Neutral Citation Number:
[2014] EWCA Crim 713
Case No:
201300289 B2
;
201304192 B2
IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CROWN COURT AT SOUTHWARK
His Honour Judge Lorraine-Smith
T20110209
Royal Courts of Justice
Strand, London, WC2A 2LL
Date:
15/04/2014
Before :
THE PRESIDENT OF THE QUEEN’S BENCH DIVISION
(SIR BRIAN LEVESON)
MR JUSTICE KEITH
and
MRS JUSTICE LANG DBE
- - - - - - - - - - - - - - - - - - - - -
Between :
GARY HYDE
Appellant
- and -
THE QUEEN
Respondent
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
Mr Stephen Solley Q.C.
and
Mr David Wood
for the
Applicant
Mr Stuart Biggs
for the
Crown
Mr James Berry
for the
Chief Constable, Lincolnshire Police
Hearing dates : 18 March 2014
- - - - - - - - - - - - - - - - - - - - -
Approved Judgment
Sir Brian Leveson P :
On 26 October 2012, in the Crown Court at Southwark before His Honour Judge Lorraine-Smith and a jury, Gary Hyde (who is now aged 44) was convicted of two offences of being knowingly concerned in the movement of controlled goods with intent to evade a prohibition on actions done or arrangements made in connection with the movement of controlled goods between third countries contrary to
Article 9(2)
of the
Trade in Goods (Control) Order 2003
and a further offence of concealing criminal property contrary to
s. 327 of the Proceeds of Crime Act 2002
. On 5 December 2012, he was sentenced to concurrent terms of 7 years imprisonment on the first two counts and 4 years imprisonment on the third count making 7 years in all.
1.
In addition, following conviction, the judge made a number of ancillary orders. First, on 17 December 2012, Mr Hyde was disqualified from being a company director for a period of 7 years (pursuant to
s. 2 of the Company Directors Disqualification Act 1986)
. On 5 June 2013, he was made the subject of a confiscation order under the
Proceeds of Crime Act 2002
in the sum of £782,142.57 (with a term of 4 years imprisonment in default of payment): the benefit figure was agreed between the parties. Finally, on 28 June 2013, on the application of the Chief Constable of the Lincolnshire Police, an order for the forfeiture and destruction of 14,231 firearms was made pursuant to
s. 52(1) of the Firearms Act 1968
. He now renews his application for leave to appeal against the custodial sentence and order for disqualification (following refusal by the single judge); the Registrar has referred his application for leave to appeal against the forfeiture and destruction order to the full court.
The Facts
2.
From the age of 14, the applicant started to work in a local gun shop in York, eventually coming to own the business which dealt not only in guns but clothing and other goods consistent with country sports: the business employed some 20 people. In around 2004, he moved beyond the retail sector and became involved in large-scale trading in munitions, setting up a second company called Jago Ltd with a German citizen, Karl Kleber. On the basis of the evidence, the applicant was respected in the field, involved in business with (among others) the Ministry of Defence. In this regard, he was operating entirely within the law.
3.
One such contract concerned military-grade weapons from both Iraq and Afghanistan. The applicant was responsible for what we were told was the largest ever importation of armaments to this country, purchasing armoured vehicles and weaponry in the aftermath of the conflict in the former Yugoslavia (“the Bosnia Deal”). Much of that imported stock has been sold, but a cache of around 14,000 weapons (primarily AK-47s and MG34 Barrels) remain in storage in the custody of Skydock Ltd, an entirely independent private company unconnected to the applicant: the weapons are housed in secure premises on a former RAF base. It is these weapons that were the subject of the application for forfeiture.
4.
Between 2005 and 2007, together with his German business partner, he brokered agreements for the sale of arms by the People’s Republic of China to the Government of Nigeria, which had been arranged between a Chinese company, China Jing An (later assigned to another Chinese company, Poly Technologies Inc), and companies run by Neil Murray and Brendan Cahill (Deftech and Pinimi) acting for the Nigerian purchasers. The shipment from China to Nigeria took place in November 2007. Commission agreements were signed by the applicant in the name of EWH Consultancy Ltd, which the Crown stated was a company under the control of the applicant, and under which the applicant was to receive commission totalling $1,337,800.
