The UK Supreme Court recently upheld a Court of Appeals decision that enabled a fraud suspect to use frozen funds to pay £3,000 for legal advice related to civil litigation stemming from the criminal offense which gave rise to the restraint order. While prosecutors use restraint orders to freeze criminal assets in order to prevent defendants from utilizing and benefitting from their ill-gotten gains, section 41 of the Proceeds of Crime Act 2002 (PCA) permits certain exceptions such as the payment of “reasonable legal expenses” for which the court can permit defendants to use frozen funds. In dismissing the Crown Prosecution Service’s (CPS) appeal in this case, the Supreme Court affirmed the Court of Appeal’s opinion that civil litigation with facts that substantially overlap with the criminal proceedings (such as torts or equitable wrongs) do not fall within the prohibitions of the restraint order.
The case involves fraud suspect, Andrew Luckhurst, a professional soccer and cricket player turned financial advisor, who petitioned the court for permission to use £3,000 of the frozen funds to pay legal advice related to civil litigation while awaiting the outcome of criminal proceedings involving an alleged £15.25 million Ponzi scheme. During the course of the criminal trial, Luckhurst requested permission from the Crown Court to use frozen funds for four separate expenditures, including the civil legal expenses, and the Crown Court denied the application. Luckhurst then appealed to the Court of Appeals regarding the same four expenditures, and that court denied the application for all expenditures except for the £3,000 in civil legal expenses. The CPS petitioned the Supreme Court in order to challenge the decision to permit the legal expense payments claiming that the payments were prohibited because they were “related to” the original criminal offense.
In instances where rival possible interpretations exist regarding the preclusions in section 41 of the PCA, the Supreme Court held that a narrower interpretation of the statutory language was preferred in light of the Court of Appeal’s opinion in In re S (Restraint order; Release of Assets) [2004] EWCA Crim 2374; [2005] 1 WLR 1338, in which the court explicitly recognized the draconian nature of restraint orders and, while it denied a request for legal expenditures related to costs of a restraint proceeding, was reluctant to depart from leaving payments related to legal expenses to the discretion of the court. The Supreme Court also stated that, based on the natural meaning of the words in their context, legal expenses in civil proceedings for a cause of action do not relate to a criminal offense, but indicated that they would relate to more direct expenses such as those incurred to defend the criminal litigation, offenses related to the criminal investigation or to litigate a confiscation order for the criminal offense. The Supreme Court also agreed with Court of Appeals that to carve out special meanings for legal expenses in civil proceedings would be “artificial and problematic.” The court also reiterated that the purpose of the statutory provision was to maximize the confiscation of a criminal’s ill-gotten gains to ensure that victims of crime can be compensated while still ensuring that restraint orders do not unfairly prevent an alleged criminal from incurring permitted reasonable expenses, including “reasonable living expenses, ordinary business expenses and, subject to the exclusions in section 41(4), reasonable legal expenses.”