Insolvency and the Supreme Court

Two recent Supreme Court decisions, discussed at a Searle Court seminar, provide important clarification on equitable remedies in insolvency and fiduciary litigation.

Mitchell v Sheikh Mohamed Bin Issa Al Jabbar (No 2) [2025] and Stevens v Hotel Portfolio II UK Ltd [2025] reaffirm the courts’ willingness to deploy equity robustly in response to dishonest conduct, asset dissipation and the misuse of corporate structures.

Mitchell v Al Jabbar (No 2) [2025]

In March 2009, MBI International & Partners, a BVI company, acquired 891,761 shares in JJW Hotels & Resorts Inc for consideration of approximately €88.9m, payable on demand. The transaction was structured in contemplation of an IPO that did not proceed, and the consideration was never paid. The company entered liquidation in 2011.

Despite the cessation of his powers on liquidation, Sheikh Al Jabbar purported in February 2016 to execute share transfer forms on the company’s behalf, transferring shares to JJW Guernsey. The trial judge found the transfers to have been backdated and effected dishonestly. These findings were not appealed. Subsequent transfers in 2017 were said to have rendered the shares valueless.

Supreme Court issues and decision

The Supreme Court addressed three issues:

1. Fiduciary duty
2. Unpaid vendor’s liens
3. Quantification of equitable compensation.

First, the court held that Sheikh Al Jabbar owed fiduciary duties notwithstanding liquidation. By purporting to exercise directorial powers, he became a ‘director de son tort’, assuming the duties of a lawfully appointed director. Relying on Soar v Ashwell, the court confirmed that those who assume an office without authority are subject to its obligations.

Secondly, the court rejected the argument that the shares were subject to an unpaid vendor’s lien that would negate loss. A vendor’s lien arises by operation of law and may be excluded where inconsistent with the contract or the transaction’s true nature. Here, the share transfer was designed to facilitate IPO participation, making a lien inconsistent with the parties’ intentions.

Finally, the Supreme Court overturned the Court of Appeal’s approach to valuation. Where a fiduciary wrongfully alienates property, loss is suffered immediately. There is no fixed rule requiring equitable compensation to be assessed at trial date. Any alleged supervening event must be proven by the fiduciary. On the facts, the Sheikh’s conduct contributed to the later asset transfer and could not defeat the claim. The trial judge’s award of approximately €67m, plus interest, was restored.

Stevens v Hotel Portfolio II UK Ltd

Hotel Portfolio II UK Ltd (HPii) was acquired by Mr Ruhan in 2003. In 2005, HPii sold a hotel portfolio to Cambulo, a company owned by Mr Ruhan, with Mr Stevens acting as director. Cambulo sold the hotels in 2008 at a substantial profit, resulting in Mr Ruhan receiving £95m. HPii entered liquidation in 2018.

While Mr Ruhan’s self-dealing breached fiduciary duties, the trial judge found it caused no loss to HPii, as it could not itself have realised the profits. Mr Stevens assisted both the transaction and the dissipation of the proceeds, receiving approximately £1.5m.

Supreme Court decision

At first instance, Foxton J held that the profits were held on constructive trust for HPii and that Mr Stevens was jointly liable from the moment of receipt. Dissipation of those profits causes loss of the beneficiary’s proprietary interest, for which both the trustee and any dishonest assistant are jointly liable.

The absence of loss at the profit-making stage was irrelevant. As Lord Briggs explained, the constructive trust is proprietary in nature, not merely remedial, and equity would be undermined if dissipation of trust property attracted no compensatory remedy.

Conclusion

These decisions confirm the Supreme Court’s commitment to substance over form in equity. The Mitchell case expands fiduciary accountability through the concept of director de son tort, while the Stevens case reinforces the proprietary consequences of constructive trusts and the liability of dishonest assistants.

For insolvency practitioners, both cases strengthen the ability to pursue those who misuse corporate structures or assist in the dissipation of assets.