5.
Dealing in guns is, as might be expected, a heavily-regulated occupation in this country. This is especially true in the context of international trade, where misappropriated weapons have serious security and humanitarian consequences. In particular, the
Export Control Act 2002
was enacted as a result of the Scott Inquiry into the sale of arms to Iraq and various orders were made pursuant to that legislation regulating trading activities in arms and other goods. In this case, the relevant regulations are the
Trade in Goods (Control) Order 2003
("The TIG Order"), Article 4 of which prohibits any person from doing (or agreeing to do) in the United Kingdom any act which is calculated to promote the arrangement or negotiation of a contract to move controlled weapons (including those in the present matter) between third countries (here China and Nigeria), unless sanctioned to do so by the UK Government.
Article 9(2)
of The TIG Order makes it an offence for a person to be knowingly concerned in the supply, delivery, transfer or acquisition of any controlled goods, with intent to evade any of the prohibitions in Article 4.
6.
Knowing this, the applicant took considerable care initially to broker the contract from outside of the United Kingdom. In relation to subsequent negotiations involving variation and assignment, however, he worked from this country in order to ensure (as Mr Stephen Solley Q.C. put it on his behalf) that the contract did not ‘come off the rails’. He used Jago Ltd as his correspondence address in managing the deal during this time sending letters using the Jago Ltd letterhead, and emails using his York Guns and Jago Ltd email addresses. Although those companies were not the formal contracting partners, the prosecution contended that their
bona fides
lent credibility and substance to the applicant’s role as a broker. This UK-based conduct took place between March 2006 and December 2007.
7.
It is worth adding that it might have been open to the applicant to apply to the Department for Business, Innovation & Skills (as it is now called) for a licence to broker this arrangement but there is no evidence as to how the UK Government would have responded to such an application. In any event, the applicant was clearly reluctant to bring it to the attention of the authorities because he intended to receive his commission in bank accounts in Liechtenstein, which he operated to reduce his tax liability. He used corporate vehicles (including EWH Consulting Ltd and various trusts of which he and his family were beneficiaries) to receive the commission from the deal.
8.
After the authorities learnt of this transaction, on 18 November 2009, the applicant was interviewed. He declined to answer any questions save that at the conclusion of the interview, his solicitor said (on his behalf) that the applicant did not believe that he engaged in any activity in the UK which, as he understood it, required a licence.
9.
The applicant was charged with two offences under
Article 9(2)
in relation to his knowing involvement in the movement of arms with intention to evade the prohibition in Article 4 and, in addition, with the further offence of concealing criminal property (contrary to
s. 327 of the Proceeds of Crime Act 2002)
based on the concealment of his profits from the illegal trade in the Liechtenstein bank account.
10.
It was common ground between the prosecution and the defence that the applicant had done nothing to promote the contract from within the United Kingdom prior to its initial agreement. On that basis, the trial judge initially acceded to the submission that there was no case to answer: that ruling was reversed in this court which held that the renegotiation of a contract leading to its variation or assignment did, as a matter of law, fall within the meaning of Article 4 of the TIG Order (see
[2012] EWCA Crim 1113
, [15]).
11.
In the event, after a trial lasting 10 days, the applicant was convicted and there is no appeal from that conviction. It is important to underline that the basis of that conviction must have been that the jury were sure that he was carrying out acts in this country which required a licence and that he did do so intending to evade the prohibition: the assertion that he had an honest belief that he was acting within UK law must have been rejected.
The Approach of the Judge
12.
Passing sentence, Judge Lorraine Smith recognised that the applicant was a man of previous good character who had built his company into an international wholesaler with 20 staff, expanding the business into the international arms trade in which there were numerous lawful and properly licensed deals, but that the prospect of enormous profits led him to make unlawful deals. Furthermore, whilst the applicant had opened an account in Lichtenstein to lawfully reduce his tax liabilities he had also used it to launder the money from this unlawful deal. Applying for a licence would have been very easy and it is likely that he did not apply because he had believed he would not be granted one and also if he had applied the UK authorities may have learned about his very substantial earnings.
