The Supreme Court established that an individual who assumes control over company assets after their formal directorship has ended still carries the full weight of their fiduciary duties, ruling that any financial loss for misappropriated property must be valued at the moment of the breach, regardless of whether the assets subsequently lost value due to later events.

Facts:

Sheikh Mohamed Al Jaber is an international businessman and the founder and chairman of many companies. He was the director of MBI International & Partners Inc. (MBI), which was incorporated in the British Virgin Islands (BVI) in 1990.

In March 2009, MBI acquired 891,761 shares in an entity called JJW Inc., a subsidiary of MBI. These shares were transferred from another company associated with the Sheikh under agreements where the purchase price was to be “paid on demand”. However, no payment was ever demanded or made.

In October 2011, the company was placed into compulsory liquidation by a court order under the Cross-Border Insolvency Regulations (CBIR) 2006. Under BVI law, this legal process immediately terminated the Sheikh’s powers as a director. Despite having no continuing legal authority to act on behalf of the company, the Sheikh signed share transfer forms in February 2016. However, he purported to act as the company’s director to transfer the 891,761 shares to another of his associated companies, JJW Guernsey.

In July 2017, all assets and liabilities of JJW Inc. (the company in which the shares were held) were transferred to a UK entity. This 2017 transfer effectively stripped the shares of all value, rendering them worthless.

The company’s liquidators discovered the unauthorised 2016 transfer and sued the Sheikh and JJW Guernsey. They argued that the Sheikh had breached his fiduciary duties and sought equitable compensation. The Trial Judge agreed, valuing the loss at over €67m based on the value of the shares at the time they were taken in 2016. However, the Court of Appeal (CoA) overturned the financial award. The reasoning for this was that, because the shares eventually became worthless in 2017 due to the asset transfer, the company had ultimately suffered no real loss “but for” the Sheikh’s breach. The liquidators and the Sheikh then appealed to the Supreme Court.

Decision:

The Supreme Court unanimously dismissed the Sheikh’s appeal on Issues 1 and 2 and allowed the liquidators’ appeal on Issue 3. The Supreme Court rejected the Sheikh’s argument that he could not be in breach of duty because he was no longer a director. It ruled that if a person takes it upon themselves to manage or dispose of property belonging to others, they assume the status of a “fiduciary” or “actual trustee”. By pretending to have had the authority to sign the share transfers, the Sheikh had thus placed himself in a fiduciary position. The Court specifically noted that the act of signing the forms could, therefore, simultaneously create the duty and also be a breach of that duty.

The Sheikh argued that the company had suffered no loss because it had never paid for the shares in 2009, meaning the original sellers held a “vendor’s lien”. The Court dismissed this, finding that the parties’ objective intention was to exclude any such lien.

The Court held that when a fiduciary misappropriates property, any loss occurs immediately. If a fiduciary claims that a later event (such as the 2017 asset transfer) broke the chain of causation, the burden is on the fiduciary to prove that the event was independent and “innocent”.

Implications:

This Judgement has major implications regarding the accountability of directors and “de facto” fiduciaries. Individuals cannot escape fiduciary liability by simply arguing they were not formally appointed or that their term had ended.

The ruling makes it much harder for fiduciaries to argue that “the property would have lost value anyway”. By placing the burden of proof on the wrongdoer to show an “innocent” intervening event, the Court has prioritised the protection of beneficiaries and creditors.

Finally, this case reinforces that the default position for misappropriation is the valuation at the date of the breach. This ruling provides a level of certainty for liquidators seeking to recover assets in complex international fraud cases.