A Firm of Solicitors v District Court at Auckland HC Auckland CIV 2003-404-5780
[2006] NZHC 310
•31 March 2006
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2003-404-5780
IN THE MATTER OF an application under s22 of the Serious
Fraud Office Act 1990
BETWEEN A FIRM OF SOLICITORS Applicant
ANDTHE DISTRICT COURT AT AUCKLAND
First Respondent
ANDTHE DIRECTOR OF THE SERIOUS FRAUD OFFICE
Second Respondent
Hearing: 7 and 8 March 2006
Counsel: J R Billington QC and D C S Morris for Applicant
No appearance by or on behalf of First Respondent
K P McDoanld QC and J Mullineux for Director of Serious Fraud
OfficeR E Harrison QC for Interested Persons A and B Judgment: 31 March 2006 at 2.30pm
JUDGMENT (NO. 2) OF HEATH J
Solicitors:
Brown and Sargent, PO Box 1496, Auckland
Serious Fraud Office, PO Box 7124, Wellesley Street, Auckland
J Bioletti, PO Box 105 546, Auckland
Counsel:
J R Billington QC, PO Box 4338, Auckland
K P McDonald QC, PO Box 10 567, WellingtonR E Harrison QC, PO Box 1153, Auckland
A FIRM OF SOLICITORS V THE DISTRICT COURT AT AUCKLAND AND ANOR HC AK CIV 2003-404-
5780 31 March 2006
[1] On 9 September 2003 the Director of the Serious Fraud Office (the Director) sought and obtained a search warrant under s10 of the Serious Fraud Office Act 1990 (the Act). The warrant was issued by a District Court Judge and authorised a search of premises of a firm of solicitors for evidence of a suspected fraud.
[2] Computer generated information was seized. It included material subject to legal professional privilege and irrelevant material relating both to the personal affairs of the partners and other clients of the firm. The hard drive of the firm’s computer was cloned off site.
[3] In a judgment given on 31 May 2004 (A Firm of Solicitors v District Court at Auckland [2004] 3 NZLR 748), I held that the warrant had been issued unlawfully. The warrant was quashed. In order to preserve the position of the parties pending an appeal, I made an order directing that the cloned computer information in issue, together with the password to that information, be lodged with the Registrar of this Court in a sealed container. That was done.
[4] The Director appealed against my judgment. On 16 August 2005 (The
Director of the Serious Fraud Office v A Firm of Solicitors (CA108/04, 16 August
2005)), the Court of Appeal upheld my finding of invalidity. However, it allowed the appeal to remit the Director’s application under s22(2)(b) of the Act to this Court for determination. That application had received little (if any) attention in argument before me and was not mentioned in my judgment.
[5] This judgment deals with the Director’s application under s22(2)(b). Two issues emerged from argument: first, whether there is jurisdiction to make the order sought and second, if so, whether such an order ought to be made in this case.
[6] The background to the present application was summarised in the judgments delivered in this Court and in the Court of Appeal. I summarise the essential background facts below.
[7] I held that there had been material non-disclosure by the Director on the application to obtain the warrant. I found material non-disclosure in two respects (at
772, para [98]):
a) The Director ought to have disclosed that two partners of the firm of solicitors had accepted, when spoken to on 3 September 2003, that they had, in their possession or control, documents relevant to the inquiry.
b)The solicitors had agreed to co-operate with the investigator executing the warrant.
[8] The Court of Appeal agreed that those facts ought to have been disclosed to the District Court when the warrant was sought. The Court of Appeal also agreed with me that disclosure of those facts would have provided adequate disclosure for the purpose of the application: see paras [46] and [144](a) of the Court of Appeal judgment.
[9] I held that the issuing Judge ought not to have issued the warrant because she could not have been satisfied, on the evidence before her, that there were reasonable grounds for believing that service of a notice under s9 of the Act might seriously prejudice the investigation. That was a pre-condition to a warrant being issued. The Court of Appeal disagreed with that finding, holding that there was sufficient material on which the issuing Judge was entitled to act in respect of that particular issue. For the purposes of the s22(2)(b) application, the Court of Appeal’s view must prevail.
