Freeman and others v Manchester Crown Court and others [2018] EWHC 1866 (Admin)

Freeman and others v Manchester Crown Court and others [2018] EWHC 1866 (Admin) was a claim for judicial review of search warrants issued under section 9 and paragraph 12 of Schedule 1 to the Police and Criminal Evidence Act 1984. Lord Justice Hickinbottom and Mrs Justice Moulder in the Administrative Court quashed the warrants on the ground of insufficient specificity in the identification of material sought, but rejected all other grounds of challenge.

On 6 July 2017, His Honour Judge Walsh, sitting in the Crown Court at Manchester, issued four warrants to enter and search premises on the application of an officer of the Commissioners for HM Revenue and Customs. The warrants were issued in connection with Operation Lemony 16, an HMRC operation investigating suspected evasion of income tax and associated offences. The relevant premises were The Old House in Cheadle Hulme (the home of the first and second claimants, Mr Anthony Russell Freeman and Ms Lindsay Hamilton) and the ground floor of Ocean House in Manchester (from which the three corporate claimants traded). The warrants in respect of The Old House and Ocean House were executed simultaneously on 11 July 2017.

HMRC had obtained evidence that Mr Freeman and Ms Hamilton had not declared or paid income tax on all their taxable income. Mr Freeman had been shown earning less than £10,000 per year as an employee of Mason & Vaughan Holdings Limited until 2016-17, but production orders obtained by HMRC revealed that between April 2009 and October 2016 he had received £4,716,292 from six bank accounts of Mason & Vaughan group companies. Ms Hamilton had received £2,021,988 from bank accounts of companies in that group or the Hawksmoor group of companies. The total loss to HMRC was estimated at nearly £3 million. The investigation also revealed that Mr Freeman and Ms Hamilton had jointly purchased The Old House for £1.14 million in May 2014 without recourse to a mortgage, and it was suspected that this purchase was financed by funds of £1.7 million paid to Mr Freeman by Mason & Vaughan Holdings and Pinnacle MC Global Network Limited between 2 and 13 May 2014.

The claimants challenged the lawfulness of the warrants on six grounds (reordered by the court as Grounds A to D). Ground A contended that the warrants were vitiated by a lack of full and frank disclosure because HMRC failed to inform the judge that other companies unassociated with the claimants also occupied the ground floor of Ocean House and shared facilities including a shared computer server. The court rejected this ground, finding that Officer Owen probably did not know of the shared facilities and that, even if she had, without knowledge that facilities were shared this would have had little bearing on the application. Officer Owen had conducted an internet search to find a floor plan but had been unable to obtain one for Ocean House. The court held there was no breach of the duty to make full and frank disclosure.

Ground B contended that the application and warrant failed properly to identify the material sought, contrary to section 15(2)(c) and 15(6)(b) of PACE. The court accepted one aspect of this ground. The court noted that classes of document 2, 3 and 4 referred to correspondence with or documents relating to “Mason & Vaughan”. There was no legal entity called “Mason & Vaughan” and there were several companies with “Mason & Vaughan” in their names or associated with such companies, including Mason & Vaughan Holdings Limited, Mason & Vaughan Group Limited and their various subsidiaries. The application indicated that the investigation was wider than just two specific companies and extended to “associated companies”, but the term “Mason & Vaughan” was not defined. HMRC’s own submissions during the hearing were unable to give any certain scope to the term. The court held that on the face of the warrants it was not clear whether documents relating to (for example) Hawksmoor Holdings Limited were within the scope of the warrant. The warrants were therefore unlawful for want of specificity in the materials they allowed to be searched for and seized. The court rejected the more general submission that the descriptions of the classes of documents sought were too vague, wide and imprecise, finding that, given the investigation extended both to the amount of taxable earnings and to the extent of Mr Freeman’s and Ms Hamilton’s involvement in and control of the companies, the descriptions were both relevant and likely to be of substantial value to the investigation.

Ground C contended that the judge could not reasonably have been satisfied that the statutory requirements in paragraphs 2 and 12 of Schedule 1 to PACE had been satisfied. This ground had five strands. First, the claimants submitted that the application referred to “suspected” offences rather than there being reasonable grounds for “belief” that an indictable offence had been committed. The court rejected this, holding that the use of “suspicion” merely reflected the fact that offences were under investigation and no charges had been brought, and that when looked at as a whole the application was addressing the statutory criterion. The judge had expressly confirmed he was satisfied that the statutory criteria in paragraph 2 were met. Second, the claimants submitted that there were reasonable grounds for believing that material subject to legal professional privilege or excluded material (such as confidential health records of employees) would be found at Ocean House. The court rejected this submission, applying the approach taken in R (Sharer) v Commissioners for HM Revenue and Customs. There was no reason to think that legally privileged documents or excluded material of the type falling within the statutory definition would be found in the context of what the officers were seeking, which was transactional material relating to sales, purchases, rental receipts and the like, not legal advice. Third, the claimants submitted that the judge could not have been satisfied that the requirements of paragraphs 2(b) and 14 had been met, as material could have been obtained by production orders or simple request. The court rejected this, holding that the application had provided a proper basis for concluding that service of notice may seriously prejudice the investigation because Mr Freeman had a previous conviction for fraud and both he and Ms Hamilton had actively distanced themselves from the companies. Fourth, the claimants submitted that the judge failed to apply any or any rigorous scrutiny to the application, as the hearing lasted only ten minutes and the judge asked no meaningful questions. The court rejected this submission, noting that the judge had confirmed he had considered the written application, which was eleven pages long and in the mandated Form ENF3312 designed to assist both applicant and court in addressing each of the statutory criteria. In a straightforward case such as this, the court was not surprised that, having considered the written application, the hearing was very short. Fifth, the claimants submitted that the reasons given by the judge were inadequate. The court held that this was a case in which the judge’s reasons, brief as they were, were adequate, as the application was relatively straightforward and in the prescribed form which required each statutory criterion to be addressed. There was material enough in the application to satisfy the judge that the statutory criteria had been met, and this court was able to discern a sufficient basis for his decision.

Ground D contended that the manner of executing the warrants was unlawful because HMRC seized material not covered by the warrants. The claimants relied on evidence that material belonging to other companies at Ocean House, including legal advice and staff health records, was seized. The court rejected this ground, noting that HMRC did not accept that any excessive seizure was made, the evidence of such seizures was thin and no application had been made by any company for the return of material, and this court was not in a position to make any determination of factual issues. The only specific item identified was an email chain with “Shoosmiths LPP” in the title, which had been seized under section 50 of the Criminal Justice and Police Act 2001 after discussion because, without reading it, it was considered that it or part of it might attract legal professional privilege. The court held that section 50 permits seizure of items where there are grounds for believing they might contain something for which there is an entitlement to search but it is not practicable to establish whether the item might also contain material in respect of which there was no entitlement to seize. HMRC could not be criticised for not calling independent counsel to attend the site, and the manner in which that document was dealt with was not unlawful. In any event, seizure of computers under section 50 would not be rendered unlawful merely because there was some irrelevant, legally privileged or excluded material on them.

In short, the Divisional Court quashed the warrants for failure to identify the material sought with sufficient specificity, specifically because the term “Mason & Vaughan” used in the descriptions of categories of documents was too uncertain, but rejected all other grounds of challenge including alleged non-disclosure, insufficient scrutiny and inadequate reasons.

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