Former fiduciaries sought to introduce a ‘but for’ causation test to the equitable duty to account for unauthorised profits, arguing they would have earned the same profits without breaching fiduciary duties. The Supreme Court unanimously declined to depart from established House of Lords authority, holding the profit rule serves a vital prophylactic purpose.
Background
The appellants were individuals who held senior positions at Salford Capital Partners Inc (SCPI) and/or Revoker LLP. Through those positions, they became involved in a lucrative business opportunity: providing asset recovery services for the family of a deceased Georgian billionaire, Arkadi Patarkatsishvili. While still in their fiduciary roles, the appellants planned and took preparatory steps to appropriate this business opportunity for themselves, including denigrating the claimants to the family. They then resigned and, through a newly formed corporate structure (Hunnewell), negotiated a contract with the family and earned substantial profits from providing the recovery services.
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The respondents (successors to SCPI’s entitlement and Revoker) sued for an account of profits. At the liability trial, Cockerill J found the individual appellants had committed breaches of fiduciary duty through disloyalty and bad faith resignation. The claimants elected the remedy of an account of profits. Cockerill J made a 25% equitable allowance for the appellants’ work and skill. After a further ruling on the value of one asset, the High Court capped the total recoverable from the defendants at US$129,576,750 plus interest. The Court of Appeal dismissed the appeal.
The Issue(s)
The central issue was whether the Supreme Court should depart from the longstanding decisions of the House of Lords in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 and Boardman v Phipps [1967] 2 AC 46 so as to introduce a common law ‘but for’ test of causation into the equitable principles governing an account of profits for breach of fiduciary duty. Specifically, the appellants contended that a fiduciary should be able to defend a claim for an account by demonstrating that the profits would have been made even without any breach of duty — for example, by showing that the principal would have consented if asked, or that the fiduciary could have resigned earlier and made the same profit.
The Court’s Reasoning
The majority: Lord Briggs (with whom Lord Reed, Lord Hodge and Lord Richards agreed)
Lord Briggs examined the equitable principles governing the profit rule, noting that the duty to account for profits is an inherent aspect of the fiduciary’s undertaking of single-minded loyalty. He emphasised that this duty exists in its own right and is not merely a discretionary remedy for some other breach:
It is in my view of particular importance in the present context to note that the fiduciary duty to account for profits is a rule governing the conduct of fiduciaries which exists in its own right. It is a duty or obligation imposed by equity on all fiduciaries, as an inherent aspect of their undertaking of single-minded loyalty to their principals. It is not just a discretionary equitable remedy for the breach of some other duty, such as the conflict rule, nor is it necessarily triggered by some other breach, although it very often is.
Lord Briggs traced the prophylactic purpose of the profit rule from Keech v Sandford (1726) through to modern authority. He cited Lord Herschell’s explanation in Bray v Ford [1896] AC 44, 51, as approved in Boardman v Phipps:
It is an inflexible rule of a Court of Equity that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect.
Lord Briggs acknowledged that some form of non-‘but for’ causation analysis already plays a part in identifying accountable profits — the court asks whether the profit owed its existence to the application by the fiduciary of property, information, or advantage enjoyed as a result of the fiduciary position. However, he drew a critical distinction: this analysis does not involve constructing a ‘but for’ counterfactual. He cited Lord Radcliffe in Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 as the clearest authority against such a counterfactual:
If a trustee has placed himself in a position in which his interest conflicts with his duty and has not discharged himself from responsibility to account for the profits that his interest has secured for him, it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of profit.
Lord Briggs systematically addressed the appellants’ six grounds for change, concluding that none carried significant weight individually or cumulatively. On the argument that the rule causes injustice to honest fiduciaries, he held that introducing the but-for test would attenuate the underlying duty and undermine its deterrent effect. He quoted James LJ in Parker v McKenna (1874) LR 10 Ch App 96, 125:
the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that.
On the comparison with equitable compensation following Target Holdings and AIB Group, Lord Briggs was succinct:
Equitable compensation is, as its label implies, about compensation for loss. But loss is irrelevant to an account of profits, as already explained. They are like chalk and cheese.
He found that overseas authorities did not establish any trend toward but-for causation in this context, and that academic opinion was not uniformly critical of the existing law.
Lord Leggatt (concurring)
Lord Leggatt agreed with the result but differed significantly in his analysis. He considered the account of profits to be a remedy for the wrong of breach of fiduciary duty, not the enforcement of an independent duty to account. He identified the underlying fiduciary duty as the duty not to use property, information, or opportunity of the principal for one’s own benefit without consent — a duty distinct from the conflict rule and one that survives termination of the fiduciary relationship.
Importantly, Lord Leggatt accepted that a ‘but for’ test of causation does apply, but argued it was already satisfied on the facts. The appellants’ breach consisted in exploiting the business opportunity for themselves; but for that breach, they would have earned none of the profits. He rejected the appellants’ attempt to construct the counterfactual as one in which they resigned earlier or sought consent, holding that the fiduciary has no duty to seek consent, only a duty not to exploit the opportunity. He also expressed the view that Murad v Al-Saraj [2005] EWCA Civ 959 was wrongly decided.
Lord Burrows (concurring)
Lord Burrows preferred the ‘remedy for a wrong’ analysis but concluded independently that the but-for test, incorporating a ‘lawful alternative counterfactual,’ should not be applied. He reasoned that it would undermine the purpose of the fiduciary duty of loyalty and the prophylactic function of disgorgement:
It would directly undermine that duty of loyalty for the fiduciary to be allowed to keep profit made from a breach of that duty. In this respect, the duty naturally carries through to the remedy of an account of profits.
He also found that the established law was neither plainly wrong nor out of date, and that overruling the leading cases would cause considerable disruption.
Lady Rose (concurring)
Lady Rose arrived at the same result for different reasons, focusing on the practical obstacles to judicial reform. She noted that Parliament had recently codified directors’ duties in the Companies Act 2006 without relaxing the strict rules, and that drawing distinctions between different types of companies or fiduciaries for the purpose of applying different remedial rules was a legislative rather than judicial task.
Practical Significance
This decision is of major importance to the law of fiduciary duties. It confirms, with a panel of seven Justices, that the established equitable principles governing the duty to account for unauthorised profits remain intact. Fiduciaries cannot defend claims for an account by arguing that they would have made the same profits without any breach. The decision reaffirms the prophylactic and deterrent function of the profit rule, and left the 25% equitable allowance in place. The Supreme Court did not review the amount of that allowance. The case also clarifies the relationship between causation and the identification of accountable profits: while some form of causal analysis connects the profits to the fiduciary relationship, the ‘but for’ counterfactual familiar from common law damages has no application. The judgment is significant for company directors, partners, agents, and all who hold fiduciary positions, confirming that the rigour of equity’s demands of single-minded loyalty remains undiminished in modern commercial contexts.
Verdict: The Supreme Court unanimously dismissed the appeal. The appellants were required to account for the profits made from exploiting the business opportunity, subject to the 25% equitable allowance already granted by Cockerill J. The court declined to depart from the decisions of the House of Lords in Regal (Hastings) Ltd v Gulliver and Boardman v Phipps, and rejected the appellants’ proposed defence that they would have earned the same profits had they acted lawfully.
Reported citations: [2026] AC 209, [2025] 2 WLR 529, [2025] Bus LR 610, [2025] WLR(D) 159
