Mitchell v Revenue & Customs Prosecutions Office & Anor

A restraint order under the Proceeds of Crime Act 2002 preserves the true value of a defendant’s realisable assets for a possible confiscation order. It does not prevent a third party from enforcing a civil right where doing so cannot reduce assets available for confiscation.

Money paid to solicitors on account for the single purpose of meeting their fees is held for the client until the fees are earned. Once properly earned fees equal the fund, the client’s beneficial interest is exhausted. Requirements to render a bill before transfer from client account regulate the solicitors’ procedure; they do not preserve a substantive beneficial interest. Payment of such earned fees does not breach or frustrate the restraint order.

Irwin Mitchell acted for Abdullah Allad in a Revenue and Customs investigation. Mr Allad paid £5,000 on account of costs into the firm’s client account. A restraint order was later made against him under the Proceeds of Crime Act 2002. When the solicitors received notice, their properly incurred fees exceeded the sum held.

The Revenue and Customs Prosecutions Office objected to the solicitors rendering a bill and transferring the money to office account. The Crown Court at Southwark dismissed the solicitors’ application to vary the restraint order. It held that payment required a variation and that the Act prevented one. The solicitors appealed. The central issue was whether their use of the fund for earned fees would breach, or frustrate the purpose of, the restraint order.

1. Appeal allowed. The solicitors could apply the £5,000 in payment of their properly earned fees without varying the restraint order.

2. The money was paid and received for one identified purpose: payment of the solicitors’ fees as and when earned. Before the fees were earned, the solicitors held the fund for the client. Once their proper fees reached £5,000, however, the value of the client’s interest in that fund was nil. The court treated the substance of the parties’ contractual and fiduciary arrangements as decisive.

3. Rule 19 of the Solicitors Account Rules 1998 required a bill or written notification before a transfer from client to office account. That requirement protected the client by regulating the means by which the solicitors exercised their right to payment. It did not mean that the client retained a substantial beneficial interest after the fees had been earned.

4. The purpose of the restraint regime in the Proceeds of Crime Act 2002 is to preserve assets that may satisfy a confiscation order. A third party may be in contempt by assisting the defendant’s breach or by deliberately frustrating the order’s purpose. Applying those questions, derived from HM Commissioners of Customs and Excise v Barclays Bank PLC [2006] UKHL 28, the court held that neither form of contempt arose. The fund could not in substance satisfy a future confiscation order once the solicitors’ entitlement to it had accrued.

5. The position was analogous to Re K [1990] 2 QB 298, where set-off did not diminish restrained assets. Loescher v Dean [1950] 1 Ch 491 was distinguishable because it concerned money received by solicitors as their client’s agent for no specific purpose, rather than a client’s advance for payment of the solicitors’ own earned fees.

6. The court added that an unearned surplus at the time of notice would remain the client’s asset. The solicitors could not then continue incurring post-notice fees and recoup them from that surplus. As no variation was required on the facts, the court did not decide the alternative argument concerning jurisdiction to vary the order.

• Court of Appeal (Criminal Division): Allowed the solicitors’ appeal and held that payment of their properly earned fees from the client-account fund required no variation of the restraint order.
• Crown Court at Southwark: HHJ Stone QC dismissed the solicitors’ application to vary the restraint order, holding that payment required a variation and that the Proceeds of Crime Act 2002 gave no power to make it.