[10] I held, applying Hawkins v Sturt (1990) 5 NZCLC 66,606, that a general warrant was sufficient. The Court of Appeal disagreed. Delivering the judgment of the Court of Appeal, O’Regan J said:
[76] … 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. (my emphasis)
While the Court of Appeal view prevails, I take the view that the Director was entitled to proceed on the basis that Hawkins v Sturt was good law at the time the search warrant was sought.
[11] I found that the mode of execution of the search was reasonable for the purposes of s21 of the New Zealand Bill of Rights Act 1990 (the Bill of Rights). Further, I held that adequate steps had been taken by the Director to protect information that may have been subject to legal professional privilege pending the Court’s ruling. The Court of Appeal declined to express a view on whether the mode of execution of the search was reasonable: see para [144](f). I proceed on the basis of the finding I made.
[12] I found that the Director ought to have tendered the application for a warrant with conditions fashioned to deal with issues of legal professional privilege likely to arise on a search of premises occupied by a firm of solicitors. I held that was necessary both to draw the attention of the Judge to problems that might arise in execution of the warrant and to provide a mechanism to sift privileged documents from those to which the Director was lawfully entitled. At 766, para [71] and 774, para [108] I said:
[71] I summarise the propositions that I see emerging from my analysis of the legal professional privilege issue:
(a)The director is entitled to summons a person, whether a solicitor or otherwise, to answer questions or supply documents under either s 5 or s 9 of the Act. The person summonsed cannot decline to answer questions on the grounds of self–incrimination: s 27 of the Act. Yet, legal professional privilege is expressly retained because of the fundamental importance of that privilege to the operation of a civilised legal system. I refer, in particular, to AM & S Europe Ltd [1983] QB 878 (ECJ), R v Derby Magistrates’ Court, ex p B [1996] AC 487 (HL), Beecroft v Auckland District Court [1999] 3 NZLR 672, and B v Auckland District Law Society [2004] 1 NZLR 326 (PC).
(b)Parliament has endeavoured to make clear, in s 24, precisely what communications are to be regarded as privileged communications: see s 24(3) of the Act. Expressly excluded from the definition is any communication made or brought into existence for the purpose of committing or furthering the commission of some illegal or wrongful act. That has always been the law, but it is codified in s 24(3)(c) out of an abundance of caution. Provided there was sufficient evidence to justify a conclusion that the communication was, prima facie, for the purpose of committing or furthering the commission of some illegal or wrongful act, a person summonsed under either s 5 or s 9 of the Act could not lawfully refuse to answer such a question. In cases of doubt it may be more appropriate for a ruling to be obtained from a Court before the question was answered.
(c) The privilege is for the client to claim or waive. If the director has a waiver from a client then the practitioner could not assert legal professional privilege in response. It may be prudent, in cases where a suspect seeks to implicate his or her solicitors, for the director to seek a waiver of privilege from the suspect so that there is no basis on which seizure of otherwise privileged documents could be declined. Indeed, in many cases the director might be unwise to rely on allegations by a suspect about the conduct or complicity of his or her solicitor if no waiver of privilege is forthcoming. Such allegations are inherently self–serving in nature.
(d)It will often be clear to the director whether physical documents or, alternatively, information stored electronically within a computer system might be the subject of a claim for legal professional privilege if the premises in question are searched. In such circumstances 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. By doing that, the director draws to the attention of the Judge from whom the warrant is sought the nature of the issues involved. They can then be discussed and appropriate conditions can be attached to the warrant. By the director addressing those matters prior to seeking the search warrant it is less likely that any challenge to the warrant
(made after execution) could succeed. Such an obligation would not be onerous to the director.
…
[108] … I am of the view that the warrant authorised seizure of information from the solicitors relevant to the investigation. Because s 24(3)(c) of the Act expressly excludes from the ambit of a “privileged communication” one made, or brought into existence, for the purpose of committing or furthering the commission of some illegal or wrongful act, it is implicit that such communications can properly be seized pending an inquiry as to whether privilege attaches under s 24(5) of the Act. Nevertheless, for the reasons set out in para [71], point (d) above, the director ought to have suggested conditions attaching to the warrant to deal adequately with issues of legal professional privilege. The Judge could then have determined what conditions were appropriate, after hearing from counsel for the director
[13] The Court of Appeal said that there “was no real dispute before [it] that the warrant … ought to have had conditions which were designed to ensure that privileged material was not accessed by Serious Fraud Office personnel”. Further, the Court stated that there was no “dispute as to the importance in public policy terms of the preservation of legal professional privilege …, and the requirement to provide a proper basis for a claim of privilege to be made by a solicitor when appropriate”: para [82].
