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Trust Law Essay - Constructive Trust Doctrine
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Trust Law Essay - Constructive Trust Doctrine and CPS v Aquila
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QUESTIONIn Crown Prosecution Service v Aquila Advisory Ltd [2021] UKSC 49, the court has taken the
constructive trust doctrine one step too far.
Discuss.
ANSWER
This essay argues contrary to the notion that the court in Crown Prosecution Service v Aquila
Advisory Ltd [2021] (hereinafter CPS v Aquila) has taken the constructive trust doctrine one step too
far. Rather, as Aquila was not deemed to have profited illegally from the proceeds of crime, this case
was decided correctly in accordance with the previous precedents of Bilta (UK) Ltd v. Nazir [2015]
(hereinafter Bilta) and FHR European Ventures LLP v Cedar Capital Partners [2014] (hereinafter
FHR).
This essay will first define the constructive trust doctrine, particularly in relation to breach of
fiduciary duties, before exploring the preceding case law relied upon in the CPS v Aquila judgement.
Then this essay will examine the court’s interpretation of the constructive trust doctrine in CPS v
Aquila for the grounds of appeal outlining the points of contention and evaluating how the
judgement was made. Lastly, this essay will determine whether the court has taken the constructive
doctrine one step too far.
What is the constructive trust doctrine?
A court may impose constructive trusts as an equitable remedy to provide relief to a party who has
been unjustly deprived of their rights. This type of trust is an implied residuary category that can
apply in situations where someone has acquired or is holding a legal property right through unjust
enrichment or interference. Another circumstance in which constructive trusts may be imposed is
when there is a breach of fiduciary duty, which typically arises in situations where a fiduciary owes a
duty of trust and confidence to the principal and fails to fulfill their fiduciary obligations. It has long
, been established that if an agent violates their fiduciary obligation to their principal by earning
undisclosed profits, such profits are deemed to be held in constructive trust (Keech v Sandford
[1726]) with company directors also having been found to create a constructive trust in Guinness v
Saunders [1990] as were secret commissions and bribes in FHR.
CPS v Aquila
Facts
In CPS v Aquila, Mr Faichney and Mr Perrin, the former directors of VTL, were found to have
committed fraud by orchestrating an illegal tax avoidance scheme, earning £4.55 million which they
were ordered to forfeit as part of a confiscation order following their criminal conviction.
Meanwhile, VTL went into administration, and the company's administrators assigned its rights to
Aquila Advisory Ltd, including any rights to the Directors' secret profits under a constructive trust, to
repay the company's creditors. However, this arose a legal dispute between Aquila and the CPS over
the recovery of the remaining £4.55 million from the Directors. Ultimately, the Court of Appeal ruled
in favour of Aquila, stating that the Directors had breached their fiduciary duty to the company, thus
holding the proceeds of the crime on constructive trust for the company. Therefore, the CPS
appealed to the Supreme Court.
Issue
The Supreme Court were tasked with addressing whether the imposition of a constructive trust was
an appropriate remedy despite criminal conduct and whether it could be asserted ‘in the face of’
confiscation orders, with academics questioning whether they expanded the doctrine too far in its
application. The Supreme Court considered whether the company, acting as the principal, had a
legitimate claim to the profits held in constructive trust, or whether the actions of the directors
should be attributed to the company, thereby preventing it from recovering the profits based on
illegality.
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