A recent Court of Appeal decision has confirmed that, where a fiduciary has committed multiple breaches of trust, a court may have regard to their overall impact when assessing a claimant's loss, rather than viewing them on an individual basis. While every case will turn on its facts, the decision suggests that a key question will be whether the conduct can be viewed as part of one overarching transaction or scheme, so that it would be manifestly unjust to order compensation for a loss flowing from one breach without taking into account a benefit in respect another breach: Hotel Portfolio II UK Limited (in liquidation) and another v Ruhan and others [2023] EWCA Civ 1120.

A claimant who has established a breach of fiduciary duty will typically have the option to choose between two remedies: (a) an account of any profits earned by the defendant as a result of the breach or (b) equitable compensation for any loss sustained by the claimant as a result of the breach.

The present case concerned a company director's breach of fiduciary duty by failing to disclose his personal interest in a sale of the company's assets, and later failing to account to the company for profits he earned by re-selling the assets. Reversing the High Court's decision, the Court of Appeal held that the company could not claim both: (i) an account of profits from the director – as a remedy for the non-disclosure in the original sale; and (ii) equitable compensation in the same amount from another party who had dishonestly assisted the director – for the "loss" occasioned by the director's subsequent breach in failing to pay the profit to the company.

Key to that decision was the court's finding that the two breaches were inextricably connected, as elements of a single scheme aimed at earning a profit from the assets. It would be manifestly unjust to award the company compensation for being deprived of the profits without recognising the parallel claim for an account of those same profits. There was a single and uninterrupted course of conduct which, taken as a whole, caused the company no loss because the company had received full market value for the assets and could not itself have exploited the opportunity to profit.

The implications of the decision are not limited to such "self-dealing" cases and could apply to any type of fiduciary breach, particularly in claims (against a fiduciary and/or dishonest assistant) alleging a misapplication of unauthorised profits resulting from an earlier breach.

The Court of Appeal's judgment is also important for a number of obiter observations made by Lord Justice Newey in the lead judgment. He suggested that there may be a more fundamental objection to a claim for equitable compensation (as distinct from an account of profits), based on the nature of the trust that arises where a fiduciary acquires a benefit by reason of their breach of fiduciary duty. That analysis is likely to be explored in detail in future cases.


The breaches

The claimant company (HPII) owned three hotels around Hyde Park with substantial development potential, but was not in a position to undertake that development. The first defendant, Mr Ruhan, was a director of HPII and was authorised to accept a bid for the purchase of the hotels for £127 million by a group of companies (Cambulo). Cambulo was owned by companies associated with the second defendant, Mr Stevens.

Mr Ruhan concealed from HPII the fact that he had an association with Mr Stevens and an interest in Cambulo.

Cambulo subsequently on-sold the hotels (after redevelopment in two cases) to unconnected parties, realising substantial profits. Approximately £102 million of those profits accrued to Mr Ruhan through their reinvestment in a separate property development he was pursuing. Mr Stevens received benefits amounting to £1.5 million for his part in the arrangement.

HPII's liquidator brought High Court proceedings against both Mr Ruhan and Mr Stevens.

First instance decision

Mr Justice Foxton found that Mr Stevens had at all times been acting as Mr Ruhan's nominee, and on his instructions, in acquiring the hotels through Cambulo, on-selling them, and reinvesting the profits.

Mr Ruhan's failure to disclose his interest in the sale to Cambulo was in breach of his duties to HPII, including his fiduciary duty to avoid a conflict between his personal interest and his duties, and the rule against "self-dealing" (the first breach). Mr Stevens dishonestly assisted him in that breach.

HPII did not assert that the price it received from Cambulo for the hotels was below their reasonable market valuation, or that HPII could have otherwise exploited their potential and realised a better return. HPII had therefore not suffered any loss as a result of the first breach.

