Global Investigations Review - The law and practice of international investigations

Trial of Tesco executives thrown out

Michael Griffiths

06 December 2018

Trial of Tesco executives thrown out

The UK Serious Fraud Office’s case against two former Tesco executives over a £250 million accounting scandal has collapsed mid-trial after it was ruled unfit to be put to a jury.

Sir John Royce at the Southwark Crown Court told jurors on 6 December that the trial of UK retailer Tesco’s former commercial director John Scouler and UK director Christopher Bush, which they had sat through for seven weeks, had been dismissed as prosecutors acting for the UK Serious Fraud Office (SFO) had failed to present sufficient evidence of fraud and false accounting.

“In certain crucial areas the prosecution’s case was so weak that it should not be left for a jury’s consideration,” Sir John Royce told the jury. The main issue, the justice said, was that prosecutors had failed to prove that the defendants knew that the false accounting was occurring under their watch until it was raised by the head of accounting at the company.

“The main problem was this point of proving knowledge,” Sir John Royce said.

Scoulers lawyer Richard Sallybanks, at BCL Solicitors in London, said in an emailed statement: “We have long argued that the SFO’s prosecution of Mr Scouler was fundamentally flawed, that he should not have been charged, and that the SFO should not have proceeded with this trial.”

Bush echoed his sentiment and added: “The SFO wholly failed to investigate this case thoroughly, independently and fairly from the outset.” 

The end of the trial came after nine days of uncertainty that followed Sir John Royce’s 26 November ruling to terminate the case, which can now be reported. The SFO applied to the Court of Appeals for England and Wales for leave to appeal against the decision, which the court rejected on 5 December after a one-day hearing and approximately 10 minutes of deliberation.

Bush and Scouler, who were charged in 2016, adamantly denied the prosecutors’ allegations that they committed fraud on an “industrial scale”. It was the second time the pair stood trial over the matter, after the first trial was abandoned in February this year.

A third defendant, Tesco's former finance director Carl Rogberg, was severed from the proceedings and the SFO said in a statement it is consdering whether to try him again.

Specifically, prosecutors alleged that Bush and Scouler directed subordinates to book income they expected to receive as money already earned to meet tough sales targets. The court heard during the trial that Tesco imposed these measures to fend off competition it was receiving from budget German supermarkets Lidl and Aldi.

The accounting practices caused Tesco to inflate its sales figures by £250 million for the year 2014/2015. The matter came to a head in August 2014, when a senior accountant at the UK retailer discovered that sales managers had been incorrectly recording income. The accountant, Amit Soni, reported the matter to the company’s in-house lawyers who told CEO Dave Lewis, who, at the time, had only been at the company for weeks.

Following an investigation by its auditors PwC, the company revised down its sales figures drastically in an amended September 2014 market statement that wiped £2 billion off the company’s share price.

The SFO began investigating the matter in 2014 and the company’s subsidiary, Tesco Stores, agreed a £129 million deferred prosecution agreement in 2017 to resolve the matter. As part of the resolution, the UK retailer also agreed to pay £85 million to the UK Financial Conduct Authority to compensate investors hit by the company’s losses.

The details of the DPA have remained confidential pending the result of the trial against the individuals. The SFO did not comment on whether the DPA would be published following the dismissal of the case against Bush and Scouler.

Counsel for John Scouler

Cloth Fair Chambers

Ian Winter QC and in London

Instructed by

BCL Solicitors 

Richard Sallybanks in London

Counsel to Christopher Bush

QEC Hollis Whiteman

Adrian Darbishire QC in London

Instructed by

Hickman & Rose

Ross Dixon in London

For the UK Serious Fraud Office

6KBW College Hill

Sasha Wass QC in London

Counsel to Tesco

Kingsley Napley

Partners Stephen Parkinson and Johanna Walsh in London

Freshfields Bruckhaus Deringer

Partners Andrew Austin, Ian Taylor and Ali Sallaway in London