Rawlinson & Hunter Trustee & Ors, R (on the application of) v Central Criminal Court & Anor

Factual and Procedural Background

These proceedings concern two sets of judicial review applications brought by two businessmen, referred to here as Plaintiff A and Plaintiff B, and companies and trusts connected to their business operations. They seek to set aside search warrants issued under section 2(4) of the Criminal Justice Act 1987 by Judge Worsley QC at the Central Criminal Court. The warrants were issued based on an Information and oral evidence presented by the Serious Fraud Office (SFO), which the Plaintiffs contend were procured by misrepresentation and non-disclosure. Challenges also concern the execution of the warrants and the arrest of Plaintiff A.

The background arises from extensive lending by Kaupthing Bank, the largest Icelandic bank prior to its collapse in October 2008, to Plaintiff A and a single loan to Plaintiff B. The SFO investigation was substantially based on reports by Grant Thornton and Weil, Gotshal and Manges, appointed by Kaupthing’s Resolution Committee to recover assets for creditors. The investigation involved extensive documentation from multiple sources.

Plaintiff A operated his business interests through a complex offshore structure centered on a discretionary trust (Trust A), with trusteeship initially held by a professional trustee company (Company A) and later transferred to another trustee company (Company B), the latter being claimants in the first judicial review. A UK company (Company C) owned by Trust A acted as the intermediary through which trustees received instructions. Plaintiff B had a similar structure with a family trust (Trust B) and associated companies involved in advisory roles.

Kaupthing’s lending supported Plaintiff A’s acquisition of significant UK assets, including shares in major public companies and property portfolios. The lending arrangements included a December 2007 restructuring involving a loan facility to a special purpose vehicle (SPV) controlled by Trust A, secured by share pledges. The SFO alleged a dishonest conspiracy between Kaupthing executives and the Plaintiffs to defraud the bank.

Subsequent events included increased lending in early 2008, money market loans alleged to circumvent credit controls, complex transactions involving property companies, and asset transfers preceding Kaupthing’s collapse. The SFO’s case rested on five main areas of suspected criminality. The Plaintiffs initiated civil proceedings challenging the validity of security agreements and receiverships related to these transactions.

Following the collapse of Kaupthing, the SFO commenced a formal investigation in late 2009, relying heavily on Grant Thornton’s reports. The SFO applied for search warrants and arrests in early 2011, which were authorized by Judge Worsley after a brief hearing. The execution of the warrants resulted in searches of residences and business premises, arrests of the Plaintiffs, and seizure of documents, including privileged material.

Judicial review proceedings were commenced challenging the warrants, arrests, bail conditions, and conduct of the searches. During the litigation, the SFO admitted inaccuracies in the Information presented to the judge, particularly concerning the transaction involving a loan to an SPV (the Pennyrock loan) associated with Plaintiff B. The SFO subsequently discontinued the investigation against Plaintiff B and related entities.

Legal Issues Presented

1. Whether there was non-disclosure and misrepresentation in the Information and oral evidence given to the judge on the application for search warrants.
2. The failure of the judge to give reasons for granting the search warrants.
3. The lawfulness of the arrest of Plaintiff A.
4. Issues relating to bail conditions imposed on Plaintiff A.
5. The conduct of the search in relation to privileged documents.
6. The legality of the "here and now" notice issued by the then Director of the SFO retaining seized documents after admitting the warrants were improperly granted.
7. Consequential relief arising from the above issues.

Arguments of the Parties

Appellants' Arguments

• The Information contained extensive inaccuracies and non-disclosures that rendered the warrants unsustainable, particularly regarding the Pennyrock loan transaction.
• The SFO failed to provide a clear, analytical, and fair presentation of the background, chronology, and allegations to the judge.
• The role of the trustees (Company A and Company B) was materially omitted or misrepresented, misleading the judge about who entered into transactions and their responsibilities.
• The SFO relied heavily on Grant Thornton’s reports without independent verification, failing to disclose Grant Thornton’s interest in related civil litigation and potential conflicts.
• The judge was not provided with factors militating against the grant of the warrants, including ongoing civil litigation safeguarding documents.
• The oral evidence presented to the judge by the SFO case manager was inaccurate, unfair, and lacked the necessary analytical rigour.
• The judge failed to give reasons for his decision to grant the warrants, contrary to established legal requirements.
• The arrest of Plaintiff A was unlawful or unnecessary, and the bail conditions were disproportionate or unjustified.
• The execution of the search warrants was conducted unlawfully regarding the handling of privileged documents, including inadequate safeguards and lack of independent legal representation.
• The issuance of a "here and now" notice by the then Director of the SFO to retain seized documents was unlawful, circumventing statutory procedures designed to protect individuals’ rights.
• The SFO’s investigation against Plaintiff B and related entities lacked reasonable grounds and was discontinued accordingly.

