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||Neutral Citation Number:  EWHC 565 (Ch)
||Case No: HC-2016-001812
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
London, EC4A 1NL
B e f o r e :
MR JUSTICE MANN
|| (1) ROBERT MARSHALL FAICHNEY
(2) DAVID RICHARD PERRIN
- and -
||(1) VANTIS HR LIMITED
(2) VANTIS TAX LIMITED
(3) VANTIS PLC
- and -
||AQUILA ADVISORY LIMITED
- and -
|Part 20 Claimant/
on the Counterclaim
||(1) ROBERT MARSHALL FAICHNEY
(2) DAVID RICHARD PERRIN
(3) NICOLA PERRIN
(4) SHIRLEY FAICHNEY
- and -
|Part 20 Defendants
||THE CROWN PROSECUTION SERVICE
Jonathan Brettler and Sam Neaman (instructed by Beers Solicitors) for Aquila Advisory Limited
Julian Christopher QC and Benjamin Douglas Jones (instructed by CPS Proceeds of Crime Unit) for the Intervener
Hearing dates: 29th, 30th, 31st January & 1st February 2018
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Mann :
- Although this case has a lot of parties, the residual dispute (after settlements) is one beween Aquila Advisory Limited ("Aquila" - as assignee of choses in action and property rights from Vantis Tax Ltd - "VTL") and the CPS as intervener. The essence of the dispute is whether proprietary rights to which Aquila would otherwise be entitled as against the Faichney and Perrin defendants can be asserted in the face of a confiscation order (and its surrounding circumstances) under the Proceeds of Crime Act 2002 ("POCA"), which has been obtained by the CPS after convictions in criminal proceedings against Mr Faichney and Mr Perrin.
- The dispute has its roots in an attempted tax avoidance scheme promoted by VTL, of which Mr Faichney and Mr Perrin were directors. The scheme involved the development and assignment of some software and the transfer of that software to various companies whose shares were then to be used to claim tax relief in the manner referred to below. Mr Faichney and Mr Perrin acted as though they owned the software and obtained financial benefits from exploiting it in that way. When matters came to light Mr Faichney and Mr Perrin were suspended, and bought claims for wrongful dismissal. Hence their status as claimants in these proceedings. VTL counterclaimed for, inter alia, a declaration that property of Mr Faichney and Mr Perrin, and their wives, was held on trust for it (VTL) as being property wrongfully obtained by a fiduciary. Mr Faichney and Mr Perrin were found guilty of fraud in a subsequent criminal trial and a confiscation order was made in relation to their assets. VTL's cause of action was assigned to Aquila, which took over the counterclaim. The CPS was then allowed to intervene in these proceedings on the basis of its confiscation order, and thus was brought into conflict with Aquila. The CPS says that Aquila should not be allowed to assert its claims in the face of the confiscation order.
- Mr Perrin has recently died and his wife is his sole personal representative. Settlements have been reached between all relevant parties other than Aquila and the CPS, leaving the issue as to the interaction between those two parties as the only issue to be tried. I was not told of the terms of the settlements as between the other parties, but they do not matter (or so I assume).
- In the action before me Mr Julian Christopher QC led for the CPS (he also prosecuted in the preceding criminal proceedings) and Mr Jonathan Brettler appeared for Aquila.
- There was a limited amount of witness evidence at the trial of this dispute. The credibility of witnesses was not a factor in this case and in substance their evidence (so far as relevant) was not challenged. Jane Fowler was a forensic accountant and Head of Compliance at Vantis Plc (the third defendant and the holding company of VTL) who was called in to investigate this matter when concerns came to light in 2009. She had no involvement in the actual events at the time but gave some evidence about her findings. Mr Applin, former financial director in the Vantis group, gave unchallenged evidence in a witness statement about uncontentious history. Mr Christopher Hyland is an HMRC employee and produced some documents and identified their sources (as to whether they were apparently available and seized on the HMRC raid). He was the CPS's only witness. Mr Paul Jackson was CEO of Vantis plc and a director of VTL, and gave uncontested evidence of fact about the development of the software product, the development of the tax mitigation plans in which it was deployed and certain internal VTL matters. Miss Claire Connolly was the software development manager of the software at the heart of this matter and gave evidence about its development and nomenclature. The relevant parts of their respective evidence are incorporated in the narrative set out below, and it is unnecessary to say anything more about it here.
The tax avoidance scheme relevant to this case
- In order to understand the narrative in this case it is first necessary to understand the nature of the tax avoidance scheme which was promoted by VTL (principally through Mr Faichney and Mr Perrin). It is sufficient to describe its nature without setting out specific statutory provisions.
- Tax legislation allows for an individual to claim relief for the value of shares in quoted trading companies when given to charity. The VTL scheme in this case involved the formation of a company in which taxpayer subscribers could subscribe for shares at a small price per share. After that the company would acquire assets which would purportedly take its value much higher, at which point the shares would be given to charity at that higher valuation. The valuation of the donation would be allowed to the taxpayer as a relief, which would, on this basis, be much higher than the amount paid for the shares. The intended figures in relation to the first company in the scheme, Clerkenwell Medical Research plc ("CMR") can be taken as an example. Subscribers subscribed for shares at 3p per share. CMR then acquired (or purported to acquire) some software which was made available to it, and on the basis of holding that asset the shares were said to be worth £1. Those shares were then given to charity and relief from income tax was claimed on the footing of the £1 gift. The taxpayer thus acquired £1 of relief per share, at a price of 3p per share. That is how the scheme was intended to work.
The underlying facts
- I now set out the relevant facts in more detail. In the narrative which follows any statement of fact should be taken as a finding by me unless the contrary appears.
- The Vantis group of companies was a group offering accountancy and allied services. The companies have long since gone into liquidation but were active at the time of the events surrounding this matter. VTL was formed as a company intended to offer consultancy, and in particular tax planning, services, to external clients.
- Mr Faichney was a former Inland Revenue officer who was headhunted to run the tax consultancy services of the group. He was recruited in 2003 and brought in Mr Perrin, who had been also worked for Inland Revenue, as his deputy. Originally they were employed by a service company within the group, and when VTL was incorporated on 22nd December 2003 they both became directors. In February 2004 Mr Faichney became managing director of that company and Mr Perrin became deputy managing director in May 2004. They both had minority shareholdings in that company. There were no further directors appointed until March 2005, when Mr Jackson, a main board director, also became a director. Others were appointed at about that time, but Mr Brettler indicated that he did not rely on any of their activities (or Mr Jackson's) in the company for the purposes of the attribution point that arises in these proceedings, so I do not need to dwell on those details.
- In June 2004 Mr Faichney submitted a business plan to VTL for a software product called Taxcracker. Its purpose was to enable financial advisers to identify high net worth individuals who might benefit from the tax planning services offered by the Vantis group. It operated on the basis of a sophisticated question and answer structure. VTL apparently decided to produce that product and in August 2004 commissioned a software writing company called Netbuilder to write and develop the code. The underlying concept for the product was known to the immediate participants as the "Qaria" concept. The underlying ideas came from Mr Faichney and Mr Perrin.
