Stevens v Hotel Portfolio II UK Ltd & Anor [2025] UKSC 28 (23 July 2025)

Mr Ruhan, a director of HPII, secretly purchased hotels from HPII through a nominee (Mr Stevens), resold them for £102m profit, then dissipated the funds. The Supreme Court held that a dishonest assistant in dissipating profits held on constructive trust is liable to compensate the beneficiary for the loss, even where the profits arose from an earlier breach causing no loss.

Facts

Hotel Portfolio II UK Ltd (HPII) sold various London hotels to Cambulo Madeira, a company controlled by Mr Stevens as nominee for Mr Ruhan, a director of HPII. The sale was at fair market value, but Mr Ruhan’s involvement was dishonestly concealed. Cambulo Madeira subsequently resold the hotels, generating profits of approximately £102 million. Mr Ruhan immediately dissipated these profits on speculative projects in Qatar, losing all traceable assets. Mr Stevens dishonestly assisted both in acquiring the profits and in their dissipation.

The Constructive Trust

Upon receipt of the profits, Mr Ruhan held them on institutional constructive trust for HPII as beneficial owner. The dissipation of these profits constituted a breach of that trust.

Issues

The central legal question was whether a person who dishonestly assists a constructive trustee in dissipating the trust fund is liable to compensate the beneficiary for the consequential loss of its proprietary interest, where: (1) the fund consisted of unauthorised profits made by the trustee in breach of fiduciary duty which caused the beneficiary no loss; and (2) the dishonest assistant also assisted in making the profit originally.

Judgment

Majority Decision (Lord Briggs, with Lord Reed, Lord Hamblen and Lord Richards)

The Supreme Court allowed the appeal and restored the trial judge’s order. The majority held that:

The constructive trust of unauthorised profits is a real institutional trust, not merely a remedy for the earlier breach. From the moment of receipt, the profits belonged beneficially to HPII.

The dissipation of the dividend caused HPII to lose its beneficial interest. The correct counterfactual under Target Holdings v Redferns is to assume the trustee performed his duty under the constructive trust, not that there was no profit and no trust.

The no set-off principle in equity prevents trustees from setting off gains from one breach against losses from another. No exception applies here because allowing set-off would undermine the purpose of the constructive trust and permit the dishonest assistant to escape liability entirely.

A dishonest assistant who assists in dissipation is jointly liable with the trustee for the loss caused, irrespective of the Novoship principle which only protects assistants from disgorging profits they did not personally receive.

Dissenting Judgment (Lord Burrows)

Lord Burrows would have dismissed the appeal. He reasoned that there was a single dishonest scheme causing no overall loss to HPII, and that making Mr Stevens liable for equitable compensation would inconsistently render him liable for Mr Ruhan’s profits through a backdoor compensation route, contrary to established principle.

Implications

This decision clarifies that constructive trusts of unauthorised profits impose genuine trust obligations, breach of which gives rise to compensatory liability against both the trustee and any dishonest assistant in dissipation. The decision reinforces the strictness with which equity enforces fiduciary obligations and the protection afforded to beneficiaries’ proprietary interests. It confirms that the no set-off principle will not be disapplied merely because multiple breaches are connected by dishonesty or form part of a broader fraudulent scheme.

Verdict: Appeal allowed. The Supreme Court restored the trial judge’s order holding Mr Stevens liable to compensate HPII for the loss caused by dissipation of the profits held on constructive trust.

Source: Stevens v Hotel Portfolio II UK Ltd & Anor [2025] UKSC 28 (23 July 2025)