Chatwani & Ors, R (on the application of) v The National Crime Agency & Anor [2015] EWHC 1284 (Admin)

Case No CO/965/2015[2015] EWHC 1284 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 11/05/15
Before
LORD JUSTICE BEANMR JUSTICE HICKINBOTTOM
Between
THE QUEEN on the application ofClaimants(1) SATISH CHATWANIClaimant(2) JAWAHAR CHATWANIClaimant(3) RASHMI CHATWANIClaimant(4) BHASKER TAILORClaimant(5) RAKESH TAILORClaimant(1) THE NATIONAL CRIME AGENCYDefendants(2) BIRMINGHAM CROWN COURTDefendant
Alun Jones QC and Bart Casella (instructed by Neumans LLP and Kaim Todner) for ClaimantsAndrew Bird and David McNeill (instructed by NCA Legal) for First DefendantThe Second Defendant neither appearing nor being representedHearing Hearing date: 29 April 2015
Judgment

Introduction

[1]The Claimants seek to challenge a production order made by His Honour Judge Henderson sitting in the Birmingham Crown Court at the request of the First Defendant (“the NCA”) on 23 January 2015.

The Relevant Statutory Provisions

[2]The order was made under section 345(1) of the Proceeds of Crime Act 2002 (“POCA”), which provides that: “A judge may, on an application made to him by an appropriate officer, make a production order if he is satisfied that each of the requirements for the making of the order is fulfilled.[3]The requirements are set out in section 346, which provides (so far as relevant to this claim):
“(1) These are the requirements for the making of a production order. (2) There must be reasonable grounds for suspecting that – … (c) in the case of a money laundering investigation, the person the application for the order specifies as being subject to the investigation has committed a money laundering offence. (2A) … (3) There must be reasonable grounds for believing that the person the application specifies as appearing to be in possession or control of the material so specified is in possession or control of it. (4) There must be reasonable grounds for believing that the material is likely to be of substantial value (whether or not by itself) to the investigation for the purposes of which the order is sought. (5) There must be reasonable grounds for believing that it is in the public interest for the material to be produced or for access to it to be given, having regard to— (a) the benefit likely to accrue to the investigation if the material is obtained; (b) the circumstances under which the person the application specifies as appearing to be in possession or control of the material holds it.” (c) in the case of a money laundering investigation, the person the application for the order specifies as being subject to the investigation has committed a money laundering offence. (a) the benefit likely to accrue to the investigation if the material is obtained; (b) the circumstances under which the person the application specifies as appearing to be in possession or control of the material holds it.”
[4]The procedure for obtaining an order is set out in the rest of section 345 which provides as follows: “(2) The application for a production order must state that –(a) a person specified in the application is subject to a confiscation investigation or a money laundering investigation, or(b) property specified in the application is subject to a civil recovery investigation. (3) The application must also state that – (a) the order is sought for the purposes of the investigation; (b) the order is sought in relation to material, or material of a description, specified in the application;(c) a person specified in the application appears to be in possession or control of the material. (4) A production order is an order either – (a) requiring the person the application for the order specifies as appearing to be in possession or control of material to produce it to an appropriate officer for him to take away, or (b) requiring that person to give an appropriate officer access to the material, within the period stated in the order. (5) The period stated in a production order must be a period of seven days beginning with the day on which the order is made, unless it appears to the judge by whom the order is made that a longer or shorter period would be appropriate in the particular circumstances.” (a) a person specified in the application is subject to a confiscation investigation or a money laundering investigation, or (b) property specified in the application is subject to a civil recovery investigation. (a) the order is sought for the purposes of the investigation; (b) the order is sought in relation to material, or material of a description, specified in the application; (c) a person specified in the application appears to be in possession or control of the material. (a) requiring the person the application for the order specifies as appearing to be in possession or control of material to produce it to an appropriate officer for him to take away, or (b) requiring that person to give an appropriate officer access to the material,[5]The only other provisions of POCA relevant to this claim are: i) Section 348(5) enables copies to be taken of any material produced, or to which access is given, in compliance with the order. ii) A production order is deemed an order of the court (section 351(7)), so that to fail to comply with it is a contempt. The integrity of the procedure is also protected by the threat of criminal sanctions: it is an offence to “tip off” another individual (section 333A: maximum sentence two years) and to make a disclosure about the procedure that might prejudice the investigation (section 342: maximum sentence five years). iii) Under section 351, an application to discharge or vary a production order may be made to the Crown Court by the person who applied for the order or any affected person.

