Proprietary claims and confiscations orders

Aquila Advisory Limited took an assignment of the company’s civil claims against the directors and obtained a proprietary injunction over certain assets representing the secret profits earned by these directors in breach of fiduciary duty.  Did the company’s claim to those assets essentially defeat the confiscation orders?  Both the High Court and Court of Appeal held that as those funds were held on constructive trust for the company they did.  The Supreme Court dismissed the CPS’s appeal:

1. The dishonest acts of the two directors were not to be attributed to the company (as had also been the case in Bilta (UK) Ltd v Nazir). There was no distinction to be made between a claim for loss (as in Bilta) and one for an account of a secret profit (as in this case). That being the case, the assets representing the profits earned by the directors, in breach of fiduciary duty, were held on constructive trust for the company. Since the CPS had no better right to the funds than the director had, this essentially meant the company’s claim had priority.
2. The CPS’s argument that permitting the company to retain the benefit of the fraud would be inconsistent with the POCA regime was also dismissed. A confiscation order did not create or interfere with any third party proprietary interests but in any case the CPS could have availed itself of other remedies under the Act. It did not invoke those or include the company in the criminal proceedings.
3. The constructive trust arises automatically at the moment the director received the secret profits.  Therefore even if relief was discretionary, it was right to exercise the discretion in this way – the directors did not at any point own these funds.

This case is one of a number of recent Supreme Court decisions in the last 10 years where the acts of a fraudulent director have not been attributed to the company.  In this particular case, it also illustrates how effective a proprietary remedy can be – even though the profits represented the proceeds of crime, they fell outside of the confiscation orders.

CPS v Aquila Advisory Limited [2021] UKSC 49