Gutermann Messtechnik & Anor v Hartley & Anor (Rev 1) [2012] EWHC 1013 (QB)

[2012] EWHC 1013 (QB)Case No HQ10X04723
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19 April 2012
Before
SIR RAYMOND JACKSITTING AS A JUDGE OF THE HIGH COURT
Between
GUTERMANN MESSTECHNIKClaimantsGUTERMANN UK LIMITEDClaimantDALE JONATHAN HARTLEYDefendantsANN CHARLOTTE HARTLEYDefendant
Leona Powell (instructed by Mishcon de Reya) for ClaimantsChristopher Newman (instructed by Withers) for DefendantsHearing Hearing dates: 13-16, 19 and 21 March 2012
Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic..............................SIR RAYMOND JACK

Sir Raymond Jack :

[1]Between 1 January 2001 and 3 October 2010 the first defendant, Mr Dale Hartley, worked for the first claimant, Gutermann Messtechnik, marketing its equipment used for the detection of leaks in underground water pipes. Gutermann Messtechnik is a Swiss Einzelfirma owned by Mr Claude Gutermann. An Einzelfirma is simply a business owned by a sole trader, and the owner is liable for the debts of the business in the same way that in English law a person using a trade name is liable: it does not have a separate legal personality in the way that a company does. The second claimant, Gutermann Limited, is an English company incorporated on 18 August 2003. Its function is to sell Gutermann equipment in the United Kingdom. Until January 2010 Mr Hartley held the two issued shares in Gutermann Limited. The second defendant, Mrs Charlotte Hartley, the wife of Mr Hartley, worked in the administration of Gutermann Limited between 2005 and 2009. I will refer to the claimants as GM and GL.[2]The action was begun against Mr Hartley on 9 December 2010 when a search order and a restraining order relating to confidential information were obtained against him. Although a trial had been set for July 2011, the particulars of claim were not served until 5 July 2011. Permission to join Mrs Hartley as a defendant was obtained on 9 August 2011.[3]The claims against Mr Hartley can be summarised as:(1) a claim to continue the restraining order relating to confidential information;(2) a claim for delivery up of confidential information;(3) a claim for the repayment of sums misappropriated from the claimants including sums described as overpaid salary and loan account;(4) a claim for the delivery up of computer equipment. There is a subsidiary matter as to whether Mr Hartley held the shares in GL as a nominee for Mr Gutermann. The claim against Mrs Hartley relates to her involvement in the alleged misappropriation of monies by her husband.[4]Mr Hartley has counterclaims against GM as follows:(1) for unpaid bonus;(2) for unpaid salary;(3) for damages for failure to give him a 4% share in the Gutermann leak detection business.[5]By an order made by consent on 4 November 2011 it was provided that the disputes between the parties should be decided in two phases. As a result of that order and as a result of further discussion at the start of this trial as to the issues and what I have to decide, I have to determine in this trial:(1) whether the claimants are entitled to a final injunction and in what terms;(2) whether the claimants are entitled to an order for the return of confidential information;(3) whether and on what basis Mr Harley is entitled to any bonus, but not the amount;(4) whether Mr Hartley is entitled to a 4% share in the Gutermann leak detection business.(5) whether while he was a shareholder in GL Mr Hartley was a nominee for Mr Gutermann or held the shares for his own benefit. All other issues are for phase 2. That includes all issues relating to the claims against Mr and Mrs Hartley relating to the misappropriation of monies. Nonetheless at least some of the facts relating to misappropriation are integral to Mr Hartley’s claim for bonus. For he claims that he appropriated money on account of the bonus that was due to him, and Mr Gutermann knew that and did not object. If Mr Gutermann did know and did not object, that is strong support for Mr Hartley’s claim that he was entitled to bonus. The overlap between issues was not appreciated when the order was made. I will take the issues in a different order, which enables me to introduce the facts more conveniently.

Mr Hartley’s bonus

[6]It is necessary to look first to see how the cases of the parties as to bonus have developed.[7]The claimants’ amended particulars of claim rely on a written agreement entered into between GM and Mr Hartley in November 2000. The material terms were set out in the particulars. They included that by clause 10 Mr Hartley was entitled to 30% of the net profits of a company to be set up called Gutermann International, GI, which was to be operated by Mr Hartley. He was also to receive a salary. GI never came into being, and it was alleged that from late 2000 until his resignation on 3 October 2010 Mr Hartley worked for GM as an employee or consultant ‘on the same terms (making changes where necessary and appropriate) as set out in the 2000 Agreement.’ – paragraph 9.[8]Mr Hartley prepared his own defence and counterclaim, though I suspect from its phraseology that he had some legal guidance. It consists of 22 pages of close type. In paragraph 10 he asserted that the 2000 Agreement was varied considerably from its original written terms. In paragraph 12 he alleged that in the circumstances where GI never came into existence he operated as an international business and sales development consultant for GM through his own company, Hartley Industries Limited. He alleged that from 2000 all of Gutermann’s international development and sales were generated or managed by him: it was agreed that all payments for sales would be made to GM and should be shipped by GM. He alleged in paragraph 14 that, as GI was never set up, the 2000 Agreement was varied to give Hartley Industries 30% of GM’s net profit. In paragraph 15 it was alleged that Mr Gutermann made it impossible to track any profit due by not allowing access to accounts. The claim to 30% of GM’s profits was elaborated in paragraph 22 as being the total income from sales of relevant products less manufacturing costs and the operating costs of GM (including payments to Hartley Industries). Paragraphs 30 and 31 alleged that over £50,000 was due in respect of a Thames Water order in 2001. In paragraph 45 it was alleged that it was agreed that Mr Hartley was to receive 30% of the profits of GL (set up in August 2003).[9]In paragraphs 8 to 15 of their reply the claimants denied any right to bonus beyond that given by the 2000 agreement, and said that it was limited to sales to the 14 countries named in the agreement.[10]In paragraph 38 of his witness statement dated 17 February 2012 Mr Hartley said that he first began to question his bonus entitlement in about February 2003. He said that as GI had not been set up he believed that he was entitled to 30% of the net profit in markets where he was working. He referred to an email exchange as to the calculation of bonus in February 2003. He went on:
‘Since I was, from late 2002/early 2003 operating and managing the whole world-wide business development of ‘the Group’, I believed (and I am sure Mr Gutermann’s understanding too) that from early 2003 (at the latest) I was entitled to 30% of the net profit of total income from sales of the relevant water leak detection and monitoring product lines …. less the total operating costs (including the costs of Hartley Industries).’