13.
The judge underlined that the applicant was to be sentenced for dealing in no less than 70,000 rifles, 10,000 pistols and 32 million rounds of ammunition which were sold to Nigeria. The Nigerian authorities had not responded to letters of request and it had not been possible to investigate further the ultimate destination for the armaments. However, the deal he brokered yielded substantial profits and over $400,000 of commission was paid into his Lichtenstein account.
14.
Although the judge recognised that the applicant had waited a long time for sentence and that it would have a devastating effect on his family, he concluded that the case involved a sustained and deceitful flouting of the law in which he had shown a determined and clear intention to prevent the British government having the opportunity to refuse him permission to trade in this material. He had showed remorse but this had not been reflected by a plea of guilty. In those circumstances the sentence of 7 years imprisonment (with a concurrent term for the concealing offence) followed.
15.
Four days later, the judge considered the question of disqualification pursuant to
s. 3 of the Company Directors Disqualification Act 1986
. He concluded that the applicant was very capable of managing a company properly but that the evidence had showed that he was equally adept in the use of corporate vehicles in pursuance of the substantive offences and in the laundering of the proceeds of crime. This was to be reflected in a disqualification but he was not to be disproportionately prevented from using his business acumen in a lawful way for too long a period. He matched the period to the total length of sentence i.e. 7 years.
16.
Six months after that, Judge Lorraine Smith dealt with the issue of confiscation of the benefits of crime: he made an order in the sum of £782,142.57 which the applicant repatriated from Lichtenstein and paid. There is no appeal from this aspect of the order.
17.
Finally, 11 months after imposing the custodial sentence, on the application of the Chief Constable of Lincolnshire, the Judge considered forfeiture of the firearms lawfully held in a secure storage facility pursuant to a licence and unconnected with these offences. The Judge recognised that the firearms were in the custody of Skydock Ltd at a secure storage facility (and potentially subject to a lien in relation to the accrued cost of storage) and that, without a licence, the applicant could not sell them himself. Nevertheless, he noted that on 2 August 2007, when seeking to dispose of the firearms, by letter, he had informed the Home Office that in real terms he was the owner; further, on 5 May 2011 he wrote to the Firearms Licensing manager at Lincolnshire Police in terms suggesting that he was the owner.
18.
Judge Lorraine Smith determined that the term “possession” within the Firearms Act was to be given a very wide interpretation on the basis that the legislation was intended to be draconian in its effect. On that basis, in law, they were in the possession of the applicant and he ordered their forfeiture and destruction. In the exercise of his discretion, he considered that this was a proportionate response to what had been a sustained and deceitful flouting of the law. Although arrangements could have been made for the firearms to be sold if that had been thought to be the appropriate course, and was permitted by the Home Office; the Judge accepted the concerns raised by the Chief Constable to the effect that there were 14,000 firearms in his area which, if released in the public domain, could pose a serious threat to public safety; even if released in a decommissioned state, there was a risk that they could be later re-commissioned.
The Sentence Appeals
19.
Mr Solley does not challenge the imposition of an immediate custodial sentence of some length; as we have said, neither does he challenge the confiscation order. However, on behalf of the applicant, he seeks to appeal the length of the custodial sentence, the need for a disqualification order (given that there was no question of manipulating the Lichtenstein company) or, alternatively, its length and, finally, the lawfulness of the forfeiture and destruction order not only because the applicant was not then in possession of those firearms but also because of want of proportionality and failure properly to have regard to Article 1 of Protocol 1 of the European Convention on Human Rights. These arguments must be considered in turn.
20.
