Anand, R (on the application of) v Revenue and Customs

LORD JUSTICE PITCHFORD: This is a challenge by way of judicial review to the lawfulness of a search warrant, issued 1 August 2011, by a lay bench of Justices sitting at Crawley Magistrates' Court. The warrant itself was signed by the Chairman of the bench, a Mr or Mrs Brown.

The claimant is the sole director of a company called Animation Film Company Limited ("Animation"). His home was, at the material time, in Coventry, but when in London he used an address in Quinton Street. The business of the company was, or purported to be, animation film production. The company's office address was stated to be 18 Soho Square, which was an address at which serviced offices were available, together with a mailing facility.

The claimant registered Animation for VAT purposes on 1 February 2009. The company submitted VAT returns in respect of the periods ending 30 April 2009, 31 July 2009 and 31 October 2009, claiming repayment of VAT in the total sum of about £623,901. Her Majesty's Revenue and Customs ("HMRC") repaid £345,255.05 in respect of the first two of those three periods, but has made no repayment in respect of the third. In October 2010 Animation submitted two Corporation Tax Returns to HMRC's Film Tax Unit ("FTU"). Animation sought Film Tax Relief ("FTR") of £657,000 on claimed production costs of £2.6 million. In respect of the VAT period ending 31 October 2009, Animation submitted invoices purporting to support the claim for repayment of £278,646. The VAT officer dealing with the return was unable to make contact with Animation's alleged suppliers and an inquiry commenced.

In October 2010 Animation issued an Internet press release claiming that it was in production of a film called "Billy the Beagle", which was due for release in June 2011. The claim for FTR specified that the £2.6 million production costs were incurred in the production of Billy the Beagle. No such film has been released.

Invoices purporting to support the claims for VAT repayment and FTR were issued by four companies. HMRC has been unable to verify the invoices, or indeed the recipients, of payments of very large sums from Animation's bank account. The claimant has been a director of eight further companies working purportedly in the film industry. Between them they received £1.7 million in VAT repayments and FTR during the period June 2008 and December 2010. The claimant himself had not submitted a self-assessment tax return since 2005. HMRC records show him not to be in Pay As You Earn employment. That was regarded by HMRC as suspicious, having regard to his directorships in companies having a substantial turnover. As a result, HMRC suspected that the claimant and his companies were involved in a conspiracy to cheat the Revenue. HMRC made an application for search warrants at a number of addresses associated with the claimant and his companies.

In an information placed before the Justices, the first defendant set out the case for its belief that a fraud on the Revenue had been committed through companies with which the claimant was associated. The information contained the following as to the address of 12 Quinton Street:

The present claim concerns that address at which a warrant was executed on 3 August 2011. The warrant issued under the signature of "P Brown" was in the following material terms:

Section 15(1) of the Police and Criminal Evidence Act 1984 provides:

The claimant contends that the warrant issued in respect of 12 Quinton Street was drawn so widely that no one reading it would have understood to what documents and objects it related, other than the fact that they were present in that address. For that reason it was invalid and unlawful. In consequence the search and seizure carried out under the warrant were also unlawful.

As I have said, the warrant was executed on 3 August 2011. The claimant was arrested and interviewed. The material recovered on execution of the warrant was examined. Images of the hard drives in two computers recovered during the search were taken, and the resulting information has been served as evidence in the prosecution of the claimant and others for an offence of conspiracy to cheat the Revenue. Other relevant documents were recovered during the search. They too have been copied for the purposes of that prosecution.

On 21 September 2011, the claimant's solicitors wrote a pre-action protocol letter seeking from the first defendant disclosure of the information placed before the Magistrates' Court in support of the application for the warrant. The first defendant responded to that request on 29 September 2011 by providing redacted copies of the information. Not until 2 November 2011, the day before the expiration of the outer limit of bringing the claim provided by CPR rule 54.5(1), was the claim form issued. Rule 54.5(1) requires the claim to be made "promptly". The first defendant argues that the claimant waited six weeks before making any communication with the first defendant, and a further four weeks after receiving the redacted information before issuing the claim. It is submitted by Mr Bird, on behalf of HMRC, that the claim was not made promptly and should be dismissed for that reason.

