Tempering the wind to the shorn lamb (Case Note): Stevens v Hotel Portfolio II UK Limited [2025] UKSC 28

Facts

Mr Ruhan, who was a director of a company called HPII, arranged for another company in which he secretly had a beneficial interest, and which was fronted for him by Mr Stevens, to purchase (as it did) hotels in London from HPII for fair market value.  Mr Ruhan and Mr Stevens concealed the former’s buy-side role from the directors and shareholders of HPII.  Later, as a result of the front-company’s onward sale of the hotels, Mr Ruhan secretly gained a profit (GB£102M) and paid some (GB£1.5M) of it to Mr Stevens.  Mr Ruhan, with Mr Stevens’ assistance, then dissipated the profit on bad investments and there was no traceable substitute.

When, in due course, HPII’s (voluntary) liquidators detected the hitherto concealed roles of Mr Ruhan and Mr Stevens, HPII claimed (i) an order for an account of profits from each of them, and (ii) equitable compensation for loss against Mr Ruhan for breach of trust in dissipating the profits, and against Mr Stevens for having dishonestly assisted him. HPII’s position was that if it were to succeed on the accounting claim and the compensation claim it could, in respect of each defendant elect between those remedies at judgment.[3]

Context

It is useful to keep in mind that, as further explained under Title J below, the alleged dissipation is an example of breach occasioned by doing an unauthorised act which could lead, either, to an appreciation in the value of the trust fund where trust monies are profitably applied and the investment fruits are adopted into the trust, or to a diminution in value if and to the extent that the application turns out to have been unprofitable.  In each situation, T is bound to account.  While it has become common to speak, as this note does, of diminution as a “loss” to the trust fund (especially since the introduction of “but for” causation in Target v Redferns),[4] it is important to remember that, fundamentally, the sort of claim made in the case under review is a trust accounting claim for T, and his (if any) accessories, to reconstitute the claimant’s proprietary fund.

First instance findings

 Profits

 At first instance Foxton J found:

• That the profits resulted from Mr Ruhan’s breach of (fiduciary) duties he owed HPII, not to allow a conflict to arise between his duty to HPII and his personal interest[5] and not to make an unauthorised profit from property which is the subject of the fiduciary relationship;[6]
• That Mr Ruhan received the profit as trustee for HPII and had to account for all of it to HPII,[7] and Mr Stevens had to account to HPII for the value of his receipt for having dishonestly assisted[8] Mr Stevens’ profit-generating breaches of fiduciary duty.[9]

These conclusions held good even though, as the judge found, HPII could not itself have made the profit.  This is because “but for” counterfactuals are left out of the analysis in causatively determining the profits for which a fiduciary is accountable[10] and because, though it might seem harsh, the policy of the law is to disincentivise fiduciaries from breaching their duties.[11]  The court may, however, give well-intentioned profit-making fiduciaries a (discretionary) allowance for their work and skill in generating value for the principal/beneficiaries.[12]

At judgment, HPII elected an account of profits against Mr Ruhan,[13] and obtained an order for GB£102M against him, none of which had been paid by the time of the UKSC’s judgment.[14] It appears that no such election was made between the claims against Mr Stevens and this question was still open when his appeal against the findings on compensation for loss occasioned by dissipation reached the UKSC.[15]

Dissipation

At trial HPII also sought and obtained orders holding Mr Ruhan and Mr Stevens liable to make good the entire loss to the trust fund.  However, HPII, having succeed on the bases of both profit-account and compensation loss, had to elect,[16] in respect of each defendant, between the relevant remedies.  It opted (i) for an account against Mr Ruhan, and the court ordered him to pay the principal sum of GB£102M; and (ii) for order for compensation for loss against Mr Stevens, and the court ordered him to pay an identical amount of principal, plus interest.[17]