The Factual Background

[6]The First, Second and Third Claimants are brothers who are the directors of a group of over forty companies including Fairview Hotels & Healthcare Limited (“Fairview”) and Davis & Dann Limited (“DDL”). Fairview ultimately owns and manages hotels. DDL has a core business of trading on the grey market in a wide range of fast moving bulk consumable items. The Fourth and Fifth Claimants are employed by the group in management roles.[7]The NCA is a national law enforcement agency which, in October 2013, replaced the Serious Organised Crime Agency, with the function of combating organised and other serious crime.[8]Operation Heteredon is an NCA investigation into international money laundering. Kevin Gilligan is the NCA Senior Financial Investigator in the operation.[9]As a result of the investigation, a man called Rajnesh Sharma was arrested; and, in August 2014, at Birmingham Crown Court, he pleaded guilty to offences involving not less than £10 million of laundered money, and was sentenced to just over six years’ imprisonment. His brother-in-law also pleaded guilty to similar offences, and was sentenced to three and a half years.[10]Those two men having been convicted, the focus of the operation turned to others who had connections with Sharma, notably Harjeet Kaur Dhariwal and her husband, Harvinder Batth. Batth, who had been convicted of money laundering offences in 2008 when he was sentenced to nine years’ imprisonment, was employed by DDL which, in late 2013, loaned him about £180,000 in part satisfaction of the confiscation order which had been imposed upon him in 2008. Batth was also associated with another individual who had been the subject of the investigation, Cliff Tarr, who was a frequent visitor to Kanta House, who drove a car registered to and insured by Kanta Enterprises Limited (DDL’s holding company), and who was arrested in possession of just over £50,000 which (he said) he was couriering for someone who worked at Kanta House. Tarr had bank payment-in slips with him which, with other evidence, suggested that DDL was being used to place and layer large amounts of money representing the proceeds of crime. The paying-in slips showed money credited to various companies, but it had been traced as ending up in DDL’s account.[11]As part of the NCA operation it was proposed to arrest the Claimants, Batth and Dhariwal and, whilst they were under arrest, to search their business and home premises and seize any relevant material there; and to place covert surveillance devices in, at least, their business headquarters. It was hoped that the arrests and searches would prompt a behavioural response in the men, that would be captured on the covert devices and thus provide evidence as to their activities and knowledge. It was also proposed to obtain production orders requiring relevant banks and DDL’s auditors to produce material; and to execute the production orders on the same day as the arrests were effected, and the search warrants executed.[12]Mr Gilligan prepared applications and informations in respect of production orders directed to various banks and the auditors of the companies in the Kanta Group, whom he believed were the Zane Partnership at an address in Finchley Road, London. He conducted a search of Companies House, and found that there was a limited liability partnership registered at the address, in that name. He therefore directed the application and draft order to “The Zane Partnership LLP”.[13]He lodged the applications – about twenty in number (all, except the one directed to the auditors, in respect of banks) – with the Crown Court on 22 January 2015, with a nine-page information in support. The information set out the basis upon which Mr Gilligan submitted there were reasonable grounds for suspecting that a number of individuals had committed money laundering offences contrary to sections 327, 328 and 329 of POCA (the money laundering offence provisions), and for believing that(i) the Zane Partnership LLP appeared to be in possession or control of material relating to the Chatwani brothers and their companies, and(ii) that material was likely to be of substantial value to the investigation. The date of the earliest specific transaction to which specific reference is made in the information is February 2012.[14]Mr Gilligan attended Judge Henderson the following day. The judge had read the papers overnight. We have the benefit of a transcript of the short hearing. Mr Gilligan was sworn and, after the judge had briefly outlined the matters being investigated, Mr Gilligan confirmed that what was in the information was correct and there was nothing else that might affect the decision to grant the order. The judge declared himself duly satisfied that the requirements for making a production order were fulfilled, and he made an order, directed to the Zane Partnership LLP, in the following terms, so far as relevant to this claim (all emphasis in the original):
“You are ordered to provide Kevin Gilligan or another appropriate officer the named material to take away, specifically all dealings with [the First to Third Claimants, DDL and other identified companies within the Kanta Group] and any other Chatwani controlled companies, including any files, correspondence or client account ledgers showing any financial transaction, or financial statements, annual accounts, tax and VAT returns, purchase/sales ledgers and day books, working papers, trading papers, cash books, records of meetings, copies of correspondence, assets held, material showing personal details of the subject and entities and all associated documents, for a period from the first interaction with the subject or representatives of the companies to the date of this order, which does not consist of items subject to legal privilege or excluded material, IMMEDIATELY UPON SERVICE of this order. Where the material consists of information contained on a computer, it must be produced in a form which is visible and legible, and can be taken away. ”
