The Crown Prosecution Service v Aquila Advisory Limited

The Court of Appeal dismissed the Crown Prosecution Service's appeal against the Chancery Division decision that Aquila (as assignee of Vantis Tax Limited's rights) held a proprietary claim to £4.55m obtained by the company's directors and therefore had priority over the CPS's attempt to enforce a confiscation order. The court held that the proceeds represented a constructive trust in favour of the company because the directors had made secret profits in breach of fiduciary duty (principles confirmed by FHR European Ventures LLP v Makarious).

The court rejected the CPS's submission that the directors' fraud could be attributed to the company so as to invoke the ex turpi causa doctrine and defeat the company's proprietary remedy. Bilta (UK) Ltd v Nazir was applied to conclude that attribution and illegality cannot be used by dishonest directors to prevent the company from enforcing a claim against them. The court also held that confiscation orders under the Proceeds of Crime Act 2002 do not of themselves create proprietary interests or priority over third-party equitable claims (see s.6 and s.9 POCA).

Background and parties. Vantis Tax Limited (VTL) employed Mr Faichney and Mr Perrin who, in breach of fiduciary duties, arranged a series of dishonest share/charity tax schemes exploiting VTL's Qaria/Taxcracker intellectual property. The schemes produced receipts of £4.55m which the directors received. The directors were later convicted and a Crown Court made confiscation orders under s.6 of the Proceeds of Crime Act 2002 for £4.55m. VTL (through its liquidators) claimed that the sums were held on constructive trust for the company; Aquila acquired those rights from the liquidators and pursued the proprietary claim.

Procedural posture and relief sought. Mann J in the Chancery Division held for the company and Aquila: the directors’ receipts were held on constructive trust for VTL. The CPS appealed, seeking a ruling that the CPS had a claim enforceable in priority to the company over the identified proceeds of fraud, by arguing that the directors' fraud should be attributed to VTL and that the ex turpi causa principle should therefore bar the company's claim.

Issues framed.

• Whether a confiscation order under POCA gives the CPS a proprietary interest or priority over competing third-party equitable claims to the defendant's available assets.
• Whether the directors' fraud could be attributed to VTL so as to invoke the ex turpi causa doctrine and defeat VTL's proprietary constructive trust claim arising from breach of fiduciary duty (and the authorities on attribution and illegality, principally Bilta and FHR, were engaged).

Reasoning and outcome. The court explained that a confiscation order requires the defendant to pay the recoverable amount but does not create proprietary rights or priority against third parties; the CPS therefore has no better rights against the disputed funds than the convicted directors themselves. The Supreme Court's decision in FHR was applied to confirm that secret profits obtained by a fiduciary are held on constructive trust for the principal, even if obtained by unlawful means. Bilta was treated as decisive on attribution: where a company sues its directors for breach of fiduciary duty, it would be unjust to attribute the directors' knowledge and fraud to the company so as to defeat the company's claim. Applying those authorities, the court concluded it was not open to the CPS to attribute the directors' criminality to VTL to invoke ex turpi causa; accordingly the company's proprietary claim prevailed and the appeal was dismissed.

Legal context noted by the court: The judgment referred to Patel v Mirza but concluded it did not require re‑assessment of Bilta in this context; the only route for the CPS to obtain priority would have been to indict and convict the company itself.

Appeal dismissed. The Court of Appeal held that the CPS had no proprietary priority over the £4.55m because a confiscation order under POCA does not create proprietary rights in priority to third-party equitable claims, and it was not appropriate to attribute the directors' fraud to Vantis Tax Limited so as to bar the company's proprietary constructive trust claim arising from breach of fiduciary duty (applying FHR and Bilta).

Appeal to the Court of Appeal (Civil Division) from the High Court of Justice, Chancery Division, Mann J: HC-2016-001812; first instance judgment reported at [2018] EWHC 565 (Ch). This judgment is reported at [2019] EWCA Civ 588.