Serious Fraud Office v. Tesco Stores Ltd [2019] Lloyd’s Rep. F.C. 283:

The collapse of the trial of three former Tesco executives last year has meant that Sir Brian Leveson’s judgment in Serious Fraud Office v. Tesco Stores Ltd, in respect of the deferred prosecution agreement (DPA) reached between the parties in criminal proceedings, has now been published.  Previously, the court had ordered postponement of the publication of the DPA, the statement of facts in support, any report of the hearing and the court’s reasons, save for some limited facts, until the conclusion of the trial of those executives.

SFO Investigation:

The Serious Fraud Office had conducted an investigation into the financial statements published by Tesco plc, relating to the financial year 2013/2014, in respect of Tesco Stores Ltd, which is a wholly owned subsidiary of the former company.  The investigation arose from Tesco plc’s announcement in September 2014 that it had identified an overstatement in its expected profit by £250 million, with this subsequently found to total £284 million.  Following full co-operation in the investigation, the director of the SFO invited Tesco Stores Ltd to enter into negotiations with the object of reaching a DPA in relation to its potential criminal liability.

Any DPA requires the approval of the court that the agreement is in the interests of justice and that its terms are fair, reasonable and proportionate (Crime and Courts Act 2013, Schedule 17, paras. 7 & 8).  The SFO applied for such a declaration from the court.

The judgment reaffirms the approach of the court when assessing whether a DPA is in the interests of justice.

The Deferred Prosecution Agreements Code of Practice (the DPA Code), much like the Code for Crown Prosecutors, bases the decision to prosecute on a two-stage test being satisfied, involving an evidential stage and a public interest stage.  The DPA Code prescribes a number of non-exhaustive factors to be considered when deciding whether it is in the public interest to prosecute.  These are to be considered in conjunction with the public interest factors set out in the Code for Crown Prosecutors.

Factors in favour of prosecution include:

  • a history of similar conduct;
  • whether the conduct alleged is part of the established business practices of the organisation;
  • no or an ineffective corporate compliance programme and an inability to demonstrate a significant improvement in any such programme since;
  • previous warnings, sanctions or criminal charges, coupled with  a failure to take adequate action to prevent future unlawful conduct or continuing to engage in such conduct;
  • failing to notify the wrongdoing within a reasonable time of the offending conduct coming to light;
  • reporting the wrongdoing but failing to verify it, or reporting it knowing or believing it inaccurate, misleading or incomplete; and
  • a significant level of harm caused directly or indirectly to the victims of the wrongdoing or a substantial adverse impact to the integrity or confidence of markets, local or national governments.

Militating against prosecution are the following factors:

  • co-operation;
  • lack of history of similar conduct;
  • existence of a proactive corporate compliance programme at the time of the offending and reporting but which failed to be effective in the particular instance;
  • offending representing isolated actions by individuals;
  • offending that it is not recent and the organisation in its current form is effectively a different entity from that which committed the offences;
  • a conviction is likely to have disproportionate consequences for the organisation; and
  • a conviction is likely to have collateral effects on the public, the organisation’s employees and shareholders or its institutional pension holders.

In the Tesco case, the court focused on these public interest factors when weighing up the interests of justice and, indeed, concluding that they had been met. Whilst observing the very serious nature of the offence and “what might otherwise be a strong case in favour of prosecution”, the court went on to address a number of the relevant factors.

It found that the company had exercised unreserved and enduring co-operation, having responded immediately and responsibly as soon as the overstatement was reported to the new chief executive officer of Tesco plc and having taken action against the senior management involved.

Further, the court recognised that there had been significant changes to the leadership of both Tesco plc and Tesco Stores Ltd, some of which were in train before the discovery of what had been happening. It was satisfied that the both the senior management and those responsible for the strategic direction of Tesco plc and Tesco Stores Ltd were different to those responsible for the operation of the business at the time of the offence.

Another factor taken into account was described as the:

“wide-ranging and comprehensive” remedial measures that had been undertaken by the company.

Such measures included the simplification of reporting lines, re-launches of its externally-run whistleblowing service and Code of Business Conduct, increased personnel in the finance, legal, compliance and group internal audit teams, the introduction of a new commercial buying model and significant investment in new technology to support and enable a new financial control framework.

The court went on to consider the lack of any sort of record for the particular type of offending conduct under scrutiny and the potential adverse effects to the domestic supermarket and food industry with impairment of competition and consequential impact on the supply chain. In addition, there was the potential for a real impact on the share price of Tesco plc. These matters could have resulted in loss of employment and the potential weakening of the company pension scheme. As such, it was accepted that a criminal conviction could result in a real impact on persons who had no connection at all with the accounting practices of the company.

Finally, it was noted that the disposal of the matter by means of a DPA allowed investigative expertise to be deployed on other cases with resources being released for other work. There was also a public interest in encouraging and incentivising the self-reporting of wrongdoing by corporate entities.


It appears that an assessment of whether a DPA is in the interests of justice is, in reality, a consideration of whether it is in the public interest to prosecute. Whilst prosecutors take such decisions in criminal cases in isolation on a daily basis, the DPA regime requires the sanction of the court. Whether under the guise of the interests of justice or anything else, it may be that the regime provides for the court’s involvement due to the inevitability that the sort of offending that is contemplated is some of the most serious financial crime committed by big business, as was demonstrated in the Tesco case and its predecessors.

John is a barrister specialising in professional disciplinary proceedings, regulatory and criminal law. Within these fields, his principal areas of interest include the regulation of healthcare professionals, environmental law, health and safety, serious organised crime and high-value financial crime. He is ranked as a leading criminal barrister at the London Bar in Chambers & Partners UK Bar Guide.