The principal argument advanced to attack the validity of the warrant is that, on its face, it failed to comply with the requirements of section 15(6)(b) of Police and Criminal Evidence Act 1984. I accept the contention that the claim was not made promptly. That conclusion does not, however, automatically bar the claim for review. The court is being asked to exercise its discretion to permit the review to proceed. The exercise of discretion will be governed by consideration of the substantive merits of the claim, its subject matter and whether prejudice has resulted from the delay. The subject matter of the claim is the liberty of the individual and the intrusion upon that liberty by the execution of a search warrant at his home. I can identify no significant prejudice to the first defendant, nor is prejudice advanced by Mr Bird since HMRC proceeded unhindered with its investigation and prosecution. For reasons, which I shall explain, I consider that the claim has merit. I would permit the claim to proceed.

In other circumstances delay may, however, be a factor properly to be considered in the context of relief. In the light of events which have taken place since the claim was issued, those considerations will be unlikely to influence this court.

In support of the claim that the warrant failed to meet the requirements of section 15(6)(b), Miss Helen Malcolm QC relies upon the decision of this court in R (Energy Financing Team Limited) v Director of Serious Fraud and Bow Street Magistrates' Court and Others [2005] EWHC 1626 (Admin), [2006] 1 WLR 1316 (Kennedy LJ and Crane J). The court was there concerned with the terms of a warrant obtained on behalf of the Director of the Serious Fraud Office performing the obligations of the Secretary of State in response to a request for international co-operation under section 4(2A) of the Criminal Justice (International Co-operation) Act 1990.

Section 2 of the Criminal Justice Act 1987 permitted the director to investigate fraud, and under section 2(3) to give notice in writing to a person to produce specified documents relevant to the investigation. In a case in which it was not practicable to serve such a notice, or where service would seriously prejudice the investigation, a member of the SFO was by section 2(4) empowered to make an application to a Justice of the Peace for a warrant. By section 2(5) the warrant may authorise any constable to enter premises and:

Having examined a number of authorities in the domestic jurisdiction, Kennedy LJ, who gave the leading judgment, reached conclusions of principle which governed the exercise of the power to obtain and issue search warrants. At paragraph 24(5) Kennedy LJ said:

Miss Malcolm QC submits that the present warrant offended this principle in two main respects. First, paragraph (i) authorised the seizure of "all" business records found at the premises. Paragraph (iii) authorised the seizure of computers, diskettes or other electronic storage media and mobile telephones. They were not limited by an identification of the "business", or the person or company whose business it was. The warrant enabled the seizure of all such documents whatever the source; the relevant business records, or electronic media storage, were not identified by reference to the investigation which was taking place.

Secondly, although the warrant authorised in paragraph (ii) the seizure of banking records and the like "that are believed to be linked to the offences under investigation", nowhere in the warrant are those offences identified. Thus on its face it is argued that the warrant permitted the seizure of material belonging to any person or company connected with a business. It permitted seizure of electronic media which the officers executing the warrant believed linked to an investigation unspecified in the warrant. It is correct to note that the claimant was present at the time of execution with another man, Sandeep Arora. When the warrant was executed no protest was made at this time. The officers removed the computers belonging to both men and several documents, to which I have referred.

Mr Bird on, behalf of the first defendant, relies on an earlier decision of this court in R (Fitzpatrick) v Chief Constable of Warwickshire [1999] 1 WLR 564 (Rose LJ and Jowitt J), which does not appear to have been cited to the court in Energy Finance. In Fitzpatrick the warrants obtained under section 8, PACE 1984, authorised seizure of computers, paper correspondence, diaries, appointment books and banking/financial documentation which related to "the stated offence". The warrants did not identify the stated offence. The offence had, however, been identified in the information before the Justice of the Peace who issued the warrants as a conspiracy to defraud. It was argued, on behalf of the claimant, that the wide terms of the warrants left entirely to the discretion of the police what their scope was. Jowitt J gave the first judgment with which Rose LJ agreed. At page 572G he said:

I observe that Jowitt J was assessing the strength of the argument then advanced on behalf of the applicant that the terms of the warrant left entirely to the discretion of the police what its scope was. There does not appear in the judgment of Jowitt J to be an analysis, for the purpose of considering that argument, as to whether the terms of section 15(6)(b) had been complied with. Counsel's researches have failed to reveal any subsequent case in which this part of Jowitt J's judgment has been followed.

