QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE SILBER
| R (Rawlinson & Hunter Trustees and others)
|- and -
|(1)Central Criminal Court
(2)Director of the Serious Fraud Office
|R (Robert Tchenguiz and R20 Limited)
|(1) Director of the Serious Fraud Office
(2) Commissioner of the City of London Police
(3) Central Criminal Court
Lord Goldsmith QC, Ben Emmerson QC and Jonathan Barnard (instructed by Wilmer Hale) for the Interested Party (Vincent Tchenguiz)
Lord Macdonald of River Glaven QC, Alex Bailin QC and Clare Sibson (instructed by BCL Burton Copeland) for the Claimants Robert Tchenguiz and R20
James Eadie QC, Mark Ellison QC Allison Clare and Ben Watson for the Serious Fraud Office
Fiona Barton QC for the Commissioner of the City of London Police
Hearing dates: 22, 23 and 24 May 2012
Crown Copyright ©
The President of the Queen's Bench Division:
This is the judgment of the court.
I THE FACTUAL BACKGROUND
(i) RT and the Tchenguiz Discretionary Trust (TDT).
(ii) VT and the Tchenguiz Family Trust (TFT)
(iii) Kaupthing Bank and its relations with RT
(iv) The restructuring and the Oscatello loan arrangements made on 19 December 2007
"a deliberate, concerted and dishonest conspiracy between a number of senior Kaupthing executives and two favoured clients of the bank, namely Robert and Vincent Tchenguiz, to defraud and ultimately steal funds on a large scale from the Bank
… There is a thread running through all areas of suspected criminality which demonstrates what appears to be a highly unusual relationship between Kaupthing Bank, its senior executives and the Tchenguiz brothers. Indeed there are reasonable grounds to suspect that this relationship was ... a corrupt one which routinely accepted and developed false or misleading information in order to present a picture of financial health for the bank and extensive lending for key clients."
(v) The market in 2008
(vi) The increase in lending to Oscatello
(vii) Money market loans made between January and July 2008
(viii) Pennyrock Loan Agreement
(ix) The Pumpster transaction: June 2008
(x) The position in the summer of 2008
(xi) The Thorson transfer
(xii) The collapse of Kaupthing
(xiii) The attempt to put assets beyond the reach of Kaupthing on 13 November 2008: "Project Longboat"
(xiv) The actions of the Resolution Committee and their advisers
(xv) The commencement of the SFO investigations
"A discussion followed on how best Grant Thornton could share information with the SFO. [GT3] thought that it should be possible to replicate the co-operative model as developed for Madoff, on which he had been in the lead for GT. The first issue however was how to get a referral to SFO so as to enable a formal investigation to be initiated. This was a "chicken & egg" situation where SFO needed to have access to S.2 powers to obtain sight of GT's investigation report but the evidence in the report pointing to UK fraud appeared to be the best route to opening an investigation.
[GT1] was reluctant to volunteer detailed documentation in case this should prejudice the civil claims. He suggested that a first step might be for WG to update the presentation material provided to the Icelandic FME & Special Prosecutor. SFO could then request this material (on an intelligence basis) direct from the Special Prosecutor. It was agreed to proceed on this basis."
(xvi) The claim by TFT against Kaupthing
(xvii) The supply of further information by Grant Thornton to the SFO: the allegations of dishonesty against VT in respect of Pennyrock loan agreement
(xviii) The SFO's decision to apply for a search warrant
(ixx) The hearing before Judge Worsley
"A. Incredible, yes. Yes, apologies, my Lord. There are material documents that have been passed over from the Tchenguiz side which were wholly untrue, given their position. The way that the money was passed out of the bank was highly suspicious. It diverted the normal procedures within the bank. Just for example, instead of going through the proper procedure, the Credit Committee, these agreements of hundreds of millions of pounds were basically done across a meal in a nightclub with no paperwork at all; and they used money market loans, in one case 36 money market loans to get nearly 400 million out to Tchenguiz.
As the year progressed from 2007 towards the collapse, the misrepresentations, we would say, was a conspiracy to defraud. In terms of a conspiracy to steal, there's a wholesale – days before the collapse of the bank, when the FSA were counting KSF in London, The Icelandic Central Bank were taking over the bank in Iceland, Tchenguiz basically came in, in a final last act, and took 61 million out of the bank that basically took him 39 million over his overdraft facility, which at that time was 600 million. They did not have any money in Luxembourg, where his private account was. They contacted Iceland and just said, "Yes, no problem at all."
A lot of this money has gone, we believe, to Luxembourg, where basically, following the collapse of the bank – there was a Kaupthing Bank Iceland and Kaupthing Bank KSF basically sort of phoenixed in a way to a new bank, and it is as that premises there that a lot of the secrets of this investigation are held."
1. The last sentence in the first paragraph refers to the 36 money market loans which we have mentioned at paragraph 18 and to which we refer again at paragraphs 132 and following.
2. The transaction referred to in the second paragraph is a reference to the Thorson transfer which we have mentioned at paragraph 26 above and to which we refer again at paragraphs 151 and following below.
After short submissions from the in-house advocate the judge authorised the issue of the warrants. Nothing was asked or said as to whether the judge had been told matters that weighed against issuing the warrants.
