Intertrade Wholesale Ltd & Ors, R (On the Application Of) v Revenue And Customs & Anor

The Claimants renew their application for permission to challenge the lawfulness of the decision made on 18 June 2018 of a justice of the peace (“the Justice”) sitting at Birmingham Magistrates’ Court to grant, on an application made by HM Commissioners for Revenue and Customs (“HMRC”), 11 search warrants under s.8 of the Police and Criminal Evidence Act 1984 (“PACE”) in relation to premises owned or occupied by the Claimants. The Claimants also challenge the lawfulness of the subsequent execution of those warrants on 20 June 2018, and the decision to arrest and handcuff some individual Claimants.

Permission was refused on the papers by Sir Ross Cranston on 20 September 2018.

HMRC is conducting a criminal investigation named “Operation Bowshot” which concerns potential large-scale excise duty evasion and the subsequent laundering of the criminal funds generated. The laundered monies are suspected to be derived from the sale of illicit alcohol imported from the Continent and other organised crime groups across the UK. The total loss to HMRC since 1 April 2010 is estimated to be in excess of £440m. The investigation is being carried out in conjunction with a French Judicial Customs operation, and a Joint Investigation Team (“JIT”) agreement was signed on 21 July 2016. The JIT agreement covering the operation has since been extended.

The application for search warrants and their execution in respect of an earlier phase of Operation Bowshot were the subject of previous judicial review proceedings. On 11 December 2017 the Divisional Court (Gross LJ and Carr J) found in R (on the application of Superior Import/Export Limited and others) v HMRC and Birmingham Magistrates’ Court [2017] EWHC 3172 (Admin) that the warrants were vitiated due to their drafting. HMRC failed to meet the requirements of s.15 of PACE and provide sufficient information such that the Justice could properly be satisfied for the purposes of s.8(1) of PACE (see para 86). However the court did not find any bad faith on the part of the HMRC, or make a finding that the statutory pre-conditions for the grant of the warrants were not met. Those proceedings are currently subject to a s.59 application by which the HMRC seeks permission to retain the seized material or copies thereof.

The Claimants advance five grounds of challenge:

The grounds are set out in detail in a 42-page document dated 1 October 2018, entitled “Argument in support of an application for injunctive relief and renewed application for permission” (“the Claimants’ Argument”), settled by Mr Alun Jones QC and Mr David Bedenham, whom he leads, which Mr Jones developed in his oral submissions.

Sir Ross Cranston considered and dealt with each of these matters in the reasons he gave for refusing permission. Mr Jones submits that in so doing the judge fell into error.

The relevant principles in relation to the duty of disclosure and how a court upon review should approach such issues are set out by Holroyde LJ at paragraphs 18-20 of Hart v HMRC [2017] EWHC 3091 (Admin): the question for the court is whether the information that it is alleged should have been given to the Justice might reasonably have led her to refuse to issue the warrants.

I shall consider each of the ten matters in turn.

First, the Claimants contend that HMRC intended to search for material relating to companies and individuals not named in the warrants. In support of this point Mr Jones relies in particular on the evidence of Tristan Thornton, a tax consultant, about the search of the premises at Millennium Cash and Carry (“MCC”) on 20 June, and the evidence of Sanjiv Patel. Mr Thornton refers to a covert list of companies brought onto the premises by a French officer. However, there is no evidence that HMRC was aware of the list during the search or, more importantly, at the time of the application. Ms Nicola Gape, a Higher Investigation Officer acting on behalf of HMRC, who made a note of the application hearing, explains in her witness statement (at para 5) that:

“The material sought was drawn very tightly to enable search officers to have a clear and concise understanding of the items which the warrant gave authority to seize.”

There is no evidence to support the contention that there was an intention to hide from the Justice an intention to search for items outside the scope of the warrant.

The second contention is that HMRC failed to disclose that in 2010 it had conducted raids and unlawfully detained the trading stock of Millennium Cash and Carry which led to HMRC paying out £1.6m in damages. Mr Jones submits that this evidence would have shown that there was no illegality on the part of the occupants of those premises at the stage when the alleged criminal plan was about to start; and would have cast doubt on the objectivity of HMRC’s attitudes to the Claimants.

I do not accept that seizures made in 2010, which were part of a civil enforcement process, were material to any question the Justice had to ask herself. That being so they could not have made any difference to the grant of the warrants.

Third, the HMRC failed to disclose that it intended to make arrests. There was no mention of the intention to arrest in notes of the ex parte hearing, as Mr Jones submits was required (see R (Redknapp) v City of London Police [2009] 1 WLR 2091). However, Ms Gape, who was present at the hearing, states at paragraph 9 of her witness statement that the Justice was informed of this during the course of the application at court:

“… at a point in her reading of the search warrant information the Justice asked whether we would be looking to arrest the individuals named in the warrant simultaneous to the searches carried out. I confirmed that we did indeed plan to arrest them.”