- At about the same time as this was occurring Mr Faichney and Mr Perrin were developing the implementation of the tax avoidance scheme identified earlier in this judgment. They realised that the Qaria concept could be used more widely than just a financial adviser context, and that it could be a product which could be acquired by the tax avoidance company to (purportedly) boost the value of its assets so as to give the relief which the scheme was designed to confer. They therefore arranged the transfer of the software rights to the company which was to be the vehicle for the scheme, CMR. However, despite the fact that VTL had been paying for the development of the software, and despite the fact that their contracts of employment contained the familiar clauses which conferred on their employer the benefits of inventions made during their employment, they procured an assignment of rights to CMR (in fact there were three such documents) from a purported trust called the Richardson Trust.
- The Richardson Trust, as a genuine trust, probably does not exist. There is an undated trust document purporting to describe a settlement by Mrs Perrin (using her maiden name of Barnes) of unspecified property on trusts of which the primary class of beneficiaries are the descendants of Mr Perrin's mother and their spouses. Mrs Perrin was the purported trustee and spouses of trustees were excluded as beneficiaries, so Mr Perrin ought to have been excluded. Despite all that, when benefits flowed to the purported trust the moneys were applied for the benefit of Mr and Mrs Perrin and Mr and Mrs Faichney. No-one has seriously contended that the trust had any real existence as a genuine trust, and neither the CPS nor Aquila suggests that it did. It was merely a vehicle for allowing money to flow through Mrs Perrin towards the Perrins and the Faichneys from the various transactions which I describe hereafter.
- Before that purported assignment took place the tax avoidance scheme was propounded. Mr Perrin had the day to day responsibility for implementing it. CMR had been incorporated in Jersey on 24th September 2004. A private placing memorandum was prepared on 21st January 2005 and made available inviting subscriptions of its 0.1p ordinary shares at 3p each. The purpose of the company was said to be the acquisition and exploitation of the Qaria concept software and (not surprisingly) it contained no reference to a tax savings scheme. The company was to be listed on the Channel Islands Stock Exchange. It was projected to raise £1.44m, with a minimum of £500,000. Mr Faichney and Mr Perrin were two of the three directors and page 14 states that no director had or was proposed to have any interest in the assets proposed to be acquired by the company.
- In the same pack as the placing memorandum there was a letter from VTL to the subscriber headed "Tax Advice". It recorded that the subscriber had instructed VTL to advise on the tax consequences of the investment. The second page described the possibility of tax relief if there was a gift of the shares to charity in accordance with the relief provisions described earlier in this judgment, and the fees for the advice were 12% of the tax saved.
- An email of 7th February 2005 from Mr Perrin to Mr Faichney explained aspects of the scheme and his explanation suggested that the gift value of the shares was to be £1. That is apparent from a reference to "up front payment" of "3% of the income to be covered". The share price was the upfront payment and since that was 3p per share a valuation of the shares at the time of the gift would have to be £1 in order to make that 3p the 3%. That is indeed the value that was ultimately put on the shares.
- A board resolution of CMR dated 2nd March 2005 (Mr Perrin and Mr Faichney directors) recorded that £1.24m had been raised to date from applications for the shares. Almost 54% of the shares were taken by Mr Perrin; Mr Faichney took 500,000 shares.
- The first of three purported assignments of the software was also executed on that date. The assignment is between "The Trustees of the Richardson Trust" as Assignor and CMR as Assignee. Recital A recites that the Assignor is the proprietor and beneficial owner of the "Rights and Other Rights" and the "Rights" is defined to mean (in essence) all rights to the Qaria software. "Vantis Rights" , which were to be carved out of the assigned rights, is defined to mean all rights held by VTL to use the Rights for the purposes of Taxcracker.
- Clause 2 assigns all interest in the Rights (subject to the Vantis Rights) to CMR in consideration of the sum of £500,000. Clause 3 gives the Assignor the right to reacquire the Rights at a price of £100,000 if the Rights were not in the form of a marketable product within 12 months. The Assignment is signed by Mrs Perrin (under her maiden name) for the Trust and by Mr Faichney for CMR.
- £500,000 was paid to Mrs Perrin by CMR as a result of this document and that sum was distributed to her, her husband and the Faichneys in a manner which does not matter because the present parties have agreed that it happened. It will be obvious from the facts already cited (which are not in dispute) that the Assignment can have been of no effect and was a wrongful document on at least three levels. First, the Richardson Trust had no ownership in the software which it could assign, as Mrs Perrin and Mr Faichney must have known. Second, Mr Faichney as the signing director of CMR (and Mr Perrin as the other director) must have known that he was not entitled to procure that CMR should pay £500,000 in those circumstances. And third, both Mr Perrin and Mr Faichney were wrongly benefiting from their position as directors of VTL in bringing about the situation, the wrongful act which is relied on by Aquila in this action.
- In an effort to persuade market makers to make a market in the shares, on 10th March 2005 Mr Simon Tod, on behalf of CMR, said there were four independent investors willing to pay "up to" certain prices for shares in CMR (which had not yet been listed). The prices ranged from 75p to £1. This was never backed up by any sale of the shares at that price and the independent investors probably never existed.
- On 21st March CMR obtained its listing on the CISX, and on the same day a "script" was prepared providing information for independent financial advisers to pass on to their clients for the purposes of claiming the tax relief. Instructions were given for completing a transfer form for the subscriber's shares at a value left blank and the executed transfer was to be submitted to the company registrar with the date left blank "so that the most advantageous date is ascertained and entered on your behalf".
- On 13th April 2005 VTL wrote to subscribers informing them that the value to be inserted in their transfer forms was £1 per share (which was the originally intended sum). In due course they sought to justify that sum by relying on material which did not begin to justify it. Mr Faichney and Mr Perrin engaged in a share ramping exercise, and sought to present collusive purchases as if they were independent outside purchases. The details do not matter. The main point is that the proposed valuation was inaccurate, false and dishonest, and designed to give an inflated value which subscribers could use in their charitable transfers in order to get relief at the projected levels. Taxpayers, in ignorance of that, sought tax relief on the basis of the valuations.
- It seems that almost immediately Mr Faichney and Mr Perrin were looking for further exploitation of the software in the same manner, and as will appear it was subsequently used in three further similar transactions, with money being extracted by Mr Faichney and Mr Perrin in the same way. In order to set that up they realised that something had to be done about the fact that CMR had (on the face of the documents) assigned all the rights to Qaria. On 29th March 2005 Mr Perrin wrote to Mr Faichney (under the heading "Eureka (I think)"):
"Got it …
The agreement between the Richardson Trust and CMR doesn't allow CMR to sell on. There will have to be a separate agreement to cover that. I would suggest that once the £500,000 has been recovered by CMR that the trust is entitled to 75% of any excess proceeds of sale in the first three years. 50% in the next three years and 25% thereafter."
