KFC. Some had no contact with the FSA. Mr Richard Priest and Mr John Copland, who did have contact, gave evidence in considerable detail.

[24]Mr Priest said that initially he was “very supportive” of the respondent, whose driver he was. He did, however, then investigate the figures. He stated:

“That there wasn’t enough money and that this system, sort of, it was, you know, feeding itself in a sense. The money going in was feeding people further up in an ever-decreasing pot and you just needed more and more people coming in to continue paying people who were already in.”

He described it as “a pyramid-style sort of base of customers each under the other”. He added:

“And you could quite easily see that it just didn’t add up.”

[25]When cross-examined, Mr Priest said:

“You know, my suspicion is and still is that it does not all add up. I think it is, if you say, a ‘dead duck’”

[26]Both Mr Priest and Mr Copland referred in their evidence to the meeting of a substantial number of managers at a hotel in Coventry called by Mr Dykes, a team manager, 5 December 2004. Contrary to earlier evidence, it emerged that Mr Willsher was not present at the meeting and the FSA were not represented. Affidavits prepared on behalf of FSA had not at that stage been disclosed.

[27]In relation to the meeting, Mr Priest said that a general discussion revealed that “no one had really had any significant success placing bets or making wins, including some of the managers who probably dealt with most of that”.

[28]Mr Copland denied being put under any pressure by the FSA. He said that critical remarks were made about the respondent at the Coventry meeting.

[29]Mr Priest gave evidence about the meeting between managers and representatives of FSA at FSA’s Canary Wharf headquarters on 6 December 2004. He said that “a lot of managers went there and they [FSA] spent a great deal of time and efforts showing us what was going on with the, you know, what they felt was wrong with the system, if you like”. “They were generally challenging us to sort of see that it just didn’t all add up”.

[30]Describing the meeting, Mr Priest said:

“To find out what was going on. Because only K [that is F] and maybe a few of the other directors knew. Everyone had been asking. No one was quite sure what was happening, what was going on. Everyone was concerned and worried. Everyone was getting a lot of pressure from their family and friends - - you’re talking about a lot of money, people’s pensions and saving - - to have answers and they weren’t forthcoming. So in frustration people were starting to look elsewhere to find answers.”

[31]Mr Priest said that he spoke to the respondent about the Coventry meeting and stated that “it felt like a betrayal . . . but this money belonged to my friends, family”. The respondent wanted to know who had attended the meeting and who the “ringleaders” were.

[32]Mr Glen has not referred to other evidence, or evidence of other witnesses, to defeat Mr Donne’s submission that the detailed evidence of Mr Priest and Mr Copland does not support a finding that potential witnesses were treated oppressively to the detriment of the respondent. As events unfolded, the witnesses were worried men.

[33]It was claimed that the defence did not know of Copland’s “defection” until he was cross-examined. The material available to the defence had indicated that Priest and Copland would be helpful to them.

[34]Having seen the statements of Mr Priest, dated 21 January 2006, and Mr Copland, dated 4 May 2005, we do not accept that submission. In his statement, Mr Priest said that he and Mr Dykes had come to the conclusion, before the Coventry meeting, that “if anyone did make any money from it, the payout was made at the expense of other members”. At the Coventry meeting, Mr Dykes plainly made a careful presentation to those present at the managers meeting:

“We told everyone that we thought we had all unwittingly become involved in a scam, and that we should all get out of it ASAP. Some managers took our advice, others did not and stayed loyal to K.”

[35]In his statement, Mr Copland said that he felt very disillusioned and very let down: “I believe there are now in the region of 20 team managers who have had enough of the whole affair and hold regular meetings, and each of these are willing to help and support the FSA/SFO enquiry”.

[36]As a separate point, Mr Donne also relies on the inconsistency between the judge’s finding of abuse on counts 1 to 8 but no abuse on counts 9 to 16. Mr Glen has not attempted to justify the distinction made. He submitted that the judge was wrong about counts 9 to 16.

