In the intricate world of fiduciary relationships, the duty of loyalty stands as a cornerstone principle. The recent Supreme Court decision in Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10 reaffirms the stringent nature of fiduciary obligations and the consequences of breach. This unanimous judgement reinforces the traditional 'profit rule', rejecting attempts to dilute the accountability of those who breach their position of trust. At its core, this case examines what happens when individuals in positions of trust divert opportunities for personal gain – and whether modern legal thinking should modify centuries-old principles of equity.
The appellants in this case were individuals who had previously worked for the respondent company whilst holding fiduciary positions, including as directors. During their tenure, they identified a lucrative business opportunity that should have belonged to the company. Instead of presenting this opportunity to their principal, they diverted it for their personal benefit, subsequently exploiting it to generate substantial profits. The High Court, applying the established 'profit rule', ordered the appellants to account for all profits they had earned from the diverted opportunity. Despite unsuccessful challenges in the Court of Appeal, the appellants pursued their case to the Supreme Court, disputing both their liability to repay profits and the method by which those profits should be calculated.
The central question before the Supreme Court was whether the calculation of profits should incorporate a 'but for' test – essentially asking whether the fiduciaries could have made the same profits without breaching their duty. The appellants argued for this more lenient approach to calculating the account of profits, suggesting that they should only be liable for profits that would not have been earned 'but for' the breach. In opposition, the respondents contended that introducing such a test would fundamentally alter the essential purpose of the profit rule, which is to deter fiduciaries from disloyalty by removing all profit-based incentives for breach.
The Supreme Court unanimously dismissed the appeal, delivering a robust defence of the traditional profit rule. The justices found that this rule serves as a fundamental deterrent against breaches of fiduciary loyalty. They determined that modifying it to include a 'but for' test would substantially undermine its essence and effectiveness. The Court also examined jurisprudence from other common law jurisdictions and academic commentary, finding no compelling consensus favouring the introduction of a 'but for' test.
In a key passage from the judgment, Lord Briggs emphasised: "I would not seek to reform, still less radically to change, the law about the fiduciary's duty to account for profits, or the means whereby equity identifies profits which are subject to that duty... The rigour of the profit rule, together with the conflict rule to which it is closely related, continues to underpin adherence by fiduciaries to their undertaking of single-minded loyalty to their principals and beneficiaries, and the discretion to make allowance for their application of work, skill and risk in the taking of the account is a typically equitable answer to the occasional danger that the rigour of the rule will cause disproportionate injustice."
The Supreme Court concluded that any substantial change to these established principles would have far-reaching consequences and should therefore be a matter for Parliament rather than judicial reform.
The decision in Rukhadze v Recovery Partners [2025] UKSC 10 stands as a powerful reaffirmation of the strict nature of fiduciary obligations in English law. By rejecting the proposed 'but for' test, the Supreme Court has preserved the prophylactic power of the profit rule – ensuring that those who assume positions of trust remain deterred from exploiting those positions for personal gain. The judgment highlights the continuing relevance of traditional equitable principles in modern commercial relationships, demonstrating that while business practices evolve, the fundamental requirements of loyalty and good faith remain constant.
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