Mitchell v Sheikh Mohamed Bin Issa Al Jaber (No 2) [2025] UKSC 43: Supreme Court Clarifies the Flexibility of Equitable Compensation

Mitchell v Sheikh Mohamed Bin Issa Al Jaber (No 2) [2025] UKSC 43

Introduction

The Supreme Court’s decision in Mitchell v Sheikh Mohamed Bin Issa Al Jaber (No 2) [2025] UKSC 43, handed down on 24 November 2025, significantly clarifies the law relating to equitable compensation for breach of fiduciary duty. At its core, the judgment concerns a defaulting director’s liability to pay equitable compensation for disposing of company property in breach of trust.

The decision confirms that there is no fixed rule requiring equitable compensation to be assessed at the date of trial. Where a fiduciary has misappropriated property, the principal suffers an immediate loss, and if the fiduciary wishes to rely on subsequent “supervening” events to reduce that loss, the burden is firmly on the fiduciary to prove those events and to provide a clear and convincing innocent explanation for any involvement.

This approach reflects judicial willingness to impose robust remedial consequences on those who act in breach of fiduciary duty. As the Court emphasised, “… a fiduciary, as steward of his principal’s property or affairs, to whom he owes a duty of loyalty, has the responsibility to account for and explain what has happened in relation to them” (at paragraph 108).

The Factual Background

There are six key events in this case:

First, on 18 March 2009, MBI International & Partners Inc (“the Company”), a BVI company, acquired 891,761 shares (“the 891K shares”) in JJW Hotels & Resorts Holding Inc (“JJW Inc”), also a BVI company. JJW Inc was established in contemplation of an initial public offering. The shares were acquired from two companies under two share purchase agreements providing for consideration of approximately €88.9 million, payable “on demand” in a manner to be mutually agreed. The IPO never proceeded and the consideration was never paid.

Second, on 10 October 2011, a winding up order was made in respect of the Company on a creditor’s application. Under section 175(1) of the BVI Insolvency Act 2003, the Sheikh’s powers as a director came to an end, notwithstanding that he continued as a de jure director. (In contrast to the position under the law of England and Wales, where a director ceases to hold office when a winding-up order is made: Measures Ltd v Measures [1920] 2 Ch 248.)

Third, on or about 29 February 2016, the Sheikh purported to sign share transfer forms of the 891K shares “for and on behalf of” the Company “as its director”, transferring the shares to JJW Guernsey (“2016 Share Transfers”). The trial judge found that the 2016 Share Transfers had been backdated, and had been effected dishonestly and in bad faith—findings that were not appealed (paragraph 14).

Fourth, on 9 June 2017, the English Court granted the liquidators’ application for recognition of the BVI liquidation as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006.

Fifth, on 23 June 2017, the 891K shares were transferred away from JJW Guernsey to MBI International Holdings.

Sixth, in July 2017, all the assets and liabilities of JJW Inc were transferred to JJW UK (“the 2017 Asset and Liability Transfer”). It was agreed at trial (though doubted by both the Court of Appeal and the Supreme Court) that this transfer rendered the 891K shares valueless, since JJW Inc no longer had any assets.

The liquidators of the Company brought an action against Sheikh Mohamed Bin Issa Al Jaber (“the Sheikh”), a director of the Company and controller of the group, for breach of fiduciary duty. They also pursued JJW Guernsey for knowing receipt. The trial judge, Joanna Smith J, ordered the Sheikh and JJW Guernsey jointly and severally to pay €67,123,403.36 in equitable compensation (paragraph 22). The Court of Appeal upheld the finding of breach but reduced compensation to nil on the ground that, by the time of trial, the shares had become worthless as a result of the 2017 Asset and Liability Transfer. The Supreme Court unanimously allowed the liquidators’ appeal, restoring the trial judge’s award.

The Three Issues for the Supreme Court

The Supreme Court addressed three issues. The first issue was whether the Sheikh was in breach of fiduciary duty in effecting the 2016 Share Transfers. The second was whether the Company had suffered no loss because it acquired the 891K shares subject to unpaid vendor’s liens exceeding their value. The third—the main issue on which leave was granted—was whether the Company suffered no loss because, following the 2016 Share Transfers, the shares were rendered valueless by the 2017 Asset and Liability Transfer. Taking these issues in order of significance:

Issue 3: The Quantification of Equitable Compensation

The most significant aspect of Mitchell concerns the remedy of equitable compensation.

The Court of Appeal held that the substitutive approach to the quantification of equitable compensation required the Court to assess the loss at the date of trial. By that date, the Court of Appeal held, the 891K shares had become worthless because of the 2017 Asset and Liability Transfer; therefore, because the liquidators had not proven they would have sold the shares before the 2017 Asset and Liability Transfer, the Company had suffered no loss as a result of the Sheikh’s breach of fiduciary duty.

The Supreme Court rejected the Court of Appeal’s approach. Lords Hodge, Briggs and Sales (with whom Lords Stephens and Richards agreed) held that there is no fixed rule that equitable compensation must be valued at the date of trial. The Court stated that the question of the appropriate date for assessment is “an open one, which requires consideration of what is just and equitable as between the beneficiary and the trustee (or the principal and the fiduciary)” (paragraph 96).

Equitable compensation is used in two distinct senses, as explained in Snell’s Equity (35^th Ed. 2024) at 20-020: “In one sense the compensation consists in a money equivalent to the injury or loss a person or fund may have suffered. This is called reparative compensation because it is calculated to repair the loss. In the other sense compensation consists in a money equivalent of an asset to which a person is entitled. This is called substitutive compensation because it is calculated to provide a substitute for the asset”.