Submissions by the respondent

[37]We propose to consider the manner in which Mr Glen sought to justify the judge’s findings and, particularly in view of the conclusion we have reached, which will require a further hearing in the Crown Court, will attempt to limit any more general consideration of the entire background and scheme.

[38]In relation to paragraph 94, submitted Mr Glen, the judge was entitled to find that doubts expressed by Mr Vosser, technical specialist in the enquiries team, about the right of FSA to investigate the scheme went unheeded. Moreover, in the absence of complaints by investors, the judge was entitled to conclude that allegations of fraud were, at the time of obtaining the search warrant, “going nowhere”. The judge was entitled to say, in paragraph 95, submitted Mr Glen, that the FSA purpose in seeking statutory powers to interview Mr Fury was collateral to the investigation of the respondent and the KFC and that Mr Fury had already voluntarily provided all the information the FSA had required.

[39]As to paragraph 96, the respondent was entitled to an interview under caution having regard to the guidance (the Procter memorandum) issued by the FSA on 2 December 2003. However, the reference in the memorandum to a caution draws attention to the question of admissibility of statements made in interview and not to the protection of the person being investigated.

[40]In relation to witnesses not subject to investigation, the memorandum provides:

“a) If the person from whom you wish to obtain information is a regulated firm, an employee of a regulated firm or an approved person then statutory powers should generally be used as a matter of standard practice. The same applies if the person concerned is a professional who owes duties of confidentiality to others, for example accountants and lawyers. b) If the person concerned is a lay witness, for example an aggrieved investor, then it will not usually be appropriate to exercise statutory powers, at least in the first instance. Here, it will usually be appropriate to obtain the information purely voluntarily.”

[41]The judge was entitled to find, it was submitted, that had that guidance been followed, the team leaders and team managers would have received an informal letter inviting their co-operation rather than the “threatening” letter they received dated 11 February 2004. Those persons were claimed to be potential losers as well as managers and should not have received a letter in the terms they did. It followed that the respondent would have been, as the judge found, in a far stronger position to resist the prosecution by “assembling a solid phalanx of supporting witnesses” than he has been able to do, at least in part because of “improper coercion and persuasion” applied to the team leaders and team managers.

[42]In support of paragraph 97, Mr Glen submitted that the judge was entitled, on the evidence, to find that he had not been told the whole truth as to what had preceded Mr Hearne’s report of 19 January 2004 to Ms McDermott, and its link with press interest. The judge’s view was supported, it was submitted, by material showing close contact between the journalist, Mr Hetherington, and the FSA 18 months later in 2005.

[43]The judge was also entitled to find, in paragraph 98, it was submitted, that Ms McDermott’s use of powers to require the production of information from banks was “informal and inappropriate”. The prosecution had acted with indecent haste on 4 February 2004, it was submitted. The respondent would have been prepared to cooperate in less drastic measures. While the FSA can investigate a scheme without having had a complaint about it, powers were used inappropriately. Even a solicitor (Ms Benson) employed by the FSA did not consider there was sufficient evidence to proceed. The City of London Magistrates were not told that the previous application for a production order, made to Maidstone Crown Court by the Kent Police, had failed. The application for a search warrant was, as the judge found at paragraph 99, “for practical purposes a formality”, it was submitted.

[44]Paragraph 100 should be read with paragraph 96 and is central to the judge’s reasoning. The confidence of the membership of KFC in the respondent was “gradually eroded”, it was submitted. The judge relied on statements from witnesses potentially supportive of the respondent not having been taken until a late stage and when their opinions had been undermined by statements issued by FSA on its website, evidence by way of affidavit filed in the civil proceedings and disclosed to CMAG and by the participation of investigators in secret meetings with members. The statements from witnesses to whom most reference has been made were taken between May 2005 and January 2006, that is after the disclosures and meetings.

