HMRC Northern Ireland search warrants unlawful, rules High Court

Out-Law Legal Update | 22 Jan 2018 | 4:16 pm | 4 min. read

In 2015 HM Revenue & Customs (HMRC) obtained search warrants and conducted searches of the homes and business premises of four individuals who were partners in KPMG's Belfast office, but also partners in a separate business. The search warrants were executed in connection with an HMRC investigation into the tax affairs of the separate business.

The individuals sought to have the warrants quashed by applying for judicial review of HMRC's conduct and the issue of the warrants. They argued that the warrants were defective but they also sought to challenge them on the basis that HMRC did not need to seek the warrants as the individuals were cooperating fully with HMRC on a voluntary basis and HMRC had misled the judges who agreed to the issue of the warrants.

Although the warrants were issued under legislation specific to Northern Ireland, the provisions that apply in the rest of the UK are very similar.

A warrant must "identify, so far as is practicable, the articles or persons to be sought".

Three Lord Justices heard the judicial review application in the High Court in Northern Ireland. Giving the Court's decision, Lord Justice Treacy said the warrants were unlawful as they did not clearly set out what material HMRC was looking for.

The warrants said the target material was that which ‘'may link the alleged offenders to the offences for the period from 1/1/2005 to the present in relation to a series of named companies". However, it was not stated on the face of the warrant who the 'alleged offenders' were. The judge said this meant that the recipient of the warrant would not know what materials related to the named companies they must relinquish because it was linked to alleged offenders, and which materials they would be entitled to hold back because it related to people who were not an alleged offender. Because the warrants failed to name the alleged offenders, the judge said the warrants made it impossible for the recipients to know which materials fell within the authority to search and which did not.

One of the warrants also failed to specify what the alleged offences were. The judge said this would make it very difficult for the recipient to know what material was within the scope of the warrant. He said it was best practice to include the statutory provision for the offence on all the documents presented during a warrant application.

The warrants also allowed the investigators to search for “other items which are likely to be kept” at the target address. The warrants did not require that these ‘'other items’' must be linked to the alleged offences or the suspected offenders. The Court said that warrants drafted with such a broad catch-all phrase breached the statutory requirements as this phrase was too wide and did not sufficiently limit the scope of the authority to search.

Although the warrants were ruled to be unlawful, the Court dismissed the arguments raised by the individuals that HMRC was acting unreasonably in applying for the warrants in the first place.

The judge found that although one of the individuals, Eamonn Donaghy "responded assiduously to every letter he received from HMRC" the content of his responses "may not have been as fulsome, as helpful, or as complete as the applicants assert". The judge therefore said that HMRC's view that some materials might not have been disclosed under the voluntary process was "a tenable view which they were entitled to take on the basis of the materials before them".

The taxpayers complained that HMRC's statements of complaint (SOCs), setting out why the warrants should be issued did not refer to the two latest letters between HMRC and the individuals. Despite this, the Court said that the SOCs gave a materially accurate account of HMRC's evaluation of the information it had gathered from the taxpayers during the civil investigation. Lord Justice Treacy said the undisclosed correspondence did not have any content significant enough to cause any of the judges to refuse to issue warrants and so the failure to mention it did not render the warrants unlawful.

The Court said that HMRC's application was not made on the basis of incorrect and misleading information provided to the judges and held that the judges had not misapprehended the relevant facts.

The individuals had argued that HMRC had applied for the warrants because they wanted to capitalise on their investigation of high profile individuals in order to gain publicity for their work. However, the Court dismissed this argument, accepting the evidence in the affidavits of the relevant HMRC officers.

Although the Court dismissed arguments that the manner in which the warrant applications were conducted was 'procedurally unfair', the judge did advise that a proper record of ex parte hearings should be kept and the reasons for the decision should be recorded.

The warrants were declared unlawful. However the court did not rule on any further remedies, asking for the parties to address it on this point.

For the taxpayer the best course of action would be for HMRC to be required to return the seized documents as then it could not rely on them in evidence. However, if the Court did not order an immediate return of the documents, section 59(5) Criminal Justice and Police Act 2001 would enable HMRC to apply to the Crown Court for an order enabling HMRC to retain the documents if it could persuade the Court that if the property were returned, it would immediately become appropriate to issue to HMRC a warrant under which, it would be lawful to seize the property.

A successful judicial review of a search warrant will not therefore necessarily mean that the taxpayer can get seized documents returned. However, the errors in the warrant in this case emphasize the importance of taking immediate legal advice should HMRC turn up with a search warrant. Preventing documents being seized in the first place is likely to more effective than trying to get the documents back once they are in HMRC's grasp.