Mohammed Ali & Others [2019] EWCA Crim 1263
Summary
Mohammed Ali, Mohammed Mashuk and Ahmed Syed v R [2019] EWCA Crim 1263 concerned appeals against sentences of 28 months’ imprisonment imposed by Her Honour Judge Sullivan for fraudulent trading, which the Court of Appeal dismissed.
On 26 November 2018, following trial at Blackfriars Crown Court, Ali and Mashuk were convicted on count 1 of fraudulent trading contrary to section 993 of the Companies Act 2006, and Syed was convicted on count 2 of the same offence. Each appellant was sentenced to 28 months’ imprisonment on 17 January 2019. Leave to appeal against sentence was granted by the single judge.
The prosecution arose from a Trading Standards investigation into malpractice at a group of letting agents trading as Crestons. Mashuk and Ali carried on the business of Sirs Associates Limited fraudulently by failing to protect tenancy deposits as required by law, taking rent from tenants without passing it on to landlords, failing to refund deposits at the end of tenancies, and on one occasion failing to return a holding deposit. Syed carried on the business of Sirs London Limited fraudulently in a similar manner, save that the only deposit-related misconduct involved a reservation deposit for a property purchase taken against the owner’s wishes and not returned in full. Over the period of count 1, tenants and landlords were defrauded to the value of £29,500.92; in count 2 the figure was £71,290.84. These sums represented money owed but not passed on and did not include commissions for services not supplied or the cost of engaging lawyers. Ali was a director of Sirs Associates Limited from its incorporation in March 2012 until it was wound up in November 2015. Mashuk was company secretary from August 2012. Syed was company secretary of Sirs London Limited from its incorporation in March 2012 until 9 March 2012, and the company was wound up in September 2015.
The precise corporate identity entering into contracts with tenants and landlords was deliberately unclear. Business documents used the same addresses regardless of the company involved, and often no company name was given, in breach of the Companies Act 2006 and the Companies (Trading Disclosures) Regulations 2008. The judge found that creating confusion about identity was a hallmark of rogue traders used to avoid detection and redress. Each appellant had responsibility for managing one of the three offices. On 15 April 2015 a Trading Standards Officer, Ms Manning, visited the Islington office and spoke briefly with Syed, who said he was too busy and she should make an appointment. She provided leaflets on legal requirements including the need to display ownership and fees, guidance on holding deposits and the requirement to join a redress scheme. A visit was arranged for 16 June 2015. Syed falsely claimed that holding deposits were passed to landlords and that the company did not take tenancy deposits, stating it was the landlord’s responsibility to use a protection scheme. However, the company’s terms and conditions stated that Crestons would protect deposits with the Tenancy Deposit Scheme, a claim that was false because Sirs London Limited was not a member of any of the three statutory schemes. Sirs Associates Limited had been a member of My Deposits from August 2012 until March 2014, when membership was terminated because it could not produce a client account balance equal to or greater than the deposits registered. Although a few deposits were protected, no tenant was given information about where the deposit was protected and the protection was notional because the company retained the money. Sirs London Limited applied to join My Deposits in 2014 after Sirs Associates Limited’s membership was terminated, but the application was declined because of the association with the other company. Ms Manning provided written advice after her visit, which Syed did not act upon, and claims about membership of the Tenancy Deposit Scheme continued. Trading Standards began receiving complaints around the same time. Evidence at trial concerned particular tenants. Jonathan Salisbury entered into an Assured Shorthold Tenancy with Crestons and paid a deposit of £3,900, which was registered with My Deposits but not protected from December 2014. When Mr Salisbury sought the return of his deposit he was unsuccessful. When his parents rang Mashuk to complain, Mashuk told Mr Salisbury never to call his phone again, using obscene language.
Ali was born on 1 July 1981 and had no previous convictions. Mashuk was born on 13 September 1980 and had previous court appearances but no relevant convictions. Syed was born on 2 June 1981 and had no previous convictions. Pre-sentence reports and mitigation bundles were before the judge.