(xx) The execution of the warrants
(xxi) The commencement of judicial review proceedings
(xxii) 22 December 2011: The admission of the inaccuracy in the information provided to the judge
"….. the Director has instructed me to review this investigation in general, and the information which was relied on in the application for warrants in particular, with a view to ascertaining whether the information was accurate in the respects complained of in your grounds. I had had no previous involvement in the investigation before this stage. He has concluded that the information was not accurate in those respects and accordingly has instructed that the items seized should be returned forthwith."
The letter made clear that the criminal investigation into VT and others was continuing. The letter then went on to state that it enclosed two schedules itemising material which was seized from Consensus and VT and the physical items were being returned that day to Stephenson Harwood and Kingsley Napley, solicitors to VT. However, the letter enclosed notices under s.2(3) of the CJA 1987, the "here and now" notices to VT requiring him to provide the SFO with the documents described therein. The letter then explained why the documents were important and then continued under the heading 'Reason for issuing Notices':
"These Notices require the production by [VT] of documents, some of which were seized from his home and your client's address on March 9th and 10th 2011. Given that the Director has decided not to contest the judicial review in his case and to accept that those warrants should not have been granted on the basis of the information relied upon, the documents seized from his premises fall to be returned. In the period between September and the return of these documents they have not been examined by the case team. The Director takes this position on the basis that the application for the warrants contained errors of fact, but that the information was submitted to the court in good faith.
However, this is a major criminal investigation and it is not thought that errors in the obtaining of the search warrants should result in serious prejudice to it. I have now been permanently assigned to lead the case and the director remains personally closely involved. Fresh consideration has been given to what documents are necessary for the case team to obtain and consider. The first Notice (the 'here and now' Notice) is therefore being served on [VT] at the time of the return of some of the search material so that those items which fall within this updated list of material required may lawfully be obtained by the SFO for the purposes of this investigation. The list of what was seized during the searches of his premises will be retained and used to assess compliance with this Notice. The second Notice (the 14 day Notice) is being served on him to obtain those items within this updated list of material required which do not form part of the search material being returned."
The letter then explained why the process under s.59 of the Criminal Justice and Police Act 2001 had not been followed. Issue 6 in these judicial review proceedings relates to the legality of the action of the then Director of issuing the "here and now" notices and retaining the material instead of utilising the statutory machinery provided for under s.59. We consider this at paragraphs 268 and following.
"The particular issue concerns the allegation made in the information about a loan made to [VT] (the 'Pennyrock loan' at paragraphs 114-119 of the Information). This allegation was supported by two factual contentions. The first was that the documentation submitted to Kaupthing before obtaining the loan did not disclose the existence of senior lending. In fact, the documentation seen by Kaupthing's lending committee referred to other creditors.
The second factual contention was that the value of the securities offered within the portfolio was widely overstated. In fact, information was provided about the basis of valuation. Reputable agents had been prepared to adopt a projection of rental income over 150 years and other lenders had been prepared to accept this basis.
Those two factual contentions, therefore, cannot be substantiated. I am very sorry to say that the SFO had the material which undermines those allegations when we were drafting the information."
(xxiii) The events preceding the hearing
(xxiv) The concession by the SFO on the day before the hearing.
(xxv) Discontinuance of the investigation against VT
II THE ISSUES
i) Non disclosure and misrepresentation in the Information and evidence given to the judge on the application for search warrants.
ii) The failure of the judge to give reasons.
iii) The lawfulness of the arrest of RT.
v) The conduct of the search in relation to privileged documents.
vi) The "here and now" notice.
vii) Consequential relief.
ISSUE 1: NON-DISCLOSURE AND MISREPRESENTATION IN THE INFORMATION AND EVIDENCE GIVEN TO THE JUDGE ON THE APPLICATION FOR SEARCH WARRANTS
(1) The case advanced by RT and VT and the matters for our decision
(2) The duties applicable to the grant of the search warrants
(i) The constitutional principle
(ii) The powers of the Director of the SFO
(1)The powers of the Director under this section shall be exercisable, but only for the purposes of an investigation under section 1 above, … in any case in which it appears to him that there is good reason to do so for the purpose of investigating the affairs, or any aspect of the affairs, of any person.
(3) The Director may by notice in writing require the person under investigation or any other person to produce at such place as may be specified in the notice and either forthwith or at such time as may be so specified, any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified description which appear to him so to relate; and—
(a)if any such documents are produced, the Director may—
(i)take copies or extracts from them;
(ii)require the person producing them to provide an explanation of any of them;
(b)if any such documents are not produced, the Director may require the person who was required to produce them to state, to the best of his knowledge and belief, where they are.
(4)Where, on information on oath laid by a member of the Serious Fraud Office, a justice of the peace is satisfied, in relation to any documents, that there are reasonable grounds for believing—
(i)a person has failed to comply with an obligation under this section to produce them;
(ii)it is not practicable to serve a notice under subsection (3) above in relation to them; or
(iii)the service of such a notice in relation to them might seriously prejudice the investigation; and
(b)that they are on premises specified in the information,
he may issue such a warrant as is mentioned in subsection (5) below.
Applications for warrants under s.2(4) are invariably made to the Crown Court.
(iii) The SFO's duty of disclosure
"put on his defence hat and ask himself, what, if he was representing the defendant or a party with a relevant interest, he would be saying to the judge."
