The Crown Prosecution Service v Aquila Advisory Ltd

A confiscation order under the Proceeds of Crime Act 2002 creates no proprietary interest in a defendant’s assets and gives the Crown no priority over existing equitable interests. A director who makes an unauthorised secret profit by exploiting the company’s assets or fiduciary position holds that profit on constructive trust for the company, even where the profit arose from criminal conduct.

For a claim by the company against its delinquent directors, attribution is governed by context and purpose. The directors’ fraud cannot be attributed to the company so as to enable them, or a third party with no better title, to invoke illegality against the company’s proprietary claim.

Vantis Tax Ltd’s directors used the company’s software rights in dishonest tax schemes and received £4.55m through a purported trust. They were convicted of cheating the Revenue and became subject to confiscation orders. Vantis entered liquidation and Aquila acquired its choses in action and property rights.

Mann J held that the directors had breached fiduciary duty and held the proceeds on constructive trust for Vantis, so Aquila’s proprietary claim had priority over the CPS: [2018] EWHC 565 (Ch). The CPS appealed, contending that the directors’ fraud should be attributed to Vantis and that illegality should bar the company’s claim. The central issue was whether a confiscation order could prevail over that proprietary claim.

1. Appeal dismissed. The CPS had no proprietary interest in the £4.55m. A confiscation order under section 6 of the Proceeds of Crime Act 2002 requires the defendant to pay the recoverable amount. It neither transfers ownership of available assets nor gives the CPS priority over third-party proprietary claims. Its rights against Aquila could therefore be no greater than the directors’ rights.

2. The directors’ unauthorised exploitation of Vantis’s intellectual property and corporate opportunity was a breach of fiduciary duty. The resulting secret profits were held on constructive trust for Vantis. The rule confirmed in FHR European Ventures LLP v Makarious [2015] AC 250 applies to benefits acquired through the fiduciary position in breach of duty, including benefits arising from bribery, fraud or other unlawful conduct. The directors could not rely on the criminal character of their own conduct to retain the proceeds.

3. Bilta (UK) Ltd v Nazir [2015] UKSC 23 governed attribution. Although directors’ acts may be attributed to a company for some purposes, they are not attributed when that would defeat the company’s claim against those directors for breach of duties owed to it. The company is the victim, for this purpose, of the directors’ wrongdoing. The same conclusion applies to a third party whose rights are no better than those of the directors.

4. The facts did not fall outside Bilta merely because Vantis participated, through its directors, in criminal conduct. The general approach to illegality in Patel v Mirza [2016] UKSC 42 did not require a different result. If the CPS wished to seek confiscation from the company itself, its available course was to prosecute the company and, upon conviction, seek an order directly against it.

• Court of Appeal (Civil Division): The CPS appeal was dismissed. Aquila’s proprietary claim remained prior to the CPS claim under the confiscation orders.
• High Court, Chancery Division: Mann J held that Aquila, as assignee of Vantis’s rights, had a proprietary claim to the disputed funds in priority to the CPS: [2018] EWHC 565 (Ch).