B e f o r e :
LORD JUSTICE DAVIS
MRS JUSTICE COX DBE
HIS HONOUR JUDGE KINCH QC
(Sitting As A Judge Of The CACD)
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Julian Knowles QC (instructed by McNamee McDonnell Solicitors LLP) for the Appellant
Simon Medland QC (instructed by the Crown Prosecution Service) for the Respondent
Andrew Bodnar (instructed by Stephensons Solicitors) for the Applicants
Hearing date: 26TH January 2016
HTML VERSION OF JUDGMENT
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Lord Justice Davis:
- By an order of 27 March 2015 made in the Carlisle Crown Court an enforcement receiver was appointed over the realisable assets of Patrick Boyle and Mark Boyle. That order also extended to certain assets held in the name of Boyle Transport (Northern Ireland) Limited, the appellant in this case. This step was taken with a view to achieving recovery of the amounts of confiscation orders previously made in the Crown Court under the provisions of the Proceeds of Crime Act 2002 ("the 2002 Act") as long ago as 25 March 2013, against Patrick and Mark Boyle.
- This appeal involves considering the application of the doctrine of lifting or piercing the corporate veil (using, as a short hand, the ugly metaphorical language which has become established by use). In reaching his decision to extend the appointment of the enforcement receiver over assets of Boyle Transport (Northern Ireland) Limited ("the New Company") the Judge lifted, or pierced, the corporate veil with regard to a company called Boyle Transport Limited ("the Old Company"), which had itself caused certain of its assets to be transferred on 1 July 2011 to the New Company. The Judge found that transfer not to be genuine. The Judge treated the turnover and assets of the Old Company, and hence the relevant assets ostensibly transferred to the New Company, as property obtained by and belonging to Patrick and Mark Boyle individually. The question on this appeal is whether he was justified in doing so.
- In consequence of this appeal of the New Company, brought by leave of the Single Judge, Patrick and Mark Boyle themselves seek leave to appeal against the original confiscation orders made against them on 25 March 2013. They require a very lengthy extension of time if to be permitted to do so. It is made clear on their behalf that their applications are prompted by and dependent on the New Company's appeal. If that fails then it is accepted that their applications necessarily must fail (subject to a point raised in the case of Patrick Boyle as to the length of the default period imposed, by reason of the present state of his health). If it succeeds, then it is said that the confiscation orders originally made against them will have been shown to have been made on an incorrect basis.
- The points raised on this appeal among other things require consideration in the context of confiscation proceedings of the decision of the Supreme Court in the case of Prest v Petrodel Resources Limited  2 AC 415,  UKSC 34 and the subsequent decision of a constitution of this court in Sale  1 Cr App R (S) 60,  EWCA Crim 1306.
- The appellant New Company was represented before us by Mr Julian Knowles QC. The Crown was represented before us by Mr Simon Medland QC. The applicants, who had not been represented by counsel at the enforcement receiver hearing below, were represented before us by Mr Andrew Bodnar. The case was well argued on all sides.
- The background facts giving rise to the issues raised are these.
- The Old Company was, as we were told, incorporated in Northern Ireland on 1 August 2003. It was established and operated as, in effect, a family business. At all relevant times, the sole directors were Patrick and Mark Boyle, father and son.
- Between them, Patrick and Mark Boyle had a 50.1% shareholding in the Old Company, thus enabling them, if they acted together, to pass or defeat ordinary resolutions of the company. Patrick Boyle had a 30.1% shareholding. Mark Boyle had a 20% shareholding. The remaining shareholders were Mary Boyle, the wife of Patrick Boyle, who (ignoring exact percentages) held 20% of the shares and their other two sons, Neil and John Boyle, who each had, 15% of the shares.
- It is to be noted that in the proceedings below it was not suggested, and no evidence was put in to the effect, that Mary Boyle, Neil Boyle and John Boyle held their shares as nominees or bare trustees for Patrick and/or Mark Boyle. However, the Judge was to find as a fact that with regard to the actual operations of the Old Company Patrick and Mark Boyle were the "operating minds" of the Old Company.
- We were not shown any of the accounts of either the Old Company or the New Company. However, we were supplied with copies of two section 16 statements put in on behalf of the Crown Prosecution Service in the course of the confiscation proceedings. From those it appears that the Old Company was set up to take over a pre-existing road haulage business established and run by the Boyle family. Its turnover was substantial. It operated a fleet of Heavy Goods Vehicles undertaking commercial journeys both in the United Kingdom and in Europe. In each year after incorporation (save one) up to 31 July 2009 the turnover of the Old Company, according to its accounts, very significantly exceeded £3 million. Gross profits significantly exceeded £1 million in each year.
- The business of the Old Company was based in Newry, County Down. It operated from premises adjoining the home belonging to Patrick and Mary Boyle.
- The nature of the business was such as to require the Old Company to comply with the relevant Regulations relating to the use of tachographs and drivers' hours. In 2006 and 2008 the Old Company had in fact been fined for failure to keep proper records. The indications are that fines were also sometimes incurred by drivers of such vehicles whilst travelling on the Continent.
- In October 2008 a number of the Old Company's lorries were stopped by police on the motorway near Penrith, Cumbria. Investigations showed that the tachographs had been cunningly tampered with and false records also kept. A subsequent attempt by Patrick Boyle to get rid of incriminating evidence failed. The truth emerged. Charges were in due course laid against Patrick and Mark Boyle for conspiring to make false instruments. Some of the drivers were also charged, as was Neil Boyle who himself worked for the Old Company. The period of the conspiracy was particularised as between 30 November 2007 and 30 November 2008. In addition, there were charges of doing acts tending and intended to pervert the course of justice brought against Patrick and Mark Boyle: as well as various charges of forgery brought against them and Neil Boyle and individual lorry drivers. In due course, a number of the drivers were to make statements incriminating Patrick and Mark Boyle.
- Each of Patrick and Mark Boyle eventually pleaded guilty on 18 February 2011 to the count of conspiracy. (In the meantime a Restraint Order had been made against them on 30 September 2010.) Shortly thereafter each of Patrick and Mark Boyle resigned as a director of the Old Company. Neil Boyle was appointed its sole director. In the light of the pleas the Crown had elected, it is said on pragmatic grounds, not to proceed further against Neil Boyle and not guilty verdicts had been directed in his case.
- They were sentenced in the Carlisle Crown Court by Judge Peter Hughes QC on 28 April 2011. Patrick Boyle was sentenced to a term of 2 years imprisonment. Mark Boyle was sentenced to a term of 18 months imprisonment. Both were disqualified from acting as company directors for a term of five years.
- In his sentencing remarks of 28 April 2011 the Judge clearly and concisely summarised the position in this way:
"In my judgment you flagrantly and persistently circumvented the driver hour regulations for your own commercial purposes. Together you operated a system of deception. You equipped your vehicles and provided your employees with the means to alter what the tachograph recorded. You imposed unreasonable expectations upon your drivers, expecting them to undertake journeys that would be simply impossible without breaking the regulations, and you required them to undertake alone journeys, for example to Frankfurt and Paris, which should have been operated by two drivers working in turns. You placed them under pressure to do your bidding by paying them not by the hour but by the trip and dealt with any objection by the blunt reminder that you can always find someone else willing to do the work. Quite simply your recruited them to your dishonest practices and made them instruments of it. This was not done for their benefit, save that it provided them with employment. It was, though, done for yours in that by illegal means you were enabled to run a profitable business and make monies for yourselves and your families.
In 2008 one driver had had enough. In simple but eloquent terms he summed up what was so wrong about your way of business. He used these words, "I am not a hero, and I am not prepared to risk my life, other people's lives or jail sentence for you to make profit and still pay poor wages for the amount of hours you expect people to work." That driver said that after he had been required by you to drive for nearly 37 hours without a daily rest to make his ferry crossing and deliver a load to Heysham."
The Judge went on to record that there had also been a policy of not keeping records. He noted the attempts of Patrick Boyle to destroy incriminating evidence. He found that the drivers had painted "a graphic and consistent picture of how you ran the business." He understandably emphasised the underpinning rationale of the relevant Regulations and the dangers occasioned to road users and others by failure to comply with them.
- The Judge in his sentencing remarks found that the alterations to the vehicles' tachographs (accompanied by falsification of records) were sophisticated. He then said:
"…it is perfectly plain that it was done purely and simply with a view to increased profits, which had behind it as well not only the dangers that I have referred to but the unfairness of competition to fair traders."
The Judge found that Patrick Boyle had "primary responsibility" as the head of the family business and as the one who was in "overall charge". The Judge found that Mark Boyle was "closely involved in the management of the business."