In passing sentence the judge observed that many users of the service had no idea of the existence of the limited companies behind the Crestons name. Paperwork was inconsistent and obfuscatory as to both terms and legal entity. Mashuk and Ali had failed to protect deposits as required by law since 2007, took rent but did not pass it on, failed to refund deposits and took holding deposits which they did not return. Syed operated in the same manner save that there were no known examples of holding deposits not being returned, although there was one incident of a reservation deposit being taken for a property purchase against the owner’s wishes and not returned in full. The judge sentenced only on the basis of evidence called at trial. Complainants lost money, rental payments were late, cheques bounced and people were passed from pillar to post when they complained. Mashuk was sometimes aggressive when challenged, though that description did not apply to Ali or Syed. In one case occupiers had been issued with licences to occupy rather than the Assured Shorthold Tenancy agreed with the landlord. Tenants as well as landlords either lost their deposits or had to be paid by landlords out of their own pockets. The judge observed that the sentencing guideline for fraud did not specifically apply to fraudulent trading but listed factors relevant to culpability and harm broadly similar to those identified in R v Mackey, to which she was referred. She said it was appropriate to pay more than some regard to the guideline. She accepted that the business of Crestons was not in itself fraudulent but offences of this nature undermine public confidence in the letting sector. She was aware of mitigating circumstances including family and caring responsibilities, though she noted the appellants were not the only people able to care within their families.
Ali’s grounds of appeal were that the sentence was too high when compared with sentencing principles and the leading authority of Mackey, and that there was disparity with Syed whose fraudulent trading was more than double the value. This second point was not pursued before the Court of Appeal having regard to observations by the single judge. Mashuk advanced three grounds: that the sentence was manifestly excessive and undue reliance was placed on the fraud guideline; that excessive reliance on the guideline at the expense of specific guidance in Mackey led to a manifestly excessive sentence and wrongly precluded consideration of a suspended sentence; and that there was disparity with Syed, though this point was maintained without much force. Syed also advanced three grounds: that the sentence was manifestly excessive because the judge failed properly to consider Mackey; that disproportionate weight was placed on the fraud guideline; and that the judge failed to impose a suspended sentence. At the hearing Mr Simon Reevell led for the appellants and his oral submissions were adopted by Mr Martin and Miss Tsiattalou. Mr Talbot appeared for the prosecution but was not called upon.
The maximum sentence for fraudulent trading is ten years’ imprisonment, the same as for the substantive offence of fraud under section 1 of the Fraud Act 2006. The Court of Appeal reviewed the authorities. In R v McCrae and Others [2012] EWCA Crim 976, [2013] 1 Cr App R(S) 1 this court said that the sentencing judge had been entitled to pay some regard to guidelines for confidence fraud which bore some similarities to the fraud in that case, although the guideline at that time did not refer to conspiracy to defraud. In R v Smith and Palk [1997] 2 Cr App R(S) 167 Potter LJ observed that because of the wide spectrum of fraudulent trading offences in relation to both amount and level of criminality, a wide spectrum of sentences may be appropriate. At one extreme there may be deliberate reckless trading on a large scale aimed at rapid return with no genuine intention to discharge debts but simply to milk creditors; at the other a properly funded business which runs into difficulties out of which directors attempt to trade to save their own and employees’ jobs but reach a point where they have become reckless as to the realities. In broad terms a charge of fraudulent trading resulting in a substantial total deficiency is less seriously regarded than a specific charge of theft or fraud to an equivalent amount. The court in Smith and Palk concluded that on the facts, which were at the lower end of the scale in terms of criminality and involved directors assisting the receiver and liquidator rather than looting assets, sentences of eighteen months were appropriate rather than three years. The Court of Appeal considered that decision was on its own facts and did not assist in the present appeals.
The court turned to R v Mackey [2012] EWCA Crim 2205, [2013] 1 Cr App R(S) 100, which formed the mainstay of the appellants’ submissions although it was acknowledged it was not a guideline case in the strict sense. In Mackey Sweeney J said that to the extent it was appropriate to pay some regard to the then definitive guideline, the offence involved a total gain or loss of £60,000 and elements of both confidence fraud and banking fraud, and relevant starting points would be three years and 36 weeks respectively. The court repeated the statement from Smith and Palk about the wide spectrum of fraudulent trading and that such a charge is less seriously regarded than a specific charge of theft or fraud of an equivalent amount, although this may be truer of offences at the lower end of the spectrum. The factors relevant to sentence include the amount of fraud, the manner and period over which it was carried out, the position of the defendant in the company and measure of control, any abuse of trust, any effect on public confidence in commercial life, any loss to small investors, the personal benefit, the plea and the age and character of the defendant, citing Feld [1999] 1 Cr App R(S) 1. The Court of Appeal noted that although that passage was and remains useful, the relevant factors are similar to those set out in the present guideline issued by the Sentencing Council with effect from 1 October 2014, Fraud, Bribery and Money Laundering Offences, in the section dealing with the substantive offence of fraud under section 1. If a fraud fell into category 3, covering a range of loss of £20,000 to £100,000 with a starting point based on £50,000, and culpability were of the highest level A, the starting point is three years with a category range of eighteen months to four years. The circumstances in Mackey were very different from the present appeals. The loss was £60,000 but the fraudulent trading arose because a genuine business got into trouble and the appellant decided to behave dishonestly in the hope it would come right. The dishonest means included manipulation of documents, forgery of signatures and abuse of trust over at least five months. The appellant was of previous good character, a single mother with significant ill-health and a 7 year old daughter with learning difficulties. The court had particular regard to the best interests of children. A sentence of eighteen months was within the appropriate range albeit towards the very top of it, and the appeal was dismissed. The Court of Appeal did not consider that any true analogy could be made with Mackey.
