Gray v Global Energy Horizons Corporation [2020] EWCA Civ 1668 (09 December 2020)

III. GROUND 1

(a) Introduction

107. Ground 1 is essentially concerned with the scope of Mr Gray’s liability to account, and whether the necessary link exists between his breaches of fiduciary duty and three of the assets for which he was found liable to account by Asplin J. The assets in question are those listed in sub-paragraphs 1(a), (d) and (e) of the July 2015 Order, that is to say:

(a) $3 million of the $5.1 million paid by Klamath Falls to Celloteck under the Klamath Falls Settlement in February 2012;

(d) 51% of 15% of the issued shares in Petrosound held for Mr Gray through Chiloquin; and

(e) 51% of 15% of the issued shares in Petrosound held for Mr Gray by Professor Abramov or by either or both of the VIYM Executives.

Assets (d) and (e) together comprise what we have called the Russian Business Assets. For the purposes of Ground 1, it must be assumed that Asplin J was right to find that the Russian Business Assets were received directly or indirectly by Mr Gray, although those findings are of course challenged in other grounds of appeal (Grounds 6, 7 and 9).

108. There is no longer any dispute that Mr Gray is to be treated as having received the $5.1 million paid to Celloteck under the Klamath Falls Settlement, even though Celloteck (formerly RegEnersys Inc) was at all times a Heerema entity [Asplin/11]. In this respect, Asplin J made important findings at [Asplin/184] which have not been challenged on appeal:

“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.”

109. The need to avoid double counting therefore explains why Mr Gray was required to account for only $3 million of the $5.1 million. The other $2.1 million was used by him to buy the remaining shares in Klamath Falls held by the Hurtado family, prior to the transfer of the controlling stake in Klamath Falls to Chiloquin in which Mr Gray had a 51% interest: see [Asplin/94] and [Arnold/37].

110. The nub of Ground 1, as originally formulated in Mr Gray’s grounds of appeal, is that the above assets for which he was found liable to account:

“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.”

Accordingly, it is said that “Asplin J was wrong to make Mr Gray account for such assets.”

111. We will begin by considering this ground of appeal in its original form. We will then consider Mr Gray’s application for permission to amend Ground 1 in Application D. The application is opposed, so we will need to deal with the question whether permission to amend should be granted as well as with the substance of the proposed amendments if permission is granted.

(b) The scope of the account ordered by Vos J

112. Paragraph 1 of the Vos Order contained a declaration that Mr Gray had acted in breach of his fiduciary duty to GEHC and was 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 from 17 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.”

113. Paragraph 2 of the Vos Order then ordered that:

“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.”

114. Accordingly, the account directed by Vos J expressly excluded from its ambit “any amounts received in respect of the purchase of an interest in Klamath Falls Inc.” The meaning of those words of exclusion, which we will call “the Klamath Falls exclusion”, is one of the key issues which arise under Ground 1. In particular, it is necessary to decide whether the words “the purchase of an interest” refer only to the purchase of shares in Klamath Falls under the transactions entered into on 6 June 2007, or whether they should be construed as including benefits derived from the purchase of intellectual property rights owned by Klamath Falls, or (more generally) from the Acquisition Strategy.

115. In order to answer this question of construction, it is necessary to examine the reasons given in the Liability Judgment for the Klamath Falls exclusion. The first point to note is that the wording of the exclusion reflected verbatim the conclusion stated by Vos J at [Vos/518(ii)]. The second point to note, which counsel for Mr Gray confirmed in response to a question from us, is that there was no substantive discussion of the scope of the Klamath Falls exclusion at the hearing on consequential matters which took place before Vos J on 17 January 2013. The intended scope of the exclusion must therefore be collected from the judge’s reasoning in the main body of the Liability Judgment.

116. It is not controversial that, in general terms, the purpose of the Klamath Falls exclusion was to reflect the consent given by Mr de Clare to Mr Gray’s acting for Mr Heerema in the negotiations that took place between Mr Heerema and Mr Zolezzi for the purchase by Mr Heerema of Mr Zolezzi’s 10% interest in Klamath Falls, which culminated in the transactions executed on 6 June 2007. We cannot in this judgment reproduce the full history of the negotiations which is traced in great detail in the Liability Judgment, to which reference must be made by anybody who wishes to understand every twist and turn in the story. For present purposes, we can begin with the important email sent by Mr de Clare to Mr Gray on 11 September 2006, which Vos J described as follows [Vos/138]:

“On 11 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.”

