A Firm of Solicitors v District Court at Auckland CA108/04
[2005] NZCA 435
•16 August 2005
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HIGH COURT ORDER PROHIBITING PUBLICATION OF NAMES OR IDENTIFYING PARTICULARS OF FIRST RESPONDENTS OR INTERESTED PERSONS A AND B PENDING FURTHER ORDER OF THE HIGH COURT REMAINS IN FORCE
IN THE COURT OF APPEAL OF NEW ZEALAND
CA108/04
BETWEEN THE DIRECTOR OF THE SERIOUS FRAUD OFFICE
Appellant
ANDA FIRM OF SOLICITORS First Respondent
ANDTHE DISTRICT COURT AT AUCKLAND
Second Respondent
Hearing: 23 May 2005
Court: Glazebrook, Hammond and O'Regan JJ
Counsel: K P McDonald QC and J L Mullineux for Appellant
J R Billington QC and D C S Morris for First Respondent
R E Harrison QC and J N Bioletti for Interested Persons A and B Judgment: 16 August 2005
JUDGMENT OF THE COURT
AWe uphold the finding of Heath J that the search warrant was invalid and dismiss the Appellant’s appeal insofar as it relates to the declaration made by Heath J that the search warrant was invalid. However, we allow the appeal in relation to the fact that the Director’s application under s 22(2)(b) of the Serious Fraud Office Act 1990 was not dealt with and remit the matter to the High Court for consideration of that
application.
THE DIRECTOR OF THE SERIOUS FRAUD OFFICE V A FIRM OF SOLICITORS And Anor CA CA108/04 [16 August 2005]
BWe award costs of $6,000 plus usual disbursements to both the First respondent and to interested persons A and B (in the latter case to be shared between them).
REASONS
(Given by O’Regan J)
Table of Contents
Para No
Introduction [1] The legislative context [5] Facts [12] High Court decision [23] Points of appeal [31] The firm’s grounds for supporting the judgment [32] Issues [33] Material non-disclosure [35] Section 10(2)(a)(iv) [47] Specificity of warrant [66] Privilege [82] Section 22 [121] Was the search unreasonable in terms of s 21? [129] Future searches where privilege is an issue [135] Result [144] Costs [146]
Introduction
[1] This appeal raises important issues about the power of search under the Serious Fraud Office Act 1990 (the SFO Act) where the premises being searched are the offices of a law firm. In particular, it requires consideration of the need to protect legal professional privilege attaching to documents and data held by the firm subject to the search.
[2] The appellant, the Director of the Serious Fraud Office (SFO), appeals against the judgment of Heath J (now reported as A Firm of Solicitors v District Court at Auckland [2004] 3 NZLR 748) relating to an application for judicial review of the decision of a District Court Judge to issue a search warrant under s 10 of the SFO Act. The warrant authorised the Director to search the offices of the first respondent (the firm). Heath J made a declaration that the search warrant had been invalidly issued and quashed the warrant. The firm cross-appeals certain findings of Heath J.
[3] Two interested parties who are clients of the firm (A and B) made submissions supporting the firm’s position, as they had done in the High Court. The second respondent, the District Court at Auckland, abides the decision of this Court.
[4] Heath J made orders suppressing the names of the firm and parties A and B. There was no application in this Court to remove those orders and they remain in force. Heath J also imposed a restriction on searching the High Court file without leave of a Judge of that Court. We impose a similar restriction on searching this Court’s file without leave of a Judge of this Court.
The legislative context
[5] The SFO Act established the SFO, and provides for the detection and investigation by the Director of serious or complex fraud. Broad powers are given to the Director for that purpose.
[6] The SFO Act provides for a two stage process. Under Part 1, the Director may exercise certain powers if he or she has reason to suspect that an investigation into the affairs of a person may disclose serious or complex fraud. These powers include the power under s 5 to require a person to produce for inspection specified documents and to answer questions relating to documents. Section 6 authorises the Director to apply for a search warrant which may be granted where the Judge dealing with the application (the issuing Judge) is satisfied that there are reasonable grounds for believing that it is not practicable to serve a notice under s 5.
[7] Part 2 of the SFO Act applies where the Director has reasonable grounds to believe an offence involving serious or complex fraud may have been committed: s 7. Once an investigation has been upgraded to a Part 2 investigation, the powers in ss 9 and 10 come into play.
[8] Section 9 gives the Director power to require a person under investigation or who the Director has reason to believe may have information or documents relevant to an investigation to attend before the Director, answer questions relating to the matter, supply information specified in the notice and produce documents for inspection. The Director is given wide powers in relation to documents which are produced, including a power to require that the person producing a document provide an explanation as to its history, subject matter and contents.
[9] Section 10 deals with search warrants for Part 2 investigations. It provides that the Director may apply to a Judge of the High Court or the District Court for a warrant to search a place specified in the application. The issuing Judge may issue a warrant in the prescribed form if he or she is satisfied that:
(a) There are reasonable grounds for believing that the use of the s 9 procedure will be ineffective. Four grounds are specified, but the relevant provision for the purposes of this case is s 10(2)(a)(iv), that the service of a notice under s 9 “might seriously prejudice the investigation”; and
(b)There are reasonable grounds for believing that there may be, at the place specified in the application, any document or other thing “that may be relevant to an investigation or may be evidence of any offence involving serious or complex fraud”.
[10] Section 10(3) says that Part 3 of the SFO Act applies to warrants issued under s 10. Of particular relevance is s 12, which sets out the steps which may be taken by the person executing the warrant. Among those is s 12(1)(d):
To search for and remove any documents or other thing that the person executing the warrant believes on reasonable grounds may be relevant to the investigation or may be evidence of any offence involving serious or complex fraud.
[11] Two other relevant provisions are s 23, which empowers the Director to require compliance with ss 9 and 10 by parties having a duty of confidentiality to a client or customer, subject to s 24, and s 24 itself, which says that nothing in the SFO Act requires a legal practitioner to disclose any privileged communication. We will come back to s 24 later.
Facts
[12] The factual background is comprehensively and accurately summarised in the decision of Heath J at [16]-[35]. We set out a summary only.
[13] On 2 April 2003, the Director received a complaint about an alleged fraud perpetrated on the creditors of an identified person, whom we will call Z. In essence the allegation was that Z had entered into a fictitious backdated agreement with a company associated with A and B (which we will call AB Co), which led to the creation of a debt of almost $15 million dollars from Z to AB Co. The objective of this was said to skew the voting at a meeting of Z’s creditors considering a proposal under Part 15 of the Insolvency Act 1967 by giving a decisive proportion of the votes of Z’s creditors to AB Co. In fact, AB Co did vote in favour of the proposal and it was therefore approved (although that result was subsequently reversed).
[14] The suspect transaction was documented as an agreement for sale and purchase of a particular property dated 20 February 2001, with subsequent correspondence apparently over a period of months. The correspondence records modifications to the agreement and an apparent default by Z, leading to cancellation of the agreement and a debt owed by Z to AB Co of about $14 million in respect of the unpaid deposit.
[15] The Director authorised an investigation under Part 1 of the SFO Act and, in the course of that investigation obtained information which led him to upgrade the investigation to a Part 2 investigation.
[16] The firm had a long association with both Z and AB Co. An SFO investigator, Mr Fox, visited the firm on 3 September 2003 and spoke to two partners. He had previously made an appointment. Mr Fox already had a copy of a letter apparently written by one of the partners (but not signed by him) to Z and AB Co about the suspect transaction on 5 February 2003. Attached to this letter was a list of seven points concerning the suspect transaction, which was described by counsel for the Director, Ms McDonald QC as “capable of being read as a blueprint for the creation of a fictitious paper trail to make the transaction appear authentic”. One of the partners confirmed to Mr Fox that he had dictated the letter of 5 February
2003 and the list which was attached to it. He recounted his recollection of the circumstances in which the letter and the list came to be written. The partners were co-operative. There was no suggestion made at that meeting that they might be regarded as suspects.
[17] On 4 September 2003 Mr Fox interviewed Z under s 9 of the SFO Act. Z admitted that the transaction was fictitious and designed to increase the number of votes from “friendly” creditors to enhance the chance of success of the Part 15 proposal. He said the documentation relating to it had been created in 2003 and backdated to 2001. He said a partner in the firm had been involved in persuading A and B to allow AB Co to be used in connection with the fictitious transaction and another partner had provided advice as to how to create the false paper trial. The partners in the firm were therefore suspects in their own right, though they were not told of this.
[18] Z later provided to Mr Fox a copy of another (genuine) agreement prepared by the firm which had a footer indicating that it had a document file path similar to that of the agreement for sale and purchase relating to the alleged fictitious transaction. This provided further reason to treat the solicitors as suspects.
[19] Mr Fox then prepared an affidavit in support of the application for a search warrant to search the firm’s premises. This set out an extensive overview of the investigation and the alleged involvement of the partners in the firm. However it did not mention that the partners had been interviewed, had confirmed that they held documentation relevant to the inquiry and had offered to co-operate with the SFO.