The confiscation proceedings
- A confiscation timetable was set at the date of the sentencing hearing. Voluminous statements appear thereafter to have been filed although we were not shown all of them.
- The Crown Prosecution Service had retained the services of an expert forensic accountant, Mr Winch. He analysed what was considered by him to be a representative sample of the Old Company's invoices in the period 1 January 2008 to 12 October 2008. His assessment was that some 91% of those invoices related to journeys which had at some stage involved breach of the relevant Regulations. His conclusion, unsurprisingly, was that contraventions of the Regulations were "prevalent" throughout the mainstream commercial haulage operations of the Old Company during the period examined. Accordingly, the Crown asserted in its section 16 statements that company drivers were "routinely" breaching such Regulations.
- In its initial section 16 statement, the Crown placed reliance on observations made by a constitution of this court in the case of Seager & Blatch  1 CAR(S) 60,  EWCA Crim 1303: a case to which we will come in due course. Basing itself on that case the Crown asserted that the benefit obtained by Patrick and Mark Boyle corresponded to 91% of the adjusted turnover of the Old Company. Further, this was – as was and is common ground – a criminal lifestyle case for the purposes of the confiscation proceedings. By reference to the 6 year period to be taken into account accordingly, the benefit was initially assessed as £17,835,513, attributed to both jointly.
- In a subsequent section 16 statement it was asserted on behalf of the Crown that the inference was that the Old Company could not have continued in business had the offences not been committed. In the earlier statement, however, it was noted that for the year ending 30 July 2009 (that is, after the criminality had been detected) the gross profit rate declined sharply from over 50% to around 38%: "presumably a reflection of the additional cost of legitimacy."
- The first section 16 statement also ascribed a value to the shareholdings of Patrick and Mark Boyle of (in round terms) £150,750 and £100,500 respectively.
- The response of the expert instructed by the defence appears to have been, as subsequently recounted by the Judge, not to dispute the prosecution's methodology in attributing company turnover to the defendants as benefit. Rather what was asserted was that, of the representative sample of journeys taken, some 51.78% were capable of having been conducted so as to comply with the Regulations. On that basis, the benefit figure produced was £10,016,810.
- The Crown did not formally accept this approach. But in the result the amounts of benefit were agreed at the confiscation hearing. The value of benefit was in each case accepted as £10,016,810 (it was said by the Crown that to argue the matter would have been pointless, in view of the size of the available amounts).
- As to the available amounts, these were agreed at £1,097,622 and £738,171 (as subsequently varied) respectively. Confiscation orders were made on 25 March 2013, certifying such sums as the recoverable amounts, payable within 6 months (subsequently extended), with default periods of 5½ years imprisonment and 4 years imprisonment respectively. It is of importance to note that the available and realisable assets of Patrick Boyle as scheduled to the confiscation order were stated to include, among other items, £306,365 representing assets of the Old Company and £216,000 representing vehicles and trailers transferred to the New Company. The like items were included in the scheduled available and realisable assets of Mark Boyle.
- Thus far there has been recovered from Patrick Boyle the sum of £145,944 and from Mark Boyle the sum of £25,090. Each has in the course of 2015 been returned to prison by the Magistrates Court in order to serve the default sentence.
The transfer of assets to the New Company
- How the New Company came to be involved is explained in this way.
- As we have said, each of Patrick and Mark Boyle resigned as directors of the Old Company in February 2011 (and were subsequently disqualified in any event when sentenced on 28 April 2011) and Neil Boyle then was appointed the sole director of the Old Company.
- On 9 May 2011, shortly after the sentencing hearing, the New Company was incorporated in Northern Ireland. This was at a time when it was known that the Freight Operator's licence of the Old Company was about to be revoked and when it was known what the outcome of the sentencing hearing had been. The directors of the New Company were Neil Boyle and a Mr McGovern, who had apparently been the business's transport manager. We were not told who the shareholders in the New Company were.
- What then happened was this.
- The entire fleet of vehicles and trailers of the Old Company, and other assets, were transferred to the New Company, as evidenced by an invoice dated 1 July 2011. It does not appear that there was any written Sale and Purchase Agreement. We have not been shown any minute or written resolution of the directors or shareholders of either company approving such sale and purchase. No money, at all events, apparently changed hands, although the invoice stated the consideration as £597,000 plus VAT of £119,400: a total of £716,400. The matter was treated as an accounting transaction. An operator's licence was then obtained by the New Company. It has since continued to trade from the same premises as before and, it seems, with essentially the same customer base as that of the Old Company.
- It was the Crown's case that this transaction was not genuine but a mere device, designed not only to deal with the forthcoming revocation of the Old Company's licence (a point not disputed by the New Company) but also to circumvent the anticipated confiscation orders (a point which was disputed): and being thereby tainted.
- This issue was one of those that had to be decided by the Judge on the application by the prosecution for the appointment of an enforcement receiver. He heard evidence, including evidence from Mr Gerald Boyle, called by the New Company as an expert forensic accountant although scarcely independent, as he is related to Patrick, Mark and Neil Boyle. Mr Winch gave evidence for the Crown. The Crown was saying that this was in effect a phoenix fraud.
- The Judge was to find on the evidence - saying that he had "no hesitation" in doing so – that this was not a genuine transaction. He gave ample reasons for so concluding. The "true reality of the situation", in the words of the Judge, was exposed by the accounts. Further, no cash had changed hands: and the accounting exercise advanced showed no proper correlation between the figures and the invoice figure. There was also no evidence that the VAT was ever paid; the treatment of directors' loan accounts could not be reconciled or explained satisfactorily; and the treatment of goodwill was also not explained. (The Judge, incidentally, made no finding as to the precise knowledge and involvement of Patrick and Mark Boyle in the transaction.)
- As the Judge put it:
"The vehicles were simply put in [the New Company's] name and the business carried on. The only outward sign of any change was the inclusion of (NI) in the company name."
- We need not, however, give any more detail: since Mr Knowles realistically accepted that he could not on this appeal challenge the Judge's factual assessment and conclusion on this aspect of the case.
The legal background
- In order to explain the Judge's reasoning and conclusion on the central issue and in order to explain the parties' respective arguments before this court it is necessary to refer to the relevant statutory provisions of the 2002 Act and to the principal relevant authorities relating to confiscation and to lifting or piercing the corporate veil in this context.
- For his purposes, Mr Knowles was in effect able to put to one side the Judge's finding that the transfer of the assets to the New Company was not genuine. His point came to this. If an enforcement receiver was to be appointed over assets of the New Company that could only be with a view to recovering the amounts of the confiscation orders. Those assets, however, necessarily had to represent realisable property of each of Patrick and Mark Boyle. But the amount of those realisable assets, as had been the amount of the benefit, had been calculated by reference to the inclusion of turnover and assets formerly obtained by and held in the name of the Old Company. Accordingly, if the assets in the name of the New Company as purportedly transferred from the Old Company were to be the subject of the appointment of an enforcement receiver that could only properly be achievable if such assets were not, in law and in fact, the property of the Old Company but were, in law and in fact, the property of Patrick and Mark Boyle. The logic of this approach is impeccable. Nor did Mr Medland seek to controvert it.
- It follows that, as the Judge accepted and as this court accepts, the inquiry had and has to be whether the turnover and assets ostensibly belonging to the Old Company in truth were to be regarded as the property of Patrick and Mark Boyle. If the turnover of the Old Company did not belong to them as individuals then such turnover could not represent benefit obtained by them. If the assets held in the name of the Old Company did not belong to them as individuals then such assets could not represent part of the available amounts. That is precisely where the arguments relating to lifting or piercing the corporate veil kick in.
(1) The 2002 Act
- The scheme of the 2002 Act is all too familiar to those practising in this field. It therefore does not require any detailed exposition here.
- Section 6 sets out the circumstances in which a confiscation order in the recoverable amount may be made by the Crown Court. Section 7 relates to the calculation of the recoverable amount: in broad terms, the lower of the benefit or the available amount. Section 8 relates to the calculation of the benefit. Section 9 relates to the calculation of the available amount. Section 10 relates to the rebuttable presumptions required to be made in criminal lifestyle cases.
- The overall scheme was summarised by Lord Bingham in the case of May  1 AC 1028,  UKHL 28 and in the well-known three stage test he formulated. (1) Has the defendant benefited from relevant criminal conduct? (2) If so, what is the value of the benefit so obtained? (3) What sum is recoverable from the defendant?
- Section 76 relates to conduct and benefit. Sub-sections 76(4)(6) and (7) provide:
"(4) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(6) References to property ….obtained in connection with conduct includes references to property…. obtained both in that connection and some other."