Counsel then appearing for Mr Gray (Mr Stephen Atherton QC) relied on this email as making clear for the first time that Mr de Clare understood that Mr Gray would be acting for Mr Heerema on the other side of the negotiations from Mr de Clare and GEHC acting for Mr Zolezzi: see [Vos/502].

117. After recording this submission, Vos J continued:

“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” on 13 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 on 6 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 the 11 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.”

118. It is clear, in our judgment, from this passage that Vos J found that the consent given by Mr de Clare to Mr Gray’s acting on the other side of the negotiations was confined to “the narrow area of the existing debate concerning the share sale”. That is what Vos J meant by his reference to “the Alfredo mandate”, which he had defined at the start of his judgment [Vos/2(iii)] as a project whereby Mr Zolezzi “asked GEHC to assist in arranging the sale of some of his minority shareholding in Klamath Falls… which owned the AWS technology.” By contrast, the “Acquisition Strategy” was defined [Vos/2(ii)] in terms of the underlying commercial objective of using ultrasound technology to increase production from mature and underperforming oil wells. Mr Gray may well have been correct to view the share sale and the Acquisition Strategy as inextricably linked, but Vos J was satisfied that this was not how Mr de Clare saw things, and the consent which he gave to Mr Gray was correspondingly circumscribed.

119. The limited nature of the consent which Vos J found Mr de Clare to have given is reinforced by the judge’s discussion of the question whether Mr de Clare gave any further consent in December 2006. Vos J answered this question in the negative, saying at [Vos/507]:

“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.”

121. Consistently with all the passages we have quoted, Vos J’s conclusion at [Vos/511] was that:

“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.”

122. In the light of these clear and unequivocal findings of fact, we have no doubt that the narrow construction of the Klamath Falls exclusion contended for by GEHC is correct, and that the words “in respect of the purchase of an interest in Klamath Falls Inc” should be read as referring only to the purchase of a 10% shareholding in that company from Mr Zolezzi.

(c) What are the profits for which a defaulting fiduciary is liable to account?

123. It was common ground at the Enquiry Hearing that there needs to be “some causal link between the asset obtained and the breach of fiduciary duty”: see [Asplin/132]. After referring to authority (the decision of this court in Murad v Al Saraj [2005] EWCA Civ 959, [2005] WTLR 1573; the decision of the High Court of Australia in Warman International Ltd v Dwyer (1995) 182 C.L.R. 544; and the decision of Lewison J (as he then was) in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch)), Asplin J summed up the nature of the relevant test in the following way [Asplin/136-137]:

“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.”

124. Before us, both sides were content to accept the passage we have just quoted as an adequate statement of the relevant principles, but (although we heard no argument on the point) we must record our view that it is not appropriate to use the language of causation in this context: see further [128] below. We were also referred to the Ultraframe case, where Lewison J formulated the governing principles in “fashioning the account” in the following way, at [1588]:

“(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.”

125. While that is a typically helpful summary, we would sound a note of caution in relation to Lewison J’s second principle (unjust enrichment). It appears to derive from the passage in Warman v Dwyer cited by Lewison J at [1582], where the High Court of Australia pointed out that:

“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.”

126. The point we wish to emphasise is that the basic equitable rule is indeed a stringent one which requires an errant fiduciary to account to his principal for all unauthorised profits falling within the scope of his fiduciary duty. The rule is intended to have a deterrent effect, and to ensure that no defaulting fiduciary can make a profit from his breach of duty. It does not matter if the result is to confer a benefit on the principal which the principal would otherwise have been unable to reap. As it is put by the editors of Snell’s Equity, 34^th edition (2020) (as updated in the First cumulative Supplement), at paragraph 20-037:

“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.”

127. It follows, in our view, that the doctrine of unjust enrichment has, at best, only a subsidiary role to play in limiting the liability of a fiduciary to account. We are here concerned with the obligation of a defaulting fiduciary to account for unauthorised profits, not with compensation for an equitable wrong, and still less with an independent cause of action in restitution to reverse an unjust enrichment of the defendant at the expense of the claimant: compare the illuminating observations of Sir Jack Beatson (with whom Simler and Irwin LJJ agreed) in F M Capital Partners Ltd v Marino and Others [2020] EWCA Civ 245, [2020] 3 WLR 109 at [49] to [55]. Furthermore, in relation to Ground 1, we are anyway in “the realm of specific assets”, where the question is simply whether there is a sufficient link between the assets received by the defaulting fiduciary and his breach of duty.