[20] The affidavit did, however, give the SFO’s reason for seeking a search warrant under s 10 instead of conducting an interview with a requirement to produce documentation under s 9. In essence, Mr Fox’s view was that the allegations against the partners in the firm were so serious that, if they were true, the impact on the partners’ careers and livelihood, and on the firm itself, would be serious, and that this would mean there was a serious risk that they might conceal or destroy evidence or fail to produce relevant documents if required to do so under s 9. He stated that material on a computer hard drive can be permanently deleted by use of readily available software products such as “Evidence Eliminator”. He said that if he could not obtain all of the documents and things sought under the warrant, the investigation would be seriously prejudiced.
[21] The application for the warrant was made to a District Court Judge on
9 September 2003. The Judge issued the warrant, and it was executed on
10 September 2003. A full account of what happened on the execution of the warrant is set out in the judgment of Heath J at [73] – [91]. In summary, three SFO personnel and an independent computer expert attended the offices of the firm. A search was conducted of the files in the offices of the two suspected partners, and seven paper files were seized. In addition the SFO seized six computers, including the server which linked all of the computers in the office, took them away and cloned them. Prior to the removal of the computers Mr Fox undertook to the firm that the clones would be accessible by a password only known to the independent computer expert, and would be sealed pending agreement on the limits of privilege or
determination by a Court. This undertaking was given at the request of a lawyer acting for the firm.
[22] On 30 September 2003, the Director made an application under s 24(5) of the SFO Act to determine questions of privilege. Subsequently the judicial review proceeding heard by Heath J was commenced by the firm, and the s 24(5) application was put on hold pending the outcome of the judicial review application.
High Court decision
[23] Heath J considered the principles applying to the determination of the validity of search warrants under s 198 of the Summary Proceedings Act, and the decision of this Court in Tranz Rail Limited v Wellington District Court [2002] 3
NZLR 780, which related to a search warrant issued under the Commerce Act 1986. He said that different considerations arose in relation to s 10 of the SFO Act, and that there was no requirement in the SFO Act that a warrant be specific as to the documents which are the focus of the proposed search. However, he said that an applicant for a search warrant under s 10 of the SFO Act had the same obligation of utmost candour as those applying for warrants under the Summary Proceedings Act and the Commerce Act: in that respect, the observations made by this Court in Tranz Rail at [21]-[22] apply equally to the SFO Act.
[24] The Judge then considered legal professional privilege. He distilled from his analysis of the relevant authorities the following propositions:
(a) Although the Director can summon a person, including a solicitor, to answer questions or supply documents under s 5 or s 9, legal professional privilege is expressly retained “because of the fundamental importance of that privilege to the operation of a civilised legal system”;
(b)Any communications made or brought into existence for the purpose of committing or furthering the commission of an illegal or wrongful
act are excluded from the definition of privileged communications in s 24(3) of the SFO Act;
(c) The privilege belongs to the client, and it is for the client to claim it or waive it. In cases where a suspect seeks to implicate his or her solicitors, it would be wise for the Director to seek a waiver of privilege from the suspect so that there is no basis on which seizure of documents which would otherwise be privileged could be declined;
(d)Where it is clear to the Director that physical documents or information stored electronically might be the subject of a claim for legal professional privilege if the premises in question are searched, the Director ought to fashion conditions to a warrant to outline the way in which it is proposed to deal with information of a privileged character.
[25] Having reviewed the manner in which the warrant was executed, Heath J then turned to the five substantive issues which he had identified earlier in his judgment at [36]. These issues, and his conclusions in respect of each follow.
Was proper disclosure made to the District Court when the application for a warrant was made under s 10 of the SFO Act?
[26] Heath J found that the issuing Judge ought to have been told that the two partners of the firm had accepted, when spoken to on 3 September 2003, that they had in their possession or control documents relevant to the inquiry, and that they had agreed to co-operate. He said these facts were relevant to the exercise of the issuing Judge’s discretion because that information was conveyed by the solicitors as officers of the Court. He said it was also relevant to the question as to whether there were reasonable grounds for believing that service of a notice under s 9 of the SFO Act “might seriously prejudice the investigation” in terms of s 10(2)(a)(iv) of the SFO Act.
Was there sufficient evidence before the District Court for the Judge to be satisfied, to the standard required by s 10 of the SFO Act, that the warrant should issue in the terms in which it was issued?
[27] Heath J concluded that the evidence was not sufficient for the issuing Judge to be satisfied that there were reasonable grounds for believing that the service of a notice under s 9 of the SFO Act might seriously prejudice the investigation. He said that the assertion made in the affidavit supporting application for the warrant did not take into account the duties of solicitors as officers of the Court and the sanctions for failing to comply with them.
Was the warrant defective for lack of specificity?
[28] Heath J found that the SFO Act did not require that a warrant specify the documents to which it is directed. Thus the lack of specificity of the warrant in this case was not a basis for invalidating the warrant.
Did the warrant wrongfully authorise the search for, and seizure of, material subject to legal professional privilege?
[29] Heath J reached the view that the warrant authorised seizure of information from the solicitors relevant to the investigation. He said that s 24(3)(c) expressly excluded from the ambit of a “privileged communication” one which was made or brought into existence for the purpose of committing or furthering the commission of an illegal or wrongful act. He said this meant it was implicit that such communications could properly be seized pending inquiry as to whether privilege attached under s 24(5) of the SFO Act. However he said the Director ought to have suggested conditions attaching to the warrant to deal with legal professional privilege issues.
Was the mode of execution of the warrant in breach of s 21 of the New Zealand Bill of Rights Act?
[30] Finally, the Judge considered whether a preview search through the firm’s computer system and the cloning exercise ought to have taken place on the firm’s premises, rather than removing the server and undertaking the cloning off site. He concluded that the law did not expressly favour either method of search, and that this was an issue which had ought to be addressed by attaching conditions to the issue of the warrant specifying exactly which process would be followed. He concluded that the mode of execution of the warrant was not unreasonable in terms of s 21 of the New Zealand Bill of Rights Act 1990 (Bill of Rights) because adequate steps were taken to protect privileged material from being viewed by SFO investigators, pending a ruling by the District Court on the subject.
Points of appeal
[31] The points on appeal raised by the Director are that:
(a) Heath J was wrong to conclude that there had been material non- disclosure on the part of the Director in the application for the search warrant;
(b)Heath J was wrong to conclude that there were no reasonable grounds to believe that service of a notice under s 9 of the SFO Act might seriously prejudice the investigation: s 10(2)(a)(iv) of the SFO Act;
(c) Heath J did not deal with the Director’s application for an order under s 22(2)(b) of the SFO Act in the event that he held that the warrant was invalid. The Director submitted that this was an appropriate case for an order to be made under that provision and for an order under s 22(3) declaring the evidence admissible and otherwise available for use.
[32] The firm gave notice that it intended to support Heath J’s judgment on the following further grounds:
(a) The warrant was expressed too broadly, and wrongfully authorised the search for, and seizure of, material subject to legal professional privilege without limitation;
(b)The mode of execution of the warrant was in breach of s 21 of the Bill of Rights.
Issues
[33] The issues before us are:
(a) Whether there was material non-disclosure;
(b) Whether the requirements of s 10(2)(a)(iv) were met in this case; (c) Whether the warrant was sufficiently specific;
(d)Whether the warrant was invalid because it authorised seizure of known privileged material;
(e) Whether an order should be made under s 22(2);
(f) Whether the execution of the warrant was unreasonable (s 21 of the
Bill of Rights).
[34] We will deal with those issues in the above order.
Submissions
[35] On behalf of the Director, Ms McDonald said the Director accepted that, when applying on an ex parte basis for a search warrant, the applicants have the same obligations as any applicant for an ex parte judicial order, namely to include, in a frank and comprehensive way, any facts known to the applicant that might count against the issue of the warrant. This was confirmed by this Court in Tranz Rail at [21], citing R v McColl (1999) 17 CRNZ 136 at [20]. She did not dispute that these principles applied equally to warrants sought under s 10 of the SFO Act.
[36] However, she argued strongly that Heath J had misapplied the rule in the present case. She said that the omission from Mr Fox’s affidavit of the fact that the solicitors had acknowledged they held relevant material and had promised co- operation could not have made any difference to the issuing Judge’s decision to issue the warrant. She said it was clear from the material included in Mr Fox’s affidavit that the firm held relevant material, and she said that the indication that they would co-operate would have been relevant only if the issuing Judge had been prepared to assume that these solicitors, who were suspected of fraud, could be relied on to “come clean” and hand over all relevant documents, including those incriminating them. She said this was inherently unlikely.
[37] Ms McDonald relied on the decision of this Court in R v Kennedy [2004] 3
NZLR 189, which also dealt with a challenge to a warrant issued under s 10, in support of her argument. In that case, the SFO had failed to disclose certain information to the issuing Judge. This Court said at [47] that it saw the undisclosed information as “at the outer limits of relevance and unlikely to have had any impact on the matters the Judge was required to consider”. It upheld the High Court’s rejection of a challenge to the validity of the warrant on the ground of material non- disclosure.
