“GEHC is the key element to the acquisition strategy. You, myself and many others played a major role in helping this to happen over the years. You were my partner in GEHC for the period and you still are. You and I (plus the others in GEHC) as part of GEHC have an absolute right to a meaningful part of the Acquisition Vehicle. This work has been performed by GEHC over the long 4 years and it was the principal goal to hold a carried interest in such a vehicle as the PARAMOUNT method of monetisation for GEHC. You have been working on this as a principal partner in GEHC and you cannot walk off with intellectual property, work and rights to another company and ignore GEHC as GEHC has been the ONLY continuity in this whole project from the beginning.”
“we will need to tie up the carried interest that GEHC has earned over the last two years and also determine if there is a role for GEHC in RegEnersys (If you recall we had talked about you and I on the board and GEHC’s role as an adviser). Let me know what your thoughts are as we must get the old business put to bed quickly so as we can both work together to get the new deals in!”
“That was something I had looked forward to doing for more than four years of hard labour and costs. … In going forward, we need to get the problem of the carried interest resolved.”
“465. In my judgment, Mr de Clare's change in understanding began with the11th September 2006 email and proceeded gradually through his24th November 2006 email until the exchanges of early December 2006 finally brought it home to him that Mr Gray was saying that he would be protecting Mr Heerema's position across the board. Even then, as I have found above, Mr de Clare was looking at the problem through rose tinted spectacles and still thought — or perhaps more accurately — hoped that Mr Gray would continue to advance GEHC's claim to a carried interest.”
“Mr Gray acted in breach of his fiduciary duty to GEHC and is liable to account to GEHC in equity for all monies and benefits received by him directly or indirectly arising out of Mr Gray's actions in:- a) putting himself in a position from17 March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology; and b) taking advantage of a maturing business opportunity of GEHC, namely the opportunity to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology, in breach of the no profit rule.”
“GEHC is entitled to an account of all sums due and orders for transfer and/or payment to GEHC in respect of monies and benefits received or receivable by Mr Gray directly or indirectly as a result of the said breaches of fiduciary duty, including his indirect personal interest in RegEnersys Investment I Ltd, but not including any amounts received in respect of the purchase of an interest in Klamath Falls Inc.”
“by no later than25 October 2010 , Mr Gray had come to a clear agreement, arrangement or understanding with the Russian Scientists as to the terms of the interest RegEnersys was to have in the Russian operation ….”
“To the extent that Mr Gray retains any of the assets referred to in paragraphs 1(c) to 1(f) above in specie, or the traceable proceeds thereof, GEHC is entitled to an order or orders requiring Mr Gray to transfer to GEHC (at GEHC’s election) either the asset itself (or its traceable proceeds) or (including in the event that Mr Gray no longer retains the relevant asset or its traceable proceeds) a sum of money representing its value, along with equitable interest …”
“take all steps available to him to require Chiloquin or any third party or parties that now hold such shares or all property, rights, interests, or claims representing such shares for the defendant to transfer such shares or all property, rights, interests or claims representing such shares to [GEHC].”
“An internal ledger produced by Heerema Group and kept by Mr Smits in the Geneva office shows that this sum was received by Mr Gray into ReVysion’s current account with the Heerema Group and was subsequently used personally by Mr Gray for his own purposes. It is said on behalf of Mr Gray that the ledger amounts only to a rough tally and Mr Pronk stated in cross examination that too much had been paid to Mr Gray and subsequently it had been rolled up into a loan to him from the Heerema Group. He did not mention this in his witness statement and there is no documentary evidence before the court to support the alleged roll up into a loan. As a result, I am unable to accept that evidence. It seems to me that the terms of the ledger are clear and that the$5.1m received in settlement of the Chilean arbitration were used by Mr Gray for his own purposes. However, to the extent that$2.1m of it was used to purchase an interest in Klamath Falls, it seems to me that it may be double counting to treat the entire$5.1m as an asset in or formerly in Mr Gray’s hands.”
“are not connected to his breach of fiduciary duty but instead result from the Klamath Falls settlement and the RegEnersys shareholding in Klamath Falls to which GEHC consented, and fall outside the scope of the account as ordered by Vos J… In particular, the indirect interests in Petrosound and the share of the Klamath Falls settlement fall, on Asplin J’s own findings of fact, outside the scope of the account.”
“for all monies and benefits received by him directly or indirectly arising out of Mr Gray’s actions in: - (1) putting himself in a position from17 March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology; and (2) taking advantage of a maturing business opportunity of GEHC, namely the opportunity to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology, in breach of the no profit rule.”
“GEHC is entitled to an account of all sums due and orders for transfer and/or payment to GEHC in respect of monies and benefits received or receivable by Mr Gray directly or indirectly as a result of the said breaches of fiduciary duty, including his indirect personal interest in RegEnersys Investment I Limited, but not including any amounts received in respect of the purchase of an interest in Klamath Falls Inc.”
“On11 September 2006 , Mr de Clare emailed Mr Gray about Mr Zolezzi’s plans to monetise 10% of Klamath Falls by selling to Mr Heerema. Mr de Clare said Mr Zolezzi had discussed with Mr Hurtado an approach from Mr Heerema through Mr Gray (acting as advisor to Mr Heerema’s fund) and GEHC acting as advisor to Mr Zolezzi, and suggesting a conference call with Mr Gray acting for Mr Heerema and Mr de Clare acting for Mr Zolezzi.”
