Summary
On 20 July 2022, the Supreme Court handed down its decision in R v Luckhurst. This has clarified an important point for Defendants who face civil and criminal proceedings, but are subject to the terms of a criminal restraint order granted pursuant to the terms of the Proceeds of Crime Act 2002 ("POCA").
In summary, the Supreme Court has confirmed that there is no bar to seeking a variation of a criminal restraint order so as to permit reasonable legal expenditure for concurrent civil proceedings merely because the advice relates in whole or in part to the same factual inquiry as will be engaged in the criminal proceedings.
Background
The respondent Andrew Luckhurst is a former professional footballer and cricketer. During the 1990s, Mr Luckhurst set up BBT Partnership Limited ("BBT") and acted as an independent financial adviser for some 25 years until BBT collapsed in 2016.
In 2014, Mr Luckhurst set up another company, Aspirations Europe Limited with two other individuals. Mr Luckhurst and his colleagues then introduced clients to an investment scheme run by two other individuals (the "Investment Scheme").
In 2016, investors in the Investment Scheme obtained a worldwide freezing order against Mr Luckhurst and commenced civil proceedings in which they accused Mr Luckhurst of fraud. The worldwide freezing order contained – as is usual - an exception for: (i) ordinary living expenses and (ii) payment of reasonable legal fees.
In early December 2017, the civil proceedings were settled and the worldwide freezing order was discharged.
Shortly thereafter, the CPS obtained a restraint order pursuant to which Mr Luckhurst's assets were restrained. The order contained an exception permitting Mr Luckhurst a weekly allowance of £250 for his ordinary living expenses. The restraint order did not contain an exception for provision of payment of reasonable legal fees (a provision common in freezing orders granted by civil court but not in restraint orders).
It is the Crown's case that: (i) the Investment Scheme was in fact a Ponzi scheme and (ii) Mr Luckhurst stole significant sums from his clients. Mr Luckhurst is now due to stand trial in October 2022.
Application to vary the Restraint Order for the purposes of paying legal fees in the civil proceedings
Following the grant of the restraint order, Mr Luckhurst made an application to vary the terms of the order. The application concerned four categories of expenses including £3,000 in respect of legal fees in the civil proceedings.
Section 41(4) of POCA precludes an exception to a restraint order that makes provision for legal expenses that relate to the offence that gave rise to the restraint order. At first instance, the application was refused, the judge relying on this preclusion, finding that the civil proceedings had their factual origins in the criminal proceedings that Mr Luckhurst faced.
Mr Luckhurst successfully appealed to the Court of Appeal in relation to the legal expenses for the civil proceedings. The CPS then appealed to the Supreme Court.
The question that the Supreme Court had to answer was whether Section 41(4) of POCA precluded an exception to a restraint order to make provision for reasonable legal expenses incurred by the defendant or the recipient of a tainted gift where the expenses incurred by the defendant or the recipient of a tainted gift are in respect of civil proceedings founded on the same or similar allegations, alleged facts and/or evidence as those of the offence(s) (within the meaning of section 41(5)) which gave rise to the making of the restraint order.
Decision of the Supreme Court
The Supreme Court concluded that Section 41(4) of POCA did not preclude an exception for reasonable legal expenses incurred in civil proceedings where those proceedings had arisen from the same or similar facts or allegations as the offence in relation to which the assets had been restrained.
In particular, the Supreme Court commented that:
"it is clear that the pursuit of the policy of maximising confiscation is qualified by the need to ensure that restraint orders do not unfairly prevent the (alleged) criminal incurring reasonable expenses of certain kinds"; and
the natural meaning of the words "relate to an offence" in their context; and that, consistently with that meaning, the purpose or policy of section 41(4) is best understood as not precluding an exception for legal expenses in respect of civil proceedings for causes of action.
"legal expenses in respect of civil proceedings for causes of action (such as for torts or equitable wrongs) are not precluded but are controlled by the courts’ discretion in the same way as, for example, living expenses".
Barry Coffey, Partner said: "The Supreme Court has now settled the position and it is a helpful development for individuals facing claims in the civil and criminal courts.
A respondent to a criminal restraint order may not make an application to vary the terms of a Restraint Order in order to pay for legal advice if that advice relates to the criminal offence of which he is accused. Section 41(4) of POCA operates as an absolute prohibition.
However, there is no bar to seeking a variation to a criminal restraint order so as to permit reasonable legal expenditure for concurrent civil proceedings merely because the advice relates in whole or in part to the same factual inquiry as will be engaged in the criminal proceedings".
Matthew Ewens, Partner said: "The decision provides welcome clarification to the operation of the exclusion contained within section 41(4) of POCA which is not to be seen as an automatic bar which would otherwise remove any discretion. The approved approach is in line with the prescribed stance in civil recovery proceedings and will address the many different reasons why it is important for a criminal suspect or defendant to be permitted to participate in civil proceedings using restrained funds. Although not an automatic bar, it is also not the position that an exception will always be granted – it will be a question of balance in each case".