In a significant reaffirmation of equitable principles, the UK Supreme Court in the case of Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10, 19 March 2025 has upheld the strict obligation of fiduciaries to account for profits derived from their fiduciary position, rejecting a proposed shift toward a causation-based approach grounded in common law.

Background & High Court Judgment

• The appellants, former directors and partners of entities involved in high-stakes asset recovery for the estate of the late Georgian billionaire Arkadi Patarkatsishvili, were found to have resigned in bad faith and subsequently exploited a corporate opportunity for their own benefit.
• They secured a lucrative agreement with the family of the deceased, ultimately realising $179 million in profits.
• The respondents, successors to the original entity entitled to that business opportunity, brought claims for an account of profits.
• The High Court found that the appellants had breached their fiduciary duties by orchestrating a bad-faith resignation and misappropriating the opportunity.
• The appellants were ordered to pay the majority of the profits made, less a 25% equitable allowance for their effort and skill.

The Appeal

The central issue before the UK Supreme Court was whether fiduciaries should only be liable to account for profits if they would not have earned them "but for" the breach of duty — a radical departure from the current equitable doctrine, which imposes strict liability irrespective of such counterfactuals.

Key Findings

• The Supreme Court declined to depart from two foundational House of Lords judgments — Regal (Hastings) Ltd v Gulliver and Boardman v Phipps — which establish that fiduciaries must account for profits derived from their position, regardless of whether those profits could have been earned lawfully.
• Lord Briggs, delivering the majority judgment, reaffirmed that the profit rule is prophylactic and strict, serving a deterrent function to discourage fiduciaries from putting themselves in a position of conflict or temptation.
• The Supreme Court explicitly rejected the proposed "but-for" test, stating that speculative counterfactuals (e.g., whether the fiduciary would have secured the benefit without a breach) are irrelevant in determining liability.
• Instead, the Supreme Court emphasised that a constructive trust arises immediately upon receipt of such profits by the fiduciary, reflecting the equitable ownership of the principal.
• The justices acknowledged that post-termination profits may still fall under the duty to account if they arise from opportunities, information, or advantages gained during the fiduciary relationship.
• Importantly, the Court confirmed that while liability to account remains strict, equitable allowances (such as the 25% awarded in this case) can temper the rigidity of the rule to avoid undue hardship in light of the fiduciary's contribution.

Significance

• This judgment preserves the traditional single-minded loyalty fiduciaries owe to their principals and prevents a dilution of fiduciary accountability.
• The Supreme Court has drawn a clear line: profiting from a fiduciary position without informed consent triggers an obligation to account, regardless of good faith or hypothetical alternatives.
• The ruling reinforces the deterrent effect of fiduciary law and provides clarity for future cases, particularly those involving post-resignation business activities.