In the future, construction companies facing prosecution over tax, bribery or financial fraud offences may feel that the legal system is giving with one hand and taking away with the other. In fact, the hand that is doing the taking away seems much fuller than the other.
Not only are construction companies coming under ever closer examination from HM Revenue and Customs (HMRC) as the government looks to crack down on fraud and tax evasion in certain business sectors – these companies can now no longer recover their legal costs if acquitted in the criminal courts.
This is not a paywall. Registration allows us to enhance your experience across Construction Management and ensure we deliver you quality editorial content.
Registering also means you can manage your own CPDs, comments, newsletter sign-ups and privacy settings.
The current government has used the Legal Aid, Sentencing and Punishment of Offenders Act 2012 to amend the Prosecution of Offences Act 1985. This 1985 Act gives the Lord Chancellor the power to set the rates at which an award of legal costs must be calculated by the court and restricts the availability of legal costs to certain type of proceedings and to individuals. Schedule 7 to the 2012 Act, which came into force in October, now takes away the power of the court to make an award in respect of legal costs to companies, except regarding proceedings before the Supreme Court.
The removal of a company’s right to reclaim its legal costs if acquitted is to save money. All the research carried out prior to the change indicated that most people supported retaining the system as it was. It was thought to be a fair and transparent process whereby defendants could defend themselves against allegations they believed to be untrue, knowing that their costs would eventually be paid if and when they won the case.
To take such a stance now, companies must ensure they have appropriate insurance to cover their defence costs — and yet may still find themselves under pressure from their insurers to plead guilty because it is the quickest, most cost-effective option. With construction being one area where the government is expecting an increased level of prosecutions for fraud, this will have serious implications for many companies and individuals in the sector.
At the same time Deferred Prosecution Agreements (DPAs) are being ushered in. The government’s argument is that fraud costs the UK £73bn a year and that DPAs are a way of making sure organisations report financial wrongdoing and prevent it happening again.
A DPA involves a company reporting and then admitting wrongdoing, subjecting itself to stringent conditions to prevent repeat offending, paying an agreed penalty and – most crucially — avoiding a criminal prosecution. DPAs can only be used in cases of what is generally referred to as corporate or business crime, for example fraud, bribery or corruption. They are regarded by prosecutors as more reliable, cheaper, quicker and generally more efficient than a criminal prosecution.
DPAs give companies a chance to confess to previous wrongdoing, pay the necessary penalties, make the required changes to their working practices and start with a clean, conviction-free slate. At the same time, the authorities are seen to “get their man’’ while not having the risk and cost of a trial. As a result, DPAs could be attractive to both the construction companies where wrongdoing has been identified and the authorities doing the investigating.
How many construction companies in such circumstances will see DPAs as a more viable option than trial? All the information points to the likelihood of DPAs being favoured by a vast majority of defendants.
If you weigh up the chance of losing a trial, being convicted and having to pay your defence costs against entering into an agreement where wrongdoing is admitted, no conviction results and costs are kept to a minimum, the latter option is going to seem more attractive to many.
Aziz Rahman is a partner of Rahman Ravelli Solicitors