[38] Counsel for the firm, Mr Billington QC, said that the non-disclosure was material, because the facts which were not disclosed were relevant to the issuing Judge’s consideration of s 10(2)(a)(iv). Indeed, he went further than Heath J did, and pointed to other matters which, he said, ought to have been disclosed.
[39] Mr Billington said it was relevant that the solicitors had acknowledged they held relevant documents and offered co-operation, particularly since there had been a period of six days between the date on which the solicitors were interviewed and the date on which the application for the warrant was made, and during those six days the solicitors could have destroyed evidence if they had been minded to do so. He said if the issuing Judge had been able to link the lack of urgency shown by the Director in applying for the warrant with the knowledge that Mr Fox had already spoken to the solicitors, had been shown their files, and had been offered co- operation, then the inference that she was invited to draw as to the possible serious prejudice to the investigation might not have been drawn. He also said that the Director had failed to disclose that there were acceptable methods for searching information stored electronically on site, without removing the whole computer from the premises. We will return to that aspect of the case later.
[40] Mr Billington’s submissions were supported by counsel for A and B, Mr Harrison QC.
Discussion
[41] The essence of the argument made on behalf of the Director was that no reasonable Judge considering the application for the warrant could consider that the undisclosed information would lead him or her to take a different view of the application from the view he or she would have taken if the information had been disclosed. Ms McDonald argued that we should undertake our own evaluation of the criterion in s 10(2)(a)(iv) and invited us to conclude, having done so, that even when the undisclosed information is brought to account, the “might seriously prejudice” test was met in this case. Accordingly, she argued, we should conclude that the undisclosed information was not material to the decision made by the issuing Judge.
[42] The difficulty with that argument is that it ignores the fact that the judgment as to the materiality of the information was to be exercised by the issuing Judge, not by us. It is not for us, and still less for the Director, to second guess that judgment. Essentially, Ms McDonald asked us to conclude that no Judge, even when fully informed, could conclude that the s 10(2)(a)(iv) test was not met. But that argument ran up against the fact that the High Court Judge in the present case did reach exactly that conclusion. While we may not agree with the High Court Judge’s assessment, the fact that he made that assessment illustrates the difficulty which Ms McDonald faced with this argument.
[43] We reiterate that an application for a search warrant is an ex parte application, and the onus on the applicant reflects the reality that the “other party” will not have an opportunity to be heard. The test was expressed in both Tranz Rail and McColl as an obligation to provide “all facts which could reasonably be regarded as relevant” to the task of the issuing Judge.
[44] The fact that, on a later analysis in the light of all of the known facts, and with the benefit of hindsight, a particular matter may be found by a Court not to be of sufficient moment to justify invalidating a warrant, does not necessarily mean that the information could not reasonably be regarded as relevant.
[45] R v Kennedy was a case where the Court saw the undisclosed information as immaterial to the matters the issuing Judge had to decide when determining whether or not to issue the warrant. In this case, we are satisfied that the omitted information cannot be characterised in the same way because the undisclosed information about the solicitors’ acceptance that they held relevant material and their offer to co- operate was potentially relevant to the issue raised by s 10(2)(a)(iv), which was a matter on which the Judge had to form a view in order to decide whether or not to issue the warrant. As this Court noted in Tranz Rail at [25], a failure to observe the duty to make full and candid disclosure should not be excused too readily on the basis of immateriality. As the Court noted at the same paragraph, it is for the issuing Judge to decide what is relevant at the margins, not the applicant for the warrant.
Conclusion
[46] We agree with Heath J that the Director ought to have disclosed to the issuing Judge that the solicitors had accepted, when interviewed on 3 September 2003, that they had documents relevant to the inquiry in their control, and that they had agreed to co-operate. Accordingly this ground of appeal fails. We also agree with Heath J that disclosure of those matters would have provided adequate disclosure, and that the omission from Mr Fox’s affidavit of the various other matters referred to by Mr Billington would not have been of concern if there had been disclosure of the matters referred to above.
Section 10(2)(a)(iv)
[47] Heath J was of the view that the issuing Judge ought not to have issued the warrant because, on the evidence before her, she could not be satisfied that there would be reasonable grounds for believing that the service of a notice under s 9 of the SFO Act might seriously prejudice the investigation. The Judge reached that view because he said that the assertion made in the affidavit presented to the issuing Judge that evidence may be destroyed did not take into account the duties owed by solicitors as officers of the Court. He said if Mr Fox thought the solicitors might destroy evidence to preserve an income strain from a particular client or clients, he did not balance that belief against the likelihood that any destruction of computer generated information was likely to render the partners liable to a term of imprisonment for perverting or attempting to pervert the course of justice.
Submissions
[48] Ms McDonald said that Heath J had proceeded on “a single underlying assumption namely that solicitors, by virtue of their professional obligations, can be relied on to keep their word when they say that they will disclose self-incriminating material”. She said that this required the issuing Judge to assume that a solicitor facing the possibility of serious criminal charges and being struck off the roll will
nonetheless resist the temptation to destroy incriminating material rather than hand it over to investigators.
[49] Ms McDonald said that the Director relied on one central submission, namely:
No investigator can take at face value an assurance from a criminal suspect that he or she is innocent, that he or she is telling the truth, or that he or she will co-operate fully. This principle applies regardless of the profession to which the suspect happens to belong…[the] investigative process will inevitably be subverted if suspects are given the opportunity to destroy evidence, or to determine what contemporaneous material is disclosed.
[50] Ms McDonald said that s 10(2)(a)(iv) requires only that the service of a s 9 notice “might” seriously prejudice the investigation: it was not necessary to show that such prejudice would occur, or even that it was more likely than not. Rather, the Director must show that there is a risk or possibility of prejudice to the investigation, which was not a high standard. She said in a situation where the Director had reasonable grounds for belief that the solicitors were involved in the documentation of a fraudulent transaction, and thus had demonstrated they would act in a manner contrary to their professional obligations and the criminal law, there was no basis for assuming that they would see the professional obligations as a deterrence from disposal of incriminating evidence. She said that it would, as a practical matter, be a relatively easy exercise to destroy evidence, either by shredding documentary evidence or by deleting data from a computer system by use of evidence destruction software.
[51] Ms McDonald gave another reason for the s 9 procedure being inadequate in the present case: she said that the information sought by the SFO could not be extracted from the firm’s computer without forensic examination of the hard drive. The solicitors would not be able to recover this material without significant technical assistance from a computer expert. This meant that very significant evidence could not practicably be obtained under a s 9 notice.
[52] Mr Billington supported the High Court decision. He said there was no cause for concern that the investigation might be seriously prejudiced if the s 9 procedure were used. He said if the SFO was really concerned about that possibility, it ought
to have acted much earlier: instead there was a five day gap between the date of the interview with the solicitors (3 September) and the date on which the warrant was applied for (8 September). He said any destruction of documents could have occurred during this period.
[53] Mr Harrison said that the Director’s approach was not in keeping with the scheme of the SFO Act. He said that s 9 should be seen as the primary investigative method, and that the power to issue a warrant under s 10 was predicated on prior non-compliance with, or impediment to, the s 9 procedure. He said this emphasised that the side-stepping by the Director of the s 9 procedure by reliance on s 10(2)(a)(iv) was a serious matter, not lightly to be embarked on. He accepted that s 10(2)(a)(iv) required only that serious prejudice “might” arise, but said that in the light of the intrusion into privacy occasioned by the issue of a search warrant, and the protection contained in s 21 of the Bill of Rights, this should be read as requiring a real and substantial risk of serious prejudice.
Discussion
[54] We think that Mr Harrison’s characterisation of the s 9 procedure as the Director’s “first resort” and the implicit requirement that it be tried before a warrant is sought under s 10 overstates the requirements of the SFO Act. In our view ss 9 and 10 are alternatives, designed to deal with different situations. The s 10 process becomes available where an issuing Judge is satisfied that there are reasonable grounds for believing that any of the circumstances in s 10(2)(a) applies.
[55] We accept Ms McDonald’s submission that s 10(2)(a)(iv) requires only that the issuing Judge be satisfied that there are reasonable grounds for believing that the use of the s 9 procedure “might” seriously prejudice the investigation i.e. that there is a possibility of such serious prejudice arising. We reject Mr Harrison’s submission that “might” should be interpreted other than in its normal, everyday meaning.
[56] In our view, the relatively low threshold in s 10(2)(a)(iv) reflects the fact that the legislature has provided for two different procedures, which deal with different situations: the s 10 procedure will be appropriate when the s 9 process has been or
will be inadequate. Each must be considered, but neither is a last resort. For present purposes the important point is that the person who must be satisfied as to the possibility of serious prejudice to the investigation is not the Director or the SFO investigator, but the issuing Judge. That is why the obligation for utmost candour in the application for a search warrant is so important.
