Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10 was an appeal inviting the UK Supreme Court to change the legal test for an account of profits from a fiduciary.

The equitable principle in question is that if a fiduciary makes a profit out of their position as a fiduciary (say, by exploiting an opportunity which they discover through their position), they must account to their principal for that profit unless they had the fully informed consent of the principal to keep the profit (the Profit Rule).

The appellants in this case invited the Supreme Court to depart from precedent and say that under the Profit Rule a fiduciary should now only be required to account for those profits which it would not have made if it had not breached its duty (but hence should be free to keep profits that it would have made regardless of the breach).

As the Supreme Court explained, the purpose of the Profit Rule is to prevent the temptation of profiting from a fiduciary position and thus falling short of the duty of absolute loyalty to the principal. There is a narrow route for the fiduciary nonetheless to be allowed credit for some of the profit, in that the courts can order that the fiduciary be given an equitable allowance for the investment of their time and skill in procuring the profit.

The Supreme Court unanimously concluded it should not change the Profit Rule. However, in doing so, it provided interesting analysis of the law on this important aspect of fiduciary duties and their application in modern business.

Background

The appellants in this case had been fiduciaries of the respondents (a BVI company and an English LLP). The individual appellants were found to have resigned from their fiduciary positions with the intention of competing with the respondents. The appellants had then taken advantage of a business opportunity they had previously been working on for the respondents, which was to assist in recovering assets of a deceased businessman for his family. In doing so, they had made a considerable profit. The High Court ordered the appellants to account for this profit to the respondents in accordance with the Profit Rule, with a 25% allowance for the application of their time and skill. An appeal to the Court of Appeal was dismissed.

The appeal to the Supreme Court

The appeal to the Supreme Court involved a question not considered in the courts below, because it was acknowledged by the parties that it would require a change from precedent set by the House of Lords. As such, only the Supreme Court could depart from the existing precedent – the Supreme Court can do this if it deems it “right to do so”, which in practice is a very high threshold. The Supreme Court agreed to hear the appeal.

The appellants said that the Profit Rule should be changed such that the duty to account for profits would not apply in situations where the fiduciary would have made the profit even if they had not breached their duty. That is to say, the appellants asked the Supreme Court to introduce a “but for” test of causation that a fiduciary is only required to account for profits which they would not have made but for their breach of duty.

In this case, the appellants said this would mean they did not have to account for any profits, because even if they had resigned from their positions before they committed any breaches of fiduciary duty, they would still have gone on to carry out the recovery work they in fact did for the deceased’s family.

The appellants offered six reasons why this change in law appropriate.

1. The current principle was draconian and disproportionate in modern society.
2. In the past, constructing counterfactuals was considered forensically difficult and uncertain, but this is no longer the case so the use of a counterfactual “but for” analysis is no longer problematic, and the suggestion that it is was outdated.
3. The equitable allowance for the devotion of the fiduciary’s time and skill in generating the profit was too uncertain and wrongly classified as exceptional. A “but for” condition would be a better, more predictable test.
4. Other equitable remedies have been subjected to common law principles of causation. The same should now be done for this rule.
5. English law was out of step with other common law jurisdictions on this principle.
6. The principle has been subject to academic criticism which should be afforded more weight.

The Supreme Court examined these proposed justifications along with the reasons why the Profit Rule exists. It concluded that the law should not be changed and dismissed the appeal.

Commentary on the rule

In the leading judgment, Lord Briggs said that it is an error to conceive of the Profit Rule as “merely” a remedy. While an account of profits is a remedy, it is also an order for the enforcement of a basic duty of a fiduciary that they must treat all profit arising from their role as belonging to their principal. To suggest that instead a fiduciary must ensure they do not make profits from their position that they could not have made in another way would be to water down “the simple duty not to go there at all without the principal’s informed consent”.

Lord Briggs considered that the justifications offered by the appellants did not come anywhere near the high hurdle set to justify a departure from precedent. The principle is intentionally strict. It was of no assistance to suggest that the test was now misaligned with the use of a “but for” test in the field of equitable compensation, since equitable compensation is a matter of compensation for loss, which the Profit Rule is not.

The principle that the fiduciary can still receive an equitable allowance for the application of their skill and time was adequate protection against injustice and more appropriate than a causation test. Lord Briggs felt “but for” causation would lack the necessary nuance to do what was equitable in the circumstances. The uncertainty of the equitable allowance that the appellants alleged was in fact a virtue, as it bolstered the deterrent effect of the Profit Rule by ensuring a fiduciary contemplating a breach knows that the chances of being allowed to retain any profit are a matter of judicial discretion and subject to a high degree of uncertainty.

The Profit Rule was not significantly out of step with other jurisdictions, nor had it been subjected to a consensus of negative academic opinion. Both Lord Briggs and Lord Burrows noted that human nature has not changed since the line of case law on this topic began, and so the justification for the Profit Rule in promoting absolute loyalty of fiduciary to principal remains in place.

An interesting aspect of the appellants’ unsuccessful arguments was considered in most detail by Lady Rose. This was the contention that the Profit Rule, having developed in 18th and 19th century case law, was concerned with “traditional” fiduciary relationships, and so was now obsolete. The appellants said that nowadays fiduciary duties arise in a much broader array of situations in “purely commercial contexts…where the fiduciary and the principal are both sophisticated operators, having access to the same information, who may also rely on less formality, and far less on trust, than in the traditional relationships.” The appellants argued that in modern commercial situations, fiduciary relationships might thus arise by “happenstance” of how business matters had been structured. As such, imposing the Profit Rule in its strict original formulation was no longer appropriate.

The judges were in agreement that this did not justify changing the rule. As Lady Rose explained, fiduciary duties were codified in this jurisdiction as recently as the Companies Act 2006, and nothing about the way in which this was done suggested that the UK legislature felt the modern business world was so different now as to justify a wholesale change or substantial relaxation of the rules. While the 2006 Act did not apply in this case (the respondents being a BVI company and an LLP), the duties codified in it are based on the common law and equitable principles applicable to fiduciaries which continue to exist concurrently. This suggests that traditional fiduciary obligations are not generally thought obsolete due to modern business practices.

Moreover, if the law were to be changed, the Supreme Court would have struggled with the difficulty of determining whether the change affected all companies, which would be a radical change, or only some, in which case it would need to define the situations in which the “but for” counterfactual analysis was to be used and those where it would not – neither was something the court should do.

Conclusion

This was a serious question of law, meriting a seven judge panel of the Supreme Court. The fact that the justices produced four different judgments justifying maintaining the existing Profit Rule indicates the complexity of this principle of equity. Nonetheless, the law remains fixed: a fiduciary must account to their principal for any profits gained from their position as a fiduciary, and it is not a defence (i) that the fiduciary would have made the profits even if they had not breached their fiduciary duties, (ii) that the principal would have consented if asked, or (iii) that the principal would not have been able or willing to take advantage of the opportunity themselves. The rule is undoubtedly strict, but it is also certain.