(iv) The position of the judge
"In my judgment, it is clear that the judge personally must be satisfied that the statutory requirements have been established. He is not simply asking himself whether the decision of the constable making the application was reasonable, nor whether it would be susceptible to judicial review on Wednesbury grounds (see Associated Provincial Picture Houses Ltd v Wednesbury Corpn  1 KB 223). This follows from the express wording of the statute, "If … a circuit judge is satisfied that one … of the sets of access conditions is fulfilled". The purpose of this provision is to interpose between the opinion of the police officer seeking the order and the consequences to the individual or organisation to whom the order is addressed the safeguard of a judgment and decision of a circuit judge. This conclusion is consistent with the approach suggested in R v Inland Revenue Comrs, Ex p Rossminster Ltd  AC 952, as well as a series of decisions in the Divisional Court of which R v Lewes Crown Court, Ex p Hill (1990) 93 Cr App R 60 represents a valuable example"
"it was a perfectly proper course of action for the SFO to take. A judge had to approve the searches and would do so only if absolutely satisfied that it is the right thing to do."
The express reliance on the judge's authorisation as an independent verification of the grounds for issuing the warrants emphasises the importance of the very heavy burden that is placed on the judge. Far from being anything that could be characterised as a "rubber-stamping process", it requires detailed, anxious and intense scrutiny by a judge as the cases make clear.
(3) The overall adequacy of the presentation made in the Information and oral evidence to Judge Worsley
(i) The need for a clear summary of the case
(ii) The role of Grant Thornton and the lack of independent verification
(iii) The need for independent verification
(4) The reasons why a s.2 (3) notice might seriously prejudice the investigation
(5) The allegations relating to RT and the TDT
i) The Oscatello loan facility and the increases in lending under it
ii) Money Market loans
v) Project Longboat and the PIK notes
(i) The role of Investec
"Each trust is managed by Trustees and Joint Trustees appointed to operate the business of the trusts. Nominee company directors are appointed by the trustees to manage the day to day activities of the multiple holding companies and Special Purpose Vehicles (SPV) set up to perform specific activities within the structure. The brothers retain, respectively, the UK R20 and [Consensus] to advise and provide instructions to the nominee directors."
A little later, the Information stated:
"The Trustee companies set up to operate the TDT were: Investec Trust (Guernsey) Ltd, Bayeaux Trustees Ltd. Both above Trustee Companies acting as trustees for both TFT and TDT."
The statement that Investec was set up to operate the TDT was repeated elsewhere in the Information.
(ii) The making of the Oscatello loan facility and associated agreements
i) A warranty was given by TDT as to the statement of assets and liabilities of the Oscatello companies as at 30 November 2007. This showed that Oscatello had a net equity of £264.46m. However it was contended that if the inter-company liabilities at that time or as at 17 December 2007 were brought into account, the Oscatello Group was in fact insolvent. TDT therefore was in breach of the warranty.
ii) Shortly after the making of the arrangements, there was said to be evidence that Oscatello was insolvent. The Information referred to an e-mail on 30 December 2007 from Gudmundur Thor Gunmarsson, Head of Corporate Credit at Kaupthing, to R20 where he stated that "the structure as a whole is under water and we need to sell aggressively".
iii) Grant Thornton had calculated the loan to value ratio of Oscatello was 350% at 19 December 2007. However, the Information did not explain this calculation or whether any dishonesty was alleged; it merely stated that it was in excess of the 87% in the agreement. The note by the SFO of the meeting on 25 November 2010 at which this information was imparted to them does not contain any detail.
iv) The release of the personal guarantees of RT.
v) The failure by Kaupthing to honour the request made to it by the Icelandic Financial Regulator to keep an overview over the lending to Oscatello and the value of the securities.
(iii) The increases in the Oscatello loan facility in the first part of 2008
i) The value of collateral for significant assets was deliberately overstated or manipulated.
ii) There was no obvious commercial rationale for the subsequent increase in the loans made to Oscatello and the concentration of the exposure of Kaupthing to the TDT.
iii) The loan to value ratio had been ignored or arbitrarily changed.
iv) Documentation showing approval by the Kaupthing Credit Committee for other specific additional loans was created retrospectively and in breach of the loan to value safeguards.
v) Kaupthing had lent RT funds to meet margin calls from subsidiaries of Kaupthing. "In other words, the parent company of the group loaned funds to him to meet margin calls from its subsidiaries, a concept without any apparent commercial rationale".
vi) A paragraph of the Information stated:
"Alternative collateral for loans under the Agreement consisted solely of shares of intermediary holding companies within the Oscatello structure, with subsidiary companies further down the structure holding assets of value. The loan to value ratio for such collateral was initially set at not less than 87% of the outstanding loan. The loan to value ratio applies to the amount an institution is willing to advance as opposed to the value of the underlying asset or collateral. So in this case it was 87% of the value of the underlying collateral."
Mr Eadie told us that this paragraph was meant to reflect a report by Grant Thornton to the SFO on 25 November 2010 that other lenders had their loans secured on actual assets, whereas Kaupthing's security was on the shares of companies whose assets had all been pledged to the other lenders. The other lenders were identified as Morgan Stanley and Dawnay Day who it appears were the counterparties to the CFDs and other derivatives; the conclusion of Grant Thornton was that Kaupthing was in effect funding margin calls by way of overdrafts.
"Even though the exposure on TDT is considerably underwater, it is estimated that the interest of Kaupthing is best served by keeping Oscatello alive."