[57] In the present case, a risk of serious prejudice was identified by the Director. This was the risk that two lawyers suspected of being involved in the commission of fraud would, if forewarned of the Director’s belief that they had committed criminal offences and that material evidence could be extracted from the hard drive of the firm’s computer and the firm’s paper files, destroy documentary evidence by shredding it and electronically held data by permanently deleting it. In our view, it would have been open to the issuing Judge on the material in front of her, and open to any issuing Judge even if full disclosure had been made by the Director, to conclude that such serious prejudice might occur in this case. We do not think that involves any element of pre-judgment or attribution of guilt to those under suspicion, but rather involves an assessment of the possibility of such behaviour occurring if the reasonable grounds of belief turn out to be correct.
[58] We do not give the same weight in this context to the obligations of solicitors as officers of the Court and their professional obligations as Heath J did. In our view those factors have much less cogency when they are being considered in a context of the possible commission of fraud by solicitors. If there are reasonable grounds for belief that a solicitor has committed fraud, it may well be that an issuing Judge will be satisfied that there are also reasonable grounds for belief that the person under suspicion might destroy documentation which, if it occurred, would seriously prejudice the SFO’s investigation. However, those obligations of solicitors will be of real significance where the solicitor involved is not suspected of any involvement in the alleged offence which is the subject of the investigation.
[59] For the future, we suggest that the Director considers adopting a practice of ensuring that the affidavit accompanying the application for a search warrant specifically addresses the criteria in s 10(2)(a), identifying which of the sub- paragraphs of that provision is relied on and setting out in full the factual basis for
the Director’s view that the issuing Judge should be satisfied that the relevant sub- paragraph applies.
[60] In the present context, that would have required a section in the affidavit setting out what the SFO would be required to do if it were to follow the s 9 procedure and why it believed that following that procedure might seriously prejudice the investigation. That, in turn would require a proper disclosure of previous dealings with the solicitors, a clear statement of the evidential basis for the belief that the solicitors had been personally implicated in the fraud, an assessment of the possible consequences to the solicitors if that were proven, and an assessment of why that led the Director to believe that the solicitors might destroy documentation or data held electronically. The last factor would need elaboration, with an explanation of how data can be deleted from a computer in a way which prevents its recovery and any detection that the deletion has occurred. We accept that some of these matters were dealt with in the affidavit of Mr Fox.
[61] Once the issuing Judge has been provided with that information, he or she can then make a proper assessment of the risk of serious prejudice to the investigation, forming his or her own view as the section requires him or her to do.
[62] We do not think there is anything in Mr Billington’s argument that the Director was too slow to obtain a warrant in this case, and that the risk of destruction of documents arose during this period. In fact the SFO investigator’s interview with the solicitors took place on Wednesday 3 September, his follow up interview with Z (at which further evidence said to implicate the solicitors was obtained) took place on Thursday 4 September, the application was prepared on the Friday (and perhaps over the weekend) and presented to the issuing Judge on the Monday, 8 September. There is no unreasonable delay in that. During this period, further investigations, aimed at corroborating Z’s statement, were undertaken.
[63] In any event, we do not think that an application for a warrant that otherwise meets the s 10(2)(a)(iv) test would fail simply because the object of the warrant may already have had the chance to destroy documents or delete electronic data. We agree with the observation of Allan J in R v Beattie and others HC AK CRI 2003-
004-25599/CIV 2004-404-6797 31 May 2005 at [178] that such a proposition “needs only to be articulated to be dismissed as untenable”.
[64] Finally, we accept Ms McDonald’s submission that the s 9 procedure may be inadequate where the evidence which is sought requires forensic examination of computer drives. If an issuing Judge accepts that is the case, he or she may be prepared to conclude that an attempt to obtain the evidence under the s 9 process could create (or increase) a risk that it would be destroyed or not be uncovered by the SFO, and thus engage s 10(2)(a)(iv). Again, the issuing Judge could determine that after full disclosure by the applicant for the warrant and in the light of other relevant factors in the particular case.
Conclusion
[65] We disagree with the finding of Heath J that there was insufficient evidence on which an issuing Judge could find that the use of the s 9 procedure might seriously prejudice the investigation.
Specificity of warrant
[66] Heath J concluded that there was no obligation for the Director to identify the documents which were to be the focus of the search. In that regard he agreed with the observation of Thomas J in Hawkins v Sturt (1990) 5 NZCLC 66, 606 at 66, 608-
609, to the effect that it was not necessary for the Director to specify the documents which were to be the focus of the search for the purpose of obtaining a warrant, and not necessary for them to be specified or made known to the person whose premises were being searched. In doing so, he distinguished the English case, R v Director of Serious Fraud Office ex parte Montgomery (Divisional Court, Queens Bench Division, CO/3263/97, CO/4287/97, 7 April 1998, Pill LJ and Gage J).
Submissions
[67] Mr Billington argued that a warrant issued under s 10 is required to be specific, particularly where the premises which are to be searched pursuant to it are those of a law firm, where privileged information will be kept. Similar considerations arose as applied to warrants under s 198 of the Summary Proceedings Act 1957. In Rosenberg v Jaine [1983] NZLR 1 at 13, Davison CJ said that s 198 did not authorise the issue of a search warrant abrogating the common law privilege in respect of a solicitor/client relationship, and if a warrant was not sufficiently specific to exclude documents falling within that relationship, it was invalid. Mr Billington said this reflected the importance of legal professional privilege, as emphasised in CIR v West-Walker [1954] NZLR 191, R v Uljee [1982] 1 NZLR 561 at 570 and more recently, B v Auckland District Law Society [2004] 1 NZLR 326. He also relied on the Montgomery case as authority for the proposition that a failure to deal satisfactorily with legal privilege in a warrant will result in the warrant being quashed.
[68] Mr Billington also referred us to the recent High Court decision, Calver v District Court at Palmerston North (No.1) (2004) 21 CRNZ 371. In that case, Miller J quashed a search warrant relating to the premises of a firm on the basis that it authorised the search for and seizure of privileged material, it was not issued subject to conditions designed to secure privilege and confidentiality and ensure records of other clients were not seized, and it was too broad in its scope. His decision was based at least in part on the principle set out in Rosenberg v Jaine that a warrant must be sufficiently specific to allow the solicitor to determine whether privilege must be claimed, and that if it is not sufficiently specific it may be quashed.
[69] Mr Billington said there was no basis for differentiating between the situation under s 198 of the Summary Proceedings Act and that applying under s 10 of the SFO Act in relation to specificity and the need to protect privileged information.
[70] Mr Harrison said that there was no reason to treat the requirement for specificity differently in relation to warrants under the SFO Act. He said that Heath J had accepted that the requirement for candid disclosure was identical for
applications made under the SFO Act as for applications made under the Commerce Act or the Summary Proceedings Act. He said the same approach should be taken to the requirement for specificity.
[71] Mr Harrison said that Heath J was wrong to rely on Hawkins v Sturt, and that that case should not be regarded as good law, particularly in situations where the search raised privilege issues of the kind which arose in this case. He said the approach which Thomas J took in Hawkins v Sturt was to deduce that specificity was not required, because there was nothing in the SFO Act which specifically said it was. He said this was the wrong approach: rather, he argued that the requirement for specificity, which is a component of the protection of a citizen from unreasonable search guaranteed by s 21 of the Bill of Rights, should be seen as applying unless there is express statutory language excluding it. He placed particular reliance on the observations by this Court in Tranz Rail at [38]:
For centuries the law has set its face against general warrants and held them to be invalid.
and the further observation at [41]:
A search warrant is a document evidencing judicial authority to search. That authority must be as specific as the circumstances allow. Anything less would be inconsistent with the privacy considerations inherent in s 21 of the Bill of Rights.
He said that there was no basis to distinguish the Tranz Rail case.
[72] Mr Harrison suggested that the prescribed form of search warrant (Form 4) in the Schedule to the Serious Fraud Office (Prescribed Forms) Regulations 1990 was ultra vires the SFO Act because it provides that the warrant authorises the party executing the warrant to search for and remove:
any documents or other thing that you believe on reasonable grounds may be relevant to the investigation or may be evidence of any offence involving serious or complex fraud.
[73] Heath J rejected that argument in the High Court, on the basis that that provision in the form mirrored the words of s 12(1)(d). Mr Harrison argued that
because the prescribed form made no sufficient allowance for specificity, it was ultra vires the empowering provision in s 53 of the SFO Act.
[74] Ms McDonald supported Heath J’s decision. She said the SFO did not seek access to irrelevant and privileged material, but needed to seize the hard drive because it had, in itself, evidential significance. This was because it was necessary to undertake a forensic examination of the hard drive which would lead to the production of a report which could be produced in court as evidence. However, she accepted that a warrant could not authorise the SFO to search for any evidence of any fraud, as a literal reading of s 12(d) and the standard form of warrant implies.
