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Council “did not have power to prosecute alleged legal aid fraud”: Court of Appeal

Thurrock Council did not have power to bring prosecution proceedings on behalf of the Legal Aid Agency in relation to an alleged legal aid fraud, the Court of Appeal has ruled.

The background to the case of AB & Ors, R. v [2017] EWCA Crim 534 is that the appellants are presently awaiting trial at Southwark Crown on an indictment containing a single count of conspiracy to defraud (contrary to common law) and a single count of doing acts tending and intended to pervert the course of public justice (contrary to common law).

The particulars of the conspiracy charge are that the appellants conspired together and with others between August 2007 and December 2013 to defraud the LAA through the submission of claims for payment in respect of work which a solicitors' practice in London had not performed.

The charge of perverting the course of justice alleges dishonest activity in the form of forging client files and submitting them to the LAA to conceal the alleged fraud once the appellants became aware that the practice was under investigation.

The loss to the LAA is estimated to be £4m.

The three appellants - the law firm's principal, its compliance officer and practice manager, and the office (and billing) manager - deny all the charges.

The prosecution was not brought by the Crown Prosecution Service or the Serious Fraud Office. Instead it was brought by Thurrock, following an investigation made by its Fraud Investigation Department (FID) for the LAA. The FID was set up by the council in 2013.

The appellants contended that the council had no power to bring the prosecution under s.222 of the Local Government Act 1972. No point was taken over its power to investigate.

S. 222 opens Part XI of the 1972 Act (entitled "General Provisions as to Local Authorities") under the heading "Legal Proceedings" and provides as follows:

"(1) Where a local authority consider it expedient for the promotion or protection of the interests of the inhabitants of their area

(a) they may prosecute or defend or appear in any legal proceedings and, in the case of civil proceedings, may institute them in their own name, and

(b) they may, in their own name, make representations in the interests of the inhabitants at any public inquiry held by or on behalf of any Minister or public body under and enactment."

HH Judge Grieve QC concluded that there was no good reason to find that the prosecution was invalid on the ground that it had not been properly brought under s. 222. The appellants took the case to the Court of Appeal.

The case was heard by the Lord Chief Justice, Mrs Justice Carr and Mr Justice Gilbart. The issues before the Court of Appeal were:

i) Can the court look behind the council's decision at all?

ii) If so, can it be said that the council's decision was so unreasonable that the court should interfere?

iii) In any event, does the council have a self-standing right to prosecute?

The judgment of the Court of Appeal concluded that it was clear from case law that the court had jurisdiction to review the council's decision to prosecute. “However, that is an exercise to be carried out sparingly and within the parameters of the very broad discretion granted to the council under s.222. There is, however, a high hurdle to be overcome before the court will interfere with a local authority's exercise of discretion under s.222.”

On the issue of whether it could be said that Thurrock’s decision was so unreasonable that the court should interfere, the judges said the power under s.222 arose by reference to a consideration of expediency; the expediency must be for the promotion or protection of interests.

“The interests are those of the inhabitants of the local authority's area. If those elements are satisfied, then the local authority may prosecute,” the Court of Appeal said.

The judges decided that the council's decision to prosecute fell outside the ambit of its broad powers under s.222. “There were no proper grounds for it to consider that that it was expedient for the promotion or protection of the interests of the inhabitants of Thurrock to prosecute the appellants (and not to refer this very serious matter to the DPP for prosecution). The council could not reasonably have thought that there were.”

In relation to a suggestion that it could be considered in the interests of the inhabitants of Thurrock that the legal aid system, from which all may benefit, should not be defrauded, the alleged criminality to be prosecuted must have an actual or potential impact on the inhabitants of Thurrock as inhabitants of Thurrock, not just as UK taxpayers more generally, the Court of Appeal said.

“For the requirements of s.222 to be met, the interests of the inhabitants of Thurrock must be engaged over and above their interests merely as ordinary citizens of the nation. The clear policy of the LGA, as reflected in the wording of s.222, was that the power in question was being conferred for the benefit of the inhabitants of Thurrock as such.” [emphasis in the judgment]

Counsel for Thurrock had “fairly conceded” that the council's motivation in agreeing to prosecute was commercial, the judgment noted. Without seeking outside work such as this, the FID would have had inadequate funding. It was also accepted that the council had no particular expertise in legal aid fraud (though it did in computer fraud).

“The council was in effect setting up a prosecution service for which it was being paid by the LAA. [Counsel for Thurrock] accepted that, on his case, the council could set up a service to defend burglars in another part of the country," the judges said.