I do not consider that Redknapp prevents me from taking into account Ms Gape’s evidence as to what the Justice was told. That case is very different. It was concerned with whether the statutory preconditions in s.8(1)(e) and (3) of PACE were satisfied. Latham LJ said at para 16:

“The application for the warrant did not identify which of the conditions in section 8(3) was being relied on; and, as I have said, I cannot see anything in DC Driscoll’s statement which identifies the fact that the magistrate was clearly told about anything which could remedy that defect. I am not prepared to infer from the contents of the statement that the magistrate must have been told about any such matter, or to infer that there is enough in the statement to indicate that there was material before the magistrate which could have justified him in concluding that at least one of the conditions was met. As I have already said, it is wholly unsatisfactory, where the validity of such a warrant is in issue, to be asked to rely on anything other than the application itself, and if necessary, a proper note or record of any further information given orally to the magistrate. As the conditions set out in s.8(3) have accordingly not been met, the warrant was unlawfully issued.”

Mr Jones criticises the judge refusing permission for failing to deal with the point that HMRC’s proposed method of dealing with privileged material could not be effective if there were arrests. I do not accept this criticism. As Ms Gape observes (at para 10) the fact that the owners of the material had been arrested has no effect on this matter; they do not need to be present in order to assert such material is privileged. The arrested individuals could still have made those claims as could other persons still present on the premises during the search.

Fourth, HMRC did not disclose that it intended to search for items likely to include special procedure or excluded material. In support of this point Mr Jones refers to the evidence of Rishi Lakhani (at paras 64-66) and Vasantkumar Lakhani (at paras 7-8) which, he says, proves, were proof necessary, both that computers and files would contain special procedure material and excluded material, and that HMRC knew that to be the case. The application falsely told the Justice at the last paragraph of box 3(d) that:

“There is no reason to believe that there will be any special procedure material or excluded material on any of the premises to be searched.”

This was incorrect. It is clear that the computers were likely to contain legally privileged material.

I do not accept there is any basis for the contention that at the time of the application for the warrants HMRC knew that such material would be included in the items to be sought and failed to bring this to the Justice’s attention. As for the argument that it should have been obvious that there would be legally privileged material, or special procedure material on the premises, I have had regard to the observations made by Davis LJ in R (on the application of Sharer) v City of London Magistrates’ Court and HMRC [2016] EWHC 1412 (Admin) at paragraphs 49-52:

“49.

In my view, the fact that, as it is asserted, a significant quantity of privileged material was found at the business premises… does not of itself show that the warrants were incorrectly issued at the time. What has to be assessed is, at the time the applications were being considered by the Justice, whether that Justice could properly be satisfied there were reasonable grounds for believing that the material for which the search was to be made did not include legally privileged material or special procedure material. That ultimately is a matter of evaluation for the Justice. Of course, it is subject to the review of this court, because, amongst other things, there have to exist reasonable grounds for believing that the negative proposition in section 8(1)(d) has been satisfied.

…

51.

It is to be borne in mind that Mr Sharer was not engaged in the occupation of a solicitor or an accountant or anything like that. There was no reason in my view … to think that legally privileged materials or special procedure materials would be found at the premises in the context of that which the officers were seeking. One only has to see the materials sought to appreciate that legally privileged materials or special procedure materials were nothing to do with what the officers were after and were likely to be included…

52.

What was being sought was what Mr Bird, appearing for the Respondent, described as transactional matters: that is to say the fact of sales and purchases, the price at which they were undertaken, the fact of rental receipts and so on…”

The materials sought were clearly identified in box 3(a) of the application, and in the warrants themselves. They were, in summary, bank account documentation, identity related documents, contracts, diaries and calendars, delivery notes, property documents, CCTV, cash and digital media.

None of the material sought engaged the definition of legal professional privilege (“LPP”) or business confidential material. The businesses to be searched were involved in the alcohol trade.

Nevertheless, there is a recognition in the application that material may include material attracting LPP. Box 3(d), in response to the question as to whether there was any reason to think that the material that HMRC wished to search consists of or includes items subject to legal privilege, excluded material or special procedure material, includes the following: “The material sought may include material attracting LPP… HMRC has no interest in any legally privileged material… There is no reason to believe that there will be any special procedure material or excluded material on any of the premises to be searched”. This was plainly correct given the nature of the businesses involved and what material HMRC were seeking.

Fifth, it is contended that HMRC intended to unlawfully apply handcuffs and otherwise breach the PACE codes of practice. The intention to conduct the searches and arrests when elderly persons and children could be expected to be at the premises, it is said, should have been disclosed to the Justice. Mr Jones contends that there were no objective factors that justified the use of handcuffs, still less the confinement of Rishi Lakhani and Mr Bradley in a stressed and painful condition, in front of their families and neighbours.

