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illicit goods were he aware of their true provenance.[5] The offence of obtaining property by deception has since been repealed and is now replaced by the offence of fraud by false representation.[6]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 a constructive trustee of the profit for the employer and the employer has proprietary interest in the profit. Hence, it is theft from the employer and the profit is not merely a civil debt owed by the employee to the employer[2], according to the case of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45. 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. 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
  • J. C. S. (1986) "Theft: whether employee received property on account of his employer", Criminal Law Review, 476-379
  • Law Commission (2002) Fraud, (Law Com No 276)
  • Martin, J. E. (1987) "Constructive trusts of the beer money", Conveyancer and Property Lawyer, 209-211
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