“503. In my judgment, however, Mr de Clare was only consenting to Mr Gray acting in that capacity to the exclusion of GEHC’s interests in respect of the narrow area of the existing debate concerning the share sale. That was partly why the temperature rose so rapidly when the possibility of a term referring to access to the technology was inserted in the draft Co-operation Agreement, and when Mr Gray referred to needing “front end access to the tools” on13 November 2006 . Mr de Clare may indeed have been naive in drawing this fine distinction between the Alfredo mandate and the Acquisition Strategy, but he undoubtedly did so. Mr Gray may have been commercially correct in arguing as he did in late November and early December 2006 that the linkage was inevitable, but he did not make that clear to Mr de Clare before the emails culminating in those on6 December 2006 . 504. GEHC cannot be taken to have given its fully informed consent to Mr Gray forsaking his duty to protect GEHC’s interests in relation to the Acquisition Strategy, when that was not even mentioned in the11 September 2006 email. Mr de Clare did not understand, in any sense, that his email could be taken as consent to the loss of Mr Gray’s promotion of GEHC’s interests in relation to the Acquisition Strategy and the AWS [Acoustic Well Stimulation, or ultrasound] technology.” [Acoustic Well Stimulation, or ultrasound] technology.”
“Overall, looking at all the factual circumstances in December 2006, it does not seem to me that it can fairly be said that GEHC was consenting to Mr Gray’s breaches of the fiduciary duties he owed to GEHC. Specifically, Mr de Clare cannot be said to have consented to Mr Gray taking a personal interest in the acquisition vehicle, which was precisely what the Acquisition Strategy had set out to achieve for GEHC. GEHC never gave any consent, let alone fully informed consent, to Mr Gray taking a personal interest in the maturing business opportunity that belonged to GEHC, namely the chance of obtaining a licence in the AWS technology from Klamath Falls and a share of the profits that would thereby be derived.”
“In my judgment, these authorities take Mr Gray nowhere. Mr de Clare never consented to his taking a personal interest of any kind in the acquisition SPV or in the ultrasound technology, as opposed to the shares in Klamath Falls to be acquired from Mr Zolezzi.”
“GEHC only gave its fully informed consent to (i) Mr Gray acting for Mr Heerema in the negotiation for the purchase of Mr Zolezzi’s shares, and (ii) Mr Gray taking a personal interest in the purchase of those shares. Otherwise, GEHC gave Mr Gray no fully informed consent to act in breach of his continuing fiduciary duties to GEHC.”
“136. As I have already mentioned, I consider the question as to whether the whole or part of an asset is within the account to be part of the determination of whether sufficient causal link is established. As Arden LJ in the Murad case makes clear, the defaulting fiduciary is only liable to account in respect of profits made within the scope of his duty which conflicted with his personal interest. The same is true here in relation to the assets and opportunities arising as a result of Mr Gray's breaches of duty. Thereafter, to the extent that an asset in relation to which there is sufficient causal link has become mixed with other assets without such a connection, it seems to me that the long accepted principles in relation to mixed funds apply. 137. Mr Cavender [counsel then appearing for Mr Gray] then includes what for him is a fifth stage in the test to be applied. He says that it is necessary then to consider whether the causal linkage is too remote. By this he means that at some stage “some causal connection” will become insufficient to require the fiduciary to account. He too relies upon the Murad case. I agree that logically when determining whether there is “some causal connection” there will be a point at which that connection fails or is insufficient. However, in my judgment, I do not consider that the imposition of the further concept of remoteness with all of its overtones assists matters. “Some causal connection” is just what it says. It is for the court to decide whether in the relevant circumstances the connection is sufficient.”
“(i) The fundamental rule is that a fiduciary must not make an unauthorised profit out of his fiduciary position; (ii) The fashioning of an account should not be allowed to operate as the unjust enrichment of the claimant; (iii) The profits for which an account is ordered must bear a reasonable relationship to the breach of duty proved; (iv) It is important to establish exactly what has been acquired; (v) Subject to that, the fashioning of the account depends on the facts. In some cases it will be appropriate to order an account limited in time; or limited to profits derived from particular assets or particular customers; or to order an account of all the profits of a business subject to all just allowances for the fiduciary’s skill, labour and assumption of business risk. In some cases it may be appropriate to order the making of a payment representing the capital value of the advantage in question, either in place of or in addition to an account of profits.”
“In the case of a business, it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal’s goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending upon the particular circumstances… This is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.”
“Relief given by way of an account of profits is measured by the gain made by the wrongdoer irrespective of whether the claimant has suffered a corresponding loss. On the taking of the account, the object is “to determine as accurately as possible the true measure of the profit or benefit obtained” [a reference to Warman, loc.cit, at 588]. Typically, the court must determine the sums impermissibly received and deduct any allowable expenses. An account of profits therefore proceeds on a different principle from reparative compensatory damages or equitable compensation.”
“If there is a fiduciary duty of loyalty and if the conduct complained of falls within the scope of that fiduciary duty… then I see no justification for any further requirement that the profit shall have been obtained by the fiduciary “by virtue of his position”
“arising out of any matters, causes, acts, conduct, claims, or events from the beginning of the world to this date, including but not limited to the claims of breach of contract, fraud, and mutual mistake asserted by RegEnersys in the Arbitration Proceedings, excepting only the rights and obligations created in connection with this Agreement and the enforcement thereof.”
“Further in my judgment, the receipt of$5.1m paid by Klamath Falls in the settlement of the arbitration was causally linked to Mr Gray's breaches of fiduciary duty because the litigation from which the settlement derived involved the affirmation of RegEnersys I’s rights as the owner of the interest in the Klamath Falls technology, RegEnersys I being the special purpose vehicle used to pursue the opportunities in relation to the ultrasound technology and the Acquisition Strategy of which Mr Gray wrongfully took advantage.”
