R v LUCKHURST (2020) EWCA CRIM 1579
Written by James Lake. Counsel to CPS. Led by Kennedy Talbot QC
The case raises issues of principle as to the scope of living and legal expenditure which should be permitted by restraint orders granted pursuant to s.41 Proceeds of Crime Act. The court provided a non-exhaustive list of factors which would be potentially relevant in assessing the reasonableness of any living expenses. The court also held that the ‘other assets’ principle applies to restraint orders and that the defendant bears the evidential burden in relation to the unavailability of other assets. The court finally held that whilst s. 41(4) contains an absolute prohibition on permitting expenditure on ‘legal expenses related to the offence’ it provides no bar to permitting reasonable legal expenditure in civil proceedings merely because they engage in whole or in part the same factual inquiry as will be engaged in the trial of the offence which gives rise to the restraint order.
The case provides helpful guidance to the CPS, defence practitioners and Judges when making an assessment of reasonableness in respect of living expenses. Whilst still a fact sensitive decision/exercise the court identified the following 7 factors which are relevant when assessing reasonableness.
- Whether the payment is necessary or desirable to improve or maintain the value of assets to meet a confiscation order.
- D’s assets in relation to the size of any confiscation order.
- The standard of living enjoyed by D prior to the restraint order
- Affordability: D’s means at the time of the restraint order or application to vary.
- The period of restraint.
- Whether there is a prima facie case that the existing standard of living is the result of criminal activity; and if so, what standard of living would be enjoyed but for such criminal activity.
- The amount of expenditure sought: an absolute level of unreasonableness.
By confirming that the ‘other assets principle’ applies to restraint proceedings in the same way as it applies to civil freezing orders, D’s are now going to bear the evidential burden to the unavailability of other assets. This will inevitably mean greater scrutiny by the CPS and the courts into the ability of spouses, friends and family to assist a restrained D meet his living and/or legal expenses.
The appellant was an independent financial advisor. He was alleged to have introduced clients to a fraudulent Ponzi scheme and stolen money from his clients. He was charged with offences of fraud and theft in 2018. 6 investors he introduced to the scheme commenced proceedings against him in the Chancery Division. They also obtained a freezing order which was discharged in December 2017, after which the CPS successfully applied for a restraint order.
The appellant applied to vary the restraint order to:
- Allow for expenditure in relation to a BMW X5 purchased under a finance agreement.
- Allow for expenditure for home improvements on his second home in Spain which had been financed by the appellant’s wife as a result of a loan to her by Lloyd’s bank.
- Allow for living expenses of £48,700. These were made up of loans from family and friends on the basis that they were rendered necessary to cover living expenses by the delay in the sale of the pension property.
- Allow for legal modest legal expenses in relation to civil proceedings brought by the 6 aforementioned investors.
The Crown Court Judge refused the application the grounds 1-3 on the basis
(a)he was precluded from doing as they were payments to unsecured creditors.
(b) they were not reasonable living expenses.
In respect on ground 4 he said that he was precluded by s.41(4) of the 2002 Act which forbids provision for legal expenses which ‘relate to the offence’ which give rise to the restrain order; he held that the civil action fell within that prohibition because it had its factual origins in the fraud which was the subject matter of the criminal prosecution.
The court allowed the appeal in respect of legal expenses only. It found that,
- The fact that living expenses were incurred on unsecured credit did not prevent them being permitted under the restrain order, SFO v Lexi Holding (2008) EWCA Crim 1443. However, expenditure for a second family car, where payments would be paid for by the appellant’s wife if the restraint order were not granted, were unreasonable and caught by the other assets principle.
- This was an unreasonable living expense and did not enhance the value of the property. Furthermore, the appellant’s wife had assets to meet this expenditure it was therefore caught by the other assets principle.
- Repayment of alleged loans from family and friends fell foul of the Lexi Holdings principle (payments to unsecured creditors). They also fell foul of the other assets principle. Furthermore, the purpose of setting a limit on expenditure in an agreed sum in a restraint order is that the reasonableness of the expenditure can be assessed and authorized ex ante.
- Section 41(4) contained an absolute prohibition on permitting expenditure on ‘legal expenses related to the offence’ but not reasonable legal expenditure in civil proceedings merely because they engaged the same factual enquiry as the trial of the offence giving rise to the restrain order.