Mitchell and another v Sheikh Mohamed Bin Issa Al Jaber [2025] UKSC 43

Joint liquidators sued Sheikh Al Jaber for equitable compensation after he dishonestly transferred 891,761 shares owned by a company in liquidation to another entity he controlled. The Supreme Court held that by purporting to exercise directorial powers after liquidation, the Sheikh assumed fiduciary duties and breached them, restoring the trial judge's award of approximately €67 million.

Facts

MBI International & Partners Inc (‘the Company’), a BVI company of which Sheikh Mohamed Bin Issa Al Jaber was sole shareholder and director, was wound up by court order in October 2011. Under BVI insolvency law, the Sheikh’s powers as director ceased upon commencement of winding up. Nevertheless, in February 2016, the Sheikh dishonestly signed share transfer forms purporting to transfer 891,761 shares (‘the 891K shares’) owned by the Company in JJW Inc to JJW Guernsey, another company he controlled. The share transfers were backdated to appear as if executed in 2010 before the liquidation. In July 2017, all assets and liabilities of JJW Inc were transferred to JJW UK, allegedly rendering the 891K shares worthless.

The 2009 Acquisitions

The Company had acquired the 891K shares in March 2009 under Share Purchase Agreements in the context of a planned IPO, with the purchase price to be paid from IPO proceeds. The IPO never occurred and the consideration was never paid.

Issues

The appeal raised three principal issues:

1. Whether the Sheikh owed and breached a fiduciary duty to the Company by effecting the 2016 Share Transfers when his directorial powers had been removed by statute?
2. Whether the Company suffered no loss because the 891K shares were subject to unpaid vendor’s liens exceeding any compensation ordered?
3. How to calculate the Company’s loss when the value of the shares was allegedly destroyed by the subsequent 2017 Asset and Liability Transfer?

Judgment

Issue 1: Breach of Fiduciary Duty

The Supreme Court unanimously dismissed the Sheikh’s appeal on this issue. The Court held that by purporting to sign share transfer forms as a director of the Company, the Sheikh arrogated to himself a fiduciary power and thereby assumed fiduciary duties. The principle is that a person who assumes an office ought not to be in a better position than if he were what he pretends.

“The pretence by the Sheikh in signing the share transfer forms in the 2016 Share Transfers was that he had power as a director to transfer the 891K shares. He cannot hide behind the statutory provision which removed his power as director… as that is contrary to his pretence and, indeed, it was the effect of that provision which he was seeking to avoid by using his pretence.”

Issue 2: Unpaid Vendor’s Liens

The Court rejected the Sheikh’s argument that unpaid vendor’s liens attached to the shares exceeded their value. The trial judge found that the existence of such liens would have frustrated the purpose of the Share Purchase Agreements, which was to facilitate an IPO. The Court affirmed that evidence of the circumstances surrounding the transaction could be used to determine whether such a lien was excluded by the parties’ joint intention.

“The lien arises by operation of law unless its exclusion can be objectively inferred from the terms of the documents and the nature of the transaction.”

Issue 3: Calculation of Loss

The Supreme Court allowed the Liquidators’ appeal on this issue, restoring the trial judge’s award of €67,123,403.36. The Court held that where a fiduciary misappropriates property, the burden lies on the fiduciary to prove that any supervening event broke the chain of causation. The Sheikh failed to discharge this burden regarding the 2017 Asset and Liability Transfer.

“When the cestui que trust has shewn that the trustee has made default in the performance of his duty, and when the money which was the subject of the trust is not forthcoming, the cestui que trust has made out, in my judgment, a prima facie case of liability upon the trustee, and if the trustee desire to repel that by saying that if he had done his duty no good would have flowed from it, the burden of sustaining that argument is plainly upon the trustee.”

The Court emphasised that a wrongdoing fiduciary cannot rely on his own subsequent wrongdoing to reduce the loss flowing from his initial breach. The Sheikh’s significant involvement in the 2017 transaction, combined with his failure to provide satisfactory explanation for it, meant he could not pray it in aid to extinguish his liability.

Implications

This judgment clarifies important principles regarding:

• De facto fiduciaries: A person who purports to exercise fiduciary powers assumes fiduciary duties, even where those powers have been legally removed.
• Unpaid vendor’s liens: Such liens may be excluded by evidence of the circumstances and purpose of the transaction, not merely by documentary terms.
• Equitable compensation: The burden lies on the defaulting fiduciary to prove that supervening events should reduce their liability. A fiduciary cannot benefit from subsequent events in which they played a significant role without providing full explanation.
• Information asymmetry: Courts will expect fiduciaries to make full disclosure when seeking to rely on subsequent events to diminish their liability.

Verdict: The Supreme Court dismissed the Sheikh’s appeal on Issues 1 and 2 and allowed the Liquidators’ appeal on Issue 3. The trial judge’s order requiring the Sheikh to pay equitable compensation of €67,123,403.36 was reinstated.

Source: Mitchell and another v Sheikh Mohamed Bin Issa Al Jaber