As to the approach to sentence, Mr Solley referred to
R v Knight
[2008] EWCA Crim 478
which had been placed before the Judge. The case concerned the transportation of 130 sub-machine guns from Iran to Kuwait (seized by customs at Kuwait airport) following the refusal of a licence to conduct this transaction from what was then the Department of Trade and Industry. The decision outlined the UK licensing regime in place and the Council Directive which requires consideration by the state issuing a licence, among other things, not only of the legitimate defence and domestic security interest of the recipient country but also its technical capability to use the equipment and its capability to exert effective controls and underlined that decisions were for the government to make.
21.
Upholding the sentence of 4 years imprisonment after an early guilty plea as severe but not manifestly excessive, Davis J (as he then was) identified the non-exhaustive criteria to which the court should ordinarily have regard. He listed them as follows (at [19]):
“(1) First, an assessment of the goods involved. For example, as here, whether there are military weapons and if so, the nature of the weapon. To some extent also will be relevant the capacity for single use, for example, grenades or for multiple or long-term use, for example, guns. Also relevant will be their relative potential for multiple deaths: for example, pistols as compared to machine guns. (2) Second, the quantities and values of weaponry involved. (3) Third, the intended customer: for example, supply direct to an insurgent group will be an aggravating factor. In addition, the intended location of supply can be relevant, for example, a region which is known as a war zone, or which for example may be adjacent to a war zone in which United Nations troops are engaged. (4) Fourth, the level of involvement of the particular defendant. (5) Fifth, the degree of planning by and length of involvement of the defendant, coupled also with the degree of knowledge of that defendant and his status (for example, whether or not he is a generally licensed arms dealer). Also relevant will be the persistence in effecting the transaction in deliberate breach of export control laws. (6) Sixth, the sophistication of the transaction and any attempts to evade responsibility or to create a false impression. Generally, there would also be matters such as a plea and other personal mitigation to be taken into account in an appropriate case.”
22.
Applying these factors, Mr Solley submitted that although the size and scale of this supply was orders of magnitude greater than in
Knight
, this was a safer transaction between governments with a much reduced risk of weapons falling into the wrong hands. Furthermore, if a particularly dangerous or hostile recipient of weapons, such as a terrorist group or rogue state, is capable of being an aggravating factor to this offence, then this transaction between two governments of major world powers with legitimate need for such weaponry should be a mitigating factor. Recognising that Nigeria is such a power and assuming that country to be the ultimate recipient of the arms (although save for an end user certificate there is little evidence to that effect), it would have been for the government to make the decision: the purpose of the legislation is to ensure that it does. As Davis J added (at [22]):
“A defendant cannot, as it were, in exculpatory mitigation simply seek to substitute his own view as to the risk for that of the responsible licensing authority.”
23.
Secondly, Mr Solley sought to diminish the criminality of the conduct on the basis that, by November 2007, the shipment of the weaponry to Nigeria was a foregone conclusion. His determination thereafter to ‘keep the deal on the road’ was immaterial by comparison to the work involved in brokering the original contract, which was the true mischief prohibited by the TIG order. We do not agree. The contract was clearly at risk of non-performance, and were the applicant’s role in the variation and assignment of the deal not material to its outcome, it is inconceivable that he would have been paid such a substantial commission for it. A broker who keeps an agreed contract on track by novation or assignment is as important as a mechanism to effect the transfer of the cargo as one who acts as a mere introducing agent.
24.
Thirdly, Mr Solley sought to distinguish a hypothetical contract brokered from the UK in flagrant violation of the TIG order from the present case, where the arrangement was never (and apparently never would have been) the subject of an application for permission from the UK government. He said that Nigeria’s need for weapons was a legitimate state interest and should not be deprecated by this court. Mr Solley submitted that this transaction was lawful if conducted abroad and the criminality was in failing to leave the jurisdiction to pursue it, rather than the conduct of the deal
per se
. The same, of course, might be said of many arms trades if conducted outside the reach of the UK Government. The applicant’s conduct abroad was outside the jurisdiction of the English criminal court; his conduct from within the UK was criminal.
25.