The statement of principle made by Kennedy LJ in Energy Financing has been followed by the court in Gittins v Central Criminal Court [2011] EWHC 131 (Admin) (Gross LJ and Davis J) at paragraph 30. In Power-Hynes and Another v Norwich Magistrates' Court and Another [2009] EWHC 1512 (Admin) (Stanley Burnton LJ and Wilkie J), the second defendant also relied on Fitzpatrick. The warrant issued in the Power-Hynes case read:

The warrant was thus drawn in extremely wide terms, not limited by reference to individuals, companies or offences. The second defendant relied on the fact that the officers executing the warrant were provided with a briefing pack, which explained the purpose of the search in the following terms:

…

In fact, when the search took place officers recovered a large quantity of material which related to clients of the claimant's accountancy practice and had nothing to do with Hunt or HCAF. At paragraphs 21 to 23 Stanley Burnton LJ said this:

On the facts of Power-Hynes it was unnecessary for the court to decline to follow Fitzpatrick, but the language of the court was of disapproval. The issue is not whether the warrant fulfills the purposes of section 8, but whether its terms comply with section 15(6)(a) and (b). As the headnote to section 15 demonstrates, it is intended that the requirements of section 15 shall be "safeguards".

Mr Bird valiantly argued that the officers who executed the present warrant were also briefed as to the nature of their investigation, including the names of the companies and individuals suspected, and the fraud which was being investigated. Accordingly while the warrant appeared to be unlimited in scope the search would not be unlimited in scope. If a question had been asked as to the breadth of the investigation concerned, then the claimant could have been told.

In my judgment the present warrant did not conform with section 15(6)(b) because it failed to specify in respect of what business or investigation the articles were sought. Section 8(1) of PACE 1984 provides:

With respect to the court in Fitzpatrick, I conclude that the requirements imposed by section 15 are independent of those imposed by section 8. Section 8 identifies the matters of which the Justice of the Peace must be satisfied before a warrant may be issued. Section 8(2) empowers the officer to remove anything for which a search has been authorised under subsection (1). Section 15(6) concerns not the grounds on which the warrant is issued, but the contents of the warrant which identifies that material which the officer is entitled to seek under section 8(2).

I do not accept the submission made on behalf of HMRC that this warrant came anywhere near identifying the articles sought "so far as practicable". It is clear from the terms of the information provided to the Justices that it would have been a simple matter to specify the true scope of the material sought. The warrant was, in important respects, unlimited in its scope. It did not, so far as practicable, identify the articles which the information revealed were being sought. It is not suggested that the officers seized articles which offended the requirements of section 8(1) of the 1984 Act, but it is the claimant's case that the warrant under which they sought such articles was unlawful. In my judgment that case is established.

Miss Malcolm QC seeks to renew a ground upon which the claimant did not obtain permission, namely that the proceedings which led to the issue of the warrant are vitiated by non-disclosure. At page 4 of the information it was represented to the Justices:

The animation feature there being referred to was Billy the Beagle. The information given was mistaken. No request had been made to the accountants to produce a clip of the film, although it appears that was the intention, and Miss Brewer, the officer of HMRC, who represented the first defendant, understood that it had been.

I accept that this was a material non-disclosure capable of undermining the validity of the warrant. The issue is what test is to be applied in order to resolve whether the non-disclosure was material. Materiality was recently considered by the court in R (Rawlinson & Hunter Trustees and others) v Central Criminal Court and Director of the Serious Fraud Office [2012] EWHC 2254 (Admin) at paragraphs 172 and 173 of the judgment of the court delivered by Sir John Thomas, President of the Queen's Bench Division:

I have no doubt that had the correct information been provided to the Justices their decision would have been to issue a warrant. The information which created strong grounds to believe that an offence had been committed was that enquiries into the suppliers, whose invoices were purportedly paid by Animation Films Limited, had failed to produce a response. It was almost inconceivable that the genuine provision of services amounting to hundreds of thousands of pounds could not have been easily and quickly verified. That alone was sufficient to support the application made under section 8. I would therefore refuse leave to proceed on this ground.

Although not a ground pleaded in the claim, this court has been provided with little, or no, information about the hearing before the Justices. Miss Brewer says at paragraph 5 of her witness statement:

We have been provided with no transcript of the proceedings, no note by the Clerk to the Justices, or by a representative of the first defendant, and no statement of reasons by the Justices themselves, or by their clerk on their behalf. In our view, this is a wholly unsatisfactory state of affairs. It is the duty of the court to give reasons and to make them available to the parties to a dispute such as the present (see Rawlinson & Hunter trustees).

I referred earlier in this judgment to events which have taken place since the claim was issued. We are informed that by agreement the original material obtained by HMRC in consequence of the search has been, or is to be, returned. No application is made by the claimant for return of any of the derivative material, which HMRC has retained, in consequence of taking images of the hard drives of the two computers and copies of relevant documents seized.

