Secret profit

In English law, a secret profit is a profit made by an employee who uses his employer's premises and business facilities in order to engage in unauthorised trade on his own behalf. A common example is a bar manager who purchases beer from a brewery in his own right and sells it in the bar in competition with, or in preference to, that of his employer. The profit made thereby is a secret profit.[1][2][3]

Where the employee deceived a customer before 15 January 2007 he could be prosecuted for obtaining property by deception, the property being the customer's money and the deception that he was selling his employer's produce.[4] Such offences were predicated on the presumption that a customer would not purchase illicit goods were he aware of their true provenance.[5] The offence of obtaining property by deception has since been repealed and is now replaced by the offence of fraud by false representation.[6]

The employee is not a constructive trustee of the profit for the employer and the employer has no proprietary interest in the profit. Hence, there is no theft from the employer and the profit is merely a civil debt owed by the employee to the employer[2] (Note: In light of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, this may in fact no longer be the case according to the law of England and Wales). Where more than one person is involved there could be a conspiracy to defraud[7] and, since the coming into force of the Fraud Act 2006, the employee could be guilty of fraud by abuse of position.[8]

References

  1. ↑ Lister v Stubbs (1890) 45 Ch D 1, CA
  2. 1 2 Attorney-General's Reference (No 1 of 1985) [1986] QB 491, CA
  3. ↑ Law Commission (2002) 3.39-3.40, 4.40-4.45
  4. ↑ R v Rashid (1977) 64 Cr App Rep 201, CA
  5. ↑ R v Doukas [1978] 1 All ER 1061, CA
  6. ↑ Law Commission (2002)
  7. ↑ R v Cooke [1986] 1 AC 909
  8. ↑ Fraud Act 2006, s.4

Bibliography

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