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Trust restored - dishonest assistant made to pay for breach of constructive trust

12 Aug 2025
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Smiling hotel manager working on a computer at reception desk

In Stevens v Hotel Portfolio II UK Ltd (HPII), a judgment handed down by the Supreme Court on 23 July 2025, Lord Briggs gave the leading judgment (with only Lord Burrows dissenting), providing a clear statement of the law on compensation for breach of constructive trust by a trustee and a dishonest assistant.

In 2005, HPII sold three hotels to a company owned by Mr Stevens. In fact, both the company and Mr Stevens were nominees for Mr Ruhan who concealed from HPII that he was the real purchaser. The hotels were sold at market value. Accordingly, HPII suffered no loss at that stage. Between 2006 and 2008, the company sold the hotels at a significant profit. Mr Ruhan benefitted from a dividend by the company of £95 million, which he dissipated for his own purposes and subsequently lost in poor investments.

When the loss was discovered by the liquidators of HPII, HPII sued Mr Ruhan and Mr Stevens; Mr Ruhan for breach of his fiduciary duties and Mr Stevens for dishonest assistance.

The High Court in this case found that Mr Stevens had dishonestly assisted Mr Ruhan in both the acquisition of profits and their dissipation. The Judge found that the dissipation of the profits caused HPII an equivalent loss and ordered Mr Stevens to compensate HPII accordingly. However, the Court of Appeal allowed an appeal on the basis that (a) HPII was only the temporary beneficial owner since both the gain and the loss were parts of a single pre-arranged fraudulent scheme by Mr Ruhan and (b) the loss caused to HPII by the dissipation was set off by an equivalent gain caused by Mr Ruhan’s related breach of fiduciary duty such that there was no loss.

The Supreme Court took a step back and stated that the argument that a complete dissipation by a trustee can have caused the beneficiary no loss defied both equity and ordinary common sense.

The Supreme Court helpfully restated the basic law surrounding dissipation of constructive trusts as follows
  1. There is no fundamental difference between the relationship between trustee and beneficiary and the analogous relationship between fiduciary and principal (such as a director and company).
  2. The recipient becomes a constructive trustee of the dividend immediately upon its receipt with a duty to conserve the trust property for the benefit of the beneficiary and not destroy the beneficiary’s proprietary interest in it. From the moment of receipt, the dividend belongs to the beneficiary.
  3. A dissipation of the fund is a breach of trust for which the trustee is liable to compensate the beneficiary.
  4. A dishonest assistant is jointly liable with the trustee.
  5. If the dissipation caused the beneficiary a loss, and if no equitable set-off is available, then that is a loss for which compensation is due.

The questions for the Supreme Court to answer were whether the court can order compensation for loss caused by breach of a constructive trust; whether the dissipation of the dividend caused HPII a loss; and whether Mr Stevens could pray in aid an equitable set-off of the gain made by HPII.

On the facts of this case, the Supreme Court held the answers to these three questions were as follows
  1. The constructive trust imposed the usual obligation on the trustee not to dissipate the trust property and the usual obligation on both him, and any dishonest assistant, to compensate the beneficiary for that loss.
  2. Applying a but-for analysis, the dissipation caused HPII to lose the whole value of its beneficial interest in the trust property regardless of the fact that the dividend was the fruit of an earlier breach of trust in making the profit in the first place.
  3. The purpose of the constructive trust would be entirely defeated by allowing a set-off of the gain represented by the profit against the loss, since this would wipe out any personal liability by the trustee and dishonest assistant. The fundamental principles were therefore unaffected by (a) whether there was an earlier breach of fiduciary duty to the same beneficiary; (b) whether the making of the profits caused the beneficiary no loss (and in this case it did not); and (c) whether the effect of the constructive trust was to confer a gain on the beneficiary.

While Harneys does not practise the law of England and Wales, the decision will be of general interest to practitioners in the BVI and Cayman Islands, where a constructive trustee and/or a dishonest assistant’s compensatory duties to the beneficiary of a constructive trust may often be tested.