“I find that the noteholders were not in any sense dependent or reliant upon whatever views Mr Ruhan may have expressed as to the development potential of the Kensington Hotels when passing this resolution, and that the decision taken reflected the extensive professional advice received. … I am satisfied that that the decision taken to accept an offer at the stated prices reflected the extensive professional advice received, and was consistent with an objectively reasonable market valuation of the hotels (with and without planning permission) at that time.”
“I am not persuaded that Mr Ruhan gave information to the other shareholders in HPII as to the value or development potential of the Hyde Park Hotels which did not fall within the range of reasonable views held at the time, and I am in any event satisfied that the various stakeholders had access to independent professional advice on these subjects, and availed themselves of it. That does not mean, however, that Mr Ruhan did not believe that there was a sufficient prospect of developing the hotels to make an attempt to explore that opportunity a worthwhile commercial gamble.”
“I am far from satisfied that I have the full picture as to the benefits Mr Stevens derived from agreeing to act as Mr Ruhan’s nominee in relation to the Hyde Park Hotels. However I am satisfied that it includes at least: i) The sum of£500,000 paid to VTL [i.e. Value Telecom Limited, a vehicle for Mr Stevens], which even on the Defendants’ own case, was paid in connection with the use of Euro Estates’ shares as security for the Mood Facility. ii) The sum of£1,000,000 ‘lent’ to Mr Stevens in August 2012 and ‘repaid’ from the£92m paid to Mr Stevens for the benefit of Mr Ruhan in November 2012. As a matter of substance, this involved Mr Stevens receiving this sum from the proceeds of the sale of the Hyde Park Hotels, which I am satisfied was in return for the assistance he provided Mr Ruhan in hiding his interest in the Hyde Park Hotels and their proceeds.”
“not sought to advance any case that: i) it was paid less than the market value of the Hyde Park Hotels; ii) if it had not sold the Hyde Park Hotels pursuant to the terms of the Cambulo Madeira Transaction, it would have sold the Hyde Park Hotels on more favourable terms; or iii) it would have exploited the development opportunity presented by the Hyde Park Hotels itself.”
“i) HPII’s claim against Mr Ruhan for (at its election) an account of profits or equitable compensation for breach of fiduciary duty succeeds (as does its claim against Mr Ruhan for breach ofs.320 of the Companies Act 1985 for an account under s.322(3)(a) only). ii) HPII’s claim against Mr Stevens for (at its election) an account of profits or equitable compensation for dishonest assistance in breach of fiduciary duty succeeds. iii) HPII’s claims against Mr Ruhan and Mr Stevens in the tort of unlawful means conspiracy fail.”
“There was no dispute that if Mr Ruhan had an interest in Cambulo Madeira or the Hyde Park Hotels following their acquisition by Cambulo Madeira (as I have found he did), and he did not disclose that interest to HPII before the Cambulo Madeira Transaction [i.e. the sale of the Hyde Park Hotels to Cambulo Madeira] (as it is common ground he did not), then he was in breach: i) of the fiduciary’s duty not to place themselves in a position where their interest and duty conflict, by dealing with the company in their own interest: Boardman v Phipps[1967] 2 AC 46 and Regal (Hastings) Ltd v Gulliver[1967] 2 AC 134 ; and ii) the fiduciary’s duty not to make an unauthorised profit from property which is subject to the fiduciary relationship: Gwembe Valley Development Co Ltd v Koshy[2004] 1 BCLC 131 .”
“I accept that when a director receives or disposes of the company’s property in breach of fiduciary duty, the company is in principle entitled to trace the asset or its proceeds for the purposes of asserting a proprietary claim: JJ Harrison (Properties) Ltd v Harrison[2002] BCC 729 , [25]-[28]. This case has been argued on the basis that, if the nominee case succeeds, there was beneficial receipt by Mr Ruhan …. Any proprietary claim by the beneficiary might be defeated because it ceases to be possible to identify the proceeds of the trust property and/or because the trust property (or property which represents it) is acquired by a bona fide purchaser for value.”