Appeals

Mr. Stevens appealed, and, though he prevailed in the Court of Appeal, its judgment was overturned by (4-1) in the UKSC where Lord Briggs’ speech represented the majority view and Lord Burrows dissented.  The majority divided the defendants’ course of conduct into two separate and distinguishable events (i.e., the acquisition of profits on one hand, and its dissipation on the other) whereas Lord Burrows said there was but a single wrongful scheme in which unlawful profit was gained and dissipated without overall loss to the victim, HPII.[18]

The upshot of the majority view was that Mr Stevens was, by reason of his dishonest assistance in dissipating the trust fund, liable to compensate HPII for the full value of the trust property.  Whereas, according to Lord Burrows, Mr Stevens’ liability should be limited to his duty to account for the value of his receipt out of the profits; indeed, he said (for reasons explained in the next section) there neither could, nor should, be liability for compensation for loss occasioned by the dissipation of the trust fund by Mr Ruhan or Mr Stevens.

The dissenting view (Lord Burrows)

The composition of Lord Briggs’ speech evidently included elements deliberately intended to address and dispose of key grounds of Lord Burrows’ dissenting speech.  Therefore, before turning to consider the opinion of the majority, it is useful to examine some of Lord Burrows’ main points, which have, for purposes of exposition, been bundled into the following four items:

• The profit-dissipation could not have occurred but for the prior breach of the “no profit” rule, since, without the prior breach, there would have been no profit to dissipate.[19] There was, thus, but one dishonest scheme involving the acquisition and dissipation of profits (, the profits were acquired only so that these could be dissipated) and so the primary focus should be on the original profit-making wrong, not the (derivative) profit-dissipation;
• To make the dishonest assister liable, as does the majority’s judgment, for a loss arising only out of the primary wrongdoer’s failure to account for profits, is inconsistent with the established principle that the assister is accountable not for all the profits, but only for those he received.[20] Such inconsistency can be avoided by recognising that a constructive trust is a disgorgement response to unauthorised profit-making, and loss is irrelevant;[21]
• It would have been impossible for HPII to maintain a claim for compensation for breach of trust against the primary wrongdoer, because the compensation claim depends on the existence of a trust fund, and the trust fund’s existence depends on the duty to account. And, if there can be no claim for compensation against the original wrongdoer, there can be none against the dishonest assister;[22]
• A further, free-standing, objection of Lord Burrows is introduced by the third point, that there is a risk of double recovery which can be avoided only by compelling the claimant to elect his remedy consistently, e., a compensation claim against Mr Stevens, was occluded by the election of an account from Mr Ruhan. Either there should be two claims for an account of profits, or two compensation claims.

When considering these four items (or points), it is helpful to keep in mind that an order to account for a stated value gives rise to judgment debt in the same way as an order providing for compensation for loss, and each type of order may be supplemented with an order for interest.  In terms of the quantum of recovery there is very unlikely ever to be a substantial, if any, disparity between the wrongdoer’s liability to transfer value pursuant to an order to account, and an order to pay compensation for loss.[23]

The attractiveness of Lord Burrows’ first point is, perhaps, rather limited both by its dependence on the correctness of the third point, and because, pace the learned judge, it benefits from a familiar technique for shifting causal emphasis from a later to an earlier event.  The effect produced by that technique is to put the first three points into a self-reinforcing cycle where each depends for its force on viewing the obtention of profit and its dissipation as a single event.  As we shall see, Lord Briggs attacked the notion there was but single event or scheme.

The second point, which is doctrinal and builds on academic thought,[24] treats a constructive trust as a confined, though still generous, remedial response which: “[C]reates the possibility of the claimant being awarded, or choosing, proprietary remedies in respect of identifiable (ie traceable) assets that are effective, and in that sense confer priority on the defendant’s insolvency.”[25]  Of course, these are effects produced by constructive trusts, but the majority considered these should not be the only effects.

Lord Burrows’ most compelling point is, probably, the third. It comes down to an observation that the claim for compensation for loss is parasitic upon an omission to account, and if a compensation claim could not have been maintained in isolation it should not be entertained as a derivative.  Once again, however, the point’s force depends on viewing the matter as one scheme.

