R (Rawlinson & Hunter Trustees and Others) v Central Criminal Court and Another Vincent Tchenguiz and (Interested Party)

Hearing dates: 22, 23 and 24 May 2012

This is the judgment of the court.

Introduction

In these two sets of proceedings two well-known businessmen, Robert Tchenguiz (RT) and Vincent Tchenguiz (VT) and the companies and trusts through which their businesses are carried on, seek to set aside search warrants issued under s.2(4) of the Criminal Justice Act 1987 by His Honour Judge Paul Worsley QC at the Central Criminal Court. They do so on the basis that the warrants were procured by the misrepresentation and non-disclosure of the Serious Fraud Office in the written presentation made to the judge known as the Information and in the oral evidence of the case manager. Challenges are also made to the manner in which the warrants were executed and to the arrest of RT.

It is first necessary to set out a chronological account of the factual background that led to the issue of the warrants, the search of the premises and the arrest of RT and VT.

The events all arose from the extensive lending by Kaupthing Hf (Kaupthing) to RT and a single loan to VT. Kaupthing was then the largest Icelandic bank. It collapsed on 8/9 October 2008 at the height of the then worldwide financial crisis.

In the account of the factual background we refer to Grant Thornton's reports. Grant Thornton and Weil, Gotshal and Manges were appointed on the collapse of Kaupthing by the group responsible for its affairs known as the Resolution Committee to seek to recover funds for the creditors. Their reports formed an important basis for the SFO's investigation, as we shall explain. The SFO also had a very substantial amount of other documentation; for example another Administrator provided 203,538 electronic files and third party documentation included 4,096 electronic files from Goldman Sachs and 3,031 such files of Deutsche Bank.

I THE FACTUAL BACKGROUND

(i) RT and the Tchenguiz Discretionary Trust (TDT).

Like many very wealthy businessmen, RT operated the businesses in which he had an interest through a complex structure based in an offshore location for fiscal reasons. At its centre from 26 March 2007 was the Tchenguiz Discretionary Trust (TDT) of which RT and his family were the principal beneficiaries.

As is not uncommon, a professional trustee company was chosen to act as the trustees of the TDT. The company chosen was Investec Trust (Guernsey) Ltd and its associated company Bayeux Trustees Ltd (to whom we will jointly refer as Investec), part of the large and well-known Investec group of companies, listed on the London and Johannesburg Stock Exchanges. Investec remained the trustees until the summer of 2010 when the role of the trustees was transferred to Rawlinson & Hunter SA (Rawlinson & Hunter), another international company specialising in the provision of private client services to the very wealthy. Rawlinson & Hunter are the claimants in the first of these judicial review proceedings. We return to the role of Investec at paragraph 107 below.

Again, as is common in this sort of arrangement, although the lawyers and other advisors in relation to complex transactions would be retained by the trustees, the trustees would need to know how the investments and transactions by the TDT were to be made in the interests of RT and his family. R20 Limited (R20), the second claimant in the second judicial review proceedings is a UK company owned by the TDT and based in London of which RT was a Director. R20 was the entity through which the trustees were instructed as to how RT and the beneficiaries wanted the investments made and which transactions should be effected. It is important to point out that although the trustees were not bound to do what they were told to do by R20, they would almost always do so. For fiscal and other reasons, such structures are premised on the understanding that trustees make the ultimate decision, that they are not bound to do what they are told to do by the beneficiaries and, of paramount importance for these proceedings, the trustees are responsible for satisfying themselves as to the lawfulness of all transactions they enter into.

Thus instructions by the beneficiaries to the trustees are for these reasons usually termed "advice" even though the instructions are almost invariably acted upon. Trustees of independent stature are normally scrupulous to ensure that the lawyers retained on complex transactions formally advise them. A consultancy agreement was made between Investec and R20 in October 2007 which formally set out these arrangements for such "advice".

Again, as is common, the TDT used offshore companies, including companies or other entities known as Special Purpose Vehicles (SPV), for individual transactions. Principal amongst the companies from December 2007 onwards was a group of companies controlled by Oscatello Investments Ltd (Oscatello), a British Virgin Islands (BVI) company, owned by the trustees of the TDT.

(ii) VT and the Tchenguiz Family Trust (TFT)

In a similar manner, VT and his family were the beneficiaries of the Tchenguiz Family Trust (TFT). This had been established by the family sometime earlier. The trustees were Investec and a transfer was made to Rawlinson & Hunter in the same manner as occurred for the TDT. In a manner similar to R20, the second claimant in the first action, Vincos Ltd, which traded as Consensus Business Group (Consensus), provided "advice" to the TFT. The other claimants in the first judicial review proceedings were companies owned or controlled by TFT.

(iii) Kaupthing Bank and its relations with RT

Kaupthing, at the time the largest bank in Iceland, was one of the Icelandic banks that made significant loans for the purposes of the acquisition of assets outside Iceland to companies and individuals who had little connection with Iceland. It had subsidiaries in Luxembourg and London, including Kaupthing Singer and Friedlander.

It appears that the first business transacted between Kaupthing Bank and the interests of RT was in 2004 when RT's interests purchased, with the financial support of Kaupthing, the Odeon Cinema chain in the UK. There then followed a number of other transactions, including the purchase with Barclays Capital Ltd and a private equity group, of Somerfield plc, a supermarket chain in the UK and the purchase of other strategic holdings including holdings in J Sainsbury plc, in Mitchells & Butlers plc, in Kaupthing and a 5% stake in Exista Hf (Kaupthing's largest shareholder with 25% of its equity).

By the late autumn of 2007, the interests of RT through the TDT, with the substantial financial support of Kaupthing, had built up a significant share and property portfolio. It is apparent from contemporaneous documents that by that stage TDT held significant positions in Sainsbury plc and in Mitchells & Butlers. A significant part of the interests in Sainsbury plc and Mitchells & Butlers plc was held under CFDs (contracts for difference) and other forms of derivative contract; Kaupthing had from at least February 2007 provided some finance for these CFDs. At some stage its subsidiaries became counterparties to the CFDs and other derivatives. We set these matters out in more detail at paragraphs 121 and following.

(iv) The restructuring and the Oscatello loan arrangements made on 19 December 2007

On 19 December 2007, the borrowings were restructured. Kaupthing and the interests of TDT entered into arrangements for a loan facility to Oscatello and associated agreements including a profit participation by Kaupthing and the release of RT's personal guarantees; the loan was secured by pledges of shares over the Oscatello companies. The value of the Oscatello companies was the subject of a statement of assets and liabilities dated 30 November 2007 and verified by Investec. The initial loan was £371m under the restructuring. The making and operation of these arrangements were, as set out in the Information, central to the SFO's case of:

"a deliberate, concerted and dishonest conspiracy between a number of senior Kaupthing executives and two favoured clients of the bank, namely Robert and Vincent Tchenguiz, to defraud and ultimately steal funds on a large scale from the Bank

… There is a thread running through all areas of suspected criminality which demonstrates what appears to be a highly unusual relationship between Kaupthing Bank, its senior executives and the Tchenguiz brothers. Indeed there are reasonable grounds to suspect that this...