“I accept that, in the absence of any defence of bona fide purchaser for value in relation to the acquisition by the Cambulo entities, the profits received from the on-sale of the Hyde Park Hotels are themselves trust property, in which HPII’s existing beneficial interest continued: Foskett v McKeown[2001] AC 102 , 127. In these circumstances, as against Mr Ruhan, those proceeds stand in the same position as the interests in the hotels did before them. It is well-settled that a director who acquires the company’s property in breach of fiduciary duty holds that property on trust for the company (JJ Harrison (Properties) Ltd v Harrison[2001] EWCA Civ 1467 , [27]). As Chadwick LJ explained, this trusteeship is described as a constructive trusteeship, but it is what has been referred to as a ‘type one’ constructive trust because it arises by reason of a pre-existing fiduciary duty owed to HPII (adopting Millett LJ’s categorisation in Paragon Finance plc v Thakerar[1999] 1 All ER 400 , 408-409). If that is true of the hotels themselves, then I accept that is also true of their traceable proceeds in Mr Ruhan’s hands.”
“if a trustee sells the trust property to himself, the sale is voidable by an beneficiary ex debito justitiae, however fair the transaction”
“Where a trustee, purchasing on behalf of his cestui que trust, purchases his own estate without disclosing his own interest in it, the cestui que trust, when he discovers the fact, may, if he pleases, set aside the contract altogether, but then he must return that which has been purchased. The same rule applies, in the case of a purchase by a director on behalf of a company, of property in which he has any interest: if the company repudiates the contract, the property must be returned.”
“As a matter of general law, … the contract (if any) between [the director] and [the company] was no doubt voidable under the ordinary principles of the general law to which Lord Pearson refers. But it has long been the law that, as a condition of rescission of a voidable contract, the parties must be put in statu quo; for this purpose a court of equity can do what is practically just, even though it cannot restore the parties precisely to the state they were in before the contract.”
“Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust …. The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were ….”
“[27] It follows … from the principle that directors who dispose of the company’s property in breach of their fiduciary duties are treated as having committed a breach of trust that, a director who is, himself, the recipient of the property holds it upon a trust for the company. He, also, is described as a constructive trustee. But, as Millett LJ explained in Paragon Finance plc v D B Thakerar & Co[1999] 1 All ER 400 at 408–409, his trusteeship is different in character from that of the stranger. He falls into the category of persons who, in the words of Millett LJ ([1999] 1 All ER 400 at 408) . . . ‘though not strictly trustees, were in an analogous position and who abused the trust and confidence reposed in them to obtain their principal’s property for themselves.’ [28] Millett LJ referred to persons within that category – that is to say, persons who had abused their powers so as to obtain their principal’s property for themselves – as ‘persons [who] are properly described as constructive trustees’ …. [29] There is no doubt that Millett LJ regarded it as beyond dispute that a director who obtained the company’s property for himself by misuse of the powers with which he had been entrusted as a director was a constructive trustee within the first category. … There is also no doubt, if I may say so, that he was correct to do so …. The reason is that a director, on appointment to that office, assumes the duties of a trustee in relation to the company’s property. If, thereafter, he takes possession of that property, his possession ‘is coloured from the first by the trust and confidence by means of which he obtained it’. His obligations as a trustee in relation to that property do not arise out of the transaction by which he obtained it for himself. The true analysis is that his obligations as a trustee in relation to that property predate the transaction by which it was conveyed to him. The conveyance of the property to himself by the exercise of his powers in breach of trust does not release him from those obligations. He is trustee of the property because it has become vested in him; but his obligations to deal with the property as a trustee arise out of his pre-existing duties as a director; not out of the circumstances in which the property was conveyed. [30] In the present case the judge found that, on the conveyance of the development land to Mr Harrison in February 1986, there was a failure by Mr Harrison to comply with the requirements of s 199 of, and regulation 84 in Pt 1 of Table A in Sch 1 to, theCompanies Act 1985 . But, more pertinently in this context, the judge also found that Mr Harrison acted in breach of his fiduciary duties as a director in failing to ensure that the land was sold at its full value – see the passage at para 58 of the judgment to which I have referred ([2001] 1 BCLC 158 at 174). Not only did Mr Harrison fail to make a proper disclosure of his interest; his existing duties as a director required him to ensure that the development land was not conveyed at all until the company had received and considered advice as to its value in the light of the change in planning potential ….”
“Further, I accept that Peter Harrison was in breach of his duty to act bona fide in the best interests of Harrison Properties. It seems to me that his breaches included his failure to inform the other directors of the company fully of the facts about the planning status of the development land, his failure to do what he could to ensure that, if the company decided to sell the land, whether to him or someone else, steps were taken such that it was sold at its full market value, and finally the use of the company’s resources to prepare and apply for planning permission in the company’s name at a time when Peter Harrison intended that he should buy the property and thus have the benefit of that work.”