That does not quite identify the problem, but it contained the seeds of the plan for funnelling future moneys through CMR. They recognised that there would have to be an amendment of the then existing arrangements in order to achieve that and it rather looks as though they inappropriately had it in mind to substitute a different form of the Richardson/CMR assignment, because there then seem to follow two different forms of the that assignment. An unsigned and undated version was attached to an email from Mr Perrin to a Mr Pett on 15th November 2006. It had much of the text of the version described above (whose date was not challenged in these proceedings). However, it added "contingent consideration" to the original £500,000 consideration, which was 75% of amounts received by CMR or any associate in respect of onward sale of rights within 12 months, and 50% of amounts received between 12 and 24 months. Other wording changes are not material for present purposes.
- The second version is dated 3rd March 2005 but obviously was not created then, and was signed by Mrs Perrin (again using the name Barnes) and Mr Tod, a director of CMR. It was in existence by 14th February 2007, on which date it was faxed, but its creation date remains uncertain. It too provides for additional contingent consideration, this time being 90% of moneys received by CMR within 12 months and 75% of moneys received between 12 and 24 months. Again, other wording changes are not material for present purposes.
- Whenever those documents were created, their underlying purpose of channelling further moneys into CMR from additional exploitations was achieved in practice. Three further companies were incorporated over the next year, all intended to be used for tax avoidance schemes of the same nature. Modia plc was incorporated on 27th April 2005 and subscriptions at 5p per share invited from 13th June 2005. Substantial subscriptions were obtained. On 18th August 2005 CMR assigned the rights to the software to Modia for use in a list of specified industries for a consideration of £2m, in an agreement signed by Mr Perrin for CMR and Mr Tod for Modia. That money was duly paid to CMR and a large part of it flowed out from CMR to the Richardson trust, presumably pursuant to the modified consideration arrangements in one or other of (or perhaps neither of) the two alternative Richardson Trust/CMR assignments. From there the moneys passed the Perrins and the Faichneys.
- The pattern was repeated in the first half of 2006 with two more companies, Your Health Intenational plc and Signet International plc. Subscriptions were obtained, agreements were made for them to have the right to the software for certain purposes in exchange for significant sums, those sums flowed to CMR and thence to the Perrins and Faichneys via the "Richardson Trust" (ie Mrs Perrin).
- The schemes for these latter three companies all involved a similar dishonesty on the part of Mr Faichney and Mr Perrin. They procured inflated valuations for the shares, and therefore for the intended charitable donations of the shares acquired by subscribers, and those valuations were unjustifiable and dishonest. Differing figures applied to those latter three companies when compared with CMR, but that detail does not matter.
- Across all the transactions £4.55m passed into the hands of the Perrins and Faichneys in the manner just described.
- The schemes swiftly caught the attention of HMRC. On 26th June 2006 Vantis's premises were raided in connection with the schemes, and in 2009 Mr Faichney and Mr Perrin were charged with fraud offences involving cheating the Revenue in the schemes. They were both convicted in due course (Mr Faichney after a re-trial). The offence was cheating the Revenue by dishonestly facilitating and and inducing others to submit claims for tax relief which falsely stated the values of the charitable donations (ie the values of the shares) in all four companies. They were sentenced to terms of imprisonment and in due course confiscation orders were made against them under POCA section 6. The orders were based on the fact that the benefit to them of their crimes was the £4.55m which passed out of CMR to the Richardson trust (updated for inflation) and the amount of the orders was made to reflect the then assets of Mr Faichney and Mr Perrin - £648,000 odd and £809,000 odd respectively. The finding of the judge who made the confiscation order was that the £4.55m was a dishonest construct from first to last, and the Court of Appeal accepted that finding at a later appeal brought by Mr Perrin.
- Each of the four tax avoidance vehicle companies has been dissolved. I was told that HMRC had allowed subscribers to take the amount they paid to subscribe as their deductible amount. None were allowed to take the value attributed to the shares at the time that relief was claimed.
Further significant underlying facts
- In approaching the questions that arise out of the above there is no dispute as to the traceability of the £4.55m into relevant assets in the hands of Messrs Faichney and Perrin. The CPS accepts for present purposes that their assets as they stand can be taken to represent part of the £4.55m, so that if VTL/Aquila have a proprietary claim in respect of that money then it bites on all the assets of the individuals. Thus the competition between the rights of CPS to enforce over those assets, and the claims of Aquila (which are based on proprietary and tracing claims) arises.
- It is also accepted that Aquila is in the same position in relation to this claim as VTL would have been in if bringing it itself. It has no better and no worse a claim. I can therefore approach the determination of this claim as if Aquila were VTL, which will be an aid to exposition.
- The facts that I have found hitherto are essentially agreed between the parties. There are some other facts which are not agreed, and I make brief findings about them as follows.
(a) I find that all original intellectual property rights in the software resided in VTL. It was devised during the engagement of Mr Faichney and Mr Perrin, and paid for by VTL. There was no dispute about that. However there was a minor dispute as to whether there was anything known as Qaria at the date of the purported assignment by the Richardson Trust to CMR. The CPS said there was not. Mr Christopher wished to use it to say that nothing passed from the trust to CMR because the property was defined by using the word "Qaria" and there was in fact no such thing. This was part of an argument that VTL could not found its claims upon the assignments or the wrongful sale of rights because nothing passed. As will appear, I do not consider that to be a correct approach to Aquila's case, but in any event there are other reasons for saying that nothing passed anyway - the trust had no rights it could pass because they all belonged to VTL. However in case it matters I find that there was something known as Qaria in existence at the time. Miss Connelly said that the word "Qaria" was used from the outset of Netbuilder's engagement and I accept that evidence. The word was used to encapsulate the underlying concepts of the product which became Taxcracker.
(b) I find, as submitted by Mr Christopher, that the amounts passing under the various assignments had no particular reference to actual value. The amounts were simply amounts which Mr Faichney and Mr Perrin felt they could take out of the various subscriptions for shares so that it could be passed down the line and ultimately to them.
(c) Mr Christopher sought to argue that the schemes were fraudulent from the start, that is to say from the point at which the shares in the four companies were offered to VTL's clients. He supports his case with remarks made by the judge who imposed the confiscation order to the effect that the scheme was "a construct from first to last for self betterment", and that on an appeal against the confiscation order the Court of Appeal indicated that it could not be said that the scheme had a legitimate beginning and was marred only by subsequent dishonest manipulation. Those remarks do not technically bind me in this court, but it nonetheless seems to me that Mr Christopher is right. It is plain enough that Mr Faichney and Mr Perrin were working towards a desired value for the shares after subscription. They did not start the companies as genuine trading companies with a view to waiting to see how they did. It is hard to see how they can ever have genuinely thought that the shares would acquire such an increased value over subscription prices in such a short time after that subscription. The only asset of each company was the software rights and the subscription moneys, but the subscription moneys (or much of it) were immediately stripped out in purported payment for the rights, leaving just the software rights. No-one apparently valued those rights, and Mr Faichney and Mr Perrin had to resort to contrivance to justify the value they proposed to the taxpayers.
