Sigrún Davíðsdóttir's Icelog

The Tchenguiz brothers win their legal challenge against the SFO

with 7 comments

The High Court (Sir John Thomas, President of the Queen’s Bench Division, and Mr Justice Silber) has today declared that search warrants issued to the Serious Fraud Office were unlawful as they were obtained by misrepresentation and non-disclosure of the judge. – This is the beginning of the Summary of the judgment July 31 regarding the judicial review sought by Vincent and Robert Tchenguiz.

The story is that when the SFO presented their reasons in March last year for requesting a permission for house searches at the home and offices of the Tchenguiz brothers the SFO mispresented their material very badly. Ergo, the ruling is a heavy criticism of the SFO. I would also read the ruling as a criticism of judge Paul Worsley, who heard the SFO in March last year, although the two judges tread very lightly on that issue. But how could the SFO be so sloppy/bad/imprecice in its presentation? The issues the two judges differ on with the SFO are dealt with in para 122-124, quoted in extenso below. The judges add some sweetener to their bitter pill to the SFO: at the end of the judgment they  go to some length in excusing/explaining SFO’s mistake by emphasising the SFO’s lack of human and financial resources.

Regarding Robert and his company R20 Lth, the Court concluded (comments in[] are mine; the “para” refers to paragraphs in the ruling):

We regret to conclude that the Information did not properly present the transactions where criminality was suspected in the context of the financial markets in which they were undertaken. The background was straightforward, but it was never explained. The case that was made on the specific transactions was not in the respects we have identified accurately set out; it failed in the respects we have identified fairly to draw to the attention of the judge the points that weighed against the granting of the warrants.” (para 170)

The failure to set out the background, lack of clarity in the presentation in the Information and in the oral evidence, the errors made and the failure to put the matters that weighed against the granting of the warrant have been set out by us in detail. At the hearing before the judge, the oral evidence given at the hearing was both unfair and inaccurate. The tone of that evidence was unjustified. We have no doubt that, if what was in the Information [submitted by the SFO to the judge in March 2011, when the permission for the searches was sought] had been presented in such a way that the background was properly explained, the errors were corrected and the matters that weighed against the grant of the warrant had been drawn to the judge’s attention, it would have made a real difference and he would not have granted the warrants. This is very far from the case where the failures only might have made a difference; they plainly did, as the warrants would not have been granted.” (para 175)

“… it is apparent from what we have set out after a detailed examination of the materials over three days in court and a study thereafter of the evidence presented to us that a case of reasonable suspicion might have been advanced and presented by the SFO to the judge, at least in relation to the making of the Oscatello loan facility and associated arrangements (see paragraph 124 above) and the Money Market loans (see paragraph 136). This would have been a task that did not require corrections or additions by way of disclosure, but it would have required starting again and putting the presentation in a coherent, fair and analytical manner. Whether there was or is such a case of reasonable suspicion, if a case had been made in that way, would then have been for the judge to determine.

Although we consider such a case might have been made, we cannot accept the submission that it would be just to refuse to quash the decision of the judge. What we would be doing would be permitting the SFO in effect to justify what it had done by adopting a proper and analytical approach in this court and doing what it had manifestly failed to do when it went to Judge Worsley.” (paras 176‐ 177)

This is yet another victory for Vincent against the SFO – the SFO has already dropped all investigations into his affairs with Kaupthing – and completes his vindication in his dealings with the SFO. In a press release yesterday, Vincent said: “I will be seeking damages from the SFO – and from any other parties who contributed to the Court being misled. My claims will reflect the substantial personal and business costs and losses that have directly resulted from the actions of these parties.” The comment leaves an open question as to who else, beside the SFO Vincent will sue. The fact that Grant Thornton, an international advisory firm, played a large part in this whole saga might indicate who Vincent has in mind – but it remains to be seen.

Though Robert, as well as his brother, won his legal challenge against the SFO he has less to celebrate. The SFO has reiterated that its investigation into his relationship with Kaupthing is still ongoing. However, Robert has stated the following: “I now intend to pursue my claim in respect of damages I have suffered as a result of the SFO’s (Serious Fraud Office’s) illegal actions.” He also intends to bring proceedings against the SFO in respect to his arrest.

