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Rukhadze & Ors v Recovery Partners GP Ltd & Anor
Smart Summary
Factual and Procedural Background
The Respondents sued the Appellants—one a former director (“Appellant 1”) and the other an associated limited-liability entity (“Appellant 2”)—for breach of fiduciary duty. The dispute arose out of a venture to provide asset-recovery services to a wealthy family (“the Family”). Numerous corporate vehicles were fashioned for tax and regulatory reasons, including “Company B” (the limited-liability partnership) and other special-purpose companies. After relations broke down, the Respondents alleged that the Appellants had exploited post-resignation business opportunities for their own benefit.
At first instance, Judge Cockerill delivered two judgments:
- Phase 1 judgment (liability): held the Appellants liable for breaches of fiduciary duty.
- Phase 2 judgment (account of profits) – [2022] EWHC 690 (Comm): determined which profits were sufficiently connected to the breaches. Some claims were abandoned; the judge also rejected a US $54.4 million claim concerning an investment in “Company A Litigation Funding” for want of the requisite connection.
The Appellants appealed to the Supreme Court, principally contending that the common-law rules governing disgorgement of post-termination profits should be relaxed. Judge Rose concurred in dismissing the appeal, but for reasons distinct from those given by Judges Briggs, Burrows and Leggatt.
Legal Issues Presented
- Whether the Supreme Court should depart from established precedent and adopt a new, more flexible test allowing former fiduciaries to retain post-termination profits where they can show that the profits would have been earned absent any breach, or would have been consented to by the principal.
- Whether, on the facts, any of the challenged profits fell outside the “sufficient connection” necessary to require an account.
Arguments of the Parties
Appellants’ Arguments
- The strict “no-profit” and “no-conflict” rules have become obsolete in modern commercial contexts where both fiduciary and principal are sophisticated market participants.
- Fiduciary duties have “morphed and expanded” beyond traditional relationships; in many purely commercial ventures participants may not even realise they owe fiduciary obligations.
- The court should permit a counter-factual defence: a fiduciary ought to escape disgorgement if he can show (a) he would have made the profit even without the breach, (b) the principal would have consented had permission been sought, or (c) the principal could not have exploited the opportunity.
- Such reform would mirror historical departures from precedent prompted by social change, exemplified by Herrington v British Railways Board.
Respondents’ Arguments
The opinion does not contain a detailed account of the Respondents’ legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Keech v Sandford (1726) Sel Cas Ch 61 |
A fiduciary may be “the only person of all mankind” prohibited from exploiting an opportunity for personal gain. |
Illustrates that a causal link is not required; once a sufficient connection exists, the fiduciary cannot retain the profit. |
| Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 |
House of Lords (and now the Supreme Court) may depart from its prior decisions when “right to do so.” |
Provides the governing test for whether to overrule earlier authority; invoked to assess Appellants’ request to change the law. |
| Austin v Southwark LBC [2010] UKSC 28; [2011] 1 AC 355 |
Confirms the 1966 Practice Statement applies in the Supreme Court era. |
Cited as authority that the same departure test governs. |
| R v Knuller [1973] AC 435 |
Departure from precedent requires “some very good reason.” |
Quoted to highlight the high threshold for overruling earlier decisions. |
| R v National Insurance Comr, Ex p Hudson [1972] AC 944 |
Adherence may be reconsidered where previous law would create serious anomalies. |
Used to frame circumstances justifying departure. |
| Rees v Darlington Memorial Hospital NHS Trust [2004] 1 AC 309 |
Unforeseen serious injustice may warrant overruling precedent. |
Cited in the same context as above. |
| Herrington v British Railways Board [1972] AC 877 |
Example of the House of Lords overruling an outdated rule because of societal change. |
Appellants relied on its reasoning by analogy; the Court distinguished it. |
| Robert Addie & Sons v Dumbreck [1929] AC 358 |
The older rule overruled in Herrington. |
Mentioned historically to illustrate legal evolution. |
| Al Nehayan v Kent [2018] EWHC 333 (Comm); [2018] 1 CLC 216 |
Defines circumstances giving rise to fiduciary duties. |
Quoted to explain why directors are treated analogously to trustees. |
| BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2024] AC 211 |
Historical rationale for equating directors’ interests with those of shareholders. |
Supports maintaining the strict fiduciary framework. |
| Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 |
Directors owe trustee-like duties to the company. |
Cited to demonstrate long-standing doctrine. |
| In re Lands Allotment Co [1894] 1 Ch 616 |
Directors treated as trustees regarding company money. |
Used to underline the traditional approach. |
| In re Wincham Shipbuilding Co (1878) 9 Ch D 322 |
Directors are “trustees for the shareholders.” |
Further historical support for trustee analogy. |
| Swynson Ltd v Lowick Rose LLP [2017] UKSC 32; [2018] AC 313 |
Separate corporate personality means parties must accept burdens as well as benefits of chosen structures. |
Invoked to show why Appellant 1 must bear consequences of accepting directorship. |
Court’s Reasoning and Analysis
Judge Rose concurred in dismissing the appeal but focused specifically on whether the law governing disgorgement of profits should be re-cast. Her core reasoning proceeded in three stages:
- Current doctrine confirmed. The Court reaffirmed two settled propositions:
- A profit earned post-termination must have a sufficient (though not strictly causal) connection to the fiduciary’s former position before it falls into account.
- A fiduciary cannot defend retention of such profits by arguing (a) they would have been earned anyway, (b) the principal would have consented, or (c) the principal could not have taken the opportunity.
- No justification for departing from precedent. Applying the 1966 Practice Statement and subsequent authorities, the Justice held that:
- Parliament had recently codified directors’ duties in the Companies Act 2006 without relaxing the traditional rules, suggesting no perceived injustice.
- Differentiating between “purely commercial” ventures and other companies would create uncertainty; defining the boundary is a policy task more suited to the legislature.
- Any alteration would have knock-on effects for duties owed under the Limited Liability Partnership Regulations 2001 and for statutory remedies under ss 171–178 of the Companies Act 2006, generating undesirable confusion.
- Policy considerations. Businesspeople choosing complex corporate structures must accept both benefits and burdens, including strict fiduciary obligations. Whether that strictness hinders modern commerce is a question for Parliament, not the Court.
Holding and Implications
APPEAL DISMISSED.
The Supreme Court declined to dilute the “no-profit” and “no-conflict” fiduciary rules. Former fiduciaries remain strictly accountable for profits sufficiently connected to their prior position, and counter-factual defences remain unavailable. The decision preserves doctrinal certainty; any future reform is left to legislative action rather than judicial innovation.
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