Newsletters Business Crime & Financial Services 8th Mar 2016

Principle Trumps the “Reality of the Matter” in Confiscation Appeal

The Court of Appeal in Boyle Transport (Northern Ireland Ltd) Ltd v. R; Patrick Boyle and Mark Boyle v. R [2016] EWCA Crim 19 has emphatically restated the classic company law principles behind the separate legal personality of a limited company as distinct from that of its shareholders and directors. In doing so it quashed the appointment of an enforcement receiver over the assets of a company for the purposes of satisfying a confiscation order.

Patrick and Robert Boyle, the directors and shareholders of 50.1% of Boyle Transport Ltd (BTL), had been convicted of offences relating, inter alia, to the falsification of tachograph records. Although there were other shareholders the judge treated the Boyles as the operating minds of BTL. The assets of BTL had been transferred to a new company Boyle Transport (Northern Ireland) Ltd (BTNIL.) When the time came to make a confiscation order the judge found that the transfer was a sham and treated the turnover and assets of BTNIL as those of the Boyles.

The issue on appeal was not whether the transfer had been a sham but whether the turnover and assets of the original company BTL could properly be attributed to the Boyles at all. If they could not, then nor could the turnover and assets of BTNIL.

The Court of Appeal held that BTL 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. The fact that business had been carried on, in a very significant way, in breach of the relevant Regulations 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 or evasion principles as explained by Lord Sumption in Prest v. Prestodel Resources Ltd [2013] 2 AC 415. 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 BTL with benefit obtained by the Boyles and to designate assets held by BTL as assets held by the Boyles. 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.

The Court went on to put forward a non-exhaustive list of considerations in any confiscation case where an issue of lifting or piercing the corporate veil is raised:

  • The test is not simply one of “justice” or “assessing the reality of the matter” as this would be to side step established principles relating to the separate legal personality of a company. The Crown Court should resist attempts to persuade it to adopt a “robust” or “broad brush” approach or to avoid being distracted by “niceties”;
  • Confiscation is not of itself aimed at punishment rather at recovery of benefit. It follows that a criminal should not be deprived of that which he has never obtained;
  • It can be taken as confirmed by Prest, even though the Supreme Court did not consider criminal confiscation, that the actual principles relating to the doctrine of lifting or piercing the corporate veil in the confiscation context are the same as in the civil courts (albeit always, of course, to be applied on a fact and circumstance-specific basis in each case.) The principal issue in Prest was whether the Family Division 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 could not.  The same must apply to the Crown Court;
  • The Court referred to the judgment of Fulford LJ in King (Scott) [2014] 2 CAR(S) 54. At paragraph 42 he distinguished those cases involving the legitimate provision of goods or services, which have been tainted by illegality such as a bribe, and those where the entire transaction is unlawful. Whilst this may not be determinative it may be an issue for the court to consider if the issue of piercing the corporate veil is raised;
  • 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. The Court and expressed concerns that the emphasis given in Sale [2014] 1 CAR(S) 60 where work was properly performed under a contract that had been obtained by bribery, and McDowell [2015] 2CAR(S) 14 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;
  • Finally, all such decisions in the context of confiscation proceedings must be geared to the facts and circumstances of the particular case.

Finally, the Court observed that had in this case the prosecution chosen to include BTL 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.

This judgment is to be welcomed as a much needed further injection of principle, in particular in its rejection of hackneyed resorts to “the reality of the matter”, into the area of confiscation. There is a huge distinction between a company that performs a legitimate function albeit tainted by illegality and a company that has been used to perform an illegal purpose, such as a company that purports to import bananas when in fact it imports cocaine. In the former case prosecutors should give far closer consideration to including the company on the indictment if it wishes to broaden the scope of benefit from that which is received by individual defendants.

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