Fiduciary Duties: Accounting for secret profits

2 mins

Posted on 09 Jun 2011

In Samsung Semiconductor Europe Ltd v Docherty and another, the Outer House of the Court of Session found that Mr Docherty (an employee) owed a fiduciary duty to his employer.  As a result he was required to account to Samsung for the secret profit he made when he ensured Samsung did business with a company in which he had an undisclosed 50% shareholding.  Unlike claims for breach of contract, it did not matter that Samsung had not suffered a detriment, as he was in breach of a fiduciary duty. 

Case summary

Mr Docherty was employed by Samsung and had confidentiality and non-solicitation restrictions in his contract.  Mr Docherty was also required, under the handbook, to disclose “all other business activities” whilst in employment.  Mr Docherty did not disclose his 50% shareholding in a company which provided services to Samsung and actively ensured that Samsung would continue to do business with his company by providing misleading information about the competitors to Samsung.   The Court found that Mr Docherty was aware that he had a highly responsible and persuasive role and as such he owed fiduciary duties to Samsung, even though he was not expressly told that he had them.

Mr Docherty had not actively caused Samsung to suffer any loss.  However, as there was a potential conflict of interest in his role at Samsung and his secret shareholding, he was under a duty to account (i.e. pay to Samsung) for the secret profits he had made - €340,808.92 - ouch.

What does this mean?  

This judgment is not binding on the English Tribunals or Courts, but is highly persuasive.  The case acts as a good reminder that senior employment contracts should contain a clause requiring employees to disclose outside interests.  This will assist in demonstrating that there is a potential conflict and that the duty to account for any secret profit applies. 

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