“193. … In my judgment, quite clearly, both the interest in the Russian business and any international roll out is intimately concerned with the ultrasound technology and the Acquisition Strategy and accordingly, has a causal connection to the breaches of fiduciary duty. The opportunity of which Mr Gray availed himself in breach of duty can be traced first into Mr Gray’s initial interest in RegEnersys I, when owned by RegEnersys LP from August 2007. After31 December 2010 , it became his 51% interest in RegEnersys I, when owned by RegEnersys UK. He succeeded in using this to obtain a 51% interest in Chiloquin’s interest in Klamath Falls in February 2012, and then in turning both into a beneficial stake in Celloteck or Chiloquin by secret agreement with Mr Pronk in 2012 – which beneficial stake gave him his interest in Petrosound Ltd in 2013. … 195. I agree with Mr Fraser that Mr Gray’s interest in Petrosound through Chiloquin would not have happened had Mr Gray not taken advantage of GEHC’s maturing business opportunity because: (i) Mr Gray would not have been introduced to the ultrasound technology and the Russian Scientists, or the opportunity of reaching agreement with them to take an interest in the Russian operations; and (ii) Mr Gray would not have obtained an interest in, and later been able to take control of the Klamath Falls technology which (as the evidence showed) was seen by everyone involved as one of the keys to being able to commercialise the technology and agree a structure with the Russian Scientists for that commercialisation. It seems to me that the licence in respect of the Klamath Falls technology was a manifestation of the opportunity obtained in breach of fiduciary duty and there is no reason to seek to freeze the opportunity at that juncture. Such a conclusion is inconsistent with the acceptance throughout that the Russian Scientists were the key to the technology and my findings as to the nature of that technology.”
“Alternatively, in so far as Asplin J found that either asset was causally connected to the licence held by RegEnersys in respect of ultrasound technology and not also connected to the RegEnersys shareholding, that finding was inconsistent with the terms of the settlement agreement and was wrong.”
“There was no causal connection, and/or no sufficient other connection, between Mr Gray’s breach of fiduciary duty and the management and consultancy fees for which he was found liable to account. Asplin J was wrong to find that there was a causal or any relevant connection to Mr Gray’s breach of fiduciary duty.”
“Despite the fact that the management fees were dependant upon the amount of committed capital rather than the value of the investments themselves, it seems to me that based upon Mr Heerema and Mr Pronk’s evidence in relation to Mr Gray’s duties which included advice in relation to investing in the ultrasound technology, that there is a clear connection between those fees whether before or after 2010 and the breaches of duty in relation to the ultrasound technology and the Acquisition Strategy, at least in part. I have come to the conclusion that only part of the management fees to 2009 has some causal connection despite the fact that it is not possible to determine how much time or effort was spent on one investment rather than another.” “Despite the fact that the management fees were dependant upon the amount of committed capital rather than the value of the investments themselves, it seems to me that based upon Mr Heerema and Mr Pronk’s evidence in relation to Mr Gray’s duties which included advice in relation to investing in the ultrasound technology, that there is a clear connection between those fees whether before or after 2010 and the breaches of duty in relation to the ultrasound technology and the Acquisition Strategy, at least in part. I have come to the conclusion that only part of the management fees to 2009 has some causal connection despite the fact that it is not possible to determine how much time or effort was spent on one investment rather than another.”
“It seems to me that some causal connection to the breaches of fiduciary duty can only extend to that part of the net management fee which bears the same relationship to the fund as a whole as the percentage of ultrasound invested funds and investment opportunities… over the relevant period.”
“As I have already mentioned, I consider that the same approach should be taken as with the management fee before 2010 and therefore, the fee must be apportioned in a way which relates to the ultrasound technology. The causal connection can only extend to that part of the net fee which bears the same relationship to the fund as a whole as the percentage of ultrasound invested funds and investment opportunities including 90% of the figure in respect of the Klamath Falls shareholding over the relevant period. As it is not in dispute that all of the fee was drawn down by October 2012, it seems to me that the relevant period both in terms of investments and expenses to be deducted, should cease at that stage. In order to determine what part of the fees are subject to some causal connection, once again, it will be necessary to recalculate the figures.”
“1. Mr Gray acted in breach of his fiduciary duties to GEHC and is liable to account to GEHC in equity for all monies and benefits received by him directly or indirectly arising out of Mr Gray’s actions in: - (1) putting himself in a position from17 March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology;…”
“461. Mr Snowden [counsel for GEHC] submitted, as I have said, that Mr Gray first obtained a personal interest in Mr Heerema’s fund and, therefore, in the Acquisition Strategy when he agreed to the remuneration proposal in Mr Pronk’s17th March 2006 email. Mr Atherton [counsel for Mr Gray] submitted that in March 2006 no deal had yet been done, and there was no certainty that there would be any investment by Mr Heerema in the Acquisition Strategy at that stage. Moreover, he argued that Mr de Clare must have realised that Mr Gray would be remunerated in some way for managing Mr Heerema’s funds, and what was agreed was no more than a standard kind of fee and remuneration for such activities. 462. It is true that no investment had been committed by Mr Heerema on17th March 2006 , and it is also true that the same email seemed to accept GEHC’s 20% carried interest. But, the email also makes clear that, if an investment were made by Mr Heerema in the Acquisition Strategy, Mr Gray would have 20% of the ordinary shares and a 2% management fee, and would make a co-investment of USD 1 million or 20% alongside Mr Heerema’s fund. This proposed arrangement gave rise to three problems. Mr Gray would be motivated to reduce GEHC’s interest so as to (i) increase Mr Heerema’s share and therefore (ii) to increase Mr Gray’s own return on his intended 20% shareholding. The third problem is that Mr Gray was secretly taking a personal interest in a business opportunity belonging to GEHC. These problems may go more towards the question of breach to which I shall turn in due course. 463. As regards, the existence of duties, it seems to me that only one thing in the17th March 2006 email can have changed the existence and the nature of the duties that Mr Gray owed to GEHC. That is the fact that, up to17th March 2006 , Mr Gray’s conflict between his personal interests and his duty was a potential one, since he could have been remunerated otherwise than by a direct share of Mr Heerema’s profits. After17th March 2006 , there was an actual conflict between his personal interests and his duty to GEHC, for the same reasons as there was an actual conflict between his duty to Mr Heerema and his duty to GEHC from January 2006.”