(d) As well as the benefits taken by Mr Faichney and Mr Perrin through the purported trust, VTL was also intended to benefit from the fees chargeable on the transactions, and probably from the enhanced prospect of fees from other tax avoidance activities in the future. Mr Christopher put some store by this. I accept that that appears to be the case.
- Aquila's case can be reduced to a straightforward proposition. Mr Brettler submitted that the directors' obtaining the £4.55m was a secret exploitation by them, for their own benefit, of a corporate opportunity, or of corporate assets, which gave rise to a claim in the company on familiar equitable principles. That claim was not only a personal claim; it also gave rise to a proprietary interest - see eg FHR European Ventures LLP v Makarious  AC 250. That proprietary interest takes priority (as a proprietary interest) over such personal claims as the CPS may have under the confiscation orders, even if the effect is that there is nothing left for the CPS to exercise its rights over. The CPS, as intervener in these proceedings, has no better claim to the assets than Mr Faichney and Mr Perrin would have. Accordingly, the claimant is entitled to its proprietary relief.
The CPS case
- The CPS case depends heavily on treating the £4.55m as the proceeds of crime and invoking public policy. It starts with the analogy of one of two joint highwaymen who steals the other's share of a robbery. The latter highwayman would have no claim, Mr Christopher maintains (Everet v Williams, (1725, cited in Bilta below). More analytically, he submits that on the facts of this case the criminal intentions of Mr Faichney and Mr Perrin fall to be attributed to the company. This he says would be true in a criminal case, making the company guilty of the crime and (as the equivalent of the second highwayman) incapable of recovering. The context of the acquisition of the £4.55m was the commission of the crime, and that justifies the attribution. The effect of that attribution is to prevent VTL from relying on the assignments to claim the price paid because those assignments are part of VTL's fraud and "fraud unravels everything". Aquila's (VTL's) claim is defeated by the application of the maxim ex turpi causa. The £4.55m was the proceeds of crime, and if the company had been prosecuted and convicted and had also recovered that money then it (or rather its financial equivalent) would have been confiscated in the same way as that sum was confiscated because the equivalent property was in the hands of Mr Faichney and Mr Perrin. Public policy and the need not to frustrate the proper operation of the POCA confiscation regime stand in the way of allowing Aquila to succeed over the interests of the CPS. What Aquila was doing was seeking to gain a benefit from the fraud of its directors, and that should not be allowed. He went so far as to say that Mr Faichney and Mr Perrin could themselves have defended VTL's claim against them on the same grounds.
- As a form of alternative, Mr Christopher submitted that the declaratory relief sought by Aquila was discretionary relief, and as a matter of discretion the court should decline to grant that relief on the same public policy grounds referred to above and because to grant a declaration would frustrate the scheme of POCA. The court is being asked to grant a declaration to further a claim to money that should not be there in the first place.
Discussion and resolution
- A useful starting point for resolving this dispute is the position which would obtain if it were not for the criminality involved - if Mr Faichney and Mr Perrin had purported to procure an assignment to a third party of company IP rights which they did not have in exchange for money. In those circumstances Mr Brettler would be right as to the effect of the authorities. The proceeds of that activity would be held by them as constructive trustees (as Mr Christopher conceded, absent the complications said to be presented by the crime and the confiscation order). This is apparent from FHR European Ventures LLP v Mankarious  AC 250, a case concerning a secret commission:
"7. The principal's right to seek an account undoubtedly gives him a right to equitable compensation in respect of the bribe or secret commission, which is the quantum of that bribe or commission (subject to any permissible deduction in favour of the agent—eg for expenses incurred). That is because where an agent acquires a benefit in breach of his fiduciary duty, the relief accorded by equity is, again to quote Millett LJ in the Mothew case, at p 18, "primarily restitutionary or restorative rather than compensatory". The agent's duty to account for the bribe or secret commission represents a personal remedy for the principal against the agent. However, the centrally relevant point for present purposes is that, at least in some cases where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the equitable rule ("the rule") is that he is to be treated as having acquired the benefit on behalf of his principal, so that it is beneficially owned by the principal. In such cases, the principal has a proprietary remedy in addition to his personal remedy against the agent, and the principal can elect between the two remedies." (per Lord Neuberger)
And at paragraph 46 Lord Neuberger seemed to approve the respondent's formulation of the principle which he had previously set out as follows:
"30. The respondents' formulation of the rule, namely that it applies to all benefits received by an agent in breach of his fiduciary duty to his principal, is explained on the basis that an agent ought to account in specie to his principal for any benefit he has obtained from his agency in breach of his fiduciary duty, as the benefit should be treated as the property of the principal, as supported by many judicial dicta including those in para 19 above, and can be seen to be reflected in Jonathan Parker LJ's observations in para 14 above. More subtly, it is justified on the basis that equity does not permit an agent to rely on his own wrong to justify retaining the benefit: in effect, he must accept that, as he received the benefit as a result of his agency, he acquired it for his principal. Support for that approach may be found in Mellish LJ's judgment in McKay's Case 2 Ch D 1, 6, and Bowen J's judgment in Whaley Bridge 5 QBD 109, 113."
- Applying those principles VTL would prima facie seem to have a claim to the traceable proceeds of the £4.55m in the hands of Mr Faichney and Mr Perrin which, on the agreed facts of this case, amounts essentially to all their current assets (or, in the case of Mr Perrin, his estate).
- However, the facts of this case are a little unusual. In what one might call the more normal case, a director commits the wrong by entering into a transaction which, in itself, is a genuine transaction. In the present case the directors did not enter into something which could be seen to be a genuine transaction when they procured the first purported assignment by the trust. The trust had nothing to assign, and assigned nothing. CMR, and the succeeding companies, actually acquired no legal rights at all, albeit that they de facto had the benefit of the IP rights. The trust, Mr Faichney and Mr Perrin were not entitled to receive the money they did receive vis-à-vis CMR because they did not sell CMR what CMR purported to buy. The intellectual property rights remained in VTL.
- Nonetheless, that does not seem to me to make any difference as between the directors and VTL. They still obtained money by pretending (albeit to themselves as directors of CMR) that they owned an asset they did not own, in circumstances in which their company VTL did own it, and in which they were in a position to enter into the transaction by virtue of their knowledge of the affairs and plans of VTL. They extracted payment for what they "sold". All that is within the vice covered by the no-profit rule (though it obviously also contains a number of other vices), so that the proprietary consequences follow. It is not unlike a director who licences or lets out his company's property, pretending it to be his, and pockets the licence fee or rent. I consider that such a director would hold the money on trust for his company. So too did Mr Faichney and Mr Perrin (or Mrs Perrin as trustee of the purported Richardson Trust) hold the £4.55m on trust for VTL. That is now represented by the totality of their assets.
