RECOVERY PARTNERS GP LIMITED AND ANOR v MR IRAKLI RUKHADZE AND OTHERS

An account of profits for breach of fiduciary duty is an equitable remedy, but its scope is governed by established equitable principles. The court has no free-standing discretion to reduce the account merely because the claimant behaved badly, delayed proceedings, or because the breach was morally less serious. The relevant inquiry is whether the profits bear a reasonable relationship to the breach; causation is not required. An allowance may be made for reasonable skill and labour where the work was necessary and beneficial, but it is not a share of profits based on a hypothetical bargain. A prior agreement limiting the principal’s interest may affect the account. The account may exclude profits from a separate venture lacking sufficient connection with the breach.

The claimants sought an account of profits following the Phase 1 judgment, reported as [2018] EWHC 2018 (Comm), in which the defendants were held to have breached fiduciary duties by appropriating a developing business opportunity concerning recovery services for the Patarkatsishvili family estate.

This Phase 2 trial concerned the legal principles governing the account, the connection between the breaches and receipts or investments, alleged delay and misconduct by the claimants, an alleged pre-existing profit-sharing arrangement, allowances for skill and labour, and the valuation of assets and expenses.

1. Scope of the account. The account had to be fashioned by reference to established equitable principles. There was no general discretion to reduce the remedy according to broad notions of fairness, the perceived magnitude of the breach, the claimant’s conduct, or delay. The defendants’ conduct allegations could not affect the account, whether considered alone or together with delay.
2. Connection. The applicable test was whether the profits bore a reasonable relationship or nexus to the breach. Equitable causation was not a separate requirement. The Recovery Services remained the same broad business opportunity despite changes in the particular workstreams. The defendants’ receipts and asset benefits therefore remained within the account where sufficiently connected.
3. The RBS litigation-funding investment was outside the account. It was a later, unrelated venture. The various links relied upon, including the source of funding and the involvement of a person known through the Recovery Services, did not provide the necessary nexus.
4. Antecedent agreement and allowance. The alleged 50/50 arrangement did not define or limit the claimants’ interest in the business opportunity and was not an enforceable antecedent profit-sharing agreement. However, the defendants had contributed necessary skill, effort and labour. Applying the approach in cases including Murad and O’Sullivan, a robust allowance of 25 per cent was appropriate. A separate allowance for unique skill or commercial risk was not established.
5. Quantification. The court found cash Responsive Receipts of US$112.683 million and Responsive Expenses of US$18.296 million. It included Imedi at US$30 million, Maestro at US$0.2965 million, Benahavis at US$11.707 million and Zurgovani at US$6.1495 million. The RBS investment was excluded. The resulting sum was US$142.536 million, subject to a 25 per cent allowance and a further adjustment once the Rustavi valuation was determined.

First-instance Phase 2 liability and quantum judgment. The judgment followed the court’s earlier Phase 1 decision in the same litigation, reported as [2018] EWHC 2018 (Comm); that decision is excluded from the cited-case graph as part of the same litigation.