“(ii) From17th March 2006 , Mr Gray put himself in a position where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology, because Mr Gray was to be paid a share of Mr Heerema’s profits from the acquisition vehicle.”
“I have not been provided with the documentation or evidence necessary to determine what profits Mr Gray may or may not have made by taking advantage of the opportunity he did. I know, of course, that he denies that he made any such profit, and that he has adduced some evidence to show that he has not. But I have only seen one side of the story. I cannot, therefore, find that GEHC has no real chance of establishing that it is entitled to recover some material profits once the necessary account is taken. Mr Atherton also seeks to limit the relief that GEHC can obtain by foreclosing the argument about what benefits Mr Gray may or may not have received from his exploitation of GEHC’s maturing business opportunity in relation to the Acquisition Strategy and the ultrasound technology. I do not think that would be appropriate in the absence of clear and undisputed evidence as to what precisely Mr Gray has received or is likely in the future to receive. There may be a whole host of arguments on both sides that I cannot now predict and have not yet been adumbrated.”
“As it is not in dispute that all of the fee was drawn down by October 2012, it seems to me that the relevant period both in terms of investments and expenses to be deducted, should cease at that stage.”
“In fact, the structure of the fund going forwards was set out in an email from Mr Gray to Mr Pronk of7 April 2010 , the form of which had been approved by Mr Pronk in advance. The email recorded amongst other things: “Further to our discussions with Pieter Heerema and his meeting with me on February 16th, my understanding is that the format of RegEnersys as an investment vehicle of the Heerema family office will change. … PHH [i.e Mr Heerema] wishes to relinquish day to day control. You will continue to manage and monitor the RegEnersys fund activities along with Revysion. The current 80/20 split of returns in excess of the carrying value of the investments as per the 2009 balance sheet will be changed to a 50/50 split. … Capital released from agreed liquidation of selected fund assets or incoming funds from other investors will be shared 50/50. Heerema's 50% share of these incoming cash flows will be deducted from the current carrying value of the investments. As from January 1, 2010 the hurdle interest rate (6%) will not be applicable anymore. ReVysion will be entitled to the USD 10 million 2010 management fee as provided in the original agreements. …”
“As in relation to the management fees received, the expenses of ReVysion should, in my opinion, be deducted from the$10 million consultancy fee, in arriving at the net benefit received by [Mr Gray].”
“It seems to me that some causal connection to the breaches of fiduciary duty can only extend to that part of the net management fee which bears the same relationship to the fund as a whole as the percentage of ultrasound invested funds and investment opportunities including 90% of the sums included in relation to the Klamath Falls shareholding, in Mr Cavender’s Schedule A, over the relevant period. The 10% reduction is to reflect the fact that some of the fee related to managing the Klamath Falls shares rather than the licence. The calculation should be based on the full£9,457,797 .”
“Asplin J was wrong to refuse to grant Mr Gray any allowance for the work he undertook in respect of the ultrasound technology between 2006 and 2012.”
“212. It is not disputed that it is possible to make an equitable allowance in respect of the skill and labour of the fiduciary in earning the particular profit and in this case, Mr Gray seeks£1m per annum which Mr Ward says would be what one would have to pay a Chief Executive Officer. It is also accepted that the provision of such an allowance is exceptional: Guinness plc v Saunders[1990] 2 AC 663 . In cross examination it became clear that Mr Ward had no particular expertise in determining the level of remuneration of such a person and had merely taken a multiple of the highest salary paid at ReVysion. He stated however, that he had some knowledge of clients in the field. It is also not in dispute that Mr Gray did not in fact pay himself a salary. 213. Overall, given the way in which the litigation has proceeded and the fact that I have found that Mr Gray has failed to account properly or at all in respect of his benefit from his breaches of fiduciary duty, I do not consider it appropriate to grant an allowance. Even if I had, in my judgment, there is insufficient evidence before the court upon which to do so with sufficient certainty. Mr Ward’s rule of thumb is not an appropriate basis for doing justice. In this regard, also I take into account the fact that [in] Mr Gray was not in fact awarded a salary in relation to RegEnersys but was remunerated by means of a share of profits and the fact that I have found his account to be false.”
“In support of a claim for an equitable allowance, reference was made to the decision of Wilberforce J. in Phipps v Boardman[1964] 1 WLR 993 . His decision was upheld by the Court of Appeal[1965] Ch. 992 and ultimately by this House under the name of Boardman v Phipps [1967] 2 A.C. 46. In that case a trust estate included a minority holding in a private company which fell on lean times. The trustees declined to attempt to acquire a controlling interest in the company in order to improve its performance. The solicitor to the trust [Mr Boardman] and one of the beneficiaries, with the knowledge and approval of the trustees, purchased the controlling interest from outside shareholders for themselves with the help of information about the shareholders acquired by the solicitor in the course of acting for the trust. The company’s position was improved and the shares bought by the solicitor and the purchasing beneficiary were ultimately sold at a profit. A complaining beneficiary was held to be entitled to a share of the profits on the resale on the grounds that the solicitor and the purchasing beneficiary were assisted in the original purchase by the information derived from the trust. The purchase of a controlling interest might have turned out badly and in that case the solicitor and the purchasing beneficiary would have made irrecoverable personal losses. In these circumstances it is not surprising that Wilberforce J decided that in calculating the undeserved profit which accrued to the trust estate there should be deducted a generous allowance for the work and trouble of the solicitor and purchasing beneficiary in acquiring the controlling shares and restoring the company to prosperity. Phipps v Boardman decides that in exceptional circumstances a court of equity may award remuneration to the trustee.”
