Paul Bugden, Bugden + Co., London
Ref: Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10
The issue of an account for unauthorised profit will arise in a variety of situations; perhaps the most obvious situation in the context of this forum is of course where an agent acts for his principal but there are many other situations where the issue may arise; such as in the case of trustees, directors of a company and partners. The categories in which fiduciary duties arise are not closed but not every duty situation, and whether as above, or otherwise will be such as to impose fiduciary duties – each case turns on its own factual matrix. The terms ‘fiduciary’ and their ‘principal’ are used as might be used in an agency situation, but the same principles will equally to any situation where a fiduciary duty can be established
Before a fiduciary may properly and lawful make a profit from an opportunity discovered in the course of their duties as a fiduciary, he must obtain the fully informed consent of their principal; that is, the person or persons to whom the relevant duty is owed. It is no defence that the opportunity was exploited honestly or in ignorance or that the principal had no intention of exploiting the opportunity; or even that the principal was incapable of doing so. Neither will it be a defence that the principal jointly profited from the opportunity. The only full defence is fully informed consent from the principal for the fiduciary to exploit the opportunity.
As to the existing law, in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 the governing principle was succinctly stated by Lord Russell of Killowen:“The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon questions or considerations as whether the property would or should otherwise have gone to the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made.” The trial judge at first instance in that case ordered such an account but provided for the reasonable remuneration of Mr Boardman with a discount to discourage future breach of duty.
The majority considered the correct approach to assessing the extent of the obligation to account arose directly, strictly and without further qualification from a duty to disgorge wrongful gains made where there was a want of proper authorisation. It did not depend on proof of any actionable ‘loss’ or ‘damage’ or say on consideration of other usual causation issues engaged by the law of damages. As to the issue of valuing the Defendant’s contribution the trial Judge took a very broad-brush approach here in finding it to be 25 per cent and the Supreme Court was unwilling to interfere with that assessment.