Respondent's Arguments

• The SFO conceded inaccuracies in the Information related to the Pennyrock loan but maintained other allegations justified the warrants against Plaintiff A.
• The SFO argued that the judge had sufficient material to be satisfied of reasonable suspicion, relying on Grant Thornton’s expertise.
• The arrest and bail decisions were lawful and necessary based on information available to the police at the time.
• The search was conducted in accordance with SFO policy and legal requirements, with lawyers assisting the search team.
• The "here and now" notice was issued to protect the investigation and prevent loss or destruction of evidence.
• The SFO accepted the need for costs to be paid to the claimants but disputed indemnity costs sought by Plaintiff B.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed and structured analysis of the issues arising from the SFO’s investigation and the granting of search warrants. The key points of the court’s reasoning include:

• Presentation to the Judge: The court found that the Information and oral evidence presented to Judge Worsley were deficient. They failed to provide a clear, chronological, and analytical account of the background, transactions, and allegations. Material facts that could weigh against the granting of the warrants were omitted, including the role of trustees, ongoing civil litigation, and possible commercial rationales for lending decisions.
• Reliance on Grant Thornton: The court emphasized that the SFO heavily relied on Grant Thornton’s reports without independent verification. The judge was not informed of Grant Thornton’s involvement in related civil litigation or their possible interest, which could have affected the impartiality of the evidence.
• Misrepresentations and Non-Disclosure: Specific transactions such as the Pennyrock loan, the Oscatello loan facility, Money Market loans, Pumpster, Thorson transfer, and Project Longboat were misrepresented or inadequately explained. The case manager’s oral evidence contained serious inaccuracies, notably regarding the Thorson transfer, which lacked evidential support.
• Effect of Errors: The court held that the errors and omissions were material and would have made a real difference to the judge’s decision. Had the judge been properly informed, he would not have granted the warrants.
• Judge’s Failure to Give Reasons: The court noted the judge gave no reasons for granting the warrants, a failure contrary to established legal principles requiring judges to provide reasons for decisions involving significant rights infringements.
• Lawfulness of Arrest: The court applied the established O’Hara principle, holding that the arresting officers’ reliance on information from the SFO was lawful, even if some of that information was inaccurate. The court rejected the proposed narrow exception to O’Hara, emphasizing statutory roles and existing remedies for wrongful arrest.
• Necessity of Arrest and Bail: The court found the arrest and bail decisions were reasonable and necessary considering the investigation’s nature, the risk of collusion, and the complexity of the case.
• Conduct of the Search: The court recognized the importance of protecting legal professional privilege during searches. It found the SFO’s policy of using its own lawyers rather than independent counsel was misconceived, though the full impact would be determined in further proceedings.
• "Here and Now" Notice: The court ruled that the then Director’s use of the “here and now” notice to retain seized documents, after admitting the warrants were improperly granted, was unlawful. The statutory procedure under section 59 of the Criminal Justice and Police Act 2001, which requires judicial oversight, was circumvented.
• Continuing Investigation: The court declined to comment on the merits of continuing the investigation against Plaintiff B, noting the investigation had been discontinued and the court’s role is limited to legal issues concerning the warrants and associated procedures.

Holding and Implications

The court held that the search warrants issued under section 2(4) of the Criminal Justice Act 1987 were unlawfully granted and must be set aside.

The court quashed the warrants against Plaintiff B and related entities based on admitted inaccuracies and misrepresentations concerning the Pennyrock loan. Although the warrants against Plaintiff A and associated entities were also flawed due to non-disclosure and misrepresentation, the court recognized that a properly presented case might have supported reasonable suspicion on some transactions. Nonetheless, the warrants were set aside because the presentation to the judge was unfair and misleading.

The court upheld the lawfulness of Plaintiff A’s arrest and bail decisions, rejecting claims that the arresting officers were misled in a manner warranting an exception to established legal principles.

The court found the SFO’s conduct of the search inadequate regarding privilege protections, particularly criticizing the use of non-independent lawyers.

The issuance of the "here and now" notice by the then Director of the SFO retaining seized documents without court approval was unlawful.

The court accepted that declarations of unlawfulness could be granted and directed that the proceedings be transferred for further management, including civil claims for damages.

No new precedent was established beyond the application and reaffirmation of existing legal principles on warrant applications, arrest lawfulness, privilege protections, and statutory controls on seized property.