In the present case the judge formed the view that this was deliberate, reckless trading conducted over a sustained period by each appellant in the knowledge that he could not discharge liabilities. The court observed that the judge took that language from Mackey, which had in turn taken it from Smith and Palk. The judge continued that the appellants had been dishonest in their dealings and their offending was aggravated by the fact that some victims, particularly tenants and those from outside the United Kingdom, could be described as vulnerable. The appellants had abused the trust and responsibility placed in them by landlords and tenants. There was a large number of victims. This was therefore a case of high culpability. The judge considered the amount of money at stake. The level of loss fell within category 3 if this had been a case of fraud covered by the definitive guideline. The judge was of the view that although the business of Crestons was not in itself fraudulent, offences of this nature undermine public confidence in the letting sector.
The Court of Appeal was unable to accept the submissions made on behalf of the appellants. Sentences of 28 months’ imprisonment were neither wrong in principle nor manifestly excessive. The sentencing judge could not see any reason to distinguish between the appellants in terms of culpability or harm. Each had played a leading role in running Crestons. While it was true that the loss in Syed’s case was higher than for the other two, Ali no longer relied on disparity and Mashuk relied upon it only faintly. Mr Reevell submitted that the point helped illustrate his more fundamental submission that the judge gave excessive weight to the current guideline and insufficient weight to Mackey. The court did not accept these submissions. In the circumstances it was open to the judge to pass the same sentences on each appellant, even if Syed might be considered by some to have been fortunate.
In short, the Court of Appeal dismissed all three appeals, holding that sentences of 28 months’ imprisonment for deliberate, sustained fraudulent trading involving high culpability, a large number of victims, substantial loss and abuse of trust were neither wrong in principle nor manifestly excessive, notwithstanding that fraudulent trading is distinct from substantive fraud and that the fraud guideline does not apply directly.
On 26 November 2018, following trial at Blackfriars Crown Court, Ali and Mashuk were convicted on count 1 of fraudulent trading contrary to section 993 of the Companies Act 2006, and Syed was convicted on count 2 of the same offence. Each appellant was sentenced to 28 months’ imprisonment on 17 January 2019. Leave to appeal against sentence was granted by the single judge.
The prosecution arose from a Trading Standards investigation into malpractice at a group of letting agents trading as Crestons. Mashuk and Ali carried on the business of Sirs Associates Limited fraudulently by failing to protect tenancy deposits as required by law, taking rent from tenants without passing it on to landlords, failing to refund deposits at the end of tenancies, and on one occasion failing to return a holding deposit. Syed carried on the business of Sirs London Limited fraudulently in a similar manner, save that the only deposit-related misconduct involved a reservation deposit for a property purchase taken against the owner’s wishes and not returned in full. Over the period of count 1, tenants and landlords were defrauded to the value of £29,500.92; in count 2 the figure was £71,290.84. These sums represented money owed but not passed on and did not include commissions for services not supplied or the cost of engaging lawyers. Ali was a director of Sirs Associates Limited from its incorporation in March 2012 until it was wound up in November 2015. Mashuk was company secretary from August 2012. Syed was company secretary of Sirs London Limited from its incorporation in March 2012 until 9 March 2012, and the company was wound up in September 2015.