(iv) The Money Market loans made between January and July 2008
"form of Money Market loans in order to deliberately circumvent normal credit control and sanction process at Kaupthing."
There were said to be 36 money market loans credited to the Oscatello account amounting to over £343m. They were made in the form of short term cash deposits and it was said that such loans would only be used for short term borrowings between banks and other institutions. They were said to have no commercial rationale from the perspective of Kaupthing.
(v) The Pumpster transaction in June 2008: the Laurel Pub Group.
"the evidence suggests therefore collusion to create a false position as to Kaupthing's accounts".
(vi) The position of the Oscatello loan in the summer of 2008
"he outlined his concerns about the insolvency of the Oscatello structure. This concern was raised with R20. In response a "Comfort letter" dated 14 August 2008 drafted at R20 and forwarded to Kaupthing by a senior employee of R20, Aaron Brown in an e-mail attachment. Aaron Brown requested that the draft be placed onto Kaupthing headed paper and signed. This request was carried out by the above mentioned Gudmunder Thor Gunnarsson who signed and returned the letter as requested on Kaupthing headed paper and with the date amended to 21 August 2008. This seems at odds with the e-mail referred to above [which we have mentioned at paragraph 118.ii) above] in which Gunarsson states that Oscatello was "under water". This letter makes reference to the fact that the Bank were "fully aware of the position of the borrowers", meaning Oscatello. The nominee Directors duly acknowledged receipt of the letter within the minutes of a meeting called by the nominee directors."
The Information referred to this as highly unusual practice and that it raised serious questions about the operating independence of Kaupthing when it came to overseeing the interests of RT. It appeared that Kaupthing was acting more in accordance with RT's direction than it should have been and in contravention of the normal commercial interests of Kaupthing.
(vii) Thorson; the transfer of £61.84m on 3 October 2008
(viii) The attempt to protect Oscatello's assets in November 2008: Project Longboat and the PIK Notes
"The collapse of Kaupthing involved public and regulatory authorities in a number of jurisdictions. There was huge publicity. The notion that the Trustees could or would have made off with the assets so as to "defraud" Kaupthing is ridiculous"
His affidavit went on to explain the reasons for his view which included an earlier fire-sale by Kaupthing without notice to TDT, the transparent nature of the transactions effected on 13 November 2008, the immediate notification to Kaupthing, the way the transactions were structured so that they could be unwound and the offering of an undertaking by Investec that the assets would not be dealt with.
i) The Information was silent on the role of Investec. The SFO contended that RT remained in ultimate control. Although the degree of control that was respectively exercised by Investec and RT is a matter that may ultimately have to be decided, the judge should have been told what was said by those involved for RT and TDT. He should therefore have been told what Investec said its role was in the transaction and the reasons given by Mr Clifford for what it was seeking to do.
ii) The Information said nothing about the immediate notification to Kaupthing of the transaction. It was said by the SFO that Kaupthing considered the transactions were illegitimate. However in judging whether there were reasonable grounds for suspecting the transaction to be criminal, it would be material to take into account that Kaupthing were immediately notified.
iii) The Information was silent on the undertaking offered by Investec and on Investec's contention that the assets were ring fenced. It should have set it out, as it was again highly material to a judge's determination as to whether there were reasonable grounds for suspecting the transaction to be criminal.
iv) The Information stated that Leading Counsel for Kaupthing had concluded that the transactions were fraudulent. If that was thought to be relevant (which it was not), the Information should have stated that Leading Counsel for the defendants in the BVI claim, Ms Prevezer QC, had characterised in the defence the allegation of fraud as "scandalous and/or vexatious and/or ought never to have been made."
v) The reference in the Information to a meeting in Scott's Restaurant between RT and Mr Sigurdsson, chairman of Kaupthing, in 2008, in relation to the sale of the interest in Somerfield was no doubt intended to show a close relationship between RT and Kaupthing. If that meeting was to have been relied on, a more detailed account of what RT and TDT said as to the reasons for the meeting was necessary to give a fair and balanced picture.
vi) The Information stated that proceedings had been brought in the BVI against RT; that was wrong. The litigation had been brought against Investec and the Oscatello companies.
It was submitted that the Information should, when stating the action had been settled, also have drawn attention to the fact that the allegation of fraud had been withdrawn. However, the SFO did not know the terms on which the action had been settled. Furthermore although it was submitted that the judge should have been asked to consider whether the fact that litigation was extant militated against the grant of the warrant as the lawyers would have safeguarded the documents (as set out in the submission we have recorded at paragraph 103), this factor was an obvious matter to any judge and did not need to be spelt out.
(ix) No benefit to RT
(x) The discussions between Mr Burton of Burton Copeland and the SFO
"I have considered whether this approach amounted to genuine, open and frank assistance by [RT]. In the context of the material I have viewed suggesting substantial dishonest conduct by or at the direction of [RT], I do not believe that to be the case. My belief as an experienced criminal investigator, and as the Case Manager, is that this was a tactic employed to seek to direct this investigating body. It does not diminish my belief that the suspect will not comply with service of a S.2 notice requirements or that I have reasonable grounds to believe that material under the warrants sought and of relevance to this case investigation will be located at the target premises."
That was apparently a reference to a completely different approach to that of Mr Burton.
