Conscientious care needed to assist Circuit Judges when applying for search warrants (R (Ashbolt & Arundell) v HMRC & Anor)

R (Ashbolt & Arundell) v HMRC & Anor [2020] EWHC 1588 (Admin)

Summary

The High Court dismissed the Claimants’ application for judicial review (“JR”) of  Special Procedure search warrants (“the Warrants”) issued by the Crown Court sitting at Leeds and executed by officers of HMRC in relation to a criminal investigation into the efficacy of purported FRAs and disguised remuneration schemes. It was held that the Warrants were lawfully issued; no conclusions were drawn by the Court that the Claimants had been involved in any criminal conduct. Nonetheless this did not prevent the Court from issuing guidance that in future Circuit Judges should be assisted by skeleton arguments being filed in advance of the hearing detailing submissions on the relevant legislation and authorities.  Meticulous care should be given in future.

What was the background?

Anthony Ashbolt and Simon Arundell (“the Claimants”) were being criminally investigated by Her Majesty’s Revenue and Customs (“HMRC”) for suspected offences of fraud by false representation and cheating the public revenue in connection with  a disguised remuneration and tax avoidance scheme promoted by Baxendale Walker LLP.

The scheme involved the setting up of a Self-Employed Remuneration Trust (“SERT”) and Corporation Remuneration Trust (“CRT”) and the making of purported loans to the taxpayers. Following the announcement of the Loan Charge, another promoted scheme was then used that sought to rebrand the purported loans as Fiduciary Receipts Agreements (“FRAs”) which it was hoped would fall outside the remit of income tax and the new loan charge. It was this rebranding and the documents supplied in support that gave rise to HMRC’s belief that the FRA documents were false, designed to mislead and retrospectively re-describing the purported loans as FRAs in order to circumvent the loan charge. HMRC therefore suspected that criminal tax evasion or fraud by false representation had occurred.

The Claimants lodged a JR application challenging the lawfulness of the Warrants executed by HMRC in respect of their home addresses and the business address of Simon Arundell. Pursuant to section 9 and Schedule 1 of the Police and Criminal Evidence Act 1984 (“PACE”) the warrants were issued as HHJ Mairs was satisfied that relevant access conditions contained under PACE Schedule 1 were met.

These access conditions under Schedule 1 paragraph 2 must be fulfilled in order for a warrant to be issued. Relevant to this application were three conditions:

• Schedule 1, para 2(a)(i) – there are reasonable grounds for believing an indictable offence has been committed.
• Schedule 1, para 2(b) - other methods of obtaining the information had either already been tried without success, or were bound to fail.  
• Schedule 1, paras 12 and 14(d) which provides that the judge must additionally  be satisfied that the service of a notice (of application) may seriously prejudice the investigation.

The Claimants contended that the Warrants were unlawfully issued and executed. The Claimants raised two principal grounds:

1) Firstly, that there were no reasonable grounds for suspecting an indictable offence had been committed as the evidence pointed to legitimate tax avoidance, not criminal tax evasion and there were no reasonable grounds for believing the Claimants had acted dishonestly.

2) Secondly, the Warrants were neither necessary nor proportionate; there were other less invasive methods of obtaining the material. The Circuit Judge was not entitled to find that other methods had not been tried because HMRC held the belief that service of production orders would have been bound to fail, and could not have been satisfied that giving notice might prejudice the investigation.

What did the court decide?

In relation to the first ground, the High Court agreed with the Circuit Judge that there were ample and sufficient reasonable grounds for believing that an indictable offence had been committed and this ground of challenge therefore failed:

• The documents believed by HMRC to be false contained inconsistencies submitted under cover of letters from the Claimants’ accountants.
• There were reasonable grounds for HMRC’s belief that the FRAs were false documents, submitted only after the loan charge legislation was announced and as part of a rebranding that was not admitted in the course of the civil enquiries. HMRC were entitled to rely on these factors as a hallmark of dishonesty and an intention to evade payment of the loan charge in light of the backdating.
• Despite the Circuit Judge not being referred to the Ivey test of dishonesty, the threshold was whether there were reasonable grounds for believing an indictable offence had been committed. There is no requirement to prove that a criminal offence in fact had been committed or that the Claimants had in fact been dishonest. Specific attention was drawn to the fact that the Claimants had entered into a disguised remuneration tax avoidance scheme which was not of itself necessarily illegal but had subsequently knowingly submitted a document to HMRC which made false representations, thereby giving rise to reasonable grounds for believing that they were acting in a way that was criminal.
• HMRC had a coherent case and there were reasonable grounds for believing that each Claimant had been dishonest rather than honest, and had committed an offence of cheating the public revenue and/or fraud.

