How barristers have helped to use or progress the law in relation to this theme
The rights of ordinary citizens need to be protected against over-zealous HMRC officials in relation to search and seizure warrants.
Why do barristers need to fight to protect the rights of taxpayers against over-zealous tax officials?
In several recent cases, we have seen search warrants from HMRC being quashed and any searches done due to the warrant declared unlawful.
The reasons for these cases being dropped have varied, and include:
- material misrepresentations by HMRC to the judge when seeking the warrant
- lack of proper precision by failing to specify the material sought
- the offences alleged through to failure to specify who the alleged offenders were
“Win at all costs”
We all have a strong interest in HMRC successfully detecting and prosecuting tax cheats, and to do this they need to be able to obtain and execute search and seizure warrants against suspected tax evaders who might refuse to cooperate.
However, the causes of recent failures to act properly by HMRC include what one judge referred to euphemistically, as “over enthusiasm” by the HMRC officer, all the way to the need for further training of the staff in question.
In the end, however, HMRC need to temper the “win at all costs” attitude that increasingly seems to affect their approach to tax investigations, because it can lead to the judges being misled when issuing warrants and the waste of resources when those warrants are withdrawn.
The need to improve the quality of HMRC’s approach is made all the more pressing by the extension of their powers including:
- Since 31 January 2018, to apply to the High Court for Unexplained Wealth Orders
- Since 16 April 2018, to forfeit cash including money in bank accounts without a court order.
The following cases detail instances in which warrants obtained by the HMRC were quashed due to over-zealous officials and the efforts of barristers fighting for their clients.
Misleading the Judge
In R (Hart & Others) v The Crown Court at Blackfriars and HMRC [2017] EWCA 3091 (Admin) (in which the author appeared for the claimants), the court noted that the applicant for a warrant has a duty to make full and frank disclosure and to draw the judge’s attention to any material facts, including those to that would show the warrant to be inappropriate.
If information is withheld, which if disclosed would have led the judge to refuse to issue the warrant, then the warrant can be set aside in judicial review proceedings.
In this case, HMRC had been conducting a detailed investigation into the claimant’s business model. The demands made by HMRC had been so extensive, that it lead the claimants to suspect that HMRC might be employing a strategy to undermine their business.
The civil investigation became a criminal investigation in July 2016. One of the claimants then made a formal complaint and applied for a case review regarding the conduct of HMRC and he sent copies of these to the investigating officers in November 2016.
In December 2016, HMRC applied for search warrants before HHJ Hillen at Blackfriars Crown Court. HMRC tried to justify using the search warrants, claiming that by using a less intrusive order, the claimants may act in a way that would undermine the investigation, for example, by destroying documents.
This was proven to not be true thanks to the disclosure of the claimants’ previous cooperation with HMRC’s enquiries, which allowed the judge to give fair consideration to the matter.
According to the divisional court, there had been a material misrepresentation of the facts by HMRC and a failure to draw relevant matters to the judge’s attention. If a fair picture had been given to the judge, he might have refused to issue the warrants.
The warrants were therefore declared unlawful and costs were awarded to the claimants who remain under criminal investigation.
Too Vague and Too Wide
In Superior Import/Export and others v HMRC [2017] EWHC 3172 the High Court found that search warrants executed by HMRC had been unlawful.
HMRC had carried on a criminal investigation in relation to large scale excise duty evasion and the subsequent laundering of the criminal funds generated. The total tax loss to HMRC since April 2010 was estimated at over £440m.
The appellants were challenging the Birmingham Magistrates’ Court decision to grant three search warrants under section 8 of the Police and Criminal Evidence Act 1984 following an application by HMRC. The appellants also challenged the lawfulness of the execution of the warrants by HMRC.
The court rejected the appellants’ dispute that the warrants were too wide and that there had been excessive searching. It observed, however, that the warrants allowed HMRC to search for material its officers deemed relevant.
The warrants thus “impermissibly delegated the responsibility of applying the access criteria of section 8 and therefore failed to provide the protection required by section 15(6)(b)”. The court also noted that there was ‘no attempt whatsoever to identify the nature of the fraud or suspected offences’. Similarly, in relation to the 237 companies and individuals named on the warrants, no ‘proper particulars’ were given.
Not surprisingly, then the warrants were quashed.
Failure to State Who the Offenders Were and What the Offences Were
In Donaghy & Others Re Judicial Review [2017] NI QB 123, the applicants were former partners in KPMG, and were also partners in a separate enterprise called the Focused Finance Partnership, into which HMRC had opened a civil enquiry into its tax affairs.
On 11 August 2014, HMRC had thanked Donaghy for his “detailed and comprehensive reply” to some enquiries and said that it would revert to him after a pre-arranged period of leave by the investigating officer concerned.
No further contact was made by HMRC until 25 November 2015, when it executed search warrants at the homes and workplace of the partners.
Once the warrants were reviewed judicially, it was found that they did not specify who the alleged offenders were, even though they stated the target material “may link the alleged offenders to the offences”.
The judge ruled that this made it impossible for the recipients to know what material could be searched and what fell out of that authority.
The warrants to search the business premises failed to specify both who the suspects were and what the offences were and gave the recipients even less to go on in deciding the scope of the authority to search.
Finally, the warrants also stated that investigators could search for “other items which are likely to be kept” at the target address.
This phrase was held to actively undermine all attempts to make clear the scope of the authority to search.
For all these reasons, the warrants were found to have been unlawful.
The failures described above are quite shocking given that any search and seizure will prima facie breach Article 8 ECHR and Article 1 of The First Protocol (right to privacy and peaceful enjoyment of possessions) unless the intrusion is shown to have been necessary and proportionate.
While the failures in Donaghy and Superior Export/Import might have been caused by simple incompetence while drafting the warrants, the material misleading of the Crown Court judge by HMRC in order to obtain the warrants which occurred in Hart raises more profound concerns.
It is to be hoped that HMRC are urgently and actively addressing particularly in the light of their extensive powers to seek Unexplained Wealth Orders and to seize cash in taxpayers’ bank accounts without a court order.
The need for barristers to remain vigilant and fearlessly protect citizens from overzealous HMRC officials is as important as ever.
This article is an updated version of an article written by the author for Tax Journal in 2018.
by Patrick Cannon, Old Square Tax Chambers, 15 Old Square, Lincoln’s Inn