“Mr Koshy’s personal liability to account to GVDC for profits made by him from his fiduciary position as a director is not dependent on establishing that he has received any money or other property belonging to GVDC as a result of the misapplication of GVDC’s assets, whether in the form of payments made by GVDC directly to him, or in the form of payments made, via Lasco, indirectly to him. GVDC’s causes of action against Mr Koshy were based on the equitable disabilities or the fiduciary duties to which he was subject as a director of GVDC. As such, he was under a personal liability in equity to account to GVDC for unauthorised profits: either because he was disabled in equity from making an unauthorised personal profit out of the position occupied by him and/or because he acted in dishonest breach of fiduciary duty by deliberately and secretly doing so. The profits made by him are treated as taken for and on behalf of GVDC, as the person to whom he owed the duty to account. As between him and GVDC, equity prevents Mr Koshy from asserting, in answer to the claim for an account, that he is entitled to retain the profits (if any) made by him for his own benefit.”
“The point is not … whether the loan transactions are void or voidable, or whether they were rescinded or not, or whether the property in the sums repaid passed out of the beneficial ownership of GVDC and became the property of Lasco, or even whether Lasco received the sums as trust property. The point is that Mr Koshy was not, as a fiduciary vis-à-vis GVDC, entitled to retain for his personal benefit any of the unauthorised profits dishonestly made from transactions between him and the company. If he received those profits directly in the form of payments to him or indirectly by, for example, the consequent increase in the value of his shareholding in Lasco, he cannot be heard to say, as against the beneficiary company, that he was entitled to retain any of the profits for himself.”
“The law frequently affords an injured person more than one remedy for the wrong he has suffered. Sometimes the two remedies are alternative and inconsistent. The classic example, indeed, is (1) an account of the profits made by a defendant in breach of his fiduciary obligations and (2) damages for the loss suffered by the plaintiff by reason of the same breach. The former is measured by the wrongdoer’s gain, the latter by the injured party’s loss …. Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both.”
“A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.”
“I can see that it makes sense for a dishonest assistant to be jointly and severally liable for any loss which the beneficiary suffers as a result of a breach of trust. I can see also that it makes sense for a dishonest assistant to be liable to disgorge any profit which he himself has made as a result of assisting in the breach. However, I cannot take the next step to the conclusion that a dishonest assistant is also liable to pay to the beneficiary an amount equal to a profit which he did not make and which has produced no corresponding loss to the beneficiary.”
“the requirement of dishonest assistance relates not to any loss or damage which may be suffered but to the breach of trust or fiduciary duty. The relevant enquiry is … what loss or damage resulted from the breach of trust or fiduciary duty which has been dishonestly assisted. In this context, as in conspiracy, it is inappropriate to become involved in attempts to assess the precise causative significance of the dishonest assistance in respect of either the breach of trust or fiduciary duty or the resulting loss.”
“extends to everyone who consciously assists in the continuing diversion of the money. Most of the cases have been concerned, not with assisting in the original breach, but in covering it up afterwards by helping to launder the money”
“i) As the individual in whose name and under whose nominal control the profit was held, and who applied that profit for Mr Ruhan’s purposes on Mr Ruhan’s instructions, I am satisfied that Mr Stevens played a sufficient role in relation to the acquisition, retention and disposal of those profits to meet the causal requirements of the equitable wrong of dishonest assistance at that stage. ii) If that is the case, whatever causal test is to be applied, Mr Stevens is liable for the loss caused by the failure to hand-over the profits, those being losses which necessarily flow from the breach of what is sometimes referred to as the ‘custodial’ duty of the constructive trustee (whether properly characterised as fiduciary or equitable).”
“i) It might be said that the success of the argument elides many of the distinctions between claims for an account of profits and claims for equitable compensation, despite the very different nature of those two remedies and the legal regimes which govern them. ii) In substance, HPII’s complaint here is that Mr Ruhan abused his position as a fiduciary to make a profit which HPII would not have made for itself, and that Mr Stevens dishonestly assisted him in that. It might be said that, as a matter of substance, that is a claim for an account, and it should carry whatever legal consequences follow from that categorisation. iii) In certain factual scenarios, including this one, the argument might be said to come close to rendering the dishonest assistant liable for the profits made by the fiduciary even though English law has not chosen to render dishonest assistants directly so liable, and to permit such a claim ‘as of right’, notwithstanding the ‘strong’ discretion which exists in determining whether to order the dishonest assistant to account for their profits and (perhaps) without the benefit of the more exacting causation test which would have applied to such a claim. iv) The result might be thought particularly strict, because of the consequences which follow from applying the causation test set out in [293] above to claims for dishonest assistance in the breach of purely custodial duties (as opposed to a test considering the effect on the beneficiary of the acts of dishonest assistance).”
