Former fiduciaries must hand over profits from business opportunity

The Supreme Court has confirmed that former fiduciaries must hand over profits gained from business opportunities connected to their previous role, even after the fiduciary relationship has ended. In a key ruling, the Court rejected arguments for a more lenient approach based on hypothetical scenarios, instead upholding the strict "profit rule" to maintain high standards of loyalty and integrity.

The Supreme Court has ruled that former fiduciaries who profit from a business opportunity linked to their former role must account for those profits, even after the relationship has ended. The judgment came in a long-running dispute involving three men who helped secure a lucrative asset recovery contract for a Georgian billionaire’s family after his death. 

The case centred on the "profit rule" - a principle in equity that requires fiduciaries to act with "single-minded loyalty" and to hand over any profits made through that relationship, unless their principal gives fully informed consent otherwise. Giving the lead judgment, Lord Briggs said, "The profits belong in equity to the principal and must be treated as such." He added that the fiduciary must not only disclose the profits but pay them over or treat them as the property of the principal. 

The appellants had challenged this principle, arguing that courts should instead apply a "but-for" causation test. They said that if the same profits would have been made without breaching fiduciary duty, they should be allowed to keep them. But the Supreme Court rejected this approach. Lord Briggs said that such counterfactuals were “illegitimate and irrelevant speculation” and that introducing them into equity would mark a fundamental change in the law. 

The case arose after the death of Georgian businessman Arkadi "Badri" Patarkatsishvili in 2008. His family required assistance in recovering assets around the world and in resisting claims from others to those assets. 

The opportunity to provide those recovery services — referred to as “the Recovery Services” — became a lucrative business. The three appellants were all involved with companies that had initially worked on the project but later moved to profit from it independently. The court found that the profits they earned flowed directly from knowledge and opportunities gained through their former fiduciary positions. Lord Briggs said the existing equitable rule, which requires fiduciaries to account for such profits without resort to counterfactuals, “promotes high standards of loyalty and integrity.” 

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