Frances Coulson
- Partner
- Insolvency & Restructuring
The issue before the Supreme Court in Stevens v Hotel Portfolio II UK Ltd & Anor [2025] UKSC 28 was whether a person who dishonestly assisted a constructive trustee in dissipating the trust fund was liable to compensate the beneficiary for the consequential loss of its proprietary interest in the fund in circumstances where:
(1) The fund held on constructive trust consisted of an unauthorised profit previously made by the trustee in breach of fiduciary duty to the same beneficiary, the making of which caused the beneficiary no loss, because it was a profit that could not have been made by the trust, and
(2) The dishonest assistant also dishonestly assisted the trustee in making the profit in the first place.
The answer to the question raised required, according to Lord Briggs, “an analysis of the nature, terms and consequences of a constructive trust of unauthorised profits, a further examination of the basis for assessing compensatory liability for breach of trust, restated in Target Holdings Ltd v Redferns…and an in-depth examination, for the first time, of the principle that a trustee may not set off gains and losses incurred in the course of multiple breaches of trust, together with a possible exception to it where the breaches occur in the same or connected transactions.
The facts of the case are straightforward and can be summarised as follows.
Mr Andrew Ruhan was a director of a company called Hotel Portfolio II UK Ltd. As such he owed fiduciary duties to the company, including a duty to avoid conflicts of interest and not to make unauthorised profits from his position as a director.
In 2005 HPII sold three hotels to a company called Cambulo Comercio e Serviyços Sociedade Unipessol LDA. Cambulo was ostensibly owned by Mr Anthony Stevens. In fact both it and Mr Stevens were nominees for Mr Ruhan who concealed from HPII that he was the real purchaser. The hotels were sold at market value: accordingly HPII suffered no loss at that stage. Between 2006 and 2008, however, Cambulo sold the hotels (with the benefit of planning permission for residential development) at a profit. Mr Ruhan benefitted to the tune of some £100 million which he dissipated for his own purposes.
When it discovered what had happened, HPII sued Mr Ruhan and Mr Stevens, Mr Ruhan for breach of his fiduciary duties and Mr Stevens for dishonest assistance.
HPII succeeded before Foxton J who held that Mr Ruhan had breached his fiduciary duties by failing to disclose his interest in Cambulo and by dissipating what he had received from the profits which were held on constructive trust for HPII and for which he was ordered to account; and he ordered Mr Stevens, to pay compensation of some £102 million for dishonest assistance together with almost £60 million in interest.
Mr Stevens (but not Mr Ruhan) appealed to the Court of Appeal. His appeal was allowed, and the order for Mr Stevens to pay equitable compensation and interest was set aside. The Court of Appeal accepted that, because HPII would not itself have realised the profits arising on the resale, it had suffered no loss as a result of Mr Ruhan’s actions. That being so, Mr Stevens could not be liable either.
The Supreme Court (Lord Briggs, with whom Lords Reed, Hamblen and Richards agreed, Lord Burrows dissenting) allowed HPII’s appeal, holding, in relation to the principal issue before it, that, as the unauthorised profits made by Mr Ruhan were held on trust for HPII, and since Mr Stevens had dishonestly assisted in the dissipation of those profits (to the detriment of HPII), Mr Stevens was indeed liable to compensate HPII. The existence of a constructive trust of the profits was not just a remedy for Mr Ruhan’s wrongdoing akin to the award of damages: its effect was that the profits were HPII’s property: in those circumstances it would be contrary to equitable principles to allow the dissipation of the trust fund not to give rise to a remedy in the form of equitable compensation. Mr Stevens was liable in giving dishonest assistance in relation to the dissipation of the profits, which was distinct from the making of them: there was no conflict with the principle that a person giving dishonest assistance is liable only for profits they have themselves made and not those made by the fiduciary.
Lord Briggs summarised the position as follows:
“(1) Like any other trust, a constructive trust of unauthorised profits gives rise to an immediate proprietary interest of the beneficiary in the fund representing those profits, from the moment of their receipt by the trustee.
(2) A dissipation of the fund by the trustee is a breach of trust for which the trustee is liable to compensate the beneficiary for the loss of its proprietary interest. That loss is generally to be assessed by reference to the value of that proprietary interest, but for the dissipation of which would still belong to the beneficiary.
(3) A person who dishonestly assists the trustee in the dissipation is jointly liable with the trustee for the loss caused by the dissipation.
(4) Those general principles are unaffected by the facts that (a) the fund held on constructive trust is or represents unauthorised profits made in an earlier breach of fiduciary duty to the same beneficiary, (b) the making of the profits caused the beneficiary no loss and (c) the effect of the constructive trust of the profits was to confer a gain on the beneficiary.
(5) Nothing in [Target Holdings Ltd v Redferns], or in [ AIB Group (UK) plc v Mark Redler & Co] requires or suggests that, in asking what would be the beneficiary’s position but for the breach of trust complained of (here the dissipation of the trust fund), the earlier breach of trust or (here) fiduciary duty consisting of the making of the profits, is also to be assumed not to have happened. On the contrary, the counterfactual required by those cases requires attention to be given to the terms of the trust which has been breached, in order to ascertain what would have been the consequences of the observance of those terms but for the breach. If no profits were made, there would be no constructive trust.
(6) Nothing in the Novoship [(UK) Ltd v Mikhaylyuk] principle (which insulates a dishonest assistant from liability to disgorge profits which he has not himself made) prevents a dishonest assistant from being jointly liable for the loss caused by a dissipation, merely because the fund which has been dissipated consisted of, or represented, unauthorised profits in the making of which the assistant also dishonestly assisted.
(7) The general equitable principle that a trustee may not set off gains against losses made or incurred by successive breaches of trust is subject to a potential exception where the disallowance of a set-off would be inequitable, but no such inequity occurs in a case where to allow the set-off would undermine the integrity and effect of the constructive trust, in particular by enabling the dishonest assistant to escape scot-free from having to compensate the beneficiary for the loss caused by the dissipation of the fund.”
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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