The precise corporate identity entering into contracts with tenants and landlords was deliberately unclear. Business documents used the same addresses regardless of the company involved, and often no company name was given, in breach of the Companies Act 2006 and the Companies (Trading Disclosures) Regulations 2008. The judge found that creating confusion about identity was a hallmark of rogue traders used to avoid detection and redress. Each appellant had responsibility for managing one of the three offices. On 15 April 2015 a Trading Standards Officer, Ms Manning, visited the Islington office and spoke briefly with Syed, who said he was too busy and she should make an appointment. She provided leaflets on legal requirements including the need to display ownership and fees, guidance on holding deposits and the requirement to join a redress scheme. A visit was arranged for 16 June 2015. Syed falsely claimed that holding deposits were passed to landlords and that the company did not take tenancy deposits, stating it was the landlord’s responsibility to use a protection scheme. However, the company’s terms and conditions stated that Crestons would protect deposits with the Tenancy Deposit Scheme, a claim that was false because Sirs London Limited was not a member of any of the three statutory schemes. Sirs Associates Limited had been a member of My Deposits from August 2012 until March 2014, when membership was terminated because it could not produce a client account balance equal to or greater than the deposits registered. Although a few deposits were protected, no tenant was given information about where the deposit was protected and the protection was notional because the company retained the money. Sirs London Limited applied to join My Deposits in 2014 after Sirs Associates Limited’s membership was terminated, but the application was declined because of the association with the other company. Ms Manning provided written advice after her visit, which Syed did not act upon, and claims about membership of the Tenancy Deposit Scheme continued. Trading Standards began receiving complaints around the same time. Evidence at trial concerned particular tenants. Jonathan Salisbury entered into an Assured Shorthold Tenancy with Crestons and paid a deposit of £3,900, which was registered with My Deposits but not protected from December 2014. When Mr Salisbury sought the return of his deposit he was unsuccessful. When his parents rang Mashuk to complain, Mashuk told Mr Salisbury never to call his phone again, using obscene language.
Ali was born on 1 July 1981 and had no previous convictions. Mashuk was born on 13 September 1980 and had previous court appearances but no relevant convictions. Syed was born on 2 June 1981 and had no previous convictions. Pre-sentence reports and mitigation bundles were before the judge.
In passing sentence the judge observed that many users of the service had no idea of the existence of the limited companies behind the Crestons name. Paperwork was inconsistent and obfuscatory as to both terms and legal entity. Mashuk and Ali had failed to protect deposits as required by law since 2007, took rent but did not pass it on, failed to refund deposits and took holding deposits which they did not return. Syed operated in the same manner save that there were no known examples of holding deposits not being returned, although there was one incident of a reservation deposit being taken for a property purchase against the owner’s wishes and not returned in full. The judge sentenced only on the basis of evidence called at trial. Complainants lost money, rental payments were late, cheques bounced and people were passed from pillar to post when they complained. Mashuk was sometimes aggressive when challenged, though that description did not apply to Ali or Syed. In one case occupiers had been issued with licences to occupy rather than the Assured Shorthold Tenancy agreed with the landlord. Tenants as well as landlords either lost their deposits or had to be paid by landlords out of their own pockets. The judge observed that the sentencing guideline for fraud did not specifically apply to fraudulent trading but listed factors relevant to culpability and harm broadly similar to those identified in R v Mackey, to which she was referred. She said it was appropriate to pay more than some regard to the guideline. She accepted that the business of Crestons was not in itself fraudulent but offences of this nature undermine public confidence in the letting sector. She was aware of mitigating circumstances including family and caring responsibilities, though she noted the appellants were not the only people able to care within their families.
Ali’s grounds of appeal were that the sentence was too high when compared with sentencing principles and the leading authority of Mackey, and that there was disparity with Syed whose fraudulent trading was more than double the value. This second point was not pursued before the Court of Appeal having regard to observations by the single judge. Mashuk advanced three grounds: that the sentence was manifestly excessive and undue reliance was placed on the fraud guideline; that excessive reliance on the guideline at the expense of specific guidance in Mackey led to a manifestly excessive sentence and wrongly precluded consideration of a suspended sentence; and that there was disparity with Syed, though this point was maintained without much force. Syed also advanced three grounds: that the sentence was manifestly excessive because the judge failed properly to consider Mackey; that disproportionate weight was placed on the fraud guideline; and that the judge failed to impose a suspended sentence. At the hearing Mr Simon Reevell led for the appellants and his oral submissions were adopted by Mr Martin and Miss Tsiattalou. Mr Talbot appeared for the prosecution but was not called upon.
