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Mark Goodwin

Managing Partner, Provenio Law

Hannah Catterall

Partner, Provenio Law

Quotation Marks
Foxton J found that D1 breached his fiduciary duties by not disclosing his relationship with Cambulo to HPII's directors and shareholders.

Choose your remedy wisely

Practice Notes
Choose your remedy wisely

By and

When the court finds a breach of the director’s fiduciary duty but the company has suffered no loss, choose your remedy wisely say Mark Goodwin and Hannah Catterall

In October 2023, the Court of Appeal delivered its judgment in the case of Hotel Portfolio II UK Ltd (In Liquidation), addressing a pivotal legal question concerning a defendant's liability for dishonest assistance in a breach of fiduciary duty.

Initially, Foxton J determined that the Second Defendant (D2) acted consistently as the nominee of the First Defendant (D1) during the acquisition of the Hyde Park Hotels through Cambulo, their subsequent sale, and the investment of the profits.

Foxton J also found that D1 had breached his fiduciary duties by not disclosing his relationship with Cambulo to the other directors and shareholders of Hotel Portfolio II UK Limited (HPII) when Cambulo purchased the hotels. D2 was implicated for dishonestly assisting D1 in this breach.

HPII’s claims against both D1 for breach of fiduciary duty and D2 for dishonest assistance were successful. HPII elected to receive an account of profits from D1, which amounted to approximately £102m, and sought equitable compensation from D2 in the same amount. Both defendants were also ordered to pay pre-judgment interest, compounded with half-yearly rests, totaling around £60m.

The legal issue was further complicated by the principle that a claimant cannot simultaneously opt for an account of profits and compensation for the same loss. However, HPII contended that it was seeking compensation from D2 for a different breach than the one for which it claimed an account of profits from D1. In response, D2 appealed against the order for compensation and the compound interest.

Upon review, Newey LJ overturned the lower court's decision regarding D2. He concluded that HPII was not entitled to "compensation of any kind" from D2, nor to any compound interest on such compensation. Instead, the court revised the remedy to require an account of the profits that D2 had personally made, shifting the focus from compensatory damages to the gains D2 obtained from his involvement in the breaches.


In May 2003, HPII, which owned a portfolio of three prominent hotels in London's Hyde Park area—the Kensington Palace Hotel, Kensington Park Hotel, and the Lancaster Gate Hotel—was sold to companies controlled by D1. Subsequently, D1 was appointed as a director of HPII. During this period, HPII was financially obligated to both Morgan Stanley Bank International Limited and Thistle Hotels plc. These entities, along with D1, agreed to a restructuring that resulted in each holding an equal share of HPII.

By February 2005, Euro Estates Holdings Limited, linked to D2, became the sole shareholder of Cambulo Comercio (“Cambulo”). A business sale agreement was finalised between HPII and Cambulo, under which Cambulo agreed to purchase the Hyde Park Hotels for £127m.

Cambulo sold the Lancaster Gate Hotel in August 2006 for £67.5m, realising a profit of £7.76m. In early 2008, the two Kensington Hotels, having been developed in a joint venture with a company owned by the Candy brothers (known as "CPC"), were sold to an unrelated third party for £320m, netting Cambulo a substantial profit of approximately £94.5m.

Foxton J noted that D1 had failed to properly account for these significant profits to HPII and had dispersed them with the assistance of D2. This failure to manage and report the financial gains from the hotel sales represented a breach of fiduciary duty, implicating both D1 and D2 in the mismanagement and misappropriation of funds owed to HPII.

Significance of the judgment

In the appeal, central arguments revolved around determining whether D1’s actions constituted a single breach of fiduciary duty or multiple separate breaches, with D2's dishonest assistance. This distinction was crucial because it would determine whether HPII could seek different remedies for each breach—namely, an account of profits against D1 for the initial breach and equitable compensation against D2 for the subsequent breach.