Discussion
[75] We accept the submissions made by Mr Billington and Mr Harrison to the effect that a warrant must be as specific as possible in the circumstances. In our view there is no basis to distinguish this case from the Tranz Rail case. Although the statutory context is different, there is no reason to conclude that the normal requirement that a warrant be “as specific as the circumstances allow”, to use the words of Tranz Rail at [41], should not apply in the present case. This is an important protection against the improper use of an intrusive state power.
[76] In that respect we differ from the position taken by Heath J in this case and by Thomas J in Hawkins v Sturt to the effect that the absence of an express requirement for specificity in the SFO Act justifies general warrants. We accept that there may be cases where the wide-ranging nature of the suspected fraud makes it difficult for the SFO to frame the application for a warrant in very specific terms. Hawkins v Sturt may have been such a case. This case was not. In any event, Thomas J expressed his conclusion that there was no requirement for specificity in general terms, and we do not accept that he was correct to do so. The warrant must be as specific as possible. What that requires in individual cases will depend on what the issuing Judge accepts as being possible in the particular circumstances. It will be important that the issuing Judge is given full information to allow him or her to assess this.
[77] We agree with Mr Harrison that the wording of the prescribed form is, on its face, broader than it ought to be. But we do not think that makes the prescribed form ultra vires, because the form is capable of being adapted to provide for the necessary degree of specificity by the inclusion of special conditions to that effect in para 4 of the prescribed form. Those conditions could be specific as to the documents and/or things sought, or to the nature of the suspected fraudulent activity. In the latter case, the warrant could authorise search for and seizure of documents or things, relevant to that suspected activity.
[78] We are satisfied that, in the circumstances of this case, there was no reason not to be specific about the documents which were sought pursuant to the search. The SFO knew the details of the purported transaction and the names of the parties to it, already had a copy of the letter written by a partner in the firm and already had a copy of the allegedly fraudulent agreement for sale and purchase which was suspected to have been prepared on the firm’s computer system. It was therefore in a position to exclude from the ambit of the search the vast bulk of the documents and electronic data held by the firm for its own purposes or on behalf of its other clients.
[79] Mr Fox’s affidavit did, in fact, identify certain documents and things as relevant to the investigation. Some items were identified with great specificity, such as the sale and purchase agreement for the suspect transaction and correspondence, emails and file notes relating to the suspect transaction involving any of Z, A, B, and the two suspected lawyers. But the list also included generic items which were clearly too broad, such as “Electronic media (including floppy discs, hard drives, hard copy, C.D.s)” and “Hand held computers, or other electronic storage devices”. It may have been proper to include these as items which needed to be searched for relevant evidence, but not to say that they were, themselves, items of evidence relevant to the investigation.
[80] Ms McDonald suggested to us that, if we were to find that the warrant was lacking in specificity, we should nevertheless note that the SFO was entitled to believe that specificity was not needed, given the High Court decision in Hawkins v Sturt. We agree with Ms McDonald that the SFO and its advisers would have been entitled to rely on Hawkins v Sturt at the time the warrant was applied for, and the
issuing Judge would also have been entitled to take that case as a correct statement of the law. But, as Ms McDonald accepted, that could not validate a warrant which was otherwise invalid for lack of specificity.
Conclusion
[81] We disagree with Heath J that there was no requirement for specificity in the terms of the warrant in this case. It was possible for the SFO to narrow the ambit of the search in a way which would have excluded the vast bulk of documents and data held by the firm. Most of the documents and data would have related to other clients of the firm (and therefore have been obviously irrelevant to the investigation) and many would have been subject to privilege. The proposed search should have been narrowed to exclude from its scope such irrelevant and privileged material. It was not. The warrant was therefore invalid for lack of specificity.
Privilege
[82] There was no real dispute before us that the warrant in the present case ought to have had conditions which were designed to ensure that privileged material was not accessed by Serious Fraud Office personnel. Nor was there any dispute as to the importance in public policy terms of the preservation of legal professional privilege, as confirmed in the cases mentioned at [67] above, and the requirement to provide a proper basis for a claim of privilege to be made by a solicitor where appropriate. The question is how the competing public policy objectives of investigating and detecting serious fraud and protecting privileged information can be reconciled.
[83] Section 24 of the SFO Act is the starting point for any discussion of privilege in the present context. That section provides:
24 Legal professional privilege
(1) Except as provided in subsection (2) of this section, nothing in this Act shall require any legal practitioner to disclose any privileged communication.
(2) The Director may, by notice in writing to any legal practitioner who the Director has reason to believe may have acted for any person who may be connected with any investigation, require that legal practitioner to supply to the Director the last known name and address of that client.
(3) For the purposes of this section, a communication is a privileged communication only if—
(a) It is a confidential communication, whether oral or written, passing between—
(i) A legal practitioner in his or her professional capacity and another legal practitioner in such capacity; or
(ii) A legal practitioner in his or her professional capacity and his or her client,—
whether made directly or indirectly through an agent of either; and
(b) It is made or brought into existence for the purpose of obtaining or giving legal advice or assistance; and
(c) It is not made or brought into existence for the purpose of committing or furthering the commission of some illegal or wrongful act.
(4) Where the information or document consists wholly of payments, income, expenditure, or financial transactions of a specified person (whether a legal practitioner, his or her client, or any other person), it shall not be a privileged communication if it is contained in, or comprises the whole or part of, any book, account, statement or other record prepared or kept by the legal practitioner in connection with a trust account of the legal practitioner within the meaning of section 2 of the Law Practitioners Act 1982.
(5) Where any person refuses to disclose any information or document on the ground that it is a privileged communication under this section, the Director or that person may apply to a District Court Judge for an order determining whether or not the claim of privilege is valid; and, for the purposes of determining any such application, the District Court Judge may require the information or document to be produced to him or her.
(6) For the purposes of this section the term legal practitioner means a barrister or solicitor of the High Court, and references to a legal practitioner include a firm in which he or she is a partner or is held out to be a partner.
Submissions
[84] Mr Billington said that the SFO had an obligation in this case to make full disclosure to the issuing Judge of what was to be searched and how it was to be seized, and what steps would be taken to afford maximum protection to the
preservation of solicitor/client privilege. In addition the issuing Judge had a corresponding obligation to limit the intrusion by making the warrant subject to conditions as to the scope of the search and seizure. He accepted that there was no prohibition on the issuing of a search warrant in respect of the offices of a solicitor. He said the issue is whether the terms of the warrant are such that legal professional privilege is abrogated. If it is, the warrant is invalid.
[85] Mr Harrison said that it was clear from s 24 of the SFO Act that a solicitor had no obligation to disclose privileged information to the SFO. He said this must be read as preventing seizure of privileged information during the course of a search in terms of s 10, as well as being an exception to any requirement to produce material under s 9. He said it was clear from Rosenberg v Jaine that a warrant could not allow a search for, or seizure of, privilege material. He said this meant that it was clearly improper in this case for the warrant to authorise, and for the SFO to undertake, the removal of the computer hard drives for cloning off-site. He said the hard drives may have contained evidence, but they were not, in themselves, evidence.
[86] Ms McDonald said it was not possible for the SFO to achieve the objectives of a search without taking the hard drives away and cloning them. She said that this occurred only after undertakings were given to ensure that no breach of privilege occurred, and no such breach has, in fact, occurred. She said that the public interest demanded that the SFO kept the clones and that a District Court Judge supervised the sifting of information from them in a way which ensured the preservation of privilege, and that an exception to the principle outlined in Rosenberg v Jaine should be allowed to that extent.
Discussion
[87] As Heath J noted at [83] of his judgment, the actions of the SFO in this case led to the removal from the firm’s offices of information which was relevant to the investigation (whether privileged or not) and information irrelevant to the investigation. Later, at [108], he said that the warrant authorised seizure of information from the firm which was relevant to the investigation. He said this
included information which would otherwise would have been privileged, but which may have lost that status because it came into existence for the purpose or committing or furthering the commission of an illegal or wrongful act: s 24(3). Information in that category could then be subject to an inquiry under s 24(5). However, he said the Director should have suggested conditions attaching to the warrant to deal adequately with privilege issues.
[88] In this Court, there was greater focus on the propriety of the actions of the SFO in removing the computer hard drive of the firm from the firm’s offices and cloning it, then retaining the clone for further investigation.
[89] In the Calver case, Miller J determined that the warrant under s 198 of the Summary Proceedings Act could not authorise such action because there was no authority in that section for seizure of material which was known to be irrelevant to the inquiry and/or known to be subject to privilege. He relied on Reynolds v Commissioner of Police of the Metropolis [1985] QB 881 in relation to seizure of irrelevant material and R v Chesterfield Justices, ex parte Bramley [2000] QB 576 and Rosenberg v Jaine in relation to privileged material. In the Calver case (as in Rosenberg v Jaine), the investigation related to a client of the law firm and there was no suggestion that the firm itself had any involvement in the alleged offending.
[90] In Rosenberg v Jaine, Davison CJ contemplated a process where there would be consideration of privilege on an item by item basis, and the protection of privilege by sealing any item in respect of which privilege was claimed for later determination by a Court. That case dealt with a warrant issued under s 198 of the Summary Proceedings Act, and led to the enactment of s 198A, which was the subject of detailed discussion in Calver.