So that was a case as to a shared belief as to what was the position in the situation as it had developed, which belief then governed the position. In paragraph 138 after a further reference to the February 2003 emails he said:
‘Subsequently, throughout the course of discussions around February to March 2003 Mr Gutermann agreed that in the absence of GI being established, due to the dramatic increase in my more global travel/work and associated costs, in the best interest of our collaboration, my bonus was to change to an overall 30% of profit of the Gutermann water leak detection business.’
[11]In the claimants’ written opening submissions it was asserted in paragraph 9 that Mr Hartley was entitled only to salary as increased over the years and to a bonus calculated under the terms of the 2000 Agreement; that he had never earned any bonus as so calculated; but that he had been awarded several one-off bonuses. It was said that the claim to 30% of the group profits was a fabrication to find a set-off against the misappropriation claim. It was said that it was agreed on 10 November 2009 that a new bonus package should be agreed; that this did not occur because Mr Hartley did not give a proper account of the monies he had taken, and so he was entitled to no bonus in respect of this last period.[12]In the defendants’ written opening submissions it was said that for the period 2000 to 2003 Mr Hartley was entitled to a bonus equal to 30% of the net profit in countries where he was carrying out his marketing and sales activities. It was said that from early 2003 at the latest he was entitled to 30% of the net profit of all sales of relevant products, as understood between Mr Gutermann and Mr Hartley in telephone conversations. That agreement based on telephone conversations was the focus of the defendants’ case during the trial. It was said that the conversations took place in February and March 2003 following the email exchange in February concerning the calculation of bonus.[13]At the start of the trial I considered that two matters in particular required clarification. One, which I have already covered, was the problem that although the misappropriation claim was to be heard in phase 2, it overlapped with Mr Hartley’s claim for bonus as he alleged that he took monies on account of bonus due to him and that Mr Gutermann knew of it and consented to it. The second was the position if Mr Hartley’s claim to a bonus of 30% of GM’s profit failed. I held that, if Mr Hartley failed on his wide claim to 30%, it was open to him as his fall-back position to rely on the less generous provisions of the 2000 Agreement pleaded by the claimants. The claim is limited to the 14 countries named in the agreement and as accepted by the claimants. I refer to the transcript for Day 2, pages 17 to 19. I had previously held that any claim to bonus before 2003 should not be permitted to proceed as it was barred by limitation: the transcript for Day 1, page 144. The limitation of the alternative claim to the 14 countries may be less harmful to Mr Hartley than it might be thought because the best candidate for a large bonus is 2010 when GM won a very valuable contract in Abu Dhabi, one of the United Arab Emirates, and the UAE is among the 14 countries.[14]I reject Mr Hartley’s case that in the course of telephone conversations in February and March 2003 he and Mr Gutermann agreed that instead of the bonus provided by the November 2000 Agreement Mr Hartley should be entitled to 30% of the net profits of the Gutermann leak detection business. This involved forming a view in particular of Mr Hartley’s credibility. I formed the view that he was a dishonest witness. My main reasons for that and for rejecting his case are the following.[15]Mr Hartley was recruited by Mr Gutermann in the autumn of 2000. They signed the 2000 Agreement in November. It was prepared by Mr Gutermann. It attached a number of emails passing between them as an integral part of it. The agreement provided that a new off shore company, Gutermann International, GI, should be brought into being which would operate from Mr Hartley’s home. He was to be the manager. GI was to start marketing and sales activities in 14 named countries. Mr Hartley had said that he had good contacts for these markets. The list was carefully chosen. Thus Hong Kong and Oman which were included in Mr Hartley’s draft business plan sent on 30 October 2000 were not among the 14. The agreement provided that the list could be added to. Mr Hartley was to receive a salary of £30,000 p.a. with a bonus equalling 30% of the net profit of the new company. He was guaranteed £39,996 for the first year because it would take time to build up sales in the new markets. He was not to have a share in the total turnover of GM because that would give him a share in existing markets and where he was not making a contribution: paragraph 1 of the attachment to the email of 8 November 2000, which formed part of the agreement. Mr Hartley was also to work to strengthen the Gutermann name in other markets. So there were two aspects to his work and remuneration, the named intended new markets, and his work to build up Gutermann elsewhere. His bonus derived only from the former.[16]After Mr Gutermann had taken advice as to what the setting up of the new company would involve, he decided to proceed without it. No further documentation was prepared, and Mr Hartley never had a written contract of employment. He was paid by GM by payments made to his company, Hartley Industries Limited. He carried out the same functions as the agreement had provided save that there was no Gutermann International. This is an example of the informality with which Mr Gutermann ran his business. It operated from his home in Switzerland and at this point there were no staff save him apart from one, perhaps two, salesmen working abroad. I think that Mr Gutermann liked informality because it sometimes enabled him to work things to his advantage as they developed. I very much doubt if the problems which have occurred in this case would have happened in a more formal and commercially correct environment. A further example of this informality is the advancing of monies by Mr Gutermann to GL without the basis on which they were being paid having been clearly identified. An example of the way Mr Gutermann’s mind might work is provided by his case that in 2007 following the incorporation of Gutermann Australia Pty, Australia which had been one of the 14 countries in 2000 Agreement dropped out. But he accepted in his evidence that this was just a thought in his head and was not something which he had discussed or agreed with Mr Hartley.