The Court of Appeal aimed to synthesise the precedents set in Bartlett v Barclays Bank Trust Co Ltd and Brown v KMR Services Ltd to guide their interpretation of the events concerning the Hyde Park Hotels. The decision needed to address whether the actions taken by D1, assisted by D2, should be viewed as a continuum of a single scheme or as distinct, actionable breaches.

Single breach or series?

Males LJ considered both Bartlett v Barclays Bank Trust Co Ltd and Brown v KMR Services Ltd to determine whether D1's actions constituted a single breach or multiple separate breaches of fiduciary duty, and whether the two breaches in which D2 assisted could support an equitable compensation claim, in circumstances where the first breach caused no loss but the second breach, arising out of the first breach, gave rise to a potential gain.

In Bartlett, the court held that profits and losses, both resulting from breaches of trust, may not be set against the gain except where they arise in the same transaction. By contrast, in Brown, the judge found that where there have been separate breaches of contract, the plaintiff is entitled to an independent and separate cause of action in respect of each breach.

Males LJ suggested that reconciling these apparently conflicting positions and gains arising “in the same transaction,” as mentioned in Bartlett. He found a useful analogy with ‘equitable set off’ a whereby an inextricable connection “arises when a cross claim is so closely connected with the claimant’s demands that it would be manifestly unjust to allow the claimant to enforce payment without taking into account the cross claim.”

On this basis, he concluded that it would be “manifestly unjust” to hold D1 (and therefore D2) liable to pay compensation in circumstances which HPII could never have made those profits itself and such profits were only generated through D1’s scheme to generate profits from developing the hotels. He found this to be distinguishable from the position in Brown in which the actions giving rise to the breaches were regarded as independent and separate.

Therefore, Males LJ concluded that equitable compensation is concerned with loss, and HPII had not suffered any loss. The claim for account of profits was concerned with the defendants’ gain, and therefore D1 and D2 were liable for the profits they had each respectively made.

Election of different remedies

Newey LJ found that Foxton J’s order did not distinguish between different breaches by D1 of his fiduciary duty. Therefore, the election by HPII for a remedy for account of profits against D1 encompassed all of D1’s conduct.

Furthermore, there was no evidence indicating that HPII’s election for account of profits was limited just to the original sale of the HPII hotels, which would allow HPII free to claim compensation from D1 for misapplication of the profits, as HPII had claimed.

Instead, Newey LJ found that the “sale was inextricably connected to the profits for whose loss HPII is seeking compensation,” indicating a continuous implementation of D1's overarching scheme, facilitated by D2, over several years—typical in redevelopment scenarios—without any disruption. This constituted a single, uninterrupted course of conduct that, in its entirety, caused no loss to HPII.

Consequentially, Newey LJ held that, since HPII having suffered no loss, D2’s liability was limited to his personal profit. This reaffirmed the established legal principle in Ultraframe and Novoship, that a dishonest assistant should only be liable for any profit he had made himself, rather than any profits made by the fiduciary. Newey LJ did not accept that any attempt to distinguish between substitutive or reparative compensation was helpful in these circumstances.

Further analysis

In his obiter remarks, Newey LJ identified a more fundamental objection to HPII’s claim for compensation. He remarked that he did not consider it feasible to claim compensation from a dishonest assistant where a claimant has opted for an account of profits, instead of compensation, against a fiduciary. For a compensation claim for loss involving a dishonest assistant, the fiduciary must also be liable for the same loss.

Moreover, Foxton J identified two breaches. The first breach concerned the sale of the hotels to himself as a director, leading to a claim for an account of profits against D1 for self-dealing with trust property for personal gain. The second breach related to the disbursement and application of the profits from the development of the hotels. This breach gave rise to HPII's equitable compensation claim against Defendant 2 (D2) for his dishonest assistance in that breach.

However, Newey LJ disagreed that the type of trust established by the first breach could give rise to a claim for a breach of trust concerning the investment of the trust property, specifically the disbursement of the proceeds from the sale. Consequently, he concluded that no separate claim for compensation for the misapplication of a benefit could be maintained.