Regal (Hastings) Ltd v Gulliver [1942] is the leading decision in English company law establishing the strict nature of the fiduciary duty to account for secret profits. Liability is “strict”: it does not depend on bad faith or on whether the company actually suffered a loss.

Facts of the Case

Regal (Hastings) Ltd owned a cinema and its directors wanted to acquire two more local cinemas to sell the whole business as a going concern. They formed a subsidiary to lease the other cinemas. The landlord required the subsidiary to have paid-up capital of £5,000 or personal guarantees from the directors. Regal could provide only £2,000 for 2,000 shares, and the directors were unwilling to give personal guarantees, so the directors and their associates personally subscribed for the remaining 3,000 shares. The company was later sold via takeover, and the directors made a significant profit on their personal shares. Regal’s new management sued the former directors to account for those profits.

Legal Issue

Whether directors are liable to account for profits made through their position even if they acted in good faith, used their own money, and the company itself was financially incapable of taking the opportunity.

Judgment

The House of Lords held the directors liable to account. Lord Russell of Killowen reasoned that because the directors obtained the opportunity and knowledge to buy the shares qua fiduciaries (in their capacity as directors), they could not keep the profit.

  • Good faith is irrelevant: the directors had acted honestly and intended to benefit the company, but liability “in no way depends on fraud, or absence of bona fides”.
  • Company inability is irrelevant: even though Regal could not have bought the shares itself, the directors were still liable.
  • Lack of loss: it did not matter that Regal suffered no loss; liability arose from the mere fact of a profit made in a fiduciary capacity.

Significance and Legal Principles

  • Strict prophylactic rule: an “inexorable rule” of equity designed as a deterrent, ensuring fiduciaries never place their interests in conflict with their duties.
  • No-profit rule: liability is triggered automatically once a profit is made from the fiduciary position, with no “but-for” test of causation.

Modern reaffirmation: though critics call the rule “draconian”, the Supreme Court recently reaffirmed this classic formulation in Rukhadze v Recovery Partners GP Ltd (2025), holding that the obligation to account for profits remains an essential feature of fiduciary liability.