(xi) Conclusion in relation to RT and R20
(6) The transaction relating to VT and the TFT: Pennyrock
(i) The factual background
(ii) The erroneous allegations of suspected criminality
"It is believed that the value of the securities offered within the portfolio was widely overstated. Actuarial values have been included within the Financial Statements of the underlying ground rent owning companies that Kaupthing relied on for the continued lending arrangements. Whilst actuarial values are a valid way of valuing the portfolio, the basis for this particular valuation was a projection of rental income for 150 years as opposed to the accepted accounting practise of 50 years. Consequently it is believed that the Financial Statements were materially overstated."
i) The securities pledged for the Oscatello facility were (1) the shares of companies that owned the GEN1 portfolio (in respect of which the senior lender was Deutsche Bank), (2) shares of companies owning the GEN2 portfolio (in respect of which the senior lender was Bayerische Landesbank) and (3) shares of companies in the GEN5 portfolio (in respect of which the senior lenders were HBOS and AIB UK).
ii) The securities pledged for the Pennryrock loan were (1) the shares of different companies in the GEN 5 portfolio (in respect of which the senior lender was HBOS), (2) the shares of companies owning the Peverel Propco ground rent portfolio (in respect of which the senior lender was BOA, RBS and Prudential) and the shares of companies owning Peverel Opco (in respect of which the senior lender was BOA).
It is evident from an internal SFO note that the SFO had appreciated this division of the ground rent portfolio.
(iv) The litigation involving the TFT companies
(v) The allegations against VT as maintained on 30 April 2012
(iii) Conclusion on VT
ISSUE 2: THE JUDGE'S FAILURE TO GIVE REASONS
"You obviously have an encyclopaedic knowledge of this case, understandably and I am entirely satisfied that you should have the warrants you require. I need to check that what I am authorising is that which you properly need"
"In preparation of being impressed with [the case manager]'s evidence, I have signed the warrants."
"Normally I simply grant them if I am satisfied you have made out a case for the necessity of warrants being granted and I find that there is. It seems to me that this is the only way in which you are likely to pursue the lines of enquiry that you wish to pursue."
"[The judge] gave no reasons for her decision. With respect to her she should have done so. That is not only because generally judges should always give reasons for what they do, but here in particular because she was exercising a draconian jurisdiction."
ISSUE 3: THE LAWFULNESS OF THE ARREST OF RT
i) Where an arresting officer is misled into believing there are other reasonable grounds for arrest by another state agent responsible for law enforcement and that state agent is on notice that the information he is providing to the arresting officer is incorrect or incomplete, then the law must grant a narrow exception to the O'Hara principle in order to give RT a remedy; and/or that
ii) The arrest of RT was not "necessary" as stipulated in the criteria set out in section 24(5) of the Police and Criminal Evidence Act 1984; and/or
iii) The decision to bail RT was parasitic upon an unlawful arrest and was therefore unlawful in any event; and/or was not necessarily proportionate or lawful.
"23…As far as the decision to arrest is concerned, I accept that, as this court has said on a number of previous occasions, such a decision is amenable to judicial review in appropriate circumstances. It is the exercise of a discretion which can be challenged on Wednesbury grounds (see Associated Provincial Picture Houses Ltd v Wednesbury Corpn  1 KB 223 ) or other grounds…."
(ii) The O'Hara rule - a new exception?
(2) - If a constable has reasonable grounds for suspecting that an offence has been committed, he may arrest without warrant anyone whom he has reasonable grounds to suspect of being guilty of it.
(4) – But the power of summary arrest conferred by subsection (1), (2) or (3) is exercisable only if the constable has reasonable grounds for believing that for any of the reasons mentioned in subsection (5) it is necessary to arrest the person in question.
(5)(c) (iii) to prevent the person in question causing loss of or damage to property
(5)(e) to allow the prompt and efficient investigation of the offence or of the conduct of the person in question
(5)(f) to prevent any prosecution for the offence from being hindered by the disappearance of the person in question."
215. Similar wording was considered by the House of Lords in O'Hara v Chief Constable of Royal Ulster Constabulary  AC 286 in which the Appellate Committee concluded that for a claim for wrongful arrest to be defeated, it was not necessary to show that any of the facts upon which the officer based his suspicions were true. Lord Hope of Craighead said at page 298 in a speech with which other members of the Appellate Committee agreed that:-
"The question is whether a reasonable man would be of that opinion, having regard to the information which was in the mind of the arresting officer. It is the arresting officer's own account of the information which he had which matters, not what was observed by or known to anyone else. The information acted on by the arresting officer need not be based on his own observations, as he is entitled to form a suspicion based on what he has been told. His reasonable suspicion may be based on information, which has been given to him anonymously, or it may be based on information, perhaps in the course of an emergency, which turns out later to be wrong. As it is the information which is in his mind alone which is relevant however, it is not necessary to go on to prove what was known to his informant or that any facts on which he based his suspicion were in fact true."
216. The approach in that case was followed in cases such as Hough v Chief Constable of Staffordshire  EWCA Civ 39 in which an erroneous entry on the Police National Computer was relied upon as being the basis of an arrest and which was held to be lawful, notwithstanding that the entry was inaccurate.
