The Supreme Court handed down a landmark judgement on 19 March in an appeal on the case of Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10, maintaining the strict no profit rule for fiduciaries, including charity trustees and directors.
The appellants in this case were fiduciaries of companies who, in breach of their duties, diverted a business opportunity away from the companies in order to make a profit themselves. Following a claim in the High Court, they had been ordered to pay the relevant profits over to the companies. The fiduciaries were ordered to account for the $170 million USD in profits made, minus a 25% equitable allowance given by the court to reflect the work that they had done in in generating the return.
On appeal to the Supreme Court, the fiduciaries sought to challenge the existing 'profit rule', submitting that they should only be required to account for the profits they actually earned minus the profits they would have earned if they had not breached their fiduciary duties. In effect, this would depart from the existing rule whereby the court merely has the discretion to grant equitable allowances to reflect the work and skill of the fiduciaries which they devoted to producing the profits.
The Supreme Court unanimously dismissed the appeal. In his judgement, Lord Briggs stated that the purpose of the profit rule is to deter fiduciaries from giving in to the temptation of departing from their single-minded loyalty to the principal and to take unfair advantage of their position to make profit at the latter's expense. Failing to be persuaded that the current rule was unfairly harsh, antiquated, or apart from other jurisdictions, the Supreme Court did not consider there to be any need to depart from it.
The position for charity trustees is usually yet stricter than that for other fiduciaries such as company directors, but the judgment is a helpful reminder of the underlying principles and a reassuring confirmation that the courts are not prepared to water them down.
The profit rule
Fiduciaries are persons who have a legal and ethical duty to act in the best interests of another (the 'principal' or 'beneficiary'). This includes charity trustees and directors, who owe fiduciary duties to their charity. These duties include a duty of loyalty to their principal: the person or people for whom they hold or manage property. In the case of charities, the 'principal' is their charitable purposes or, put another way, their beneficiaries. A core component of the duty is that fiduciaries must not make a profit from or by reason of their office. This means that if a trustee or director, without authority, obtains a profit from the use of a charity's property or by virtue of their position and knowledge of the charity, then they must account for that profit. The profit rule applies to profits made both directly and indirectly from the fiduciary's office. The fiduciary rule applies even beyond the term of a trustee's office, and a charity trustee or director will still have to account for any profit made as a result of their breach of duty while they maintained their role in the charity, to which the profits ultimately belong.
The consequences of failure to abide by the rule
Where a fiduciary makes a profit from their office, that profit is held on trust for the principal; in effect it never belongs to the fiduciary. Where, therefore, a trustee breaches the profit rule they are bound to account to the charity for the benefit that they purportedly take for themselves. The court may make an equitable allowance, 'a discretionary way of alleviating the potential injustice of transferring to a principal the whole of the fruit of a fiduciary's hard work and skill'. However, this lies entirely at the court's discretion and will be dependent on the facts of the case. It is less likely to be a way out where a charity is involved.
This piece was co-authored by Rebecca Willis, a trainee solicitor at the time of writing.
Source
Source: Rukhadze and others v Recovery Partners GP Ltd and another [2025] UKSC 10
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