Liquidators of a BVI company sued its director, Sheikh Al Jaber, for dishonestly transferring 891,761 shares to a related company after the company entered liquidation. The Supreme Court held the Sheikh breached fiduciary duty by purporting to act as director, and restored the trial judge’s award of €67.1 million in equitable compensation.
Full case ref: Mitchell and another (Joint Liquidators of MBI International & Partners Inc (In Liquidation)) v Sheikh Mohamed Bin Issa Al Jaber [2025] UKSC 43
Background
MBI International & Partners Inc (‘the Company’), a BVI-incorporated company, was wound up by court order on 10 October 2011. Sheikh Mohamed Bin Issa Al Jaber (‘the Sheikh’) was at all material times a director and sole shareholder of the Company. Under section 175(1) of the BVI Insolvency Act 2003, upon the commencement of winding up, the Sheikh’s powers as director ceased.
Notwithstanding this, on or around 29 February 2016, the Sheikh dishonestly signed share transfer forms purporting to transfer 891,761 shares (‘the 891K shares’) in JJW Hotels & Resorts Holding Inc (‘JJW Inc’) — owned by the Company — to JJW Ltd, a Guernsey company of which the Sheikh was a director, for no consideration. The trial judge found that the Sheikh acted dishonestly and in bad faith. These findings were not appealed.
In July 2017, all of JJW Inc’s assets and liabilities were transferred to JJW UK (‘the 2017 Asset and Liability Transfer’), which the parties accepted rendered the 891K shares worthless. The Sheikh was closely connected to this transaction, having signed the demand letter that triggered the process and attended the key board meeting.
The Company had originally acquired the 891K shares from JJW Guernsey and JJAB under two Share Purchase Agreements dated 18 March 2009. The consideration was never paid because it was intended to be funded from a planned IPO of JJW Inc shares, which never proceeded.
The Issue(s)
Issue 1: Was the Sheikh in breach of fiduciary duty?
The Sheikh argued that since his powers as director had been removed by section 175 of the IA 2003, he could not owe any fiduciary duty to the Company. He contended that fiduciary duties cannot exist without corresponding fiduciary powers, and that a single act (signing the transfer forms) could not simultaneously create and breach a fiduciary duty.
Issue 2: Were there unpaid vendor’s liens?
The Sheikh contended that the 891K shares were subject to unpaid vendor’s liens in favour of JJW Guernsey and JJAB totalling approximately €89.2 million, meaning the Company suffered no loss from the misappropriation.
Issue 3: How should the Company’s loss be calculated?
The Court of Appeal had held that because the 2017 Asset and Liability Transfer rendered the shares worthless before trial, and the liquidator would not have sold them beforehand, the Company suffered no compensable loss. The Liquidators appealed this finding.
The Court’s Reasoning
Issue 1: Fiduciary duty
The Supreme Court unanimously rejected the Sheikh’s arguments. Drawing on a long line of authority concerning trustees de son tort, executors de son tort, and de facto directors, the Court held that a person who arrogates to himself a fiduciary power incurs fiduciary obligations regardless of whether he lawfully possesses that power. The Court cited the foundational principle stated by Bowen LJ in Soar v Ashwell [1893] 2 QB 390:
“The doctrine that time is no bar in the case of express trusts has been extended to cases where a person who is not a direct trustee nevertheless assumes to act as a trustee under the trust… This extension of the doctrine is based on the obvious view that a man who assumes without excuse to be a trustee ought not to be in a better position than if he were what he pretends.”
The Court stated that the Sheikh fell to be treated as if he were a director whose powers had not been removed:
“The pretence by the Sheikh in signing the share transfer forms in the 2016 Share Transfers was that he had power as a director to transfer the 891K shares. He cannot hide behind the statutory provision which removed his power as director (section 175(1)(b) of the IA 2003…) as that is contrary to his pretence and, indeed, it was the effect of that provision which he was seeking to avoid by using his pretence.”
On the contention that one act cannot simultaneously create and breach a fiduciary duty, the Court held there was no reason why the arrogation of a fiduciary power may not itself involve a breach of fiduciary duty at one and the same time.
