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Businessmen Denied Profit for ‘Borrowed’ Business Plan

17 August 2010

When someone breaches a confidence and uses confidential information to make a profit, one of the legal remedies which may be sought is to require the person committing the breach to account for the profit made as a result.

In a recent case, two businessmen sought an ‘account of profit’ from a venture capital company, which had purchased and then floated on the stock exchange for more than £29 million the business the two had wanted to buy.

The men had wished to secure backing to buy out a pawnbroking business and had approached the venture capital fund with their business plan. Their proposal was that, after the acquisition, they would both have senior management roles. They signed contracts with the venture capital company which contained confidentiality agreements.

The venture capital fund liked the business plan, but decided to buy the target company itself, without the two men being involved, and later floated the company. The two men sued it for the profit made.

In court, the judge ruled that the men were only entitled to be paid the reasonable sum the venture capital firm would have paid to be released from its duty of confidentiality to them under the contract. The two men had brought no ‘new idea’ or process or design to the negotiations but had merely uncovered a good business opportunity. Furthermore, there was no fiduciary duty owed to them by the venture capital firm.

The court found that, rather than a share in the profits, the two men were entitled to a payout based on the shareholding of the company the venture capital firm would have been compelled to give them to take the proposal and put it into effect itself. On that basis, the sum due to them was approximately £2.5 million.

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