Last year, the Supreme Court handed down its decision in Stevens (Respondent) v Hotel Portfolio II UK Ltd (In Liquidation) and another (Appellants) [2025] UKSC 28. The ruling clarified the scope for liability of those who assist a director or other fiduciary in securing and dissipating unauthorised profits in breach of their duties. The result was that an assister, who had received £1.5m in return for his assistance, was liable in full for the director’s unauthorised profits of more than £100m. Partners Ed Holmes and Pia Mithani, and trainee Victoria Bennett, review the decision and the principles arising from the appeal.

Background

In 2005, Hotels Portfolio II (‘HPII’) sold three hotels to Cambulo Madeira (“Cambulo”), a company ostensibly owned by Mr Stevens. However, it was later discovered that Mr Stevens was acting as a nominee for Mr Ruhan. Mr Ruhan, who was a director of HPII, was the actual purchaser, and this information was concealed from HPII. The hotels were sold at market value, so HPII suffered no loss at this time.

Cambulo later sold the hotels, some with the benefit of planning permission for residential development, to third parties at a significantly higher price. Mr Ruhan received over £100m in profit from these transactions. Of this, he paid £1.5m to Mr Stevens for his assistance and dissipated the remaining funds for his own purposes. HPII pursued Mr Ruhan for breaches of fiduciary duty and Mr Stevens for dishonest assistance.

At first instance, the High Court found for HPII. It held that Mr Ruhan had failed to disclose his interest in Cambulo and made unauthorised profits in breach of his fiduciary duties as a director. As a result, the profits he made were automatically held on constructive trust for the benefit of HPII. As Mr Ruhan then dissipated these profits, he was found liable for breach of trust and ordered to account for them. However, due to the manner in which the funds were dissipated (he invested them in speculative projects and lost them all), they could not be traced or recovered through proprietary claims.

A person who dishonestly assists a trustee in breach of trust is jointly liable with the trustee to the beneficiary for any loss caused by the breach. Mr Stevens was found to have dishonestly assisted with both breaches and ordered to pay equitable compensation for his role in the dissipation of profits. Mr Stevens’s liability for the full £100m was on this basis, rather than being liable to account for the profit. This was because a dishonest assistant is only liable to account for their own profits (in this case, the £1.5m he personally received), not for the unauthorised profits of the fiduciary.

In 2023, Mr Stevens successfully appealed in the Court of Appeal against the finding that he was liable for the full £100m profit received by Mr Ruhan. (He did not appeal his liability to account for the £1.5m profit that he personally made.) The basis of his appeal was that HPII had suffered no loss because the gain and loss of unauthorised profit by Mr Ruhan were part of a single pre-arranged fraud, neither of which would have occurred if he had performed his duties. Alternatively, Mr Stevens argued that, even if the dissipation had caused a loss to HPII, it was offset by an equivalent gain also caused by Mr Ruhan’s related breach, such that both Mr Ruhan and Mr Stevens could set off the gain against the loss, producing a nil return for HPII. The Court of Appeal agreed.

The Supreme Court decision

HPII appealed to the Supreme Court, arguing that as the profits were held on a constructive trust for HPII, the dissipation constituted a breach of trust and caused it loss, for which Mr Stevens, as the dishonest assistant, should be jointly liable. This appeal was successful by a four-to-one majority. This court addressed and confirmed the following points:

• Dishonest assisters are liable for loss caused by dissipation of trust property. While the so-called “Novoship principle” (see Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908; [2015] QB 499) provides that a dishonest assistant is not liable to make good the trustee’s account for an unauthorised profit that he did not himself receive, the breach comprising the making of the profit is separate and distinct from the breach comprising its dissipation. There is no rule that a person who dishonestly assists a trustee in the dissipation of trust property is only liable for what he has received; that assister is liable for any loss caused by the dissipation.
• The relevant counterfactual. As stated in Target Holdings Ltd v Redferns [1996] AC 421, the basis for identifying loss eligible for equitable compensation involves identifying the ‘but-for’ counterfactual position, ie what would the beneficiary’s position have been but for the breach of trust? Here, the counterfactual was not the situation in which HPII would never have made a profit in the first place, such that the constructive trust would never have arisen, but rather the position following the establishment of the constructive trust. The question therefore was: but for the breach of the constructive trust (ie the dissipation of trust property), which Mr Stevens dishonestly assisted, what would the position have been? The answer was that HPII would have had the benefit of the profits held on constructive trust for it.
• Equitable set-off. The “no set-off” principle ( see Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] Ch 515) provides that a trustee cannot set off gains caused by one breach against losses incurred by another breach, except when the two breaches arise in the same transaction. In this case, the sale of the hotels for a profit and the subsequent dissipation of the profits were not part of the same transaction. Accordingly, the gains made in the initial breach of duty could not be used to set off the losses incurred in the subsequent breach of trust. Equitable set-off is an exception that applies only where there is a close connection between the breaches, and it would be inequitable not to apply set-off. As the Supreme Court noted, there would be “something rather fantastical” about avoiding liability on the basis that the wrongful events were all part of the same fraudulent scheme.

In summary, a dishonest assistant who has helped dissipate funds held on trust is jointly liable with the trustee to compensate the beneficiary for the loss. Accordingly, the court restored the order in favour of HPII made by the trial judge.

Comment

This decision means that those dishonestly assisting a fiduciary in making undisclosed profits, let alone those assisting with a fraud, cannot necessarily hope to limit their liability to the share of the profits they themselves received. While they will not be liable to account for profits they have not received, their liability may well cover the equivalent amounts by virtue of the loss their assistance causes. That may be the case even where the trustee would not have made a profit were it not for the fiduciary’s breaches.

The decision is a further example of how the courts will use the equitable rules to reach what it sees as a fair or “equitable” outcome, and that such outcome is unlikely to be in favour of dishonest wrongdoers.

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