217. The position therefore is that if apparently reliable information is given to a police officer, who then relies on it without more to make an arrest, then that can give rise to reasonable grounds on his part so as to defeat a claim for wrongful arrest, notwithstanding that the apparently reliable information is incorrect. Indeed in O'Hara, like in the present case, the source of the information was directly involved in the provision of complex information. The briefing in the present case was more detailed than that in O'Hara, where it was described at page 303 by Lord Hope as "scanty".
218. Lord Macdonald for RT submitted that there should be a very narrow exception granted to the O'Hara principle so that the "reasonable grounds to suspect" of a constable should not include facts about which another member of the investigation team, upon which he relies, has positively and materially misled him in circumstances where the other team member knew or ought to have known that the information he provided was misleading. In other words, a police officer can be successfully sued for wrongful arrest in cases if he obtains information from another member of the investigating team who knew or who ought to have known that the information, which he was providing, was misleading.
219. The basis of the exception is advanced on the basis that, unlike the cases of O'Hara and Hough, the Court in the present case is dealing with a situation in which the decision to arrest was preceded by very serious errors made by the principal investigators, the SFO, and upon which the arresting officer relied.
220. In the case of RT it is said that the arresting officer was misled because he was informed by a SFO employee that (1) after the collapse of Kaupthing, RT removed valuable collateral from the joint venture structure and replaced it with worthless PIK notes – a transaction we have described at paragraphs 157 and following, (2) prior to the collapse of Kaupthing, RT had been involved in concealing from the bank a bad debt owed by Pumpster – a transaction which we have tried to outline at paragraphs 137 and following and (3) prior to the collapse of Kaupthing, RT had been involved in a fraudulent valuation of the Peverel Group – this relates to the transaction known as the Pennyrock loan transaction which we have set out at paragraphs 181 and following. The case for RT is that each of these facts was untrue and that the SFO was on notice that each was untrue.
221. To justify this exception, Lord Macdonald relied first on the relationship of the police with the SFO in a complex investigation of this sort because, as he explained, they worked closely and hand in hand and therefore became part of a joint investigating team.
222. This submission fails, in our view, to take account of two facts. First, Parliament has vested the SFO with power and statutory responsibility and authority to investigate offences of fraud. It cannot be the duty of the police in cases such as the present one to duplicate this work as the police are entitled to rely on the result of investigations by the SFO. They do not need to exercise an independent mind so as to scrutinise that information.
223. Second, this role of the SFO is explained in a Memorandum of Understanding between the SFO and the City of London Police relating to the provision of information by the SFO to members of that police authority which states that:--
"The SFO will ensure that any information passed to the [City of London Police] will be fully accurate and complete, in particular in relation to requests for activities such as the making of arrests, executing search warrants."
224. This separation of the roles of the SFO and the police explains why we are unable to accept the case for RT that because the police and the SFO worked closely and hand in hand and therefore became part of a joint investigating team, there ought to be an exception to the O'Hara principle.
225. Lord Macdonald next contended that his narrow exception is needed in order to secure the safeguard afforded by article 5(1)(c), 5(5) and 13 of the ECHR. His submission is that without such an exception the law would fail to secure that which the European Court of Human Rights described in Fox, Campbell and Hartley v United Kingdom  EHRR 157 at paragraphs 32 and 34 as "the essence of the safeguard afforded by article 5(1)(c)." This case was considered in O'Hara; Lord Hope explained at page 302 that he saw no conflict in principle between the approach in the Fox case and the cases which he followed in order to reach his decision in O'Hara.
226. In order to justify his claim for an exception to the O'Hara doctrine Lord Macdonald submitted that, in the absence of the exception for which he contended, RT had no alternative private law remedy other than against the Commissioner, because the existing remedies in tort would not assist RT. His reasoning was that the torts of malicious abuse of process and misfeasance in public office require proof of malice, but that is absent in the case of wrongful arrest by police officers. Furthermore, he also pointed out that it would also be a defence to any claim of false imprisonment brought against the arresting officer that the arrest and detention of RT was valid.
227. These submissions failed to recognise the rights of somebody wrongly arrested as against the person who was responsible for the arrest by giving some direction to the police officer, or procuring, or directly requesting, or directly encouraging the arrest by the police officer. Indeed Lord Macdonald's submission failed to take account of the decision in Davidson v Chief Constable of North Wales Police and another  2 All ER 597 in which the Court was specifically considering the situation in which a person or body could be held liable for the acts of the arresting officer.
228. In that case, the police officers had lawfully arrested the claimant on the basis of wrong information provided to them by the store detective. A claim was then brought by the plaintiff against the police officers (which was dismissed by consent) and against the employers of the store detective. The Court of Appeal dismissed an appeal from the decision of the trial judge who withdrew the case from the jury on the basis that there was no evidence that the store detective's actions went beyond the giving of information to the police officers for them to take such action as they thought fit.
229. Sir Thomas Bingham MR explained at page 604H:-
"Accordingly, as it would seem to me, the question which arose for the decision of the learned judge in this case was whether there was information properly to be considered by the jury as to whether what [the store detective] did went beyond laying information before police officers for them to take such action as they thought fit and amounted to some direction, or procuring, or direct request, or direct encouragement that they should act by way of arresting these defendants. He decided that there was no evidence which went beyond the giving of information. Certainly there was no express request. Certainly there was no encouragement. Certainly there was no discussion of any kind as to what action the police officers should take."
230. Staughton LJ stated at page 605J:-
"What is clear in the passage I have read is that merely giving information is not enough."