The ruling itself offers some insight into the mistakes the SFO made in handling this investigation, as well as the issues being investigated.

First some facts regarding Kaupthing: “On 8/9 October 2008, Kaupthing collapsed. According to the Information presented by the SFO it had €8bn in debts, 25% of which was owed by companies within the TDT [Tchenguiz Discretionary Trust; related to Robert Tchenguiz] and 12% by Exista Hf [owned by the Icelandic brothers Agust and Lydur Gudmundsson, with Robert as a board member the last few years], its largest shareholder.” – Robert Tchenguiz owed Kaupthing £1.6bn when the bank collapsed. The fact that Kaupthing’s largest shareholders were also its largest borrowers follows a familiar pattern from the other two Icelandic banks, Landsbanki and Glitnir.

As to the allegations made by the SFO related to Robert and the TDT:

105. As we have set out, five specific transactions were relied on  as showing suspected criminality.  Listed in chronological order, they were:

i)              The Oscatello loan facility and the increases in lending under it

ii)              Money Market loans [in total, Kaupthing made 36 money market loans to Oscatello, in total £345m; £143 million was repaid, but £156m was outstanding at the time of the collapse of Kaupthing. Explained in para 132 and following.]

iii)              Pumpster [regarding Kaupthing loans to a company owned by TDT; the SFO alleges these loans concealed bad debt to Kaupthing at a time when Oscatello was insolvent. Explained para 138 and onwards.]

iv)              Thorson [a TDT company; Kaupthing transferred almost £62m to Thorson’s account with Kaupthing Luxembourg 3 October 2008; para 151.]

v)              Project Longboat and the PIK notes [transactions 13 November 208 related to Oscatello; para 157]

Here are some highlights from the judgment. The following refers to the allegation, see v) above, but as seen here these allegations were also a matter between the Kaupthing resolution committee and TDT:

After the collapse of Kaupthing, TDT companies entered into a series of transactions on 13 November 2008 through which the security previously pledged to Kaupthing for loans to Oscatello [structure owned by TDT with Kaupthing as a co-investor] were replaced by “Payment in Kind Notes”.  Immediately after the transaction had been effected, the lawyers acting for TDT notified the Resolution Committee of Kaupthing that the transactions had taken place.  The clear intention and effect of these transactions were to remove the assets, including interests in Somerfield Ltd, used as security for the loans by Kaupthing, to companies outside the Oscatello structure to prevent the liquidators of Kaupthing taking control of those assets and selling them in the then market conditions. [This is how the SFO presented these transfers.]

30. On 5 December 2008, the Resolution Committee began proceedings in the British Virgin Islands in respect of these transactions against Investec and the Oscatello companies.  The pleadings signed by Mr Steinfeld QC alleged fraud. Grant Thornton prepared a report on this transaction on 14 January 2009.  An interim application for the appointment of receivers was made to the courts of the BVI which was vigorously contested on grounds set out in an affidavit sworn by an officer of Investec.  The proceedings were subsequently settled for £137m in June 2010; we were told by Lord Macdonald QC who appeared for RT and  R20 [company belonging to Robert’s business sphere] that this payment represented the proceeds of the sale of the interests in Somerfield Ltd.  All allegations of fraud were withdrawn as part of the settlement.

On how the SFO presented its case to Judge Worsley in March last year:

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. 

51. The judge gave no reasons for his decision. [This is ia what I take to be a criticism of the Judge.]  This is a matter of complaint which we consider as the second issue at paragraphs 202 and following.

The SFO has dropped its investigation not only into Vincent Tchenguiz but also into Kaupthing Singer & Friedlander manager Armann Thorvaldsson and another key Kaupthing employee Gudni Adalsteinsson. Former chairman Sigurdur Einarsson and CEO Hreidar Mar Sigurdsson are still under investigation. The following is an interesting indication of matters being investigated:

There was no allegation against RT or VT that they had tampered with or destroyed documents, though such an allegation was made in the Information against others.

