Judicial reviews – the importance of playing by the rules

n the recent case of R (Merida Oil Traders) & R (Bunnvale Limited) & Others v Central Criminal Court and Others (2017), the court considered two judicial reviews concerning breaches of disclosure orders and a number of other matters.

What is judicial review?

Judicial reviews are the assessment of the legality of decisions made by public authorities or bodies.  The decision is brought before a judge in court proceedings and is tested.  The main purpose of judicial review is to ensure that public authorities do not act in excess of their powers.

Facts

Two judicial review claims were brought before the High Court.  The claimant in the first action was Merida Oil Traders, and the first claimant in the second action was Bunnvale Limited.  Merida and Bunnvale were both companies incorporated in the British Virgin Islands and traded in energy contracts on the Intercontinental Exchange (ICE).  The trading was conducted via a broker, Archer Daniels Midlands Investor Services International Limited (ADM).  The second claimant in the second action was TICOM, a Russian company affiliated with Bunnvale.  TICOM had an agreement with ADM which allowed it to receive commissions on transactions undertaken by ADM for clients introduced by TICOM.

In May 2015, the ICE made a suspicious transaction report to the FCA concerning the trading activities of Merida, Bunnvale and another company, Intoil SA.  The concern raised by the ICE was that the trading was indicative of fraud as Bunnvale appeared to be making money on all of its transactions with Merida and Intoil. 

In February 2016, the City of London Police began investigating the activities.  As a result of the investigation, ADM stated that it wished to terminate its relationships with the companies and obtained the consent of the National Crime Agency and the police to liquidate the trading positions of the companies.

Bunnvale and TICOM requested that the monies held in their accounts should be returned and ADM stated that it was unable to do so.  In April 2016, Bunnvale made a further demand and ADM sought consent from NCA and police to pay the closing balances.  This consent was refused.

In April 2016, the police stated that a court order could be applied for for the production of cheques relating to the companies.  ADM agreed to prepare the cheques.

On 4 May 2016, the arrangements for the creation and production of cheques for the balances payable were confirmed in an email from the police to ADM.  The closing balances were:

·         US$ 13,431,590.26 – Bunnvale trading account

·         US$ 2,819,328.12 and US$781,313.01 – Merida trading accounts

·         US$ 4,690,429.41 – Intoil trading account

·         US$ 131,958.57 – TICOM trading account

On 6 May 2016, orders under section 345 Proceeds of Crime Act (POCA) were issued which required ADM to provide the police with materials relating to the five accounts and cheques in the amount set out above.

On 9 May 2016, the police sent emails to the four companies with a written application which was to be heard the following day.  The application for under section 295 POCA requesting continued detention of the monies.

On 10 May 2016, without the attendance of the four companies due to emails not being seen and attendance at the wrong court, an order was made to allow the continued detention of the monies for six months.

The claimants challenged the entire procedure under which the cheques were ordered, produced, seized and detained.

Proceedings

The court stated that there were a number of issues that needed to be addressed.  These issues were:

1.       Were the statutory requirements for making production orders met?

2.       Were the cheques lawfully seized?

3.       Were the production orders sought for a lawful purpose?

4.       Were the detention orders lawfully made?

5.       Was there procedural impropriety in obtaining the production and detention orders?

6.       What relief, if any, should be granted?

1.      Were the statutory requirements for making production orders met?

The police used a standard form to make the production order.  The police identified the investigation as a money laundering investigation and named the four companies.  The central issued raised was that the claimants believed that the cheques added no “substantial value to the investigation” and that the defendants had no reasonable grounds for believing that there would be any substantial value added to a money laundering investigation.

The court held that there was no power to make the production orders in relation to the cheques which were in the possession of ADM.

2.      Were the cheques lawfully seized?

The defendants stated that even if the court had held that the production orders were unlawful, that the seizure of the cheques produced by ADM was nevertheless lawful as the power under section 294 was a freestanding power.

The claimants argued that the seizure was unlawful as it was contrary to the intent and scheme of the legislation and a misuse of the power within section 294.

The court did not agree with the defendants and held that section 294 did not authorise the police to seize the cheques made payable to the claimants by ADM.

3.      Were the production orders sought for a lawful purpose?

The court held that the power contained in section 294 POCA did not extend to seizing cheques made payable to the claimants.  They stated that for the same reasons the production orders were unlawful under section 345.

4.      Were the detention orders lawfully made?

As the court had held that the production and seizure of the cheques had been unlawful, the detention orders were held to be unlawful.  The court gave two reasons for this:

a.       Section 295 POCA “only permits cash to be detained where its seizure was lawful”.

b.      It was inconsistent with the scheme and purpose of the legislation to “use section 295 to detain cash which only exists in that form because the money has been converted into cash at the instigation of the police…without the knowledge of the person to whom the money belongs or is owed”.

5.      Was there procedural impropriety in obtaining the production and detention orders?

The claimants made two criticisms of the procedure by which the orders were obtained.

a.       The claimants were not notified of the application.

b.      The police were in breach of the duty of disclosure owed by a party who makes an application without notice.

The court held that both criticisms were valid as in the “basic principles of natural justice…an order should not be made which affects a person’s rights without first giving the person an opportunity to be heard” and that where such an application is made without notice, it is a firmly established principle that “the applicant must make full, fair and accurate disclosure of material facts to the court”.

6.      What relief, if any, should be granted?

The court held that the production orders made requiring ADM to produce to the police cheques which they had drawn at the request of the police were unlawful because:

a.       The production of the cheques was not sought for the purpose of the money laundering investigation and there was not reasonable grounds for believing that the cheques were to be of any value to the investigation.

b.      The planned seizure of the cheques was unlawful.

c.       The production of the cheques were made through an improper procedure.

The court determined that both the production and detention orders should be quashed but that they would allow a stay of their order to allow the police time to decide whether or not to take civil recovery proceedings.

Comment

Practically this case emphasises that parties need to ensure that they are acting within the confines of the legislation and are not pushing the boundaries as this could leave them with unnecessary costs and time wasting when orders and applications are overturned.

Alongside this, parties should comply with the relevant practice guides and ensure that they are complying with any expected disclosure and deadlines to show the court that they are taking the matter seriously and with care.

The case emphasises the importance of judicial reviews where parties are left with incorrect decisions made by the prior courts who had failed to apply legislation correctly.

For more information please contact Sarah Farish.