There is no evidence to support this allegation that HMRC deliberately intended to breach codes of practice in relation to the search and handcuffing of individual claimants, or that HMRC deliberately did not bring this to the Justice’s attention. As Ms Gape states (at paras 14-16 of her statement) the decision to handcuff a detained person is made by the arresting officer, having assessed the risks in the individual case at the material time.

This allegation is advanced as a discreet issue in Ground 5 (see paras 46 to 49 below). In my view there is an alternative private law remedy available to the Claimants for alleged assault, which is better suited for dealing with disputed factual issues (see R v Chief Constable of the Warwickshire Constabulary ex parte Fitzpatrick [1999] 1 WLR 564 at 579, per Jowitt J).

Sixth, it is said that there was a failure to disclose that French public officials would actively take part in the search and the JIT agreement did not apply to the Claimants; and that there was no ground for the judge to conclude that Mr Thornton’s evidence of searching by a French officer was wrong. The JIT agreement expired in July 2017 and there is no evidence that it was in force after July 2018.

There is no basis for these contentions. The warrant application stated in box 7(b) that four specific French Judicial Customs Officers were to be part of the search and that “they were required to attend the premises searches under the terms of the JIT”. Accordingly, the French officials were entitled, if not required, to attend; moreover, the JIT was still in force. Further, the evidence of Ms Gape (at para 19) is that the French officers present at the searches were always accompanied by an officer of HMRC and they did not seize any material.

Seventh, the Claimants contend that HMRC concealed disclosure made in the Superior Import/Export Limited judicial review proceedings; and that after eight years of investigation there is virtually no evidence against any suspect. The written application fails to record that no relevant evidence from the 2017 seizures is relied on as advancing the present case. The Superior Import/Export case was heard less than 12 months before; it involved the self-same operation.

The disclosure in Superior Import/Export related specifically to Mr Johal, who is not a claimant in the present proceedings. However, Mr Jones submits that had the Justice been told about the previous proceedings (see the document headed “Concurrent decision on Jurisdiction”) she could not have found that there were reasonable grounds that relevant evidence would be found on the premises listed, a year later, especially where there is evidence that the Claimant Mr Rishi Lakhani is well known to Mr Johal.

In fact, the application for the search warrant does refer to Mr Johal and his relationship with Mr Lakhani. It was, as HMRC contend in their summary grounds of defence (at paras 76-80) background material for the Justice to better understand the application as a whole and how the Claimants were tied in to the previous phase of the investigation.

Further, the Claimants complain that the Justice was not told that because there was so little evidence available Mr Matthew Davies, the senior investigating officer, had formed the view that other alleged participants in Operation Bowshot might be extradited to France to face trial for an offence against the UK Treasury. I am satisfied that even if the Justice had been told that the best forum for trying Mr Johal was France, it would not have led to the Justice refusing the warrants in this case where there was a surfeit of information that the Claimants were engaged in unlawful conduct, and that there was good reason to think that the material sought would be found at the premises to be searched.

The wording of the search warrant information suggests that the investigation commenced on 1 April 2010. The Judge was wrong, submits Mr Jones, to conclude that Ms Alexander’s assertion about the start date of the investigation was a “mistake”. The fact is it was. The date refers to the indictment period under investigation. Operation Bowshot commenced as an investigation in May 2015 and was adopted by the fraud investigation service in April 2016.

I am not persuaded that there is evidence of any material non-disclosure or attempt to conceal disclosure which supports this seventh point.

The eighth point is that HMRC failed to disclose that it intended to prevent the operation of CCTV at the premises to be searched. Mr Jones relies on the evidence of Rikin Patel (para 4), Arun Ramanandi (paras 3-4), and Dharamkumar Patel (paras 4 and 14) in support of the contention that it was plainly an aspect of the HMRC plan that its officers would disable any CCTV on the premises to be searched.

I am not satisfied that there is evidence that HMRC, at the time of the application, intended to prevent the operation of CCTV at the premises to be searched. The application form in box 3(a) states that the material sought includes “Any Closed Circuit Television (CCTV) equipment or storage media onto which CCTV footage is recorded”; and in box 3(b) in response to the question as to why it is believed that this material is likely to be of substantial value to the investigation it is stated: “This will assist in identifying any consignments of alcohol delivered to the businesses as well as the presence of any criminal associates at the premises”. Ms Gape explains (at para 23) that CCTV was turned off and disabled in so far as it was necessary to obtain the material sought.

