The recent decision of the Divisional Court (Pitchford LJ and Foskett J) in the case of R (on the application of Anand) v HMRC (unreported) has shed further light on the circumstances in which the Courts will quash search warrants granted to HMRC in the course of a criminal investigation into a taxpayer.
The sole director of the claimant company applied for judicial review of the lawfulness of a search warrant obtained by HMRC. The claimant company was an animation film production company which, in 2009, had made substantial claims for repayment of VAT from HMRC.
In 2010 the production company claimed film tax relief of production costs of £2.2m but no film was ever released.
HMRC commenced a criminal investigation after attempts to make contact with the company’s alleged suppliers to verify the VAT claims failed. The investigation found that the sole director was a director of eight other companies which had received approximately £1.7m in VAT and film tax relief repayments over a two year period. HMRC also established that the sole director had not submitted a self-assessment tax return since 2005.
HMRC obtained a search warrant on the London address of the sole director. The warrant provided that all business records, accounts, electronic storage equipment and all items believed to be of evidential value could be searched an seized. The material obtained in the search was subsequently served by the Crown on the defence in the prosecution of the sole director for conspiracy to cheat the Revenue.
The sole director commenced an action for judicial review the day before the three month time limit expired for doing so under CPR, rule 54.5(1) and several weeks after the information that had supported the warrant had been disclosed to him by HMRC.
On behalf of the sole director, it was argued that the warrant was unlawful as it was drawn so widely that no-one would have known what items fell within its scope; effectively the warrant gave HMRC carte blanche to seize any item found at the premises without limitation. HMRC, on the other hand, argued that the claim for judicial review should be dismissed as it was not made promptly.
The Administrative Court granted the application of the sole director. The Court accepted that the action had not been brought promptly, but delay was not an outright bar to the claim being considered by the Court. The Court found that the exercise of its discretion to permit a judicial review should be governed by the merits of the application and whether HMRC would suffer any prejudice. Here, the subject matter of the claim was extremely serious, being the liberty of the sole director and the intrusion into his home. Nor was there prejudice to HMRC as the subsequent prosecution had duly proceeded.
The Court then considered the effect of the Police and Criminal Evidence Act 1984 (‘PACE’). Under section 15(6) PACE it was a requirement that what was sought in the search needed to be specified in the warrant. This safeguard ensured that the person executing the warrant was able to identify which items would or would not fall within the terms of the warrant and prevented the seizure of items that properly were not part of HMRC’s investigation. The present warrant did not comply with section 15(6)(b) as it failed to identify, so far as is practicable, the articles to be sought. It would, however, have been a simple matter to specify those articles but the warrant did not and was, therefore, unlawful.
HMRC have formidable powers under PACE to enter and search premises and seize items such as computers (see PACE, section 8 and Schedule 1) as well as to arrest persons (see PACE, sections 17 and 24(2)). This decision of the Divisional Court is a welcome reminder that the Courts are fully cognisant of the need to scrutinise carefully the exercise of the formidable powers available to HMRC and to ensure that the constraints and safeguards provided by Parliament are adhered to.