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Toby Graham, David Russell, Account of profits—the link between profits earned and the breach of the fiduciary duty, Trusts & Trustees, Volume 30, Issue 3, April 2024, Pages 111–117, https://doi.org/10.1093/tandt/ttae008
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Extract
INTRODUCTION
We return to the subject of a fiduciary’s duty to account to his or her principal (or in a trust context, a trustee’s duty to account to his or her beneficiary) for profits derived from an unauthorised use of an opportunity or knowledge belonging to or deriving from his or her principal. This is prompted by discovering the case known as Recovery Partners v Rukhadze & Ors is heading to the Supreme Court. The point at issue is explained in an ex tempore judgment of Foxton J dated 20 October 2023: “What link is required between the profits earned by a fiduciary and the breach of fiduciary duty before those profits will fall within the scope of a duty to account”.1 The profits in question resulted from an agreement to provide recovery services to the family of a deceased Billionaire. The opportunity to provide such services effectively belonged to the claimants, to whom Mr Rukhadze owed fiduciary duties. He breached these by disloyally carrying out preparatory steps while working for one of the claimants and then resigning with the intention of undertaking the recovery services himself. Cockerill J assessed the profit, after a generous equitable allowance for Mr Rukhadze’s work and expertise, at approximately $130 mil. The issue raised before the Court of Appeal concerned an outline agreement between the parties for sharing profits 50/50. Mr Rukhadze suggested that this limited the claimants’ entitlement and should therefore limit the scope of the account. This was rejected by the Court of Appeal, as the parties had not concluded a binding agreement and because any profit-sharing agreement did not confer proprietary rights on Mr Rukhadze (the Court of Appeal suggested that personal rights could effectively be ignored). More on the factual details can be found in our previous editorial focusing on the case2.
