Business

Trial of Tesco executives collapses as defendants acquitted

Case brought over £250 million accounting scandal

A jury at Southwark crown court in London was told former Tesco executives Christopher Bush (above) and John Scouler had been cleared by the criminal court of appeal. Photograph: Reuters

Thu Dec 6 2018 - 12:12

A high-profile trial brought by the UK serious fraud office (SFO) against two former Tesco executives over a £250 million accounting scandal dramatically collapsed on Thursday after the two men were acquitted.

A jury at Southwark crown court in London was told that Christopher Bush and John Scouler had been cleared by the criminal court of appeal after judges backed the ruling of the trial judge, Sir John Royce, that they had no case to answer.

“I concluded in certain crucial areas – one in particular – the prosecution case was so weak it should not be left for a jury’s consideration,” Sir John told the 12-strong panel before discharging them.

The “real weakness” of the prosecution case, which had lasted two months, was proving knowledge on the part of the two men, he added. Sir John described the defendants as being of “hitherto impeccable character”.

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During the trial, prosecutor Sasha Wass QC had claimed that 400-600 junior buyers at Tesco – who negotiate deals with supermarket suppliers – were “involved in falsifying . . . records”.

However, the SFO was unable to produce evidence that the defendants knew any income was being booked illegally. The trial also heard evidence that “pulling forward” income was legitimate in some circumstances, such as promotions.

Mixed record

The collapse of the Tesco prosecution is a rocky start for SFO director Lisa Osofsky, who took over from Sir David Green in September, and highlights the agency’s mixed record in bringing high-profile fraud prosecutions.

It comes weeks after the UK high court upheld a decision to dismiss a SFO prosecution against Barclays Bank in relation to its 2008 Qatari fundraising before it went to trial, although its case against four ex-senior Barclays executives is due to start in January.

The SFO’s case against Tesco stemmed from 2014, when the supermarket group announced to the stock market that its profits had been inflated by £250 million. Its statement wiped £2 billion off the retailer’s value.

In 2016, the SFO announced charges against three Tesco executives, including Mr Bush, former managing director of Tesco UK, and Mr Scouler, former UK food commercial director. Both men denied charges of fraud and false accounting.

Tesco agreed a £129 million deferred prosecution agreement, a type of plea bargain, with the SFO to avoid a possible prosecution.

Following the acquittals, Mr Bush said in a statement that he was “delighted” his innocence had been established. “It is troubling that Mr Scouler and I were ever charged. Put simply, these charges should never have been brought and serious questions should be asked about the way in which the SFO has conducted this investigation,” he said.

Richard Sallybanks, lawyer at BCL Solicitors who represented Mr Scouler, said: “We are delighted that Mr Scouler leaves court today knowing that the judge, having heard the entirety of the prosecution evidence, reached the firm conclusion that he had no case to answer.”

The SFO is due to make a decision on whether a trial against Carl Rogberg, another former Tesco executive, should go ahead.

Mr Bush and Mr Scouler stood trial last year but the case was abandoned before the jury was sent out. The SFO then pursued a second trial against the two men, which started in October.

The SFO alleged in the retrial that the two managers knew that income was being improperly included in accounts before it had been earned, in what it claimed was “false accounting on an industrial scale”.

‘Unorthodox’ practices

The SFO alleged that Mr Bush and Mr Scouler used their managerial authority to “pressurise” junior employees into “unorthodox” practices of improperly recognising income before it had been earned. It called Tesco’s top brass to testify at the trial, including chief executive Dave Lewis and former chairman Sir Richard Broadbent.

Tesco shares were down 1.8 per cent on Thursday, less than the broader market and in line with other food retailers. The company said it would not be commenting on the outcome of the trial. Analysts said the latest developments did not affect the investment case for the company. “No investor I’ve spoken to has ever flagged this as a risk,” said one.

“It’s old news. Everybody has moved on,” said Bruno Monteyne, European food analyst at Bernstein. He attributed the stock’s recent poor performance to a combination of worries over the durability of Tesco’s UK recovery, the unexpected problems in Thailand revealed at the interim results, and concern over the possible impact of Brexit. “It’s an unpopular sector in an unpopular country,” he said.

The SFO said in a statement: “The charges in this case met the tests set out in the code for crown prosecutors and were properly brought. This test was reviewed in advance of the second trial and we were content that there was sufficient evidence to proceed, and that the public interest was met in doing so.” – Copyright The Financial Times Limited 2018

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