Newsletters Business Crime & Financial Services 18th Oct 2017

Newcastle United Football Club and Others v HMRC: A Backwards Step in Relation to Search Warrants?

On 4 October 2017 Newcastle United lost its case against HMRC in a landmark ruling concerning the lawfulness of search warrants and the effect of a judge’s failure to give reasons for issuing such warrants (Newcastle United Football Club and Others v HMRC [2017] EWHC 2404 (Admin)). HMRC had obtained search and seizure warrants as part of its investigation into what it suspected was a “systematic abuse” of the tax system by Newcastle United Football Club (NUFC). The club contended HMRC had no reasonable grounds to suspect tax fraud and complained of significant failings in the process by which the warrants were granted. However, Lord Justice Beaton and Mrs Justice Whipple ruled that the warrants were “lawfully issued”.

The case involved an investigation by HMRC named “Operation Loom” into whether NUFC had claimed inflated VAT refunds and evaded income tax and NI contributions in relation to payments made to and via football agents.   It is suspected that the contractual arrangement fraud, said to be worth some £5m, spanned the tax years 2010-2013.  In April 2017 HMRC obtained search and seizure warrants and consequently carried out dawn raids at a number of premises including St James’ Park, the club’s training ground Darsley Park and the home of managing director Lee Charnley.   In applying for the warrants, HMRC stated that it was investigating “extensive” tax evasion said to be common across many of the club’s player transfer dealings.   These were said to be deals whereby Newcastle used “purported agents as intermediaries to conceal payments to players and their agents”, thereby avoiding tax and NI contributions.   In his statement in support of the application for warrants, HMRC officer Lee Griffiths said: “I believe that the contractual arrangements are a sham and do not reflect what actually happened”.

An order for interim relief has thus far prevented HMRC from examining any of the material seized in the raids.

In June 2017 NUFC bought an application for judicial review, arguing that the search warrants executed in April were unlawful and should be quashed.  It argued that: (1) The warrants were excessively wide; (2) There were no reasonable grounds to believe that NUFC was engaged in the suspected tax fraud; (3) Other methods of obtaining NUFC’s documents were available; (4) HMRC’s disclosure to the circuit judge was inaccurate and incomplete; and (5) the procedure before the circuit judge was inadequate.

NUFC’s arguments concentrated in particular on procedural failings which were said to demonstrate that there was an absence of proper judicial scrutiny which rendered the warrants unlawful.  These included inadequate reading time for the judge, HMRC’s failure to make available to the judge documents upon which the application was based and mistakes made by HMRC in the body of the application which led to an inaccurate picture being painted for the judge.  However, the cornerstone of NUFC’s argument was that the judge had failed to give reasons for his decision.  The transcript of the hearing showed that he did not give any ruling or judgement at the end of the application hearing but simply indicated his willingness to make the warrants in the terms sought. These factors taken together meant that the warrants were not properly scrutinized and NUFC were deprived of the protections afforded by Schedule 1 of PACE.  In particular, it was argued that the failure to give reasons was a grave one which violated the principle that the issuing of such a warrant requires “careful consideration and rigorous critical analysis” as per the decision in the case of Tchenguiz (R (Rawlinson and Hunter Trustees and Others) v Central Criminal Court; R (Tchenguiz and Another) v Director of the Serious Fraud Office and Others [2012] EWHC 2254 (Admin), [2013] W WLR 1634).

In reaching its decision, a central issue for the Court was the impact of the amendments to the Criminal Procedure Rules and Criminal Practice Directions which came into effect in October 2016 (as amended in April 2016). Part 47 of the Crim PR now makes specific provisions for the application for warrants under Schedule 1 to PACE including the use of a standard form setting out various questions or statements relating to the criteria set out in PACE.

The Court found that that HMRC had provided the judge issuing the warrants with an inadequate time estimate to read their substantial application, but that nonetheless his reading time had prepared him adequately for the hearing (based on his assertion “However, I have read it” despite saying that the time estimate had been “optimistic”). Furthermore, the Judges rejected the argument that HMRC should have disclosed to the judge the evidence on which it asserted its belief that NUFC was involved in criminal activity.   The Crim PR required only that the applicant should explain the grounds of its application to the judge and there was no duty to disclose the underlying evidence.  The Court examined some of the documents which were in possession of HMRC at the time but were not made available to the judge.  On the basis of these it concluded that HMRC’s case as stated on the form was  “materially correct” and the undisclosed evidence provided “reasonable grounds” that the club was engaged in criminality.

Significantly, the Court also ruled that the judge’s failure to give reasons was “unfortunate but not fatal”.  Given that the form sets out the statutory criteria which must be applied, where the judge has simply signed the warrant, save where there is positive evidence to the contrary, the judge can reasonably be taken to have been satisfied that the information in the application was sufficient to justify the grant of the warrant.  Whilst it would be preferable if the Crim PR also set out a requirement for reasons to be separately given, in the end the judge’s reasoning will usually be obvious and adequate from the submissions contained within the form itself.   This decision, the first case raising such issues since the April 2016 changes came into effect, is likely to make challenges to warrants on procedural grounds far more difficult to bring in the future.

Gudrun Young 


Categories: Newsletters