- For the sake of completeness of analysis I consider how that situation might be changed by taking into account the position of CMR which did not get any IP rights, and could not sell any such rights to the succeeding companies (thereby generating a potential obligation to those succeeding companies to repay their money). The existence of those companies' rights would be capable of impacting on the rights of VTL if they were enforced. Mr Faichney and Mr Perrin committed a wrong vis-à-vis CMR (and possibly the succeeding companies). If those rights were sought to be enforced they might well give rise to their own proprietary claims to the same money. Insofar as they do give rise to such rights then they would be likely to take priority over the rights of VTL as being first in time, and in that event VTL's rights would be defeated. Furthermore, the directors would have no benefit to disgorge. Thus the claims of CMR and VTL could be reconciled. However, that does not itself impact on the result of this case because CMR and the other companies have, I was told, been dissolved and there was no evidence that claims were, or will be, asserted on behalf of those companies. The case before me was developed on the footing that they would not be asserted.
- If the reasoning and facts stopped there then Aquila would succeed. It would have a proprietary right and the latterly acquired rights which arise under the confiscation order do not, of themselves, take priority over the proprietary rights. As a matter of principle there is no reason why they should do so. It was common ground that a confiscation order gives rise to only personal, and not proprietary, rights. However, Mr Christopher says things do not stop there. He equates the company to the co-highwayman in his analogy, and he gets there via attribution. He says that in the circumstances the acts and intentions of the two directors (Mr Faichney and Mr Perrin) fall to be attributed to the company, with the effect that the company has committed the crime as well and public policy intervenes to prevent recovery by the company, leaving the stage free for the confiscation order. The same attribution should be made in these proceedings with the same effect. All this leads to the unravelling of the payments made for the IP rights ("fraud unravels everything") and the maxim ex turpi causa or the doctrine of illegality applies to bar Aquila's (VTL's) claims. In support of the attribution claim Mr Christopher averred that the £4.55m was the proceeds of crime, and that the benefit of the crime (the cheat on the Revenue) was for the benefit of VTL, because it provided income for VTL and introduced clients who would bring future work. In addition, Mr Christopher prayed in aid provisions of POCA s 240 which he said meant that the moneys in the hands of VTL could have been the subject of confiscation proceedings.
- Although Mr Christopher also seems to have a case without it, attribution lies at the heart of the main part of his case. It is the means by which he seeks to make the company a co-criminal with two of its directors. I shall therefore deal with it first.
- The principles governing attribution now conveniently appear in Bilta (UK) Ltd v Nazir  AC 1. In that case directors of a company had operated a carousel fraud via a company in order to claim VAT from the Revenue. They were sued by liquidators of the company to recover sums in the amount of unpaid VAT liabilities and the directors sought to defend on the basis (inter alia) that the company could not sue because of the ex turpi causa maxim, or because of illegality. It was held that they could not resist on that ground.
- The central question that arose in that context was the attribution of the dishonest intentions of the directors to the company (see the judgment of Lord Sumption JSC at para 64). If they were to be attributed then the company could not claim because it would be claiming on the basis of its own illegal act, or its own participation in the illegal act (like the highwayman in the example). It was held they should not be so attributed because it would be wrong to attribute the intentions of a wrong-doing director (vis-à-vis his company) to the company itself. This was described as the "breach of duty exception" to the normal attribution rules which would (absent the exception) attribute a controlling director's intentions and acts to the company. The principles were set out in various judgments and I can usefully cite the following:
"41. As Lord Hoffmann made clear in Meridian Global , the key to any question of attribution is ultimately always to be found in considerations of context and purpose. The question is: whose act or knowledge or state of mind is for the purpose of the relevant rule to count as the act, knowledge or state of mind of the company? Lord Walker NPJ said recently in Moulin Global , para 41 that: "One of the fundamental points to be taken from Meridian is the importance of context … in any problem of attribution." Even when no statute is involved, some courts have suggested that a distinction between the acts and state of mind of, on the one hand, a company's directing mind and will or "alter ego" and, on the other, an ordinary employee or agent may be relevant in the context of third party relationships. This is academically controversial: see Professor Peter Watts, "The Company's Alter Ego—An Impostor in Private Law" (2000) 116 LQR 525 ; Neil Campbell and John Armour, "Demystifiying the Civil Liability of Corporate Agents"  CLJ 290. Any such distinction cannot in any event override the need for attention to the context and purpose in and for which attribution is invoked or disclaimed.
42. Where the relevant rule consists in the duties owed by an officer to the company which he or she serves, then, whether such duties are statutory or common law, the acts, knowledge and states of mind of the company must necessarily be separated from those of its officer. The purpose of the rule itself means that the company cannot be identified with its officers. It is self-evidently impossible that the officer should be able to argue that the company either committed or knew about the breach of duty, simply because the officer committed or knew about it. This is so even though the officer is the directing mind and will of the company. The same clearly also applies even if the officer is also the sole shareholder of a company in or facing insolvency. Any other conclusion would ignore the separate legal identity of the company, empty the concept of duty of content and enable the company's affairs to be conducted in fraud of creditors." (per Lord Mance.)
"71 Bilta's answer to this, which was accepted by both the judge and the Court of Appeal, is that the dishonesty of Mr Chopra and Mr Nazir is not to be attributed to Bilta, because in an action for breach of duty against the directors there cannot be attributed to the company a fraud which is being practised against it by its agent, even if it is being practised by a person whose acts and state of mind would be attributable to it in other contexts. It is common ground that there is such a principle. It is commonly referred to as the fraud exception, but it is not limited to fraud. It applies in certain circumstances to prevent the attribution to a principal of his agent's knowledge of his own breach of duty even when the breach falls short of dishonesty. In the context of the illegality defence, which is mainly concerned with dishonest or criminal acts, this exception from normal rules of attribution will normally arise when it is sought to attribute to a principal knowledge of his agent's fraud or crime but that is not inherent in the underlying principle. I shall call it the "breach of duty exception".
89 A claim by a company against its directors, on the other hand, is the paradigm case for the application of the breach of duty exception. An agent owes fiduciary duties to his principal, which in the case of a director are statutory. It would be a remarkable paradox if the mere breach of those duties by doing an illegal act adverse to the company's interest was enough to make the duty unenforceable at the suit of the company to whom it is owed. The reason why it is wrong is that the theory which identifies the state of mind of the company with that of its controlling directors cannot apply when the issue is whether those directors are liable to the company. The duty of which they are in breach exists for the protection of the company against the directors. The nature of the issue is therefore itself such as to prevent identification. In that situation it is in reality the dishonest directors who are relying on their own dishonesty to found a defence. The company's culpability is wholly derived from them, which is the very matter of which complaint is made." (per Lord Sumption)
"202 It is clear from those cases that a finding that a person is for a specific purpose the "directing mind and will" of a company, when it is not merely descriptive, is the product of a process of attribution in which the court seeks to identify the purpose of the statutory or common law rule or contractual provision which might require such attribution in order to give effect to that purpose. Similarly, when the question of attribution arises in the context of an agency relationship, the nature of the principal's or other party's claim is highly material as the learned editors of Bowstead & Reynolds discuss at para 8-213. Even when the primary rules of attribution apply, where the transaction is approved by the board of directors and completed under company seal as in Belmont (No 2) , the court will not attribute to a company its directors' or employees' knowledge of their own wrongdoing to defeat the company's claim against them and their associates. We agree with Lord Walker NPJ in Moulin's case when (at para 113) having discussed the Court of Appeal's judgment in this case he stated:
"the crucial matter of context includes not only the factual and statutory background, but also the nature of the proceedings in which the question [of attribution] arises."