The maximum sentence for fraudulent trading is ten years’ imprisonment, the same as for the substantive offence of fraud under section 1 of the Fraud Act 2006. The Court of Appeal reviewed the authorities. In R v McCrae and Others [2012] EWCA Crim 976, [2013] 1 Cr App R(S) 1 this court said that the sentencing judge had been entitled to pay some regard to guidelines for confidence fraud which bore some similarities to the fraud in that case, although the guideline at that time did not refer to conspiracy to defraud. In R v Smith and Palk [1997] 2 Cr App R(S) 167 Potter LJ observed that because of the wide spectrum of fraudulent trading offences in relation to both amount and level of criminality, a wide spectrum of sentences may be appropriate. At one extreme there may be deliberate reckless trading on a large scale aimed at rapid return with no genuine intention to discharge debts but simply to milk creditors; at the other a properly funded business which runs into difficulties out of which directors attempt to trade to save their own and employees’ jobs but reach a point where they have become reckless as to the realities. In broad terms a charge of fraudulent trading resulting in a substantial total deficiency is less seriously regarded than a specific charge of theft or fraud to an equivalent amount. The court in Smith and Palk concluded that on the facts, which were at the lower end of the scale in terms of criminality and involved directors assisting the receiver and liquidator rather than looting assets, sentences of eighteen months were appropriate rather than three years. The Court of Appeal considered that decision was on its own facts and did not assist in the present appeals.
The court turned to R v Mackey [2012] EWCA Crim 2205, [2013] 1 Cr App R(S) 100, which formed the mainstay of the appellants’ submissions although it was acknowledged it was not a guideline case in the strict sense. In Mackey Sweeney J said that to the extent it was appropriate to pay some regard to the then definitive guideline, the offence involved a total gain or loss of £60,000 and elements of both confidence fraud and banking fraud, and relevant starting points would be three years and 36 weeks respectively. The court repeated the statement from Smith and Palk about the wide spectrum of fraudulent trading and that such a charge is less seriously regarded than a specific charge of theft or fraud of an equivalent amount, although this may be truer of offences at the lower end of the spectrum. The factors relevant to sentence include the amount of fraud, the manner and period over which it was carried out, the position of the defendant in the company and measure of control, any abuse of trust, any effect on public confidence in commercial life, any loss to small investors, the personal benefit, the plea and the age and character of the defendant, citing Feld [1999] 1 Cr App R(S) 1. The Court of Appeal noted that although that passage was and remains useful, the relevant factors are similar to those set out in the present guideline issued by the Sentencing Council with effect from 1 October 2014, Fraud, Bribery and Money Laundering Offences, in the section dealing with the substantive offence of fraud under section 1. If a fraud fell into category 3, covering a range of loss of £20,000 to £100,000 with a starting point based on £50,000, and culpability were of the highest level A, the starting point is three years with a category range of eighteen months to four years. The circumstances in Mackey were very different from the present appeals. The loss was £60,000 but the fraudulent trading arose because a genuine business got into trouble and the appellant decided to behave dishonestly in the hope it would come right. The dishonest means included manipulation of documents, forgery of signatures and abuse of trust over at least five months. The appellant was of previous good character, a single mother with significant ill-health and a 7 year old daughter with learning difficulties. The court had particular regard to the best interests of children. A sentence of eighteen months was within the appropriate range albeit towards the very top of it, and the appeal was dismissed. The Court of Appeal did not consider that any true analogy could be made with Mackey.
In the present case the judge formed the view that this was deliberate, reckless trading conducted over a sustained period by each appellant in the knowledge that he could not discharge liabilities. The court observed that the judge took that language from Mackey, which had in turn taken it from Smith and Palk. The judge continued that the appellants had been dishonest in their dealings and their offending was aggravated by the fact that some victims, particularly tenants and those from outside the United Kingdom, could be described as vulnerable. The appellants had abused the trust and responsibility placed in them by landlords and tenants. There was a large number of victims. This was therefore a case of high culpability. The judge considered the amount of money at stake. The level of loss fell within category 3 if this had been a case of fraud covered by the definitive guideline. The judge was of the view that although the business of Crestons was not in itself fraudulent, offences of this nature undermine public confidence in the letting sector.
The Court of Appeal was unable to accept the submissions made on behalf of the appellants. Sentences of 28 months’ imprisonment were neither wrong in principle nor manifestly excessive. The sentencing judge could not see any reason to distinguish between the appellants in terms of culpability or harm. Each had played a leading role in running Crestons. While it was true that the loss in Syed’s case was higher than for the other two, Ali no longer relied on disparity and Mashuk relied upon it only faintly. Mr Reevell submitted that the point helped illustrate his more fundamental submission that the judge gave excessive weight to the current guideline and insufficient weight to Mackey. The court did not accept these submissions. In the circumstances it was open to the judge to pass the same sentences on each appellant, even if Syed might be considered by some to have been fortunate.
In short, the Court of Appeal dismissed all three appeals, holding that sentences of 28 months’ imprisonment for deliberate, sustained fraudulent trading involving high culpability, a large number of victims, substantial loss and abuse of trust were neither wrong in principle nor manifestly excessive, notwithstanding that fraudulent trading is distinct from substantive fraud and that the fraud guideline does not apply directly.