Serious Organised Crime Agency v Szepietowski & Ors

Under section 252 of the Proceeds of Crime Act 2002, an exclusion for legal expenses is not required merely because the respondent has no property formally outside an interim receiving order. The court must consider whether the respondent has available property from which it is reasonable to expect the costs to be met. The court must balance the desirability of legal representation against avoiding undue prejudice to the enforcement authority’s recovery rights.

The regime, supplemented by the Practice Direction and regulations, is self-contained. It applies to a trustee sued in that capacity and does not permit the court to disregard the trustee’s personal assets. A trustee with available personal assets may have to fund the defence initially, but may recover reasonable costs later if the statutory conditions are met.

The claimant sought civil recovery under the Proceeds of Crime Act 2002 in respect of property allegedly representing the proceeds of unlawful conduct. The first, third and fourth defendants applied under section 252 for further exclusions from an interim receiving order to meet legal expenses incurred or expected in defending the claim.

The central issues were whether the applicants had property outside the receiving order from which they could reasonably be expected to meet their costs, and whether the position differed because the first defendant was sued in his capacity as trustee of a trust whose assets were alleged to be recoverable property.

1. Application dismissed. The applicants had not established a basis for further exclusions.
2. Paragraph 7A.4 of the Practice Direction requires the court to consider not merely whether the respondent has free assets, but whether the respondent could reasonably be expected to meet the legal costs from them. The discretion under section 252 must give primary regard to the desirability of representation, while seeking to avoid undue prejudice to SOCA’s recovery rights.
3. The evidence established substantial available assets. The first defendant had a beneficial interest in equity in Ashford House sufficient to provide security for borrowing. The court also found, or regarded as presumptively available, interests in jewellery and works of art, two unencumbered properties, equity in another property and interests connected with the Cobham companies.
4. The statutory exclusion regime is self-contained and exhaustive. Its silence concerning trustees was not accidental. A trustee sued in that capacity cannot require the court to disregard personal assets. This may require temporary personal funding of the defence, but it does not compel a trustee to defend proceedings at his own expense as a matter of trust law.
5. If the defence succeeds, costs would ordinarily be recoverable from SOCA and, where necessary, under the trustee’s ordinary right of indemnity. If the trust property is recovered, section 266(8A) permits a recovery order to provide for reasonable legal expenses. The costs court must give effect to the relevant recovery order and exclusion under regulation 16(2) of the 2005 Regulations.
6. The court added that, even if it had power to disregard personal assets, it would not have exercised that power. The trust arrangements were highly questionable, and there were prima facie grounds for suspecting that the trust was a sham. This was an alternative observation.