No profit means no profit: Supreme Court reasserts the strict no-profit rule

Insight

07.05.2025

In a significant recent judgment, the UK Supreme Court unanimously upheld the strict no-profit rule for fiduciaries in Rukhadze and Others v Recovery Partners GP Ltd [2025] UKSC 10. The Court firmly rejected an invitation to dilute this principle by allowing a causation-based defence. It confirmed that fiduciaries – whether directors, trustees or agents – cannot profit from their position without informed consent, even if they assert they would have obtained the benefit without any breach.

Background of Rukhadze and Others v Recovery Partners

The case arose from a lucrative asset recovery project following the death of a wealthy Georgian businessman in 2008. The businessman’s family engaged new corporate vehicles, including Recovery Partners GP Ltd (“Recovery”), to trace and reclaim his far-flung assets. The individual appellants were appointed as directors to carry out the recovery work, placing them in fiduciary roles.

Within a few years tensions arose, and in 2011 the family terminated Recovery’s engagement. The appellants, however, secretly continued providing the asset recovery services on their own, using a new corporate structure. Over the years they earned approximately $179M in fees from the family – without ever informing Recovery or obtaining its consent. When this came to light, Recovery (through its relevant entities) sued the appellants for breach of fiduciary duty, arguing that the asset recovery opportunity and the profits derived from it rightfully belonged to them.

The High Court agreed and ordered the appellants to account for the profits. The appellants were required to pay over roughly $134M (after a 25% equitable allowance to acknowledge the directors' work and skill in generating the profits). The Court of Appeal upheld that outcome. The appellants then appealed to the Supreme Court – not to dispute the facts or the breach of duty, but to urge the Court to relax the strict no-profit rule itself.

Supreme Court decision

The Supreme Court refused to dilute the no-profit rule, stressing that it is a cornerstone of the fiduciary’s duty of loyalty. If a fiduciary acquires a benefit by virtue of his or her position, that benefit is deemed to belong to the principal unless the principal gave fully informed consent for the fiduciary to retain it. This strict obligation to account for profits does not depend on the principal having suffered any loss. It arises because a fiduciary should not be in a position of conflict or temptation in the first place.

The Court firmly rejected the appellants’ optimistic but-for causation test. The suggestion that a disloyal fiduciary could escape liability by hypothesising that they would have earned the profit anyway (for example, by resigning earlier or by imagining the principal would have consented if asked) was rejected. Introducing causation into that analysis would undermine the fundamental no-profit rule and weaken the deterrent against disloyalty.

The Supreme Court acknowledged the no-profit rule can produce harsh outcomes, but it affirmed that this is intentional as it dissuades fiduciaries from putting themselves in positions where personal interest might clash with duty.

Implications for fiduciaries

Duty of loyalty above all: Fiduciaries should assume any profit made through their role belongs to the principal, absent the principal’s fully informed consent for them to keep it. Any opportunity or benefit arising from the fiduciary position must be promptly declared to the principal and approved if the fiduciary is to retain any personal gain.
Leaving to compete requires caution: Resigning a fiduciary position does not automatically free one to seize an opportunity that arose during the tenure. An opportunity learned of or developed while acting as a director, trustee or agent remains subject to the principal’s claim. A fiduciary who wishes to pursue such a venture must proceed with transparency and ideally seek the principal’s agreement. Otherwise, even after resignation, they could be compelled to surrender the profits.
Importance of documenting contributions: While discretionary and uncertain, well-kept records of time, skill and investment in generating the profit could support an equitable allowance if having to account for profit.

Conclusion

Fiduciary duties in English law remain as strict as ever with the Supreme Court reinforcing that the courts will look very sceptically at any attempt to circumvent the duty of loyalty through timing or technical arguments. Even in modern commercial contexts, a fiduciary who puts personal gain over duty will find no leniency from the courts. From a risk management perspective, fiduciaries and those who appoint them should proactively foster a culture of compliance: training, oversight, and early legal advice can help identify and address potential conflicts before they escalate. The strictness of the no-profit rule means the stakes can be very high.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.