(7) If a person benefits from conduct his benefit is the value of the property obtained."
In the present case, of course the court had to assess general criminal conduct (defined in s. 76(2) as "all his criminal conduct"): not particular criminal conduct. There is a wide definition of "property".
- Section 50 of the 2002 Act empowers a court to appoint a receiver in respect of realisable property. Section 93 provides that realisable property is "any free property held by the defendant", as well as any free property held by the recipient of a tainted gift.
(2) The previous authorities
- The starting point here has to be the famous case of Salomon v A. Salomon & Co. Limited  AC 22. It may be suspected that, although this case is often referred to, it is rarely formally cited and, perhaps, nowadays rarely even actually read. But the case established some core propositions which continue to be at the heart of English company law. These are, in sum, that a limited liability, or joint stock, company has a legal status and existence which is separate from that of its shareholders and directors. In consequence, the liabilities of such a company are not the liabilities of its shareholders and directors individually; and, correspondingly, the assets of the company belong to neither the directors nor the shareholders individually. And that is so whether or not the shareholder wholly controls, and wholly owns 100% of the shares in, the company.
- In the Court of Appeal in Salomon  2 Ch. 323, it had been held, in very strong terms, that the formation of the company and the issue of debentures to investors had been a mere "scheme" - indeed a "device to defraud creditors" - and that the companies' legislation had "never contemplated" an extension of limited liability to sole traders. The company thus was taken to be the agent or trustee of Mr Salomon himself.
- The House of Lords, in no less strong terms, disagreed. The principle relating to the separate legal status of a limited liability company – a central aim of the companies' legislation – was proclaimed. But for present purposes it is also important to note that this was asserted as much with regard to "one man" companies as to companies with several directors or shareholders. This is made explicit in the speeches of Lord Halsbury at page 43, Lord Herschell at pages 44-45, Lord McNaghten at page 53 and Lord Davey at pages 54-55: and was stated to be so even where the other shareholders on the register (at that time it was a statutory requirement that there be several shareholders on the register) were nominees or "dummies" for the incorporator.
- Reflecting that decision, and the fundamental role which limited liability companies play in commerce, there have subsequently been numerous authorities which have rebutted any notion that an exception can be carved out to the principle of the separate legal status of a limited company by reliance on what was asserted in any given case to be "just." That has been affirmed by the Court of Appeal in, for example, Adams v Cape Industries Plc  Ch. 43; re-affirmed, in the context of a criminal confiscation case, in Seager & Blatch; and confirmed in Prest itself.
- Much cited in the particular context of confiscation cases is the trilogy of decisions of the House of Lords in May; Jennings v Crown Prosecution Service  1AC 1046,  UKHL 30; and Green  1 AC 1953,  UKHL 30. Of particular potential relevance for present purposes is Jennings.
- In Jennings, an advance fee fraud was carried on through the medium of a limited company called UK Finance (Europe) Limited over a period of 9 months. The sole director and sole shareholder was a Mr Phillips. He, with others, pleaded guilty to the fraud. Jennings was neither a director nor a shareholder: he was an employee, albeit alleged by the prosecution to be a "prime mover" in the conspiracy. (Jennings was in the event ultimately convicted after a trial.) In restraint proceedings brought prior to the trial under the legislation preceding the 2002 Act Jennings had argued that his benefit was confined to his salary and related payments and that it should not be assessed by reference to the total amount of money obtained in the name of the company by the alleged fraud. He thus had opposed the making of a restraint order over all his assets pending his trial. The matter arrived in the House of Lords after the trial. Under the heading "Piercing the corporate veil" the committee, in an opinion delivered by Lord Bingham, said this at paragraph 16:
"16. In the ordinary way acts done in the name of and on behalf of a limited company are treated in law as the acts of the company, not of the individuals who do them. That is the veil which incorporation confers. But here the acts done by the appellant and his associate Mr Phillips in the name of the company have led to the conviction of one and a plea of guilty by the other. Thus the veil of incorporation has been not so much pierced as rudely torn away. The crux of the appellant's case, moreover, is that the prime mover in the company was Mr Phillips, not himself, a case which can only be explored by examining the internal management of the company, an examination inconsistent with the treatment of the relevant acts as those of the company. There is no merit in this point."
- Mr Medland placed reliance on this passage. Mr Knowles disputed its importance for the present case, as we shall come on to explain.
- Mr Knowles cited to us the decision of a constitution of this court in Xu  EWCA Crim 2372. In that case, the two appellants ran a restaurant business through a limited company, of which each was a 50% shareholder. It was established that three of the company's employees were illegal immigrants, to the knowledge of the appellants. They were convicted of immigration offences accordingly. It was accepted that the business would have been viable even without use of these illegal immigrants, albeit at reduced capacity and, no doubt, reduced profit. The trial judge, for the purposes of the confiscation proceedings, treated the entire proceeds of the business as the benefit of the appellants resulting from the criminality.
- In an ex tempore judgement of the court delivered by Toulson LJ it was accepted that the question was "essentially one of fact." It was held that it was not realistic or just to conclude that the entirety of the receipts from each customer flowed from the employment of the illegal immigrants. Nevertheless, and in the absence of better evidence, it was decided that one–quarter of the receipts of the business over the relevant period came from the employment of the three illegal immigrants. That was the benefit figure substituted, as so calculated, and it represented the amount of the confiscation orders.
- What is not altogether clearly explained in Xu, with respect, is how one - quarter of the receipts which ostensibly were to be attributed to the company came to be attributed to the appellants as individuals. But the point was specifically addressed in the important case of Seager & Blatch, as we mention below.
- Mr Knowles also referred us to and relied on the case of Grainger  EWCA Crim 2506. In that case, in fact decided the day before Xu, the appellant was convicted of a number of counts of fraudulent trading. He had knowingly been party, with others, to carrying on the business of a company - in the face of looming liquidation - to obtain payment from a bank on fraudulent invoices presented under an invoice discounting facility.
- The company (more accurately, a group of companies) was controlled by a man called Prudhoe. The appellant, Grainger, held a 5% shareholding and was the group finance director. As group finance director, he received a salary, expenses and other benefits. The prosecution invited the court to calculate benefit in a pro-rata amount (equally with the other accused) of the total sums dishonestly obtained from the bank. The trial judge acceded to that, finding that the appellant had "joint control", with Prudhoe at the head, and "joint and fully active responsibility". In an ex tempore judgment, again delivered by Toulson LJ, the Court of Appeal rejected that conclusion. It was stated that "it is necessary to examine what in reality the offender obtained." It was held that the "true nature" of the benefit which Grainger obtained was the benefit from his continued employment by a company which otherwise would have gone into liquidation. But the trial judge had never valued the benefit on that basis, and so had erred. In the course of giving the judgment of the court, Toulson LJ also said this:
"14. The moral is that in such cases it is essential, first, for the prosecution and then for the judge to look to see what real benefit the offender has obtained and to examine the evidence relating to it in order to arrive at a fair valuation. In our judgment, there is no obvious or indeed logical link between the benefit which the judge described and a twelfth share of the sums obtained by the companies.
15. The confiscation order based on treating the payments by the banks to the companies as equivalent to payments to the appellant cannot, in our judgment, stand. It should not be thought that it follows from this that offenders can shelter behind companies with impunity. If an offender chooses to use a company as a shield to hide his benefits from crime, it is open to the court to look behind the corporate veil in order to ascertain the true position. Again, it is necessary in each case for the prosecution in the first instance and then the judge to examine the facts in order to see what benefit the offender has in truth obtained and how it should be valued."
- The next case to which we were referred is the case of Seager & Blatch  EWCA Crim 1303 itself. That was a case where a constitution of this court had to consider whether individuals who, in two separate cases, had acted as directors of companies when disqualified under the Company Directors Disqualification Act 1986 had obtained benefit, for the purpose of confiscation proceedings, in an amount equating to the relevant company's turnover. It was held that they had not.
- The court considered a number of authorities, including Xu and Grainger. The court was evidently puzzled - and, if we may say so, with some reason - by the approach taken in Xu: in that one analysis of the reasoning in that case would suggest, as Aikens LJ put it, a failure to take into account "the basic legal distinction between the legal entity which is the company and its shareholders" and that "the property of the company is not the property of its shareholders" (paragraph 54). The court concluded that the court in Xu must have decided that the appellants had used the company as a shield to hide benefits from crime, thereby enabling the court to "look behind the corporate veil to ascertain the true position". That certainly provides some kind of juridical explanation for the decision in Xu. But, we have to say, it is not altogether easy to align with the facts of Xu: where the company was, so it seems, operating a legitimate restaurant business to which the employment of illegal immigrants was but an ancillary, albeit profit enhancing, part. It also, in terms of apportioning one-quarter of the company's turnover between the two appellants, perhaps may not be altogether easy to fit with the provisions of s.76(6) of the 2002 Act. It may be that the decision in Xu is in reality to be explained, in the absence (as the court there stressed) of adequate evidence and at a time when no power to remit to the Crown Court was available, by the adoption of a purely rough and ready (and pragmatic) basis by reference to a proportion of the company's turnover.