“it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”
“16. … Equitable compensation is apt to include a payment made to restore to a claimant the value of assets or funds removed without authority by a trustee or other fiduciary, such as a director. It may also include reparation for losses suffered by the claimant, such as in this case any tax penalties and interest resulting from the payment of the unauthorised remuneration. But, it is not restricted to reparation for losses …. 17. The position is stated in Underhill and Hayton: Law Relating to Trusts and Trustees (19th ed., 2016) at para 87.11: ‘Equity recognises two types of compensation claim against trustees, which will be termed substitutive performance claims and reparation claims. Substitutive performance claims are claims for a money payment as a substitute for performance of the trustee’s obligation to produce trust assets in specie when called upon to do so. Claims of this sort are apposite when trust property has been misapplied in an unauthorised transaction, and the amount claimed is the objective value of the property which the trustees should be able to produce. Reparation claims are claims for a money payment to make good the damage caused by a breach of trust, and the amount claimed is measured by reference to the actual loss sustained by the beneficiaries. Claims of this sort are often brought where trustees have carelessly mismanaged trust property, but they lie more generally wherever a trustee has harmed his beneficiaries by committing a breach of duty.’ 18. In the same work, the means by which these two types of equitable compensation are given through an accounting process are explained at para 87.7: ‘As discussed below, there are two types of compensatory claim which can lie against trustees: substitutive performance claims and reparation claims. These are mediated through proceedings for an account in different ways. In the case of a substitutive performance claim where the trustees have made an unauthorised distribution of trust property or used trust funds to purchase an authorised investment, the court will not permit the trustees to enter the distribution or expenditure into the accounts as an outgoing because it will not permit the trustees to say that they acted in breach of duty. Instead, they will be treated as though they have spent their own money and kept the trust assets intact. The accounts will be falsified to delete the unauthorised outgoing, and the trustees will be ordered to produce the relevant trust property in specie or pay a money substitute out of their own pockets. Reparation claims are brought into the scheme of the accounts in a different way. The loss claimed by the beneficiaries is translated into an accounting item by surcharging the trustees with the amount of the loss as if they had already received this amount for the beneficiaries. They must then pay this sum into the trust funds out of their own pockets.’ 19. These claims for equitable compensation were described with characteristic lucidity by Lord Millett NPJ in Libertarian Investments Ltd v Hall[2014] 1 HKC 368 , a decision of the Court of Final Appeal of Hong Kong. At [168], he referred to substitutive compensation: ‘Once the plaintiff has been provided with an account he can falsify and surcharge it. If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed. This will produce a deficit which the defendant must make good, either in specie or in money. Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.’ 20. At [170], Lord Millett addressed reparative compensation: ‘If on the other hand the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account by asking for it to be taken on the basis of ‘wilful default’, that is to say on the basis that the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust. Since ex hypothesi the property has not been acquired, the defendant will be ordered to make good the deficiency by the payment of money, and in this case the payment of ‘equitable compensation’ is akin to the payment of damages as compensation for loss.’”
“The general rule as stated in all the textbooks, with some reservations, is that where a trustee is liable in respect of distinct breaches of trust, one of which has resulted in a loss and the other in a gain, he is not entitled to set off the gain against the loss, unless they arise in the same transaction: see Halsbury's Laws of England, 3rd ed., vol. 38 (1962), p. 1046; Snell's Principles of Equity, 27th ed. (1973), p. 276; Lewin on the Law of Trusts, 16th ed. (1964), p. 670 and Underhill's Law of Trusts and Trustees, 12th ed. (1970), p. 634. The relevant cases are, however, not altogether easy to reconcile.”
“The correct analysis is that there have been a series of separate breaches of contract on the part of the defendants. In each year it was the contractual duty of the defendants to advise Mr Brown on his allocations for the following year. The plaintiff therefore has an independent and separate cause of action in respect of each year. … Where a plaintiff has distinct legal causes of action he is entitled to choose in respect of which causes of action he sues. Other potential causes of action are irrelevant …”