[14] In view of the intrusive nature of a search of legal premises involving the cloning of computer generated information, the Court of Appeal emphasised that an issuing Judge “would need clear evidence that no practical alternative existed and would be obliged to ensure the conditions subject to which these actions could be undertaken were adequate” to deal with the public policy objectives identified in the judgment: para [108]. The Court of Appeal concluded (para [118]) that, having regard to the very narrow inquiry being undertaken (focussing on a particular transaction or purported transaction), it doubted that removal of the firm’s computer hard drive and cloning off site would have been justified in this investigation. The Court said:
(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;
Interpretation of s22 of the Act
(a) Introductory comments
[15] Section 22 is a difficult provision to construe. The Court of Appeal expressed some tentative views on its application, but decided to remit the application to me for determination, expressing no view on the circumstances in which such an application might succeed. In R v Beattie (High Court, Auckland, CRI 2003-404-25599), Allan J also considered the section: see paras [205]-[216]. No concluded views were expressed in that judgment on the scope of the s22(2) discretions. In those circumstances, I approach the question of interpretation afresh.
[16] Section 22 of the Act states:
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.
[17] Section 22 appears to have been based on ss27 and 28 of the Corporations (Investigation and Management) Act 1989. Those sections deal with the exercise of powers conferred upon the Registrar of Companies when investigating under that Act. Section 27 is referable to powers exercised under s17 (to obtain information and documents), while s28 refers to powers exercised under ss19-21 (dealing with the investigation of the affairs of a corporation).
[18] Sections 27 and 28 of the 1989 Act provide:
27 Effect of final decision that exercise of powers under section 17 unlawful
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 section 17 of this Act that the exercise of any powers conferred by that section is unlawful, to the extent to which the exercise of those powers is declared unlawful,—
(a) The Registrar shall ensure that forthwith after the decision of the court is given—
(i) Any information supplied by the corporation or an associated person pursuant to section 17(1)(c) of this Act, and any record of such information, is destroyed:
(ii) Any documents, or extracts from documents, obtained pursuant to an inspection made under section 17(1)(d) of this Act are returned to the person previously having possession of those documents, or previously having them under his or her control, and any copies of such documents or extracts are destroyed:
(iii) Any information derived from or based upon any such information or documents or extracts is destroyed:
(b) No information supplied by the corporation or an associated person pursuant to section 17(1)(c) of this Act, and no documents, or extracts from documents, obtained pursuant to an inspection made under section 17(1)(d) of this Act, and no record of any such information or documents, shall be—
(i) Admissible in evidence in any proceedings:
(ii) Used in connection with the exercise of any power conferred by Part 2 or Part 3 of this Act.
28 Effect of final decision that exercise of powers under sections 19 to
21 unlawful
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 sections 19 to 21 of this Act, that the exercise of any powers conferred by those sections is unlawful, to the extent to which the exercise of those powers is declared unlawful,—
(a) The Registrar shall ensure that forthwith after the decision of the Court is given—
(i) Any information obtained pursuant to section 21(1)(a)
of this Act, and any record of such information, is destroyed:
(ii) Any documents produced for inspection pursuant to section 21(1)(a) of this Act are returned to the person previously having possession of the documents, or previously having the documents under his or her control, and any copies of such documents, or extracts from such documents, are destroyed:
(iii) Any documents, or extracts from documents, obtained pursuant to an investigation made under section 21(2) of this Act are returned to the person previously having possession of those documents, or previously having them under his or her control, and any copies of such documents or extracts are destroyed:
(iv) Any information derived from or based upon such information, documents, or extracts is destroyed:
(b) No information obtained or documents produced for inspection pursuant to section 21(1)(a) of this Act, and no documents, or extracts from documents, obtained pursuant to an investigation made under section 21(2) of this Act, and no record of any such information or documents, shall be—
(i) Admissible as evidence in any proceedings:
(ii) Used in connection with the exercise of any power conferred by Part 2 or Part 3 of this Act.
