Analysis
This was an appeal against a decision of Foxton J ordering the second defendant to pay £102m in compensation for dishonest assistance along with nearly £60m in interest.
The first defendant had been a director of the first claimant. In breach of fiduciary duty, the first defendant had caused the first claimant to sell company assets related to several London hotels to a corporate purchaser in which the first defendant had an undisclosed interest. The sale was at an objectively reasonable market price. The purchaser later sold the hotels for a large profit (partly due to having developed them via a joint venture agreement with unconnected parties). Much of the profit accrued to the first defendant, which he used to invest in an unrelated development project. The trial judge found that the second defendant had dishonestly assisted the first defendant both in the original sale from the first claimant and in the later extraction of the profits to the first defendant.
The trial judge had (at the first claimant’s election) ordered the first defendant to account for the profits he had made (£102m) and pay compound interest (£60m). However, the trial judge had permitted the first claimant to elect for an order that the second defendant (who had made a much smaller profit) was ordered (again at the first claimant’s election) to pay equitable compensation of the same amount. The judge’s rationale for this was that the original sale and the later extraction of the profits (which had been held on constructive trust for the first claimant) were two separate breaches of fiduciary duty. By dishonestly assisting the later breach, the trial judge held that the second defendant had caused loss equal to the value of the first defendant’s profit.
The second defendant appealed. The first defendant did not.
Held (allowing the appeal):
Per curiam: The original sale and the later extraction of the profits were so inextricably connected that they were to be regarded as a single course of conduct for this purpose which caused the first claimant no loss and which therefore could not give rise to a claim in equitable compensation (Federal Commerce & Navigation Company Ltd v Molena Alpha Inc [1978], Geldof Metaalconstructie NV v Simon Carves Ltd [2010], Bartlett v Barclays Bank Trust Co Ltd [1980] and Brown v KMR Services Ltd [1995] referred to).
Per curiam: the question of interest should be deferred until the outcome of the account was known.
Per Newey LJ (Birss LJ agreeing): as a dishonest assistant, the second defendant could only be ordered to account for the profits which he had made (Ultraframe (UK) Ltd v Fielding & ors [2005] and Novoship (UK) Ltd v Mikhaylyuk [2014] applied).
Per Newey LJ (Birss LJ agreeing): a claimant had to elect between an account of profits and equitable compensation, which were mutually exclusive (Tang Man Sit v Capacious Investments Ltd [1995] applied). Liability for equitable compensation between a fiduciary and a dishonest assistant was joint and several. Where a claimant elected for an account of profits against the fiduciary, they were not permitted to seek equitable compensation against the dishonest assistant.
Per Newey LJ (Birss LJ agreeing): the constructive trust over the first defendant’s profits did not have all of the usual incidents of a trust. It was open to serious question whether a fiduciary can incur liability to pay compensation for breaching a trust of this type.
JUDGMENT LORD JUSTICE NEWEY: [1] This appeal against a decision of Foxton J (‘the Judge’) raises a novel issue relating to liability for dishonest assistance in a breach of fiduciary duty. The Judge ordered the second defendant, Mr Anthony Stevens, to pay sums amounting to more than £102 million as compensation for dishonest assistance together …Continue reading "Hotel Portfolio II UK Ltd & anr v Ruhan & ors [2024] WTLR 145"