What is sufficient foundation for the belief that an application for a production order or access order might seriously prejudice an investigation, such as to justify an application for a search warrant?
R (on the application of Hart and others) v Crown Court at Blackfriars and another [2017] EWHC 3091, [2017] All ER (D) 01 (Dec)
The Division Court ruled that the Revenue and Customs Commissioners’ representation, that there had been a serious failure of co-operation as to justify a belief that the giving of notice might result in the claimants acting in a way which would prejudice the investigation, had been without a sufficient foundation, had been overstated and had not been accompanied by sufficient disclosure to enable the judge to give fair consideration to it. Accordingly, the court quashed search warrants and declared the searches unlawful, as the judge might reasonably have refused to issue the warrants on the full and fair picture.
What was the background to the application?
This was a judicial review of search warrants issued against a business consultancy called Optimal Compliance Services LLP (OCS), the claimants being members of the LLP. OCS offered its clients a business model which involved operating a limited company alongside an LLP. The model allowed its clients, the limited companies, to make significant tax savings.
HMRC was investigating OCS on the suspicion that its model amounted to tax evasion and fraud. HMRC applied to the Crown Court under section 9 and Schedule 1 of the Police and Criminal Evidence Act 1984 (PACE 1984) for a warrant to search OCS’s premises (and the home address of one claimant), which was granted. The warrants were executed and the claimants applied for judicial review.
What were the claimants’ grounds for the application?
The claimants’ successful ground was that the applicant HMRC officer misrepresented to the Crown Court the factual basis for applying for the warrant without notice to the claimants.
Two particular criteria for the issue of search warrants were engaged in this case. PACE 1984, Sch 1 para 2(b) requires that other methods of obtaining the material must have been ‘tried without success’ or ‘have not been tried because it appeared they were bound to fail’.
Separately, PACE 1984, Sch 1 paras 12 and 14(d) require the applicant to show that service of the application (and thereby allowing the respondent to appear in court to resist it) would seriously prejudice the investigation.
What tests does the Divisional Court apply?
Search warrants by their nature are applied for without notice. In a judicial review of a search warrant, the Divisional Court will first ask whether the applicant for the warrant made any misrepresentations to the court which granted it, or failed to disclose anything which the target of the warrant would have said if he had been present. The applicant must ‘put on his defence hat’ when making disclosure.
If the Divisional Court finds that there was a misrepresentation or failure of disclosure, it must next ask whether, if the lower court had had the information it should have had, it ‘might reasonably’ have refused to issue the warrant: (R (Dulai) v Chelmsford Magistrates’ Court [2012] EWHC 1055 (Admin), [2012] 3 All ER 764).
What did the court decide in this case?
The court summarised the effect of R (S, F and L) v Chief Constable of British Transport Police [2013] EWHC 2189 (Admin), [2014] 1 All ER 268, and R (Newcastle United Football Club Ltd) v HMRC [2017] EWHC 2402 (Admin), [2017] All ER (D) 17 (Oct), which held that for PACE 1984, Sch, 1 para 2(b), the judgment that other methods ‘are bound to fail’ refers to the belief of the applicant officer, although that belief must be cogent and explained to the court in reasonable and compelling terms. By contrast, under para 14(d) the judge himself must be satisfied that service of the application ‘would seriously prejudice the investigation’.
In this application the HMRC officer had claimed that OCS had failed to be honest or accurate with HMRC, providing fabricated letters and intentionally thwarting HMRC’s investigators. The Divisional Court held that this had not fairly represented the true position. OCS had answered many of HMRC’s enquiries, and had initiated a meeting with HMRC to explain their business model, which the applicant officer had failed to mention. At worst, OCS had shown a reluctance to be frank and delayed providing information. This fell short of showing a willingness to pervert the course of justice by concealing or destroying documents. Only the latter could justify a without notice warrant application.
The Divisional Court held that the applicant officer had been overenthusiastic and failed ‘to put on his defence hat’, rather than having been deliberately manipulative. Although he had been entitled to think that other methods would have been ‘bound to fail’, the information he withheld from the Crown Court was important to the judge’s decision on PACE 1984, Sch 1 para 14(d). If the officer had told the Crown Court the true position, the judge might reasonably have refused to issue the warrants.
The warrants were therefore quashed, although the court allowed HMRC to apply under section 59(6) of the Criminal Justice and Police Act 2001 to retain the seized material. By virtue of the warrants having been quashed, the claimants will be able to claim against HMRC for damages arising from the execution of the unlawful warrants.
To what extent is the judgment helpful in clarifying the law in this area?
The judgment demonstrates the high bar that search warrant applicants have to get over to persuade the courts that ‘tipping off’ a suspect by giving notice would prejudice the investigation. Mere suspicion on the part of the authorities that a suspect will not comply with an order made on notice, eg a production order, is insufficient.
What are the implications for corporate crime lawyers, and what practical lessons can those advising clients who receive search warrants take away from this case?
The first step should always be to obtain a copy of the search warrant application, which the applicant is obliged to disclose. Advisors should scrutinise the application to see if it fairly represents their client’s engagement with the authorities.
Advisors must also consider what is known about their client. The more it is plainly a reputable business which is compliant with the law, the harder it will be to justify the issue of a search warrant against it. The results of any previous investigations will also be highly relevant. Advisors must consider less intrusive methods which the authorities could properly have used. Search warrants sit at the top of a hierarchy of options. Voluntary assistance is obviously the least intrusive method. Above this sit various civil investigatory powers, eg inspection. Below search warrants are production orders, which can either be with or without notice, and which can either give the respondent a number of days to comply or require the immediate production of material. In borderline warrant cases, the key question is likely to be why a production order would not have been sufficient.
"This article was first published on Lexis®PSL Corporate Crime on 15 December 2017. Click for a free trial of Lexis®PSL."
David McNeill is a barrister with a strong practice in fraud and serious and organised crime cases. David has built up a wide experience prosecuting and defending difficult, complex, multi-handed cases, both alone and as junior counsel. He has particular knowledge of tax, VAT and Excise, drugs, money-laundering and organised crime cases and has been instructed on a number of cases with a significant international dimension.