[19] The scheme of ss 27 and 28 of the 1989 Act differs from s22 of the Act. Unlawfully obtained information is inadmissible in evidence in any proceeding and cannot be used in connection with the exercise of any power conferred by Part 2 or Part 3 of the 1989 Act. No discretion is available for a Court to alter the automatic consequences of an unlawful exercise of power set out in both s27(a) and (b) and s28(a) and (b). Sections 27 and 28 provide that some types of information must be returned to the person from whom it was obtained and other types must be destroyed. The absence of a provision akin to s22(2) highlights the need to read s22(2) and (3) together.
[20] Section 22 must be given an interpretation that reflects the purpose of the Act (s5 Interpretation Act 1999) and, if compatible, one which is consistent with the guarantees contained in the Bill of Rights (s6 Bill of Rights).
[21] The scheme and purpose of the Act received attention in the judgments delivered in this Court and in the Court of Appeal: see my judgment at 752-753, paras [6]-[15] and the Court of Appeal judgment at paras [5]-[11]. The Court of Appeal’s analysis is set out below:
[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.
[22] The Act received Royal Assent on 3 July 1990, just over a month before the
Bill of Rights received Royal Assent, on 28 August 1990.
[23] At the time the Act was passed, the admissibility of unlawfully obtained evidence was determined by reference to the common law and s20 of the Evidence Act 1908 (in relation to confessions). Evidence obtained unlawfully was admissible, subject to a discretion to exclude: see Makin v Attorney-General for New South Wales [1894] AC 65 (PC), Noor Mohamed v R [1949] AC 182 (PC), Harris v Director of Public Prosecutions [1952] AC 694 (HL), Kuruma, Son of Kaniu v R [1955] AC 197 (PC), R v Convery [1968] NZLR 426 (CA), R v Capner [1975] 1
NZLR 411 and R v Hartley [1978] 2 NZLR 199 (CA).
[24] Section 22(3)(a) reverses the common law position; the unlawfully obtained evidence is inadmissible if obtained unfairly. At the time s22(3)(a) was enacted neither the prima facie exclusion rule developed initially under the Bill of Rights nor the balancing approach in R v Shaheed [2002] 2 NZLR 377 (CA) had been developed.
[25] Section 22(1) provides a default rule to deal with cases in which a final order has been made that the exercise of any powers conferred by the Act was unlawful. Such an order has been made in this proceeding.
[26] Once a declaration of unlawfulness has been made, s22(1) requires the Director “forthwith after the decision of the Court is given” to destroy certain classes of information and documents and to return others to the person previously having possession of them.
[27] In summary, s22(1) provides:
a) Any information obtained and any record of such information must be destroyed (s22(1)(a)).
b)Any documents, or extracts from documents, or things removed must be returned to the person previously having possession of them (s22(1)(b)).
c) Any copies of documents or extracts must be destroyed (s22(1)(b)).
d)Any information derived from or based upon such information, documents, extracts or things must be destroyed (s22(1)(c)).
[28] The term “document” is defined by s2 of the Act to include:
Document means a document in any form whether signed or initialled or otherwise authenticated by its maker or not; and includes—
(a) Any writing on any material:
(b) 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:
(c) Any label, marking, or other writing that identifies or describes any thing of which it forms part, or to which it is attached by any means:
(d) Any book, map, plan, graph, or drawing:
(e) Any photograph, film, negative, tape, or other device in which one or more visual images are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced: (my emphasis)
[29] The term “information” is defined in s2 as follows:
Information includes data, documents, and forecasts:
[30] Section 22(2) of the Act empowers the Court, in its discretion, to order that “any information, record, or copy of any document or extract”, instead of being destroyed, be returned to the person from whom it was obtained (s22(2)(a)) or be retained by the Serious Fraud Office, subject to such terms and conditions as the Court may impose (s22(2)(b)).