The SFO greatly emphasised that Kaupthing kept on lending to Oscatello all through 2008 even if it seemed “under water,” as stated in an email from Gudni Adalsteinsson. However, the two judges felt this was a one-sided presentation – this is the core of their grave criticism of SFO’s presentation. The two judges take a different stance on the loans and that’s what they are pointing out here:

122. It was obvious that a forced liquidation of Oscatello at the time of the 19 December 2007 arrangements could, because of the nature of the security held by Kaupthing, in all probability have seriously damaged Kaupthing.  It is not uncommon that a bank exposed to a company with a balance sheet of the type exhibited by Oscatello might have therefore a commercial rationale for lending more money in those circumstances, even if the company was  insolvent; the bank would hope that the market would improve and that the loss that would result from a decision to terminate the lending and consequent insolvency would be averted.

123. In our judgment, the failure to set out these facts and to explain these matters in the Information and oral evidence, was a grave and material omission which resulted in the judge not being given a fair presentation of the key issue in the case – was this a case where Kaupthing made  a wrong commercial decision in December 2007 by continuing to lend to the TDT companies in the hope that their exposure would be reduced by an improvement in the market or was this dishonest and collusive lending?

124. The failure to explain that issue in these relatively simple terms is entirely consistent with the overall presentation  to the judge which did not  set the issues out in an analytical manner.  It is with deep regret that we have reached this conclusion on what was done. Properly understood and explained, the materials which we have had an opportunity of examining during a three-day hearing before us and thereafter, might have provided grounds for reasonable suspicion on the basis of the matters to which we have referred at paragraph 118 and the matter to which we refer in paragraph 126.

It would then have been for the judge to be personally satisfied that it did.  However that was not the way in which the matter was put before the judge.  He was given an account that was not only wholly inadequate, but unfair.

This is how the judges view the case – the judicial review was not about the merits of the investigation but about procedures in obtaining permission for house searches etc. Below, the judges spell this out quite clearly:

176. However, it is apparent from what we have set out after a detailed examination of the materials over three days in court and a study thereafter of the evidence presented to us that a case of reasonable suspicion might have been advanced and presented by the SFO to the judge, at least in relation to the making of the Oscatello loan facility and associated arrangements (see paragraph 124 above) and the Money Market loans (see paragraph 136). This would  have been a task that did  not require corrections or additions by way of disclosure, but it would have required starting again and putting the presentation in a coherent, fair and analytical manner.  Whether there was or is such a case of reasonable suspicion, if a case had been made in that way, would then have been for the judge to determine.

177. Although we consider such a case might  have been made, we cannot accept the submission that it would be just to refuse to quash the decision of the judge.  What we would be doing would be permitting the SFO in effect to justify what it had done by adopting a proper and analytical approach  in this court and doing what it had manifestly failed to do when it went to Judge Worsley.

178. In any event, as Lord Macdonald correctly submitted as we have set out at paragraph 76, the merits of the investigation and continuing the investigation are not an issue in these proceedings. It is very important that proceedings of this kind are confined to the issues that strictly arise and are not utilised as a means of indirectly seeking the court’s view on an investigation.  The question whether matters should be investigated is under our constitution the responsibility of the investigating and prosecuting authorities; the role of the courts is strictly limited.  There would be highly undesirable consequences if it were otherwise.

As the SFO has stated, its investigation regarding Kaupthing continues.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

August 2nd, 2012 at 12:13 pm

Posted in Iceland

7 Responses to 'The Tchenguiz brothers win their legal challenge against the SFO'

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  1. I hope that the SFO is not intimidated into giving up it’s essential investigations.
    I hope that the SFO gets the full support of the Judiciary in the future as we have all had quite enough of the collusion that has gone on in helping the Banks, their directors and major shareholders to get away with what no one else could possibly not be jailed for.

    The SFO must NOT give up and everything should be done to get to the bottom of all the fraud and abuse that the guilty have been allowed to get away with and which has led to financial disaster we are living today.
    This blow to the SFO should on the contrary make them even more determined to do the job properly and to investigate fully, whatever is done to put a spoke in their wheels and prevent them from doing their job.

