Trouble in Hyde Park: Stevens v Hotel Portfolio II UK Ltd (In Liquidation) [2025] UKSC 28)
This case involved a deception at the heart of a high-value property transaction in Central London. Mr Ruhan (R) acquired the holding company of three hotels in and around Hyde Park, Hotel Portfolio II UK Ltd (HPII), and became a director of that company. HPII was significantly indebted to creditors at the time of acquisition, who wished to realise their investment. HPII authorised R to accept bids for or in excess of their £125m market value. He accepted a bid of £125m from a Portuguese company, Cambulo.
HPII believed that the Respondent, Mr Stevens (S), was the ostensible beneficial owner of Cambulo. However, both Cambulo and S were acting as R’s nominees in relation to the acquisition. Cambulo developed the hotels into residential property and sold them to a third party for a significant profit. R received over £100m from these profits and dissipated the money for his own purposes.
When HPII discovered R’s role in the acquisition, it successfully sued R and S:
(a) R for breach of his fiduciary duties, (i) to disclose his interest in Cambulo to HPII and (ii) for dissipating the sale profits which were, as a matter of law, unauthorised profits of a fiduciary and so held on constructive trust for HPII; and
(b) S for dishonestly assisting each of R’s two breaches of fiduciary duty.
The High Court ordered R to account for the dissipated profits, and for S to pay equitable compensation for having assisting R’s dissipation of the profits. S appealed the order for equitable compensation against it on the basis that HPII suffered no loss as a result of each breach, because (a) it had received market value for the sale of the properties, and (b) it would not have taken the opportunity to turn the hotels into flats. This argument succeeded before the Court of Appeal, and HPII appealed to the Supreme Court.
The Supreme Court allowed the appeal in HPII’s favour (Lord Burrows dissenting). Lord Briggs, delivering the majority judgment, held that R held the money on constructive trust for HPII the moment that he received it. He then addressed the following three issues.
Is loss caused by breach of constructive trust compensable?
The short answer is yes, because the property in respect of which a constructive trust arises becomes the property of the beneficiary. HPII should therefore have been able to claim its property, but it had been dissipated by R. The Supreme Court held that it would be “contrary to basic equitable principle” if this did not give rise to a remedy of equitable compensation.
While it is a general principle that a dishonest assistant cannot be liable for profits made by the trustee when they themselves did not make a profit (Novoship v Mikhaylyuk [2014] EWCA Civ 908), the breach consisting of the making of the profit is from the breach which consists of the dissipation of the constructive trust property that caused the loss. There was therefore no conflict between HPII’s recovery for loss and the Novoship principle.
Did HPII suffer a loss in this case?
S submitted that HPII suffered no loss since its position if neither breach had occurred was equivalent to the one in which it found itself, i.e. the profits had been made in breach of duty and then dissipated in breach of duty. On this analysis, there was nothing for HPII to lose. The Supreme Court roundly rejected this logic: it would that in any case where a constructive trust arose in respect of misappropriated trust funds, the accessory would “get away scot-free” from his dishonest assistance in the dissipation.
The Court also rejected this submission for the more technical reason that it starts from the wrong point. The “but-for” test in Target Holdings Ltd v Redferns [1995] UKHL 10 for assessing loss only requires you to assume that there was no breach of trust. It does not also require you to assume that there as no constructive trust which creates the duty not to dissipate. This technique of assessing loss would “throw the baby out with the bath water”. Indeed, in AIB v Redler [2014] UKSC 58, Lord Toulson emphasised how the terms of the express (or here, constructive) trust help determine the claimant’s loss. The correct counterfactual is therefore that the constructive trust had never been breached, not that there was no profit and therefore no constructive trust to begin with.
Can a gain made in breach of fiduciary duty be set off against a loss caused by a separate breach of fiduciary duty to reduce an accessory’s liability?
The general rule is that a trustee is not permitted to set off gains made in one breach of trust against losses made in another, except where (a) the two breaches arise in the same transaction, and (b) it would be plainly inequitable not to permit the set-off. In this case, “equity would be better served” by disallowing the set-off than following the general rule. This is because the set-off would undermine the integrity and effect of the constructive trust, by enabling the dishonest assistant to escape from compensating the beneficiary for the loss caused by the dissipation of the fund.
Lord Burrows’ dissent
His Lordship would have dismissed the appeal for the following reasons:
(a) There was one dishonest scheme on the facts of this case involving the fiduciary and dishonest assister from the start. It is “wholly artificial” to divide it up into the acquisition of the profits and their dissipation. Thus, the counterfactual should be the position HPII would have been in but for the scheme as a whole. On that basis, HPII has suffered no loss.
(b) The dishonest assister is not liable for profits made by the principal wrongdoer, but is severally liable to account only for profits he has personally made. S should not be made to account for profits made by R.
(c) Much like an account of profits, a constructive trust is a disgorgement rather than a compensatory remedy. It would be contrary to legal principle if a dishonest assister were held liable for compensation where the only “loss” was the inability to impose a disgorgement remedy.
(d) HPII elected the remedy of an account of profits as against HPII precisely because it had not suffered any overall loss. R failed to transfer the profits or their traceable substitute, which the majority said constitutes a “loss”. HPII would need to switch back to claiming equitable compensation for loss on the basis that its account of profits claim has not been satisfied: Island Records v Tring [1996] 1 WLR 1256. But if it were to do so, it could not also mount an argument that R’s failure to account constitutes a loss, since that loss would be dependent on HPII having elected for an account of profits. Without a claim for compensation against R, HPII does not have a claim for compensation against S as dishonest assister.
(e) To award equitable compensation for dishonest assistance leads to risk of double recovery by HPII. Assuming that HPII suffered loss (e.g., where, but for the breach, it would have taken up the opportunity to turn the hotels into flats), the majority’s approach would mean HPII has two equitable compensation remedies against S for dishonest assistance: (a) £75k for “loss” caused by assisting R’s exploitation of the opportunity, and (b) £102.26m for “loss” caused by assisting R’s dissipation of the profits made. This would produce double recovery. The principle of election avoids this risk, providing that a claimant cannot combine their remedies.