[31] The Court of Appeal considered the basis on which the Director was entitled to search for and to seize electronically generated information. For the Court, at paras [98]-[104] (inclusive), O’Regan J said:
[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.
[32] The Court of Appeal also considered the way in which a warrant should be executed in the future, assuming appropriate specificity: see paras [105]-[115] (inclusive) and the observations about counterpart provisions in other jurisdictions at paras [116] and [117]. It is unnecessary for me to consider further those observations because exercise of any s22(2)(b) discretion must fall to be determined against the background of the non-specific warrant issued in this case.
[33] Section 22 must be interpreted against the background of the circumscribed ability to challenge decisions made by the Director in the course of investigations under the Act. In particular:
a) Section 20 of the Act is a privative clause providing that any decision by the Director to investigate any case in which serious or complex fraud is suspected, to take proceedings in respect of any such case or to take proceedings relating to any offence the Director suspects may have been committed against the Act shall not be “challenged, review, quashed or called in question in any Court”.
b)Section 21 of the Act enables powers exercised under the Act to be continued, exercised or discharged until “a final decision in relation to” any proceedings in any Court in respect of the exercise of any power conferred by the Act or the discharge of any duty imposed by the Act is given: s21(1). The term “final decision” excludes an interim order made under s8 of the Judicature Amendment Act 1972 in judicial review proceedings: s21(3).
c) Section 23 of the Act overrides duties of confidentiality to clients to enable powers conferred by the Act to be exercised for the purpose of investigating or prosecuting suspected serious or complex fraud. However, the position with regard to legal professional privilege is addressed specifically by s24.
[34] The Court of Appeal described the Director’s application under s22(2)(b) as one designed “to vary the automatic statutory consequence of the finding of
invalidity of the warrant, and allow the [Director] to retain the fruits of this search made pursuant to the invalid warrant”: para [124].
(c) The scope and purpose of the s22(2) discretions
[35] Does s22(2)(b) permit an order that has the effect of enabling the Director to use information gathered from an unlawful search to decide whether serious or complex fraud has been committed?
[36] Ms McDonald QC submitted that the question should be answered affirmatively. She took the position that s22(2)(b) was designed to enable the Director to access information obtained unlawfully if the Court were to consider that appropriate.
[37] Both Mr Billington QC and Mr Harrison QC submitted that the section was more limited in scope and could not be used for the purpose for which the Director contended. They saw the s22(2) discretions as administrative in nature, as opposed to one designed to enable the Director to obtain access to material to which he was not otherwise entitled.
[38] The starting point is what the Court of Appeal described as the “automatic consequences” of a final decision of invalidity: para [124] of the Court of Appeal judgment. Those consequences are set out in s22(1). They involve destruction of certain types of material and the return of other material to the person from whom it was obtained. Section 22(1) deals both with information and real evidence (“other things removed”).
[39] The Court’s discretion under s22(2) may be exercised only in respect of material that, otherwise, is to be destroyed. Items that are required to be returned to the person previously having possession of them are not subject to the discretion. Such items include real evidence (“other things removed”) and copies of documents seized. Exercise of the discretion may permit return of the relevant items to the person from whom the information to be destroyed was obtained or retention by the Serious Fraud Office on such terms and conditions as the Court thinks appropriate.
[40] The s22(2) discretion must be read in the context of the automatic consequences of a declaration of unlawful gathering of evidence (s22(1)) and the specific provisions dealing both with the use of unlawfully obtained information for the purpose of the exercise of any power conferred by the Act (s22(3)(b)) and the admissibility of such material as evidence in any proceedings (s22(3)(a)).
[41] Use of unlawfully obtained information for investigation is prohibited unless the Court that declared the exercise of the power to be unlawful is satisfied that there was no unfairness in obtaining the evidence. Such information is inadmissible in evidence unless the Court hearing the proceeding in which the evidence is sought to be adduced is satisfied that there was no unfairness in obtaining the evidence.
[42] Those provisions reverse the common law position that unlawfully obtained evidence is admissible unless there was unfairness in obtaining it: under the Act unlawfully obtained evidence is inadmissible unless the Court is satisfied there was no unfairness in obtaining it.