“They acted with complete honesty throughout and the respondent is a fortunate man in that the rigour of equity enables him to participate in the profits which have accrued as a result of the action taken by the appellants in March, 1959, in purchasing the shares at their own risk.”
“Plainly, it would be inconsistent with this long-established principle to award remuneration in such circumstances as of right on the basis of a quantum meruit claim. But the principle does not altogether exclude the possibility that an equitable allowance might be made in respect of services rendered. That such an allowance may be made to a trustee for work performed by him for the benefit of the trust, even though he was not in the circumstances entitled to remuneration under the terms of the trust deed, is now well established.”
“Ex hypothesi, such an allowance was not in the circumstances authorised by the terms of the trust deed; furthermore it was held that there had not been full and proper disclosure by the two defendants to the successful plaintiff beneficiary. The inequity was found in the simple proposition that the beneficiaries were taking the profit although, if Mr. Boardman (the solicitor) had not done the work, they would have had to employ an expert to do the work for them in order to earn that profit. The decision has to be reconciled with the fundamental principle that a trustee is not entitled to remuneration for services rendered by him to the trust except as expressly provided in the trust deed. Strictly speaking, it is irreconcilable with the rule as so stated. It seems to me therefore that it can only be reconciled with it to the extent that the exercise of the equitable jurisdiction does not conflict with the policy underlying the rule. And, as I see it, such a conflict will only be avoided if the exercise of the jurisdiction is restricted to those cases where it cannot have the effect of encouraging trustees in any way to put themselves in a position where their interests conflict with their duties as trustees.”
“The rules of equity against the retention of benefits by fiduciaries have been applied with severity.”
“The claim for repayment cannot, however, be allowed to extend further than the justice of the case demands. If the defendant has done valuable work in making the profit, then the court in its discretion may allow him a recompense. It depends on the circumstances. If the agent has been guilty of any dishonesty or bad faith, or surreptitious dealing, he might not be allowed any remuneration or reward.”
“Mr Ward notes that the expenses of ReVysion do not include any remuneration for the defendant… Thus, in order to arrive at the true net income received by the Defendant from the Heerema Group, one also needs to deduct an amount to take account of what ReVysion would have been expected to pay for a chief executive of the experience and calibre of the defendant. Mr Ward suggests that such a remuneration package would be in the region of£1 million annually, which is also similar to his [i.e. Mr Gray’s] remuneration package when he worked at Bankers Trust and then Deutsche Bank from 1998 onwards. On the basis of the evidence available to me, particularly the Defendant’s salary at his previous employer, I agree this is a reasonable basis for estimating an allowance for the Defendant’s personal skill, expertise and contribution to the business.”
“In addition… I consider that an allowance should be made for the Defendant’s time and skill in advising on and managing the RegEnersys Fund. As the Defendant continued to advise and manage the fund for the years 2010, 2011, 2012 and 2013 and as the$10 million consultancy fee was drawn down by the Defendant over the four years ended31 March 2014 , I consider the amount that should be deducted is£4 million .”
“491. As Mr Ward confirmed in his oral evidence, if ReVysion had brought in a professional CEO to undertake the management of the business which Mr Gray was carrying out, the cost to it would have been approximately£1,000,000 per annum. Mr Ward went on to explain in detail (a) the basis upon which it was appropriate to make such deduction; (b) the bases on which he assessed the appropriate level of compensation; and (c) the expertise and experience which allowed him to do so. The Defendant’s valuation expert, Mr MacGregor, confirmed the appropriateness of such deduction and the amount. 492. The cost of retaining a professional CEO to undertake the management of the business from April 2006 until31 March 2010 should therefore be set off against the Management Fee and Consultancy Fee which was paid to ReVysion in respect of its role as manager of and advisor to RegEnersys for the period from 2006 to31 March 2010 and, following the 2010 Restructuring, after which ReVysion has acted as manager and advisor to RegEnersys UK. In the event, however, that for some reason this cost is not set off in this way, it is submitted that the Court should nevertheless exercise its equitable discretion and grant Mr Gray an allowance in this sum on account of his skill and efforts.”
“for the personal skill, expertise, labour and exertion of Mr Gray in generating any such benefit, with due regard for the fact that: (a) Mr Gray worked full-time as effective CEO of ReVysion; (b) Mr Gray did not receive a salary as effective CEO of ReVysion; (c) an appropriate salary for such a position is£1 million .”
“There is no dispute as to the final stage of the test. It is that the court has a discretion to apply an equitable allowance both as to disbursements and the skill and effort of the defaulting fiduciary.”
“A further question arises as to whether any costs or allowance should be taken into account. I shall return to that below, having considered the question of causation.”
“Further, after the beginning of 2011, all but a single email between RegEnersys/Mr Gray and the Russian Scientists took place on private email addresses. As I have already said, I do not accept that the step was taken as a result of concerns about hacking and industrial espionage. In addition, in 2012, Mr Kantor set up his “Bill Barrett” email address used for correspondence with the Russian Scientists which he did not disclose until its existence had been revealed in disclosure from VIYM provided in November 2014. The account was closed in 2013 and Mr Kantor accepted that he knew that in doing so the emails would be deleted. It seems to me that such conduct from which I draw an adverse inference, was designed once again to shield the existence, nature and extent of the RegEnersys/Gray interest in Petrosound Ltd from detection.”
