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High Court finds production order ordering the creation of cheques for the sole purpose of seizure of the funds represented by them to be unlawful

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Disclosure Other

22-08-2017

R (Merida Oil Traders Ltd) v Central Criminal Court & Ors [2017] EHWC 747 (Admin)

Facts of the case

  • The claimants (“Cs”) traded derivatives through a broker (“B”) on the Intercontinental Exchange (“ICE”) in London. In May 2015, a suspicious transaction report was made by ICE to the Financial Conduct Authority concerning the trading activities of the Cs (the “2015 STR”).
  • In February 2016, the City of London police (“CoLP”) began a money laundering investigation. B decided to terminate its relationship with the Cs. B obtained the consent of the National Crime Agency (“NCA”) and CoLP to liquidate the Cs’ positions, but not to repay any funds back to the Cs. At the request of the CoLP, B also raised cheques for the closing balances payable to the Cs (the “Cheques”).
  • The CoLP applied, without notice, for production orders under section 345 of the Proceeds of Crime Act 2002 (“POCA”), requiring B to produce material relating to the Cs’ accounts, including the Cheques. The applications were granted and the Cheques seized by the CoLP. The CoLP also later applied for an order under section 295 of POCA authorising the continued detention of the Cheques. This was also granted.
  • Judicial Review proceedings were brought by the Cs, challenging the procedure by which the Cheques were ordered to be produced, subsequently seized and then detained.

The decision

The High Court held that:

  • the production orders were unlawful because contrary to section 346 of POCA, the cheques themselves were “not capable of being of value to a money laundering investigation”, nor could they be said to have been “sought for the purposes of such investigation”;
  • the seizure of the cheques and order for their further detention were also unlawful because section 294 of POCA only provides for this in respect of funds which have been lawfully seized in the first instance. In this regard, the court noted that “it cannot have been intended that the power to seize cash [under POCA] should be exercisable where the person to whom the cash belongs is not itself in possession of the cash, has not chosen to convert its property into cash and did not even know that this was being done”;
  • there was no proper basis for making the application for the production order on a without notice basis as there was no risk that if the Cs were given notice (i) the funds would be dissipated (because the NCA had not consented to their return to the Cs by B) or (ii) material specified in the application would be altered or destroyed; and
  • the CoLP had breached its duty of disclosure, including (i) not providing the court with a copy of the 2015 STR but rather an “unfair and inaccurate” description of what it was said to have reported, and (ii) not explaining to the court that it “had asked for the cheques to be created in order to invoke the favourable summary process for civil recovery provided for in Chapter 3 of Part 5 of POCA in circumstances where those provisions could not otherwise have been relied on”.

Analysis and practical advice

  • This is a further case highlighting the importance when responding to voluntary requests and court orders of giving careful consideration (regardless of the originating party) as to whether such request/order has been properly made/obtained, including for example in view of:

    • the process followed and whether this was appropriate in the circumstances and, if not, whether it has resulted in any unfairness;
    • where the request/scope is made pursuant to a statutory regime, whether it is within the scope of such regime;
    • the completeness and accuracy of any material on which the request/order is based (where a document forms the basis upon which an application is made (such as the 2015 STR in this case), the default position should be that that document is before the court); and
    • what it is that is being requested/ordered.
  • Practitioners should be particularly alive to novel approaches to requests and orders which appear to circumvent protections which might otherwise be afforded to affected parties.

 

 

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