The Supreme Court determined that section 41(4) of the Proceeds of Crime Act 2002 does not preclude exceptions to restraint orders for reasonable legal expenses in civil proceedings, even where those proceedings involve the same or similar facts as the criminal offence giving rise to the restraint order.
Background
Andrew Luckhurst, a former professional sportsman turned independent financial adviser, was charged with fraud and theft offences arising from an alleged Ponzi scheme operated through Aspirations Europe Ltd. The Crown Prosecution Service obtained a restraint order under section 41 of the Proceeds of Crime Act 2002 (‘POCA’) freezing Mr Luckhurst’s assets. Separately, investors commenced civil proceedings against Mr Luckhurst and others in the Chancery Division. Following a settlement between a co-defendant (Locke Lord) and the claimant investors, the investors’ claims against Mr Luckhurst were assigned to Locke Lord, which also pursued its own Part 20 contribution claim against him.
Mr Luckhurst applied to vary the restraint order to permit, among other things, £3,000 for legal advice in the civil proceedings. The Crown Court refused the variation, holding that section 41(4) of POCA precluded such an exception because the civil proceedings had their ‘factual origins’ in the criminal case. The Court of Appeal allowed the appeal on the legal expenses point, and the CPS appealed to the Supreme Court.
The Issue
The certified question before the Supreme Court was:
Does section 41(4) of POCA preclude 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 those 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?
In short, the question was whether legal expenses that ‘relate to an offence’ under section 41(4) extended to legal expenses for civil causes of action (such as tort or equitable wrong) that shared the same or similar factual basis as the criminal offence.
The Court’s Reasoning
Natural meaning of the words in context
Lord Burrows, delivering the unanimous judgment, began by applying the modern approach to statutory interpretation, emphasising the importance of words, context, and purpose. He held that, on the natural meaning of the words in their context, legal expenses in civil proceedings for a cause of action do not ‘relate to’ a criminal offence:
If one were to ask a judge or lawyer or litigant in such a civil case ‘which if any of the legal expenses being incurred relate to a criminal offence?’, the obvious answer would be ‘none of them’. Indeed, the judge, lawyer or litigant is likely to regard the question as meaningless because, at least normally, no attention at all is given to what, on the same facts (and/or evidence), the position is or might be in criminal law.
Lord Burrows reasoned that this followed from the fundamental division between civil law and criminal law. He emphasised that the CPS’s proposed test—based on overlapping factual allegations—was artificial, practically problematic, and unsupported by the statutory language. He endorsed Popplewell LJ’s observation in the Court of Appeal:
The subsection talks simply of expenses related to the offence. It does not talk of expenses incurred in proceedings which engage an overlapping factual inquiry with the offence.
Lord Burrows also agreed with Popplewell LJ’s identification of practical difficulties with the CPS’s construction:
The ingredients of civil proceedings will rarely mirror exactly the criminal allegations constituting the offence… What then is the degree of overlap which is necessary to engage the bright line exclusionary rule suggested by the CPS argument?
Purpose of the statutory provision
Lord Burrows rejected the CPS’s submission that the sole purpose of the restraint order regime was to maximise confiscation. He held that the policy is one of balance—between ensuring confiscation and permitting the alleged criminal to incur certain kinds of reasonable expense. He noted that the legislative history (the June 2000 Cabinet Office Report and the explanatory notes to POCA) showed that the primary concern behind the preclusion in section 41(4) was excessive legal fees spent defending the criminal case itself, and that legal aid was provided as a quid pro quo for that preclusion. There was no indication that legal expenses in civil proceedings were a cause for concern:
Subsection (4) prevents funds under restraint from being released to the defendant or the recipient of a tainted gift for legal expenses incurred in relation to the offences in respect of which the restraint order is made. However, public funding for legal expenses, on the standard conditions, will be available to both instead.
He further observed that, where civil proceedings could increase the pool of assets available for confiscation (for example, where the defendant was pursuing a contribution claim), a blanket prohibition would frustrate rather than further the statutory purpose.
The role of judicial discretion
Lord Burrows held that the correct approach was to leave legal expenses in civil proceedings to judicial discretion, consistent with the ‘legislative steer’ in section 69(2) of POCA. This approach mirrors the treatment of reasonable living expenses and allows courts to refuse excessive legal expenses while not imposing a mandatory preclusion. He endorsed Popplewell LJ’s statement:
If, as we have concluded, subsection (4) is not a complete bar, then the degree of overlap and amount of permitted expenditure can be determined in the exercise of a discretion. The CPS argument of absolute prohibition, however, precludes justice being done in this way.
Previous case law
Lord Burrows examined the earlier Court of Appeal decisions in In re S and R v AP and U Ltd. He noted that In re S stressed the draconian nature of restraint orders and reached its conclusion with reluctance, principally because of the quid pro quo of legal aid. He observed that R v AP and U Ltd was distinguishable because the judicial review proceedings in that case were ‘bound up with the criminal process’, unlike independent civil proceedings for a cause of action. He agreed with Popplewell LJ:
Although judicial review proceedings are civil in nature, the challenge was in substance to the criminal investigation process and parasitic upon it. The case provides no authority that the subsection applies generally to civil proceedings which are independent of the criminal inquiry or process.
Practical Significance
This decision clarifies an important aspect of the law on restraint orders under POCA. It establishes that section 41(4) does not impose a mandatory prohibition on exceptions for legal expenses in civil proceedings, even where those proceedings arise from the same factual matrix as the criminal offence. Instead, such expenses are subject to the court’s discretion, to be exercised in accordance with the legislative steer in section 69(2). This preserves the balance between ensuring assets are available for confiscation and allowing defendants to defend civil claims brought against them. The decision avoids the unjust consequences of a blanket prohibition that could, in certain circumstances, actually frustrate the statutory purpose by preventing defendants from pursuing or defending civil proceedings that might increase or preserve the pool of realisable assets.
Verdict: The Supreme Court unanimously dismissed the appeal. The answer to the certified question is ‘no’: section 41(4) of POCA does not preclude an exception to a restraint order to make provision for reasonable legal expenses in civil proceedings founded on the same or similar facts as the criminal offence giving rise to the restraint order. Such expenses are subject to judicial discretion rather than mandatory preclusion.
Source: R v Luckhurst [2022] UKSC 23
