Supreme Court Reaffirms Strict Approach to Disgorgement of Post-Termination Fiduciary Profits

1. Introduction

In Rukhadze & Ors v Recovery Partners GP Ltd & Anor ([2025] UKSC 10), the United Kingdom Supreme Court comprehensively addressed whether to relax the strict “no profit” rule in situations where fiduciaries derive benefits after the termination of their official role. The case arose in the context of complex corporate and partnership arrangements that were set up to provide “Recovery Services” for a family’s substantial assets. The main question was whether the Court should take the unusual step of departing from well-established precedents that preclude fiduciaries from defending against post-termination profit claims by arguing they would have made those profits regardless, or that the principal would have consented had they been asked.

The key parties included:

• The Appellants: Various individuals and entities (including Mr Rukhadze and Revoker LLP) who had fulfilled director or partner-type roles and were found liable for breaching fiduciary duties.
• The Respondents: The institutions (e.g., Recovery Partners, SCPI) asserting that the appellants owed fiduciary obligations and thus had to disgorge profits obtained through breaches of those obligations.

By a majority ruling, the Supreme Court dismissed the appeal. In her concurring opinion, Lady Rose agreed with the outcome but relied on legal reasoning that focused on whether the Court should change the concrete rules on fiduciary accountability in modern commercial contexts. This commentary examines the Court’s judgment, the arguments presented, and its impact on the ongoing evolution of fiduciary obligations.

2. Summary of the Judgment

The Supreme Court unanimously dismissed the appellants’ arguments for modifying the strict “no profit” rule. Specifically, they declined to allow fiduciaries to defend against disgorgement of post-termination profits by claiming either that:

1. They would have made those profits regardless of the breach.
2. The principal would have freely consented to the conduct if asked in advance.
3. The principal could not or would not have exploited the same opportunity themselves.

While acknowledging that modern commercial arrangements are increasingly intricate, the Court nonetheless held that any such radical change to established fiduciary principles must come from the legislature rather than a judicial departure from longstanding case law. Lady Rose, concurring, emphasized that enactments such as the Companies Act 2006 (“the 2006 Act”) already codify crucial fiduciary duties, and these statutory provisions do not suggest any relaxation of the established rules.

3. Analysis

3.1 Precedents Cited

The Court’s reasoning was informed by a wealth of longstanding authority regarding fiduciaries’ obligations. Some of the key precedents and principles include:

• Keech v Sandford (1726): Established that trustees may be “the only person of all mankind” who cannot lawfully take a particular benefit for themselves if it is connected to the trust property.
• Aberdeen Railway Co v Blaikie Bros (1854): Confirmed that company directors hold a fiduciary position analogous to trustees and must avoid any conflict of interest.
• In re Lands Allotment Co [1894]: Outlined that directors, though not strictly “trustees,” are treated as such for the purposes of accountability when money comes into their care.
• Herrington v British Railways Board [1972]: Demonstrated the concept of overruling historic precedents if they are shown to be “obsolete,” but also evidenced the reluctance of courts to discard established legal rules without strong justifications, including major shifts in social or legislative policy.
• Swynson Ltd v Lowick Rose LLP [2017]: Reinforced that where individuals choose to use corporate structures, they must bear the consequences (and benefits) of adopting that form, including fiduciary obligations that arise.

These and other cases created the “no profit” rule and shaped the Court’s understanding of the degree to which fiduciaries can, or cannot, profit from opportunities connected to their position or role, even after resignation or termination.

3.2 Legal Reasoning

Lady Rose’s concurring opinion focuses on whether the Supreme Court should now relax or depart from the strict rules, considering:

• Past decisions from the House of Lords, which remain binding under the 1966 Practice Statement unless there is “some very good reason” to overturn them.
• The codification of directors’ duties in the Companies Act 2006. Although that legislation did not formally change the established “no profit” and “no conflict” rules, it enshrined them in statutory form and gave them modern recognition.
• Lack of support for the proposition that changes in commercial practice warrant a major recalibration of fiduciary duties, especially where the statutory codification remains emblematically strict.
• The Court’s preference for legislative (rather than purely judicial) law reform in an area with deep historical roots and with wide-ranging effects on corporate governance and partnership law.

While acknowledging that the appellants and others in “purely commercial contexts” may consider these rules outdated, the Court was not persuaded that new business norms or an alleged “morphing and expansion” of fiduciary duties justified discarding longstanding equitable obligations. Rather, Lady Rose emphasized that those who accept directorships or other fiduciary positions voluntarily assume legal burdens alongside any strategic or tax-driven benefits of the corporate or partnership forms.

3.3 Impact

The most immediate impact of this ruling is the reaffirmation that:

• Fiduciaries who profit, even after their official term, cannot ordinarily defend themselves by arguing that the profit would have been made regardless of the breach.
• Speculative claims that the principal would have consented to or ratified the conduct do not exonerate the fiduciary in the absence of actual, prior authorization.

This ruling underscores the Court’s unwillingness to introduce a broad “counterfactual” approach into the equitable rules of fiduciary accountability. In practical terms:

• Directors, partners, and similarly situated persons must remain vigilant about conflicts of interest extending beyond the formal period of their role.
• Organizational structures and business planning need to account for the continuing reach of fiduciary duties—and potential disgorgement claims—beyond resignation or contract termination.
• Any significant relaxation of the no-profit rule will likely need to come from Parliament, rather than from judicial innovation.

4. Complex Concepts Simplified

Several nuanced legal principles can be distilled as follows:

• Fiduciary Duty: A legal duty where a person (the fiduciary) acts in the best interest of another (the principal). This creates strict rules against conflicts of interest and profiting from one’s position without consent.
• No Profit Rule: Fiduciaries cannot retain profits derived from opportunities linked to their role, even if they have left that position, unless the principal has provided genuine, informed consent.
• Disgorgement vs. Causal Arguments: The Court emphasizes that the principal need not prove that the fiduciary caused the opportunity to arise or that they alone could have exploited it; the availability of a profit to others does not reduce the fiduciary’s accountability.
• Practice Statement (Judicial Precedent) [1966]: This statement guides the Supreme Court on when it may depart from its own precedents. It allows departures only where strict adherence to an earlier rule would lead to “serious anomalies” or “unforeseen serious injustice."
• Companies Act 2006: Partially codifies longstanding common law and equitable duties of directors, including the no-profit and no-conflict rules.
• LLP Regulations: Limited liability partnerships have similarly strict rules against undisclosed personal gain from partnership business (Reg. 7(9), 7(10)), mirroring core equitable duties.

5. Conclusion

In dismissing the appeal, the Supreme Court solidified a fundamental principle: fiduciaries remain bound by stringent obligations not to leverage their positions for undisclosed personal gains—regardless of modern commercial complexity and business realignments. Lady Rose’s concurring reasons reinforced that neither novel transactional structures nor assertions of inevitable or “authorized” profit-taking will override historic equitable duties.

Consequently, this decision stands as a clear reminder that legislative reform, rather than incremental judicial adjustment, is the proper avenue for any major recalibration of longstanding fiduciary rules. Until such reform occurs, fiduciaries in every commercial context—from large public corporations to special purpose vehicles—must assume that the “no profit” and “no conflict” principles continue in force, with courts prepared to order disgorgement of benefits whenever a fiduciary’s conduct oversteps the bounds of loyalty, both during and after their formal tenure.