R v Luckhurst

Section 41(4) of the Proceeds of Crime Act 2002 does not prevent a restraint order from permitting reasonable legal expenses for independent civil causes of action, even where the civil and criminal proceedings concern the same or similar facts or evidence. Such expenses do not naturally “relate to” the offence giving rise to the restraint order.

The exclusion covers expenses of defending or being investigated for that offence, resisting related confiscation or restraint orders, and proceedings bound up with the criminal process. Civil legal expenses remain subject to judicial discretion. Their reasonableness must be assessed in light of the statutory objective of preserving realisable property for any confiscation order.

The respondent was charged with fraud and theft arising from the operation of an alleged investment fraud. A restraint order froze his assets. He applied to vary it so that he could spend £3,000 on legal advice concerning civil claims founded substantially on the same events.

The Crown Court refused the variation, holding that section 41(4) of the Proceeds of Crime Act 2002 prohibited it. The Court of Appeal allowed the respondent’s appeal on that issue in [2020] EWCA Crim 1579.

The Crown appealed. The issue was whether section 41(4) precludes provision for reasonable expenses incurred in civil proceedings founded on the same or similar allegations, facts or evidence as the offence which gave rise to the restraint order.

1. Appeal dismissed unanimously. Lord Burrows gave the judgment, with which Lord Hodge, Lord Kitchin, Lord Hamblen and Lord Stephens agreed. The certified question was answered “no”. Section 41(4) of the Proceeds of Crime Act 2002 does not preclude reasonable legal expenses for independent civil causes of action merely because the civil proceedings concern the same or similar facts or evidence as the relevant offence.

2. The natural meaning of legal expenses which “relate to an offence” does not encompass expenses concerning a civil cause of action, such as a tort or equitable wrong. Civil and criminal law remain fundamentally distinct. The Crown’s proposed test based on factual or evidential overlap was absent from the statutory language and would create uncertainty about the necessary degree of similarity or overlap. A suggested de minimis qualification had no statutory foundation.

3. The prohibition does cover expenses incurred in defending or being investigated for the relevant offence, resisting a confiscation or restraint order arising from it, and pursuing proceedings bound up with the criminal process. It may also cover ancillary proceedings such as applications for bail or production orders. By contrast, factual connection alone does not bring independent proceedings, or proceedings concerning a different offence, within section 41(4).

4. The purpose of the restraint-order regime is a balance. It seeks to preserve assets for confiscation while permitting reasonable living, business and qualifying legal expenses. The legislative history indicated that section 41(4) was principally directed at expenditure on defending the relevant criminal case and resisting confiscation and restraint proceedings. Public funding was made available as the corresponding protection for those proceedings.

5. Legal expenses for independent civil causes of action therefore fall within the court’s discretion under section 41(3). In exercising that discretion, the court must follow the legislative steer in section 69(2) and protect the value of realisable property. Excessive expenses should be refused. In a rare case, funding civil litigation may itself preserve or enlarge the assets available for confiscation.

6. In re S was consistent with a narrow approach because restraint orders are draconian. R v AP and U Ltd was distinguished: its judicial review proceedings were parasitic upon, and in substance challenged, the criminal investigation process. The Court found it unnecessary to rely on the later enactment of section 245C.

1. United Kingdom Supreme Court: Dismissed the Crown’s appeal and affirmed the Court of Appeal’s interpretation of section 41(4) of the Proceeds of Crime Act 2002.
2. Court of Appeal (Criminal Division): In [2020] EWCA Crim 1579, allowed the respondent’s appeal concerning £3,000 of civil legal expenses, but dismissed his appeal concerning the other requested expenses.
3. Crown Court at Birmingham: Refused all requested variations of the restraint order, holding that section 41(4) precluded provision for the civil legal expenses because the civil action had its factual origins in the criminal case.