[15]The judge signed the order, and it was stamped with the court seal. Beneath, there were the following two notes, the first reflecting the criminal sanction for disclosure referred to in paragraph 5(ii) above:
“1. It is an offence to prejudice a confiscation or money laundering investigation or prospective investigation by making a disclosure about it or by tampering with documents relevant to the investigation. You should not therefore falsify, conceal, destroy or otherwise dispose of, or cause or permit the falsification, destruction or disposal of, relevant documents, nor disclose to any other person information or any other matter which is likely to prejudice any investigation into confiscation or money laundering investigation. The penalty for this offence on summary conviction is imprisonment for six months or a fine or both and on conviction on indictment is 5 years imprisonment or a fine or both. 2. Anyone served with, notified or affected by this order may apply to the court at any time to vary or discharge this order (or so much of it as affects that person), but they must first inform the applicant (giving 2 clear days notice). If you have any doubts or concerns about this order you should seek legal advice and/or contact Kevin Gilligan [and his address, and telephone and fax numbers were given].”
[16]The production order was executed at about 10am on 28 January 2015 – at approximately the same time as about one hundred officers attended Kanta House to arrest the Claimants and execute a search warrant there, and search warrants were also executed at the Claimants’ homes. Two NCA officers attended the business premises at the address in Finchley Road. There, they met Rajinder Singh Banga, who introduced himself as the sole practitioner of the Zane Partnership and confirmed that he was the auditor for the Kanta Group of companies, including DDL.[17]Mr Banga has been a Fellow of both the Institute of Chartered Accountants and the Chartered Association of Certified Accountants for over 20 years. He is also a member of the Chartered Institute of Management Accountants and the Institute of Taxation. His evidence is that his former partner, David Zane, was the auditor of the Kanta group. Mr Banga became involved in assisting with that audit from the mid-1980s. Since 2006, when Mr Zane retired, Mr Banga has been the companies’ auditor, as a sole practitioner trading as the Zane Partnership. The Zane Partnership LLP was registered in 2013, and is marked as “active” on the register; but Mr Banga has, at all material times, practised as a sole practitioner under the name “The Zane Partnership”. Mr Banga explains his role as external auditor – he is not the companies’ accountant, and he holds only copy records as audit evidence. Audit files are retained for six years.[18]When Mr Banga was served with the production order, the officers asked him for how long he retained audit files, and he told them six years. They said that, initially, they were looking for just the last two years, but the documents covered by the order should not be destroyed because they might require them later and it would be a criminal offence to destroy them after the order had been served. They specifically asked for the documents relating to the audit of Fairview for the year ending December 2013, and the documents relating to the audit of DDL for the year to April 2013 (which had been completed) and the year to April 2014 (which had not). Mr Banga retrieved those files from upstairs in his office, and, later that day, from subcontractors who assist him. The officers took away with them the documents relating to the period 2011-2013. Before they went, Mr Banga produced and signed a short statement.[19]Mr Banga was forbidden from tipping off the Claimants (see paragraph 5(ii) above); and did not do so until 13 February 2015, when he contacted Satish because the production order to which he was subject was preventing him from completing the audit of the Kanta companies. By then of course, the Claimants had all been arrested, search warrants executed on their premises and the covert surveillance devices fitted and removed. Mr Bird did not suggest that there was any significance in Mr Banga telling the Claimants about the production order when he did.[20]As a result of the actions of the NCA on 28 January 2015, the Claimants issued two judicial reviews. First, in Claim No CO/576/2015, they challenged the lawfulness of their arrests and of the search warrants. That judicial review was heard by this court, differently constituted but on which I sat; and a separate judgment in that claim has been delivered in that case today ([2015] EWHC 1283 (Admin)).[21]Second, in this claim (Claim No CO/965/2015) they challenged the lawfulness of the production order directed to the auditors, and to the placement of the covert surveillance devices. The latter challenge has been abandoned, and I need say nothing further about it. In respect of the challenge to the auditors’ production order, on 10 March 2015, Dingemans J granted interim relief, forbidding the use and copying of material taken. However, permission to proceed was refused on the papers by Lang J on 27 March 2015. It was renewed at an oral hearing before this court on 29 April 2015.[22]Mr Alun Jones QC, on behalf of the Claimants, relied upon a number of grounds. At the hearing, we indicated that we would refuse permission to proceed on all grounds save for one, i.e. that the production order was bad because it required production of the documents “immediately on service”. We proceeded to hear the substantive application with regard to that ground, and reserved judgment on it. In this judgment, first, I set out my reasons for refusing permission on the other grounds; before turning to the substantive application on that single ground.

