Tempering The Wind To The Shorn Lamb (Case Note): Stevens v Hotel Portfolio II UK Limited [2025] UKSC 28

• Published date: 18 August 2025
• Law Firm: Appleby
• Author: Marcus Staff

Marcus Staff verifies that trusts imposed by law aren't wagging the voluntary trust dog by cross-checking that principles laid down about constructive trusts in Stevens v Hotel Portfolio II (UKSC) ' providing claimants with versatile personal and proprietary enforcement strategies ' fit with conventional trust accounting practice.

Introduction

This recent United Kingdom Supreme Court judgment re-emphasises that profit received by a trustee or other fiduciary (T) resulting from breach of trust or fiduciary duty (in this case breach of the 'no profit' and the 'no conflict' rule) is held by T on the trusts of a true trust for the benefit of the beneficiary or principal (B), and that T's dishonest assister holds his share of the profit (if any) on trust for B. The case is also authority for:

• The previously undecided propositions: (i) that T's unauthorised dissipation of the profits gives B a personal claim against T and/or against the dishonest assister for equitable compensation for the diminution in value of the trust fund; and (ii) that where a proprietary order is made against T to restore value to the trust fund, a personal order may be made against the dishonest assister for the very same value (and vice versa) and
• For a clarificatory restatement of the principles surrounding the circumstances in which the court may depart from the usual rule that a trustee may not set off a gain made by one breach of trust against a loss caused by another.

This deceptively simple judgment, which is a welcome addendum to the UKSC's recent outing on the topic of constructive trusts in Recovery Partners GP Ltd v. Rukhadze,¹ deserves and requires a lot of unpacking; a process much aided by the counter positions laid out in Lord Burrows' elegant and thought provoking dissenting judgment which, on the basis of high quality academic support, offers a different, narrower view, of the role and function of constructive trusts. This process of analysis is important for those occupied with private express trusts, both because the evolution of doctrine in the commercial arena must also be valid for voluntary settlements, and because reference back to long-established principles developed for voluntary settlements is a means by which to cross-check the sense and consistency of developments novel in this field.

Technical analysis aside, the practical significance of the judgment for working lawyers considering bringing and defending claims against trustees and other fiduciaries, is that it provides claimants with the ability to elect various outcomes, which hitherto one might have thought were inconsistent, to enable the optimisation of enforcement strategies. At the same time, it reaffirms that the status of constructive trusts in English law is as factual, and not merely remedial, constructs, which, once constituted, have the same essential properties as (simple) voluntary settlements. For these reasons Stevens v Hotel Portfolio II is likely to be readily adopted by the Cayman Islands courts as a useful accretion to local law which has over many years developed on largely the same lines as English law.

Thus, the legal elements necessary to accommodate the ideas in the judgments in Stevens v HPII are established in Cayman Islands law in that it recognises institutional constructive trusts and, that where these arise, proprietary and personal remedies spring from them.²

Facts

Mr Ruhan, who was a director of a company called HPII, arranged for another company in which he secretly had a beneficial interest, and which was fronted for him by Mr Stevens, to purchase (as it did) hotels in London from HPII for fair market value. Mr Ruhan and Mr Stevens concealed the former's buy-side role from the directors and shareholders of HPII. Later, as a result of the front-company's onward sale of the hotels, Mr Ruhan secretly gained a profit (GB'102M) and paid some (GB'1.5M) of it to Mr Stevens. Mr Ruhan, with Mr Stevens' assistance, then dissipated the profit on bad investments and there was no traceable substitute.

When, in due course, HPII's (voluntary) liquidators detected the hitherto concealed roles of Mr Ruhan and Mr Stevens, HPII claimed (i) an order for an account of profits from each of them, and (ii) equitable compensation for loss against Mr Ruhan for breach of trust in dissipating the profits, and against Mr Stevens for having dishonestly assisted him. HPII's position was that if it were to succeed on the accounting claim and the compensation claim it could, in respect of each defendant elect between those remedies at judgment.³

Context

It is useful to keep in mind that, as further explained under Title J below, the alleged dissipation is an example of breach occasioned by doing an unauthorised act which could lead, either, to an appreciation in the value of the trust fund where trust monies are profitably applied and the investment fruits are adopted into the trust, or to a diminution in value if and to the extent that the application turns out to have been unprofitable. In each situation, T is bound to account. While it has become common to speak, as this note does, of diminution as a 'loss' to the trust fund (especially since the introduction of 'but for' causation in Target v Redferns),⁴ it is important to remember that, fundamentally, the sort of claim made in the case under review is a trust accounting claim for T, and his (if any) accessories, to reconstitute the claimant's proprietary fund.

First instance findings

Profits

At first instance Foxton J found:

• That the profits resulted from Mr Ruhan's breach of...