[17]On 9 January 2002 Mr Hartley emailed to Mr Gutermann his expenditure for 2001 and a ‘Gutermann International’ business plan for 2002. The former is omitted from the trial papers. It seems to me that Mr Hartley knew what sales he had made in the 14 countries and what the costs were. He made no claim for bonus. The plan for 2002 included a number of countries which were not among the 14 target countries. A spread sheet suggested sales of £380,900 with costs of £69,096. Taking the ‘buying price’ of goods sold at 70%, the net profit becomes £45,174, on which Mr Hartley would be entitled to a bonus of £13,552 if all countries were included. But the major contributor to sales was China - which was not one of the 14 countries.[18]On 4 February 2003 Mr Hartley emailed to Mr Gutermann figures for expenditure and orders for 2002. China represented 71% of sales of $458,904. Expenses were £36,357. Taking £1 as $1.6 which is the rate used later that month by Mr Gutermann and taking a gross profit on sales of 30%, the net profit becomes £49,687 which would give a bonus calculated on all countries of £14,906. But taking just the 14 countries, it may be that no bonus would be payable: it depends in part on how the costs are to be allocated.[19]On 17 February 2003 Mr Hartley sent Mr Gutermann an order forecast for GI for 2003, totalling $1,213,000. 11 countries were listed, of which 5 were not among the 14. Mr Hartley set out two ways of calculating his bonus. One involved taking the cost price of equipment at 30% of the selling price rather than the 70% which was plainly provided by the 2000 Agreement. He used the figures for 2002 to calculate a bonus of $5310, on the correct basis but using the total sales for all countries. He also raised a point as to his salary and car expenses, which the agreement also answered in plain terms. Mr Gutermann replied on 19 February with a worked example as to his bonus. He took the $1,213,000 2003 forecast figure for sales and did not distinguish between countries which were among the 14 and which were not. Mr Gutermann ended his email by saying that they should discuss it until they both understood the same thing. But the reality was that on the points raised by Mr Hartley the agreement was clear.[20]As I have stated, Mr Hartley said that it was following this that he and Mr Gutermann agreed in telephone conversations that he should have 30% of the profit of the whole of the Gutermann leak detection business. I think that here Mr Hartley was finding a convenient peg on which to hang what was a dishonest claim. There is no record of such an agreement, nor any reference to it in writing until after proceedings were commenced. Nor, as I find, was anything said about it at any time until then. It is inherently most unlikely that Mr Gutermann would have agreed to give Mr Hartley a large share in the profits of his whole business. Further, Mr Hartley was not liable for any losses, and he had put up no capital. As I will set out, it is inconsistent with what happened subsequently.[21]Until the summer of 2003 the selling agent for Gutermann in the United Kingdom was Water Instrumentation Limited, a company owned by Mr Kevin Moffat, which traded as Gutermann UK. It was decided to set up a new company, which became GL. The initial idea was that Mr Moffat should run the company. But by August he had failed to agree financial terms with Mr Gutermann and departed. On 18 August 2003 GL was incorporated with Mr Hartley as the holder of the two issued shares and the director, and Mrs Hartley as the company’s secretary. The company was to be run from the Hartley home. Nothing was put in writing as to how the company was to operate. It was agreed that Mr Gutermann would fund the company’s expenditure, and he did so. It employed salesmen.[22]Meanwhile Mr Hartley was still being paid £39,996 p.a. Mr Hartley made no request for bonus earned on the net profits on sales to the 14 countries. He said repeatedly in evidence that he did not raise the question of bonus on the basis of 30% of GM’s net profits because Mr Gutermann repeatedly told him over the years that there were little or no profits. I do not accept that Mr Gutermann told him that.[23]On 7 July 2004 Mr Hartley paid $1,900 to purchase a fake degree in international sales and marketing from ‘Chelsea University’, having the address ‘630 Draycott Place London SW3’. He said in evidence that he ‘found it intriguing and quite humorous, albeit a bit of a waste of money.’ At the end of the next year Mr Hartley was paying instalments on 36 credit cards and similar debts, and was being assisted by a debt counsellor. He must also have been in difficulty in July 2004. Towards the end of that July Mr Hartley had a meeting with Mr Gutermann in Zurich. Following his return on 28 July Mr Hartley wrote to Mr Gutermann asking for more money saying he needed another £1,000 per month. He wrote that he found it a difficult subject to address ‘given our sales figures over the last 3 years’, and said “You certainly don’t ‘owe’ me anything’. The letter included a veiled threat that if he didn’t get more money, he would leave. Mr Gutermann replied that he ‘had hoped for a quicker and better success in the export markets we initially agreed upon and I sincerely hoped you’d make a lot of money for obvious reasons.’ - my underlining. He said he did not know why it had not worked out. He said Mr Hartley had helped in ‘creating the potential UK market’. He said he would up Mr Hartley’s salary to £51,600 ‘until such date that we have discussed any change in the remuneration system.’[24]In May 2006 Mr Hartley was paid a bonus of £10,000. This was paid by Mr Gutermann not as of right but gratuitously in recognition of Mr Hartley’s efforts. Mr Hartley wrote to thank him, saying ‘Although I am still not entirely sure it’s deserved, it is certainly received with the most sincere gratitude.’ During that year he started obtaining moneys from GM or GL which were for his personal benefit and to which he had no entitlement. (I refer to his evidence at Day 4, pages 158 and 159.) They were disguised as expenses. His case was that he was entitled to money as a percentage bonus which he was not receiving, and so decided to take money for himself.[25]In 2006 GL secured a large and beneficial contract with Severn Trent Water. Mr Hartley received a bonus of £50,000 on account of this in 2007. Another salesman employed by GL also received a bonus. On 17 March 2007 Mr Hartley wrote ‘Both Jaime and I have increases in salary and have received a generous bonus.’ Mr Hartley’s salary was put up to £60,000 p.a. Yet during 2007 Mr Hartley took further monies under the cover of ‘expenses’, which he now seeks to justify as taken on account of bonus.[26]On 10 September 2007 Mr Gutermann sent Mr and Mrs Hartley an email under the heading ‘accounting 2003, 2004’. He included Mrs Hartley because from 2005 she had been employed by GL as office manager to administer the company. (She remained involved until April 2009. Amanda Sharpe was taken on as office manager in November 2008. In December 2008 Gl’s office moved from the Hartley home to commercial accommodation.) Mr Gutermann said in the email that both GM and GL needed to clear up their mess and ‘start from clean’. In a second email sent that day he referred to invoicing problems, in particular the £243,000 which GM had advanced to GL between 2003 and 2006. In the same period GM had received £494,668 from GL. (The cost to GL of goods supplied by GM was not stated.) There was uncertainty regarding invoicing from a company referred to as Palmer. It seems to me that there were then and in the following years at least three general problems relating to the finances of GL. The first was the position between GM and GL. The second arose in connection with the work of GL’s accountants, whom Mr Gutermann considered incompetent. They still remain Mr Hartley’s accountants. The third was the extraction by Mr Hartley of substantial monies under the cover of expenses. The extraordinary situation as to GL’s accounts is pointed to by the existence of two sets of signed accounts for 2004, one dated 10 July 2006 showing a profit of £6,775, and one dated 5 December 2007 showing a loss of £54,051, likewise two for 2006, one dated 5 March 2009 showing a profit of £48,043, one unsigned showing a profit of £189,885, and likewise two for 2008, one dated 29 September 2009 showing a profit of £10,356, and one unsigned showing a profit of £42,332.[27]The outcome was that Mr Gutermann came to England and spent the best part of two days, 9 and 10 October 2007, trying to sort out the accounting issues. He spent much of his time with Mrs Hartley. It was said by Mrs Hartley that Mr Gutermann saw the monies that Mr Hartley had been withdrawing for his personal benefit under the cover of expenses and was happy with it. She said that he had marked up various credit card statements which showed that this had happened. She said that those statements had gone missing, and the case was that after Mr Hartley had left GL in October 2010 Mr Gutermann had extracted them from GL’s files in order to conceal that he had known what was happening and had not objected. It does appear that some originals have got lost. But the case that these showed Mr Hartley’s misappropriations and had been written on by Mr Gutermann is destroyed by the fact that the missing pages are not relevant pages. Hartley Industries was reimbursed for its expenses, proper and improper, by GL. The revealing statements were the credit card statements of Hartley Industries, which Mr Gutermann never saw. This evidence by Mrs Hartley was a fabrication. Her attempt to describe the reaction of Mr Gutermann when, as she alleged, he saw what had been happening was wholly unconvincing.[28]Following the meeting Mrs Hartley sent the credit card statements for GL to Mr Gutermann with the relevant invoices. He received them but did nothing with them and they are now lost. His evidence as to that gave me pause for thought, but having considered it in the context of the evidence as a whole I accept it.[29]2008 was a bad year for Gutermann. On 27 December 2008 Mr Gutermann wrote to Mr Hartley referring to liquidity being dangerously low and losses of €400,000, his first losses since GM began. On 29 December Mr Hartley wrote to Mr Gutermann saying that he knew it could not come at a worse time but asking for a bonus for the year. He said:
‘I also realise that bonus payments are exactly that; payments made as a bonus on good work. And although the figures might suggest an absence of good performance, I do actually feel that I have worked well.’
He said he would respect Mr Gutermann’s decision. No bonus was forthcoming. This again is wholly inconsistent with Mr Hartley having a right to bonus based on a percentage of profit: if he had such a right he would have written in different terms. It is also inconsistent with Mr Gutermann knowing that Mr Hartley was helping himself to ‘bonus’ through expenses. In paragraph 206 of his main witness statement Mr Hartley said that he decided to pay himself a bonus for 2008 in 2009. In cross-examination he accepted that Mr Gutermann was unaware of this. It included £14,000 as cash which Mr Hartley arranged to be described as ‘corporate entertainment’.[30]On 22 October 2009 Mr Hartley wrote to Mr Gutermann saying that GL needed more money to pay salaries. As Mr Gutermann had transferred £47,000 on 10 September he wanted to know where the money had gone. On 29 October Mr Gutermann wrote saying that he had uncovered some serious discrepancies in the accounting of GL, which they needed to discuss at a meeting in Zurich. The terms in which he wrote show that he felt badly let down by Mr Hartley, and are quite inconsistent with him having agreed to, or not objected to, what Mr Hartley had been doing. Mr Hartley’s response on 31 October was to say that he was resigning. He said he had devoted himself to Gutermann. He wrote:
‘Claude, I have invested (both time and money) where you wouldn’t have, and I have no doubt given myself a higher remuneration than you would have condoned… .’