The Unarguable Grounds

[23]Mr Jones relied upon two broad grounds.[24]First, he submitted that the material sought in the application – and directed to be produced in the order – was excessively wide, because it required production of all material for all “Chatwani controlled companies” for a period “from the first interaction with the Claimants and [their various named companies]…”, i.e. potentially from the mid-1980s to the day the order was executed. Such a wide order (Mr Jones submitted) was not necessary for the investigation that was taking place, which was only into DDL for the period from February 2012.[25]I am unimpressed by that argument. Although I accept that Mr Gilligan could have checked Companies House to see for how long the Zane Partnership had been the group companies’ auditors, the scope of the order has to be seen in context, i.e. against the backdrop that the Zane Partnership was the auditor (and not the accountant) for the companies, and could only be expected to have documents that would be supplied to and kept by an auditor – i.e. limited documents for a limited period – as, indeed, appears to have been the case. As Mr Banga explains, the companies send him their management accounts which he audits by going to the company premises and interrogating the data there; and he only keeps audit files for six years. Although the investigation has, to date, only found evidence of money laundering transactions back to 2012, and only then involving DDL, there is nothing to suggest that the investigation is restricted to those boundaries. The evidence before the judge was adequate to enable him to conclude that the suspected offence(s) had been going on for some time, believe that the documents held by the auditors might substantially assist the investigation and consider that it was in the public interest to grant the production sought.[26]Although this challenge is to the legality of the order – and not its execution – in fact, there is no evidence that Mr Banga did have documents going back for thirty years (or, indeed, for more than six years); and there is no evidence that Mr Banga had, in practice, any difficulty in complying with the request for documents made by the officers or would have had any difficulty in complying with that order in respect of all the documents he had in his possession and control that fell within the scope of the order.[27]For those reasons, I do not consider this first ground to be arguable. It was not Wednesbury unreasonable for Judge Henderson to have made the order that he did; nor is it arguable that the order was in any way disproportionate, or violated the rights to private life of the Claimants or Mr Banga, or was otherwise unlawful in the way that it was drawn.[28]As his second ground, Mr Jones contended that the statutory pre-conditions set out in sections 345 and 346 were not met.[29]In his skeleton argument, he suggested that the judge did not consider the conditions in section 345, because, in the order, there is only reference to section 346. However, that fails to take into account the fact that section 345 merely sets out the procedure, and it is section 346 (which commences, “These are the requirements for the making of a production order”) that sets out the relevant criteria or requirements.[30]With regard to those criteria, in my judgment, there is no evidence that the judge failed to take into account all of the relevant requirements or failed to find them to be satisfied. For the reasons I have already given, simply because the officers who attended the premises focused on the documents from recent years, I do not consider it is arguable that there was no reasonable basis for concluding that the offending conduct may have been over a longer period or that material was likely to be of substantial value to the investigation of the offence over that period. We have before us Mr Gilligan’s information which, clearly, sets out a legal and factual basis upon which the judge could properly conclude that there were reasonable grounds for suspicion that an offence had been committed, namely the evidence of the association of the Claimants and DDL with known or suspected money launderers, and the evidence of known or suspected criminal moneys ending up in DDL’s account: in other words, that the statutory pre-conditions in section 346 had been met.[31]It is also suggested in the written submissions that the order was defective because it referred to “The Zane Partnership LLP”, a limited liability partnership having a distinct legal identity in law, rather than “The Zane Partnership”. This was not pursued orally before us, and in my view Mr Jones’ reticence was appropriate: I do not consider there is any force in the point. Section 345(3)(c) requires the application to specify a person who “appears to be in possession or control of the material”. On the basis of his enquiries, Mr Gilligan believed that the Zane Partnership LLP fell in that category. On the execution of the order, Mr Banga was entitled to raise the point that the legal person to whom the order was directed was not correct – the notes in the order told him how he might raise concerns with Mr Gilligan – but he did not do so. It is true that he told the NCA officers that he was a sole practitioner trading as the Zane Partnership – but I do not consider that the NCA officers who executed the order were in breach of any duty in failing specifically to point out to Mr Banga that the order was directed to a limited liability partnership. In the event, Mr Banga appears to have taken an eminently sensible and appropriate approach to the order served upon him.[32]For those reasons, the judge did not arguably err in law in concluding that all of the relevant statutory requirements were met.