231. The position was therefore that, if the facts supported that contention, RT could contend that his arrest was procured or directly requested by the SFO and so it should be liable for false imprisonment, which is a tort of strict liability and which does not require proof of malice. That would meet the justice of the case in the light of the respective responsibilities of the police and the SFO.
232. It is important to note that Mr Eadie accepted on behalf of the SFO that the City of London Police were acting as a conduit for the SFO or as their agents. To the extent there were issues in relation to the lawfulness of the arrest, Mr Eadie accepted that was the responsibility of the SFO.
233. In addition, if a claimant could prove that a third party procured an arrest maliciously and without reasonable and probable cause, an action for malicious arrest could also be brought (Roy v Prior  AC 470 and Hough (supra) at paragraph 18). We do not decide that RT could bring and succeed in such a claim, but our conclusion is that, contrary to Lord Macdonald's submissions, there are remedies available to protect and to secure the rights afforded by article 5(1)(c), 5(5) and 13 of the ECHR.
234. We are therefore unable to accept that there is any basis for contending that there should be an exception to the O'Hara rule of the kind contended by Lord Macdonald.
(ii) The arrest of RT was not necessary
235. Lord Macdonald contended that DC Aldous, who arrested RT acted irrationally when he justified that decision by stating that :-
"I reached the opinion that the arrest was necessary and proportionate to the offences being investigated ... it was essential to the investigation that all persons of interest were to be interviewed simultaneously without the opportunity to discuss matters with each other."
"The officer in that case had adopted a pre-determined decision to arrest and had not thought about any alternative. The court held that he had not, objectively viewed, had reasonable grounds for his belief that arrest was necessary."
"42. Whilst of course it may be that it is quite unnecessary to arrest a suspect who will voluntarily attend an interview, as it was with the schoolteacher in Richardson, it is not the case that a voluntary attendance is always as effective a form of investigation as interview after arrest. Section 29 of the Act reminds officers of their duty, if inviting voluntary attendance, to tell the suspect that he may leave at any time he chooses. It would not be honest for an officer to invite a person to attend a voluntary interview if he intended to arrest him the moment he elected to leave. Nor would it be effective. It would mean that the suspect could interrupt the questioning the moment it reached a topic he found difficult. Even if it were possible simply then to arrest him, the interview could not continue until all the important formalities of reception into custody, checks on health, notification of friends or relatives and so on had been complied with. If the complaint made by Mr Mooney was true and the suspect was a drug dealer manipulating his customer, this was a case where that might happen. Moreover, the officer did need to inspect any mobile telephone which the suspect might have, and without warning him of the intention; the suggestion that he ought to have been asked politely to bring his telephone with him would, assuming a truthful complaint, have accomplished nothing other than the deletion of all relevant information or the leaving of the phone behind. Thirdly, the officer did need to be able to frustrate any attempt, if it were made, to send an unsupervised message on arrest, which might, assuming the complaint to be true, easily involve getting someone else to visit the complainant to deter him. I also agree that it was very likely, if the investigation proceeded, that the suspect would have to be released on bail conditions designed to prevent contact with the complainant; whether this can properly go to necessity on ground 24(5)(e) or would have to call for separate invocation of ground 24(5)(d) ("to protect a….vulnerable person from the [suspect]") is a question on which we have not heard argument and which we do not need not resolve."
ISSUE 4: BAIL
"37 (2) If the custody officer determines that he does not have such evidence before him, the person arrested shall be released either on bail or without bail, unless the custody officer has reasonable grounds for believing that his detention without being charged is necessary to secure or preserve evidence relating to an offence for which he is under arrest or to obtain such evidence by questioning him."
"34 (5) A person whose release is ordered under subsection (2) above shall be released without bail unless it appears to the custody officer—
(a)that there is a need for further investigation of any matter in connection with which he was detained at any time during that period of his detention; or
and, if it so appears, he shall be released on bail."
ISSUE 5: THE CONDUCT OF THE SEARCH
(i) The factual background
(ii) The safeguards necessary to protect legal professional privilege when conducting a search
"A police officer may not seize any items if s/he has reasonable grounds to believe that they may be subject to LPP. "Reasonable grounds" are more than a mere possibility. The simple fact that a solicitor or an occupier claims privilege does not by itself amount to reasonable grounds to believe that items may be subject to LPP. The officer will be entitled to inspect the document(s) if s/he considers it necessary, in order to form a view. He will be expected to use his own knowledge of the investigation and all other relevant circumstances."
If the officer had reasonable grounds for believing that any items might be subject to privilege he must not seize them.
"It is important that, when the SFO requires the production of material or seizes material pursuant to its statutory powers, all material which is potentially privileged is treated with great care. The approach described here is designed:
1. to minimise the risk that privileged material is seen or seized by an SFO investigator or a lawyer involved in the investigation;
2. to ensure that any privileged material which is seized is properly isolated and promptly returned to the owner without being seen by an SFO investigator or a lawyer involved in the investigation;
3. to ensure that any dispute relating to privilege is resolved in advance of the material being seen by an SFO investigator or a lawyer involved in the investigation;
4. to ensure that where an investigator or a lawyer involved in an investigation inadvertently sees privileged material, measures are in place to ensure that the investigation and any subsequent prosecution is not adversely affected as a result.
Care must always be taken to ensure that privileged material is not viewed by the SFO members involved in the investigation. Privileged material must never be circulated or copied within the investigation team.