[45]The judge was entitled to find, at paragraph 101, it was submitted, that the coup de grace in relation to a probable persuasion of potential witnesses was Mr Willsher’s participation in a film broadcast by S4C, a Welsh television station, in November 2005. Many of the members lived in Wales. The judge contrasted Mr Willsher’s calm splendour in his office with the bizarre appearance of the respondent, wearing a wig, at the barred gates of his Kent home.

[46]The judge was entitled, submitted Mr Glen, to conclude, at paragraph 102, that the trial was so contaminated by those “errors and omission” that it was no longer appropriate that the respondent should be tried. Counts 1 to 8 had become “irretrievably contaminated by this prosecutorial impropriety”. The judge acknowledged that the jurisdiction to stay proceedings by reason of abuse of process must be exercised with the greatest caution.

Findings

[47]Failure to disclose the unsuccessful Kent application when making the application to the City of London Magistrates for a search warrant was, in our view, an error. Full disclosure, and in particular disclosure of earlier applications to the court, is a strict requirement when making applications to the court without notice to the party affected. Nor are we at all impressed with Mr Donne’s submission that the affidavit as submitted to the City of London Magistrates had the approval of independent leading counsel. To show leading counsel instructed in civil proceedings a document prepared for criminal proceedings in which he is not instructed does not involve counsel’s approval of the document for the purpose of the criminal proceedings. In the affidavit for the civil proceedings, leading counsel had required the unsuccessful application to be mentioned.

[48]However, any contribution it makes to an abuse of process application is in the circumstances extremely small. The Kent application for a production order had been made 5 months earlier and related to an account closed months before that. It appears that the reason for the failure of the Kent application was the then lack of complainants about the activities of KFC. The February application was in relation to a different account, and an account which had been dealing in very substantial sums of money since the date of the Kent application. The earlier refusal, and failure to disclose it, cannot have had a significant impact on the decision taken by the City of London Magistrates in February 2004, to which we refer again later.

[49]We now consider the other factors mentioned in paragraph 100 as undermining potential witnesses. There were no fewer than eighteen statements put by FSA on their website describing their actions “in the matter of KFC”. Many enquiries were made to the FSA by members of KFC and potential investors.

The judge put the issue as to disclosure of material fairly at paragraph 83:

“While I accept that the FSA as a public authority owed some duty to the public to provide such information, it should not have been overlooked that the exercise of that duty might bring the FSA and/or the SFO into conflict with the need to ensure that F received a fair trial, whenever that was to occur.”

Care had to be taken not to prejudice any criminal trial.

[51]We accept the judge’s general approach to the question of publication. We accept that one question and answer should not have been given, that contained in a statement of 5 November 2004:

“Is Mr F a crook?” “That is not the basis of our bankruptcy petition or other applications to the court.”

[52]We do not doubt the truthfulness of that statement but it was an answer, as the judge put it, “perhaps with forensic innuendo”. However, though innuendo there may be, the question is left open; the answer cannot be read as a positive assertion that the respondent was “a crook”. Given the duty of the FSA to keep the public informed, and the unfolding of events, we see little to criticise in the statements published. Generally, they were statements which kept the public informed of developing events as many of them, including CMAG itself, expected to be kept informed, and with accurate information.

[53]We do not agree with the judge’s doubts about the publication of the findings of the Chancery judge in the proceedings for an injunction. These were in the public domain and no application had been made for a private hearing before the judge. In the statement of 9 December 2004, it was stated:

“We began investigating KFC towards the end of January 2004. Within 2 weeks, we concluded that the suspected criminal aspects of the matter should be investigated separately by the Serious Fraud Office (assisted by the police). As we have explained previously, we cannot comment on the scope or progress of that investigation.”