[91] Neither Reynolds nor Bramley was cited to us, but they are relevant to the issues relating to irrelevant material and relevant but privileged material. In Reynolds at 896, Slade LJ said that a warrant issued under the Forgery Act 1913 (UK) could not authorise the Police officer executing it to remove from premises indiscriminately every book, file, bundle or document he could lay his hands on, even for the purpose of temporary sorting. Removing material even for the purpose
of sifting off site was a seizure. However, he said that the officer executing the warrant was entitled to remove from premises files, books, bundles or documents which, at the time of removal, he reasonably believed contained forged material or material which might otherwise be of evidential value. If that occurred, any subsequent sorting process had to be carried out expeditiously with non-evidential material being returned promptly.
[92] In Bramley, Kennedy LJ said at 588 that, where the Police officer executing a search warrant believes material to be subject to privilege, he must not seize it. The officer will need to examine items in respect of which privilege is claimed or, where no claim is made, to inform himself so that he can determine whether he has reasonable grounds for believing it to be subject to privilege.
[93] Kennedy LJ cast doubt on the application of the decision in Reynolds to situations other than those arising under the specific legislation in issue in Reynolds. He accepted that it was a commonsense answer to the situation faced by an officer executing the warrant who is faced with a mountain of material to do a preliminary sift through the material and then take away a large part of the material to sort it out elsewhere. But he said that, unless the consent of the owner of the premises was obtained, this would not be authorised by a statutory provision which permits a person executing a warrant to seize items which he or she reasonably believes are evidence in relation to an offence under investigation or which need to be seized to prevent evidence being concealed, lost, altered or destroyed. He said at 586 that, where the seizure involves items which do not fit within those categories (in particular, irrelevant material), then the person executing the warrant would have no defence to an action for trespass to goods based on unjustified seizure of the material.
[94] Kennedy LJ distinguished Reynolds on the basis that the Forgery Act, which was the relevant legislation in the Reynolds case, provided that material that was seized would be taken to a justice to be disposed of according to law, which meant there was a quick and effective remedy available if the officer executing the warrant went beyond its terms (at 587). Turner J agreed with the judgment of Kennedy LJ. Jowitt J dissented.
[95] While Reynolds and Bramley dealt with different statutory provisions, we do not find the reason given in Bramley for distinguishing Reynolds particularly convincing. To the extent that the existence of a “quick and effective remedy” may be relevant, it could be argued that, at least in so far as privilege is concerned, there is a quick procedure in the SFO Act in s 24(5) for the resolution of disputes relating to privilege, which could be seen as having some features in common with that applying under the Forgery Act which applied in the Reynolds case. However s 24(5) does not deal with the problem which would arise where the material seized includes irrelevant material.
[96] If the approach taken by the majority in Bramley were followed in this case, it could be argued that an SFO officer executing a search warrant issued under s 12 could never remove from the searched premises a computer hard drive containing data other than data which was relevant to the investigation, or privileged material. Nor would cloning of such a computer hard drive on site, followed by removal of the clone, ever be permitted. We do not consider that to be the law in New Zealand, at least in the context of the SFO Act. We did not hear argument about the position applying to searches made under other New Zealand statutes and express no view on those other statutory provisions.
[97] To the extent that the judgment of the majority in Bramley and the judgment of Slade LJ in Reynolds conflict, we prefer the latter. The approach suggested by Slade LJ in Reynolds represents a reasonable balance between the competing interests of respect for privacy rights and effective law enforcement in cases involving large amounts of documentary material or computer data.
[98] Of course, the powers of those executing a warrant are determined by the relevant empowering provision in the statute. In the case of the SFO Act, this is s 12(1)(d) (e) and (f), under which the person executing the warrant is authorised:
(d)To search for and remove any documents or other thing that the person executing the warrant believes on reasonable grounds may be relevant to the investigation or may be evidence of any offence involving serious or complex fraud:
(e) Where necessary, to take copies of any documents, or extracts from documents, that the person executing the warrant believes on reasonable grounds may be relevant to the investigation:
(f) Where necessary, to require any person to reproduce, or to assist any person executing the warrant to reproduce, in usable form, any information recorded or stored in any such documents.
[99] The term “document” is defined in s 2 as including “any information recorded or stored by means of any tape-recorder, computer or other device; and any material subsequently derived from information so recorded or stored”.
[100] The cloning of a computer drive appears to be the exercise of the power under s 12(1)(e) to take a copy of a “document”, but this is permitted only if the person executing the warrant believes that the document (i.e. the material on the hard drive) may be relevant to the investigation. If so, cloning would be permitted, as would the removal of the clone from the premises at which the search occurs. The more common situation will be that the material on the hard drive will comprise a mixture of relevant and irrelevant material. In this case, it also contained privileged material. That raises more complex issues which we discuss below.
[101] The authority given by s 12 must be read subject to s 24(1), which says that nothing in the SFO Act requires a legal practitioner to disclose a privileged communication. The subsequent reference in s 24(5) to a situation where “any person refuses to disclose any information … on the ground that it is a privileged communication”, implies that some opportunity will be given to a legal practitioner to determine whether privileged information will be disclosed.
[102] In the present case, the computer hard drive itself was removed, to allow for the cloning to take place off site. This must have been an exercise of the power under s 12(1)(d) to remove a “thing”, which could occur only if the person executing the warrant believed on reasonable grounds that the computer hard drive may be relevant to the investigation or may be evidence of an offence involving serious or complex fraud.
[103] In many situations, the cloning of a computer hard drive, whether done on site or off site, will be the most effective and least inconvenient way of achieving the
objects of the search, and the occupier of the premises being searched may in some cases be prepared to agree to that step being taken, subject to appropriate safeguards to prevent access to irrelevant material and to privileged material. Where the search involves a law firm, the firm would need to be careful not to waive the privilege which belonged to the clients of the firm, not to the firm itself. But, in principle, we think that it would be possible to agree to a cloning on site or the removal of the computer hard drive for cloning off site, subject to appropriate conditions that protected privilege and ensured that the agreement to the cloning did not therefore amount to an improper purported waiver of privilege.
[104] There was no such agreement in this case, however, and it appears that none was sought. So we have to determine whether the removal of the computer hard drive, and the off site cloning operation were authorised by the warrant. Heath J’s views on this topic were formed against a background of his determination that there was no requirement for the warrant to be specific, but we have come to a different conclusion on that topic. Because of the lack of specificity of the warrant, the search was not focussed on the limited class of documents and information which was truly relevant to the investigation. We do not consider that the cloning exercise could have been properly authorised by a warrant that was drafted with appropriate specificity. And the warrant did not have conditions that were required in the circumstances of this case.
[105] However, for the future we go on to consider what the situation would be in a case where the warrant was appropriately limited in scope. The question is: If a warrant was appropriately specific (which in this case would have required specification of the nature of the investigation and the documents sought in connection with that investigation), would the removal of the computer hard drive and subsequent cloning of it, subject to undertakings to protect privilege, have been possible without breaching s 12?
[106] We believe that there may be situations in which it can be said that the computer hard drive is a thing which is relevant to an investigation (and could therefore be removed under a s 10 warrant) if the circumstances are such that:
(a) there are reasonable grounds to believe that there is data stored on the hard drive which is, or may be, relevant to the investigation;
(b)this evidence cannot be extracted from the hard drive without the use of forensic investigative techniques;
(c) it is not practicable to carry out those extraction measures on site without the risk of destruction of the evidence or the risk that relevant evidence will not be successfully extracted; and
(d)there is no practicable alternative to removing the hard drive itself for the purpose of undertaking the extraction measures off site.
[107] If an issuing Judge is satisfied of all of those matters, we accept that a warrant could be issued which empowered the removal of the hard drive for subsequent cloning and extraction of relevant (and non-privileged) material. But such a warrant would have to be on such terms that it preserved the law firm’s right under s 24 of the SFO Act (and common law obligation) not to disclose any privileged communication. It would also need to have conditions. These would need to include a condition ensuring that material relating to other clients of the firm was not accessed, except where unavoidable to ascertain if the material is irrelevant. There would also need to be a condition ensuring that irrelevant material relating to other clients or to the firm itself, and material relating to the client under investigation which was not relevant to the investigation, was permanently deleted from the clone after extraction of the relevant, non-privileged, material, or returned to the law firm. The s 24(5) process would need to be invoked to deal with any disputes about privilege.
[108] In view of the intrusiveness of this action, the issuing Judge would need clear evidence that no practical alternative existed and would be obliged to ensure that the conditions subject to which these actions could be undertaken were adequate to achieve the above objectives. In that regard, conditions attaching to Anton Piller orders made in the civil jurisdiction of the High Court may provide some guidance, though there would obviously need to be adaptations to suit the circumstances of the
case. It would be necessary to ensure that the cloning exercise, and the subsequent extraction of evidential material, was undertaken by an appropriately qualified and independent expert. It may be that the process should be supervised by the issuing Judge or a person appointed by the issuing Judge for the purpose.
