The fact that directors of a company have defrauded its customers does not necessarily mean that the proceeds of their unlawful actions do not belong to the company. That is the effect of the Supreme Court’s recent decision in Crown Prosecution Service v Aquila Advisory Ltd [2021] UKSC 49.
The basic facts of the case can be stated shortly. Two directors of a Jersey company, Vantis Tax Ltd, used it to commit unlawful acts, benefitting to the tune of £4.5 million. They were prosecuted in connection with revenue offences and convicted, as a result of which the CPS obtained confiscation orders under the Proceeds of Crime Act 2002. At the same time, the company (which went into administration followed by liquidation) had substantial claims against it by investors who had suffered loss as a result of the directors’ fraudulent conduct. Aquila Advisory Limited took an assignment of the rights of the company from its liquidators.
In proceedings between the directors and Aquila, in which the CPS intervened, Mann J identified the principal dispute as being between Aquila as assignee and the CPS as to whether proprietary rights to which Aquila would otherwise be entitled as against the directors could be asserted in the face of the confiscation order the CPS had obtained. Mann J decided that Aquila’s proprietary claim took priority over the claim of the CPS. The CPS appealed on the ground that he should have attributed the actions of the directors to VTL and treated its claim to recover the proceeds of the crime as barred by reason of illegality (the old principle often identified by the expression ex turpi causa non oritur actio). The appeal failed, and Mann J’s judgment was upheld. In essence the Court of Appeal decided that the liability of a fiduciary such as a director, an agent of the company, to account for a secret profit made by the unauthorised use of the company’s assets or his position in the company gave the company, the principal, a direct proprietary interest in the property which the agent/director had acquired as a result of his acts.
The Supreme Court also dismissed the CPS’s appeal. Lord Stephens (with whom Lord Lloyd-Jones, Lord Sales, Lord Burrows and Lady Rose agreed) dealt with the appeal by reference to three grounds.
It found (as to ground 1) that the reasoning in Bilta (UK) Ltd v Nazir was apposite: the unlawful acts or dishonesty of a director could not be attributed to the company, even if the company benefitted from his illegal conduct. It rejected a submission that the decision of the Court of Appeal was inconsistent with the regime established by POCA (ground 2): the Supreme Court’s view was that the overall scheme of POCA was not to interfere with property rights; although specific provisions enabled the state to override property rights, they did not apply in this case. Finally, (the third ground, dealt with in a single paragraph of the judgment) the court rejected an argument that the trial judge ought not to have exercised his discretion to grant Aquila declaratory relief. The decision will be welcomed for upholding the distinction between a company and its officers and applying the principles set out in Bilta v Nazir.