[54]There is no reason to believe that the statements on the website need or could, in themselves, affect the fairness of the criminal trial. The claim was however put, and accepted by the judge, on a different basis. The basis was that information, even if otherwise legitimately disclosed, “undermined” the opinions of potential witnesses for the defence:

“The fairness of such proceedings would inevitably be compromised if the result of these publications was that those who previously had a firm belief in the propriety of what they and F had undertaken together came to believe that that activity was illegal . . .”

[55]That approach, at paragraph 84, was fundamental to the judge’s conclusion. We do not consider it to be well founded. There will be many cases, particularly when financial dealings are involved, where the approach to events adopted by those involved will change as events unfold. The hopes and expectations of those involved in financial schemes may or may not be fulfilled. While many of the respondent’s managers, team leaders and members remained loyal for a substantial time (indeed in what is accepted by Mr Glen to have been a pyramid scheme existing investors have an interest in maintaining an optimistic view), events took their toll of loyalty. We have referred to the evidence at the hearing. It is not a tenable proposition that the defence has been undermined or that the assembly of “a solid phalanx of supporting witnesses” (paragraph 96) has been undermined by the conduct of FSA viewed individually or cumulatively, still less that conduct of theirs can be described as abusing the process of the court.

[56]The letter written to team managers on 11 February 2004, the so called threatening letter, was formal and referred to the statutory powers of FSA. It made clear what was being investigated and that a prompt written response was required. As team managers, the recipients had responsibilities and could be assumed to have experience in financial matters. It is not tenable, in context, to find that the formality of the letter, as distinguished from sending “an informal letter inviting their co-operation”, had the effect of turning “a solid phalanx of supporting witnesses” into potentially hostile witnesses. It was not “improper coercion and persuasion”. Notwithstanding the alleged undermining, defence counsel stated, not long before the trial, that it was intended to call forty witnesses for the defence.

[57]There is no merit in the complaint that CMAG was provided with evidence by way of affidavits filed in the civil proceedings. CMAG obtained them from the respondent’s solicitors, to whom disclosure was necessary. In any event CMAG were represented by solicitors and had an important interest, representing as they did a substantial number of KFC managers and members. They were opposing the bankruptcy application against the respondent and its members had an interest in doing so. There was nothing untoward about their possession of the affidavits.

[58]The FSA cannot, in our judgment, be criticised in the circumstances for agreeing to meet KFC managers at Canary Wharf. The meeting was held to consider the status and functioning of KFC. Mr Willsher, Mr Ohlson and Ms Benson were present at the meeting. However, a proper record of the meeting, and of the later meeting at Northampton, should have been kept and disclosed. Mr Willsher claimed to have lost his notebook. A prosecution was pending and those attending the meeting were potential witnesses at the trial. The precise impact on the trial of what was said at the meeting may have been difficult to predict but its relevance to likely evidence at the trial should in our view have been obvious. Possible need for a PII hearing before a decision was made about disclosure does not excuse the failure to keep a proper record. Moreover, the handwritten note, when it emerged, should have been disclosed.

[59]The failure to keep and disclose a record laid the FSA open to the judge’s comment that the meeting was “secret”. The handwritten note was, however, disclosed in sufficient time for Mr Copland to be cross-examined upon it, so far as the defence thought it necessary to do so.

[60]We see no basis, however, for a conclusion that it was the meetings, or the circumstances in which they were held, that undermined the opinions of potential witnesses for the defence present at the meeting. We consider the undermining issue at paragraph 55 above, and again at paragraph 69 below.

[61]Classification of financial schemes may be difficult and we see no relevance in the view being taken by Mr Vosser (paragraph 94) going unheeded within the FSA, if it was. Mr Glen accepted that the scheme was probably a CIS. We see no relevance in the judge’s speculative suggestion that money laundering might have been more actively considered in relation to one prosecution witness.