- Be that as it may, the court in Seager & Blatch engaged in an extensive review of the authorities and statutory provisions and of the competing arguments. Having done so, it said this at paragraph 76:
"76. There was no major disagreement between counsel on the legal principles by reference to which a court is entitled to "pierce" or "rend" or "remove" the "corporate veil". It is "hornbook" law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders: Salomon v A Salomon & Co Ltd  AC 22; referred to by Rose LJ in Re H and others (restraint order: realisable property):  2 All ER 391 at 401F. A court can "pierce" the carapace of the corporate entity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not just the form. In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced. First if an offender attempts to shelter behind a corporate façade, or veil to hide his crime and his benefits from it: see Re H and others, per Rose LJ at 402A; Crown Prosecution Service v Compton and others  All ER (D) 395,  EWCA Civ 1720, paragraph 44 – 48, per Simon Brown LJ; R v Grainger, paragraph 15, per Toulson LJ. Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender's conviction, then "the veil of incorporation is not so much pierced as rudely torn away": per Lord Bingham in Jennings v CPS, paragraph 16. Thirdly, where the transaction or business structures constitute a "device", "cloak" or "sham", ie. an attempt to disguise the true nature of the transaction or structure so as to deceive third parties or the courts: R v Dimsey  QB 744 at 772 (per Laws LJ), applying Snook v London and West Riding Investment Ltd  2 QB 786 at 802, per Diplock LJ."
- The court went on to allow the appeals of the individual appellants. In doing so, it placed emphasis on the fact that in each case the company had not been used for any illegal purpose from which the respective appellants themselves benefited. The companies were "legitimate legal entities" carrying on a "legitimate business" (paragraphs 78, 79 and 83). It was further pointed out in paragraph 80, May being cited for this purpose, that while legal ownership connotes a power of disposition or control the "converse is plainly not the case": a power of disposition or control does not necessarily mean the person having such power is an owner. The court went on to hold that, in the circumstances of those cases, neither Mr Seager nor Mr Blatch owned the assets of the respective companies. The companies did. It may also be noted that Mr Blatch, at least, had been sole ultimate shareholder and effectively controlled the companies in question of which he had acted as a director.
- That brings us to the case of Prest. The essential issue there was whether the corporate veil could be pierced or disregarded for the purposes of an ancillary relief application in matrimonial proceedings, in circumstances where the husband was sole shareholder of a number of companies holding valuable properties. It seems that at that time many judges of the Family Division, in part basing themselves on s. 24 of the Matrimonial Causes Act 1973 and by reference to what were said to be "the realities", had considered that they had power in cases of this kind to disregard the corporate veil in order to achieve justice for the claimant spouse. One can have an amount of understanding for that approach: in the striking phrase of Thorpe LJ in the Court of Appeal (at paragraph 63) the contrary approach, on one view, could present "an open road and a fast car" to a spouse anxious to avoid a swingeing award.
- But the majority of the Court of Appeal, and the Supreme Court unanimously, would have none of it. Whilst in the result the Supreme Court reached a conclusion in favour of the wife, it did so on the footing that the various properties were, on the facts, held by the companies on trust for the husband; and so, by that route, could be brought into account in the ancillary relief proceedings. But the basic principle of Salomon was most emphatically affirmed in this context.
- It is of note that in their judgments Lord Sumption and Lord Neuberger – referring to what they considered were the rather imprecise formulations in previous cases where "piercing" the corporate veil had been discussed and also referring to academic comment and criticism – considered whether there should be any doctrine of piercing the corporate veil at all. In the result they concluded, as did all the other members of the court, that there should be. But it was emphasised that the power to "pierce" the corporate veil was "limited". It was also said, by Lord Mance and by Lord Clarke, that situations giving rise to piercing the corporate veil as a fall-back were likely to be "rare" or "very rare".
- The principal judgment was given by Lord Sumption, with whose reasoning on piercing the corporate veil Lady Hale and Lord Wilson agreed (paragraph 96), as did Lord Mance (paragraph 97) and Lord Clarke (paragraph 103).
- The judgment of Lord Sumption contains a very full review of the nature of the doctrine and of the authorities and a close analysis of the principles properly to be extracted from them: see paragraphs 16 to 35 of his judgment. In paragraph 27 he said this:
"In my view, the principle that the court may be justified in piercing the corporate veil if a company's separate legal personality is being abused for the purpose of some relevant wrongdoing is well established by the authorities…."
In paragraph 28 he then identified two principles underlying the frequent references in the cases to piercing or disregarding the corporate veil where the company was said to be a "facade" or a "sham". He said this:
"28. The difficulty is to identify what is a relevant wrongdoing. References to a "facade" or "sham" beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the "facade", but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. This may be illustrated by reference to those cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil."
- After a review of those further authorities and after making reference to "the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality", he said this at paragraph 35:
"I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. I therefore disagree with the Court of Appeal in VTB Capital who suggested otherwise at para 79. For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy."
- Agreeing as to the outcome, Lord Neuberger, in the course of his judgment, said this at paragraph 61:
"I also agree that cases concerned with concealment do not involve piercing the corporate veil at all. They simply involve the application of conventional legal principles to an arrangement which happens to include a company being interposed to disguise the true nature of that arrangement. Accordingly, if piercing the corporate veil has any role to play, it is in connection with evasion"
Whilst not disagreeing with Lord Sumption, other members of the court were somewhat disinclined to accept the overall doctrine as necessarily limited to situations of "concealment" or "evasion": whilst regarding it as neither necessary nor appropriate to identify any wider principle. It is, at all events, to be noted that the Supreme Court concluded that the ownership of the properties was not to be attributed to Mr Prest under the concealment principle, on the facts of that case.
- In the context of confiscation proceedings the issue of lifting or piercing the corporate veil was then raised before a constitution of this court in Sale (cited above), which was decided shortly after the decision in Prest.
- In Sale the appellant was sole shareholder and sole director of a company (which, as it happened, included his name in its own corporate name). The company had been incorporated in 2004 for the legitimate purpose of providing service and maintenance support to large organisations. It had many employees, had a very substantial annual turnover of nearly £10 million and traded with a wide range of reputable companies. It was, as found, a "legitimate business" (paragraph 12). However, between 2006 and 2008 Sale offered bribes and inducements to an employee of Network Rail in order to secure contracts from that particular organisation. Over £2 million worth of ensuing contracts were invoiced and some £1.9 million paid by Network Rail to the company. In due course he pleaded guilty to corruption. In the ensuing confiscation proceedings the criminal lifestyle provisions were not invoked.
- A confiscation order was made in the sum of £1.9 million, representing the sums received from Network Rail. It had been argued, however, by leading counsel on behalf of Mr Sale that the corporate veil should not be lifted or pierced. The company was not a sham: it had a legitimate business. The contracted work had been carried out and Network Rail had in fact received full value. The appellant had in no way hidden behind the company to carry out his crimes. In such circumstances, it was argued, the benefit obtained by Mr Sale was limited to his personal benefit; representing increased salary and dividends and so on, appropriately apportioned: this amounting to a sum of £125,000. The arguments of leading counsel appearing for Mr Sale, as recorded in paragraphs 16, 22 - 24 and 31 of the judgment of the court delivered by Treacy LJ, in many ways replicate the arguments of Mr Knowles before us. Leading counsel in that case had, however, accepted that the matter was one of "fact and degree" in each case (paragraph 25): a point Mr Knowles, whilst querying the word "degree", himself accepted.
- The court in that case cited with broad approval paragraph 76 of Seager & Blatch which we have set out above. It however suggested that in the light of Prest the fifth sentence might be better adjusted so as to read:
"In the context of criminal cases the courts have identified at least three situations when a benefit obtained by a company is also treated in law by POCA as a benefit obtained by the individual criminal."
- At paragraph 39, the court rejected the idea that the case fell within Lord Sumption's evasion principle. But it held that it came within the concealment principle. The court said this (at paragraph 40):
"We do, however, consider that in the circumstances of this case the effect of POCA is that this matter falls within the concealment principle. Thus, we accept the Crown's argument, rather than that put forward by Mr Goose, who himself accepted that the matter was one of fact and degree. In the circumstances of this case, where the Appellant was the sole controller of the company, and where there was a very close inter-relationship between the corrupt actions of the Appellant and steps taken by the company in advancing those corrupt acts and intentions, the reality is that the activities of both the Appellant and the company are so interlinked as to be indivisible. Both entities are acting together in the corruption."