The fourth point, made notwithstanding that the third point would render election chimerical,[26] is that if (for some reason) election is possible then, if it is not exercised consistently, it risks double-recovery.  Albeit the risk of double-recovery can, of course, be eliminated in other pragmatic ways.

The majority view (Lord Briggs)

By contrast, in essence, Lord Briggs explained:

• The moment the trust came into being HPII obtained absolute title to the trust property (e., it could say: “it’s mine”);[27] a fact, he said, is “a matter of cardinal importance to the outcome of this appeal.”[28] This shows, that in English law, a constructive trust is a real, or institutional, trust,[29] and not, except in a generalised sense, a remedial device.[30]  It is simply irrelevant that the defendants’ scheme was, in secret, to convert the profit, once obtained, to their own use;

• The profit-making breach is separate (and distinct) from the breach consisting of the dissipation of the property subject to the constructive trust.[31] The first breach is about unauthorised profit, the second about dissipating the trust fund which happens to be comprised of the profit.  There is no reason, therefore, why a dishonest assister should escape liability for dissipating trust property only because the trust originated as a constructive trust;
• Accordingly, upon Mr Ruhan’s receipt of the profit he was under a duty, which he breached, to inform HPII of the existence of the trust and seek its directions on what to do with it.[32] In other words, in common with every other trustee, Mr Ruhan had a duty to account to his beneficiary for the trust property.  This shows that to view a constructive trust as simply and specifically a remedial response to wrongdoing, is to fail to acknowledge its status as a fully-fledged trust; and

• Mr Ruhan was liable for the dissipation of the trust property, after the trust had been constituted, because the constructive trustee’s duty, which Mr Ruhan also breached, is to conserve it for the benefit of the sole beneficiary, in this case HPII.[33] It would be extraordinary, and contrary to basic equitable principle, for the dissipation of a fund held on an institutional constructive trust to give rise to no remedy by way of equitable compensation for consequential loss.[34]

Lord Briggs, applied the “but for” counterfactual test prescribed by Target Holdings Ltd v Redferns and AIB Group (UK) plc v Mark Redler & Co[35] in respect of the compensation claims by excluding the earlier breach of trust, i.e., by focussing on the trust that was breached, namely trustee’s duty to protect and conserve the trust fund, and not (as had Lord Burrows) on the earlier breaches of the “no profit” and “no conflict” rule which generated the trust fund.  In short, had the (constructive) trustee done its duty, qua trustee, there would have been no loss.

Cross-check against established principles of trust accounting

It is helpful to recollect that an account is a procedural remedy and (so far as relevant) as Lord Millett explained in Libertarian Investments v Hall:[36]

• It means that an accounting party, be this a trustee or a fiduciary (T), must answer to the beneficiary or principal (B) for what he has received by virtue of his office and what he has done with it. If it transpires that the property has been used for an unauthorised purpose, such as to make an unauthorised investment, then B may inquire, and T must explain, what has become of it;[37]

• If the outcome of the inquiry is that T has used trust money to acquire an investment then B may choose to appropriate it to the trust fund (in exercise of proprietary rights), or B may choose to require T personally to reconstitute the trust fund out of T’s own resources in the objective value of the misused property on the date the account is taken.[38]

As Lord Burrows indicates, B must choose his remedy[39] such that at any given time B may have one or the other, but not both.  By contrast, the majority decision means that where there are two defendants, one of them a trustee or fiduciary, and the other a dishonest assister, then the claimant may, as a result of taking an account, seek an order for restoration from one defendant, and a claim for compensation against the other. This seems to be administratively workable, provided some mechanism is worked out to prevent double-recovery.

The Court’s order was for the trustee/fiduciary defendant (Mr Ruhan) to pay a fixed sum to the HPII, which is simply an order to restore value to the trust fund.  There is a conceptual and qualitative difference between that order, and the order to the dishonest assister (Mr Stevens) to pay equitable compensation in the same, or about the same, amount.  The difference is that the former order is proprietary and could be used for tracing, while the latter is purely personal claim and cannot be so used.  The difference is consistent with the fact that the dissipated value went through Mr Ruhan’s hands as trustee, but not the hands of Mr Stevens, who was not a trustee.  Moreover, it is well-established that a dishonest assister is potentially personally liable for the full value lost to the trust fund.

