Rukhadze and others ("Appellants") v Recovery Partners GP Ltd and another("Respondents") [2025] UKSC 10, decided on 19 March 2025,saw the UK Supreme Court decline to overturn centuries of legal precedent by rejecting an invitation to modify the strict equitable doctrine known as the "Profit Rule." This rule requires fiduciaries to account for any profits gained through their position unless they have the fully informed consent of their principal to retain them.
The Supreme Court’s decision reaffirms that the Profit Rule is more than a discretionary remedy; it is a fundamental duty that safeguards the principle of undivided loyalty - a defining characteristic of fiduciary relationships.
Background of the Case
The case arose following the death of wealthy Georgian businessman Arkadi Patarkatsishvili (known as "Badri") in 2008. A highly valuable opportunity emerged to provide asset recovery services to his family, with the goal of identifying and retrieving his global assets - many of which were hidden in complex structures. These services were originally provided by the Respondents: companies formed to continue Badri’s financial recovery efforts, succeeding an earlier company, SCPI, which had managed Badri’s investments.
The Appellants held senior fiduciary roles in these companies and, through these roles, gained extensive knowledge of Badri’s assets. Eventually, tensions developed between the parties. The Appellants, as noted by the Supreme Court, “embarked upon preparatory steps” to take over the asset recovery services for the family directly - steps which included denigrating the Respondents in the eyes of the family.
The Appellants successfully negotiated a new agreement with Badri’s family, under which they were paid annual management fees and a substantial capital sum once a net recovery threshold was reached. The Respondents sued on the basis that these profits arose from the fiduciary relationship and were therefore held on constructive trust for the Respondents.
The High Court found that the Appellants had breached their fiduciary duties and had resigned in bad faith in order to take the opportunity for themselves. Cockerill J applied the orthodox Profit Rule, ordering the Appellants to account for more than $134 million in profits, subject to a 25% equitable allowance for their work and skill. The Court of Appeal upheld the decision, and the Appellants appealed to the Supreme Court.
Legal Issues
Before the Supreme Court, the Appellants argued for a fundamental change in the legal test applied under the Profit Rule. Specifically, they proposed a "but-for" test of causation, which would require courts to assess whether the fiduciary would have made the same profits even if they had not breached their duties. If the answer were yes, then the fiduciary should been titled to retain the profits.
Their arguments rested on six principal grounds:
(i) The Profit Rule is unduly harsh and punishes honest fiduciaries;
(ii) Forensic and procedural advancements make counterfactual analysis more reliable;
(iii) The equitable allowance mechanism is too uncertain to offer predictable fairness;
(iv) Equitable compensation has evolved to include causation principles, and the same should apply here;
(v) Other common law jurisdictions (e.g., Canada, Australia, Hong Kong,Singapore) have adopted a more flexible approach;
(vi) Academic criticism of the Profit Rule justifies its reconsideration.
The Appellants also submitted that a fiduciary should not be accountable if they could show that the profit would have been made anyway, even without the breach, or that the principal would have consented had they been asked.
The Judgment
A seven-judge panel of the Supreme Court heard the case. In the leading opinion, Lord Briggs dismissed the appeal. He rejected the view that the Profit Rule should be subordinated to a causation analysis, stating that none of the Appellants’ grounds carried sufficient weight—individually or collectively - to justify overturning settled precedent.
He explained that the fiduciary’s duty to account for profits is not a mere remedy for wrongdoing, but a substantive rule that exists independently. The wrong arises not from breach in the traditional sense, but from the fiduciary’s failure to account fora profit made out of their position. Lord Briggs distinguished this rule from an account of profits granted as a remedy in IP or tort cases, reiterating that it is a fiduciary’s default obligation.
Crucially, he underscored that the rule applies even where the fiduciary has committed no other breach, and even where the profit was generated through authorised use of fiduciary powers. What matters is whether the profit was derived from, or sufficiently connected to, the fiduciary position.
Lord Briggs also clarified that introducing a “but-for” test would undermine the deterrent purpose of the rule. Fiduciaries would be incentivised to rationalise disloyalty with speculative hypotheticals. This would erode the strict loyalty expected of fiduciaries.
Lady Rose echoed these views, emphasising the relevance of the rule in today’s complex commercial world. She rejected the notion that fiduciary law is outdated, highlighting the continued need for stringent rules in the face of “human frailty in the face of temptation”.
Lord Leggatt and Lord Burrows offered slightly different reasoning. Lord Leggatt accepted that some form of causation is relevant but concluded that the correct counterfactual question is not whether the fiduciary could have made the same profit lawfully, but whether the profit was made without breach. On the facts, the Appellants had not cleared that bar.
Commentary and Implications
This judgment sends a strong message: the English courts are committed to the strict enforcement of fiduciary obligations. Fiduciaries who profit from their roles without consent will be required to account for those gains, regardless of whether they might have secured them by other means.
Key takeaways include:
- The Profit Rule is a default duty that applies regardless of breach or principal loss;
- Counterfactual reasoning and “but-for” defences are inadmissible;
- An equitable allowance remains available at the court’s discretion but is not aguaranteed entitlement;
- Fiduciary duties can arise even in informal or complex commercial arrangements. Understanding and identifying such duties is essential for compliance.
The Court also reinforced that modern commercial complexity does not exempt fiduciaries from long-established obligations. As Lady Rose noted, legislative codification of fiduciary principles (such as in the Companies Act 2006) supports the continued application of these duties.
Conclusion
Rukhadze v Recovery Partners GP Ltd represents a pivotal reaffirmation of fiduciary standards. The Supreme Court has upheld a deeply rooted equitable doctrine, rejecting calls for modernisation based on fairness, practicality, or comparative law.
Fiduciaries who derive profits from their position without informed consent must be prepared to account for those profits in full. The decision underlines that the path to reform lies not with the judiciary but with Parliament - if it is to come at all.