- Having so stated, the court held that it was "entitled to look to see what were the realities of this Appellant's criminal conduct" (paragraph 43). The court went on to draw this conclusion (at paragraph 45):
"Applying the provisions of Sections 76(4) and (5), it seems to us that Section 76(4) is apt to capture the whole of the invoices paid (about £1.9 million) as benefit obtained as a result of or in connection with the admitted criminal conduct."
Although the court does not spell it out, it is plainly to be inferred that it found that the £1.9 million was to be regarded for confiscation purposes as having been obtained by Mr Sale personally. The court then went on to deal with issues of pecuniary advantage and proportionality: issues which have not been raised before us on the present appeal. It may be noted that, in applying principles of proportionality, the court in fact then reduced the amount of the confiscation order very significantly indeed.
- The final authority to which we were referred was that of McDowell  2 CAR(S) 14,  EWCA Crim 173. The decision involved some important points relating to cases involving statutory, or "regulatory", offences: points which have also not been raised in argument on this appeal. In each of the two cases before the court on that appeal (relating to Mr McDowell and Mr Singh) the individual who had been convicted and made the subject of confiscation proceedings had been sole director and shareholder of the company in whose name the unlawful acts had been committed.
- The arguments of the appellants in that case about lifting or piercing the corporate veil followed a familiar pattern. The court observed that there was a need to identify the capacity in which a defendant had received the proceeds of crime (paragraph 36). It was among other things then said that:
"Examination of true ownership or control of property is the bread and butter of confiscation proceedings, although it is correct to say that judges frequently speak of lifting or piercing the corporate veil when doing so" (paragraph 40).
The court then went on to cite paragraph 16 of Jennings, saying that it was:
"…powerful authority for the proposition that when a company is manipulated for the purposes of fraud the court will not be restrained by the knowledge that in law the fruits of the fraud were received by the company. The corporate veil will be lifted for the purpose of ascertaining who was in control and who "obtained" the benefit."
Jennings was in fact regarded as a "classic case" of the concealment principle (paragraph 41).
- In the case of Mr McDowell the court expressed its conclusion on "lifting" the corporate veil in this way at paragraph 55:
"We do not consider that it is necessary to lift the corporate veil to ascertain whether and to what extent the appellant has benefited. The appellant did not attempt to hide his trading behind the cloak of his company, Wellfind, or seek to evade responsibility for his criminal acts by interposing the company between himself and those criminal acts. He was, however, the company's sole controller. As the judge put it he was the alter ego of the company. He used it openly as his trading vehicle in these transactions. We agree with the court in Sale that the Crown Court was entitled to examine the receipts and profits of the company for the purpose of ascertaining the benefit obtained from the criminal conduct of the appellant personally. He was the beneficial owner. The court would be justified in treating the company's receipts as the appellant's benefit subject to the issue of proportionality."
The like conclusion as to receipts was indicated as one that would have been also made with regard to the appellant Singh: "since he also was the sole controller of his trading company" (paragraph 63).
Judgment of Judge Hughes QC
- The (reserved) decision of the judge was thorough and careful.
- He set out the background in detail. He reviewed the authorities fully. The core of his reasoning is contained in paragraphs 57-59 of his judgment. After citing paragraph 76 of Seager & Blatch (as adjusted by the court in Sale) the judge expressed these conclusions:
"57. In my view this is a case which falls fair and square into second situation. Patrick and Mark ran the company. They were its operating minds. They operated the fraud and directed the drivers to falsify their tachograph records. Neil was also prosecuted but the prosecution decided not to proceed against him when Patrick and Mark pleaded guilty as he was not directly involved with the drivers in the operation of the business. The other shareholders, Patrick's wife, and John, played no active part in the running of the business. It would be wrong if their presence as shareholders prevented the court from looking at the legal substance and not just the form, and examining the realities of the situation.
58. To hold otherwise would provide a charter for fraudsters to channel their dishonest profits through a company and protect them from confiscation by ensuring that a minority of the shares were held by close family members. As Lady Hale said in Prest the fundamental principle is that individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business.
59. It follows, in my judgment, that in the confiscation proceedings, the prosecution rightly sought to include the benefit to the company. Counsel representing Patrick and Mark was right not to challenge the principle but only the quantification."
- He then went on to reject the genuiness of the transfer of assets from the Old Company to the New Company: a conclusion from, which as we have said, there is no appeal. He accordingly proceeded to appoint an enforcement receiver extending to identified assets of the New Company (comprising vehicles and trailers) pursuant to the powers conferred by sections 50 and 51 of the 2002 Act.
- In such circumstances the respective arguments before us predictably followed those advanced below.
- Mr Knowles' arguments, deployed in careful and thoughtful written and oral submissions, in essence were these. The Old Company was established as a legitimate company, carrying on a legitimate business: road haulage. It had substantial assets and many employees, all deployed for that legitimate purpose. True it was that business had been carried on, in a very significant way, in breach of the relevant Regulations. But that did not justify disregarding or piercing the corporate veil. The Old Company was not an "alter ego" company on any view: it was not within the concealment principle. Nor had the Old Company been established or operated in a way coming within the evasion principle. In the circumstances of this case it was a negation of well settled company law principles, as confirmed in Prest, and indeed a negation of realities to equate the turnover obtained by the Old Company with benefit obtained by Patrick and Mark Boyle and to designate assets held by the Old Company as assets held by Patrick and Mark Boyle. That they were the "operating minds" did not mean that they were the owners. The judge had placed too much emphasis on the wrongdoing and not enough emphasis on the actual benefit they as individuals had obtained.
- He further submitted that cases such as Sale and McDowell could be distinguished on the facts: not least (although not only) because here the two directors who had been convicted were not the sole shareholders in the company. That did not mean, he made clear, that the two Boyles had not obtained a benefit: they had. But that benefit should have been assessed – but had not been assessed by the Judge - by reference to the extra renumeration, dividends and any other benefits or pecuniary advantages accruing to them personally, occasioned by the enhanced profitability and competitive advantage of the Old Company by reason of it being operated in this illegal way. The assets of the Old Company likewise were not realisable assets of Patrick and Mark Boyle: just because they belonged to the Old Company. In all the circumstances, there was simply no principled basis for the application in this case of the doctrine of lifting or piercing the corporate veil.
- For his part, Mr Medland submitted that the judge's findings and conclusions should be respected. He urged this court to look, as the judge had looked, to what Mr Medland said were the "realities" of the matter and urged that this court should not be diverted by labels or by what he styled "niceties of company law". The separate status of a limited company conferred by company law was, he forcefully said, designed for the protection of legitimate commercial enterprise: not commercial enterprise which was operated illegally. He relied on Lady Hale's observation in Prest, at paragraph 92, that the concealment principle and evasion principle "may simply be examples of the principle that individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business."
- Mr Medland accepted in argument that, in the circumstances of this case, he could not say that the Old Company was an alter ego for Patrick and Mark Boyle. But they, as found, were the "operating minds". He said that the court should apply, as the Judge had applied, the second "situation" identified in paragraph 76 of Seager & Blatch, as approved (with minor revisions) by this court in Sale. He acknowledged that Sale was a different case on its facts – not least because Mr Sale was sole director and shareholder. But, as against that, the proportion of illegally obtained business as compared to legitimate business in Sale was, he observed, less than the proportion of illegally tainted business as compared to legitimate business of the Old Company. Whilst not maintaining that this was an alter ego company, he also asked rhetorically: what was this company without Patrick and Mark Boyle? Thus the (agreed) approach taken at the time the confiscation orders were originally made on 25 March 2013 had, he submitted, been justified.
Discussion and disposition
- In our view, a consideration of the facts as set out in the judge's judgment as summarised above and a consideration of the case law as summarised above provide the answer to this appeal. That answer is to the effect that it is not justified to treat the turnover of the Old Company, or the major part of it, as benefit obtained by Patrick and Mark Boyle individually; and it is not justified to treat the assets of the Old Company (and hence of the New Company) as realisable property of Patrick and Mark Boyle individually. To conclude otherwise would involve an unjustified departure, on the facts of this case, from established principles of company law and an unjustified application of the doctrine of lifting or piercing the corporate veil. We consider that Mr Knowles' arguments are, in their essentials, correct.
- Two initial points need to be made:
(1) The fact that the original confiscation orders were made by consent is no bar to the present arguments of the New Company: which was not even a party or represented on the earlier occasion. That point was rightly accepted by the Judge. It was and is not disputed before us.