Thus, the judgment of the majority is explicable by reference to traditional equitable accounting principles and, as mentioned in the introduction to this note, it supplies claimants with flexibility to seek orders with a view to improving opportunities for enforcement against different defendants according to the circumstances of the case.

Equitable set-off

Mr Stevens sought to off-set his liability for loss against the gain on the principle as these arose out of the same transaction.  The lone good authority for this proposition was Bartlett v. Barclays Bank[40] in which Brightman J (as he then was) held that a trustee is not permitted to set off gains caused by one breach of trust against losses incurred by another (except when the two breaches are in the same transaction).[41]

Lord Briggs held that the general principle where gains and losses are made and incurred for the trust estate by a series of breaches of trust is that one breach may not set off against the other.  The beneficiary is entitled to the gains, but the trustee must bear the losses.  But the court may recognise an exception where the application of the no set-off rule would produce a clearly inequitable result (it is a matter of discretion of the court whether to ameliorate the strict consequences of the general rule) by “tempering the wind to the shorn lamb”.[42]  The evidential burden lies on the person trying to disapply the no-set off principle (this is put in the negative because the usual principle is that there should be no set-off).[43]

Conclusion

Stevens v Hotel Portfolio II usefully clarifies and fortifies the status and scope of constructive trusts, in English law and, when occasion arises, it is likely that the Cayman Courts will welcome and adopt the principles laid out in Lord Briggs’ judgment.  Of course, whether or not there is room for debate about the newfound flexibility of the doctrine of election in this context in light of Lord Burrows’ powerful dissenting judgment is a matter that might lead to interesting argument before the courts, as occasion demands.  If the alternative view were to be taken up, it would not be first time that dissenting doctrine emerges as the cannon.[44]

[1]     Recovery Partners GP Ltd v. Rukhadze [2025] UKSC 10, [2025] 2 WLR 529,

[2]     E.g., Autumn Holdings Asset Inc. v Renova Resources Private Equity Ltd [2017 2 CILR 136] (constructive trust of shares issued in breach of fiduciary duty giving rise to proprietary claims; Premier Assurance Group SPC (Grand Court, unreported, 7 April 2022)(applying institutional constructive trust to payments made by mistake); Re Caledonian Bank [2015 2 CILR 8] (constructive trust arising by operation of law for payments made by mistake); Ahmad Hamad Algosaibi & Brothers Company v Saad Investments Company [2018 3 CILR 1] (no constructive trust without actual receipt of property, amounting to implicit rejection of remedial constructive trust); Grupo Torras SA v. Bank of Butterfield International (Cayman) Limited [2000 CILR 452] (rejection of notion that remedial constructive trust without proprietary interests forms part of Cayman law).

[1]    United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Tang Man Sit v Capacious Investments Ltd [1996] AC 514, Island Records Ltd v Tring International plc [1996] 1 WLR 1256; Foskett v McKeown [2001] 1 AC 102, 130-131; Recovery Partners, fn.1 [262] per Lord Burrows.

[2]     Target Holdings Ltd v Redferns [1996] AC 421; AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58; [2015] AC 1503

[3]    Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.

[4]    Gwembe Valley Development Co Ltd v Koshy [2004] 1 BCLC 131.

[5]    Foskett v. McKeown fn. 2, 127; JJ Harrison (Properties) Ltd v. Harrison [2001] EWCA Civ 1467, [27].

[6]    For the ingredients of a claim in dishonest assistance see Cockerill J’s summary in FM Capital Partners v. Marino [2018] EWHC 1768 (Comm), [82].

[7]    Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908 [93], [103]-[117], [119] holding a person who dishonestly assists in a breach of fiduciary duty is liable to account to the principal.

[8]    Recovery Partners fn. 1, per Lord Burrows, [287]

[9]    Ibid per Lord Burrows, [299]: “… it would undermine the purpose of the duty of loyalty to allow the fiduciary to dictate a counterfactual investigation of the profits that might lawfully have been made.”