[109] Similar considerations would apply to the cloning of a computer hard drive at the site of the search, and the subsequent removal of the clone.
[110] We recognise that removal of a computer hard drive for cloning, or removal of a clone made on site, would necessarily involve the removal of irrelevant and privileged material where there is a search of a law firm’s premises. Mr Harrison said this would involve “seizure” of privileged information, and that that was impermissible. The term “seizure” is not used in s 12 or s 24 of the SFO Act: s 12 refers to “removal”, though there seems to be no practical difference. The privilege protection in s 24(1) says a law practitioner is not required to “disclose” privileged information: the removal of privileged material subject to protections against disclosure does not, on the face of it, offend that provision.
[111] In our view, a warrant which permits removal of a computer hard drive for cloning (or removal of a clone made on site) on the basis outlined in [106] above, but which has conditions preventing SFO officers having access to the hard drive or the clone until privilege claims can be made and, if necessary, resolved under s 24(5), does not infringe s 12 or s 24 of the SFO Act.
[112] Although the privileged information on the hard drive is “removed” from the law firm’s premises, the protection of privilege under s 24 is preserved: no “disclosure” occurs or is required. The SFO and the law firm can then engage in a process (under the supervision of the issuing Judge or his or her delegate, if necessary) to permit claims of privilege to be made and to avoid disclosure to the SFO officers of privileged material. That would preserve the protection in s 24 of the SFO Act, and ensure that the warrant did not abrogate legal professional privilege. If the issuing Judge needs to be involved, the effect would be that the ex parte application for the warrant would be converted to an inter partes proceeding on
the way the conditions to the warrant should be complied with. Expert evidence could be adduced if necessary.
[113] The removal of the hard drive while it holds irrelevant material as well as evidential material would, in our view, be justified on the basis outlined by Slade LJ in Reynolds.
[114] In our view, removal of a hard drive or a clone of a hard drive would be analogous with the removal of a book or very long document which contains a combination of relevant, irrelevant and privileged material. The fact that there is privileged material or irrelevant material in the book should not prevent the officers conducting the search from removing the book. It cannot be contemplated that the search would involve reading the whole book on site and tearing out the pages containing relevant and non privileged information for removal. Neither should it be contemplated that any claim of privilege not be respected. What is required is a warrant with conditions to deal with the situation appropriately.
[115] We are also satisfied that a search properly made on the basis we have outlined in [106] above pursuant to a s 10 warrant with appropriate conditions (and in compliance with those conditions) would not be unreasonable in terms of s 21 of the Bill of Rights.
[116] We note that the United Kingdom Parliament has legislated to give additional powers of seizure to those executing search warrants (including warrants issued under the Criminal Justice Act 1987 (UK) which is the UK equivalent to the SFO Act, although it has no equivalent to s 24(3) and s 24(5)). The UK legislation is designed to remove any doubt as to the powers of seizure arising in cases such as the present, and amounts to a statutory reversal of the decision in Bramley, in circumstances meeting particular statutory criteria. The relevant provisions are set out in Part 2 of the Criminal Justice and Police Act 2001.
[117] We are also conscious that the Crimes Act 1914 of the Commonwealth of Australia now includes comprehensive provisions relating to search and seizure, including provisions dealing with searching for and copying of data held in a
computer or data storage device: see ss 3C-3S. The Law Council of Australia and the Australian Federal Police have agreed on guidelines for searches of law firm premises: General Guidelines between the Australian Federal Police and the Law Council of Australia as to the Execution of Search Warrants on Lawyers’ Premises, Law Societies and Like Institutions in Circumstances where a Claim of Legal Professional Privilege is Made, 3 March 1997, http:
// (last accessed 16 August 2005). These may provide assistance to the SFO in the development of procedures to be followed for such searches in New Zealand.
Conclusion
[118] Given the very narrow inquiry which was involved in this case, which focused on a particular transaction (or purported transaction) involving particular, named, clients of the firm, we doubt that the removal of the firm’s computer hard drive and its cloning off site could have been justified. The conditions mentioned in [106] above do not appear to have been met in this case. But we do not have a proper factual basis for making a final determination.
[119] More importantly, the issuing Judge did not have such a factual basis either, because she was not provided with sufficient information by the SFO when it applied for the warrant. We accept that the undertakings given by the SFO and the safeguards put in place to prevent SFO officers accessing the clone of the firm’s computer hard drive were intended to provide protection from disclosure of privileged material. They may also provide a foundation for the establishment of a procedure to protect from disclosure irrelevant material. But those protections were not anticipated by, or required by, the terms of the warrant. For that reason the warrant is deficient in its terms.
[120] We agree with Heath J that the removal of the cloned hard drive containing both irrelevant material and privileged material was improper in this case. We doubt that there was a proper legal basis for its removal but, in any event, the search warrant did not have conditions designed to protect the privilege belonging to clients of the firm. However, we do not think that a search involving the removal of a
computer hard drive containing privileged material for the purposes of forensic examination in the circumstances mentioned in [106] above, where there are appropriate conditions to prevent disclosure of privileged material, would breach s 12 of the SFO Act. We note, however, that in the present case, the provision of an undertaking protecting privilege has ensured that no improper disclosure has actually occurred in this case.
Section 22
Submissions
[121] Ms McDonald submitted that the SFO’s application for an order under s 22(2)(b) was an issue before the High Court, and that the SFO is entitled to have the application dealt with. Mr Billington and Mr Harrison submitted that there was no pleading by the SFO seeking an order under s 22(2)(b) and that the Judge was therefore justified in not dealing with the application.
Discussion
[122] Section 22 prescribes the consequences of a finding by a Court that the exercise of a power conferred by the SFO Act is unlawful. The section provides:
22. Effect of final decision that exercise of powers unlawful
(1) In any case where it is declared, in a final decision given in any proceedings in respect of the exercise of any powers conferred by this Act, that the exercise of any powers conferred by this Act is unlawful, to the extent to which the exercise of those powers is declared unlawful the Director shall ensure that forthwith after the decision of the Court is given—
(a) Any information obtained pursuant to the exercise of powers declared to be unlawful, and any record of such information, is destroyed;
(b) Any documents, or extracts from documents, or other things removed pursuant to the exercise of powers declared to be unlawful are returned to the person previously having possession of them, or previously having them under his or her control, and any copies of such documents or extracts are destroyed;
(c) Any information derived from or based upon such information, documents, extracts, or things is destroyed.
(2) Notwithstanding subsection (1) of this section, the Court may, in the Court's discretion, order that any information, record, or copy of any document or extract may, instead of being destroyed,—
(a) Be returned to the person from whom it was obtained; or
(b) Be retained by the Serious Fraud Office subject to such terms and conditions as the Court may impose.
(3) No information obtained, and no documents or extracts from documents or other things removed, pursuant to the exercise of any powers declared to be unlawful, and no record of any such information or documents, shall be—
(a) Admissible as evidence in any proceedings unless the Court hearing the proceedings in which the evidence is sought to be adduced is satisfied that there was no unfairness in obtaining the evidence;
(b) Used in connection with the exercise of any power conferred by this Act unless the Court that declared the exercise of the powers to be unlawful is satisfied that there was no unfairness in obtaining the evidence.
[123] In the present case, Heath J found that the exercise of the power of the issuing Judge to issue the search warrant was unlawful, and that the warrant itself was invalid. Accordingly, in the absence of any ruling to the contrary under s 22(2), the automatic consequence of the Judge’s finding was that the files taken from the firm had to be returned to the firm, and the cloned computer information, which would be a copy of a “document” for the purposes of s 22(1)(b), would have to be destroyed. It appears that the only reason that this automatic consequence of Heath J’s finding was not triggered in the present case was that he made an order preserving the information in the event that an appeal was lodged, as subsequently happened.
[124] The application by the Director under s 22(2)(b) sought the exercise of the Court’s discretion to vary the automatic statutory consequence of the finding of invalidity of the warrant, and allow the SFO to retain the fruits of the search made pursuant to the invalid warrant. Section 22(2)(b) contemplates that such an order will be subject to terms and conditions imposed by the Court.
[125] In our view, it is incumbent on the Director to put forward to the Court suggested terms and conditions which the Court may impose under s 22(2)(b) if the Director’s application succeeds. We make some suggestions later in this judgment for the practice which the Director could adopt when seeking search warrants and some of those suggestions may have relevance in the context of a s 22 application as well. But they are by no means exhaustive and are necessarily generalised.
[126] Heath J did not have the benefit of an application in that form, and it appears that the s 22 issues were not emphasised in submissions in the High Court. Indeed both Mr Billington and Mr Harrison did not recall them being raised, but it is clear from the written submissions of Ms McDonald that they were. Because the automatic consequences in s 22(1) will apply unless an order is made to the contrary under s 22(2), and because the High Court was asked to make such an order, albeit an unsatisfactory manner, we think that it was incumbent on Heath J to deal with the SFO’s application under s 22(2)(b).
