Three companies that act as brokers between energy companies and small businesses requiring an energy supply have failed in a judicial review challenge to a judge’s decision to grant production orders in favour of Cheshire West and Chester Council (CWAC).
On the application of the council HH Judge Mark Brown, sitting in the Crown Court at Preston, granted the orders on 18 December 2018 pursuant to Section 345 of the Proceeds of Crime Act 2002.
The orders provided access to financial material in relation to the three companies – Energy Search Limited, Commercial Reduction Services Limited and Commercial Energy Limited – and to personal and business accounts held by Lee Qualter, the owner of the companies, and a man named Darren Martindale.
In Lee Qualter Commercial Reduction Services Ltd & Anor v Crown Court At Preston  EWHC 2563 (Admin) the three companies and Mr Qualter argued that CWAC had no power to make an application for production orders pursuant to Section 345 of the 2002 Act. A production order under Section 345 can only be made in relation to a party who is subject to a confiscation investigation or a money laundering investigation.
The claimants' case was that any such investigations by CWAC were ultra vires. The interested parties included energy supply companies with which the claimants dealt.
Officers employed by CWAC have been undertaking and continue to undertake investigations into the trading activities and practices of the claimants and of the Second to Seventh Interested Parties.
Counsel for the claimants submitted that CWAC were undertaking a national fraud and money laundering investigation which they had no power to do. He argued that such an investigation was wrong in principle.
He went on to submit that, even if a local authority based in the North West notionally did have the power to conduct such an investigation, no consideration had been given at any point by any local authority to the expediency test in Section 222(1) of the Local Government Act 1972.
Finally, he argued that, even if a local authority in the North West such as Lancashire had lawfully commenced an investigation into the activity of the claimants, the delegation of that investigation to CWAC was unlawful.
Counsel for the claimants also pointed to the fact that the investigation had begun by 2014 at the latest yet no charges had been brought some 5 years later. This demonstrated the inherent unsuitability of CWAC to conduct such an investigation and supported the proposition that CWAC was not empowered to investigate allegations of national fraud and money laundering, he suggested.
Counsel for the Second to Seventh Interested Parties meanwhile argued that CWAC could not suggest that the investigation they were conducting would promote or protect the interests of the residents of Cheshire. Thus, they only could act lawfully if there had been a lawful delegation of the power to investigate offences of fraud and money laundering by a local authority for whose residents such an investigation would be expedient.
On behalf of CWAC it was submitted that there was nothing exceptional or unusual about the investigation being undertaken. Fraud in its various manifestations was the bread and butter work of modern trading standards departments, the counsel's QC said.
He added that there was a clear distinction between the circumstances in the case of R v AB and others  1 WLR 4071, where Thurrock Council was found not to have the power to bring prosecution proceedings on behalf of the Legal Aid Agency in relation to an alleged legal aid fraud, and the investigation in this case.
It was also said on behalf of CWAC that in relation to the expediency test under Section 222 of the 1972 Act this was satisfied because the businesses under investigation were based in the North West, in particular in Lancashire and Blackpool. The inhabitants of those areas had an interest in Lancashire and Blackpool not being used as a centre of fraudulent activity.
Dismissing the judicial review challenge, Mr Justice William Davis, with whom Lord Justice Gross agreed, concluded that:
- CWAC were investigating the allegedly fraudulent activity of the claimants and the Second to Seventh Interested Parties pursuant to lawful delegation by Lancashire Trading Standards.
- An investigation of this kind was a delegated function CWAC were entitled to exercise whether pursuant to Section 1 of the Localism Act 2011 and/or Sections 111 and 101 of the Local Government Act 1972.
- A local authority did not need to satisfy the expediency test in Section 222(1) of the 1972 Act and/or make a decision to prosecute before they lawfully could investigate alleged criminal activity.
The judges therefore rejected the primary submissions of the claimants as supported by the Second to Seventh Interested Parties.
Mr Justice William Davis said that, strictly, consideration of whether a prosecution of the claimants would promote or protect the interests of the inhabitants of Lancashire and/or Blackpool was premature. “However, we shall address the issue since, at the grant of permission, the court indicated that the issue of the impact of fraud by a trader on the inhabitants of the area from where the fraud was conducted ought to be considered.”
The judge said: “We emphasise that every case will depend upon its own facts and that a court should be slow to interfere with a local authority's exercise of discretion as to what will promote or protect the interests of their inhabitants.
“What is clear from the authorities we have reviewed is that a local authority properly can consider the impact on the area in terms of reputational damage. Further, there will be adverse resource implications if a trader repeatedly engages in fraudulent practices from a local authority's area without any effort by the local authority to take enforcement action to prevent such trading. The trading standards officers employed by the local authority are likely to be diverted from other useful activity due to the need to monitor and to deal with complaints about the trader. This approach was approved in AB and others.”
Mr Justice William Davis added that there was a clear distinction to be drawn between the activity of Thurrock Council in setting up a free-standing investigation and prosecution service [the subject of R v AB and others] and Lancashire (via CWAC) pursuing allegations of fraud being practised within its area – “a matter rooted locally even if its consequences are geographically more widespread”.
The judges therefore dismissed the claim for judicial review of the decision of Judge Brown to grant production orders.
“Judge Brown granted the orders on the basis of relatively limited argument and material. We have heard much broader submissions and we have received evidence not available to Judge Brown. We are satisfied that the material we have seen and heard only goes to confirm that his decisions both as to the vires of the investigation underpinning the production orders and as to the merits of the applications for those orders were correct,” Mr Justice William Davis said.