In Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10, the Supreme Court had the task of deciding whether a change was needed to the law on equitable obligations and liabilities of fiduciaries.

The duty under the microscope was the so-called “profit rule”, i.e. that a fiduciary must account to his principal for any profit derived from or made out of the fiduciary relationship, save where the principal has provided his informed consent to the fiduciary retaining that profit. Such profit has long been treated in equity as held on constructive trust for the principal from the moment it is made. 

In Rukhadze, the Court re-examined whether it needed to apply a common law “but for” causation test before granting an account of profits in such circumstances. Was the Court required to ask whether the fiduciary would have made the profit but for its breach, for example because the principal would have consented to it or because the fiduciary could have terminated the relationship before he gained the opportunity and would have made the same profit anyway? 

To state the relevant facts briefly, the case centred around asset recovery services provided to the family of deceased Georgian businessman Arkadi Patarkatsishvili (“Badri”). Those services were initially carried out by “SCPI”, a company in which the individual appellants held senior roles and were fiduciaries. When the appellants left SCPI, they continued to provide the services to Badri’s family and received fees for doing so. The respondents (SCPI’s successors) claimed that the appellants were in breach of duty by, inter alia, taking for themselves SCPI’s business opportunity, and sued the appellants for an account of profits represented by the payments made to the appellants by the family. At first instance, the appellants were held to be in breach of fiduciary duty and ordered to make an account of profits, in the amount of the payments made by the family less 25% as an equitable allowance for the appellants’ work and skill in providing the services. The Court of Appeal dismissed the appellants’ appeal. 

Before the Supreme Court, the appellants argued that applying “what if” counterfactuals with a “but for” common law causation test would provide more clarity, predictability, common sense and justice to this area of equity and avoid harsh results. 

However, in a majority verdict, the Court declined to allow the appeal, holding that there is no requirement for a “but for” causation test, with Lord Briggs summarising at [36]:

The question is not, would the profit have been made even if there had been no antecedent breach of fiduciary duty, but did the profit owe its existence to a significant extent to the application by the fiduciary of property, information or some other advantage which he enjoyed as a result of his fiduciary position, or from some activity undertaken while he remained a fiduciary which the conflict duty required him to avoid altogether. For that purpose the court looks closely at the facts, i.e. what actually did happen, but does not concern itself with what might have happened in a hypothetical “but for” situation which did not in fact occur.

Therefore, the duty to account to a principal applies to all fiduciaries and is not merely a remedy; rather it is a duty that arises at the moment the profit is gained. 

In its reasoning, the Court considered that there are in-built limitations to the application of the profit rule, namely that there must be a sufficient link between the fiduciary relationship and the profit gained. While the duty to account does not depend on any prior breach, where the profit follows on from a breach of the conflict duty, the sufficient link required will usually be established and “the accountability for the resulting profit will usually follow”. [42] Further, the Court was content that any possible injustices or harsh results would be better alleviated by its discretion to grant an equitable allowance, as the trial judge had ordered in this case, rather than an application of a broad “but-for” test.

Arguments put forward by the appellants that the increasing number of fiduciary relationships in the business world supports a relaxation of the deterrent role of the current law were not persuasive and in fact tended to underline that the duty of single-minded loyalty owed by a fiduciary should be very carefully protected. 

Application to Sport

As in the wider business world, there are an ever-increasing number of fiduciaries in sport, including sports agents, whether the traditional “on-field” agents or those working in “off-field” commercial settings; directors and partners in sports clubs, governing bodies and other entities; and trustees in charitable trusts, foundations and investment structures.

Rukhadze will serve as a reminder from the highest court in the land to all sports fiduciaries of the significant obligations and liabilities they owe to their principal in that role. The consequences of breach are severe.

Sports agents have long recognised this fact. In the landmark Court of Appeal case in Imageview Management Ltd v Jack [2009] EWCA Civ 63, which considered a secret profit of £3,000 made by a football agent in assisting his football player principal’s club to obtain a work permit for him, the Court ordered both an account of the profit made and forfeiture of all remuneration received by the agent from the player. While forfeiture of remuneration was not considered on the facts in Rukhadze, until we have a Supreme Court judgment offering further clarity in this area, all fiduciaries remain mindful that this draconian remedy will be ordered by courts and tribunals in appropriate cases.

As Rukhadze confirms, it is prudent for fiduciaries to seek and obtain the informed consent of their principal if they wish to retain profits earned. Likewise, when fiduciaries wish to act for both sides in a transaction (as is common with on-field sports agents), informed consent should be obtained from each principal to avoid a breach of the fiduciary’s duty to avoid conflicts of interest. If not, fiduciaries may find that only a quantum meruit allowance remains on the table where it is held to be fair and equitable to recompense the skill and effort used in the transaction. As per Rukhadze, such an equitable allowance may only represent a fraction of the profit gained.