Faichney & Anor v Aquila Advisory Ltd & Ors

Directors who exploit their company’s intellectual property, corporate opportunity or business position for personal profit may hold the resulting proceeds on trust for the company. That principle applies even where the transaction used to obtain the money was sham or ineffective.

The directors’ criminal conduct does not automatically become the company’s conduct for the purpose of defeating the company’s proprietary claim. Attribution is determined by the context and purpose of the relevant issue, and the breach of duty exception remains applicable to a claim against directors.

A confiscation order ordinarily creates personal rights. It does not, without proper reliance on the Proceeds of Crime Act 2002, displace the company’s proprietary rights or justify a general public-policy refusal of relief.

The proceedings originated in claims and counterclaims arising from a tax-avoidance scheme promoted through companies within the Vantis group. Robert Faichney and David Perrin, directors of Vantis Tax Ltd, were convicted of fraud and became subject to confiscation orders under the Proceeds of Crime Act 2002.

Vantis Tax’s claims concerning software rights and the proceeds of their exploitation were assigned to Aquila Advisory Ltd. Following settlements between the other parties, the remaining dispute was between Aquila and the Crown Prosecution Service, which had intervened to resist Aquila’s proprietary claims.

The central questions were whether the directors had misapplied corporate property or opportunity so as to hold the proceeds on trust for Vantis Tax, whether their criminal intentions should be attributed to the company, and whether the confiscation regime or public policy defeated the proprietary claim.

1. Proprietary claim. Aquila established that the directors had exploited Vantis Tax’s intellectual property and corporate opportunity for their own benefit. The fact that the purported assignment was ineffective because the purported trust owned nothing did not alter the analysis. The directors had obtained money by representing that they could sell an asset which belonged to Vantis Tax. The proceeds were therefore held on trust for Vantis Tax under the no-profit rule, subject to any superior claims of the dissolved recipient companies, which were not pursued.
2. Attribution. Applying the principles discussed in Bilta (UK) Ltd v Nazir [2016] AC 1, attribution depends on the context and purpose of the rule for which attribution is invoked. The fraudulent scheme and the separate quasi-misappropriation of the company’s software rights had to be analysed separately. The breach of duty exception applied to the latter. The criminal context, the benefit allegedly intended for Vantis Tax, and the later confiscation orders did not justify attributing the directors’ wrongdoing to the company.
3. POCA and public policy. The confiscation orders gave the CPS personal rights and did not themselves take priority over Aquila’s proprietary rights. The finding that the proceeds were criminal benefit for the purposes of the confiscation proceedings could not simply be transported to the civil claim. The Proceeds of Crime Act 2002 had to be invoked and applied in properly formulated proceedings. It could not be used indirectly through a generalised illegality or public-policy argument.
4. Declaration. The court’s discretion to grant declaratory relief did not justify refusing a declaration which established existing proprietary rights. Refusal would effectively deprive Aquila of enforcement of those rights without a statutory basis. Aquila was entitled to its declaration. Any further relief was left for the consequentials hearing.

The judgment was a first-instance determination of the remaining civil dispute. It records that Faichney and Perrin had previously been convicted of fraud, made subject to confiscation orders, and that the Court of Appeal (Criminal Division) accepted the criminal court’s treatment of the relevant sums as criminal benefit.