Vercoe v Rutland Fund Management Ltd [2010]

Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch) addressed the issue of remedies for breach of a confidentiality agreement, highlighting the general principle that an account of profits is not the usual remedy unless there is an exceptional case, such as a fiduciary relationship extending beyond the normal commercial context.

The facts of the case involved the claimants seeking to orchestrate a management buy-in of a company with the support of outside investors. The business plan envisioned claimants assuming management roles. However, the defendant, who eventually acquired the company, did not involve claimants as agreed in the confidentiality agreement, and subsequently made substantial profits from the transaction. claimants brought a claim for breach of confidence.

The court held in favour of claimants, finding that the defendant had breached the confidentiality agreement by not involving claimants in the transaction as agreed. The issue then turned to the appropriate remedy. The court emphasised that, in cases of breach, a reasonable buy-out fee is the standard remedy to be offered unless there are exceptional circumstances warranting an account of profits.

Sales J, delivering the judgment, discussed the choice between multiple remedies. He noted that in cases where the claimant's rights are particularly powerful and their interest in full performance is strong, there may be a tendency to allow the claimant a choice of remedy, including between damages and an account of profits.

The judgment outlined the considerations for choosing between remedies. In cases involving infringement of property rights, damages assessed by reference to a notional buy-out fee may often represent an appropriate and fair remedy. On the other hand, an account of profits may be more appropriate when the right in question is of a kind where it would never be reasonable to expect it could be bought out for a reasonable fee.

In the specific context of the case, the court ruled that the extent of the defendant's liability was not measured by the profits made but by the reasonable price to buy release from claimants' rights. The appropriate remedy was damages assessed by reference to a reasonable buy-out fee, which, in this case, was tied to the probable equity allocation claimants would have obtained to buy them out of the deal.

In conclusion, this case clarifies the principles governing the choice of remedies in cases of breach of confidentiality agreements, emphasising the standard nature of a reasonable buy-out fee as a remedy, unless exceptional circumstances warrant an account of profits.
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