The ninth and tenth points relate to the Claimants’ compliance history. Referring to the witness statements of Rishi Lakhani (paras 25 and 40) and Tristan Thornton (paras 6-32), Mr Jones describes the businesses associated with the Lakhani family as having had an “open book” approach with HMRC. Moreover, in 2017 HMRC approved MCC under the new “Alcohol Wholesalers’ Registration Scheme”. The Claimants contend that approval could not possibly have been given had HMRC considered that there were reasonable grounds for believing that MCC was a leading participant in a very substantial ongoing fraud.

Further, the Claimants contend that HMRC should have disclosed, but did not, details of their declared sources of funds as this was relevant to the “unexplained lifestyle” points relied on by HMRC in applying for the warrants. The statement of Alkesh Mehta deals with loans that funded the family’s lifestyle. Had the Justice been given this information there could have been no suggestion that the family was unable to fund their lifestyles.

The application form provides some detail of the Claimants’ compliance history, although not as much as Mr Jones contends should have been set out. Nevertheless, there is no evidence of an attempt to conceal prior compliance visits. In any event mere compliance does not mean a trader is not at the same time engaging in unlawful conduct. The fact that there are legitimate aspects of the businesses under investigation is not relevant: see the Superior Import/Export case at para 53(a) where Carr J said:

“as for a history of good tax compliance, it is difficult to see how a good history would be relevant in circumstances where compliance is an ingredient of being able to trade at all.”

I am not persuaded that Mr Jones has identified any arguable error, or that there was any arguable failure to make full and frank disclosure in relation to any of these matters. Even if the Claimants’ full compliance history had been put before the Justice, I am satisfied that it would not have led her to refuse to issue the warrants.

The Claimants contend that there was a breach of s.8(1) of PACE. Section 8(1) imposes clear statutory preconditions. If there are reasonable grounds for believing that items to be seized may contain legally privileged material the warrant may not authorise their seizure (see R (Faisaltex) v Preston Crown Court [2009] 1 WLR 1689). However, the problems may, as Mr Jones notes, be overcome by the authorisation in a warrant to seize particular documents, and then, if the conditions of s.50 of the Criminal Justice and Police Act 2001 are met, serving a notice under s.52. However, this was not done; and s.52 notices were to be served only where someone “said” that legally privileged material was to be found on them, and the persons best placed to “say” that were to be arrested. In the event only one s.52 notice was served.

I reject this argument. This ground adds nothing material to the fourth point in Ground 1 (see paras 16-20 above). The application for the search warrants specifically addressed the issue of s.8(1)(d). Mr Jones has not identified any arguable breach of s.8(1).

The Claimants’ position is that (1) there are no reasonable grounds on which to believe that there is any sort of fraud on the UK Revenue or any other indictable offence; and (2) there are no reasonable grounds to believe that any of the Claimants has committed an indictable offence and that the premises to be searched would have on them material “likely to be of substantial value … to the investigation of the offence” (and which would be likely to be relevant evidence) (PACE, s.8(1)(b) and (c)). The Claimants’ detailed submissions on this ground are set out at paras 108-135 of the Claimants’ Argument.

Having regard to the detailed nature of the material contained in the application form, in my view this ground is unarguable. Mr Jones makes no concessions but realistically, on this application, he did not press this ground of challenge.

The Claimants contend that the entries, searches and seizures from the premises authorised to be searched were unlawful, by virtue of s.15(1) of PACE because, contrary to s.16(8), the searches exceeded the authority granted by HMRC.

The facts relied on under the first allegation of non-disclosure set out under Ground 1 (see para 10 above) are relied on in support of this ground.

In my view this ground does not add significantly to that first ground raising this issue.

HMRC does not accept that the searches exceeded the authority of the warrants. I do not consider this to be a ‘clear case’; that being so the court is not in a position to assess the merits of this ground (see Fitzpatrick at para 23 above). There is an alternative private law remedy available to the Claimants, better suited to resolving issues of fact.

The Claimants contend that having regard to the guidance relating to handcuffing it was incumbent on HMRC to explain why handcuffing was necessary, and they have failed to do so.

Mr Jones submits that the facts are not in dispute; but, in any event, if HMRC chooses to put in some evidence as to the reasons these two claimants were handcuffed there would not be a factual defence sufficient to require that this case can only be decided in a private law action.

I do not agree. It is likely that there will be factual issues in dispute in relation to the issue of lawfulness of the handcuffing (see Ms Gape’s evidence at para 22 above).

Here again, there is a more suitable alternative private law remedy available to the Claimants.

Mr Jones invites me, if I refuse permission, to transfer grounds 4 and 5 of the challenge to the Queen’s Bench Division pursuant to CPR Pt. 54.20. However, I am not persuaded on the material before me that it would be appropriate to order that they be transferred to the QBD to continue as ordinary civil claims under CPR Pt. 7.

For the reasons I have given none of the grounds of challenge are arguable. Accordingly, this application is refused.