In addition, Mr Solley also provided the applicant’s perspective on the factual background, stressing the absence of fraudulent manipulation of documents to hide what he had done. He pressed the context of the applicant’s previous good character and his reputation as a trusted and legitimate dealer for the Ministry of Defence who had ‘greedily and foolishly stepped over the line’. The consequences of these convictions were not only a toll on his mental health and family life but also the irredeemable loss of his business of 27 years on the grounds that a custodial sentence would prevent him from ever working in the arms trade again.
26.
Finally, it was submitted that the judge erred in relying on
Knight
and Mr Solley pointed to the absence of weapons of the type involved in
R v Sarig
[2011] EWCA Crim 1050
. In that case, over 4 years, armaments to a value short of £2 million were supplied to third countries: a total sentence of 9 years imprisonment was upheld.
27.
Every case in this area is, to some extent, unique. Although we endorse the principles identified in
Knight,
the way in which those principles will be applied will inevitably differ depending on the circumstances. Here, the number and value of the armaments (and thus the risk) is of a totally different order than in either of the cases to which reference has been made albeit that the culpability is somewhat lower; neither (as in
Knight
) is there the benefit of a guilty plea. In addition, the applicant fell to be sentenced not only for the breach of the TIG Order but also for the distinct (and different) crime of concealing criminal proceeds which not only kept the breach away from the potential attention of the authorities but also serving to increase its profitability. On the basis that the overall criminality would not be sufficiently reflected by a concurrent term, it was open to the judge to consider a consecutive sentence (see the Definitive Guideline issued by the Sentencing Council on Totality). In the event, he did not do so.
28.
The applicant was convicted after a trial and the judge was in the best position to assess him and to determine the gravity of this offending in the light of all the circumstances. We accept the proposition that the overall sentence was undoubtedly severe but a deterrent sentence was inevitable and we are not prepared to conclude that the custodial term imposed is either wrong in principle or manifestly excessive: the renewed application for leave to appeal against this part of the sentence is refused.
29.
Turning to the disqualification from being a company director, the test to be applied is whether an offence had some relevant factual connection with the management of a company: see
R v Goodman
[1993] All ER 789
. In that regard, Judge Lorraine-Smith concluded that the applicant was:
“adept in the use of corporate vehicles both in pursuance of the substantive offences and in the laundering of the proceeds of crime”
30.
On behalf of the applicant, Mr Wood argued that the judge’s conclusion was not substantiated by the evidence: although he had asked for documents and correspondence to be sent to his Jago Ltd postal and email addresses, there was little use of Jago Ltd in the conduct of this transaction which had acted as little more than a ‘post box’. Furthermore, the corporate arm used to receive commission from the deal was EWH Consulting Ltd, based off-shore, and outside the jurisdiction of the
Company Directors Disqualification Act 1986
. He also submitted that the legislation provided the court with a power rather than a duty and that the Judge should have exercised his discretion either so as not to make a disqualification order at all or, alternatively, to do so for a lesser period.
31.
In our judgment, the use of that off-shore company is evidentially probative of the sophistication with which the applicant managed his money including the proceeds of what the jury found to be a crime. The use of his English companies undeniably triggered the power to disqualify and, in any event, the Judge was entitled to look at the use made of companies in respect of the third count on the indictment in holding that the power arose.
32.
Mr Wood argued that, in the light of his convictions, the applicant cannot return to the industry and there is thus no risk of him committing further offences under the TIG Order: disqualification is therefore unnecessary. The conviction for concealing the proceeds flowed from accounting advice which proved to be incorrect and the applicant had acted speedily to deal with his tax liability, making a payment of $431,000 as soon as he was warned.
33.
This power concerns the use of corporate vehicles to commit or cover up criminal conduct or impropriety. Knowingly evading trade prohibitions and concealing the proceeds of crime by use of corporate vehicles off-shore, are offences of dishonesty in the use of companies which amount to relevant factual circumstances. Thus, the prohibition on acting as a company director was a reasonable exercise of the judge’s discretion to prevent a person who has been found guilty of such offences from re-offending in a similar manner, and of concealing any future criminality, howsoever it might arise. There is no reason for this court to interfere in the exercise of that discretion.