128. We now return to the question whether Asplin J was right to use the language of causation in this context. In our respectful opinion, she was wrong to do so, although we emphasise that we have not heard argument on the question, and it appears to have been common ground before her that the relevant test could appropriately be framed in terms of causation. The important point, in our judgment, is that the liability of a defaulting fiduciary to account for unauthorised profits is a strict one, which has always been jealously enforced by courts of equity. There needs to be some link or nexus between the breach of duty proved and the profits for which an account is ordered, such that there is a “reasonable relationship” between them (as Lewison J said in the Ultraframe case). But the link or nexus does not need to be of a causal character. It will normally be sufficient if the profit arose within the scope of the defaulting fiduciary’s conduct in breach of duty. As Morritt LJ said, in United Pan Europe Communications NV v Deutsche Bank AG [2000] 2. B. C. L. C. 461 at [47]:

“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”. Such a condition suggests an element of causation which neither principle nor the authorities require.”

This passage was cited with approval by Arden LJ in the Murad case at [57]. See too the concurring judgment of Jonathan Parker LJ at [96] and [112].

(d) The Klamath Falls Settlement

129. To recap, on 6 June 2007 Celloteck not only acquired a 10% shareholding in Klamath Falls, but also entered into the non-exclusive Licence Agreement with Klamath Falls in respect of the ultrasound technology, as well as the Cooperation Agreement under which the parties agreed to cooperate and work towards the testing and commercialisation of the technology: see [Asplin/12]. On 3 August 2007, Celloteck’s interest in the two agreements was assigned to RegEnersys I: ibid.

130. In May 2008, RegEnersys I entered into an agreement with El Paso to test the ultrasound technology on twelve of its oil wells located in Utah. The testing continued for about one year, with very promising results: [Asplin/13]. Meanwhile, however, relations between RegEnersys I, Mr Zolezzi and Mr Hurtado began to sour, and in June 2009 Celloteck and RegEnersys I started arbitration proceedings in Chile against Klamath Falls, Mr Zolezzi and others, alleging (among many other matters) breaches of the Licence Agreement and the Cooperation Agreement: [Asplin/15]. A sole arbitrator, Mr Henri Alvarez QC, was appointed, and in due course a five day hearing took place before him in Santiago, Chile, in November 2010. We were shown his lengthy Partial Award dated 9 August 2011 (“the Partial Award”), which does not appear to have been the subject of specific submissions at the Enquiry or Valuation Hearings, but was referred to by Vos J in the Liability Judgment at [Vos/210].

131. It is apparent from the Partial Award that the remedies and relief claimed by Celloteck and RegEnersys I in the arbitration were very wide-ranging, and extended to all of the “Transaction Agreements” relating to Celloteck’s shareholding in Klamath Falls (consisting of a Subscription Agreement, a Share Purchase Agreement and an Amended Restated Shareholders Agreement, as well as the Licence Agreement, the Cooperation Agreement and a Confidentiality Agreement). The Partial Award did not distinguish between the involvement of Celloteck (then called RegEnersys Inc) and RegEnersys I in those transactions, referring to them collectively as “RegEnersys”. The relief sought included declarations that the Klamath Respondents and the Zolezzi Respondents had fraudulently induced RegEnersys to enter into the Transaction Agreements, or alternatively a declaration that the Transaction Agreements had been entered into under a mutual mistake, with the consequence (on either basis) that the Transaction Agreements should be rescinded, together with orders for repayment of the sums invested with interest, and punitive damages for fraud. In the alternative, various breaches of contract were alleged, including (as we have said) breaches of the Licence and Cooperation Agreements.

132. The outcome of the Partial Award, summarised in paragraph 549, was that all of the claims and counterclaims were dismissed, with the exception of the contractual claims relating to alleged breaches of sections 8.1 and 2.1 of the Licence Agreement and sections 3.1 and 4.1 of the Cooperation Agreement, and the assessment of any damages in relation thereto, which were deferred to a subsequent award, together with the parties’ respective claims for costs. It follows that all of the claims brought by Celloteck in its capacity as a shareholder in Klamath Falls were dismissed, and the only surviving claims related to the contractual rights of RegEnersys I under the Licence and Cooperation Agreements. The breaches of contract which the arbitrator found to be established related to the failure of Klamath Falls to disclose all of the intellectual property which it had represented and warranted it owned on 6 June 2007. The reason why the arbitration had to be adjourned before a final award could be made was that fuller disclosure and submissions were needed in relation to the so-called Related Intellectual Property of which Klamath Falls had failed to make full disclosure (see paragraphs 475 and 476 of the Partial Award).