206 In the second case, where the company pursues a claim against a director or employee for breach of duty, it would defeat the company's claim and negate the director's or employee's duty to the company if the act or the state of mind of the latter were to be attributed to the company and the company were thereby to be estopped from founding on the wrong. It would also run counter to sections 171 to 177 of the 2006 Act, which sets out the director's duties, for the act and state of mind of the defendant to be attributed to the company. This is so whether or not the company is insolvent …" (per Lords Toulson and Hodge)
- Lord Neuberger agreed with Lord Mance as to the need to consider context:
"9 Particularly given the full discussion in those passages, I do not think that it would be sensible for me to say much more on the topic. However, I would suggest that the expression "the fraud exception" be abandoned, as it is certainly not limited to cases of fraud—see per Lord Sumption JSC at para 71 and Lords Toulson and Hodge JJSC at para 181. Indeed, it seems to me that it is not so much an exception to a general rule as part of a general rule. There are judicial observations which tend to support the notion that it is, as Lord Sumption JSC says in his para 86, an exception to the agency-based rules of attribution, which is based on public policy—or common sense, rationality and justice, according to the judicial observations quoted in paras 72, 73, 74, 78 and 85 of Lord Sumption JSC's judgment. However, I agree with Lord Mance JSC's analysis at paras 37–44 of his judgment, that the question is simply an open one: whether or not it is appropriate to attribute an action by, or a state of mind of, a company director or agent to the company or the agent's principal in relation to a particular claim against the company or the principal must depend on the nature and factual context of the claim in question."
- Mr Brettler emphasised all those passages and submitted that this case fell fairly and squarely with exception referred to. It involved a claim against directors for breach of their duties, and other wrongdoings, and was not one in which they could conceivably expect to escape liability by attributing their wrongs to the company. That was really an end of the point.
- Mr Christopher said the present case was different from Bilta. He pointed out the dependency on context which was referred to by their lordships, and to what he said was the different context of this case. In Bilta the conduct was not for the benefit of the company; it was for the benefit of the directors. Contrast this case, where there was a benefit (or intended benefit) to the company in terms of fees and future business. That was a key reason for the company propounding and implementing the scheme. The present case was not one in which the company was seeking to recover a loss. It was one in which the company was seeking to recover property which was the proceeds of crime for the purposes of POCA - it was property within section 76(4):
"(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct."
- In Bilta there was to be a recovery for the benefit of creditors, mainly HMRC, the victim of the fraud. Here the company is seeking to recover some profits which, were it not for the fraud of two of its directors, would not have been available. Were it not for the criminal conduct there would be no property to recover. The beneficial effect of attributing intention in this case is that the money would (justifiably) go to the state. That is all part of the context of the question of attribution in the present case. Mr Christopher also went so far as to say that were there to be a prosecution of VTL for the same offence as the directors were prosecuted for, their acts and intention would undoubtedly be attributed to the company so that the company would be as guilty as they were. That conviction would then have been the basis for a confiscation order for the same money if the company had received it or was entitled to it.
- I do not consider that Mr Christopher's attribution arguments work for him. His submissions really elide too many concepts and, I detect, employ an ad hoc approach to attribution rather than a more principled one. The point needs to be broken down as follows.
- First, his averment that there would be attribution for criminal law purposes does not assist him. One must be clear about what is being attributed. So far as the criminal aspects of this case are concerned the crime was the fraud on Revenue. There was no real argument before me to the effect that the criminal acts and intentions in this case would have been attributable to the company had the CPS chosen to prosecute the company as well, and I am not prepared to find, on the basis of the material that I had, that that attribution would have been inevitable in this case. I am unable to conclude that there would inevitably have been attribution of the criminal acts and intentions merely on the basis of Mr Christopher's averment to that effect. I do not consider that that can be his starting point.
- Even if that were wrong, it does not follow that one should also attribute the quasi-misappropriation of the software to the company. That was not an integral part of what the crime actually was. It was a sort of collateral benefit to the directors. It should not necessarily be lumped together with the criminal acts for the purposes of attribution. The analysis is more subtle than that, and the question is not determined by the fact that the criminal court has treated the fruits of the purported software assignment as proceeds of crime for the purposes of POCA. Mr Christopher made clear, in submissions made after Mr Brettler's reply, that for attribution purposes he did not seek to attribute to the company the acts and intentions of the directors in relation to their obtaining the £4.55m. I consider that that was a correct concession, and it undermines his case.
- In my view, insofar as it is necessary to consider attribution, it is necessary to consider the quasi-misappropriation of the software rights separately from the promotion of the scheme itself. There were two wrongful acts in the present case, as Mr Christopher himself accepted. There was the crime (centring on the false valuation of shares) and the quasi-misappropriation of company assets. They need to be considered separately for present purposes. In that way one is more likely to address the right questions. When one does that one starts from the prima facie position that the breach of duty exception applies to the quasi-misappropriation claim. The directors misappropriated for themselves a corporate opportunity, or even, on one analysis, indulged in a form of misappropriation of assets (hence my description of their acts as a "quasi-appropriation"). While it was a planned benefit from the crime, and in their minds an integral part of it, it was still a separate wrong vis-à-vis the company. It would be appropriate to treat any attribution question in relation to that separately from attributing the central criminal acts, as Mr Christopher conceded.
- When that is done I cannot see a justification for disapplying the breach of duty exception. The directors took advantage of the company's intellectual property and made a profit from it. Attributing consent to that via the fraudulent directors would be no more appropriate in this case than in any other case of a director misapplying corporate assets or opportunities. All the reasoning that usually gives rise to the exception applies in this situation. The fact that the events occurred in the course of a crime does not seem to me to be sufficient to disapply it. It is true that but for the crime the assignment moneys would not have been available, but I do not see why that should prevent the normal exception applying. A wrong has still been committed vis-à-vis the company. Applying the label "proceeds of crime" is not sufficient to disapply the principles which apply via the process of attribution. The directors could not have taken the point run by Mr Christopher and say that their intention to misapply or misappropriate assets should be attributed to the company, and that is an end of the attribution question. Mr Christopher sought to overcome the apparent difficulties posed to him by that conclusion by saying that he sought to attribute the criminality of purpose to the company - the criminality of the conduct which ultimately led to this money being obtained. I do not accept that such a generalised approach is particularly meaningful in applying the concepts of attribution in this case.
- Mr Christopher's point on context does not assist him. The relevant context is the context in which the claim arises, that is to say the circumstances of the original claim. That is what Lord Neuberger meant when he talked of context. What Mr Christopher seeks to add in to the context is subsequent events - the prosecution, the confiscation order and the fact that the dispute is now between the CPS (acting in the public interest) and the company (or its assignee). In that connection he also sought to pray in aid who was now interested in the moneys and contrast that with Bilta. In Bilta the ultimate beneficiaries of the claim were the creditors, and principally HMRC (which had been defrauded in the first place). In the present case that is not the position, and the CPS now has its own legitimate interest. I do not consider that those are matters which are capable of going to the question of attribution. Apart from anything else, they were not part of the context of the matters giving rise to the claim. Were the position otherwise on attribution then the determination of attribution would vary across time, depending on whether supervening matters were thought to have a bearing on it and who the ultimate beneficiaries of applying or not applying it were at any given moment. That does not seem to me to be right. In my view one tests the matter at the time the claim arose (when the wrong was committed) and not by reference to the sort of supervening matters relied on by Mr Christopher.