So again there was no reference to a right to bonus.[31]Mr Lucas Grolimund had joined Gutermann in that September as chief operating officer. He had had a successful career in large and properly run companies. He and Mr Gutermann were concerned at what Mr Hartley might do. Mr Grolimund and Mr Uri Gutermann, Mr Gutermann’s son who was then living in England, went to GL’s office on 2 November to request Mr Hartley to hand over the two shares in GL. Mr Hartley said that he did not want to be a shareholder and agreed to hand over the shares. He also accepted that, contrary to company policy, he had not travelled economy class. He accepted that the £14,000 corporate expenses was money he had taken for himself as ‘bonus’ because he thought he deserved more than he received.[32]A meeting with Mr and Mrs Hartley took place at Mr Gutermann’s home on 10 November 2009. Mr Grolimund joined them for lunch and then the meeting continued afterwards. Mr Hartley said that he had taken more money than he was entitled to. He said that he would pay it back. He said the figure for 2009 was between £30,000 and £40,000 or he may have said £30,000 to £50,000. The full amounts and the period over which this had occurred were not then appreciated by Mr Gutermann or Mr Grolimund. (In addition, Mr Hartley told me in evidence that he had kept no record of what he was taking.) Mr Grolimund asked why Mr Hartley took the money. He replied that if Gutermann got the Abu Dhabi contract he would be fine, and if it did not and the company went under, then likewise. The Abu Dhabi contract was a very large contract which GM was negotiating for at this time. Mr Hartley was part of the negotiating team. He could hope for a large, discretionary, bonus if the contract was obtained. I am doubtful if Mr Hartley was as crucial to the securing of the contract as Mr Hartley said, though he may have thought that he was. But he certainly had the capability of spoiling Gutermann’s chances. I think the need to keep Mr Hartley on-side until the contract was secured is a large part of the explanation why Mr Gutermann did not dismiss Mr Hartley at this point. I refer to Mr Gutermann’s email to Mr Grolimund of 11 February 2010: writing about pay he said:
‘With regard to Dale, we can quietly bide our time until Abu Dhabi is on track – and then we shall have to think again. I hope I know a great deal more from Julie by then!!’
Julie was an accountant in the firm which was investigating GL and what Mr Hartley had taken. Mr Gutermann had also been advised by his Swiss lawyers that legal proceedings against one of GM’s competitors would be jeopardised without Mr Hartley’s assistance.[33]Mr Gutermann made notes of the meeting. Mr Hartley was to have a new role as head of marketing and development. He was to have no further responsibility for the sales force including GL. A salary of £80,000 starting in April 2010 was suggested by Mr Hartley. He was to have a bonus scheme to be well defined both as to type and percentage. The salary and bonus were to be decided on 11 November. Mr Hartley was also to provide the GL shares to Mr Gutermann on that day. There was to be no release of Mr Hartley’s responsibility for what had happened in the past. All accounts would be checked, in particular ‘irregularities between Dale and the company’, and there would be a settlement when clarified. This was all recorded in Mr Gutermann’s note. I accept the evidence of Mr Gutermann and Mr Grolimund that Mr Hartley did not at any time say that he was entitled to bonus in the past on any basis. I asked Mr Hartley whether he was saying that he told Mr Gutermann at the meeting that the money was on account of his bonus and Mr Gutermann was happy with that. He answered ‘That’s more or less what I’m saying.’ There may be a partial truth in this, that partial truth being that he said that the money taken could be credited against the bonus he would be awarded if the Abu Dhabi contract came through.[34]The salary of £80,000 from April 2010 was agreed. But Mr Hartley played hard to get as to handing over the share certificates, which only occurred on 17 January 2010, and Mr Gutermann did nothing to take forward the question of bonus. In an email of 28 November Mr Hartley raised the question of agreeing a bonus structure. He made no reference to the shares or his misappropriations. He said that GL was insolvent. He wrote again about his bonus structure on 14 December. A meeting was agreed for 21 January 2010. It had by then become a lot clearer quite what Mr Hartley had been doing: I refer to Mr Grolimund’s email to him of 13 January 2010.[35]At the meeting it was agreed to appoint an external auditor to verify the amount of ‘misspending’ as well as correcting accounting mistakes since 2003. Mr Hartley agreed to support the audit and to pay what was found to be due. A schedule of repayments was then to be agreed. If Mr Hartley left before making full reimbursement, the balance was to be due immediately. I find that there was no suggestion by Mr Hartley that he was owed bonus which should be set off against what he had taken. No decision was taken about his bonus structure. It is apparent that Mr Gutermann had decided that in the light of what he then knew that he would not progress this until the audit was complete. His note, which was signed by Mr Hartley reads in part:
‘After the audit CG, DH and LG will find an optimal solution for the company setup, taxation etc.’
There was no express reference to bonus in the note. I will revert to the meeting in connection with Mr Hartley’s claim to 4% of the Gutermann group.[36]Meanwhile GL had refused to pay the invoices of KSL, its accountants, and litigation was threatened. On 19 March 2010 Mr Hartley forwarded to KSL confidential emails from the investigating accountants.[37]By 9 April 2010 Mr Martinson, who was now managing GL, and Ms Sharpe had produced a spread sheet on credit card spending. There were a very large number of unknowns.[38]By June 2010 Mr Hartley was very keen to leave GM and was looking for alternative employment. On 24 July Mr Hartley wrote to Mr Gutermann ostensibly seeking how they might further their working together. On 2 August they had a telephone conversation in which Mr Gutermann said what had to be done to take matters forward. One was that Mr Hartley prepare a list categorising every expense. On 14 August Mr Hartley said that he would start at the beginning of the next week. He sent the list covering 2007 to 2009 on 23 August. In his covering email he wrote:
‘And finally….. although somehow through the years we never got round to doing so previously, we should also agree upon a fair commission/bonus/reward structure that perhaps ought to have been applied historically.’