[62]Treatment of Mr Fury does not, in our judgment, begin to establish or contribute to a claim of abuse of process in relation to the respondent. He could well have been cautioned as a “lay person” within the meaning of the Procter memorandum but he was an independent financial adviser familiar with the scheme. The FSA were entitled to treat him as having been uncooperative. At interview, Mr Fury steadfastly denied that he had written the Zurich letter relied on by the judge as a voluntary disclosure of what was required. (“I was not a party to that letter at all”). The judge concluded that “Mr Fury was being questioned under statutory powers in order to provide the FSA with information about F and KFC” (paragraph 46). In paragraph 95, the judge said the purpose was “collateral”. We see nothing wrong with that. The FSA’s powers to require and gather information are not confined to the person under investigation (sections 165, 168, 171 and 173). The approach to Mr Fury did not render the prosecution of the respondent abusive.

[63]We do not consider that Ms McDermott’s use of powers to require the production of information from banks was either informal or inappropriate. On the information available by early February 2004 it was a proper use of powers. The failure to disclose the earlier failed application, and its consequences, have already been considered. In relation to the judge’s finding that the application for a search warrant was “for practical purposes a formality”, we regret that we do not find appropriate the judge’s comment when cross-examining Ms McDermott about the application:

“Well, it depends what sort of relationship exists between the FSA and the court where they regularly apply for a search warrant.”

And the question to her, in effect a comment:

“Did you ever know of a case where an application for a search warrant sought by the FSA was refused?”

We do not accept that the application for a search warrant was “for practical purposes a formality”. We see no justification for that criticism, which is a criticism of the City of London Magistrates.

[64]It was Mr Willsher’s participation in the Welsh TV programme which gave it significance in the judge’s appraisal of the issue at paragraph 101. Unlike the website, it was not of course an FSA production. In our judgment, Mr Willsher should not have taken part in the programme. The likely contents of the programme, albeit mainly in Welsh, could have been predicted and, since a prosecution was pending, it was inappropriate for Mr Willsher to take part. It is, however, fanciful to suggest that the fairness of the trial, by way of influencing potential jurors at Kingston-upon-Thames, was affected by his participation or by the programme. Before being empaneled, potential jurors were, in any event, asked appropriate questions by means of a questionnaire.

[65]The judge put it on a different basis; that it was the coup de grace in persuading witnesses not to give evidence for the respondent. We accept that there are likely to have been potential witnesses who saw the programme. We do not accept that this event, along with many other events as the situation developed, was capable of having the dramatic effect contemplated by the judge. Whether or not that is right, Mr Willsher’s participation cannot, taken either alone or with the other matters relied on by the judge, amount to an abuse of process.

[66]While the judge did not refer to it in his conclusions, Mr Glen, as an illustration of the alleged approach to the trial of the FSA, relied on the failure of Mr Hearne to reappear when he was part way through his cross-examination. His non-attendance was unfortunate. It was explained on medical grounds and a psychiatric report submitted. The judge has not doubted its genuineness. Mr Glen had not completed his cross-examination though, we are told, it covered over 100 pages of transcript, including 10 pages on the report submitted to Ms McDermott in late January 2004 on the strength of which Ms McDermott exercised her powers to authorise measures against the respondent.

[67]The judge referred, more than once in his ruling, to the absence of cross-examination of Mr Hearne and also stated that he found him an “unsatisfactory and an unreliable witness”. That is carried forward to the conclusions only to the extent that the judge found (paragraph 97) that Mr Hearne had cooperated with the journalist Mr Hetherington in his Mail on Sunday article of 18 January 2004. Even given its timing, that is shortly before the application for a search warrant, we cannot regard such co-operation as being evidence of, or as contributing to, an abuse of process.

Conclusions

[68]The FSA’s task is a difficult one when it is conducting an investigation under its statutory powers, with the duties thereby arising, when there is, at the same time, a potential or pending prosecution. The difficulty is inherent in the procedures contemplated by the 2000 Act. Decisions have to be taken as to when, and on what basis, to interview those being investigated and those whose evidence may be relevant to the investigation. In that situation, the FSA must always be mindful of the requirements of a fair criminal trial. Liaison must be maintained with the prosecuting authority, in this case the SFO.