The Supreme Court held that in a substitutive claim—as here, where a fiduciary has misappropriated assets—the principal suffers an immediate loss when the property is taken (paragraph 101). The Court held that if a fiduciary misappropriates property under his fiduciary control and the principal can prove that the property had value when it was misappropriated the principal will suffer an immediate loss. In this case, the Sheik’s breach of fiduciary duty caused a loss by causing the 2016 Share Transfer, and alienating the 891K shares from the Company.

The Supreme Court held that where a fiduciary wishes to argue that a supervening event has broken the chain of causation between breach and loss, “… the burden lies squarely upon the fiduciary to prove that supervening event and to show that it should be treated as having that impact on the… causative link between the breach of duty and the loss suffered” (paragraphs 101, and see 108-111).

Moreover, the Court indicated that supervening events “appear unlikely to qualify” to break the chain of causation “if the… fiduciary had a hand in them, in the absence of a clear and convincing innocent explanation provided by the fiduciary”. The Court explained (at paragraphs 113-114) that it was is easy enough to see why a supervening event in which the defaulting fiduciary had no hand at all, and to the risk of which the principal would have been equally exposed even if there had been no breach of trust” should be taken into account in diminution of the loss attributable to the breach on a “but for” counterfactual analysis. That was “… because the risk of that harm happening to the relevant trust property is properly and fairly to be allocated to the principal, not to the fiduciary”. However, by contrast, if the fiduciary plays some part in the happening of the supervening event, then it is by no means clear (absent some good explanation being given by the fiduciary) that the risk of the harm caused by the event should fairly be allocated to the principal.

On the facts, the Sheikh had “triggered the process which led to” the 2017 Asset and Liability Transfer by serving a letter of demand, attending key board meetings, and had stood to benefit from the transaction (paragraphs 123). He made no attempt to prove that he played no significant part in and derived no significant benefit from it. The Supreme Court therefore concluded that the 2017 Asset and Liability Transfer could not defeat the liquidators’ claim.

The Court also observed that the shares’ value “in the real world” was “reduced to zero when the Sheikh misappropriated them in 2016″—because from that moment, the Company could no longer deal with them (paragraph 127). By July 2017, the 891K shares were owned by MBI International Holdings; it was the value to that company, not the Company, that was actually reduced to zero by the 2017 Asset and Liability Transfer (paragraph 127).

This represents an important clarification of the law. Mitchell confirms that where a fiduciary has misappropriated property and is personally involved in subsequent events that destroy its value, the burden is on the fiduciary to provide an innocent explanation.

Issue 1: Breach of Fiduciary Duty

The Sheikh’s case had been that he could not owe fiduciary duties because his powers as a director had ceased upon liquidation pursuant to section 175 of the BVI Insolvency Act 2003 (paragraph 32). While argument was put in numerous ways (paragraphs 31-34), the principal argument was that “liability as an intermeddler or de facto fiduciary would arise only if a person voluntarily assumed the office of a fiduciary” (paragraph 32).

By analogy with the doctrine of trustee de son tort, the Court considered 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” (paragraph 43, quoting Bowen LJ in Soar v Ashwell  [1893] 2 QB 390 at 396). This principle applies equally to directors. As Blackburn J stated in Gibson v Barton (1875) LR 10 QB 329: “… if a director were to set up in answer… that he was not a director, that he was illegally elected, the answer would be, ‘You have acted as director, and were a director in your own wrong'” (paragraph 46).

The Sheikh’s purported exercise of directorial powers—signing share transfer forms and effecting their registration—meant he assumed the duties that would attach to a lawfully appointed director (paragraph 52).

The Court also rejected the argument that the Sheikh’s conduct in his capacity as director of JJW Inc (in approving the registration of the transfers) should be considered separately to his conduct in signing the share transfers as director of the Company. Both acts were “part and parcel of the same dishonest transaction” designed to place assets beyond the reach of creditors (paragraph 35). The duty owed to the Company “extended to having regard to the interests of its creditors in the context of its insolvency”, following BTI 2014 LLC v Sequana SA [2022] UKSC 25 (paragraph 35).

Issue 2: The Unpaid Vendor’s Lien

The Sheikh argued that even if he had breached fiduciary duties, the Company had suffered no loss because it had acquired the 891K shares subject to unpaid vendor’s liens (allegedly held by the companies that sold the Company the 891K shares) amounting to approximately €89.1 million—exceeding the value of the equitable compensation ordered (paragraph 58).

Both the Court of Appeal and the Supreme Court rejected this argument. The Court held that a vendor’s lien “arises by operation of law according to equitable principles” and is excluded where its retention “would be inconsistent with the provisions of the contract for sale or with the true nature of the transaction” (paragraph 71, quoting Millett LJ in Barclays Bank Plc v Estates & Commercial Ltd [1997] 1 WLR 415).

On the facts, the March 2009 transfers were specifically designed to enable the Company to participate in a planned IPO and use the proceeds to pay the vendors (paragraph 9). As Newey LJ observed in the Court of Appeal, recognising vendor’s liens would have been “wholly at odds with the nature and purpose of the transaction” (paragraph 67). The existence of such liens would have given the vendors “an element of control” inconsistent with the commercial purpose of the transaction.

The Supreme Court emphasised that determining whether a lien is excluded is not limited to examining the executed documents. Courts may consider “other evidence from the circumstances surrounding the transaction” to determine objectively whether the parties intended to exclude the lien (paragraph 72).

Conclusion

Mitchell is an important decision for practitioners dealing with claims against directors and fiduciaries for breach of duty. It confirms that the equitable response to breach of fiduciary duty is both flexible and powerful, and provides welcome encouragement to insolvency practitioners seeking to address corporate malfeasance and corruption.