“Furthermore, it seems to me that Mr Pronk’s response later on30 April 2012 that he would be happy to think of another solution but not a Heerema entity is inconsistent with the explanation that the August 2012 transaction was always intended to enable the debt owed by RegEnersys to be reduced. Mr Pronk’s explanation in cross examination was incoherent and I was unable to follow it. I also take into account in this regard the fact that there is no contemporaneous documentary evidence of any kind either seeking repayment of any part of the$65m on the part of the Heerema Group or a desire to do so on behalf of Mr Gray. I also consider it relevant that there was no obligation to repay the loan directly. It was to be repaid over time from a percentage of any monies realised on the sale of assets. In this regard, I also take account of the fact that Mr Heerema was unable to explain how the figure of$65m had been arrived at and that Mr Pronk was unable to point to a document recording Mr Gray’s alleged desire to pay back the loan or to give particulars of when such a desire was made clear and gave untruthful evidence in relation to the use of the remainder of the Chilean arbitration settlement monies. Overall, therefore, I am unable to accept Mr Pronk’s evidence and Mr Gray’s case that the August 2012 transaction was driven by debt reduction.”
“It is alleged that the secret proposal to put Chiloquin (and therefore, Klamath Falls) together with RegEnersys I into Celloteck and that Celloteck would take a 30% stake in the “HoldCo” of a joint venture business with the Russian Scientists and set up a “rest of the World company” in which Celloteck would hold 51% of the equity, was discussed on this occasion. Mr Pronk denied such a discussion took place that weekend but did accept that it had been discussed and that he had probably discussed and approved Celloteck taking over Klamath Falls before a draft of the SPA was sent to Mr Smits by Mr Kantor on 27 April.”
“I also place weight upon Mr Gray’s email of30 April 2012 in which he stated that he just wanted the equity “remote from me.”
“Taking this untruthful evidence together, it seems to me that on the balance of probabilities, it is more likely than not that the untruthful evidence was an attempt by Mr Gray to conceal the reason for the enquiry. I accept Mr Fraser’s submission that the attempt to conceal the reason supports the conclusion that it was indeed part of a plan to try to get around the problem raised by Mr Pronk about ownership of Klamath Falls, with a view to transferring Celloteck to a trust in which Mr Gray would have an interest and is indicative of Mr Gray having retained an interest in the ultrasound business.”
“On the balance of probabilities, it seems to me that in the context of Mr Gray’s “keep the equity remote from me” email and the agreement reached between Mr Pronk and Mr Gray before the Belarus trip, the task in hand was to create a suitable structure in which Mr Gray could retain a secret interest which was difficult to trace back to him. This conclusion is further supported by Mr Gray’s email to his solicitor of19 July 2012 in which he states that the 2012 SPA is needed before he is able to sign his witness statement.”
“In relation to the fax, it appears to be the only occasion on which fax communication was used between Messrs Gray and Pronk. It has not been produced and none of Mrs Deeney, Mr Pronk and Mr Kantor were able to assist as to what it might have contained. It is not mentioned in Mr Gray’s evidence. However, in cross examination in relation to his email in response to Mr Kantor’s email to Han Smits in the Geneva office of6 September 2012 , in which he stated: “Really don’t know what this is Rob. Why he sends this to Han?????????”, Mr Pronk accepted that he did not want anyone else dealing with the Celloteck matter in his office. On this basis, I consider that it is appropriate to infer that the fax related to an agreement to keep Mr Gray’s interests in Celloteck and the ultrasound technology “remote” but that Mr Gray had not divested himself of them and that accordingly, Mr Pronk was concerned that no one but himself should deal with the Celloteck matter.”
“It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.”
“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury…this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”
“Lord Nicholls was not laying down any rule of law. There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate [words from Lord Nicholls’ speech which Lord Hoffmann emphasised], to inherent probabilities…It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred.”
“The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies.”
“Talks have continued with the Russians to determine if there is a structure in which we can merge the Klamath Falls IP with their business in Russia. To date there has been discussion around a bifurcated structure where Celloteck would control international operations and the Russian Organization (RO) would control operations within the Former Soviet Union in exchange for an assignment of the Klamath IP. However, as discussions have progressed, it has become increasingly apparent that there will be a material price tag attached to Celloteck participation. While this was not clear in the initial discussions, I believe now that that the RO will not complete a deal unless both the IP is contributed and funding in the area of$3 -5MM is committed (either as equity or as a shareholder loan)”
“Given the current financial and equity situation of the company, I cannot recommend that Celloteck commit to funding the business or to participating in any subsidiary equity position. The business as a whole is too unstable today to put funding into (even solely at international level), and taking a minority equity position in the RO would likely put us in conflict with the existing Investors”
“Thanks for the nudge, I have meant to get an update down on paper for a while now”
“Separately, it may be time to see what sort of deal we can put together with the Russians. I don’t think there is much of a market for Klamath IP alone (I have had our patent agent talk with IP purchasers), and industrial buyers want operational capacity before they are willing to spend cash. Of course, for us to discuss that we have to imply a relationship with the Russians that we don’t have, and I believe this has been the best strategy as we have been sounding out the market. However, I think we may have exhausted our flexibility, and it may be prudent to focus on locking down some sort of interest in the Russian technology while our IP and equipment still has some value. Hopefully we will soon get a better sense of what a deal would look like given what we can put on the table (i.e. the IP and equipment but no cash or deployment opportunity), and I will revert back with that information.”
