Mitchell and another (Joint Liquidators of MBI International & Partners Inc (In Liquidation)) v Sheikh Mohamed Bin Issa Al Jaber

A person who purports to exercise a fiduciary power over another’s property may incur fiduciary duties even though no lawful power, title or possession exists. The same act may both assume and breach those duties.

Where valuable property is misappropriated, the beneficiary suffers an immediate prima facie loss. Equitable compensation is assessed with hindsight at the date which is just and equitable. A defaulting fiduciary relying on a supervening event to reduce that loss must prove both the event and its proper inclusion in the causation analysis. Later wrongdoing, or an event in which the fiduciary participated without an innocent explanation, cannot ordinarily reduce liability.

An unpaid vendor’s lien may be excluded where the transaction’s documents, circumstances and purpose clearly establish the parties’ objective joint intention that no lien should arise.

The joint liquidators of a British Virgin Islands company claimed equitable compensation from its former director. After the company entered liquidation and his statutory powers had ceased, the director dishonestly purported to transfer 891,761 shares owned by the company to another group company. A subsequent transfer of all the assets and liabilities of the company in which the shares were held rendered them worthless.

The High Court, in [2023] EWHC 364 (Ch), found a breach of fiduciary duty and awarded €67,123,403.36. The Court of Appeal, in [2024] EWCA Civ 423, upheld liability and rejected a defence based on unpaid vendor’s liens, but reduced compensation to zero because the shares were worthless by trial.

The Supreme Court considered whether the former director incurred fiduciary duties despite lacking lawful powers, whether unpaid vendor’s liens eliminated the loss, and whether the later transaction could reduce the equitable compensation payable.

1. The former director’s appeal was dismissed. A person who arrogates to himself, or purports to exercise, a power fiduciary in nature assumes the obligations attached to that power. It is immaterial that the person lacks lawful authority, title or possession. A person pretending to occupy a fiduciary office cannot obtain a better position than a lawful office-holder. The director’s execution of the transfer documents and his procurement of the transferee’s registration formed one dishonest transaction. His fiduciary duty also required regard to the company’s creditors because the company was insolvent (paras 35–56).

2. The absence of a valid directorial power under section 175(1)(b) of the BVI Insolvency Act 2003 afforded no defence. The pretence was precisely that such a power existed. Nor was there any rule preventing the same act from both constituting the assumption of a fiduciary duty and breaching it (paras 54–55).

3. The unpaid-vendor’s-lien defence failed. Such a lien arises by operation of equitable law, but is excluded where its retention would conflict with the contract or the transaction’s true nature. The parties’ objective joint intention may be inferred from documents and closely connected surrounding evidence; it is not confined to executed documents. The evidence established that the shares were transferred to facilitate an initial public offering whose proceeds would pay the vendors. A lien would have frustrated that purpose (paras 68–85).

4. The liquidators’ appeal was allowed. Equitable compensation seeks to restore the value of misappropriated property. Hindsight available at trial informs the valuation, but there is no inflexible trial-date rule. The appropriate valuation date is whichever is just and equitable in the circumstances (paras 93–100).

5. Misappropriation of valuable property produces an immediate prima facie loss. A fiduciary who invokes a later actual or counterfactual event to reduce that loss bears the burden of proving the event and showing that it may properly break or qualify the causal connection. A wrongdoer cannot rely on later wrongdoing, or ordinarily on an event in which he participated, without a clear and convincing innocent explanation (paras 101–115).

6. The director had not explained his substantial apparent involvement in, and benefit from, the later asset-and-liability transfer. He therefore could not invoke it to reduce the loss caused by his earlier misappropriation. The High Court’s order requiring payment of €67,123,403.36 was reinstated (paras 116–129).

1. United Kingdom Supreme Court: The Sheikh’s appeal on fiduciary liability and unpaid vendor’s liens was dismissed. The Liquidators’ appeal on equitable compensation was allowed, and the High Court’s award was reinstated: [2025] UKSC 43.

2. Court of Appeal: The appeals were allowed only on loss. Fiduciary liability was upheld and the unpaid-vendor’s-lien defence rejected, but equitable compensation was reduced to zero: [2024] EWCA Civ 423; [2024] BCC 934.

3. High Court, Chancery Division: Joanna Smith J held that the share transfers were void, the Sheikh breached fiduciary duty, and the recipient was liable in knowing receipt. She awarded equitable compensation of €67,123,403.36: [2023] EWHC 364 (Ch).