- Accordingly Mr Christopher's attribution argument fails.
- However, as I have observed, that may not be end of his case. He has a case which depends heavily on the characterisation of the assignment moneys as proceeds of crime, and the availability of confiscation orders in respect of it (and indeed the actual confiscation order made). He submitted that public policy should look to a result which means that neither the directors nor the company should get the proceeds of the purported assignments (or the property representing them).
- The first way in which he sought to deploy this notion was in support of his attribution argument. As I understood his submission, he sought to say that because public policy should stand against the company recovering proceeds of crime, therefore there should be attribution of the acts and intentions of the directors to the company in order that recovery as against them, and therefore the company's proprietary rights, can be defeated.
- This does not seem to me to be an appropriate way of deploying policy considerations of that kind. The rules of attribution, and the breach of duty exception, are to a degree based on policy considerations, but once those rules are in place it is not permissible to deny their effects and adjust them because public policy does not like the outcome that they produce in a particular case. If public policy is to be relied on in particular circumstances as being something which offends against the public conscience then it ought to be deployed as a separate weapon, in itself, to seek to defeat the claim. If there is a real public policy point operating in these particular circumstances it should not be used to as to distort established and justifiable attribution rules in an artificial manner.
- However, although public policy cannot be used in that particular way it is nonetheless a point with which I should deal, either as a direct counter to the claim of Aquila as it is made, or in connection with Mr Christopher's submissions as to the non-grant of a discretionary remedy, which turn in large measure on a public policy point.
- When pieced together, his argument would seem to be that proceeds received by Mr Faichney and Mr Perrin were the proceeds of crime; the criminal courts have so determined; the crime was for the benefit of VTL; these moneys flowed from the crime and would not have been available but for the circumstances of the crime; the company's case involved its seeking to acquire the proceeds of a crime; there would have been an open and shut direct case against the company under POCA if it had acquired the moneys before the confiscation order; it was necessary to apply a consistent approach between civil remedies and confiscation orders (see Hall v Herbert  2 SCR 159); and that all these factors, as a matter of public policy, and possibly applying the ex turpi causa maxim, should deprive the company of the remedy it seeks and leave the field free for the confiscation order to operate. Otherwise the company would benefit from the fraud of its directors.
- Mr Christopher's development of this point was not done by virtue of an analysis of the legal principles underlying public policy defences. In the main he pointed to the ex turpi causa maxim and one particular dictum in Patel v Mirza  AC 417 in which Lord Neuberger said:
"185. So far as POCA is concerned, it enables the courts, through statutory powers, to do that which a common law judge cannot do, and which many might think was the best outcome in many of the more serious cases involving illegality, namely to ensure that the proceeds of crime are retained by neither party, but are paid over to the Government. This is not the occasion to discuss the effect of POCA , save to say that I would take some persuading that the common law should be influenced by the fact that POCA is or is not being invoked in any particular case, although the civil courts should not make any order, or at least permit the enforcement of any order, if its effect would run counter to the provisions of POCA or to any step which was being contemplated under POCA by the relevant authorities."
- I am unconvinced by the general public policy arguments. They are based on the premise that the proceeds of the assignment are to be treated as the tainted proceeds of crime for all purposes and against all people, and not just as against Mr Faichney and Mr Perrin. Although that has been found to be an appropriate characterisation of the proceeds by the criminal court as against Mr Faichney and Mr Perrin, and for the purposes of POCA, it is not apparent to me that that finding can be transported without more to be applied as against VTL. The crime was not the illegitimate extraction of moneys for non-existent intellectual property rights, or the improper use of company property. It was the cheat on the Revenue. The criminal court, as against Mr Faichney and Mr Perrin, found that the money flowing from the intellectual property rights fell to be treated as the proceeds of that crime. The position was summarised thus by Davis LJ on appeal to the Court of Appeal (Criminal Division):
"38. Overall, it would be a most disconcerting result if the appellant, who on any view had himself received £4.55 million from this dishonest scheme by use of what the judge described as "manipulation" and by the use of "a construct for self-betterment" could not be said to have obtained benefit in connection with, indeed as a result of, the criminal conduct charged. The actuality was that the sums truly represented the proceeds of crime; they did not simply represent the instrumentality by which the crime was committed. The judge was, in our view, justified in concluding as he did and in assessing benefit as he did."
In so concluding Davis LJ was applying the provisions of the Act. He was not applying some general public policy considerations. His determination (and that of the judge below to the same effect) has to be understood in that light.
- Those findings cannot be simply transposed and applied to Aquila and VTL because they are not necessarily subject to the same provisions of the Act. Nor are they bound by those findings by any form of estoppel. The entitlement of VTL/Aquila to the moneys does not derive from the crime. It derives from the fact that the directors used a corporate opportunity and, more importantly, the intellectual property rights for their own benefit. As a matter of fact the company's property was used by CMR and the other companies when it ought not to have been, and that gives the company equitable rights as a matter of policy.
- There is no general public policy consideration based on the commission of the crime which prevents the company from taking its rights, and Mr Christopher does not rely on any such general consideration. His public policy considerations come from the intervention of POCA. But POCA does not operate through the medium of public policy. It operates through the medium of its provisions. Its provisions determine whether persons are liable to confiscation orders and whether property is liable to be taken by the state.
- In my view it is therefore POCA which determines whether VTL/Aquila lose the rights which the directors' acts give them, not some more generalised considerations of public policy (or illegality). If that Act contains provisions which, when properly implemented, have the effect vis-à-vis VTL of depriving it of its proprietary rights, then VTL/Aquila loses those rights. But those rights have to invoked against VTL/Aquila in a proper way. Mr Christopher sought to point to provisions which would entitle the CPS to go against the property in the hands of Aquila – he pointed to section 240; and to provisions which he says now stand in the way of proceedings against VTL because the property has been taken into account in making orders against directors (section 308(9)). He may or may not be right about some or all of that, but that is not a matter raised in these proceedings, either as a matter of the invocation of POCA or in some form of pleading in the case. I consider that he is not entitled to invoke them in that way. The matter should at least be put in issue in a properly identified way so that Aquila could consider the arguments in advance, and that was not done. Aquila was disadvantaged in that respect by the way the matter emerged at the hearing before me. In any event, and more significantly, if a claim is to be made under POCA it ought to be made in properly formulated POCA proceedings in which the claim and any defences can be properly tested, and not in more broadly expressed public policy claims.
- For those reasons there is no general public policy argument arising out the relevant moneys being proceeds of crime that can be raised in these proceedings, and no POCA-specific point that can be taken either.
