Supreme Court clarifies dishonest assistance liability in constructive trust cases

The Supreme Court decision in Stevens v Hotel Portfolio II UK Ltd (In Liquidation) and another has established important precedents regarding equitable compensation in constructive trust scenarios, particularly where trust assets have been dissipated through dishonest assistance. The judgement clarifies the extent to which parties who assist in breaches of fiduciary duty remain liable despite complex factual circumstances involving unauthorised profits.

Background and factual matrix

The dispute centred on Hotel Portfolio II UK Ltd (HPII), which managed several London hotels through its director, Mr Ruhan. In 2008, Mr Ruhan orchestrated an unauthorised dividend distribution of approximately £95 million, creating substantial profits that were subsequently dissipated. Mr Stevens provided dishonest assistance both in creating these profits and in their subsequent dissipation, leading to HPII's equitable compensation claim against him.

The commercial reality involved HPII ultimately selling the hotels at market value, creating a complex question about whether any compensable loss had actually occurred. This factual scenario presented the courts with difficult questions about the relationship between different breaches of fiduciary duty and their respective consequences.

Judicial progression through the courts

At first instance, the trial judge found Mr Stevens liable for compensation, holding that his dishonest assistance created joint liability with Mr Ruhan for the losses flowing from their actions. However, the Court of Appeal reversed this decision, reasoning that since HPII had not suffered any net financial detriment—having disposed of the hotels at fair market value—no compensable loss existed for which Mr Stevens should bear responsibility.

This reasoning proved problematic on further appeal, as it potentially created significant gaps in the protection afforded to beneficiaries under trust law principles.

Supreme Court analysis and reasoning

The Supreme Court's analysis focused on fundamental principles governing constructive trusts and dishonest assistance. The court emphasised that where a constructive trust arises, beneficiaries acquire proprietary interests that deserve protection regardless of the complex interplay between different breaches of duty.

Crucially, the Supreme Court rejected the proposition that gains from one breach of trust could be set off against losses from another distinct breach. The court recognised that each breach constitutes a separate wrong, with the dissipation of trust assets representing a distinct violation of fiduciary obligations that cannot be excused by reference to earlier unauthorised profits.

The judgement stressed that denying compensation in such circumstances would undermine the fundamental protective purpose of trust law. The court held that the assessment of loss must consider the value of beneficiaries' rights that have been compromised, rather than attempting complex calculations of overall financial impact across multiple breaches.

Legal implications and precedential value

The Supreme Court's restoration of the trial judge's decision establishes several important principles. First, dishonest assistants cannot escape liability by arguing that their actions formed part of a broader scheme that created offsetting benefits. Second, the dissipation of trust assets constitutes actionable harm regardless of how those assets were originally acquired.

The decision reinforces that equitable compensation serves not merely to restore financial position but to vindicate the proprietary rights inherent in trust relationships. This approach ensures that those who participate in breaches of fiduciary duty through dishonest assistance face appropriate consequences under equitable principles.

The ruling significantly strengthens the position of beneficiaries in complex commercial disputes involving multiple breaches of duty. It prevents defendants from relying on sophisticated arguments about net financial impact to avoid liability for specific wrongful acts.

Stevens v Hotel Portfolio II UK Ltd therefore represents a robust affirmation of traditional trust law principles in modern commercial contexts. The Supreme Court's approach ensures that the protective mechanisms inherent in constructive trust doctrine remain effective against increasingly sophisticated attempts to dissipate trust assets whilst avoiding liability through technical legal arguments.