Buying a business? – Be careful what you say and where you say it

A recent High Court case has highlighted the importance of a potential buyer of a business taking care not to engage in unguarded and candid conversations which the seller might overhear and then try to exploit to their advantage.

If they do, the judgment highlights that, depending on the facts, there are remedies that a Court can order on an urgent and interim basis, such as an interim non-disclosure order, but seeking such a remedy will mean incurring legal fees. These could be avoided if greater care is exercised at the outset.

Facts of the case

In the case of Clearcourse Partnership Acquireco Limited & Ors v Manoj Jethwa [2022] EWHC 1199 (QB), the first claimant had been negotiating with the defendant to purchase a company of which he was a part-owner and the CEO.

The negotiations concluded successfully and a share purchase agreement (“SPA”) was entered into.

Subsequently, a dispute arose as to the performance of the SPA.

The parties engaged in settlement discussions to try to resolve the dispute.

An offer, stated to be an ultimatum, was sent by the claimants to the defendant. He responded by text messages, sending a photograph, taken from a CCTV camera which had been operating during the time the SPA negotiations had been taking place. It showed the second and third claimants engaging in a private conversation, whilst the defendant was not in the room. The text messages also contained an implied threat to disclose to others the content of the conversation.

The claimants brought a claim against the defendant for breach of confidence, misuse of private information and data protection legislation. They also sought from the Court an interim non-disclosure order, until the trial of the claim, preventing the defendant from disclosing the content of the private conversation. They claimed that the combination of the photograph and accompanying text messages indicated that the defendant had covertly filmed and recorded the second and third claimants talking privately in the meeting room; that he regarded what they said as showing them in a bad light and that he was threatening to release the recording onto social media to embarrass them if they did not settle the dispute about the performance of the SPA on terms more favourably to him than were currently on offer.

The second and third claimants (the CEO and Head of Mergers and Acquisitions of the first claimant, respectively) asserted that, while the defendant had left the meeting room where the parties had been negotiating the SPA, they had an “unguarded and candid” private conversation, which included their strategy for the remainder of the purchase negotiations, their plans for the target company, their impression of the defendant, his negotiating strategy, his lack of fitness to remain as CEO of the target company in the event the purchase concluded and the possibility he might be fired if the target was acquired by the first claimant. They claimed the said information was obviously private and confidential; the defendant should have known that; and that he had no lawful basis to disclose the same to anyone else.

What was decided?

The Court ordered an interim non-disclosure order, until the trial of the claim, preventing the defendant from disclosing the content of the conversation and any personal data relating to the second and/or third claimant compiled or created by the defendant on the day of the meeting to negotiate the SPA.

It was found that the claimants were likely to succeed at trial on the breach of confidence, misuse of private information and breach of data protection legislation claims.

The conversation was one which, a reasonable person in the defendant’s shoes, would have appreciated was of a private and confidential nature. It was held behind closed doors, between individuals on the opposite side to him in a business negotiation. Even if the defendant had (as he claimed) accidentally overheard the conversation, rather than deliberately (as the claimants asserted), he would still have been under a duty in law to keep the information confidential and private, because he should have realised it was a private and confidential discussion – and thus, in the circumstances, it was just to preclude him from disclosing the information to others.

Lessons Learned/Practical Advice

• Make sure your conversations are truly private and do not take place in a location where they can be overheard by others, or recorded by CCTV.
• Ensure that a Non-Disclosure Agreement (reviewed/drafted by your lawyer) has been signed by all of the parties before any negotiations commence.
• If you discover that confidential/private information is about to be misused, instruct your lawyers ASAP to take action to prevent the same arising. The Courts in this country consider there is an important public interest in protecting confidential and private information from being misused.
• Even if a defendant comes into possession of such information unintentionally, they are not allowed to disclose the same to others without the consent of the owners of the information.

For more information, please contact Carl Steele.