A few
scattered thoughts on Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10
on a fiduciary's duty to account for profits. The UKSC refuse to change the law
and reject the introduction of a requirement that the profits would not have
been made but for the breach of fiduciary duty.
https://www.supremecourt.uk/cases/uksc-2023-0062
- The result is clearly
right
- The preferable
analysis is that of Lord Briggs for the majority of the court (Reed, Hodge
and Richards agreeing.) "[T]hat fiduciaries will act with
single-minded loyalty toward their principals (or beneficiaries) means
that the fiduciary must account to the principal for any profits which the
fiduciary makes"[2]. See also [20] The fiduciary must account because
that is what being loyal now requires. Whether the profits would have been
made regardless of the breach is irrelevant. The duty to account for profits
is not one that arises because of a breach.
- It is unfortunate that
Lord Briggs glossed this statement by saying the rule was prophylactic,
with the purpose of deterring people from falling short of their
(separate) duty of loyalty ([16]-[18]). This is in conflict with his
alternative formulation. Compelling the fiduciary to account for profits
makes them do what they ought to do, it doesn't deter them from not doing
something else. What would Lord Briggs think the rule should be if we
could prove beyond peradventure that fiduciaries did not behave any
differently because of it?
- It was also
unfortunate to cite with apparent approval Lord Upjohn's statement in Boardman
v Phipps that the no profit rule was an aspect of the no conflict rule
([18], cf [19]). The basis of Lord Upjohn's dissent in Boardman was
the (mistaken) view that because there was no conflict between the
interests of the fiduciaries and those of the beneficiaries, there was no
duty to account for profits. The rules are separate (see also Lord Leggatt
at [114]).
- Lord Briggs' judgment
looks to me like he has read several academic writers, and derived ideas
that are inconsistent with one another. Although some commentators do say
the rule exists for purposes of deterrence and prophylaxis that isn't
consistent with the view that this is straightforwardly about enforcing
the duty of loyalty.
- Lord Leggatt makes too
much of there being a "liability" to account [220] (ie the
beneficiaries have a power to go to court and enable the court to make an
order). The existence of such a liability does not exclude the existence
of a duty as he supposes (indeed all enforceable legal duties
definitionally also involve a liability- see, well, Hohfeld).
- The apparent reliance
of the majority on deterrence leads Lord Leggatt to denounce this as
inappropriate in private law ([198]-[199]).If that were the justification
for the no profit rule, I'd agree with him. But as it isn't, I don't.
- Lord Burrows' judgment
is somewhat odd. So, he acknowledges Professor Lionel Smith's view that
the duty is primary, but then proceeds as if it didn't exist, and carries
on to analyse the case as if the 'disgorgement for wrongdoing' view were
plausible. Perhaps that is how the case was argued, but cf Lord Briggs.
- Lady Rose makes
several good points as to how inappropriate it would be for the judiciary
to change the established rule.
- 113 pages is too many.
RS