(2) No argument had or has been sought to be raised, either below or before us, on proportionality by reference to the decision of the Supreme Court in Waya  1 AC 294,  UKSC 51, and as now reflected in the 2002 Act as amended. Nor has there been any argument raised that the conduct in question - which, in fundamentals, involved abuse of the relevant drivers' hours and working time Regulations, although we note that the charge in fact was one of criminal conspiracy - was not criminal conduct of a kind which could attract a confiscation order (as in the example of Mr Singh in McDowell).
Relevant wider considerations
- While all such cases ultimately are fact specific, the reasons for our conclusion to an extent rest on a number of different, albeit overlapping, general propositions, some negative and some positive. It may be that hereafter Crown Courts will wish to take into account these general propositions – although they are not put forward by us as an exhaustive list of relevant considerations - in any confiscation case where an issue of lifting or piercing the corporate veil is raised.
- (1) First, the test is not simply one of "justice". So vague an approach would be unprincipled and would give rise to great uncertainty and inconsistency in decision making. That that is so as a proposition is evidenced by the decision in Salomon and by the statements of principle to like effect in cases such as Seager & Blatch (at paragraph 76) and Prest itself. In this regard Mr Medland had relied, as we have said, on the statement of Lady Hale in Prest set out above. But it is clear that Lady Hale was not purporting to set out a definitive legal test governing this kind of case (which would, indeed, otherwise come close to reintroducing some kind of legal test of "justice"). Rather, she was explaining the rationale for why there is a doctrine of piercing the corporate veil at all.
- (2) Second, a Crown Court is of course required in each case to assess the "reality of the matter". That is central. But that cannot be permitted in itself to confer a licence on a court to depart from established principles relating to the separate legal status of a limited company. Were it otherwise, courts would simply be circumventing the prohibition on deciding issues relating to the corporate veil through invoking the notion of "justice" by resorting to a different label, namely the "reality of the matter." That is not in itself permissible. The realities are of course essential matters to be taken into account: but they do not of themselves provide some principle. Indeed, as Mr Knowles himself forcefully submitted, the realities often will indeed be supportive of a conclusion that the corporate veil should not be lifted. He in fact would say, and did say, that this is just such a case.
- (3) Third, it is essential to bear in mind the principle that the confiscation process under the 2002 Act is not of itself aimed at punishment. On the contrary, it is aimed at recovery of benefit: to ensure that criminals do not retain for themselves their ill-gotten gains. As stated by Lord Bingham in Jennings at paragraph 13:
"The rationale of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent. He cannot, and should not, be deprived of what he has never obtained or its equivalent, because that is a fine. That must ordinarily mean that he has obtained property so as to own it….. "
Necessarily judges in confiscation cases are dealing with persons who have been criminally convicted after a trial or on a plea. But appropriate punishment for the criminality is to be addressed and will have been addressed by the sentence. That punishment is not thereafter to be, as it were, topped up by the confiscation process.
- . (4) Fourth, it can be taken as confirmed by Prest that the actual principles relating to the doctrine of lifting or piercing the corporate veil in the confiscation context are the same (albeit always, of course, to be applied on a fact and circumstance - specific basis in each case) as in the civil courts.
- . In this regard, it is true that the Supreme Court in Prest did not consider any of the cases arising in the criminal law context of confiscation. None of them had been cited to the Supreme Court. But that is not material. The judgments were evidently of general application. The principal issue in that case was whether the Family Division (which in broad terms, it can be said, is a heavily discretion based jurisdiction) was entitled, whether by reference to section 24 of the Matrimonial Causes Act 1973 or otherwise, to adopt an approach to lifting or piercing the corporate veil in a way which would not be sanctioned in, say, the Chancery Division. It was held that it could not. The same must, in our view, apply to the Crown Courts. In fact it is a fortiori: the Crown Court has no inherent jurisdiction of its own and the 2002 Act itself contains no provision purporting to sanction a departure from ordinary principles of company law. Accordingly a proper adherence to principles of company law, as enjoined by this court in Seager & Blatch and as accepted in Sale, is to be taken as confirmed as applicable in confiscation proceedings.
- It also follows that Crown Courts in confiscation cases should treat with a degree of circumspection, when an issue of lifting or piercing the corporate veil has been raised, tempting invitations to adopt a "robust" or "broad brush" approach and tempting invitations to avoid being distracted by "niceties". Of course such arguments have their attractions - that is why they are advanced. But such arguments should not be permitted to distract attention away from the proper application of correct legal principles in this field.
- It may be said that, contrary to the general observations and expectations of some of the members of the Supreme Court in Prest, the piercing of the corporate veil in confiscation cases in the Crown Court has not, historically, been "rare", let alone "very rare", even if not common. That may be so. But that can justify no argument that the relevant principles are somehow different in confiscation cases. In any event, we think there are clear explanations:
(i) First, in reality in many of the cases of confiscation proceedings in the Crown Court the equation of the company with the criminal individual or individuals has been agreed. (For example, in the recent case of Harvey  UKSC 73 it had been conceded in the Crown Court that the company had been the alter ego of Mr Harvey.) The arguments thus have often solely been directed to whether the benefit should be the turnover or gross profits or net profits or some pro rata share of them and so on. No point on lifting or piercing the corporate veil has even been argued.
(ii)(a) Second, and doubtless explaining just why the point is often agreed, the reality is that in the Crown Courts – as in many other courts – the phrase "piercing" the corporate veil had been used broadly without focusing precisely on the two concepts of concealment and evasion as have now been identified by Lord Sumption in Prest. One must not forget the obvious point that the context of confiscation proceedings under the 2002 Act is always criminal. That, in factual terms, is a context very different from Salomon and is very different also from many of the reported decisions on lifting or piercing the corporate veil: although as it happens two of the most famous earlier cases in the field - Gilford Motor Co. Limited v Horne  Ch 935 and Jones v Lipman  1 WLR 332 - were not even cases of dishonesty as such (as opposed to unconscionable sharp practice) at all. It is that criminal context which is capable of explaining why, in an appropriate case in confiscation proceedings, the involvement of a limited company quite frequently can, on the facts, be described as a mere facade or sham. The companies in such cases are properly treated as alter egos, or agents, of their criminal controllers. Many of the cases of this kind thus are clear examples of Lord Sumption's concealment principle and do not involve, in the sense explained by by Lord Sumption, "piercing" the corporate veil at all: and it is that latter doctrine which is the one of "limited" and "rare" application.
b) Examples of lifting the corporate veil, in the sense of applying the concealment principle, are not at all difficult to find in this criminal context. For instance, that approach would, in appropriate circumstances, be capable of applying to a limited company ostensibly set up to carry on a fruit importing business and which does carry on such a business but where the true purpose in operating the company is to use it as a front to smuggle in cocaine hidden in boxes of oranges. Likewise, where the purpose of operating the company is to use it as a means to carry out money laundering or tax or duty evasion or fraudulent trading. That in fact was precisely the case in Jennings and, as Mr Knowles pointed out, is the context for Lord Bingham's trenchant remarks at paragraph 16 of his opinion in that case. As the court said in Seager & Blatch itself (at paragraph 78), the company in Jennings was a vehicle to carry out the fraud and the corporate structure was effectively a sham; in other words it was an example of the concealment principle. A further familiar example is the deployment of a limited company in a missing trader, or carousel, VAT fraud – in fact that particular example may also fall within both the concealment principle and the evasion principle. As Lord Sumption had himself observed, there will be cases where the concealment principle and evasion principle are both involved.
- (5) Fifth, regard should be had to the nature and extent of the criminality involved. We think that the approach taken by the court in the case of King (Scott)  2 CAR(S) 54,  EWCA Crim 621 is informative. That was not, it should be said, a case itself concerning the doctrine of lifting or piercing the corporate veil: the question for decision, in the context of arguments on proportionality, was whether the benefit of an individual should be equated with the turnover or with the net profits of his (unincorporated) business. But, in that context, in the course of his judgment Fulford LJ said this at paragraph 42:
"The authorities reveal there is a clear distinction to be drawn between cases in which the goods or services are provided by way of a lawful contract (or when payment is properly paid for legitimate services) but the transaction is tainted by associated illegality (e.g. the overcharging in Shabir or the bribery in Sale), and cases in which the entire undertaking is unlawful (e.g. a business which is conducted illegally, as in Beazley). When making a confiscation order, the court will need to consider, amongst other things, the difference between these two types of cases. It is to be stressed, however, that this divide is not necessarily determinative because cases differ to a great extent, but it is a relevant factor to be taken into account when deciding whether to make an order that reflects the gross takings of the business."
