Stevens v Hotel Portfolio II UK Ltd & Anor

Factual and Procedural Background

Company A (the Appellant) owned several London hotels (“the Hotels”). Its director (“the Director”) owed fiduciary duties to Company A but secretly arranged for the Hotels to be sold at market value to Company B, a company controlled by the Defendant (the Respondent) who was acting as the Director’s nominee. Company B later resold the Hotels for a large profit, enabling the Director to realise approximately £102.26 million. The Director, with the Defendant’s assistance, dissipated these profits.

At first instance, Judge Foxton held that the profits were held on constructive trust for Company A. He concluded that the Director’s dissipation of those trust assets constituted a further breach of fiduciary duty and awarded Company A, at its election, either an account of profits or equitable compensation from both the Director (for breach of fiduciary duty) and the Defendant (for dishonest assistance). The Defendant was already liable to account for the £1.5 million he had personally made.

The Court of Appeal (Judges Newey, Males and Birss) allowed the Defendant’s appeal, ruling that Company A had suffered no overall loss and that the Defendant’s liability was limited to the profits he personally obtained.

The present opinion is that of Judge Burrows, dissenting as to reasoning but concurring in the ultimate result: he would dismiss Company A’s further appeal.

Legal Issues Presented

1. Whether a beneficiary that has suffered no overall loss can obtain equitable compensation from a dishonest assister for the dissipation of profits made by a fiduciary in breach of duty.
2. Whether profits held on a constructive trust give rise to a compensatory remedy (equitable compensation) in addition to disgorgement remedies (account of profits) and, if so, whether such compensation can be enforced against an accessory.
3. Whether the principle that a dishonest assister is liable only for his own profits can be circumvented by framing the claim as one for equitable compensation.
4. Whether a beneficiary’s election to pursue an account of profits against the fiduciary precludes a concurrent claim for compensation against the dishonest assister.

Arguments of the Parties

Appellant’s Arguments

• The Director’s profits were impressed with a constructive trust in favour of Company A; dissipation of those profits breached that trust, entitling Company A to equitable compensation from the Director.
• Because the Defendant dishonestly assisted both the making and the dissipation of the profits, he is jointly and severally liable to pay equitable compensation equal to the amount lost to Company A when the profits were dissipated.
• The constructive trust gives rise to both proprietary and compensatory remedies; limiting relief to the Defendant’s personal profit would undermine the accessory liability principle.

Respondent’s Arguments

• The entire course of dealing was a single scheme that left Company A in no worse position; therefore, there is no compensable loss.
• English law confines an accessory’s liability for profits to those he personally gains; allowing compensation for the fiduciary’s profits would contradict Ultraframe and Novoship.
• Company A elected to claim an account of profits from the Director; having done so, it cannot rely on an alleged loss arising from failure to receive those same profits.
• Awarding compensation in these circumstances would risk double recovery and distort settled equitable principles.

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Burrows accepted, for argument’s sake, that a constructive trust of profits might create an equitable compensation claim against the fiduciary if the trust assets are dissipated. However, he identified several reasons why that premise could not support a compensation claim against the dishonest assister in this case:

• Single scheme, no loss: The Director’s acquisition and dissipation of profits formed one indivisible dishonest plan. Company A received market value for the Hotels and therefore suffered no net loss; compensation should restore, not improve, the claimant’s position.
• Assister’s limited liability: Established authority confines the dishonest assister’s exposure to the profits he personally obtains. Imposing compensation equivalent to the Director’s profits would contradict that settled rule.
• Disgorgement vs compensation: The constructive trust is a disgorgement device, not a compensatory one. Converting the aider’s liability into compensation for a disgorgement failure would conflate distinct remedial regimes.
• Election and double recovery: Company A elected to claim an account of profits from the Director; to treat the non-receipt of those same profits as “loss” for compensation purposes would defeat the election doctrine and risk double recovery.
• Policy coherence: Allowing compensation against an assister who only helps dissipate profits would create an illogical distinction whereby an assister involved from the outset could avoid such liability, undermining principled development of accessory liability.

For these reasons, Judge Burrows concluded that the equitable compensation claim against the Defendant could not succeed, though the Defendant remains liable to account for his own £1.5 million profit.

Holding and Implications

APPEAL DISMISSED.

The opinion upholds the Court of Appeal’s ruling that a dishonest assister is not liable to compensate a beneficiary for the principal fiduciary’s dissipated profits where the beneficiary has suffered no overall loss. The decision confirms that an assister’s liability remains limited to profits personally gained and emphasises the importance of the election doctrine and avoidance of double recovery. No new precedent is set, but the reasoning reinforces existing limits on equitable compensation in cases of dishonest assistance.