R v Luckhurst

The Supreme Court considered whether section 41(4) of the Proceeds of Crime Act 2002 precludes an exception to a restraint order permitting payment of reasonable legal expenses where those expenses are incurred in civil proceedings founded on the same or similar facts or evidence as the offence that gave rise to the restraint order. The court answered the certified question in the negative.

The key legal principles are: (i) on its natural meaning in context, the phrase "relate to an offence" in section 41(4) is directed at legal expenses of defending criminal proceedings and proceedings parasitic on the criminal process (for example, restraint proceedings and certain judicial review challenges), not routine civil causes of action; (ii) legal expenses for civil causes of action do not, as a matter of ordinary language and legal taxonomy, "relate to an offence" merely because they engage overlapping factual issues; and (iii) where civil legal expenses are sought, the proper mechanism is judicial discretion under section 41(3) and section 42, exercised in light of the statutory purpose (including the "legislative steer" in section 69(2)) rather than a blanket statutory prohibition.

Material grounds for the decision included the statutory context and purpose, the draconian nature of restraint orders, practical difficulties and unfairness that would follow from reading into section 41(4) an overlap/similarity test, and the existence of a quid pro quo in respect of legal aid for restraint-related proceedings.

Background and procedural posture:

• The respondent, Mr Andrew Luckhurst, faced criminal charges of fraud and theft arising from the collapse of a financial services business and related investments. The Crown obtained a restraint order under Part 2 of the Proceeds of Crime Act 2002 freezing his assets. Mr Luckhurst applied to vary the restraint order to permit four categories of expenditure, including £3,000 for legal advice and representation in civil proceedings brought against him by investors or pursued via an assignment to their solicitors. Judge Carr refused the variation on the ground that section 41(4) precluded the exception. The Court of Appeal [2020] EWCA Crim 1579 allowed the appeal in respect of the £3,000 legal expenses. The Crown appealed to the Supreme Court.

Nature of the issue: The certified question was whether section 41(4) precludes exceptions to restraint orders for reasonable legal expenses incurred by the defendant or a recipient of a tainted gift where those expenses are in respect of civil proceedings founded on the same or similar allegations, facts or evidence as the offence which gave rise to the restraint order.

Issues framed by the Court:

• What is the correct meaning of "relate to an offence" in section 41(4) of POCA?
• Whether legal expenses in ordinary civil causes of action, even if factually overlapping with criminal allegations, are mandatorily precluded by section 41(4).
• How statutory context, purpose and existing case law bear on the interpretation.

Reasoning and holdings: The court applied the modern approach to statutory interpretation (words, context and purpose). It held that on natural language and in context legal expenses in civil causes of action do not "relate to an offence" simply because the civil proceedings overlap factually with the criminal allegations. Accepting the Court of Appeal's view, the Supreme Court found the appellant's proposed test (same or similar allegations/evidence) would be artificially broad, unworkable and unfair; it would import a de minimis exception or yield arbitrary results. The statutory purpose, including the legislative steer in section 69(2) to preserve assets for confiscation, is balanced by Parliament's allowance for reasonable living and legal expenses and by the extension of legal aid for restraint-related proceedings — indicating the preclusion in section 41(4) was principally aimed at legal costs of defending the criminal prosecution and closely related proceedings, not ordinary civil claims. The court distinguished earlier authorities where proceedings were parasitic on the criminal process (for example certain judicial review challenges) and noted In re S had been reluctant to permit release but had proceeded on the basis of the legal aid quid pro quo. The Supreme Court concluded that the question of permitting legal expenses for civil causes of action is a matter for the court's discretion when varying a restraint order, not a mandatory statutory bar.

Relief sought and disposition: The Crown sought to overturn the Court of Appeal. The Supreme Court dismissed the Crown's appeal and allowed the Court of Appeal's approach on this point to stand.

The appeal is dismissed. The Supreme Court held that section 41(4) of the Proceeds of Crime Act 2002 does not mandatorily preclude an exception to a restraint order permitting reasonable legal expenses incurred in civil proceedings founded on the same or similar facts or evidence as the offence that gave rise to the restraint order; the preclusion is directed at legal expenses of defending the criminal proceedings and proceedings parasitic on the criminal process, while legal expenses in civil causes of action are to be considered under the court's discretion when varying a restraint order.

Application to vary restraint order refused by Judge Carr (Crown Court at Birmingham, 30 September 2019). Appeal to the Court of Appeal succeeded in part ([2020] EWCA Crim 1579). Crown appealed to the Supreme Court which dismissed the appeal ([2022] UKSC 23).