In our view, this sort of consideration, whilst not of itself determinative, is also likely to be relevant where an issue of lifting or piercing the corporate veil is raised in confiscation proceedings.
- (6) Sixth, even where a company mixed up in relevant wrong doing is solely owned and solely controlled by the (criminal) defendant that does not of itself always necessitate a conclusion in a confiscation case that it is an alter ego company, whose turnover and assets are to be equated with being property of the defendant himself. We will come back to this point later in this judgment.
- (7) Finally, all such decisions in the context of confiscation proceedings must be geared to the facts and circumstances of the particular case.
- Moving on then from those general propositions to the decision in this particular case, it cannot be said that the Judge did not have regard to the legal authorities. At no stage did he (wrongly) dismiss such matters as mere niceties or fail to address the approach required in law. Thus it is that Mr Medland submitted that the judge was entitled to come to the conclusion that he did: and that this court should not interfere.
- The point is as attractive as it is simple. But, as will be gathered, we are not able to accept it.
- The Judge was not in an altogether easy position. The original confiscation orders had been made by consent. At the subsequent hearing of the application for the appointment of the enforcement receiver neither Patrick nor Mark Boyle was represented by counsel. In fact we were told that they had not objected to the appointment of a receiver (no doubt calculating that this was the only means by which their confiscation orders could be discharged and so avoid triggering their default sentences). As we gather, the actual evidence adduced at that hearing related primarily, if not solely, to the genuineness of the transfer of assets from the Old Company to the New Company.
- The Judge, at all events, in lifting or piercing the corporate veil did not in terms state that he was applying the concealment or evasion principle, albeit seemingly basing himself in substance on the concealment principle. He based his decision "fair and square", as he put it, on the second "situation" set out at paragraph 76 of Seager & Blatch (as slightly revised in Sale). In doing so, he clearly considered that the fact that Patrick and Mark Boyle were the "operating minds" was of paramount importance. He also plainly was influenced by the fact that other shareholders, in particular Mary and John Boyle, played no active part in the business.
- We think, with all respect, that he was wrong in his approach. It cannot be determinative that Patrick and Mark Boyle ran the company and were the "operating minds". On the contrary, they were the sole, legally appointed, directors. They were, in substance, executive directors, with very wide general powers and duties. As such directors, it was their delegated responsibility to operate the day to day affairs and business of the Old Company (although of course they had no authority to do so unlawfully). Under the companies' legislation and conventional Memoranda and Articles of Association shareholders, generally speaking, have no right, as shareholders, to involve themselves in such matters: their ultimate control rests on their voting powers at company meetings. So to say, in the context of this case, that Patrick and Mark Boyle were the "operating minds" simply does not carry the almost conclusive force which the judge seems to have ascribed to it.
- Moreover, while Mary and John Boyle played no active part in the business their status as shareholders could not be ignored on that account. There was, as we have said, no evidence or finding that they were mere nominees for Patrick and/or Mark Boyle. Further, Neil Boyle, also a shareholder, was actively involved in the business; and his position as shareholder could not be ignored, as the judge seemed to think, simply because he too had been prosecuted: in circumstances where the case against him had been dropped and a verdict of not guilty been directed.
- The position can also be tested in this way. On the Judge's conclusion, the turnover of the Old Company and the assets of the Old Company were to be attributed to Patrick and Mark Boyle personally. If that is so, the potential implication is that, after paying off all its creditors, they would have been free, if they so chose, if they so chose, to take all the assets of the Old Company for themselves with no right of redress, by unfair prejudice proceedings or otherwise, available to Mary, John or Neil, the minority shareholders. That, in the absence of a finding that they were mere nominees, seems improbable.
- The position can also be tested in other ways. If the Judge is right, then creditors of the Old Company potentially might have a possible claim for unpaid liabilities incurred in the name of the Old Company against Patrick and Mark Boyle individually, applying principles of the law of principal and agent: without having to avail themselves of the usual remedy of securing the liquidation of the company and appointing an independent liquidator with wide statutory powers of recovery, for the benefit of all creditors, against errant directors. Further, if the Judge is right creditors of Patrick and Mark Boyle as individuals likewise potentially might have a possible claim against the assets held in the name of the Old Company in order to pay off Patrick and Mark Boyle's debts incurred as individuals.
- In our view, with respect, what the Judge seems to have thought were "the realities of the situation" did not, on the evidence before him, justify his conclusion. He thought that such a conclusion represented the legal substance and not the form. We do not agree. In our view, in fact, on the evidence available the form here was the substance. The Old Company was properly set up as a limited company to carry on the existing Boyle family business and, indeed, under the Boyle family name. It was no sham. It was set up for a legitimate purpose – road haulage. Its substantial operations and assets were used for that purpose. That was its sole activity, over a long period.
- Further, there was no finding that the Old Company would not have been viable in the absence of its persistent breach as of the relevant Regulations and of its associated destruction of records and tampering with tachographs. Although such a suggestion was mooted in the section 16 statements, it apparently was not pursued. On the contrary, even after the illegalities had been identified (and thereby, it is to be inferred, ceased) the Old Company continued to have a substantial turnover, as the first section 16 statement noted, even if with significantly decreased profit ratios. That it continued to be a viable business is further borne out by the very fact of the transfer, for a sizeable stated sum, to the New Company, which then in turn carried on the business.
- As we have said, Mr Medland accepted, in the course of his argument, that on the evidence here the Old Company was not to be regarded as an alter ego of Patrick and Mark Boyle. We agree. Nor, as we consider, is this case an example of the evasion principle. Overall, we conclude that, on the facts, no case either for lifting or for piercing the corporate veil was made out.
- The judge had, as appears from his judgment, essentially based himself on the second "situation" identified in paragraph 76 of Seager & Blatch. We have reservations about this as an approach. Such a "situation", as there identified, is not to be taken out of context and cannot, in our view, be taken to identify some further free–standing wider legal principle whereby the court will always lift or pierce the corporate veil. That would be inconsistent with established principles of company law which Seager & Blatch itself had been at pains to affirm and inconsistent with the approach taken in Prest. It would also not be readily consistent, as Mr Knowles pointed out, with the outcome in cases such as Grainger and not readily consistent with the approach of the court in Seager & Blatch itself as to the previous case of Xu. One can also think of other examples, ostensibly coming within the literal wording of this second "situation", involving illegal and unauthorised acts by, say, an employee of a reputable company. For instance, if a financial trader employed by a large and reputable company engages without authority in criminal trading activities generating large profits for the company (the motive being a hoped-for massive bonus for the trader) is it really to be said that the entire gross profit booked in the name of the company arising from that trading is invariably to be treated, in confiscation proceedings against the trader, as the benefit of the trader? It is, in fact, also revealing in itself that in formulating the second "situation" the court in Seager & Blatch referred to the decision in Jennings: just because Jennings was a case where the entire company was a sham, existing and operating solely for the purposes of carrying out the advance fee fraud. That indicates what the court had in mind in formulating the second "situation" – in effect, an acknowledgment of the concealment principle.
- It follows that the second "situation" there identified is not to be regarded as a self-contained or free- standing further principle and the Judge was wrong to treat it as such. Putting it another way, and whilst we would not regard the first and third "situations" identified in paragraph 76 of Seager & Blatch as likely to be at all controversial, we think that paragraph 76 of that decision, as revised in Sale, may be further revised, in the aftermath of Prest, by further adjusting the preface as follows:
"In the context of criminal cases the courts have identified at least three situations when a benefit obtained by a company may, depending on the facts, also be treated in law by POCA as a benefit obtained by the individual criminal…."
This may, we accept, seem to be blander than the original formulation. But we think that such further revision reflects the essential need to focus on the whole facts and circumstances of each case.
- We should also add that it is noticeable that the actual decision of the Court of Appeal in Sale itself was not founded on any purported application of the second "situation" identified in Seager & Blatch as some kind of governing principle. On the contrary, the decision in that case, by reference to its facts, was in terms founded on an application of the concealment principle. As such, it is in accord with the approach indicated in Prest.
- For these reasons we consider that the decision of the Judge to appoint an enforcement receiver over the assets of the New Company was wrong; and we set aside his order in this regard.
"One man" companies
- We add some further observations on the sixth general proposition identified by us in paragraph 96 above. We do so in the light of the cases of Sale and McDowell; since this may have a bearing on the approach to be adopted by Crown Courts in confiscation cases in the future.
