Image caption The SFO dropped its case against Vincent Tchenguiz last month

Search warrants issued to the Serious Fraud Office as part of its investigations of property tycoons the Tchenguiz brothers were unlawful and obtained by "misrepresentation", the High Court has ruled.

The warrants were issued as part of the SFO's inquiry into their role in the collapse of Icelandic bank Kaupthing.

Robert Tchenguiz said the SFO's conduct had been "outrageous and unlawful".

But the SFO pledged to continue investigating the case "with vigour".

Vincent and Robert Tchenguiz, the high-profile brothers who made their fortunes in property, had their offices searched and were arrested in March 2011.

It was part of a well-publicised early-morning operation involving 135 police officers and SFO investigators.

In a statement Robert Tchenguiz said: "As a result of the SFO's unlawful actions I and my family have suffered enormous damage, not least to my reputation."

"The Court has been very clear," he said. "Had the SFO acted properly, these warrants would not have been issued.

'Serious mistakes'

The Serious Fraud Office has been working with Icelandic authorities, looking at why substantial funds flooded out of the Kaupthing bank in the days before it failed in 2008.

In this too-long roster of SFO boo-boos and setbacks, today's judgement is perhaps its most embarrassing.

Vincent Tchenguiz had borrowed £100m from the Icelandic bank shortly before its collapse. Both he and his brother have always denied any wrongdoing.

The UK government had to step in and compensate millions of savers who lost money held in accounts in its UK arm, Kaupthing Edge.

The SFO dropped the case against Vincent in June this year.

It has apologised to the brothers and admitted it mishandled information pertaining to the case.

In a statement, the SFO "conceded that serious mistakes were made in connection with the application for search warrants in this case" and suggested that things had improved under new head, David Green.

"The restructuring and recent senior appointments are designed to provide inbuilt layers of quality assurance and avoid the repetition of such errors," it said.

But it has not dropped its case against brother Robert.

Media playback is unsupported on your device Media caption Vincent Tchenguiz: I've come through quite a few property crashes

"We note that the court declined to consider the merits of the future of the investigation, this being the responsibility of the SFO as an investigating and prosecuting authority.

"The SFO will continue with the investigation with renewed focus and vigour."

There has been speculation that the SFO will be closed or reorganised to make it more effective.

Based on search warrant applications, the SFO conducted no raids for the year to 31 March, compared with 47 in the previous year, according to statistics obtained by law firm Pinsent Masons earlier this year.

The law firm suggested the lack of raids was due to an "overly cautious position" following the Tchenguiz case, but the SFO denied this and pointed to recent raids in May.

Earlier this month, the SFO confirmed that it had launched an investigation into the manipulation of the inter-bank lending rates known as Libor.

Seeking damages

Image caption The Tchenguiz brothers are regularly pictured at parties and celebrity events

Robert and Vincent Tchenguiz said they would now try to claim damages and bring proceedings against the SFO. They are expected to claim up to £100m each.

"I will be seeking damages from the SFO - and from any other parties who contributed to the court being misled," Vincent said.

"My claims will reflect the substantial personal and business costs and losses that have directly resulted from the actions of these parties."

The ruling did however, uphold the lawfulness of Robert Tchenguiz's arrest.

The SFO, which investigates and prosecutes complex fraud cases in the UK, declined to comment until after a further hearing on the matter later on Tuesday.

The judgement also pointed to the lack of resources available to the SFO. "It is clear to us that the SFO was not properly resourced for this investigation," it said.

Sir John Thomas, President of the Queen's Bench Division, and Mr Justice Silber added, "In the present case, the result has been our decision to set aside search warrants against two well known businessmen after a long investigation of transactions in the financial markets.

They also warned of the possible effects of the under-funding.

"It is clear that incalculable damage will be done to the financial markets of London, if proper resources, both human and financial, are not made available for such investigations and prosecutions in the financial markets of London."