The Arguable Ground

[33]At the hearing, we indicated that we considered one, narrow ground to be arguable and granted permission in respect of it; and, both parties being ready and willing to make full submissions, we proceeded to deal with the substantive hearing on that ground.[34]It was another strand of Mr Jones’ argument regarding the width of the[35]Section 345(5) (quoted at paragraph 4 above) provides that the period stated in a production order “must be a period of seven days beginning on the day the order is made, unless it appears to the judge by whom the order is made that a longer or shorter period would be appropriate in the particular circumstances”. That seems to reflect the wording in Schedule 1 to the Police and Criminal Evidence Act 1984 (which appears to have been the earliest statutory provision to give a court the power to make an order requiring a person to produce material), which enables a judge to make an order requiring access to material. Where the relevant conditions are satisfied, paragraph 4 provides that:
“An order under this paragraph is an order that the person who appears to the judge to be in possession of the material to which the application relates shall – (a) produce it to a constable for him to take away; or (b) give a constable access to it, not later than the end of the period of seven days from the date of the order or the end of such longer period as the order may specify.”
However, whilst that is conceptually similar to section 345 of POCA, there are significant differences in practice. Under the PACE provisions (i) the seven day period cannot be shortened, as it can be under section 345 of POCA; and (ii) an application must be made on notice (paragraph 7), and an application under section 345 of POCA can be without notice.