[43] Ms McDonald did not concede that s22(3)(b) was limited to use for the purpose of investigating serious or complex fraud. However, she accepted that that was the only purpose for seeking retention of the cloned computer generated information in this case. It is unnecessary for me to determine whether a use wider than investigation is contemplated by s22(3)(b). I leave that point open.
[44] Because of the inability to seek interim relief in respect of a decision by the Director to exercise a power under the Act (s21), the Director will generally know what material has been seized before the declaration of unlawfulness is made. Section 22(3) is directed to that situation. For example, if paper documents have been seized, they are likely to have been read before any declaration of unlawfulness is made.
[45] In those circumstances, the Director would be able to specify the purposes for which he wishes to use that material (“exercise of any power conferred by” the Act) or seek a declaration of admissibility before (in the case of a prosecution, s344A Crimes Act 1961) or at the trial of any proceeding.
[46] In this case s22(3) cannot apply because the Director does not know what information is held on the clone. Accordingly, he can go no further than to say he wishes to look at the information that was seized unlawfully to determine whether to pursue his investigation further or to commence a new line of inquiry. Is the s22(2)(b) discretion intended to apply in that situation?
[47] In my view, the discretion conferred by s22(2) does not enable the Court to make an order of the type for which Ms McDonald contends. My reasons for reaching that view follow.
[48] First, the discretion conferred by s22(2) is directed only to material required to be destroyed. It does not extend to documents, extracts from documents, or things removed, the latter including real evidence. Those items must be returned to the person previously having possession of them.
[49] The discretion to permit subsequent use (at least) for investigative purposes or to admit unlawfully obtained information in evidence is reserved to the Court making the original declaration of unlawfulness or conducting the trial, respectively: s22(3) (a) and (b). In that context, s22(2) can be seen as a mechanism to preserve information unlawfully obtained (that must otherwise be destroyed) pending an application to the appropriate Court for permission to use or to admit it in evidence. This interpretation is consistent with the absence of a provision akin to s22(2) in ss27 and 28 of the Corporations (Investigations and Management) Act 1989 – an omission explainable on the basis that there is no power for a Court to reverse the automatic statutory prohibition on use or inadmissibility: see paras [17]-[19] above.
[50] Had the information on the clone been seen by the Director it would have been open to him to seek a s22(2)(b) order to preserve the material pending the determination of an application under s22(3).
[51] My interpretation excludes the present situation from the scope of s22 because the Director seeks to look at unlawfully obtained information to determine whether a power under the Act ought to be exercised. That type of inquiry is not envisaged by s22.
[52] Second, my interpretation of the discretion conferred by s22(2)(b) is consistent with the discretion conferred by s22(2)(a), permitting the Court to direct return of information unlawfully gathered to the person from whom it was obtained. There may be good reason why either the person from whom the information was obtained or the Director may wish to return the information instead of destroying it. There is nothing in s22(2) restricting the standing of a person other than the Director to make an application under s22(2), provided the applicant has a sufficient interest in seeking an order.
[53] Without expressing a final view on this point, the perceived need for a statutory jurisdiction to return copies to the person for whom they were obtained may have arisen from McCarthy P’s judgment in Auckland Medical Aid Trust v Taylor [1975] 1 NZLR 728 (CA) at 738-739 where the President said:
However that is not the end of the case because the appellant also asked in the motion for the following order:
That a declaration do issue against the second and third respondents declaring that the second and third respondents, their officers, employees and persons responsible to them are not entitled to retain possession of any records, files or materials seized and removed from the premises at 182 Great South Road, Greenlane, pursuant to the search warrant nor any copy, photocopy, microfilm, note, record, tape recording or other permanent record taken or made therefrom.