- Mr Christopher's invocation of Hall v Herbert does not help him. It was cited in Patel v Mirza at para 190 (from where Mr Christopher cited it):
"It is particularly important in this context that we bear in mind that the law must aspire to be a unified institution the parts of which - contract, tort, the criminal law - must be essential harmony. For the courts to punish conduct with the one hand while rewarding it with the other, would be to create an intolerable fissure in the law's conceptually seamless web … We can thus see that the concern, put at its most fundamental, is with the integrity of the legal system."
In those sentences the Canadian judge (MacLachlin J) was considering questions of illegality and the rationale of the maxim ex turpi causa. In the passage cited she was explaining why the court should not hold conduct to be both legal and illegal. That is not the same point as arises in the present case. There is no relevant tension between legal and illegal. If there is a tension it is between the company's rights under the general law relating to the abuse of a fiduciary's position and the vulnerability of people and bodies to orders under the extensive code contained in POCA. But that tension is resolved by the proper application of POCA, not the invocation of public policy based on the application of POCA to others.
- Mr Christopher went on to say that the common law (and equity) should not be used to defeat the purpose of POCA and cited Lord Neuberger in paragraph 185 of Patel v Mirza set out above. Far from assisting him, it seems to me that that paragraph is contrary to his thesis. What Lord Neuberger seems to be saying in his sentence beginning "This is not the occasion …" is that the common law gets on with its job, and POCA gets on with its, and that the latter does not inform the former. In my view that means that POCA cannot be used in the way proposed by Mr Christopher to give rise to independent public policy or illegality arguments. Of course, as Lord Neuberger went on to say, the common law (and equity) will not act so as to frustrate the operation of POCA, but that is not the same thing. In saying (as I do) that equity gives rights which will stand unless and until POCA requires otherwise I am not frustrating the operation of POCA. I am indicating that POCA must be applied properly in its own terms, and if in that event it has the effect contended for by Mr Christopher then so be it. Short of that event it does not.
- That is consistent with the reasoning of Sales LJ in R (Best) v Chief Land Registrar  QB 23. In that case Sales LJ had to consider the interaction of POCA with other statutes, including the Land Registration Act 2002 when it came to considering the nature of occupation of land which was said to give rise to a possessory title. At paragraph 94 he said:
"94. In my judgment, Part 5 of POCA does not provide relevant guidance on the meaning and effect of section 144 of LASPOA, so far as concerns the intended impact of that provision on the LRA regime governing the rights of a landowner and an adverse possessor in private law. POCA introduces a distinct regime to allow for the state itself (the enforcement authority) to take steps to strip property from a wrong-doer under certain conditions and subject to certain safeguards. It would give POCA excessive effect to say that it supported an argument that someone should lose rights they would otherwise have by virtue of the LRA, in favour of another private person, without the procedural safeguards which would exist in relation to a POCA claim made against them. Indeed, it might be said that the existence of POCA and the possibility of a civil claim under that Act has some tendency to support the argument for Mr Best in the present context, since it provides a vehicle for vindication of the public interest in the upholding of the criminal law without needing to distort the operation of the LRA in a crude effort to advance that objective."
- For those reasons, therefore, the public policy arguments of Mr Christopher fail.
- Last, Mr Christopher (if he has failed thus far) invokes the discretionary nature of the remedy of a declaration. He says that a declaration should be refused as a matter of discretion because it would support the recovery by Aquila of £4.55m which should never have been received by CMR, let alone paid to Mr Faichney and Mr Perrin. He submitted that Aquila is seeking to gain from the crime of its directors in circumstances where it has not lost anything which it would otherwise have had had the crime not been committed, and where the money would otherwise be confiscated. He says that since declarations are discretionary, the court should in its discretion refuse the declaration.
- The declaration sought by Aquila is a declaration, as against Mr Faichney and Mr Perrin (or the latter's estate) and their wives that they hold the property representing the assignment proceeds on trust for Aquila (as assignee of VTL's claim). It is based on the legal rights identified above. My conclusion on public policy means that those rights have been established and that there are no public policy arguments which remove or qualify those rights. The rights of the CPS under the existing confiscation order are personal rights which do not of themselves trump the proprietary rights of Aquila/VTL. So there is nothing to impeach the proprietary rights which I have found to exist.
- One would normally expect a declaration to follow as a matter of course from that state of affairs. It is the obvious remedy to establish and encapsulate in a formal manner the resolution of the dispute between the parties. Failure to grant it would, in normal circumstances, give rise to difficulty, not solve difficulty. It would not affect the proprietary rights which I have held to exist. I suppose that if the discretion to refuse the declaration were to extend to a refusal to grant injunctive relief then Aquila would have a proprietary right which it was unable to enforce, leaving others free to deal with the property without reference to the rights of Aquila, but that would be a strange state of affairs.
- In my view the basis on which Mr Christopher seeks to invoke the discretion is flawed. It is true that the grant of a declaration is discretionary - see eg Woolf and Woolf on The Declaratory Judgment, 4th Edition at paras 4-01 to 4-03. However, Mr Christopher did not cite to me any authority which demonstrated that a court had refused a declaration of established proprietary rights in circumstances similar to these. He cited Imperial Tobacco Ltd v Att-Gen  AC 718 as an example of a case where the discretion was not exercised, which indeed it is, but the facts were entirely different (no declaration about criminal behaviour when a prosecution was still outstanding). No other parallel or analogous case was cited. The White Book in the notes to CPR 40.20 refers to a number of cases, but having considered those cases I consider none of them would support Mr Christopher's proposed course. In none of them would the refusal of a declaration have amounted in practice to depriving a litigant of his or her proprietary rights, which is what Mr Christopher urges on me in this case.
- Of course, the absence of a similar case in the past is not necessarily a bar to a particular application of discretion in a current case, but it seems to me to reflect the unprincipled approach of Mr Christopher. Aquila has established a proprietary right in the face of a public policy argument which has failed. There is no statutory basis for defeating that right because the only statutory candidate (POCA) has not been directly invoked against VTL or Aquila. It cannot be applied indirectly via the confiscation order that has been obtained because that order does not bind Aquila. The way Mr Christopher seeks to put his discretion case involves him invoking some of the effects of POCA without the trouble of actually applying it properly, which is not the correct way of applying the Act. He cannot achieve that by an appeal to the court's discretion. Once Aquila has established its prima facie rights and then seen off public policy attacks on those rights there is no basis at all for trying to get public policy back in (which is what Mr Christopher is really trying to do) via the discretion argument.
- The discretion point therefore fails.
- It follows that Aquila has established its proprietary rights and the CPS has not established that it has any current rights which are capable of impeaching those proprietary rights. Aquila is entitled to its declaration. Whether any other relief is appropriate in the circumstances is something that can be determined on the consequentials hearing flowing from this judgment.
Note 1 Short reference was made to some sort of appearance at the confiscation hearing by VTL or Aquila as a “victim”, but it was not made clear what the extent of that participation really was. Neither side seemed to suggest it was significant to a determination of the dispute in this case. [Back]
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