34.
As to the length of the order, Mr Wood submitted that it is undoubtedly onerous and may well restrict the applicant from setting up some new entrepreneurial business albeit outside the arms trade. There is, of course, no bar on his employment in business, but only (without the leave of the court) as a director of a company or on taking part in the promotion, formation or management of a company. Given the period of the term of imprisonment (with the accompanying licence after release), in our judgment it was reasonable for the Judge to order that the relevant period should equate with that. This application is also refused.
Forfeiture
35.
This application, made by the Chief Constable of Lincolnshire, was brought before the Crown Court pursuant to the provisions of
s. 52(1) of the Firearms Act 1968
. In the main, the section bites on those convicted of certain firearms offences or those subject to community or other orders with a condition prohibiting the possession or carrying of a firearm but it goes further than that. Stripped of these provisions, the relevant parts of which provides:
“Where a person –
(a) is convicted of … a crime for which he is sentenced to imprisonment …
the court by or before which he is convicted … may make such order as to the forfeiture or disposal of any firearm or ammunition found in his possession as the court thinks fit and may cancel any firearm certificate or shot gun certificate held by him.”
36.
Analysing the reported decisions concerning this section, almost all follow conviction for an offence under the Firearms Act. The five that do not relate to a firearms offence under the
Highways Act 1959
(
Goodland v Chief Constable of S. Yorkshire Police
[1979] Crim LR 51); affray involving a threat to kill, committed with an air gun
(
R v Taylor (John)
[2001] EWCA Crim 1847
); murder and wounding with intent, the latter offence being committed with a firearm
(
R v Khan (Zubair)
[2006] EWCA Crim 954
); offences committed under the Terrorism Act 2005
(
R v Mansha (Abu Baker)
[2006] EWCA Crim 2051
);
and conspiracy to supply £12m of Class A drugs
R v Javid (Ajad)
[2006] EWCA Crim 1947
). This may explain the observation of May LJ in
Webb v Chief Constable for Merseyside Police
[2000] QB 427 when he referred to orders for the “disposal of objects used in the perpetration of offences”. He was not strictly correct although this is the way in which the provision has been operated. No authority provides any assistance in these circumstances.
37.
Thus, without precedent, it fell to Judge Lorraine-Smith to consider what should happen to the 14,231 firearms lawfully held in a secure storage facility which had nothing to do with the offences for which the applicant was convicted. Although there is no authority specifically covering an appeal from such an order, by analogy with equivalent provisions such as those contained in
s.1C of the Crime and Disorder Act 1998
(concerning conviction-related anti-social behaviour orders), at the time of the hearing it was common ground that an appeal lay to this court (c.f.
R v P (Shane Tony)
[2004] EWCA Crim 287
at [36]). We agree.
38.
In connection with this order, Mr Wood made three submissions. First, he contended that, as a matter of law, the applicant was not in ‘possession’ of the 14,231 weapons which, since 2005, have been in the secure custody of Skydock Ltd. Even if the guns were in the possession of the beneficial owner, that was Jago Ltd and not the applicant personally although (as at 17 May 2011) the applicant was the sole director (the company now being run by his wife). He also contended that it was not appropriate to ‘pierce the corporate veil’ or rely on the fact that the applicant holds at least 62% of the shares while Karl Kleber claims (although the claim is in issue) the balance.
39.
In response, Mr James Berry, for the Chief Constable, relied on letters written by the applicant seeking Home Office licences to make lawful the importation and possession of the arms when imported from Bosnia. In a letter to the Home Office dated 2 August 2007, prior to the shipment in the China-Nigeria contract, the applicant wrote:
“I pay rent for the storage [at Skydock Ltd]. By being a tenant I am technically in control of the weapons which PMS [from whom he bought the Bosnian weapons] are storing and processing … In real terms I am the owner of the goods even though PMS was the importer”.