    Charles

    2 Aug 12 at 5:57 pm

  2. The SFO press release issued following the judgment concluded thus: “We note that the Court declined to consider the merits of the future of the investigation, this being the responsibility of the SFO as an investigating and prosecuting authority. The SFO will continue with the investigation with renewed focus and vigour.” http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2012/kaupthing-judicial-review-judgment.aspx

    That suggests that the SFO, under its new Director David Green, does not intend to be intimidated. In the light of the woeful under-funding of this much-maligned organisation whose already inadequate budget has been progressively reduced in recent years, we can only hope that this determination will be sufficient.

    The judge hit the nail on the head when he concluded: “The investigation and prosecution of serious fraud in the financial markets requires proper resources, both human and financial. It is quite clear that the SFO did not have such resources in the present case …”. Strong words indeed from the judge. But is there any real political will to take this on board? Will any concrete action be taken to give the SFO the teeth it needs to do its job properly? Or – as someone more cynical than me has suggested – is this all part of the trick of depriving the SFO of funding and then complaining it has become useless so should be abolished?

    anrigaut

    2 Aug 12 at 8:26 pm

  3. Anrigaut, I think you have hit the nail on the head.

    It is looking very much as if the last thing they want is any investigation about anything from the SFO.

    There is so much to cover-up and so many who are corrupt that it is better not to fund them and attack THEM all the way so that the corrupt can Leggit.

    We must face the facts that London is as bad as Luxembourg and that there is collusion and cover-up every which way you turn, mustn’t we?

    The SFO need super courage and very high espect for the truth and justice which is not easy, in today’s morally polluted climate.

    The USA is far more transparent and you cannot get away with what we are seeing here.

    Charles

    3 Aug 12 at 6:29 pm

  4. Not so sure about the “more transparent” thing in the USA, Charles…

    Very few convictions for serious fraud there too – just one or two examples made.

    wardropper

    5 Aug 12 at 5:06 am

  5. What really is transparent is the orchestrated collusion between the incompetent, failed banks and bankers and the governments and judiciary.
    The banks are like sinking Titanic’s captained by drunken, arrogant and greedy men who see no further than their wallets and champagne flutes!

    These sinking monsters, who are devouring the honest and decent amongst the population are however protected by the governments who give them more taxpayers money, so that they can wreck MORE for LONGER.

    The judiciary, in tune with the pals in the government protecting the pals in the banks, see no fraud, hear no complaints, nor pleas from the public to put an end to this folly and blindly continue to allow the banks to continue mass daylight robbery.

    The press follow the ostrich and the example of the government and bury their heads in the sand pretending they too see no evil, hear no evil.
    in this way they do nothing about anything and continue to play in THEIR Playground undisturbed by reality.

    In this way also, the press helps the government and the judiciary to take public attention away from what is so very wrong, to what is entertaining.

    The press is told to ‘play down the Banking Scandals, the never ending stories of Banks robbing the public until nations are bankrupted and families are on their knees.

    The press is told to play dumb and stick to entertainment or the importance of WARS. To provide entertainment so the public is unaware of the daylight robberies going on under their nose.

    Is this not the Circus we are seeing in the world’s top financial pits today?

    This is what is transparent and it is only public awareness which will change anything, as it is the public who has to stand up and say STOP.

    George Ward

    5 Aug 12 at 7:38 am

  6. “In this way also, the press helps the government and the judiciary to take public attention away from what is so very wrong, to what is entertaining.”

    How true, George. Much more entertaining to bash and make fun of the SFO than to acknowledge its woeful lack of funding and to fight for the provision of adequate resources to enable it to do its job properly.

    anrigaut

    5 Aug 12 at 3:09 pm

  7. The SFO should have the full support, both moral and financial, of every member of the public and every government who cares about justice and wants to see an end of the era where Banks and Banksters became the world’s real Terrorists.

    Governments and judiciary with the help of the press and media must find the courage to expose and name and shame the bullies and Terrorists and for that to happen, the SFO needs our full support and backing.

    We must separate the greedy ambitious cowards from the brave.

    The SFO must be brave and determined.

    George Ward

    7 Aug 12 at 8:58 am

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