“In our judgment, however, this type of general financial justification does not come close to meeting the requirements of s.222. Otherwise, s.222 would empower any local authority to offer a prosecution service (or indeed a defence service) to any individual or organisation prepared to pay for it. This cannot have been Parliament's intention,” the Court of Appeal said.

It added: “We do not accept the submission that local authorities are now encouraged to be profit-making or that initiatives such as, for example, the Localism Act 2011, assist the council. S.222 empowers a local authority only to prosecute in the specific interests of its own inhabitants, even if broad policy considerations can be taken into account. There is nothing on the facts here that comes close to the facts of Oldham or Donnachie, where in each case the connections with the interests of the relevant local authority's inhabitants could readily be identified.

The Court of Appeal also rejected the argument that the council had a common law right to prosecute.

The council had submitted that s.222 did not create a power to prosecute or defend but merely restated or declared the existing power and was advisory as to its discharge.

“In our judgment, and despite the industrious research of the legislative history, the council's suggested approach is misconceived. Local authorities are entirely a statutory creation, and may only engage in activities which they are permitted to by the LGA and related Acts,” the judges said.

“We…..reject the submission that s.222 is ‘exhortatory’only. As the appellants submit, if this were the case, s.222 would be otiose. The council is a creature of statute; its power to prosecute arises under s.222. It has no common law power to prosecute more generally.”

By the time of a hearing on 10 April 2017 it was agreed that the appellants had no objection to prosecution by the Director of Public Prosecution, and the council said it would welcome the DPP’s intervention. The LAA also accepted that the DPP should have been approached with a view to taking over the prosecution in June/July 2016.

The agency will now conduct a review of the decision-making surrounding the matter and is to endeavour to agree a protocol with the CPS in relation to potential future cases.

On 21 April 2017, the DPP informed the court and the parties that she had exercised her powers under s.6(2) of the Prosecution of Offences Act 1985 to take over the conduct of the prosecution and to continue it.

It was not necessary therefore for the Court of Appeal to consider whether it should stay the proceedings. “The proceedings must therefore continue with the DPP conducting the prosecution. We will simply declare that the council had no power to prosecute under s.222.”

The judges went on, however, to make observations on wider public policy issues.

They said: “As was apparent during the course of the hearing, we raised significant concerns as to the events giving rise to the prosecution by the council of such a significant case that was in no way related to Thurrock and contrary to generally accepted national prosecution policy.

“As we have explained, the allegations of the prosecution relate to an alleged very large scale fraud involving grave allegations and of considerable public and state interest. Alleged abuse of the legal aid system is always serious; it assumes a particular importance in the field of immigration where there is a very significant drain on legal aid resources. It is precisely the sort of prosecution that should be pursued by the national prosecuting authority.”

The judges added that in terms of contemporaneous consideration as to the possible involvement of the police or DPP, the evidence of Shaun McNally [chief executive of the LAA since April 2016] had revealed that:

i) the evidence in relation to the approaches to the police was “unclear and begs many questions”.

ii) no approach was made in June 2016 or at any stage prior to this appeal by the LAA or the Council to the DPP to prosecute this matter.

The Court of Appeal said the “unhappy facts” of this case “demonstrated well the dangers inherent in a system where agencies try to act as substitutes for prosecutions by the CPS in respect of national issues”.

In particular, the judges said:

i) A memorandum of understanding (the “Memo”) and a joint working agreement (“JWA”) between the council and the LAA were “curious documents”. Paragraph 16 of the Memo was “troublesome” in so far as it sought to distribute 50% of any confiscation proceeds as "incentivisation payments", the remaining 50% going automatically to the Treasury. The judges said they had been provided with a Home Office Memorandum entitled "Asset Recovery Incentivisation Scheme 2013-14" and a similar document for 2014-5. This set out arrangements made by the Home Office for the distribution of 50% of assets recovered by means of a confiscation order. "We do not consider that this Incentivisation Scheme was in any way intended to benefit a local authority undertaking the kind of arrangement the council made with the LAA. The Incentivisation Scheme was plainly intended for the incentivisation of prosecutions undertaken in the normal course of operations of a governmental agency or local authority, not for the type of money making enterprise which the council had arranged with the LAA. There was no Treasury or Home Office consent in place specifically directed at this arrangement. Ignoring the question of whether or not such an arrangement made between the LAA and the council was legal (as it is not necessary for us to decide this), there is the obvious scope for conflict in an area of importance such as confiscation orders, which of course carry penal consequences. It could be said that the council as prosecutor would have a real financial interest in undertaking the prosecution under the arrangements made with the LAA”;

