Does search warrant SFO raid?

Failure to disclose all relevant information to the Central Criminal Court has called SFO policy into question

On 22 to 24 May, Lord Justice John Thomas and Mr Justice Silber heard arguments in support of the judicial review of the SFO’s actions in obtaining and carrying out search warrants of premises in March 2011 on the basis of false information.

Rawlinson & Hunter Trustees is the trustee for a number of corporate entities which own freehold assets in the UK, including the Tchenguiz Family Trust (TFT). The business entered into various financing arrangements, one of which was with Icelandic bank Kaupthing. In June 2010, the TFT and others commenced an English Commercial Court claim against Kaupthing alleging misrepresentation of the bank’s financial position. While that litigation was ongoing, the SFO applied for and obtained warrants to search the business premises of, among others, Vincos Ltd (trading as Consensus Business Group (CBG)), which acts as adviser to the TFT. The warrants were in support of an ongoing investigation into lending provided by Kaupthing; but serious factual errors were made in the information provided to the Central Criminal Court in the applications for those warrants.

The SFO failed to make clear the existence of the ongoing litigation and that CBG was the place of work for the in-house legal team advising on that matter. Accordingly, no effective provision was made for the large number of privileged documents encountered during the raid. The SFO unlawfully read and seized large volumes of privileged material.

Further, the judge granting the warrants was misled on a number of key factual points relating to the security provided for the Kaupthing loan. It was alleged that: security granted to senior lenders was not disclosed; the basis of the valuation of the security was misrepresented; and only a single security was provided. All of these were untrue – the factual errors were evident from Kaupthing’s own defence (which was received by the SFO shortly after it was served).

The SFO returned some seized materials and admitted that the warrants should be quashed; but it did not concede that permission for judicial review should be granted or that damages were payable.

Lord Justice John Thomas commented that the burden on an applicant in applying ex parte for a search warrant “is to make certain that, in the test of reasonable suspicion, you ensure that you draw to the judge’s attention points that may go against your suspicion”.

Silber J went on to say that “the obligation must be even greater here… there’s an even higher duty of full and frank disclosure”.

The SFO accepts there are important lessons from the case. It has amended its policy dealing with the way in which such potentially privileged material is to be dealt with. The former policy risked undermining the absolute protection of privilege.

It is understood that no raids were conducted by the SFO during the year following the raid of the claimants’ premises. It is hoped that a more appropriate approach will be adopted by the SFO in conducting raids in the future.

The court is considering its judgment.

Victoria Fox, an associate at Stephenson Harwood, assisted with this article