Court of Appeal applies Supreme Court decision in Prest on piercing corporate veil in a criminal confiscation case

In Prest v Petrodel Resources Limited the Supreme Court considered the basis on which the corporate veil might be pierced (see post). The comments were strictly speaking obiter and were made in the context of a case concerning transfer of properties following a divorce. The Court of Appeal (Criminal Division) has applied the principles in Prest in a case concerning a criminal confiscation order and has confirmed that the principles are of general application (R v Sale [2013] EWCA Crim 1306).

Background

Mr Sale pleaded guilty to a criminal charge of corruption in 2011. He had given gifts and provided hospitality to an employee of Network Rail in return for which a company in which he was the sole shareholder was awarded a number of high value contracts. The issue before the court was whether a confiscation order should be made against him in respect of the total sum paid to the company by Network Rail (a little over £1.9 million, as ordered at first instance) or whether it should be some lesser sum represented by the gross value of the profit earned by the company (£197,683) or the benefit received personally by Mr Sale (£125,000).

Shortly before the appeal was heard, the Supreme Court gave judgment in Prest v Petrodel Resources Limited & others [2013] UKSC 34 (see post). Lord Justice Treacy, giving the judgment of the Court of Appeal in the present case, observed that strictly speaking the discussion in Prest about piercing the corporate veil was obiter to the decision, but it was plain that the Supreme Court was addressing the issue across the law generally and intended to do so. None of the cases cited or considered by the Supreme Court were criminal confiscation order cases but the principles enunciated applied across the board. Neither party had sought to argue that the observations in Prest did not apply and indeed they had made arguments by reference to it.

Decision

Lord Justice Treacy went on to set out and apply Lord Sumption's evasion principle and concealment principle from Prest, para 28:

"The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company….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 'façade', 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 that the separate legal personality of  the company will defeat the right or frustrate its enforcement."

In the court's view, this was not a case coming within the evasion principle: there was no legal obligation or liability that was evaded or frustrated by the interposition of the company. This was a company which existed long before the corrupt conduct and which existed for bona fide trading purposes. The court considered however that in the circumstances of the case, the effect of POCA (Proceeds of Crime Act 2002) was that the facts fell within the concealment principle: given that Mr Sale was the sole controller of the company and there was a very close inter-relationship between the corrupt actions of Mr Sale and steps taken by the company in advancing those corrupt acts and intentions, the reality was that the activities of both Mr Sale and the company were so interlinked as to be indivisible. Accordingly, insofar as the company was involved, what it did served to hide what Mr Sale was doing.

On the facts of the case, the whole of the invoices paid, the £1.9m, was the benefit obtained by Mr Sale as a result of or in connection with the admitted criminal conduct. That was not the end of the matter however because in light of the Supreme Court decision in R v Waya [2012] 3WLR 1138 the confiscation order had to bear a proportionate relationship to the purpose of POCA, which was to recover the financial benefit which an offender had obtained from his criminal conduct. The confiscation provisions were not intended to work as an additional form of fine or other punitive sanction.

Given expenses had been incurred in performing the contracts, the court considered the confiscation order of £1.9m to be disproportionate and it could not stand. The sum in respect of profit alone would represent a generous order from Mr Sale's perspective, as it did not take into account advantages he had obtained such as obtaining market share, excluding competitors and saving tender costs. But as the court had no evidence before it to put a value on those advantages, it could not add to the profit figure of £197,683 which it substituted for the £1.9m ordered by the court below.