- In Sale, it will be recalled, the company of which Mr Sale was sole shareholder and director had been for a number of years established for, and operated as, a legitimate business purpose. It achieved an annual turnover of around £10 million, with many customers; and the only corrupt aspects of Mr Sale's latter activities related to one, albeit major, customer. In such circumstances, it might be queried how the benefit to be attributed to Mr Sale personally was adjudged to equate to (or to part of) the turnover of the company, by a process of lifting or piercing the corporate veil: precisely, indeed, the queries raised by leading counsel on Mr Sale's behalf. Doubtless Mr Sale had benefited. But by an approach corresponding to that taken in cases such as Grainger such benefit might be readily assessed by reference to, say, his increased remuneration, dividends and any other benefits or pecuniary advantage resulting to him personally from his company's enhanced profitability and competive advantage occasioned by his corrupt actions.
- The Court of Appeal, nevertheless, plainly was heavily influenced by the fact that Mr Sale was the sole director and the sole shareholder. Obviously that was indeed a highly material fact. But it is rather hard to see why such a fact always would, of itself, be conclusive. To repeat, as Salomon makes clear, the fact that the incorporator is sole shareholder and director of a company does not mean that the company is thereby and for that reason alone to be treated as his alter ego. That criminality is somewhere involved (not the situation in Salomon) does not of itself necessarily and conclusively and in all cases change that. The actual decision in Sale thus is to be explained as one on its own facts; as the court in that case itself made clear.
- We do have concerns, however, that the emphasis given in Sale, in the circumstances of that particular case, to the fact that the defendant was sole director and shareholder may in future be used to achieve a conclusion which in other cases of confiscation proceedings may not necessarily be merited and which would not be consistent with the approach in Seager & Blatch. The present case may in fact be an illustration of that danger (the Judge having in effect decided that this was a "two man" company).
- We say this in particular in the light of certain comments made in McDowell. It having been said in paragraph 40 of that case that "examination of true ownership or control of property is the bread and butter of confiscation proceedings", at paragraph 55 it was then accepted that Mr McDowell did not "hide his trading behind the cloak of the company". Nor, as was found, did Mr McDowell seek to evade responsibility for his criminal acts by interposing the company between himself and those criminal acts. How, then, could it be found in McDowell, as it was, that Mr McDowell was the alter ego of the company? The short answer given was that he was "the company's sole controller....he used [the company] openly in these trading transactions...... He was the beneficial owner." The court apparently would have taken the same approach, had the point arisen, with regard to Mr Singh in that same case: for it treated the receipts of the company as the receipts of Mr Singh personally "since he was the sole controller of this trading company" (paragraph 63). This, however, seems to be close to suggesting that the corporate veil could be disregarded simply because the defendant was sole controller and owner. Further, to say that someone is a beneficial owner of a company is no doubt convenient shorthand. But it can lead to the misleading conflation of two separate concepts: beneficial ownership of the shares in a company and beneficial ownership of the receipts and assets of a company.
- We think that those observations in paragraphs 55 and 63 of McDowell have to be put in context. In the case of Mr McDowell it had been argued that the underlying weapons and arms trading was lawful but for the absence of a licence. But that was rejected: the underlying trading was unlawful: see paragraph 53 of the decision. Thus the entirety of the business at the relevant times had been carried on in knowing and criminal breach of the requirements of the relevant Order. Likewise (had there been a finding of criminal conduct) in the case of Mr Singh. The importance of each being sole owner and controller of the company in question has, we suggest, to be assessed against that background.
- Thus, the decision in McDowell on these particular points is to be regarded as made on the facts of that case. It is not to be taken as an invitation to criminal courts in confiscation cases under the 2002 Act to regard sole ownership and control of a company as necessarily and always sufficient of itself to justify treating the company as an alter ego of the defendant. To say that is not to provide an open road and a fast car to crooks seeking to conceal their real activities and true benefits behind a one-man limited company. On the contrary, the application of the concealment principle, if not also evasion principle, is available on appropriate facts to deal with just such a scenario. The general observations of Toulson LJ in paragraphs 14 and 15 of Grainger continue to be relevant. Overall, to respect the principles of Salomon is consistent, not inconsistent, with a principled, proper and sensible application of the 2002 Act: for it is required that the court, in confiscation proceedings, focus on the benefit which the defendant has obtained and on the assets which the defendant holds. In this regard we think, where limited companies are involved in relevant wrongdoing, that words such as "façade" and "sham" will continue, even allowing for the reservations expressed by Lord Sumption as to their "protean" nature, to have a real and practical use in confiscation cases. Ultimately, any conclusion on lifting or piercing the corporate veil will require a careful examination of all the relevant facts before it may be reached.
- We make one further observation. We have borne in mind that it seems not to be the usual practice for the prosecution to charge the company involved: re H  2 All ER 391; Sale at paragraph 32. But, as Mr Knowles himself accepted, had in this case the prosecution chosen to include the Old Company as one of the persons charged then the potential means of recovering the turnover or profits (or some part) as benefit obtained would have been available without resort to arguments on lifting or piercing the corporate veil at all.
- We can accept that in many cases where a company is mixed up in the criminality it may be unnecessary or unduly complicated to include the company as a defendant. It should not be overlooked, in fact, that in some cases of, for example, criminal conspiracy or fraud the company in question may be not so much the instrument of the illegality as the victim of it. In other cases, there will be no practical purpose in joining the company: for example, where it is hopelessly insolvent. In other cases again, the company will so clearly be within the concealment and/or evasion principle on the facts alleged by the prosecution (for example, a carousel fraud) that to name it on the indictment may be wholly unnecessary. But there may be other cases - "regulatory" offences, so called, may be one example: there will be others - where the prosecution may be well advised, with an eye to any eventual confiscation proceedings, to consider whether the limited company involved should be included on the indictment or summons at the outset.
- Whether or not that is done, the essential responsibility of the judge in confiscation proceedings in cases of this kind is to assess the benefit obtained by the actual defendant whose case he or she is considering (sections 8 and 76 (4)) and to calculate the free property (and any tainted gifts) held by that defendant (section 9). Such a task is not to be distorted by any failure to include the company on the indictment.
- It remains for this court to consider the applications of Patrick and Mark Boyle for an extension of time and leave to appeal against the confiscation orders made on 25 March 2013 (as varied).
- The extension of time required is very extensive: over 17 months. Further, the proposed appeal relates to confiscation orders which were agreed. In such circumstances this court would ordinarily, and whether or not it is said that it has since been appreciated that an error of law may have been involved in the making of the original orders, not be inclined to grant leave.
- Nevertheless, and notwithstanding that the confiscation orders had been agreed at the time, this court would at least have jurisdiction to entertain such appeals: Mackle  AC 678,  UKSC 5.
- With some hesitation, we have decided that, in the particular circumstances of this case, we should grant the extensions of time sought by the applicants and should grant leave to appeal. Having done so, we also allow the appeals.
- Our reason for doing so is simply this. The confiscation orders were made on the basis that the turnover and assets of the Old Company were benefit obtained by and available assets held by Patrick and Mark Boyle. But, on essentially the same evidence, this court has now held, on the appeal of the New Company, that this was incorrect. It would be wrong for there now to be an inconsistency in outcome between the New Company and the applicants. In such circumstances we consider that it would be unjust that the confiscation orders should stand. Accordingly we quash each of those confiscation orders; and, in consequence, we quash the order appointing the enforcement receiver.
- Formerly, the Court of Appeal could be hamstrung by the lack of power to remit the matter to a Crown Court for rehearing. But by reason of s. 11(3A) of the Criminal Appeal Act 1968 it now has power to do so. It is plainly right in the circumstances, and as Mr Bodnar accepted, that it should do so here. The matter is therefore remitted to the Crown Court, so that the value of the benefit obtained by each of Patrick and Mark Boyle and the amount of the available assets held by them can be re-calculated. This, of course, will now be on the footing that they are not to be regarded as the owners of the turnover or assets of the Old Company or, hence, of the New Company.
- Given the lapse of time and other intervening events it may be that a pragmatic solution can hereafter be agreed on the remitted confiscation proceedings. That is not for us, however. In the meantime, we do not direct that any sums thus far paid should be restored to either of these applicants.
- Mr Bodnar did, as we have indicated, raise a further argument as to the default period imposed on Patrick Boyle, by reason of his present state of health. In the light of our conclusion we need not comment further on that matter.
- The appeal of the New Company is allowed and the appointment of the enforcement receiver with regard to its assets is quashed. We grant an extension of time and leave to appeal to the individual applicants, allow their appeals, quash the confiscation orders and order appointing the enforcement receiver made against them and remit the matter to the Crown Court for further hearing.
- Counsel are to agree a Minute of Order to reflect this judgment. Any consequential matters, if not agreed, are to be addressed to the Court by written submissions.