Issue 2: Unpaid vendor’s liens
The Court upheld the findings of the trial judge and the Court of Appeal that the parties intended to exclude any unpaid vendor’s lien. The trial judge had found that the existence of a lien would have frustrated the very purpose of the March 2009 Transfers — to facilitate the IPO. The Court endorsed this, noting the Sheikh’s own evidence and pleaded case established this intention. The Court also clarified that the question of whether an unpaid vendor’s lien arises is governed by equitable principles and is not confined solely to documentary evidence:
“As a matter of general approach, equity has never confined itself just to looking at documents, or documents executed by the parties to a transaction, but will also take account of other sources of evidence as may be appropriate to determine the relevant issue in accordance with fairness and the justice of the case.”
Issue 3: Calculation of loss
This was the most significant issue on appeal. The Court of Appeal had held that the 2017 Asset and Liability Transfer reduced the value of the 891K shares to zero, and since the liquidator would not have sold them beforehand, no loss was suffered. The Supreme Court reversed this, holding that the Court of Appeal had erred in its approach to counterfactual causation analysis.
The Court established several key principles. First, where a fiduciary misappropriates property, the burden of proving that no loss was caused lies on the defaulting fiduciary, citing In re Brogden (1888) 38 Ch D 546, Carruthers v Carruthers [1896] AC 659, and Libertarian Investments Ltd v Hall (2013) 17 ITELR 1. The Court quoted Fry LJ in In re Brogden:
“When the cestui que trust has shewn that the trustee has made default in the performance of his duty, and when the money which was the subject of the trust is not forthcoming, the cestui que trust has made out, in my judgment, a prima facie case of liability upon the trustee, and if the trustee desire to repel that by saying that if he had done his duty no good would have flowed from it, the burden of sustaining that argument is plainly upon the trustee.”
Second, the Court held that not every supervening event may be relied upon by a defaulting fiduciary to reduce loss. A wrongdoing fiduciary cannot rely upon his own subsequent wrongdoing, and where the fiduciary has played a part in the supervening event, the court will scrutinise it with particular care. The Sheikh bore the burden of proving that the 2017 Asset and Liability Transfer was a legitimate intervening event that should reduce his liability — a burden he made no attempt to discharge.
Third, the Court emphasised that the Sheikh had never given a satisfactory explanation for the 2017 Asset and Liability Transfer and had not made full disclosure. The Court noted:
“If the Sheikh had been a prime mover in the 2017 Asset and Liability Transfer, he could not in our view have prayed it in aid as a subsequent event in diminution or extinction of the loss which he had caused to the Company by the 2016 Share Transfers. It would have amounted to saying that if he had not destroyed the value to the Company of the 891K shares in 2016 he would in any event have succeeded in destroying that value a year later by the 2017 Asset and Liability Transfer.”
The Court also rejected the Court of Appeal’s reasoning that because the shares had actually become worthless, no counterfactual analysis was required, explaining that the relevant question was the loss of value to the Company, which occurred at the point of misappropriation in 2016.
Practical Significance
This decision is of substantial importance in several respects. It confirms and consolidates the principle that a person who purports to exercise a fiduciary power — even where that power has been legally removed — will be treated as owing fiduciary obligations as if the power existed. The principle that a person who pretends to an office cannot be in a better position than if he genuinely held it is reaffirmed at the highest level.
On the assessment of equitable compensation, the judgment provides important guidance on the counterfactual causation analysis. There is no inflexible rule requiring valuation at the trial date. The burden of proving that a supervening event broke the chain of causation lies upon the defaulting fiduciary. Crucially, a fiduciary who has played a part in, or may have benefited from, a supervening event will not be permitted to rely upon it to reduce his liability unless he provides a full and convincing explanation — placing a premium on disclosure and candour. The decision thus reinforces the stringent accountability expected of fiduciaries and limits the ability of dishonest fiduciaries to benefit from their own subsequent conduct in the assessment of equitable compensation.
Verdict: The Sheikh’s appeal on Issues 1 (breach of fiduciary duty) and 2 (unpaid vendor’s liens) was dismissed. The Liquidators’ appeal on Issue 3 (calculation of loss) was allowed. The trial judge’s order that the Sheikh pay equitable compensation of €67,123,403.36 to the Company was reinstated.
