Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10 (19 March 2025)

The appellants, former fiduciaries of the respondents, exploited a business opportunity obtained through their fiduciary positions to provide recovery services after resigning. The Supreme Court upheld the requirement to account for all profits made, rejecting arguments that a 'but for' causation test should apply to reduce accountability. The case affirms the strict profit rule for fiduciaries.

Facts

The appellants held senior positions at Salford Capital Partners Inc (SCPI) and Revoker LLP, owing fiduciary duties to these entities. While still in their positions, they obtained and set up for subsequent exploitation a business opportunity to provide asset recovery services for the family of a deceased Georgian billionaire. After resigning, they carried out these recovery services and made substantial profits. The respondents, successors to SCPI’s interests and Revoker, sued the appellants for an account of the profits made.

Trial Findings

At the Phase 1 trial, Cockerill J found that each appellant had committed breaches of fiduciary duty, including disloyalty in denigrating SCPI to the family and resigning in bad faith to take the business opportunity for themselves. At the Phase 2 trial, the judge found the appellants liable to account for net profits of US$179 million but allowed a 25% equitable allowance for their work and skill, resulting in a net award of US$134 million plus interest.

Issues

The central issue was whether the time had come to change the equitable principles governing a fiduciary’s duty to account for profits. Specifically, whether a ‘but for’ test of causation should apply, allowing fiduciaries to argue they would have made the same profits without any breach of duty, including through the counterfactual that the principal would have consented if asked.

Judgment

The Profit Rule

Lord Briggs, delivering the leading judgment with which Lord Reed, Lord Hodge and Lord Richards agreed, explained that the duty to account for profits is a rule governing fiduciary conduct existing in its own right, not merely a discretionary remedy for breach of another duty. The purpose is prophylactic – to protect principals from fiduciaries being tempted by human frailty to prefer their own interests.

Rejection of But For Test

The Court unanimously rejected the appellants’ submission that a ‘but for’ causation test should determine accountability for profits. Lord Briggs stated that equity has invariably regarded counterfactuals about what profits would have been made without breach as illegitimate and irrelevant speculation.

If a trustee has placed himself in a position in which his interest conflicts with his duty and has not discharged himself from responsibility to account for the profits that his interest has secured for him, it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of profit.

This passage from Lord Radcliffe in Gray v New Augarita Porcupine Mines Ltd was cited as the clearest statement against but-for counterfactuals.

Refusal to Depart from Precedent

The Court declined to depart from Regal (Hastings) Ltd v Gulliver and Boardman v Phipps. Lord Briggs found none of the appellants’ grounds carried significant weight: the prophylactic role of strict rules remains valid; human frailty in facing temptation has not diminished; forensic difficulties do not justify but-for counterfactuals; and equitable allowances better serve justice than a blanket but-for test.

Alternative Analyses

Lord Leggatt, while agreeing with dismissal, preferred analysing the account of profits as a remedy for the wrong of misusing property, information or opportunity of the principal. Lord Burrows also agreed with dismissal, analysing the account as a remedy for breach of fiduciary duty, finding good reasons why a but-for test including the lawful alternative counterfactual should not apply. Lady Rose agreed with dismissal but found insuperable obstacles to judicial development along the lines suggested, particularly given Parliament’s recent codification in the Companies Act 2006.

Implications

This decision reinforces the strict application of fiduciary duties and the profit rule in English law. Fiduciaries cannot escape accountability by arguing they could have made the same profits lawfully or that the principal would have consented if asked. The judgment confirms that the duty to account for unauthorised profits serves an essential prophylactic purpose, deterring fiduciaries from placing themselves in positions of conflict. The equitable allowance for work and skill remains the appropriate mechanism for tempering strict liability where justified, rather than introducing causation-based defences that would undermine the fundamental principle of single-minded loyalty.

Verdict: Appeal dismissed. The appellants were required to account for all profits made from exploiting the business opportunity obtained through their fiduciary positions, less the 25% equitable allowance granted at trial. The Court refused to depart from the established principles in Regal (Hastings) Ltd v Gulliver and Boardman v Phipps.

Source: Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10 (19 March 2025)