[39]The Abu Dhabi contract was signed on 30 September 2010. This meant that Gutermann were no longer at risk of Mr Hartley upsetting the negotiation, and Mr Hartley could hope to have secured a bonus on the contract.[40]On 24 September 2010 Mr Hartley signed a contract of employment with SebaKMT, a company in competition with GM.[41]On 26 September 2010 Mr Hartley sent a round-robin to Gutermann staff, asking to be informed of all sales of ‘loggers’ and of all logger projects. I am satisfied that this was a dishonest attempt to secure information for himself for the future.[42]On 30 September 2010 Mr Hartley sent Mr Gutermann an email asking for a chat and presaging his resignation. On 1 October he emailed DialAFlight asking them to cancel the flights he had booked for GM and that they credit the proceeds to his personal account. On 1 October Seba signed the contract with Mr Hartley. It provided for him to start on 5 October. A conversation with Mr Gutermann took place and on Sunday, 3 October Mr Hartley resigned.[43]The outcome is that Mr Hartley’s primary case as to bonus fails. That leaves him with an entitlement to bonus under the 2000 agreement from 2003. It might have been suggested by the claimants that the conduct of the parties showed that the bonus provisions of the 2000 Agreement had been abandoned and replaced by the granting of discretionary bonuses where appropriate. But that case was not run – and I express no view as to its chances of success. The claimants’ pleaded case was that the 2000 Agreement applied until Mr Hartley’s resignation. The case run at the trial proceeded on that basis save that it was said that, as set out in the written opening, on 10 November 2009 a new contract was agreed with Mr Hartley. As recorded in Mr Gutermann’s notes of the meeting, Mr Hartley was to have a different position upon different terms. One part was that the terms as to bonus should be agreed. It was submitted for the claimants that as no such terms had been agreed there was no entitlement. It was also submitted for the claimants that any right to bonus was dependent upon Mr Hartley cooperating with the audit of what he had misappropriated and its conclusion – which did not happen. It was submitted for Mr Hartley that in the absence of the agreement of new terms the provisions of the 2000 agreement as to bonus continued to apply. There is another possibility. This is that Mr Hartley is entitled to a bonus on a quantum meruit or ‘reasonable’ basis in respect of the period between 10 November 2009 and his resignation on 3 October 2010, just as he would be if no salary had been agreed: compare section 8(2) of the Sale of Goods Act 1979. There was a reference to the possibility of a quantum meruit claim in the last paragraph of the defendants’ written opening submissions where Parkinson (Sir Lindsay) & Co v Commissioners of Works [1949] 2 KB 632 was cited. But the possibility was not referred to by either side at the trial. I have concluded that in the circumstances the right course is to reserve this part of the case for further argument.

Did Mr Hartley hold shares in Gutermann Limited as a nominee for Mr Gutermann?

[44]Mr Gutermann’s case was that GL was always his company and that Mr Hartley had held the shares as his nominee. He accepted that this was nowhere recorded in writing. In answer to my question he said that the reason for putting the shares in Mr Hartley’s name was that he did not want the risk of being liable for the company’s debts, in particular if there was a product liability claim. He said that the shares were now, he thought, held by ‘a gentleman from Panama’ – he did not know the name. He said the gentleman had signed something saying that he held as nominee. I reject the explanation that Mr Gutermann was concerned about liability. He well understands and understood the concept of a limited liability company. If that was his reason, it is hardly one that would appeal to Mr Hartley as the nominee shareholder. Mr Hartley challenged Mr Gutermann to show that he had declared the shares as an asset on his returns to the Swiss tax authorities – where a declaration of assets is required. The way in which Mr Gutermann dealt with the request for disclosure was unsatisfactory and unconvincing. In the witness box he accepted that he had not listed the shares but said he had not been required to do so because in one year he had disclosed the costs of setting up GL. That made no sense to me: what if GL had subsequently become a valuable asset? The probability is that, if Mr Hartley was a nominee, Mr Gutermann’s tax position was the reason. That leaves Mr Gutermann’s credibility shaken on this aspect of the case, but does not answer the question.[45]Mr Hartley’s case was that he was the beneficial owner of the shares and there was no agreement that he should act as nominee. He said the agreement between him and Mr Gutermann was that Mr Gutermann should fund the company and that they would split the profits 70% to Mr Gutermann and 30% to Mr Hartley. Mr Gutermann did fund the company in substantial amounts. There is nothing in writing to confirm an agreement to split the profits and nothing was ever done to give effect to such an agreement. Following the Severn Trent contract in 2006 GM received substantial sums from GL, but it is unclear to me whether they were due as the purchase price of the goods supplied or as profit made by GL or a mixture. The agreement suggested by Mr Hartley would mean that Mr Gutermann carried all the costs and risk, but shared the profits. Mr Hartley included the shares in his will which was probably made in May 2005.[46]GL was set up to replace Water Instrumentation Limited, which was owned by Mr Moffat. It was first intended that Mr Moffat should run the company. Plainly he would not have been the owner. The purpose was to bring the English operation within the Gutermann umbrella. When he dropped out, Mr Hartley came in. He ran the company on the instructions of Mr Gutermann. Mr Gutermann provided the monies which were required to keep the company functioning over the years. Mr Hartley was not able to point to any conduct which showed that he was the owner of the company save for the inclusion of the shares in his will.[47]GL was incorporated on 18 August 2003 with Mr Hartley as the shareholder and director. On 25 September 2003 in the course of an email to Mr Gutermann Mr Hartley stated:
‘You can extract your money from [GL] either by invoicing from GM (leaving as little or as much profit in [GL] as desired …. or as dividends if you are listed as a shareholder (only considerations are that this may be subject to closer tax scrutiny at your end and other shareholders (if any) will need to be paid on a pro-rata basis).’
