Court rules fiduciaries must not benefit without proper consent

The case of Rukhadze and Others v Recovery Partners GP Ltd [2025] UKSC 10 clarifies that fiduciary duties can arise in informal business relationships and that a fiduciary can’t profit from their position without proper consent.

The ruling affirms and refines key principles regarding when and how fiduciary duties arise, particularly in dynamic commercial relationships where roles may evolve informally, and the strictness of the no-profit rule.

Background: What are fiduciary duties?

Fiduciary duties arise when one party undertakes to act for another in circumstances that create a relationship of trust and confidence. In these situations, a fiduciary:

• Must not place themselves in a position where their personal interests conflict with their duties; and
• Must account for profits from their role unless they have obtained fully informed consent from the principal to keep the same. This is known as the “Profit Rule”.

These duties typically apply to roles such as directors, trustees and partners – but may also arise in informal business collaborations depending on the facts.

The case: Rukhadze and Others (the “Defendants”) v Recovery Partners GP Ltd and Another (the “Claimants”)

The Defendants in the case had been fiduciaries of the Claimants.

The Claimants had been engaged to recover the assets of Arkadi Patarkatsishvili following his death, instructed by the family of the deceased.

The Defendants had fallen into a dispute with the Claimants, which then led to their resignations. During the Defendants’ involvement in the matter, they had been privy to sensitive and confidential information pertaining to Mr Patarkatsishvili and his assets.

The Defendants were alleged to have:

• a. provided information to the family of the deceased which cast the Claimants in a bad light, leading to the Defendants being engaged directly by the family instead; and
• b. used the confidential information (which was obtained in their pursuit of recovery of Mr Patarkatsishvili’s assets) to progress the business opportunity for their own personal benefit.

The Claimants argued that the Defendants had exploited information to secure a contract with the family of the deceased and that the asset recovery opportunity belonged to the Claimants. Therefore, diverting this opportunity to themselves was a breach of the Defendants’ fiduciary duties at the expense of the Claimants. The Defendants were said to have profited to the value of $179,000,000.

The key issues for the Court to consider were:

• Whether the Defendants had breached their fiduciary duties in relation to the Claimants; and
• Whether the Defendants were entitled to retain the profit they had acquired following the business activity which was carried out following their resignations using the confidential information obtained during their employment with the Claimants.

The Defendants contended that they shouldn’t be liable to account for profits where the profit would have been made under other circumstances i.e. had there not been any breach of duty.

In the first instance, the High Court held that the Defendants had in fact breached their fiduciary duties through the misuse of confidential information and diverting the corporate opportunity to themselves – a breach for which the Defendants were liable to account to the Claimants for their profit.

This decision was upheld in the Court of Appeal, although this court held that a 25% allowance should be made for the Defendants’ efforts.

Now, before the Supreme Court, the key question was whether ‘but for’ causation should apply i.e. what profit would have been made if there had not been a breach. The Defendants would then only be required to account for the difference between the profit they actually earned and the profit that could have been earned if there was no breach.

The appeal in the Supreme Court was dismissed on the basis that profits obtained by fiduciaries are held on constructive trust for their principal from the moment they are earned, irrespective of whether they could have been acquired through legitimate means. In delivering its judgment, the Supreme Court reaffirmed the strict application of fiduciary principles, emphasising the role of deterrence in addressing breaches of fiduciary duty.

What are the key takeaways of this case?

This landmark ruling serves as a reminder of the following:

• Any personal profits made in the course of business should be properly accounted for by directors. It’ is recommended that fully informed consent is given by the company and such consent is properly documented
• The “Profit Rule” imposes a strict fiduciary obligation i.e. it applies regardless of whether the fiduciary could have made the same profits without breaching their duty
• Those engaged in complex commercial arrangements should remain vigilant to the possibility of fiduciary duties arising and the high standards of conduct such duties demand
• Fiduciaries may be entitled to equitable allowances which reflect their time, effort and skill in generating profit.