Restraint Orders and Living Expenses: What is reasonable?
Restraint Orders are creatures of the Proceeds of Crime Act 2002 and may be imposed where there is a criminal investigation or prosecution.
A Restraint Order allows provision for reasonable living expenses, but provision for legal expenses for the underlying criminal proceedings are specifically precluded. But what is the extent of the living expenses that will be permitted by the Court and can they include legal expenses for civil proceedings which are related to the underlying criminal investigation or prosecution? In R v Luckhurst and Golding  EWCA 1579 the Court of Appeal was asked to decide these questions in an appeal against a decision by a Crown Court judge to refuse to vary a Restraint Order to permit specified living and legal expenses.
Mr Luckhurst was being prosecuted for fraud following the collapse of his longstanding financial services business. The prosecution was preceded by a civil action brought against him and others (including a law firm) by some of the victims of the fraud. As part of that action, the victims had obtained a Freezing Order in the High Court over Mr Luckhurst’s assets. Although Freezing Orders are similar to Restraint Orders and available in a civil jurisdiction, the law regarding provision for living and legal expenses is different. The extent of the differences between the two jurisdictions was examined by the Court of Appeal in this case. In Mr Luckhurst’s case, the Freezing Order had been discharged after the law firm had reached settlement with the victims but he required legal advice about this and the terms of his own settlement. After the Freezing Order was discharged, the Police obtained the Restraint Order at Leeds Crown Court over Mr Luckhurst’s assets pending his prosecution for fraud.
Prior to the imposition of the Orders, Mr Luckhurst had enjoyed a relatively lavish lifestyle and owned luxury cars and a house in Marbella. He had already agreed variations to the Restraint Order which permitted him to spend approximately £5,000 per month on his outgoings. However, a Judge at Birmingham Crown Court had refused a variation application over specific items of expenditure to:-
- Meet monthly payments towards a BMW X5 of £780.46;
- Pay £3,000 for advice in the civil proceedings;
- Refund his wife £8154 which she had expended on refurbishment of the Marbella property;
- Repay £48,700 in loans given by friends and family for living expenses.
In considering what was reasonable, the Court of Appeal made comparisons with similar relief in the civil jurisdiction including proprietary and non-proprietary Freezing Orders and also Property Freezing Orders which were born out of Part 5 of the Proceeds of Crime Act 2002 and implemented as a pre-cursor to civil recovery investigations. The difference between a proprietary and a non-proprietary Freezing Order is that in the former the Defendant is said to hold assets that belong to the Claimant, whereas in the latter the assets frozen belong to him. In both instances variations to fund legal expenses are not available where the Defendant has recourse to third party funding. However, a Defendant to a non-proprietary Freezing Order is able to enjoy the same lifestyle as prior to the imposition of the order (see Vneshprombank v Bedzhamov & Ors  EWCA Civ 1992, see our blog here). Under proprietary Freezing Orders the defendant is not entitled to spend the Claimant’s money but where he has no access to other resources “a difficult and anxious judgment” must be made. Where Property Freezing Orders are in force, there are particular rules (to which see Practice Direction – Civil Recovery Proceedings) but these are more akin to the law in the Proprietary Freezing Order jurisdiction.
Having considered the statutory provisions, including the section 69 ‘legislative steer’ (which requires the exercise of determining of what is ‘reasonable’ for living expenses to give primacy to prospective confiscation proceedings and the preservation of assets for recovery at the conclusion thereof), and the relevant authorities, the Court went on to extract a number of principles for determining what living expenses, if any, may be deemed to be ‘reasonable’:-
- Whether the expense would improve or maintain the value of a frozen asset;
- The extent of the Defendant’s assets in relation to the size of the likely confiscation order;
- The standard of living enjoyed by the defendant hitherto;
- The Defendant’s current means after the imposition of the Order;
- The length that the Restraint Order is likely to be in force;
- Whether there is a prima facie case that prior living standards are linked to criminality;
- The amount of expenditure sought.
In this case, the Crown Prosecution Service (CPS) had adopted the rather ambitious submission that the legal expenses exclusion sought by Mr Luckhurst was precluded by section 41(4) which prevents variation to spend on legal expenses in the underlying (criminal) proceedings. The Crown contended that this extended to the civil proceedings on the basis that both cases arose from the same facts. Unsurprisingly, the Court of Appeal rejected this contention and allowed this aspect of the appeal for the release of £3,000 for legal expenses.
However, it dismissed the appeal in respect of the three remaining categories of living expenses sought on application of the above principles. There was no evidence to support the third party loans, it was not necessary to retain the BMW as it effectively had no value because of the outstanding finance and his wife was a joint owner of the Marbella property in any event (and her assets and income freely available to the couple).
This comprehensive judgment provides much needed clarity on applications of this nature which are often crucial given the length of time Restraint Orders may remain in force. Police resources are stretched and investigations can drag on particularly in cases where fraud is alleged. The judgment highlights the importance of preparation and ensuring that sufficient evidence is obtained regarding the whole of the defendant’s lifestyle including assets available to him from third party sources. In circumstances where such evidence is available it is to be hoped that the Crown will agree to such applications without the need for expensive litigation.
Articles are intended as an introduction to the topic and do not constitute legal advice.