The UK Supreme Court handed down a significant judgment this week in Mitchell and another (Joint Liquidators of MBI International & Partners Inc (In Liquidation)) v Sheikh Mohamed Bin Issa Al Jaber [2025] UKSC 43. It is an important judgment which provides guidance on directors’ fiduciary duties post-liquidation, the scope of equitable compensation, and the treatment of unpaid vendor’s liens in complex cross-border insolvency scenarios.
Background
The case arose from the liquidation of MBI International & Partners Inc (the “Company”). The Company is a British Virgin Islands corporation. Its sole shareholder and director was Sheikh Mohamed Bin Issa Al Jaber (the “Sheikh”).
The Company had acquired 891,761 shares in JJW Hotels & Resorts Holding Inc (“JJW Inc”) in 2009 with the share purchase agreements providing that the consideration was to be paid “on demand … in such way that is mutually agreed” by the parties. The judgment indicates that the intention behind those transfers was that there would be an initial public offering of JJW Inc and that the proceeds generated would be used to repay the two vendors (who were associated companies of the Sheikh).
The IPO did not proceed; the vendors never demanded the payment of the consideration and the consideration for the shares was never paid.
In 2011, the Eastern Caribbean Supreme Court ordered the winding up of the Company on a creditor’s application. The Sheikh later orchestrated the transfer of 891,761 shares in JJW Hotels & Resorts Holding Inc (“JJW Inc”) (the Company’s most valuable asset) to another group company (JJW Guernsey) for no consideration. That transfer was, purportedly, effected by a stock transfer form signed by the Sheikh in 2016, long after the Company had entered liquidation.
The shares were subsequently rendered worthless as a result of the disposal in 2017 of all JJW Inc’s assets and liabilities to JJW UK (a company also under the control of the Sheikh). That disposal was, purportedly, made in satisfaction of monies owed by JJW Inc to JJW UK.
The liquidators of the company brought claims for breach of fiduciary duty and knowing receipt, seeking equitable compensation for the loss of the shares.
The Supreme Court addressed three principal issues in their judgment
1. Fiduciary duties post-liquidation
Did the Sheikh owe fiduciary duties when, under BVI law, his powers as director had ceased upon liquidation?
The Court held that a director who purports to exercise powers post-liquidation, when those powers have ceased, acts as a “fiduciary de son tort” (a fiduciary in his own wrong). The Sheikh, by signing share transfer forms as director and effecting the transfer, assumed fiduciary obligations and was liable for breach, even though his formal powers had ended.
The Court reaffirmed that equity imposes fiduciary duties on those who intermeddle with company assets, to prevent wrongdoers from escaping liability by relying on their lack of authority.
The arrogation to oneself of a fiduciary power may render a person accountable as a fiduciary without involving any breach of fiduciary duty. But there is no reason why that arrogation of a fiduciary power may not itself involve a breach of fiduciary duty at one and the same time.
2. Unpaid vendor’s liens
Did the Company’s acquisition of the shares subject to unpaid vendor’s liens mean it suffered no loss?
The Sheikh argued that the shares were subject to unpaid vendor’s liens (arising from the 2009 share purchase transactions), so the Company suffered no loss.
The Court rejected this, finding that the parties’ intention – evidenced by the transaction documents and context – was to exclude such liens, as their existence would have frustrated the purpose of the original share transfers (to facilitate an IPO).
It might have been possible, by careful drafting, to fashion a form of unpaid vendor’s lien which did not impede the transfer of the shares to purchasers in an IPO free of any encumbrance in the form of a lien in favour of others, but so that the lien would at the stage of onward transmission of the shares to such purchasers attach instead to the proceeds of sale arising from the IPO. Be that as it may, there was nothing in the evidence or the case presented by the Sheikh that this was contemplated; nor did the evidence in the case show that it was thought that the purchasers in an IPO would regard this as acceptable or as sufficient to eliminate any risk to themselves from having a lien attached to the shares in the first place. On the contrary, as mentioned above, the judge found that the existence of the lien would have had the effect of making the IPO impossible.
The Court emphasised that equitable principles allow consideration of the transaction’s purpose and surrounding circumstances, not just the contract’s wording.
3. Assessment of Loss
Should the Company’s loss be assessed at the date of trial (when the shares were worthless), or at the date of misappropriation?
The Supreme Court restored the trial judge’s award of €67.1 million in equitable compensation, overturning the Court of Appeal’s finding that the Company suffered no loss because the shares became worthless after the 2017 disposal and group restructuring.
Crucially, the Supreme Court held that a defaulting fiduciary cannot reduce their liability by pointing to a subsequent event (here, the 2017 disposal transaction) in which they played a significant part, unless they can prove they were not involved and did not benefit.
The judgment describes the findings of Newey LJ in the Court of Appeal: ‘Newey LJ was by no means satisfied that the Sheikh had made a clean breast (by full disclosure) as to how the 2017 [disposal transaction] had come about, what was its purpose or his role in it, or whether it really did reduce the value of the shares in JJW Inc to zero.’
The Sheikh failed to provide a satisfactory explanation or full disclosure regarding that 2017 disposal, and the Court would not allow him to benefit from his own wrongdoing.
There is descriptive passage in the Supreme Court’s judgment that underlines the principle at play. ‘The example was examined during argument of a valuable painting held on trust and hung in a public gallery. If the trustee misappropriated it (in the sense of claiming it as his own beneficially), but left it hanging in the gallery, which was later burned down, no one would doubt that (leaving aside insurance) the trustee’s arrogation of ownership of the painting caused the beneficiary no loss, at least if the beneficiary would not have sold it in the meantime and taken the proceeds. But for the breach of duty the painting would still have remained in the gallery and would still have been destroyed in the fire. But if the trustee had removed the painting to his own home, which had later been burned down, equally plainly the trustee could not have prayed in aid the fire. The fair allocation of the risk of destruction by fire would have fallen upon the trustee, because his action in moving the painting had created its exposure to the risk of the fire which later occurred, even though he had no part at all in the fire itself.’
The Supreme Court’s Findings
- Directors (and shadow directors) remain exposed to fiduciary liability for post-liquidation dealings with company assets, even if their formal powers have ceased.
- In cases of equitable compensation, the defaulting fiduciary bears the burden of proving that subsequent events breaking the chain of causation were truly independent and not tainted by their own conduct.
- The existence of an unpaid vendor’s lien can be excluded by the parties’ objective intentions and the commercial context, not just by express contractual terms
The Supreme Court’s judgment in Mitchell v Al Jaber is a robust affirmation of the principle that equity will not allow wrongdoers to profit from technicalities or their own misconduct. It will provide welcome clarity for insolvency practitioners, company directors and legal advisers navigating complex group structures and cross-border asset recoveries.
For legal guidance and advice regarding Financial Law queries, please contact Fearghal O’Loan or a member of our Finance team for more information.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.