In addition, on 5 May 2011, he wrote to the Firearms Licensing Manager at Lincolnshire Police asserting that he was the lawful owner of the firearms.
40.
Mr Wood sought to minimise the impact of these letters on the basis that, at the time they were written, the applicant was, in reality, speaking for Jago Ltd. In any event, ‘ownership’ and ‘possession’ are distinct but not unrelated concepts and the dispute was articulated primarily in terms of the difference between ‘proprietary possession’ (contended to vest in the applicant) and ‘custodial possession’ (with Skydock Ltd).
41.
On the question of possession we were first referred to
Sullivan v Earl of Caithness
[1976] QB 966
in which the defendant who lived in Oxfordshire stored his guns at his mother’s property in Surrey because it was more secure. The magistrates held that he was not in possession of the guns in Oxfordshire; the Divisional Court (Lord Widgery CJ, Park & May JJ) took a different view. May J put the matter (at 970F) in these terms:
“In my opinion the purpose of
section 1
of the Act of 1968 and its ancillary provisions is to regulate and license not merely those who have physical custody of firearms, or who keep them in the place in which they live, but also those who have firearms under their control at their behest, even though for one reason or another they may be kept at their country cottage, at the local shooting range or indeed at Bisley … In the present case the defendant was at all material times the owner of the firearms. He could no doubt obtain them from his mother’s flat at any time when he wanted them. She had the barest of custody of them, not because she had any interest in them, but because her flat was safer than the defendant’s home in Oxford”
42.
This approach was followed in
Hall v Cotton
[1987] QB 504
. The first defendant held a shotgun certificate and owned two shotguns. He left them at the home of the second defendant, who had no such certificate, while they and their families went on holiday together. On their return, the second defendant agreed to clean the guns but, before he returned them, the police intervened. The first defendant was charged with transferring without a dealer’s license, and the second defendant was charged with possession. The justices acquitted both men. On appeal, Stocker LJ called the
Sullivan
case (of possession at physical remove from the object) an example of ‘proprietary possession’. He held that the first defendant had ‘proprietary possession’ throughout, but that the second defendant had ‘custodial possession’ and that both should therefore be convicted (of ‘transfer’ and ‘possession’ respectively). Concurring, Hirst J concluded that “custody and, to a limited extent, control” demonstrated that the second defendant was in possession: he did not consider the position of the second defendant to be identical to that of the mother of the Earl of Caithness.
43.
Mr Berry argued that the applicant retained possession of the remaining Bosnian firearms, notwithstanding that they were in the custody of Skydock Ltd, claiming a lien for storage costs (for which purpose that company would need to be in exclusive possession which would exclude the applicant). He submitted, following
Hall v Cotton
, the applicant was in proprietary possession and Skydock Ltd in custodial possession, the physical separation not defeating custody or possession (as in
Sullivan
).
44.
On the basis of these authorities, in our judgment, the better view is that possession of the Bosnian firearms passed to Skydock Ltd not least because to decide otherwise would be to impact on the potential rights of that innocent third party in respect of the lien for storage: we would certainly not decide otherwise without affording Skydock Ltd the right to make representations. In the event, however, we do not need to decide the precise impact of the lien because it is quite clear (irrespective of the correspondence) that the weapons are owned by Jago Ltd which has not been convicted of any offence and, unless the corporate veil can be pierced, there is no basis for bringing them within s. 52 of the Firearms Act. As to that issue, both counsel relied on the decision of the Court of Appeal in
VTB Capital Plc v Nutritek International Corp & ors
[2012] EWCA Civ 808
which made it clear (at [78]) that:
“ownership and control of a company are not of themselves sufficient … the company’s involvement in impropriety … must be linked to the use of the company’s structure to avoid or conceal liability … a company can be a façade for such purposes even though not incorporated with deceptive intent”.
45.
