Interaction of civil and criminal proceedings

The interaction between civil and criminal proceedings has always thrown up interesting challenges. The Supreme Court decision of R v Luckhurst [2022] UKSC 23 has clarified the extent to which restraint orders will be varied to allow for payment of legal expenses incurred in related civil proceedings. It also highlighted the different approach between criminal and civil courts when assessing exceptions to the restrictions under restraint and freezing orders respectively.

Decision

Mr Andrew Luckhurst practised as an independent financial adviser. Having done so for more than 20 years, he and a colleague introduced clients to an investment scheme which would not appear to have been the success that was anticipated.

Several investors brought civil proceedings in the High Court against him and others including a firm of solicitors in respect of their participation in that investment scheme. A freezing order was granted which permitted Luckhurst to spend £600 per week on ordinary living expenses (later increased) and a reasonable sum on legal advice and representation. That order was discharged when the claim against Luckhurst was assigned to those solicitors as part of a settlement they reached with the former investors. The solicitors also had a claim of their own against Luckhurst.

Shortly after the civil freezing order was discharged, the Crown Prosecution Service obtained a restraint order which permitted Luckhurst to spend £250 a week on ordinary living expenses but permitted that amount to be varied with the CPS’s written agreement; there were subsequently several such variations. At the time the restraint order was granted, the police were investigating the alleged fraud but Luckhurst was not charged until some time later. The indictment alleges fraud and theft arising out of his conduct practising as an independent financial adviser. The prosecution case is that he ran a fraudulent Ponzi scheme and stole money from clients.

Luckhurst applied to the Crown court to vary the restraint order. He asked for permission for four categories of expenses, including £3,000 for legal advice in the ongoing civil proceedings. Express permission for the legal advice expenditure was required because there is no equivalent of the standard exception for reasonable legal expenses contained in a standard form freezing injunction. Indeed, section 41(4) of the Proceeds of Crime Act 2002 (POCA) expressly prohibits an exception for legal expenses which relate to the alleged offence. The Crown court judge refused. Luckhurst successfully appealed. The CPS appealed to the Supreme Court.

The question for the court was whether the terms of section 41(4) prevented someone in Luckhurst’s position from using the funds restrained for legal advice in civil proceedings founded on the same or similar alleged facts and/or evidence as the alleged criminal offence. The question was whether those legal expenses in respect of the civil proceedings ‘relate to’ the alleged offence.

On 20 July, the court dismissed the CPS’s appeal. It held that on the ordinary and natural meaning of the words of section 41(4) in their context, the court was able to make provision for legal expenses for civil proceedings founded on the same or similar alleged facts; such legal expenses are controlled (for example, as to their amount) by the court’s discretion.

What about living expenses?

Section 41(3) entitles the court to make provision for ‘reasonable living expenses’ and has discretion to control them. What matters for those in Luckhurst’s position is how the Crown court (or, sometimes, the High Court) exercises that discretion.

While the amount which Luckhurst was able to spend on living expenses was increased by agreement, the figure initially permitted by the restraint order was £250 per week, which was then increased by agreement to £5,000 per month (equating to £1,154 per week). In contrast, the amount permitted under the freezing order had initially been £600 per week which was then increased to £1,500.

There is a disparity between the amounts allowed for living expenses by the High Court and the Crown court. This may be down to the difference between the purposes of a freezing order and a restraint order. The purpose of a freezing order is to prevent a defendant from taking steps outside the ordinary course which would render a judgment unenforceable but, subject to that, a defendant was entitled to do as they wish with their own money. A court should not tell a defendant that they cannot spend their own money on living expenses in the way to which they had been accustomed before the freezing order was made. To prevent a defendant from doing so has the potential to be oppressive, but excessive spending might be a form of dissipation of the defendant’s assets. The purpose of a restraint order, as set out by the Supreme Court, is to maximise the amount available for confiscation but not at the expense of unfairly preventing the defendant from incurring reasonable living (and other) expenses.

It may be that the Crown court is even more sceptical of what living expenses are reasonable, with the practical effect that those subject to restraint orders are worse off than those subject to freezing orders. This will be seen when the court exercises its discretion to control living expenses which can be paid from restrained assets.

Proprietary injunctions

An exception to the relative generosity of the High Court in relation to both living and legal expenses is where the claimant obtains a proprietary injunction. In those circumstances, the respondent must show, among other things, that without release of the funds it cannot effectively defend the proceedings/meet legitimate living expenses and that the balance of justice lies in favour of permitting expenditure of funds. Even where a court is persuaded to permit expenditure, it is likely to be subjected to strict scrutiny. 

Jason Woodland is a committee member of the London Solicitors Litigation Association and partner at Peters & Peters. David Mohyuddin KC is a barrister at Radcliffe Chambers