The Real Hustle – Restraint Orders, Confiscation Orders and Civil Enforcement

Introduction

1. The powers of criminal courts concerning the property of defendants can cause problems for civil claimants seeking to protect their rights. One problem which can sometimes take civil practitioners by surprise is the existence of a Restraint Order imposed by the Crown Court.

2. This article will briefly explain the principles that govern the interaction of Charging Orders and Restraint Orders and the practical implications for clients seeking to enforce judgements. First, however, we will briefly explain the circumstances in which Restraint Orders are made.

Restraint Orders and Confiscation Orders

3. Sections 40-41 of the Proceeds of Crime Act 2002 (“POCA”) set out in detail the circumstances in which the Crown Court may make a Restraint Order. In short, when a criminal investigation or criminal proceedings are ongoing and there is reasonable cause to believe that the alleged offender has benefited from his criminal conduct the court may make a Restraint Order.

4. The purpose of a Restraint Order is to preserve assets which have been acquired with the proceeds of crime so that they are available to satisfy any Confiscation Order which may be made at the end of criminal proceedings.

5. If the defendant is convicted, the Crown Court can make a Confiscation Order, requiring him to realise the value of the restrained property and pay it to the Crown. The Court will assess the realisable value of the property subject to the order using the following method: POCA, sections 9 and 79:

5.1 Add up the values of all the free property then held by the defendant less the total amount payable in pursuance of obligations which then have priority: section 9.

5.2 The value of the defendant’s properties is the market value at the time of the Confiscation Order. Crucially, however, you take away the value of any other person’s interest in the property: section 79.

5.3 This means taking off the value of any mortgage or similar charge before calculating the total value of the realisable assets: eg Archbold, Criminal Pleadings and Practice 2010 [5-543].

Interaction with Civil Remedies

6. The existence of a Restraint Order can have a number of consequences for civil claimants. One such consequence is that the defendant is forbidden from paying the claimant out of the restrained funds. If this constitutes all of the defendant’s assets the claimant will not be paid until at least the end of the criminal proceedings, and then only if the defendant is acquitted. To avoid this problem the claimant may want to apply for a charging order over the defendant’s property or for a variation of the Restraint Order to allow the defendant to pay him.

7. The leading authority on the both varying a Restraint Order and enforcing civil judgements against property subject to it is The Director of Serious Fraud Office v Lexi Holdings Plc (In Administration) and M [2009] QB 376. In Lexi the Court of Appeal considered an application to vary a Restraint Order to allow payment of a civil judgement debt obtained by the victims of a fraud.

8. Giving the leading judgement, Keene LJ held that:

8.1. Where the claimant can establish an equitable interest in the property subject to the Restraint Order (such as a pre-existing equitable charge or a beneficial share) the Restraint Order can be varied to allow take account of that interest: at [20, 41 – 42] per Keene LJ.

8.2. It does not necessarily matter if the claimant has not obtained relief in the terms above from the civil court, so long as he can demonstrate it to the Crown Court and it is not inconsistent with that obtained from the civil court: at [40 – 41].

8.3. The normal rules of tracing apply when assessing a variation of the Restraint Order. This means that the claimant must be able to point to particular properties that he has a pre-existing share of or charge over at [50 – 57].

8.4. If the claimant cannot establish a pre-existing interest in or charge over particular assets of the defendant he is an unsecured third party creditor. The court should not vary the Restraint Order in this case unless doing so will not reduce the value of the assets available for a future Confiscation Order. It should also ignore any obligation owed to a third party that would have this effect: [81]. Normally this means the Restraint Order cannot be varied.

8.5. This approach is consistent with the assessment of the Confiscation Order itself since at that stage the court will disregard any third party debts not having priority: [86].

9. While these observations were made in the context of an application to vary a Restraint Order they are directly relevant to the court’s discretion to grant a final charging order or stay proceedings under section 58 of the 2002 Act. Normally the final charging order will be adjourned leaving the interim charging order in place until the end of the confiscation proceedings, when it will be removed or made final: CPR 73.8.8.

10. A restriction may be entered against the property’s title at the Land Registry showing the Restraint Order. This relies on the individual prosecutor applying for that restriction. There is no guarantee that this will happen, however, leaving the property appearing unencumbered when in fact it has been restrained.
 
Practical Implications for Claimants

11. What does this mean in practice for the successful claimant? First, the claimant should ascertain the existence and extent of the Restraint Order:

11.1. Check the land registry title to see if there is a restriction showing a Restraint Order covering the property;

11.2. If the land registry search does not reveal a Restraint Order, but you are aware of criminal proceedings against the defendant, contact either the prosecuting authorities or the defendant’s solicitors to find out if there is one; and

11.3. If there is a restriction in respect of a Restraint Order, contact the prosecuting authorities and ask what property is subject to that order.

12. If the claimant has established a pre-existing interest in the property he will need to apply to the Crown Court for a variation of the Restraint Order to take account of his interest. If he is only a third party creditor and wishes to enforce against the defendant’s property, however, he should consider taking the following steps:

12.1. If certain property is excluded from the Restraint Order, it may be best to enforce against that property;

12.2. If the defendant has no unrestrained property, consider other methods of enforcement; and

12.3. If there is no other means of enforcement or suitable property available to enforce against, consider applying for a charging order in respect of the property subject to the Restraint Order even given the problems outlined above. If he is successful, he will then need to apply for the Restraint Order to be varied.

Philip Fellows is a Property and Commercial Barrister at Hardwicke. Heather Fellows is a Criminal Barrister at 2 Bedford Row.