That decision was upheld, for different reasons (see
[2013] UKSC 5
) but the doctrine has since been the subject of exhaustive analysis by the Supreme Court in
Prest v Petrodel Resources Ltd
[2013] UKSC 34
: see, in particular, the leading judgment of Lord Sumption at [16-36], Lord Neuberger at [59-83] especially [81] and Lord Clarke at [103]). The test was articulated by Lord Sumption in this way (at [35]):
“… there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in
Ben Hashem
, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. I therefore disagree with the Court of Appeal in
VTB Capital
who suggested otherwise at para 79.”
46.
On the facts of the present case, where Jago Ltd was a company lawfully operating with true, openly-disclosed and regulated ownership of the Bosnian weapons pre-dating any allegations of wrongdoing related to the present conviction, there is simply no basis for piercing the corporate veil. Even if we agreed with Mr Berry that
Hall v Cotton
allows us to elide ownership and possession entirely, it would be the ownership/possession of Jago Ltd that would be in issue. Jago Ltd not having been convicted, its property cannot be forfeited as part of the sentence imposed on the applicant pursuant to
section 52
of the Firearms Act.
47.
In the circumstances, it is unnecessary to consider Mr Wood’s alternative submissions to the effect that the judge was wrong to exercise his discretion as he did and, in any event, imposed a penalty which, in its totality, created an outcome which was disproportionate (per the Supreme Court in
R v Waya
[2013] 3 WLR 1188
) and therefore a breach of the applicant’s property rights (reflected in his interest in Jago Ltd) under Article 1 of Protocol 1 of the European Convention on Human Rights.
48.
Although not necessary to do so, however, it is worth adding some observations in relation to the argument advanced by the Chief Constable of Lincolnshire relating to the risk that, if the weapons are not forfeited, they might end up in the wrong hands. Mr Berry argued that the Chief Constable would have been irresponsible not to apply for the weapons to be destroyed. Mr Wood, on the other hand, indicated that this was precisely the position that had been taken by the Chief Constable of Nottinghamshire in relation to another stock of the weapons cache. He argued that there was no risk of misappropriation from a secure site housed on an former RAF base, and that any movement, transfer or act taken by any person in respect of these weapons would require Home Office sanction.
49.
During the course of argument the Judge expressed his understanding that “arrangements could be made for these items to be sold if the court thought that was the appropriate course”; he did not do so because of his concerns relating to the risk to public safety. It may be that he was considering making an order under
s. 45 of the Firearms Act 1968
, whereby the court could order a sale of the stock in hand of “the business” where a registered firearms dealer is convicted of an offence. Without deciding the matter, it may well be that the TIG Order offences are all within the meaning of
section 45(2)(b)
of the
Firearms Act 1968
(“offences against the enactments for the time being in force relating to customs or excise in respect of the import or export of firearms”)
in which event a statutory alternative approach to the disposal of these firearms would be available. In the event, it was not submitted to us that we should adopt that approach: Jago Ltd will have to liaise with Skydock Ltd and the authorities to determine a mechanism whereby safe and lawful disposal of the firearms can be achieved.
Conclusion
50.
There is no doubt that the sentence of 7 years’ imprisonment together with disqualification from being a company director for a similar period constitutes a severe penalty: it has to be seen in the context of the deliberate evasion of controls imposed by law covering the sale of any firearm let alone firearms of the quantity in this case, or, as Goldring LJ put it when refusing leave to appeal:
“On the jury’s verdicts this was a deliberate breach of the prohibition over some time by the applicant. The amount of weaponry was huge. The motive was very substantial financial gain. The applicant did not have the mitigation of a plea of guilty. It seems to me that the judge, who of course heard the evidence, was entitled to pass the severe sentences he did.”
51.
In the circumstances, the sentence is neither wrong in principle nor manifestly excessive: the application for leave to appeal fails.
52.
In addition to a substantial confiscation order, the judge also made a forfeiture order in relation to an entirely separate (and lawful) consignment of firearms held in secure storage. In our judgment, he was not entitled to hold either that the property of Jago Ltd was in the possession of the applicant or that it was possible or appropriate to pierce the corporate veil. In those circumstances, we grant leave to appeal that order and quash it.