Hotel Portfolio II UK Limited (In Liquidation) & Anor v Andrew Joseph Ruhan & Anor

The Court of Appeal considered liability for dishonest assistance in breaches of fiduciary duty where a nominee purchased company assets and profits subsequently accrued. The court confirmed the established principle that a dishonest assistant can be ordered to disgorge profits that he personally derived from assisting a fiduciary but, as a general rule, cannot be required to account for profits received only by the fiduciary.

The Judge at first instance had ordered the appellant, Mr Stevens, to pay equitable compensation equal to the full profits realised by the fiduciary (Mr Ruhan). The Court of Appeal allowed the appeal against that award of compensation, concluding that the compensation claim was impermissibly overlapping with the account of profits obtained against the fiduciary and that, on these facts, it was just to limit the assistant’s liability to any personal profits he had made. The court also deferred final determination of interest, including compound interest, to the account proceedings.

Companies Act 1985 provisions (including section 320 and section 322(3)(a)) and equitable doctrines on constructive trusts, tracing, account of profits and substitutive versus reparative equitable compensation were central to the decision.

Background and parties: The claimants were Hotel Portfolio II UK Limited (in liquidation) and its liquidator. The defendants were Andrew Joseph Ruhan and Anthony Edward Stevens, with interested parties also present. At first instance Foxton J held that Mr Ruhan had breached fiduciary duties and that Mr Stevens had dishonestly assisted. The Judge awarded an account of profits against Mr Ruhan and equitable compensation against Mr Stevens equal to the profits realised (together with compound interest).

Nature of the claim and procedural posture: This was an appeal by Mr Stevens against the award of equitable compensation and the grant of compound interest. The appeal arose from two High Court judgments ([2022] EWHC 383 (Comm) and [2022] EWHC 1695 (Comm)) and came before the Court of Appeal ([2023] EWCA Civ 1120).

Facts (concise): HPII owned a portfolio of London hotels. Mr Ruhan, a director, caused the hotels to be acquired through nominee vehicles linked with Mr Stevens (Cambulo entities). The nominee structure and undisclosed interests produced substantial resale profits. HPII alleged breaches of fiduciary duty by Mr Ruhan, a proprietary claim over the hotels and proceeds, dishonest assistance by Mr Stevens and unlawful means conspiracy.

Issues framed:

• whether a dishonest assistant can be ordered to pay equitable compensation equivalent to profits realised by the fiduciary when the assistant did not personally receive those profits;
• whether the Judge was right to treat the profits as trust property and to award compensation against the assistant as an alternative to an account of profits; and
• whether the Judge had power to order compound interest on the compensation awarded.

Court’s reasoning and conclusions: The Court of Appeal held that established authority (including Ultraframe and Novoship) supports treating dishonest assistants as liable to account for profits they personally received, and to be jointly and severally liable with fiduciaries for loss caused by an assisted breach. However, the court concluded it was not appropriate to require a dishonest assistant to compensate the principal for profits realised solely by the fiduciary when the principal had elected, and succeeded, in obtaining an account of profits against that fiduciary. On the facts there was a single continuous scheme which produced the profits, and when the overall course of conduct is assessed HPII suffered no net loss; equity is satisfied by the account of profits against the fiduciary. Accordingly the Court allowed the appeal in relation to the award of equitable compensation against Mr Stevens and set it aside, leaving issues of interest (including compound interest) to be re-examined in the context of any account of profits against Mr Stevens himself. The court emphasised the distinction between (i) substitutive equitable compensation (restorative/restitutionary replacement of trust property) and (ii) reparative compensation (loss-based) and considered that the claimant could not properly recover both the fiduciary’s account and compensation for the same overall wrong.

Appeal allowed. The Court held that a dishonest assistant can be required to disgorge the profits he personally received but should not, as a rule, be ordered to pay equitable compensation equal to profits realised solely by the fiduciary where the fiduciary has been ordered to account; on the facts the claimant had suffered no net loss and the Judge’s award of equitable compensation against Mr Stevens was set aside. Questions of interest (including compound interest) were remitted to be considered in the context of the account of profits.

Appeal from the High Court of Justice, Business and Property Courts (Commercial Court (KBD), Foxton J): [2022] EWHC 383 (Comm) and [2022] EWHC 1695 (Comm). Determination by the Court of Appeal: [2023] EWCA Civ 1120.