The Solicitor-General submitted that no authority had been advanced on behalf of the appellant to justify the Court in making that part of the declaration which refers to "any copy, photocopy, microfilm, note, record, tape recording or other permanent record taken or made therefrom". I accept that submission and for myself am unaware of any authority for the making of a declaration in respect of the copies and other records just referred to. As regards the remainder of the declaration sought by the appellant the Solicitor-General accepts that in the event of the Court concluding that the warrant should be quashed then a declaration should be made but in terms merely declaring that the respondents are not entitled to retain possession pursuant to the warrant. This would leave it open to the police, in any action of detinue brought by the appellant, to justify their retention of some at least of the records on the basis of the decisions of the English Court of Appeal in Chic Fashions (West Wales) Ltd v Jones [1968] 2
QB 299; [1968] 1 All ER 229 and Ghani v Jones [1970] 1 QB 693; [1969] 3
All ER 1700. Whether the principles accepted by the English Court of
Appeal should also be accepted in this country is not a matter on which we had the benefit of any real argument. It seems to me that if in the present
proceedings the respondents wished to justify their retention of the records
they seized otherwise than on the basis of the validity of the warrant itself then they ought to have placed before the Court factual material on which that matter could have been decided. I do not think that it would be right in
all the circumstances to put the appellant in a position where it has to issue a separate action in detinue. (my emphasis)
[54] Third, the interpretation I favour is consistent both with the purposes of the Act and with the Bill of Rights. Accordingly, the interpretation is justified by an application of both s5 of the Interpretation Act and s6 of the Bill of Rights.
[55] My interpretation is consistent with the purpose of the Act because it enables the law enforcement agency to retain information pending an application to the Court to use it (at least) for investigative purposes or to admit it in evidence in a proceeding. It is consistent with the Bill of Rights because it preserves the position of a suspect to oppose an application to use or to admit the information in evidence.
[56] Fourth, the extent of the s22(2) discretion I have found to exist sits more readily with the restrictions on challenges to decisions made by the Director in the course of investigations under the Act (ss20 and 21) and with the protections for documents subject to legal professional privilege, in s24.
Discretion
[57] In case I am wrong in my interpretation of s22(2), I consider briefly whether I would have made an order in favour of the Director if I had accepted Ms McDonald’s submission on the scope of the discretion.
[58] In my view, an order would not have been justified because:
a) The material was gathered pursuant to a warrant found to have been obtained as a result of material non-disclosure and a failure to provide a mechanism to deal adequately with questions of legal professional privilege. The law in relation to the former is well settled. The need to provide a mechanism to deal with legally privileged material on the execution of a search warrant has been apparent since, at the latest, Rosenberg v Jaine [1983] NZLR 1. See also s198A of the Summary Proceedings Act 1957, enacted in relation to warrants obtained under s198 of that Act after Rosenberg v Jaine.
b)In the circumstances of this case, there was no justification for removing the computer hard drive because the search was focussed on a limited class of documents and information truly relevant to the narrow scope of the investigation: cf the Court of Appeal judgment at paras [104] and [118].
[59] Although a general warrant was obtained on the basis that Hawkins v Sturt was good law and I found the search to have been executed reasonably (for Bill of Rights purposes) the factors militating against an order being made far outweigh those in favour. Indeed, I regard it as difficult to conceive of a case in which it would be appropriate (exercising a discretion of the type for which Ms McDonald contended) to make an order under s22(2)(b) where there had been material non- disclosure on the application for a warrant and a failure to provide a mechanism to preserve material subject to legal professional privilege.
Result
[60] For those reasons, the application is dismissed.
[61] Questions of costs are reserved. Memoranda shall be filed and served in support of any costs application within 10 working days of delivery of this judgment and in opposition within 20 working days of delivery of this judgment. Memoranda should be limited to five pages and identify briefly the basis on which costs are sought and the grounds for any such application. Unless the Registrar is requested to fix a date for an oral hearing (of no more than one hour) I will deal with questions of costs on the papers.
[62] Having regard to the outcome of the present application I continue in force the direction made for the cloned data to be held in the custody of the Registrar of this Court: see para [115](b) of my judgment of 31 May 2004. I also make an order that back-up tapes held by the Director not be accessed or disposed of pending further order of this Court or a higher Court. Those orders shall continue in force until the appeal period expires, determination of any appeal filed within time or
further order of the Court of Appeal. Leave to apply is reserved should any further directions be required in respect of the orders made.
[63] I thank counsel for their assistance.
P R Heath J
Delivered at 2.30pm 31 March 2006
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