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Remedies for Dishonest Assistance – A Recent Court of Appeal Decision

Author: Nicola Sharp  8 November 2023
3 min read

Dishonest assistance is a claim that lies in equity in English law. The principal remedies for dishonest assistance are:

  1. Equitable compensation for losses resulting from the breach induced or assisted; and
  2. An account of profits (if any) made by the dishonest assister.

This was established by the Court of Appeal in Novoship (UK) Limited v Mikhaylyuk [2015] QB 499

The claimant must choose which remedy it seeks from (i) an account of the profits made by a defendant in breach of his fiduciary obligations and (ii) damages for the loss suffered by the claimant by reason of the same breach (Tang Man Sit v Capacious Investments Ltd (1995) AC 514)

An ‘account of profits’ is a remedy by which the defendant is required to identify and pay over a sum of money representing the value of the profits made by him (personally) in breach of some duty owed to the claimant, or as an accessory to a breach of duty.

Equitable compensation is a remedy for breach of trust, designed to make good a loss suffered by the beneficiaries, and which can be seen to have been caused by the breach. (Target Holdings Ltd v Redferns [1996] AC 421

Why the Distinction is Important

Equitable compensation is concerned with loss. A dishonest assister may be jointly and severally liable for loss that a beneficiary suffers as a result of a breach of trust.

An account of profits is concerned with the defendant’s personal gain. The dishonest assister is only liable to account for personal profits. He is not required to account for profits that he did not make. (Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch)

Making the Distinction

A recent Court of Appeal case considered the distinction. In Hotel Portfolio II UK Limited (in liquidation) (HPII) & anor v Andrew Joseph Ruhan & anor [2023] EWCA Civ 1120 one of the defendants, Mr Stevens, appealed the first instance decision on the basis that the judge (Mr Justice Foxton) should have awarded the remedy of account of profits, rather than equitable compensation. Mr Stevens also contended that the judge had no power to award compound interest.

At first instance, the judge considered that HPII could claim equitable compensation against Mr Stevens as an alternative to an account of profits. The reason being that Mr Stevens had assisted the first defendant, Mr Ruhan, in his failure to account for the proceeds of the sale of three hotels in London.

As a result, Mr Stevens was ordered to pay compensation of £102 million and compound interest of £60 million.

On appeal, Mr Stevens did not challenge the judge’s finding that he was found liable in dishonestly assisting a breach of fiduciary duty on behalf of Mr Ruhan. However, he challenged the remedy that the Mr Justice Foxton awarded against him for the wrongdoing.

Loss or Personal Profits?

An interesting point in this case was that the first claimant, HPII, had suffered no loss as a result of the sale of the hotels. There was no suggestion that HPII was paid less than market value for the hotels.

The claim in compensation against Mr Stevens was that he had assisted Mr Ruhan in his failure to account for, and disbursement of, the proceeds of the hotels. HPII contented that it was able to recover from Mr Stevens, as equitable compensation, the profits made by Mr Ruhan from the sale of the hotels.

Mr Justice Foxton, gave his judgment against Mr Stevens in the amount of the profits which accrued to Mr Ruhan. He recognised that his decision “elides the distinctions between claims for an account of profits and claims for equitable compensation”, with which he was uneasy.

But the authorities suggest that where there is no loss, a dishonest assistant can be held liable for only his personal profit. (Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch)) It is limited to the profit he himself made as a resulting breach. While he may be jointly and severally liable for loss that a beneficiary suffers as a result of a breach of trust, he is only liable to account for personal profits.

The Decision on Appeal

HPII’s case was that is sought compensation for loss in respect of a different breach of fiduciary duty from that for which it has claimed an account of profits. It says, the account arises out of the original sale of the hotels, while the compensation relates to the misapplication of the profits held on trust for HPII.

On appeal, Lord Justice Newey found that there was a single and uninterrupted course of conduct, which taken as a whole, caused HPII no loss. He therefore determined that it would be just for Mr Stevens’ liability to be limited to his personal profit.

He set aside the order for Mr Stevens to pay compensation and substituted it instead with an order for account of profits.

In agreeing with Lord Justice Newey, Lord Justice Males said that “equity is satisfied in this case by the award of an account of profits. Mr Ruhan is therefore liable to account as a fiduciary for the profits which he has derived from his breaches of duty, notwithstanding that they have caused no loss to HPII. Mr Stevens is similarly liable to account, but only for the profits which he himself has made from assisting Mr Ruhan.”

The argument about compound interest was deferred. All issues as to interest would be reconsidered in the context of the account of profits.

 

Nicola Sharp C 09983

Nicola Sharp

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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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