In my view that is entirely the correct approach having regard to the observations of Leveson LJ in R (on the application of Cook and Another) v Serious Organised Crime Agency [2010] EWHC 2119 (Admin), and R (on the application of Cummins) v Manchester Crown Court [2010] EWHC 2111 (Admin) at paragraphs 20 to 22 and 13 to 14 respectively.

This court is not involved in a game with the claimant. The appropriate forum for a judgment, whether the evidence unlawfully obtained is nonetheless admissible, is the Crown Court exercising its judgment under section 78 of Pace 1984. I would therefore grant the appropriate declaration as to the unlawfulness of the warrant. I would quash the warrant, but I would make no further order.

MR JUSTICE FOSKETT: I agree.

MISS MALCOLM QC: There remains an application for costs. There has been a schedule of costs served, I have to say, recently.

LORD JUSTICE PITCHFORD: Not on the court, I am afraid, Miss Malcolm.

MISS MALCOLM QC: It is going to be, in any event, the usual one assessed, if not agreed.

LORD JUSTICE PITCHFORD: Miss Malcolm, can you explain to us why it was necessary to make this application at all in view of the fact that you are perfectly open to take the same point before the Crown Court?

MISS MALCOLM QC: In view of the fact it was open to us on a section 78?

LORD JUSTICE PITCHFORD: Yes, or indeed to apply for the return of the property under section 59 of the 2001 Act.

MISS MALCOLM QC: The application was made prior to any proceedings being on the foot in the Crown Court. By the time that I came on board it was a matter of principle, I think is the honest answer, as far as the claimant is concerned.

LORD JUSTICE PITCHFORD: You did not seek an injunction?

MISS MALCOLM QC: It was far too late to do that.

LORD JUSTICE PITCHFORD: Quite. Why should the Revenue pay for the costs of this expedition which could not have got you anywhere?

MISS MALCOLM QC: With respect, it has not necessarily got us nowhere. It was a remedy that was entirely open to the claimant to support, or to notify the fact that his rights had been infringed. He has been successful in that. It may or may not have any effect at a later stage. There may or may not be any application made under section 78. It is far too early to know. That is no reason why costs should not follow the event in the normal way.

LORD JUSTICE PITCHFORD: Thank you very much. Mr Bird?

MR BUTT: Our submission is twofold: firstly, as my Lords correctly observed, the only interest of the claimant in these proceedings is in relation to a section 78 argument. The fact is he did not claim the initial relief for return of the material seized, the computers have been returned in any event. The sole purpose of today's hearing has been to try to give himself a leg up for a future section 78 application, which could have been adjudicated upon by the Crown Court, in any event. The discretion under section 78 would encompass all aspects of the warrant, including those addressed before your Lordships. He simply did not need it, unless he was going for damages, which he is not, or for injunction which he is not, or all the other sorts of relief which are sometimes sought, but which are not in this case.

The second point we would make is that he has only succeeded in one rather narrow element of a two-ground judicial review, so if your Lordships were minded to order costs we would submit that it should certainly be no more than 50 per cent and in fact probably 25 per cent of costs incurred. Our primary submission is that your Lordships' consideration of this matter was completely unnecessary and could all have been dealt with in the Crown Court, as it would in any event.

LORD JUSTICE PITCHFORD: We will retire for a moment.

LORD JUSTICE PITCHFORD: The claimant seeks his costs of this application for judicial review in a total sum just short of £30,000. It is apparent that the objective of the claimant is a finding in the Divisional Court that the warrant issued on the 1st and executed on 3 August 2011 was unlawful, in order that this court's finding can be before the Crown Court for the purposes of section 78 of Pace 1984, should such an application be made in the current prosecution. The court observes that no application was made for an injunction at the time the claim was filed, the claim was not filed promptly, and the other relief, to which the claimant asserted he was entitled to, has been given by agreement with the first defendant.

While this cannot for a moment be described as a Pyrrhic victory, we do not see why the first defendant should be liable to pay the whole of the claimant's costs. He seems to have been motivated by a desire to pursue an application in this court, which he could equally have made in the Crown Court in the course of the trial.

Finally, however, the first defendant could have conceded what we regard as the obvious defects in this warrant, but chose not to do so and to conduct the argument in a full hearing. In our judgment the justice of the case would be met by granting to the claimant his costs of this review on the standard basis, summarily assessed in a figure of £10,000.

LORD JUSTICE PITCHFORD: Is there anything else? Miss Malcolm and Mr Bird, would you be good enough to draw up the declaration and to let us have a copy of it in due course for our approval, together with the order as to costs. Thank you very much.