Industrial Development Consultants v Cooley

This appeal requires the Supreme Court to consider whether the time has come to make an important change to the equitable principles about the duties and liabilities of fiduciaries. The appellants acknowledge that such a change would involve departing from the ratio of two well-known and longstanding decisions of the House of Lords. They are Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 and Boardman v Phipps [1967] 2 AC 46. For that reason the court has assembled a panel of seven justices to hear the appeal.

The profit rule originated as a duty owed by trustees to their beneficiaries, but it is equally applicable as between fiduciaries such as company directors and their companies. The directors are not trustees as such (because no trust property is vested in them) but they have powers and control over their principal’s property and affairs which they must exercise as fiduciaries. The present case is about fiduciaries rather than trustees, but there is no difference in principle about the underlying profit rule, which is common to both.

But one thing has been clear: the former fiduciary is not allowed to defend his retention of the profit for himself by saying that he would have made it anyway, even if he had not committed a breach of fiduciary duty. Thus he may not say that, if asked, the principal or beneficiary would have consented, or that he could, for example by resigning earlier than he did, have made the same profit with no breach of duty. In this context, equity has invariably regarded these types of “what if” counterfactuals as illegitimate and irrelevant speculation, at least in the courts of England and Wales.

The decision for the court is not heavily dependent upon the detailed and complex facts of the present case. They can therefore be described in summary.

The lucrative business opportunity which lies at the heart of this case arose upon the death in February 2008 of an extremely wealthy Georgian businessman Arkadi Patarkatsishvili (“Badri”). It consisted of providing for a large reward asset recovery services for his family, both recovering his assets from their disorganised and often hidden locations around the world and resisting the claims of various governments and others to the same assets (“the Recovery Services”).