National Crime Agency v Simkus

Factual and Procedural Background

This opinion concerns the consequences as to costs following the dismissal of an application by the Respondent to discharge a Property Freezing Order (PFO) made under Part 5 of the Proceeds of Crime Act 2002. The original PFO was made without notice and included an initial exclusion allowing the Respondent to spend up to £3,000 plus VAT on reasonable legal costs. Subsequent applications were made by the Respondent seeking to vary this exclusion to cover higher legal costs incurred and anticipated in relation to the discharge application and related proceedings. The court had to consider the appropriate approach to varying exclusions in PFOs to meet legal expenses, both prospective and already incurred, in a complex and rarely addressed area of law. The National Crime Agency (NCA) successfully resisted the Respondent's application to discharge the PFO and now seeks costs against the Respondent.

Legal Issues Presented

1. What is the proper approach for the court when considering applications to vary exclusions in Property Freezing Orders for legal expenses under section 245C of the Proceeds of Crime Act 2002?
2. Whether the Respondent’s application to vary the exclusion to cover increased legal costs already incurred and estimated future costs should be granted, given the prior judicial determination and statutory requirements.
3. What are the appropriate costs consequences following the dismissal of the Respondent’s application to discharge the PFO, particularly in light of the NCA’s non-disclosure during the ex parte application for the PFO?

Arguments of the Parties

Respondent's Arguments

• The Respondent sought to vary the initial exclusion from £3,000 plus VAT to approximately £27,269.85 plus VAT to cover actual and anticipated legal costs related to the discharge application and related proceedings.
• The Respondent’s solicitor argued that the higher hourly rates, including those for Queen’s Counsel (QC), should apply due to the involvement of substantial novel or complex legal issues and the need to instruct leading counsel to avoid duplication of work.
• It was contended that the costs figures presented to the court were consistent and that the current application was not a re-litigation but based on actual costs rather than estimates.
• The Respondent opposed any costs order against them, citing the NCA’s non-disclosure as a mitigating factor.

National Crime Agency's Arguments

• The NCA disputed the reasonableness of the Respondent’s legal costs, arguing that the discharge application was misconceived, doomed to fail, and therefore the associated costs were not reasonably incurred.
• The NCA contended that the costs should be limited and that the higher rates for counsel should only apply if the statutory test for substantial novel or complex issues was met.
• Regarding costs, the NCA submitted that despite the Respondent’s non-disclosure, enforcement difficulties should not affect the costs order and sought costs against the Respondent, albeit with possible deductions reflecting the non-disclosure.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized the statutory framework governing exclusions for legal expenses under section 245C of the Proceeds of Crime Act 2002 and the associated 2005 Regulations. It emphasized three key considerations when varying exclusions: limiting exclusions to reasonable legal expenses actually or reasonably to be incurred; the desirability of the Respondent being represented; and protecting the enforcement authority's interest in recovering property obtained through unlawful conduct.

The court noted that the initial exclusion followed the Practice Direction and that subsequent applications to vary the exclusion must be scrutinized carefully to ensure compliance with statutory requirements. The court found that the prior judicial determination by McGowan J on the appropriate amount for the exclusion was binding and that the Respondent’s current application sought to re-litigate an issue already decided without appeal, which was impermissible.

Even if the court had jurisdiction, it would have exercised its discretion to refuse the application to avoid duplicative proceedings. The court also expressed concerns about the accuracy and consistency of the costs figures presented by the Respondent’s legal representatives, which undermined confidence that the exclusion would ensure only reasonably incurred expenses would be paid.

Regarding the rate for Queen’s Counsel, the court held that no decision had been validly made that the statutory test for payment at higher rates was met, and the Respondent’s counsel’s entitlement to such rates remained undecided.

On costs, the court found that the NCA was guilty of significant non-disclosure in the ex parte PFO application, warranting a costs sanction. However, the principal argument of abuse of process by the Respondent was rightly resisted, and the NCA was entitled to costs subject to a substantial discount reflecting the non-disclosure. The court assessed the NCA’s costs reasonably and ordered the Respondent to pay a reduced sum as a symbolic penalty to mark judicial disapproval of the NCA’s conduct.

Holding and Implications

The court REFUSED the Respondent’s application to vary the exclusion to cover increased legal costs, holding that the issue had already been judicially determined and that the current application was a prohibited re-litigation. Even if jurisdiction existed, the court would have declined the application as an exercise of discretion.

The court ordered the Respondent to pay the NCA’s costs of the discharge application, assessed at a reduced amount to reflect the NCA’s non-disclosure. This decision serves as a public reprimand to the NCA for its failure in disclosure obligations, underscoring the importance of candour in ex parte applications. No new precedent was established beyond the court’s guidance on the approach to varying exclusions for legal expenses under the Proceeds of Crime Act 2002 and the 2005 Regulations.