[10] Ibid per Lord Burrows, [293]-[296].  The equitable allowance is likely to be awarded to innocent/well intentioned fiduciaries, such as in Boardman v Phipps fn. 3 where the fiduciary made a profit as the result of his fiduciary position with a view, successfully as it turned out, enhancing the value of the trust fund.

[11] Hotel Portfolio II UK Limited v Ruhan [2023] EWCA Civ 1120, [2024] Bus. L.R. 160, [63].

[12] Stevens v Hotel Portfolio II UK Limited [2025] UKSC 28, [16].

[13] Fn. 12, [20].

[14] United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Tang Man Sit v Capacious Investments Ltd [1996] AC 514, Island Records Ltd v Tring, fn. 2; Foskett v McKeown fn. 2, 130-131; Recovery Partners GP Ltd v. Rukhadze fn. 1, per Lord Burrows, [262].

[15] Hotel Portfolio II UK Ltd v Ruhan fn. 11.

[16] Stevens v Hotel Portfolio II UK Limited fn. 12.

[17] Ibid, [128]-[131]

[18] Ibid, [132]

[19] Ibid, [133]

[20] Ibid, [135] citing Newey LJ’s judgment in the same case in the UKCA, fn. 11.

[21] Stevens v Hotel Portfolio II UK Limited fn. 12, [136].

[22] Lord Burrows says he found the following particularly helpful:  Gbolahan Elias, ‘Explaining Constructive Trusts’ (1990), pp 159–163; Peter Birks, ‘Proprietary Rights as Remedies’ in The Frontiers of Liability (ed Birks, 1994), pp 214–223; Craig Rotherham, ‘Proprietary Remedies in Context’ (2002), ch 1 and pp 57–63; Birke Hacker, ‘Proprietary Restitution after Impaired Consent Transfers: a Generalised Power Model’ (2009) 68 CLJ 324; William Swadling, ‘The Fiction of the Constructive Trust’ (2011) 64 CLP 399; Goff & Jones on Unjust Enrichment, 10th ed (2022), paras 38-16 – 38-23; Hanbury & Martin, Modern Equity, 23rd ed (2024), paras 12-029 – 12-032.

[23] Stevens v Hotel Portfolio II UK Limited, fn. 12, [125]

[24]    Since, on Lord Burrows’ rationale, compensation claims are not available against either defendant.

[25] Ibid, [24], [25]; relying on Keech v Sandford (1726) Sel Cas Ch 61 for the “no profit” rule; relying on FHR European Ventures LLP v. Mankarious [2014] UKSC 45, [2015] AC 250 for the proposition that where a fiduciary acquires property through his fiduciary office a true relationship of trustee and beneficiary comes into existence as between fiduciary and principal.

[26] Stevens v Hotel Portfolio II UK Limited, fn. 12, [24].

[27] Ibid, [59].

[28] Ibid, [27]-[42], especially [28].

[29] Ibid, [37].

[30] Ibid, [23].

[31] Ibid, [23].

[32] Ibid, [35].

[33] Fn. 4Target Holdings Ltd v Redferns; AIB Group (UK) plc v Mark Redler & Co

[34] Libertarian Investments v Hall (2013) 16 HKCFAR 681, [2014] 1 HKC 368 per Lord Millett, [168]-[171]

[35] Ibid, per Lord Millett [168]-[169]

[36] Ibid, per Lord Millett [169]-[170]

[37] Though he may in certain circumstances switch from one remedy to the other:  Island Records Ltd v Tring International plc, fn. 2.

[38] Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] Ch 515

[39]   Stevens v Hotel Portfolio II UK Limited fn. 12, [63].

[40]   Ibid, [82].

[41]   Ibid, [83].

[42]   E.g., McLachlin J (as she then was) in Canson Enterprises Ltd. v. Boughton & Co. [1991] 3 S.C.R. 534 which provided the intellectual underpinnings of Target and Redler, fn. 33.