However, Foxton J accepted that Mr Ruhan committed a second breach of his duties when the hotels were later on-sold and he misapplied the sale proceeds (which Foxton J ruled were held on a constructive trust for HPII) for his own benefit. Mr Stevens also dishonestly assisted that breach. The second breach did cause loss to HPII, because it did not receive the proceeds to which it was entitled.

Foxton J concluded that HPII could therefore elect to receive:

  • From Mr Ruhan:

(a) an account of the profits he earned (the £102 million); or, alternatively

(b) equitable compensation in the same amount, for the loss occasioned by the second breach (ie his failure to pay HPII the proceeds of the on-sale).

  • From Mr Stevens:

(a) an account of the (much smaller) profits he himself had earned; or, alternatively

(b) equitable compensation of £102 million, on the same basis as this could be sought from Mr Ruhan (ie as compensation for the loss occasioned by Mr Ruhan's failure to pay HPII the proceeds of the on-sale).

The claimants elected for an account of profits from Mr Ruhan (£102 million) and equitable compensation from Mr Stevens in the same amount. Each was also ordered to pay nearly £60 million in interest.

Mr Stevens appealed against the decision that he could be ordered to pay any compensation, arguing that HPII had sustained no compensable loss.


The Court of Appeal allowed the appeal, with Lord Justice Newey giving the lead judgment. Lord Justice Males agreed with Newey LJ and gave a short supplementary judgment. Lord Justice Birss agreed with both judgments.

Newey LJ referred to the following well-established principles arising from the authorities regarding dishonest assistants:

  • A dishonest assistant can be ordered to pay equitable compensation for all loss resulting from the relevant fiduciary's breaches. That liability is joint and several with the fiduciary – it flows from and mirrors the fiduciary's corresponding liability (rather than being limited to losses that had a direct causal link with the assistance).
  • However, a dishonest assistant's potential liability to account for profits resulting from the fiduciary's breaches is limited to profits earned by the assistant themself. The assistant cannot be ordered to account for profits earned by the fiduciary.

As Newey LJ noted, the latter point had caused Foxton J to express some unease about his conclusion that Mr Stevens could be ordered to compensate HPII in the amount of the profits retained by Mr Ruhan – which might be said to come close to rendering a dishonest assistant liable for the profits made by the fiduciary.

However, the basis of HPII's case (and Foxton J's conclusion) was that it was seeking compensation for loss in respect of a different breach from that for which it had claimed an account of profits. On HPII's case, the obligation to account arose out of the original sale of the hotels while the compensation related to the later retention/misapplication of the profits held on trust for HPII.

In response, Mr Stevens argued that the second breach was so inextricably bound up with the first breach that HPII's loss had to be assessed by reference to the overall effect of the conduct, rather than merely looking at what happened to the profits once they had been achieved. He relied (by analogy) on Bartlett v Barclays Bank Trust Co Ltd (Nos. 1 and 2) [1980] Ch 515, where a trust held almost all shares in a company whose speculative development activities resulted in one project generating a profit and the other project generating a large loss. In that case, Brightman J ruled that the profit from the former should be taken into account when determining the trustee's liability for the losses arising from the latter. The two projects stemmed from the same policy and "exemplified the same folly" so it would be unjust not to consider them together.

Newey LJ note that an initial difficulty with HPII's argument was that neither HPII's election for an account of profits from Mr Ruhan nor Foxton J's resulting order against him was apparently limited to the original sale of the hotels, so as to leave HPII free to claim compensation from Mr Ruhan for the misapplication of the profits.

In any event, Newey LJ considered it clear that the original sale was inextricably connected to the profits for whose loss HPII was seeking compensation:

  • Mr Ruhan apparently caused Cambulo to buy the hotels in the hope that he could generate a profit from them, and the profits were the fruition of that scheme (in which Mr Stevens was involved from the start). There was no question of the profits being the product of an independent plan.
  • Although there was a gap of some years between the original sale and the profits being realised, that was not surprising in this property development context, and there was no interruption in the implementation of Mr Ruhan's overall scheme or Mr Stevens' role in it.
  • The constructive trust alleged by HPII reflected and was a product of the liability to account arising from the original sale. Had HPII opted against any account of profits from Mr Ruhan, it could not have maintained the claim that the profits were held on trust for it, and the foundation for the order requiring Mr Stevens to pay compensation equal to the amount of the profits would have fallen away.