[69]We have made criticisms of aspects of FSA’s conduct but, overall, we do not consider it to have been unfair or improper. In relation to abuse, most of the criticisms made of it are, for reasons we have given, misplaced. At bottom, however, the central point for consideration is the specific charge that the conduct was abusive because it undermined witnesses, or potential witnesses, for the respondent. In context, and for the reasons we have given, we consider that charge to be without merit. Team managers and members did change their minds but there is no justification for attributing that to improper conduct by the FSA. The lawfulness of the respondent’s conduct is, in any event, not to be judged by a popularity pole amongst managers and members. The FSA may have a duty to investigate a scheme and express views about it at a time when participants are fully in favour of it, as in the early stages of a pyramid scheme, for example, they may well be. It did not in our judgment constitute an abuse of process either by making it unfair for the respondent to be tried or by preventing the respondent receiving a fair trial (R v Beckford

[1996] 1 Cr App R 164

). The conduct of the FSA may, of course, be considered by the jury, subject to judicial rulings at the trial, in the context of the evidence and charges put.

[70]The task of this court is to act under section 67 of the 2003 Act and to decide whether to reverse the judge’s ruling. If it has not abused the process of the court, the FSA is entitled to a ruling stating that. That ruling can be given only on the basis of the material before the court and it is not open to the court to pass judgment, or even to offer advice, as to what should happen to the case in the future in the light of the present findings and situation. Decisions about that are to be taken in the Crown Court.

[71]In our judgment, the judge’s approach to the evidence, and his analysis of it, was, for reasons given, so faulty as to amount to an error of law under section 67(b). It could not properly be found that there was an abuse of process, as defined in the authorities, on the material before the judge. We also find, under section 67(c), that the ruling was one that it was not reasonable for the judge to have made.

[72]We grant the prosecution leave to appeal, allow the appeal and make an order under section 61(4)(b) of the 2003 Act. Counts 1 to 8 will be referred back to the Crown Court for directions, the Presiding judge of the Circuit having first been invited to give directions as to the venue.

Where should the application for leave be made

[73]Following his ruling and the prosecution’s indication that it intended to appeal to this Court, the learned judge concluded that the relevant statutory provisions required the prosecution to apply to him for leave to appeal rather than direct to this Court. In compliance with his direction, the prosecution made an application for leave to appeal which was refused. Mr Donne submits that the statute gives the prosecution a choice. It can apply either to the trial judge or to the Court of Appeal direct.

[74]The hearing in this case has technically been an application for leave to appeal but as we made plain at the outset we have heard a single set of arguments. In the result, the procedural route by which the arguments reached this Court has been of no practical consequence to the way in which it was conducted. Nonetheless, Mr Donne has asked that we rule on his submission because the point has general importance in the context of a relatively new jurisdiction.

[75]Part V of the Criminal Justice Act 2003 provides for prosecution rights of appeal. Sections 58 to 61 apply to appeals from terminating rulings. This case concerns a terminating ruling. Sections 62 to 67 apply to appeals from evidentiary rulings. Section 57 governs both types of appeal and is in these terms:

“(1) In relation to a trial on indictment, the prosecution is to have the rights of appeal for which provision is made in this Part. (2) But the prosecution is to have no right of appeal under this part in respect of – (a) a ruling that a jury be discharged, or (b) a ruling from which an appeal lies to the Court of Appeal by virtue of any other enactment. (a) a ruling that a jury be discharged, or (b) a ruling from which an appeal lies to the Court of Appeal by virtue of any other enactment. (3) An appeal under this Part is to lie to the Court of Appeal. (4) Such an appeal may be brought only with the leave of the judge or the Court of Appeal”