The reference to being listed as a shareholder suggests that this is an option open to him. I note the reference to tax scrutiny, which is consistent with this having been discussed between them.[48]On 13 May 2004 Mr Gutermann wrote to Thames Water, copied to Mr Hartley, saying that GL was the wholly owned operating arm of GM. The papers contain a draft email from Mr Hartley to the same effect –F1.v.1759, which stated that the position was entirely different to the previous distribution arrangement with Water Instrumentation Limited.[49]On 21 December 2006 Mr Hartley told Mr Gutermann in an email concerned with paying the Severn Trent money from GL ‘It’s your money, Claude.’[50]In an email to Mr Hartley of 31 October 2009 Mr Gutermann stated ‘During our meeting we shall clarify all the related issues, including the transfer of the fiduciary held shares.’ In an email of 4 January 2010 he wrote ‘Just for clarification: Handing over shares held in trust is unconditional and has nothing to do with accounts or your tax liabilities.’ Mr Hartley did not contradict him as to the status of the shares. He told me that he did not know what ‘fiduciary’ or ‘in trust’ meant. I am satisfied that he knew quite well what they meant in this context.[51]I am satisfied by the matters which I have set out that Mr Hartley knew that GL was Mr Gutermann’s company and not his own. That must have been the arrangement when the company was set up. I do not know what Mr Hartley’s thinking was when he included the shares in his will, but any inference that I might otherwise draw from that in his favour is rebutted by the cogent facts which I have set out.

Mr Hartley’s right to 4% in the Gutermann group

[52]The start of this was the negotiations by Mr Gutermann beginning in February 2008 to sell his business to a company which I can call Miya. He was to vest the business in a holding company and sell the company, and the price would be based on the profits over a three year period, 2009 to 2011. It was intended that Mr Hartley would enter a silent partnership agreement which would give him 4% of the proceeds of sale. Mr Gutermann was to have 92% and Dr Joachim Lang 4%. However by January 2009 it had become clear that the deal with Miya was not going to progress. Mr Gutermann was 66 and had serious health problems. He thought of a management buy-out but that did not occur. He decided that at some future point – there being no urgency - he would restructure the ‘group’, and he told Mr Hartley that he would give him 4% in the holding company when the restructuring took place. On 3 October 2009 Mr Hartley sent Mr Gutermann an email saying that they had talked about him having shares in Gutermann and it would be helpful to him to know what he was to be a shareholder in. Mr Gutermann replied that Mr Hartley and Dr Lang were to participate in 4% each in the Miya sale, which was now unlikely to happen. He and Mr Grolimund were considering how to structure the group. He said:
“Obviously, the Shareholder Agreement can only be re-drafted when all the elements are clear. What remains absolutely unchanged is that you and [Dr Lang] will participate with 4% each.”
He apologised for the delay.[53]There was no discussion of the 4% at the meeting at Mr Gutermann’s home on 10 November 2009. At the end of the meeting on 21 January 2010 Mr Gutermann set out in manuscript the points he considered had been agreed. He read them out as he wrote. Copies were then made and according to him and Mr Grolimund but not Mr Hartley were read through. The three men signed it. Paragraph 9 reads:
‘DH returns his rights to 4% of the group shares free of charge.’
Mr Hartley’s case was that what Mr Gutermann had done was to read out ‘retains’ while writing ‘returns’. Mr Hartley said that he had spotted this only the next day. If Mr Gutermann did this it would have been a thoroughly dishonest trick and he would be caught out as soon as Mr Hartley read the agreement. Mr Grolimund would be a necessary party to the trick if it was to succeed. Mr Hartley said that the matter of his share had not been discussed at the meeting. Mr Gutermann and Mr Grolimund said that it had been discussed. Mr Gutermann said that he had learned more since the meeting the previous November about what Mr Hartley had been doing: he was not prepared to have someone who had stolen having a share in his company. The next afternoon Mr Hartley sent Mr Gutermann and Mr Grolimund an email. It read:
‘This may seem a little odd, but if I truly misunderstood so horribly, then I really do feel quite (in fact, very) embarrassed if I have made such a mistake, but I have just read the signed notes for the first time. I was (seemingly foolishly) under the impression that I was to “retain” my rights to the 4% of the group foc [free of charge]. When in fact, point 9 reads “returns his rights”. I hardly need to ask, but this would clearly seem to be a very embarrassing misunderstanding on my part, isn’t it? Many thanks, Dale.’
This was a strange message to send if Mr Gutermann had behaved as Mr Hartley now alleges. There followed a curious telephone conversation between Mr Hartley and Mr Grolimund in which Mr Grolimund seems to have taken the line that this concerned something between Mr Gutermann and Mr Hartley, which arose before he joined Gutermann. Mr Gutermann did not reply to the email. He said that he was tired of Mr Hartley’s games and annoyed. Many thanks, Dale.’[54]In paragraph 8 of his main witness statement dated 17 February 2012 Mr Gutermann stated that within the past few months the Gutermann Group had been restructured with a Luxembourg holding company whose ultimate owner was his son. I am satisfied having heard the evidence of Mr Gutermann, Mr Grolimund and Mr Hartley on this that paragraph 9 of the note of the meeting correctly records what was discussed and agreed to at the meeting. The claim fails.