“120. The first occasion upon which the 15% holding rather than 30% had been mentioned was an email on4 October 2013 from Mr Knight to Mr Kantor attaching a letter from his company, Chateaufine Ltd, essentially reflecting the terms Mr Kantor had proposed in September but with the equity stake for Celloteck reduced to 15%. There are no documents which shed light on the change. 121. As I have already mentioned, in cross examination, Mr Knight accepted that he believed that a 30% shareholding in the Russian Scientists’ company had been agreed in mid 2010. However, he said that in fact, he had agreed the shareholding at a lunch with Mr Kantor in London in early October 2013 and having agreed upon 30%, he telephoned Professor Abramov and was very surprised and angry when the Professor informed him for the first time that shares had already been allotted to Messrs Ivanov and Volchenkov. In fact, Mr Knight said that Professor Abramov had said that a total of 20% had been allotted to the two VIYM executives and that a further loan facility of$1m was being made available from VIYM. However, Mr Knight says that during his telephone conversation the Professor suggested offering only 10% of the shares to Celloteck and as a result he hung up on him. He went on to explain that in a further conversation later that evening, the Professor agreed to 15% instead of 30% for Celloteck. In fact, the 30% shareholding had been canvassed in email correspondence between Mr Kantor and Professor Abramov in September 2013 and Mr Knight accepted that he had been in Moscow the previous week and had had a relatively lengthy meeting at which the 30% had been hammered out. 122. The written evidence of both Mr Knight and Mr Kantor in relation to the shareholding was different and Professor Abramov did not mention the alleged telephone conversation at all. In their witness statements, both Messrs Knight and Kantor referred to Messrs Volchenkov and Ivanov receiving 7.5% each. Mr Knight also stated in writing that the Professor had eventually been persuaded to offer Celloteck 15% whereas in cross examination he said that the negotiation had all taken place in one afternoon/evening and that it was the Professor who had called him twice. Further, the Professor’s oral evidence was that he agreed the 15% for Volchenkov/Ivanov on18 October 2013 , some two weeks after the alleged conversation at the restaurant, and appeared to dismiss any discussion of the matter with Mr Knight. As I have already mentioned, the Professor’s evidence was that Celloteck deserved no more than 15% and he could do as he liked because the business was his. 123. I found Mr Knight’s evidence in this regard to be unsatisfactory. He made no complaint it would seem and none is recorded of the reduction to 15%. Further, I find his explanation of the discovery at the restaurant wholly implausible and on the balance of probabilities, untrue given that he was in Moscow the previous week. The only contemporaneous document is an email of 4 October which records the 15% share but makes no reference to the alleged telephone call and the discovery of 15% having been allotted elsewhere. Accordingly, I am unable to accept it. It also seems to me that had the reduction from 30% come about in the way it was described, there would be a large number of email complaints on behalf of RegEnersys/Heerema and possibly the involvement of lawyers. There is also no explanation of why if Messrs Volchenkov and Ivanov were holding 15% of the shareholding on behalf of VIYM, it is said that their employment was terminated. Mr Knight was also unable to explain why he had been provided with Mr Volchenkov’s private email address in November 2013. 124. In addition, it was Mr Knight’s evidence in cross examination that despite having sought a shareholding as part of his severance package from ReVysion in August 2011 and been refused it in a conversation he had had with Mr Ward, he spoke to Professor Abramov who subsequently decided that he would like to give Mr Knight 3.5% of the shares in Petrosound Ltd. Professor Abramov on the other hand, stated in cross examination that his estimation of Mr Knight’s ability in relation to the oil and gas business was extremely low, that he viewed him as Mr Gray’s driver and that his relationship with Mr Knight had been destroyed. Save to say that the company was his to do with as he pleased, he did not explain why, therefore, he had allotted shares to Mr Knight and had allotted only 15% of the shares in Petrosound to Celloteck. He did state that he had reached an agreement with Messrs Volchenkov and Ivanov “for one year and$750,000 ”
“It is also important to have in mind the role of a judgment given after trial. The primary function of a first instance judge is to find facts and identify the crucial legal points and to advance reasons for deciding them in a particular way. He should give his reasons in sufficient detail to show the parties and, if need be, the Court of Appeal the principles on which he has acted and the reasons that have led him to his decision. They need not be elaborate. There is no duty on a judge, in giving his reasons, to deal with every argument presented by counsel in support of his case. His function is to reach conclusions and give reasons to support his view, not to spell out every matter as if summing up to a jury.”
“While, unfortunately, the Court has not had the opportunity to hear the oral evidence of Mr Gray (whose evidence GEHC does not accept in any case), it is sufficiently equipped to deal with the issues. It has had the benefit of eight factual witnesses and six experts together with vast documentation in order to consider GEHC’s claim.”
“57. The weight to be given to that evidence untested by cross examination, is a matter to be determined. In this regard, I take account of the fact that in the Liability trial, Vos J (as he then was) found him to be “largely unreliable”, at times “deliberately lying” and “cynically giving misleading evidence” and stated that he was “certain . . that he told deliberate untruths in several areas.”
“it appears to be the only occasion on which fax communication was used between Messrs Gray and Pronk”
“125. During 2014 numerous well treatments have been carried out. On4 September 2014 , Mr Ildyakov sent the results of 19 ultrasound treatments carried out between 25 January and31 August 2014 to Mr Knight. The results show an increase in production and do not contain any reference to damage caused by jet pumps. Furthermore on10 November 2014 , Professor Abramov’s daughter, Anna, sent answers to questions to Mr Knight, included in which was a reference to negotiations with a company called Weatherford. Further, in the case of Samatlorneftegaz, 40 wells were to be treated between April and December 2014, 36 of which were completed by the end of November. In the case of RN-Nizhnevartovsk, 20 wells were treated between April and December 2014, 18 of which had been treated by the end of November when the Professor signed his witness statement. He made no reference to any problems with the contracts. However, in cross examination, he stated that the contracts were “not going smoothly” and in reexamination stated that a jet pump used in conjunction with the treatment had destroyed “three fields” by which it was assumed he meant wells. He also attributed difficulties and a move purely to geological consultancy upon the collapse of the rouble. He neither made reference to any equipment difficulties in his witness statement nor to the alleged effects of the exchange rate which in fact, was much the same when he gave evidence to how it had been when he signed his witness statement. 126. The Professor also stated that the 42mm tool was no longer used. However, as pointed out in the written closing on behalf of GEHC, the most recently published academic paper, “Development of ultrasonic equipment and technology for well stimulation and enhanced oil recovery” in the Journal of Petroleum Science and Engineering 125 (2015) refers to both the 42mm and the 102mm tools. 127. Given his written evidence, the Professor’s demeanour in cross examination, the content of his academic paper written in 2015 and the lack of a further deterioration in the exchange rate for the rouble since the Professor’s witness statement was signed, I am unable to accept his evidence in this regard in cross examination.”