(b) give a constable access to it,

[36]Under section 345(5) of POCA, there is a requirement that the period be seven days, unless the court is satisfied that a different period is appropriate. Mr Jones – in my view, rightly – accepted that the discretion as to timing is open-textured and that, under that provision, the court has jurisdiction to make an order that production be made “immediately”. However, he submitted that the default position was seven days, the initial words being mandatory – “The period stated in a production order must be a period of seven days…” – and a judge could only properly depart from that period if, on a sound evidential basis, he had good grounds for doing so. In this case, Mr Jones submitted, there was no such basis. Mr Banga was a professional man, in respect of whom there was no evidence of wrong-doing; and there was simply no basis upon which the judge could have concluded (for example) that, if he had been put on notice of the production order on 28 January 2015, he would have tipped off the Chatwani brothers – in the event, he did not do so until 13 February 2015, when it was clearly of no moment (see paragraph 19 above) – but, even if he had, they had been arrested on the morning of 28 January 2015 and so were clearly aware that they were being investigated. Most importantly, there was no evidence that, had he been given time to comply, Mr Banga would have committed a criminal offence and/or a contempt of court by destroying or otherwise manipulating the documents he had that were covered by the order.[37]Mr Bird accepted that it would have been better if the evidence had been set out explicitly and in more detail in the application; but, he submitted, it was clear from the documents put before the judge that the auditors and the banks were being treated differently for production order purposes. It was clear from the face of those documents that the banks were given seven days to comply (and had in fact been notified of the application before it was made); and, for the auditors, the disclosure had to be made immediately. The information indicated:
“In respect of the Zane Partnership, I have not served a copy of this application and information on this respondent, and request that the Court deal with this application in the respondents’ absence because I believe it would prejudice the investigation if these respondent was present [sic]. … The intention is to serve the Production Order on the Zane Partnership LLP after the arrests in order to avoid operational compromise to this investigation.”
Therefore, Mr Bird submitted, the judge could properly infer from the documents before him that, due to the close relationship between the Zane Partnership and the Kanta companies, if the auditors were given any time in which to comply with the order, there was a risk with regard to the integrity of the documents held.[38]With regard to the correct approach to section 345(5), I essentially agree with Mr Jones’ submission. Most section 345 orders are directed at banks etc, in respect of which it is usually inconceivable that, if they are on notice of a production order and subject to the sanctions for non-compliance, they would inform their customer and/or destroy or dispose of the documents sought. The normal order in those cases is that the target of the order is given seven days in which to comply. In the less usual cases, when section 345 is used to obtain the production of documents from a target who may disclose the investigation and/or destroy or dispose of the targeted documents – so that an “immediate” order might be appropriate – then the applicant must set out an evidential basis to enable the judge to determine what period for compliance is appropriate. Where, as here, the target is a professional man in respect of whom there is no evidence of criminal behaviour or any wrong-doing, then an immediate order would be wrong without such an evidential basis. It is not sufficient for the applicant merely to assert that there is a risk that an operation will be compromised if the target of the order is given time to comply: he must set out, even if briefly, the basis upon which that risk is said to arise, so that the judge can exercise his discretion to shorten the seven day period in a properly informed way.[39]In this case, I do not accept Mr Bird’s submission that the judge could properly infer that the Zane Partnership on the one hand, and the Chatwani brothers and their Kanta companies on the other, had a relationship that was such that the auditors might compromise the documents that they held if they were given seven days in which to comply with the order. In the documents before the judge, there is simply no evidential basis upon which such an inference could be founded. There was nothing of substance added to those documents at the short hearing before the judge. In my view, in those circumstances, the application was inadequate by failing to provide the court with the evidential basis upon which to make the order sought; and, unfortunately, the judge did err in requiring the production to be “immediately upon service”.[40]However, Mr Bird argues with force that that error had no material effect in practice. If Mr Banga had been served with the production order on 28 January 2015, and given seven days in which to comply, there is no evidence to suggest that he would not have done so. He was forbidden from telling the Claimants that such an order had been served on him – and, in fact, he did not tell any of them until 13 February 2015, over two weeks after it had been served and effected – and he was forbidden from destroying or otherwise disposing of the documents that were the subject of the order. There is no evidence that, had the production order given seven days, he would have committed a criminal offence and/or a contempt of court by either tipping off the Claimants (or anyone else) or destroying/disposing of any of the documents. There is also no evidence to suggest that he might have made any application to the court (e.g. under section 351) to discharge or vary the order. It is noteworthy that he has not made any application subsequently, nor has he supported the application made by the Claimants.[41]Consequently, I am satisfied that, had the order been made giving the Zane Partnership seven days to comply – as on the material before the judge it ought to have been – the parties and the Zane Partnership would have been in the same position in which they in fact were following the execution of the erroneous order.[42]In those circumstances, whilst I would grant the Claimants a declaration that the production order was unlawful, I would not grant any further relief. In particular, I do not consider it would be appropriate to order the return of the material produced or work product derived from it (in terms of copies etc); and I would discharge the injunction currently imposed on the NCA as to copying and other use of that material.

Conclusion

[43]For those reasons, I would: i) grant permission to judicially review the production order challenged, on the single ground I have identified; ii) allow the judicial review on that ground; iii) declare the production order to be unlawful; and iv) order the discharge of the injunction imposed in paragraphs 1 and 2 of the Order of Dingemans J dated 10 March 2015.[44]I agree.

order

he submitted that it was too wide in requiring the Zane Partnership to provide the identified material “immediately upon service”.

Cited in 2 later judgments