All SFO investigators and lawyers should have an understanding of the concept and scope of LPP and the reasons why the privilege is recognised as a fundamental element of the rule of law.
All SFO investigators and lawyers should be aware of this policy."
The new policy set out a much clearer approach which is needed when premises contain a large quantity of privileged material.
(ii) The presence of independent lawyers
ISSUE 6: THE "HERE AND NOW" NOTICE
(i) The facts
(ii) The position taken by the parties
(iii) The lawfulness of the actions of the then Director of the SFO
"(1)This section applies where anything has been seized in exercise, or purported exercise, of a relevant power of seizure."
The schedule to the Act included the power under s.2 of the CJA 1987.
"(5) The appropriate judicial authority— …
(b) on an application made by the person for the time being having possession of anything in consequence of its seizure under a relevant power of seizure, or …
may give such directions as the authority thinks fit as to the examination, retention, separation or return of the whole or any part of the seized property.
(6) On any application under this section, the appropriate judicial authority may authorise the retention of any property which—
(a)has been seized in exercise, or purported exercise, of a relevant power of seizure, and
(b)would otherwise fall to be returned,
if that authority is satisfied that the retention of the property is justified on grounds falling within subsection (7).
(7)Those grounds are that (if the property were returned) it would immediately become appropriate—
(a)to issue, on the application of the person who is in possession of the property at the time of the application under this section, a warrant in pursuance of which, or of the exercise of which, it would be lawful to seize the property; or
(b)to make an order under—
under which the property would fall to be delivered up or produced to the person mentioned in paragraph (a).
i) The necessity for compliance with the provisions of s.59 which this court had made clear required strict compliance: see El Curd v Winchester Crown Court  EWHC 1853 at paragraphs 64-5.
ii) Rigorous examination of the circumstances leading up to the illegality of the original seizure; see El Curd and Windsor v Bristol Crown Court and HMRC  EWHC 1899 (Admin) at paragraph 31.
iii) Proving that a fresh warrant could have been sought, as required by s.59(7). This would have meant satisfying a judge that there was a case of reasonable suspicion against VT.
iv) Returning all privileged material which had not been returned.
"Although this would have the advantage of bringing judicial scrutiny to the decision to retain the material it is thought preferable to take a completely fresh view of what is required at this stage of the investigation. A number of strands of the investigation which were live in March 2011 are no longer being pursued. Some of the material seized during the searches is no longer relevant to the investigation and therefore can be returned without any impact. Equally, there is now material which may not have been caught under the terms of the warrant and this should properly be sought by Notice. A further warrant would not be appropriate because it can no longer be suggested that any of the access grounds under s.2(4)(a) CJA 1987 are made out. There would also be the appearance, under the circumstances of the SFO, having conducted an unlawful search, of a heavy-handed attempt to have a "second bite at the cherry" if another search warrant were sought.
Finally, recognising the background of a JA being sought by VT, the Director has decided that it is appropriate to offer an undertaking to VT that the material provided will not be examined by the case team for 14 days after it has been provided. This is to allow him the opportunity of seeking JR of the decision to issue this Notice."
(iv) Were there grounds for suspecting complex fraud on the part of VT and the TFT companies in relation to the Pennyrock transaction?
ISSUE 7: CONSEQUENTIAL RELIEF
(ii) Further conduct of the action
i) The need for the Information to be supported by a schedule so that it was clear what underlying material justified the statement made.
ii) The need to see that the Information was checked and assured by those with sufficient expertise and experience
i) A fundamental error was a failure to set out the commercial background to the events. The identification of suspected criminality and the drafting of an Information for presentation to a judge requires a team with a proper understanding of the financial markets in which the transactions have been effected.
ii) The drafting of a document such as the Information in a case relating to the financial markets is a formidable task that requires a draftsman with an understanding of the markets, the agreements in issue and accounting issues. The facts and issues must be set out in a clear and analytical manner; this requires very considerable skill. Its presentation to the judge then requires a lawyer with great skill and experience.
iii) Although many investigators are reliant in the first instance on the provision of information by those who have an interest in the transactions such as administrators or lawyers or accountants involved in disputes, it is essential that those charged with investigation and prosecution can scrutinise the information provided with the same level of skill. The SFO should have scrutinised what it was told by Grant Thornton through the use of expertise of at least equivalent experience. The SFO should not have been compelled to rely on Grant Thornton who owed duties to their own clients which rightly took precedence over the interests of the public.
iv) The execution of a warrant requires the presence of independent lawyers where there is the prospect of privileged documentation. This expense has to be resourced.
v) The prosecution of such offences necessitates equality of arms being provided to those investigating and prosecuting. Equality of arms is used most commonly to apply to the unequal position of defendants to an investigation or a prosecution. However, the public interest in upholding the integrity of the financial markets is destroyed if those who investigate and prosecute do not have access to the same level of legal and accountancy skills and human and financial resources as those who are the subject of investigation and prosecution.
vi) The matters in issue occurred in the period between late 2007 to October 2008. Although there are some complex details as regards some of the individual transactions, the case is not a complex one. The investigation should have been concluded a very long time before now, but again this required adequate resources, both human and financial.
All of these considerations must be taken into account in any consideration of the present case and criticism of those involved, as it is clear to us that the SFO was not properly resourced for this investigation.