Crown Prosecution Service v Aquila Advisory Ltd

The Supreme Court dismissed the Crown Prosecutor's appeal and upheld the judgment that the £4.55m secret profit obtained by two former directors was held on constructive trust for their company (Vantis Tax Ltd), whose proprietary rights had passed to Aquila. The court applied FHR European Ventures LLP v Mankarious to confirm that any benefit obtained by an agent in breach of fiduciary duty is held on trust for the principal. It held that Bilta (UK) Ltd v Nazir prevents attribution of directors' dishonest acts to a company in proceedings where the company sues its directors for breach of fiduciary duty, and that attribution cannot be used to invoke the defence of illegality so as to defeat a proprietary claim by the company. The court rejected arguments that the Proceeds of Crime Act 2002 (in particular Part 2 and Part 5, and sections such as section 6, section 23, section 40, section 281 and section 308(9)) or the money‑laundering provisions in Part 7 require a different result, noting that POCA does not automatically extinguish third‑party proprietary rights and that the Crown had not invoked available POCA remedies. Finally, the court held that declaratory relief recognising the constructive trust was appropriate.

Background and facts:

• Vantis Tax Ltd (VTL) developed intellectual property and two directors, Mr Faichney and Mr Perrin, devised and promoted fraudulent tax‑relief schemes that generated £4.55m. The directors caused payments to be made to a fictitious trust and received the proceeds personally; the IP remained VTL’s property. The directors were convicted of cheating the public revenue and confiscation orders were made against them, but the available amounts were much less than £4.55m.
• Aquila acquired VTL’s proprietary claims (including any constructive trust claims) and sought declarations that the £4.55m was held on constructive trust for VTL/Aquila by reference to the rule in FHR. The CPS, an unsecured creditor under the confiscation orders, resisted on grounds including attribution/illegality and incompatibility with the Proceeds of Crime Act 2002 (POCA).

Procedural history:

• Mann J in the High Court ([2018] EWHC 565 (Ch)) declared the £4.55m to have been held on constructive trust for VTL (now Aquila). The Court of Appeal dismissed the CPS’s appeal ([2019] EWCA Civ 588). The CPS obtained permission to appeal to the Supreme Court.

Nature of claim and issues:

1. Aquila sought proprietary relief (a declaration recognising a constructive trust) to establish priority over the CPS’s confiscation claims.
2. The Supreme Court framed the principal issues as (i) whether the fraud of the directors should be attributed to VTL so as to bar VTL/Aquila’s proprietary claim by reason of illegality, (ii) whether the regime under POCA prevents VTL/Aquila from asserting the constructive trust, and (iii) whether declaratory relief should have been granted.

Reasoning and decision:

• The court reaffirmed FHR: any benefit obtained by an agent in breach of fiduciary duty is held on constructive trust for the principal. It then applied Bilta, concluding that where a company sues its directors for breach of fiduciary duty the dishonest acts of those directors are not attributed to the company for the purpose of defeating the company’s claim. The court emphasised context and purpose as the key to attribution questions and rejected the CPS’s attempts to carve an exception where the company had in fact benefited or stood to benefit from the scheme.
• On POCA, the court observed that Parts 2 and 5 are not intended to disturb pre‑existing third‑party proprietary rights; the CPS had available POCA remedies (for example adding the company to an indictment, restraint orders, or Part 5 civil recovery) which it did not pursue. The court rejected the submission that recognising the constructive trust would automatically amount to money‑laundering offences by Aquila or VTL.
• On declaratory relief, the court noted that constructive trusts are institutional (arising at the moment of the breach) and that Mann J’s declaration simply recognised that state of affairs; the exercise of discretion, if engaged, was properly exercised.

Outcome:

The appeal was dismissed and the declaration that the moneys were held on constructive trust for VTL (now Aquila) was upheld.

Appeal dismissed. The Supreme Court held that (1) FHR requires that secret profits taken in breach of fiduciary duty are held on constructive trust for the principal; (2) Bilta prevents attribution of a director’s dishonest conduct to the company where the company sues its directors for breach of fiduciary duty, so the directors’ fraud could not be attributed to VTL to defeat a proprietary claim by illegality; (3) POCA does not automatically override third‑party proprietary rights and the CPS had not invoked POCA remedies (such as charging the company or obtaining restraint orders) to deprive VTL/Aquila of its proprietary rights; and (4) the High Court’s declaratory relief recognising the constructive trust was appropriate.

High Court (Chancery) trial before Mann J: [2018] EWHC 565 (Ch); Court of Appeal dismissed CPS appeal: [2019] EWCA Civ 588; Supreme Court permission granted 3 December 2019 and appeal heard in this court resulting in dismissal on 3 November 2021. Relevant criminal appeals and confiscation proceedings include [2014] EWCA Crim 1556 (Perrin).