133. In the event, the further hearing in the arbitration never took place, because the Klamath Falls Settlement was entered into on 2 February 2012. The parties to the settlement agreement were Celloteck and RegEnersys I (collectively defined as “RegEnersys”, as in the Partial Award) (1) and Klamath Falls Inc (2). The agreement recited that RegEnersys had asserted claims against Klamath Falls in the arbitration proceedings, “some of which claims were dismissed and some of which claims have been held over for further proceedings pursuant to the Partial Award”. Further recitals referred to Klamath Falls’ counterclaims, which had been dismissed pursuant to the Partial Award; stated that the parties “deny any and all liability to each other”; and stated the desire of the parties “to settle and resolve any and all claims between them without the expense and distraction of further legal proceedings”. Clause 1 then provided for payment of the settlement consideration of not less than $5.1 million “to RegEnersys” with immediate effect. Clause 2 provided for the withdrawal by the parties of all the claims asserted against each other in the arbitration. By clause 3, RegEnersys gave an irrevocable and unconditional release to Klamath Falls, framed in the widest terms, from all claims and liabilities, known or unknown, which RegEnersys had:

“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.”

Clause 4 contained a release in similar terms given by Klamath Falls. Clause 5 stated that there was no admission of liability on either side. Clause 6 provided, among other matters, that the agreement was to be governed by New York law, and that it contained “the complete and exclusive statement of the terms of the agreement between the parties”. The agreement was signed by Mr Gray on behalf of Celloteck, Mr Adam Kantor, a colleague of Mr Gray, on behalf of RegEnersys I and Mr Hurtado on behalf of Klamath Falls.

134. On behalf of Mr Gray, Mr Ahlquist pointed out that the releases in clauses 3 and 4 expressly included the claims asserted in the arbitration which had been the subject of the Partial Award, including the claims brought by Celloteck in its capacity as a shareholder in Klamath Falls. That is true, but we would attach no particular significance to this feature of the agreement. The releases were framed in comprehensive terms, no doubt in order to cover all eventualities, but it remained the position as between the parties that all of Celloteck’s shareholder claims had been dismissed by the Partial Award, which was final save in respect of the contractual issues which had been adjourned. The commercial substance of the settlement must therefore have related to the extant contractual claims under the Licence and Cooperation Agreements, and the bulk (if not the entirety) of the $5.1 million consideration paid by Klamath Falls must have been attributable to the settlement of those extant claims. The shareholder claims had already been finally disposed of, pursuant to the arbitration machinery chosen by the parties.

(e) Mr Gray’s liability to account for asset 1(a): the $3 million derived from the Klamath Falls Settlement

135. Asplin J found that there was a sufficient link between Mr Gray’s receipt of $3 million derived from the Klamath Falls Settlement and his breaches of fiduciary duty, for the reasons which she briefly gave in [Asplin/196]:

“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.”

136. Asplin J’s reasoning in this paragraph is rather compressed, but in the light of the relevant factors which we have discussed at greater length in this judgment, we consider that her conclusion was one which it was clearly open to her to reach.

137. We can dispose rapidly of an initial point. Mr Gray submits that Asplin J’s reference to RegEnersys I in this paragraph must have been a mistake, because the only RegEnersys entity which owned an interest in the Klamath Falls technology at the relevant time was Celloteck (then called RegEnersys Inc). Celloteck’s ownership of 10% of the shares in Klamath Falls gave it the ownership of an “interest” in the technology, whereas RegEnersys I had no more than the benefit of a non-exclusive contractual licence to exploit the technology, and of other contractual obligations contained in the Cooperation Agreement. Those contractual rights, says Mr Gray, cannot properly be described as giving rise to the ownership of an interest in the technology, so Asplin J must have intended to refer to Celloteck.

138. We are unable to accept this submission. It is clear to us, not least from the final sentence of [Asplin/196], that the judge intended to refer specifically to RegEnersys I in line with the procedure she had said she would adopt in [Asplin/11] of referring to all RegEnersys entities as “RegEnersys” only, unless it was material to refer to a specific RegEnersys entity. The presumption must therefore be that Asplin J’s reference to RegEnersys I was deliberate, which then prompts the question whether the contractual rights of RegEnersys I under the Licence and Cooperation Agreements could properly be described as the ownership of an interest in the Klamath Falls technology. In our view, there is no difficulty of either language or substance in so describing the commercial rights enjoyed by RegEnersys I under those two agreements. The rights were commercially valuable, and were capable of assignment. Furthermore, section 2.1 of the Licence Agreement (conveniently quoted in the Partial Award at paragraph 460) expressly gave RegEnersys I the “right to grant sub licences to Affiliates”. To describe these rights as ownership of an interest in the Klamath Falls technology seems to us an entirely normal use of language. It cannot begin to ground an inference that Asplin J was intending to refer to Celloteck’s ownership of a shareholding in Klamath Falls.