In relation to the second ground, a  bare assertion of HMRC’s belief that a less intrusive method would  have failed was insufficient without adequate explanation. The investigator must have cogent grounds for their belief that there is no less intrusive measure available to secure the relevant documents without risking that they will be disposed of or hidden if advance warning is given. Relying on R (Newcastle United FC) v Leeds Crown Court [2017] EWHC 3091 Admin, the Court reminded parties that the key test is not whether this will happen, but whether this was cogently, and reasonably, in the mind of the applying officer at the time.  But grounds were given by HMRC, and the Judge was entitled to accept them.

Furthermore, for much the same reasons, the Judge was entitled to conclude that giving notice of an application for a production or access order would seriously prejudice the investigation. This ground of challenge therefore also failed:

• The Officer’s application demonstrated reasonable grounds for believing that the Claimants’ conduct had crossed from legitimate tax avoidance to criminal conduct constituting tax evasion or fraud by false representation.
• Questions regarding the remuneration trusts and associated transactions were dealt with in a manner suggesting they were orchestrated by the scheme promoters who were typically evasive, uncooperative and obstructive.
• The Claimants did not have prior knowledge of the criminal investigation; there was a risk that upon requests for further information about the FRAs, crucial potential evidence could have been destroyed or fabricated.
• The Judge had conflated the two access conditions under Sch 1(2)(b) and Sch 1(14)(d) and dealt with them together in the same paragraph of his judgment, and it was regrettable that their discreteness was not brought to his attention. However, the Judge correctly held that a production order or access order would carry a real risk that such evidence as is available would be dissipated by the Claimants.

The High Court therefore held that the Warrants were lawfully issued, and the JR claim was dismissed.

What are the practical implications of this case?

The High Court reinforced the need to give separate consideration to the separate aspects of paragraphs 2(b) and 14, as although the evidence for each might be similar, the test to be applied by the Judge was different.

The Court also provided guidance after raising concerns that the Circuit Judge should have been given greater assistance and direction on the issues he was asked to determine by HMRC. He should have been taken to the case law and the legislation and directed to address the specific access conditions separately. Ideally, this should have been done by way of a skeleton argument in advance of the hearing. At [79]:

“We hope that HMRC and other public bodies will regard that as standard practice when making similar applications in future. These are invariably ex parte applications, where the possibility of appeal is of little comfort to a respondent who may only know of the existence of a warrant after it has been executed.”

The guidance established by the Court in this case is clear:

“scrupulous care is required.”

Our Reflections on observing a Judicial Review hearings conducted via Skype

Conducting JR hearings via Skype has unquestionably thrust the High Court into the technological age of the 21st century. Whilst an almost seamless process, the revealing nature of conducting proceedings with parties in closer proximity in the virtual world than they would otherwise be in reality in a courtroom may take some getting used to. Some of our observations of note from the hearing are detailed below:

• The proximity of both the Judges’ and Counsels’ faces in the hearing offered greater clarity to their reactions as they could be seen far more clearly than in a courtroom. Natural reactions therefore were more difficult to conceal via Skype.
• Because each participant involved in the hearing is looking at a single camera, it can be difficult to tell which participant they are looking at or directing their comments towards.
• Whilst an enormous reliance is placed on the reliability of the technology for the hearing to be effective, participants grasped the use of muting seamlessly to ensure the virtual hearing ran as smoothly as it would have done in reality.
• The technology was arguably helped by having a ‘shake-down’ meeting beforehand, with all spectators invited to a meeting to check the Skype technology, with Counsel, Lady Justice Simler and Mrs Justice Whipple having their own meeting.
• One great benefit of conducting the hearing via Skype was an improvement in the acoustics in comparison to those in Court 1 of the Royal Courts of Justice, where the distance from the bench is not always the best for the hard of hearing.

Case details

• Court: High Court of Justice (Queen’s Bench Division), Administrative Court
• Judge: Simler LJ, Whipple J
• For the Claimants: Jonathan Fisher QC and James Lake (neither of whom appeared below)
• For HMRC: Andrew Bird (who did not appear below).
• Leeds Crown Court did not appear and was not represented.
• Date of Judgment: 18th June 2020.
• Neutral Citation: [2020] EWHC (Admin) 1588.
• Legislation Considered: Police and Criminal Evidence Act 1984, Schedule 1.