Breach of duty but no loss

Posted: 6th August 2014

lab equipmentA High Court ruling on a bitter falling out between shareholders in a pharmaceutical research company clearly revealed that there is all the difference in the world between establishing a breach of duty and proving a tangible loss.

In order to raise finance for their venture, the founders of company A had sold 44% of their shares to company B, which invested £117,858. Under the terms of that agreement (the shareholders agreement) the founders had retained the remaining 56% of the shares in company A, split equally between them.

Company A was highly successful in designing and conducting clinical trials for pharmaceutical companies, and, in due course, company B instructed corporate financiers to market its minority shareholding to potential buyers.

Company A argued that, during the course of that marketing exercise, its confidential information had been disclosed to third parties. That was alleged to have caused company A to suffer a substantial loss of business, turnover and profits. Company A had valued its claim against company B at almost £4.3 million.

The Court accepted that, in disclosing confidential information to outsiders, company B had in a number of respects breached the terms of the shareholders agreement and the duties that it owed company A. However, company A’s claim failed at the final hurdle after the Court found that it had suffered no loss.

Company A claimed that the unauthorised disclosures had severely impacted on its reputation and led to rumours that it was in financial difficulties. However, the Court found that the guiding mind behind company B had taken considerable care to avoid damaging company A’s business and had succeeded in those efforts. Company A had in the end failed to establish a causal connection between its loss of business and company B’s breaches of confidentiality.

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