Mitchell v Sheikh Mohamed Bin Issa Al Jaber

Sheikh Mohamed Al Jaber, an international businessman, had been the director of MBI International & Partners Inc, a British Virgin Islands corporation. In March 2009, the company acquired 891,761 shares in JJW Inc (another company with connections to the Sheikh). The share transfer agreements provided for the purchase sums to be “paid on demand” by the company “in such way that is mutually agreed.” Payment was never demanded, nor was any payment  made. The company was wound up by order of the Eastern Caribbean Supreme Court on a creditor’s application in October 2011. The company remained the registered owner of the shares in JJW Inc. As a result of the winding up order, Sheikh Al Jaber’s powers as director came to an end. In spite of that, in February 2016, without the knowledge of the company’s then liquidator, the Sheikh, purporting to act as a director, signed two undated share transfer forms transferring the shares in JJW Inc from the company to another entity, JJW Guernsey.  In July 2017 all JJW Inc’s assets and liabilities were transferred to JJW UK, with the result that the shares which had been transferred to JJW Guernsey in 2016 became worthless.

The liquidator then in office brought proceedings claiming that the 2016 share transfers were void; that Sheikh Al Jaber had acted in breach of fiduciary duty or in breach of trust in effecting the transfers; and that JJW Guernsey was the knowing recipient of the shares. Joanna Smith J found in favour of the joint liquidators who had taken over the action following their appointment in 2019  (Mitchell v Al Jaber [2023] EWHC 364 (Ch)), holding that they were entitled to equitable compensation equivalent to the loss to the company, namely the value of the shares which had been transferred out of it by the 2016 share transfers, a sum of €67,123,403.36. She also held that the Sheikh and JJW Guernsey were liable on a joint and several basis.

The Court of Appeal upheld Joanna Smith J’s ruling on liability but allowed the Sheikh’s and JJW Guernsey’s appeal on the issue of remedy/quantum on the basis that the liquidators had failed to establish loss: by the time of the trial the shares in issue had become worthless as a result of the 2017 asset and liability transfer. The Court of Appeal held that in those circumstances no equitable compensation was payable.

Both the liquidators and Sheikh Al Jaber appealed to the Supreme Court. The appeal raised three issues: (1) whether the Sheikh was in breach of fiduciary duty in effecting the 2016 share transfers; (2) whether in fact the company had suffered no financial loss; (3) how the company’s loss, if any, fell to be calculated.

Much of their Lordships’ judgment (Lord Hodge, Lord Briggs and Lord Sales, with whom Lord Stephens and Lord Richards agreed) deals with issues regarding the effect of an unpaid vendor’s lien, which we need not consider here. The important point of general interest is that the Supreme Court unanimously dismissed the Sheikh’s appeal on the first two issues and allowed the liquidators’ appeal on the third, holding  that the correct approach to calculating the loss suffered by the company was by reference to the value of the shares at the date of the breach of fiduciary duty, thereby endorsing that taken by Joanna Smith J. As their Lordships put it:

“Where a trustee or fiduciary has misappropriated trust property (or property under his fiduciary control) and the beneficiary (or principal) can prove that the property had value when misappropriated, the beneficiary suffers an immediate loss of value. In such a circumstance, if the defaulting fiduciary wishes to rely upon a supervening actual or counterfactual event breaking the chain of causation between the breach and the beneficiary’s loss, on an assessment looking at all the information available to the court at trial, the burden lies squarely upon the fiduciary to prove that supervening event and to show that it should be treated as having that impact on the analysis of the causative link between the breach of duty and the loss suffered by the beneficiary. This is firmly laid down in the following three authorities [In re Brogden; Billing v Brogden (1888) 38 Ch D 546,  Carruthers v Carruthers [1896] AC 659 and Target Holdings Ltd v Redferns [1996] AC 421] and has never been doubted.”

Whilst it is not in every case that a misappropriated asset declines in value, or loses, it completely, practitioners will generally welcome a decision that establishes that improper conduct on the part of a fiduciary will generally be taken to result in an immediate loss such that the burden falls on the mischievous fiduciary to demonstrate the contrary if he or she is not to be fixed with liability.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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