Confidential information

[55]The claimants seek a permanent injunction to restrain Mr Hartley ‘from using or dealing with the Confidential Information’. The Confidential Information is defined in paragraph 4 of the particulars of claim as comprising 6 categories, and further particulars are given in Annex 1 to the particulars of claim. Annex 1 lists 38 documents or descriptions of documents. In the section of his witness statement dealing with confidential information Mr Gutermann made no reference to Annex 1. He stated that technical details of Gutermann products were kept only at Emtec, the manufacturers. There was one exception arising from the need to supply the buyer with factory acceptance test documents for the Abu Dhabi contract. He referred to the correlation and synchronisation technology used in the loggers to pinpoint leaks. He referred to the remote monitoring system. He said information as to GM’s pricing was confidential. So his evidence was quite limited. It emerged during the course of the case that the claimants also relied on a number of documents found as a result of the execution of the search order, which were contained in file F6. A list of the documents relied on was provided and Mr Gutermann was cross-examined about them.[56]I have already referred to the email which Mr Hartley sent on 26 September 2010 to collect information about Gutermann logger contracts in anticipation of his leaving. After he had left, on 27 October 2010 he sent to Seba, his new employer, a number of documents concerning Gutermann’s Abu Dhabi contract. He said:
‘Obviously these documents need to be handled with due care and confidentiality. In the event Seba are successful in winning this business, it would be terrible if the success could be ‘overturned’ based upon the open knowledge that these documents were circulated. For this reason I suggest that you do not disclose your possession of these documents to anyone – inside or outside Seba.’
It seems that Mr Hartley hoped to undo Mr Gutermann’s success in winning the contract.[57]On 1 November 2010 Mr Hartley sent to Seba correspondence concerning Gutermann’s pilot scheme in Denmark. He said:
‘I would respectfully request that you don’t forward this correspondence due to its confidential nature and commercial sensitivity.’
[58]Paragraph 28 of the injunction which was granted on 9 December 2010 restrained Mr Hartley from making any use of ‘the Confidential Information’ and ‘the Applicants’ Property’, both as defined in schedule C to the order. Schedule C was headed ‘The Listed Items’. The schedule served a dual purpose because it was also the list of items which Mr Hartley had to hand over under paragraph 16 of the order. The list itself was limited to documents in paper or electronic form, because it began ‘Any document or documents relating to or containing the following information’. It was not limited to documents belonging to the claimants and thus included, for example, communications relating to dealings from November 2000 to date between Mr Hartley and his employer, Seba. It included hard copy Confidential Information. Confidential information was defined as:
‘any confidential information, database or trade secret belonging to the Applicants or any associate company of the Applicants or any confidential information or trade secret concerning the business finances, design, know-how, processes, dealings, transactions or affairs (including details of clients, prospective clients, employers, workers (Permanent or Temporary) and prospective candidates for employment or temporary work of the Applicants or any associated company.’
It was thus very widely and generally drawn. On 6 January 2011 it was ordered that paragraph 28 should continue until trial or further order. Mr Hartley agreed to the order. He was not represented.[59]The three categories of information which an employee may possess set out in Faccenda Chicken Ltd v Fowler [1987] Ch 117, are well-known:
‘First there is information which, because of its trivial character or easy accessibility from public sources of information, cannot be regarded … as confidential at all. …. Secondly, there is information which the servant must treat as confidential (either because he is expressly told that it is confidential, or because from its character which is obviously so) but which once learned necessarily remains in the servant’s head and becomes part of his own skill and knowledge applied in the course of his master’s business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master; …. . Thirdly, however, there are, to my mind, specific trade secrets so confidential that, even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone’s benefit but the master’s.’
It is only information in the third category which the court will protect. In giving the judgment of the Court of Appeal Neill LJ stated:
‘The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose confidential information may cover secret processes of manufacture such as chemical formulae …, or designs or special methods of construction …. .and other information which is of a sufficiently high degree of confidentiality to amount to a trade secret. The obligation does not extend however to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only “confidential” in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith.’
Neill LJ went on to cite the judgment of Cross J in Printers & Finishers Ltd v Holloway [1965] RPC 239 at 253. There Cross J stated with reference to the printing instructions which had been provided to Mr Holloway:
‘It would have been a breach of duty on his part to divulge any of the contents to a stranger while he was employed, but many of these instructions are not really ‘trade secrets’ at all. Holloway was not, indeed, entitled to take a copy of the instructions with him; but in so far as the instructions cannot be called ‘trade secrets’ and he carried them in his head, he is entitled to use them for his own benefit or the benefit of any future employer.’
[60]The reference by Cross J to taking a copy with him brings to mind the line of cases including Robb v Green [1895] 2 QB 315, Wessex Dairies v Smith [1935] 2 KB 80 and Bullivant v Ellis [1987] FSR 172, where the court has been concerned with an employee who makes or takes a list of customers while still employed and does not merely use his recollection of them after his employment has ended. An injunction will be granted.[61]I have come to the conclusion that the present case is more concerned with the possible misuse of documents wrongly retained by Mr Hartley after his employment ended than with confidential information. It is not alleged that Mr Hartley had any detailed technical knowledge of how the claimants’ equipment worked: he was a salesman, not a technician. He did not possess any trade secrets in that sense. What knowledge he had in his head of the claimants’ pricing and commercial operations would, in general, fall into the second category in Faccenda and would not attract protection. Nothing has been identified which is not in the documents that he retained. But he was not entitled once he had left to retain any documents belonging to the claimants. Nor was he entitled to make any use of such documents while he did retain them, in particular in attempts to advance the claimants’ competitors and thereby to damage the claimants. The claim that is advanced in relation to confidential information is in reality centred on such documents.[62]The injunction granted was very wide and had Mr Hartley been represented it is likely that it would have survived only in a diminished and more specific form. But whether that happening would have much practical effect apart from adding to the costs, I doubt. For I heard no evidence that Mr Hartley has been inconvenienced by the injunction. In view of his conduct he cannot complain that an order against him was made. The question for me is whether an order of any kind is now required. I doubt whether following the hand-over of the documents that it will be. Eighteen months have passed since Mr Hartley left GM. I would however be prepared to hear counsel for the claimants if it is sought to obtain an order in respect of specific confidential information operative for a short further period, perhaps 6 months.[63]It is accepted by Mr Hartley that he should deliver up the documents which he has retained and which were found as a result of the search.

Cited in 1 later judgment