The Supreme Court has given judgment in R v Luckhurst  UKSC 23, which concerned an important point of statutory construction under section 41 of the Proceeds of Crime Act 2002 (POCA), and the permitted exceptions which may be made to release funds from assets which are otherwise subject to a restraint order.
A restraint order is a type of criminal freezing injunction which can be obtained by a prosecuting authority (such as the CPS or SFO) in order to preserve the assets of a criminal defendant or potential defendant, for the purposes of an application, post-conviction, to confiscate a criminal’s ill-gotten gains under a confiscation order. Restraint orders often apply on an ‘all asset’ basis, but may be made subject to exceptions in accordance with section 41 of POCA.
The appeal concerned the scope of exceptions for reasonable legal expenses. In relation to the underlying criminal proceedings, and the related restraint and confiscation proceedings, section 41(4) of POCA expressly prohibits the release of funds from the restraint order in order to pay legal expenses, preferring the public interest in maintaining the potential confiscation pool over the defendant’s ability to freely access their assets, but ensuring that legal aid is available instead. On the other hand, in respect of entirely unrelated legal expenses, the Crown Court has a discretion under section 41(3) of POCA to permit funds to be released for reasonable legal expenses. The question on the appeal was whether reasonable legal expenses which would be incurred in civil proceedings with a complete or high degree of factual overlap with the criminal proceedings (e.g. in parallel criminal and civil fraud cases) fell within the prohibition as being something which “relate to the offence”, or whether they did not.
Dismissing the appeal, the Supreme Court held that those circumstances were not covered by the prohibition and that the proper interpretation of the statutory language involved a narrower reading. As a result, there was not a complete bar to the Crown Court permitting funds to be released for reasonable legal expenses incurred or to be in the civil proceedings.
However, it is not the case that such funds will be available without more. The question of whether the restraint order should be varied to permit the release of funds for reasonable legal expenses, and what is reasonable, will be a matter of discretion for the Crown Court judge in each case. In that regard, as the Supreme Court gave no further guidance as to how the discretion is to be exercised, the indications which were given by Popplewell LJ in the Court of Appeal will remain, for the time being at least, the best summary of the type of factors which the Crown Court is likely to take into account on a variation application.
More broadly, the fact that a criminal restraint order is in place is an important factor which civil practitioners should be careful to investigate, particularly in fraud cases. On a freezing injunction application, it does not completely negate the risk of dissipation (see AA & Ors v BB & Anor  EWCA Civ 1017), but it will certainly need to be addressed as part of the duty of full and frank disclosure. Further, the fact that the judge in the civil proceedings considers that the usual legal expenses exception should be made within the civil freezing order does not necessarily mean that this would satisfy the “reasonable legal expenses” threshold for the purposes of varying the restraint order, particularly if it is uncapped in amount. Assuming the civil case is being heard by a High Court judge, it may need to be explored whether the judge reconstitutes themselves as a judge of the Crown Court in order to undertake that analysis, having discussed matters with the Crown Court judge managing the criminal case (per section 8 of the Senior Courts Act 1981 and Re Stanford International Bank Ltd  Ch. 33 at -).
Further, where the civil case concerns property which is subject to the restraint order, it triggers the application of section 58 of POCA within the civil proceedings, under which: (a) the judge must consider whether to stay the case or allow it to continue on terms; and (b) the applicant for the restraint order (e.g. the CPS or the SFO) must be permitted to address the Court on that issue. It is therefore of paramount importance that the relevant body is notified as early as possible so that the practical implications can be worked through.
The judgment is available here.
Richard Hoyle appeared for the CPS, led by Kennedy Talbot QC of 33 Chancery Lane.