ii) The Memo appeared never to have been presented directly to the LAA Executive Committee. Mr McNally had not seen it before this appeal. Rather it was advanced for approval only through the LAA briefing paper….”that was both misleading and inaccurate”;

iii) The LAA never considered independently the question of whether or not the council had the power to prosecute in this case. “Rather, it simply took the council's expressed view that it did at face value”;

iv) Attempts to engage the police even at the investigation stage were half-hearted and at a low level. “Thus, for example, the matter did not go directly to anyone above DS level at the Metropolitan Police and even then the contact was only in the context of discussions relating to assistance from the police in executing warrants and arrests”;

v) Notwithstanding the gravity, scale and sensitivity of the alleged offending, the DPP was never invited to prosecute the matter. "Whilst it is said that there were concerns over delay, the council accepted that its motivation was at least in part financial: income was needed to support the FID. The LAA fairly now accepts that the DPP should have been approached”;

vi) Despite that lack of contact with the DPP, of which the Crown Court and the appellants were not informed at the time, the court had been told in February and May 2016, as set out at paragraph 28 that it was "unlikely", indeed "fanciful", that any other body would agree to prosecute the matter. “In the absence of formal and informed confirmation to this effect from the DPP, such assertions should not have been made, particularly in circumstances where they were the subject of direct challenge by the appellants. It was (rightly) submitted for the appellants that it would be "astonishing" if the CPS were to decline to prosecute a prima facie case of this nature and gravity.”

The Court of Appeal went on to say that the purpose of s.222 was to give local authorities powers to take action in the interests of their inhabitants. The claimed interest by the council was an indirect one, namely that it was in the inhabitants' interest to operate the FID, because it would attract income.

“The purpose of the scheme set up [by the head of the FID] was and is avowedly to provide an investigations and prosecution agency which can take on the investigation and prosecution of fraud. His evidence describes it as being able to conduct such work on behalf of public bodies, including those which are national. The prosecution of such frauds is in no sense dependent on any link to the Borough or its inhabitants. It is patently a purely commercial enterprise, the link with the interests of the council's inhabitants being illusory at best. That explains the council's insistence on justifying its ability to prosecute on a basis other than that set out in s.222,” the Court of Appeal said.

The scheme was only effective from the council's point of view if it could receive sufficient funds as a result, the judges said. There were two ways in which it could do so:

i) By being paid for its services by its customers;

ii) By making an arrangement that it can be paid out of the compensation or confiscation monies payable at the end of a prosecution.

“As to a), that is likely to be more expensive for the probable 'customer', such as the LAA, than using the CPS. As to b) and compensation, compensation money is for the victim. That would be the LAA (or other customer of the council). As to b) and confiscation, confiscation does not find its way to the victim. Thus, on the council's case, it would be receiving monies from confiscation proceeds for itself, amongst others. Given the fact that the FID is intended as a money-making exercise, there is a clear conflict of interest involved when it advances a case to a criminal court on the degree of benefits and available assets in a POCA hearing following conviction,” the Court said.

The judges added: “It is perhaps for these reasons that there are no known examples of a public body being represented by a local authority in a prosecution unless it relates to activities or inhabitants within that authority's area or - if, for example, a number of authorities were to combine so as to appoint a lead authority for one particular kind of activity.”

The Court of Appeal concluded: “It is in the public interest that major prosecutions such as this are handled by the single prosecuting agency established by statute to conduct them. It is noteworthy that the council does not seek to prosecute kinds of crime other than fraud.

“That has one simple reason - there would be no income stream derived from it. It is only because the council considers that it can so manage the prosecution, its terms of agreement with the bodies it seeks to represent, and the receipt of confiscation monies, that it is seeking to pursue this arrangement. [The head of the FID’s] witness statements reveal that he would wish to see the council established as a significant financial investigation and prosecution service.

“The issue of the legality of the FID was not explored before us, and we decline to express any view. But insofar as the council seeks to use the FID, via prosecutions, to provide a national prosecutions unit, we consider not only that it falls well outside the scope of s. 222, but that it would be harmful to the public interest to have such a unit established as an alternative to the CPS. The CPS is a statutory body, whose powers are given by statute; it performs a vital public function and ensures consistency in decision making. A local authority prosecution unit would have no statutory basis whatever; it would also be inimical to the public interest to have a parallel prosecution service for cases such as this.

A spokeswoman for Thurrock said: “Thurrock Council’s Fraud Investigation Team investigated a case which is currently awaiting trial. The case has been cost-neutral to the local authority.

“The authority is currently considering the decision of the Court within the appeal timeframe. It would therefore be inappropriate to comment further at this stage.”

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