A Heavy Blow: U.K. Supreme Court Decision In Crown Prosecution Service v. Aquila Advisory Ltd

• Published date: 16 November 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Armstrong Teasdale
• Author: Ms Sarnjit Lal

This past week, the Supreme Court ruled in Crown Prosecution Service v. Aquila Advisory Ltd that, where a proprietary claim is brought by a company against its directors to recover proceeds of crime received in breach of fiduciary duty, the claim can be asserted in priority to a Confiscation Order obtained by the Crown Prosecution Service (CPS) under the Proceeds of Crime Act (POCA) 2002. Furthermore, the illegality of the directors cannot be attributed to the company even in circumstances where the company suffered no loss and stood to profit from the crime.

The basic facts of the case are that Mr Robert Faichney and Mr David Perrin were directors of Vantis Tax Ltd (VTL). During this time, Mr Faichney and Mr Perrin (the directors) exploited their position in breach of their fiduciary duty to make a secret profit of '4.55 million. The amount was also the benefit obtained by the directors from their crime of cheating the public revenue by dishonestly facilitating and inducing others to submit false claims for tax relief. VTL went into administration. Aquila Advisory Ltd (Aquila) was assigned VTL's proprietary rights. Following the directors' criminal convictions, the CPS sought confiscation orders against them under POCA. Mr Perrin was ordered to pay '809,692 and Mr Faichney was ordered to pay '648,000 to the CPS. Aquila argued that the directors should be treated as having acquired the benefit of the secret profit on behalf of VTL. Aquila argued that, as a result, the '4.55 million was beneficially owned by VTL under a constructive trust, and now the beneficial interest in that trust had been assigned to Aquila. The CPS argued in the case of a proprietary claim by a company against its directors to recover proceeds of crime received in breach of fiduciary duty, the illegality of the directors is attributed to the company. Aquila successfully argued that because it had a proprietary claim to the secret profit of '4.55 million, its claim takes priority over the confiscation orders, which do not give the CPS any form of proprietary interest.

Lord Stephens considered each of the CPS's three grounds of appeal in turn.

The CPS argued that the Court of Appeal was wrong to conclude that in the case of a proprietary claim by a company against its directors to recover proceeds of crime received in breach of fiduciary duty, the illegality of the directors is not attributed to the company, notwithstanding that the company itself suffered no loss and stood to profit...