[127] In fairness to Heath J, however, we note that the Director’s pleadings did not refer to the seeking of an order under s 22(2)(b) and it appears that, although mentioned in written submissions, the s 22(2)(b) application was not the focus of oral submissions. So it was understandable that the application was not dealt with given the numerous issues which were also before the High Court Judge and which had been the subject of extensive oral and written argument. We do not think it is appropriate that we attempt to deal with the s 22 application as if we were a court of first instance, and in the circumstances we see no alternative to remitting the matter back to the High Court for decision.
Conclusion
[128] We allow the appeal against the Judge’s omission to deal with the Director’s s 22(2)(b) application and remit the matter to the High Court for determination of that application. We do not express a view on the circumstances in which a s 22(2)(b) application might succeed, as we did not hear full argument on this from counsel for the firm and counsel for Interested Parties A and B. We leave it to the
High Court Judge to determine the manner in which the application should be dealt with and whether the parties should be permitted to call further evidence.
Was the search unreasonable in terms of s 21?
[129] The relief sought by the firm in the High Court was a declaration that the warrant was invalid, an order quashing the warrant, and an order that the information seized and retained by the SFO be returned to the firm. There was no prayer for relief relating to s 21 of the Bill of Rights, and the pleadings did not therefore require the Judge to make a ruling on that issue. It appears that he was, however, asked to decide whether the mode of execution of the warrant was unreasonable for the purpose of s 21 of the Bill of Rights. That section provides that everyone has the right to be secure against unreasonable search or seizure of their person, property or correspondence or otherwise.
[130] Of course, a finding that a search was unreasonable (which may involve consideration of the reasonableness of the mode of execution of a search but will not be limited to that aspect) is normally a prelude to a decision as to the admissibility of the evidence gained from the search at trial. No such issue arose in this case because the SFO is still investigating the alleged fraud and it is not clear whether there will be a trial. If admissibility does need to be determined, that will need to be dealt with under s 22(3)(a), which says that admissibility is to be dealt with by “the Court hearing the proceedings in which the evidence is sought to be adduced”.
[131] The firm’s contention that the mode of execution of the search was unreasonable does not appear to us to be directly relevant to the issue raised by the firm’s judicial review application, namely whether the warrant was invalid. The unreasonableness allegation may be relevant to the SFO’s application under s 22(2)(b) of the SFO Act. But, apart from that, it seems to us that a finding that the mode of execution of the warrant (as opposed to the search itself) was reasonable would not alter the automatic statutory consequences of a finding of invalidity under s 22 of the SFO Act as outlined in [123] above.
[132] The firm’s submissions in this Court focussed on the improper breadth of the search warrant and the resulting search. We have already dealt with that issue. The other points made in support of the unreasonableness allegation were the same as those made in support of its contention that the warrant was invalid: non-disclosure, absence of conditions to the warrant and lack of candour. We have already given our views on those issues too.
[133] As already stated, we think the s 22 issues need to be determined in the High Court, in the light of the findings we have made, and we do not intend to express views on them.
[134] In view of that, we do not think it would be wise to make a finding on the reasonableness of the mode of execution of the search. Such a finding has no significance to the outcome of the appeal, and, if made, may be seen as an indication of our view on the s 22 issue, and possibly on the issue of admissibility, which will fall to be determined by another court at another time.
Future searches where privilege is an issue
[135] We indicated to counsel in the course of argument that the SFO may need to take a different approach to applications for search warrants in cases like this. The following comments may assist.
[136] It is essential that searches involving law firms, where privileged information will be held, must involve a very clear focus on the preservation of legal professional privilege. The SFO should involve appropriate legal advisers in the preparation of the application for a warrant: it may be that senior counsel should be engaged. The application needs to be carefully drafted, as does the affidavit in support, to ensure that the issuing Judge has before him or her a very clear picture of the alleged criminal offending, the state of the investigation and the nature of the evidence which the SFO believes may be obtained in the conduct of a search of the relevant law offices. The issuing Judge must be clearly informed that there is likely to be privileged material (and much irrelevant material) at the premises being searched (especially on computer systems likely to be at the premises) so he or she can
address his or her mind to the need for conditions to preserve privilege where no waiver of privilege has been given.
[137] The application should be accompanied by a memorandum of counsel, setting out the legal issues which require decision by the issuing Judge, and outlining the arguments on both sides. Where it is proposed that there will be cloning of a computer hard drive, or removal of a computer hard drive with subsequent cloning, there should be an affidavit from an appropriately qualified computer expert explaining why that is necessary (referring to the factors noted in [106] above), what the process involves and the safeguards which will be followed.
[138] There will be a need for extensive conditions to ensure the protection of privileged material, and the provision of an opportunity to the firm to refuse to disclose privilege material as permitted under s 24(1), with the invoking of the s 24(5) procedure in the case of disputes. As mentioned below, it may well be that the most appropriate course will be to provide for an independent lawyer to be present at the search for the purpose of reporting back to the issuing Judge on the conduct of the search, and to ensure that the safeguards set out in the conditions of the warrant are followed.
[139] The onus is on the SFO to place before the issuing Judge appropriately balanced material on all of these issues, and to ensure that the issuing Judge is given a proper basis to make an informed decision. Except in cases of utmost urgency, the application should not be made on the basis that an immediate answer is demanded: the issuing Judge should be given (and insist upon) adequate time to read all of the papers carefully, and to question the counsel involved about the legal issues.
[140] We think that the jurisprudence that has developed in relation to Anton Piller orders in the civil jurisdiction of the High Court could provide useful guidance in the development of appropriate procedures in cases like the present one. The care which is required to be taken in such applications, and the detailed consideration which they receive by the Judge to whom an application for an order is made will be inevitably required in cases such as the present one as well.
[141] There are a number of parallels between situations which arise in the context of Anton Piller orders and the present situation. For example, there is a requirement for proportionality in relation to Anton Piller orders: the applicant should not seek an order that is wider than necessary, and should use a less intrusive procedure if available: McGechan on Procedure at HR 33 1.18, D B Baverstock Limited v Haycock [1986] 1 NZLR 342 at 347 and Columbia Picture Industries Inc v Robinson [1986] 3 WLR 542 at 570. The requirement that the execution of an Anton Piller order be supervised by an independent solicitor may also be a useful model in cases such as the present: see Universal Thermosensors Limited v Hibben [1992] 1 WLR
840 at 861.
[142] In the United Kingdom, the Anton Piller jurisdiction has been codified by s 7 of the Civil Procedure Act 1997: what used to be an Anton Piller order is now called a “Search Order”. A practice direction supplementing Part 25 of the UK Civil Procedure Rules (Practice Direction, Part 25, Interim Injunctions, February 2005) (PD 25) sets out the detailed requirements for applications for search orders at paras
7 and 8, and there is a specimen form of order set out in the annex to PD 25. Some guidance may be able to be obtained from this source as well.
[143] Other possible sources of guidance are Part 2 of the Criminal Justice and Police Act 2001 (UK) (discussed at [116] above) and the Australian legislation and guidelines referred to at [117] above. The position in the United States of America is usefully summarised in McArthur, “The Search and Seizure of Privileged Attorney/Client Communication” (2005) 72 U Chi L Rev 729. There is a useful discussion of the law of the United Kingdom, including s 50 of the Criminal Justice and Police Act 2001, in Pattenden The Law of Professional-Client Confidentiality (2003) at Chapter 14, particularly 14.37-14.40.
Result
[144] We summarise our conclusions as follows:
(a) We agree with Heath J that there was a failure to disclose material information in the affidavit supporting the application for the search warrant;
(b)Contrary to Heath J’s finding, we conclude that there was sufficient evidence to support a finding that s 10(2)(a)(iv) of the SFO Act applied in this case i.e. the use of the s 9 procedure might seriously prejudice the investigation;
(c) Contrary to the finding of Heath J, we conclude that the warrant ought to have been as specific as the circumstances allowed. It failed to meet that requirement and was invalid for that reason;
(d)We agree with Heath J that the removal of the privileged information contained on the cloned hard drive was improper in this case. We do, however, envisage that there may be situations where removal of privileged information may be permissible, if the warrant is issued with appropriate conditions to protect privilege;
(e) Heath J ought to have determined the Director’s application under s 22(2)(b);
(f) We express no view on the reasonableness of the mode of execution of the search.
[145] In the light of those conclusions, we uphold the finding of Heath J that the search warrant was invalid and dismiss the appeal insofar as it relates to the making of the declaration of invalidity in the High Court. However, we allow the appeal in relation to the fact that the Director’s application under s 22(2)(b) was not dealt with and remit the matter to the High Court for consideration of that application.
Costs
[146] As the Director has failed in relation to the substantive issue of invalidity, we award costs of $6,000 plus usual disbursements to both the firm and to interested persons A and B (in the latter case to be shared between them).
Solicitors:
Serious Fraud Office, Auckland for Appellant
Brown & Sargent Lawyers, Auckland for First Respondent
Jeremy Bioletti, Auckland for Interested Persons A and B
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