Accordingly, Newey LJ said, "there was a single and uninterrupted course of conduct which, taken as a whole, caused HPII no loss", and it was therefore just that Mr Stevens' liability should be limited to his personal profit. The account and compensation claims were so closely connected that it would be manifestly unjust to allow HPII to focus solely on the failure to account for the profits once they had accrued. Whether or not HPII had suffered a loss should be determined by reference to the total effect of Mr Ruhan's scheme. That is, the "loss" stemming from his treatment of the profits must be balanced against the claim to recover from him those very profits, which arose from the same plan.

Agreeing with Newey LJ, Males LJ added his observations as to when a gain and a loss could be considered to arise "in the same transaction" (as referred to in Bartlett). In his view, guidance could be found in the analogy with the principle that allows an equitable set off when a cross-claim is so closely connected with a claim that it would be manifestly unjust to allow the claimant to enforce payment without taking into account the cross-claim. Here, it would be manifestly unjust to hold either Mr Ruhan or Mr Stevens liable to pay compensation for the profits for which Mr Ruhan failed to account without recognising that those profits could not have been obtained by HPII itself and were only obtained by Mr Ruhan as part of the single scheme to generate a profit from the hotels' development.

Accordingly, Mr Stevens was not liable to pay equitable compensation in any amount and should only have to account for the profit he had made.

Obiter comments

Although Newey LJ considered the above sufficient basis to allow the appeal, he went on to raise a number of points which he said arguably provided a more fundamental objection to HPII's compensation claim:

  • A dishonest assistant's liability to pay compensation for loss (as distinct from an account of profits) is joint and several with the fiduciary's liability for that loss. To that extent, the assistant's liability mirrors the fiduciary's.

That does not mean that a compensation claim against a dishonest assistant cannot succeed if the claimant does not also bring proceedings against the fiduciary. There might also be room for argument over whether a dishonest assistant could escape liability merely because the fiduciary was protected by an exemption clause. However, where a claimant has, in respect of the relevant breach of duty, elected for an account of profits instead of compensation as against the fiduciary, Newey LJ did not think compensation could be sought from the dishonest assistant. That was not simply because of the need to choose between two inconsistent remedies but, more generally, because

".. it seems to me that, for there to be scope for a claim for compensation for loss from a dishonest assistant, the fiduciary should also be so liable."

  • Further, Newey LJ went on to question whether there was ever scope for a fiduciary (and therefore a dishonest assistant) to be liable for equitable compensation in the circumstances here.

In Foxton J's ruling, Mr Ruhan's liability for compensation (if HPII elected that) arose from his failure to pay to the company the profits he earned from on-selling the hotels, which were unauthorised profits because of his original breach and therefore were held on constructive trust for HPII. Mr Ruhan's retention of those profits for his own benefit was therefore a misapplication of trust property, in breach of the trust.

However, Newey LJ found it hard to see that HPII could both have made the election for an account of the profits (without which there would have been no trust) and have had a claim (or at any rate one of any significance) for compensation for breach of that trust.

He referred to Millet J's remark in Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 that a constructive trustee will not necessarily be subject to all the fiduciary obligations of an express trustee (such as, for example, a duty to invest).In Newey J's view, it was "open to serious question" whether a fiduciary can incur liability to pay compensation for breaching a trust of the type that arose in these circumstances, as opposed to being liable to account for the profits:

"It strikes me as arguable that no separate claim for compensation for misapplication of a benefit could be maintained and that, even if that were possible in principle, no substantial amount could be awarded in respect of it."

In agreeing with Newey LJ's judgment, neither Males LJ nor Birss LJ commented specifically upon those obiter observations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.