[76]Section 58(4) prohibits the prosecution from appealing a terminating ruling unless it either informs the court that it intends to appeal or requests an adjournment to consider the position and, if an adjournment is granted, informs the court of its intention to appeal following that adjournment. There is no requirement in section 58 that the prosecution must seek leave from the trial judge first and then from this Court if it is refused by the trial judge. Section 59 deals with expedition. Where the prosecution informs the court of its intention to appeal, the judge may then decide whether to order expedition. If the judge orders expedition he may adjourn the trial, but if he decides there should be no expedition he may either adjourn the trial or discharge the jury. Expedition is concerned with avoiding having to start the trial again if the prosecution appeal succeeds. The decision on expedition is not predicated upon there being an application for leave to appeal to the trial judge.

[77]The Criminal Procedure Rules 2005 as amended make additional provision in respect of prosecution appeals. Rule 67.5, which is entitled ‘Crown Court judge’s permission to appeal’, provides: “(1) An appellant who wants the Crown Court judge to give permission to appeal must-(a) apply orally, with reasons, immediately after the ruling against which the appellant wants to appeal; or

(b) apply in writing and serve the application on – (i) the Crown Court officer, and (ii) every defendant directly affected by the ruling on the expiry of the time allowed under rule 67.2 to decide whether to appeal. (2) A written application must include the same information (with the necessary adaptations) as an appeal notice. (3) The Crown Court judge must allow every defendant directly affected by the ruling an opportunity to make representations. (4) The general rule is that a Crown Court judge must decide whether or not to give permission to appeal on the day that the application for permission is made.” (a) apply orally, with reasons, immediately after the ruling against which the appellant wants to appeal; or (b) apply in writing and serve the application on – (i) the Crown Court officer, and (ii) every defendant directly affected by the ruling on the expiry of the time allowed under rule 67.2 to decide whether to appeal.

[78]The contents of an appeal notice are prescribed by rule 67.4. They are specified in a way to include a requirement for a transcript of the Crown Court judge’s decision on any application for permission to appeal.

[79]Section 57 gives both the Crown Court judge and the Court of Appeal power to give leave to appeal. It does not specify that leave must be sought from the judge before the Court of Appeal is approached for leave.. The procedural rules do not qualify that position. In our judgment it is clear from consideration of the underlying statutory material and the rules that there is no requirement that an application for permission to appeal is to be made to the Crown Court judge who made the ruling. In this respect, the position is similar to that governing civil appeals under CPR 52.3, albeit that the language of section 57(4) and the civil rule are not identical. We conclude that the judge was in error in ruling that the prosecution was required to make an application for permission to appeal to him in the first instance.

[80]Nonetheless, we endorse the judge’s underlying concern that applications for permission to appeal against a terminating ruling should ordinarily be made to the trial judge. There are a number of reasons why, in our judgment, the usual good practice is to apply first to the judge. The reasons are similar to those given in the White Book in the case of civil appeals (2009, 52.3.4).(a) The judge will be fully sighted of all the material factors regarding the issues involved and so an application for permission to appeal would be likely to take very little time.

(b) The judge may already have concluded that the terminating ruling raises issues that are fit for consideration by the Court of Appeal.

(d) The judge has an involvement in the scheme for appeal because he must be told, may need to authorise a short adjournment and will need to consider the question of expedition.

(e) The prosecution is not disadvantaged if the application fails. A further application can be made to the Court of Appeal.

(f) There is no harm done if, having obtained permission, the prosecution subsequently decides not to pursue an appeal.

(g) An application to the judge may well accelerate the appeal process in an environment where the statute and rules are designed to achieve a speedy resolution of this type of appeal so that, if at all possible, the trial may continue.

[81]The prosecution should have made an application for leave to the trial judge, even without the judge’s direction. Mr Donne has given no good reason for the failure to do so voluntarily. A suspicion that the judge is likely to be hostile to the application is not a good reason. Neither is a belief, which would not be well founded, that application to this court is less likely to succeed if the judge has refused leave.