“9.2 Misrepresentations of the documentary evidence by the Claimant (by misleading statements being made to the court by the Claimant that such documents did not exist, and by mischaracterising such documents as were before the court which supported the absence of an interest of Mr Gray, as being “window dressing” by Mr Gray, when they were (a) known by GEHC to be relevant and authentic and (b) were third party documents; 9.3 the suppression of relevant documents from the court by not providing them to the Claimant’s expert (contrary to the Claimant’s duties underCPR Part 35 ,CPR 1.3 , and The Ikarian Reefer[1993] FSR 563 ) or to the court.”
“The legal team also should disclose to the expert all of the relevant factual material which they intend should contribute to the expert’s evidence in addition to his or her own pre-existing knowledge. That should include not only material which supports their client’s case but also material, of which they are aware, that points in the other direction, viz the court’s concerns about one-sided information in R v Gilfoyle.”
“My own view is that the application is wholly without merit. If I were advising, I would make some or all of the following points”
“…where documents were not translated, including the documents which Mr Gray has recently translated and on which he now wishes to rely, these were never read by me. Contrary to what is now said at paragraph 58 of the 23 December letter, I only recall conducting one pass of the Russian disclosure with our temporary paralegal. Any Russian documents not translated in those first couple of days were not reviewed again or referred to ever again. Accordingly, in almost all cases, the reason I did not put these documents to the Court is that I was never aware of their detail, or in almost all cases of their existence. As I shall explain, the handful of those documents which I dimly recall being drawn to my attention, I did not consider relevant.”
“Further, and as I explained to Bird & Bird, and explain further below, I did not consider that the evidence on which Mr Gray now wishes to rely appeared on its face to [be] relevant. In my view, from the summary of these documents in Ms Bruce’s statements, financial statements and/or tax returns for Viatech and Sonovita and cashflow information for Viatech would not be relevant to the value of Mr Gray’s interest, since neither of these were operating companies deploying the technology…Furthermore, and in any event, financial information for 2012 would not have assisted Dr Becker when valuing a developing technology as of May 2015, particularly when that technology was still being tested and developed throughout 2014/15 and where Dr Becker’s valuation was premised upon anticipated revenues based on the small tool’s test results, a spreadsheet for which (covering all of the small tool results in limited detail, but none of the big tool results) was provided to the experts and the Court after we had discovered it in a secret and hidden page to an excel spreadsheet.”
“we did not have translated and did not therefore read the documents to which Mr Gray refers”; and on page 7: “I do not recall seeing these 400 pages prior to the Enquiry Hearing. I have been told today by Bird & Bird that they were not translated, which will explain why I do not remember reading them”
“As I recall, there were however only a couple of isolated emails with Mr Voronkov to this effect, and with no context and no confirmation as to whether the funding issues were resolved. My recollection is that in circumstances where much of the email correspondence which had been disclosed by VIYM was transparently fake, and where no financial projections or internal VIYM investment reports had been disclosed, I did not consider this email would have assisted the Court in assessing the value of Mr Gray’s interest in the Technology.”
“If a party puts forward a positive case, as the basis of asking the court to make the order which that party seeks, and then at trial declines to proceed and accepts that the claim must be dismissed, then that party must, in our view, save in exceptional circumstances, lose the right to raise again that case against the other party to those proceedings…The court is applying principles which are intended to “treat an issue as laid to rest” (per Brightman LJ in Khan v Golechha International Ltd[1980] 1 WLR 1482 , 1490G), where it would be unfair and unjust between the parties to treat it otherwise; and in particular, the court is concerned to prevent abuse of the court’s procedure by any party. At the time at which the court had directed trial of the issue, the second defendant decided in seeking her own advantage and convenience, not to proceed with her application.”
“Where resjudicata is a rule of substantive law, abuse of process is a concept which informs the exercise of the court’s procedural powers. These are part of the wider jurisdiction of the court to protect its processes from wasteful and potentially oppressive duplicative litigation even in cases where the relevant question was not raised or decided on the earlier occasion.”
“My conclusion is as follows. I am required to value a 51% interest in 51% of Petrosound's international business. Although Asplin J found that it had been intended that the international business would be carried on by [Petrosound International Ltd], she also found that it could take a different form. Although an operating company was envisaged, there is nothing in her judgment to exclude the adoption of a different business model. It is now known that, as at the Valuation Date, Petrosound's international business was being carried on by its subsidiary Sonoplus and took the form of a licensing business. Accordingly, I must value that business. The fact that it can now be seen that Petrosound's international business was subsumed within Petrosound (which is why Dr Becker included a value for OpCo in his valuation of Petrosound) is a conundrum for the Court of Appeal to attempt to resolve if need be. It is not my function to value the opportunity to carry on an operational business, even if that is legally possible, because that is not what the order dated28 July 2015 requires. Moreover, as will appear, that was not the approach which Dr Becker adopted. Finally, I consider that the reality principle means that Sonoplus must be taken as it was on the Valuation Date, namely a company which was carrying on both the Russian business and the international business and whose financial position was as described above.”
“96. In my judgment the underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity of the company is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property. In the case of the director he becomes a constructive trustee of the fruit of his abuse of the company’s property, which he has acquired in circumstances where he knowingly had a conflict of interest, and exploited it by resigning from the company.”
“Before a right or interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties and have some degree of permanence or stability.”