139. If further confirmation were needed that this is the correct interpretation of Asplin J’s language, it is provided by the fact that, as we have explained, Celloteck’s shareholder claims in the arbitration were all dismissed, leaving only the contractual claims of RegEnersys I as still extant when the Klamath Falls Settlement was entered into. In a very real sense, therefore, the settlement did involve the affirmation of the contractual rights of RegEnersys I under the Licence and Cooperation Agreements, because Klamath Falls agreed to pay $5.1 million at a time when those were the only remaining claims which could still be pursued in the arbitration. Accordingly, we conclude that there was a clear link between the receipt of the $5.1 million (which, we repeat, the judge found to be a receipt by Mr Gray personally) and the contractual rights in the Klamath Falls technology owned by RegEnersys I.

140. The final step in the analysis is that the receipt of the $5.1 million, to the extent that it was not used by Mr Gray to purchase shares in Klamath Falls, clearly fell outside the scope of the Klamath Falls exclusion in paragraph 2 of the Vos Order. As we have explained, the exclusion must be narrowly construed as referring only to amounts received by Mr Gray in respect of the purchase of a 10% shareholding in Klamath Falls, because that is the only conflict of interest to which Mr de Clare gave GEHC’s fully informed consent.

(f) Mr Gray’s liability to account for assets 1(d) and (e): the Russian Business Assets

141. Asplin J’s reasons for finding the necessary link between Mr Gray’s breaches of duty and his receipt of the Russian Business Assets are to be found in (Asplin/193-195], from which it is sufficient to quote the following:

“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. After 31 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.”

142. As we have already emphasised, this ground of appeal is predicated on the assumption that Asplin J was correct to find that the Russian Business Assets were in fact received by Mr Gray. Making that necessary assumption, it seems to us that the judge was again clearly entitled to find a sufficient connection with Mr Gray’s breaches of fiduciary duty.

143. In view of the conclusions we have reached in relation to Mr Gray’s receipt of the $5.1 million, we can state our conclusions in relation to the Russian Business Assets briefly. They too were derived, not from the shareholding of Celloteck in Klamath Falls, but rather from the business opportunity in respect of the ultrasound technology to which Mr Gray was introduced and to which GEHC (through Mr de Clare) had not given its informed consent. There is no appeal against Asplin J’s findings of fact in [Asplin/193], quoted above, which explain how that opportunity can be traced into Mr Gray’s indirect interests in Petrosound. That alone in our view establishes the existence of a sufficient link between Mr Gray’s breaches of duty and his receipt of the Russian Business Assets. In common with the $5.1 million, the receipt of those assets by Mr Gray clearly falls outside the scope of the Klamath Falls exclusion in the Vos Order. Furthermore, the fact that there may have been other contributory reasons for Mr Gray’s receipt of these assets is immaterial. He received them in the course of the unauthorised conduct which constituted his breach of fiduciary duty, and in the absence of informed consent he is liable to account for them under the strict rule which equity applies to defaulting fiduciaries.

(g) GEHC’s preliminary point: should Mr Gray be permitted to argue Ground 1 at all?

144. We have so far addressed the unamended Ground 1 on its merits. Our conclusion, subject to the proposed amendments which we have yet to consider, is that Mr Gray’s appeal on Ground 1 should be dismissed, for the reasons which we have given. For completeness, however, we should add that GEHC took a preliminary point that Mr Gray should not be permitted to argue Ground 1 at all, because (it is said) he did not run the argument at the Enquiry Hearing, but rather accepted that the relevant assets were (or at least might be) within the scope of the account.

145. In view of the conclusion which we have reached, we do not propose to deal with this preliminary objection at any length. We were referred to passages in Mr Gray’s closing submissions before Asplin J which, if read in isolation, do appear to provide some support for the submission that no separate point was taken before the judge that the assets fell outside the scope of the Vos Order, if it were once found that they were either received or should have been received by Mr Gray. We would be reluctant, however, to prevent Mr Gray from relying upon Ground 1 on the strength of those passages, which need to be read in the full context of the arguments that were then being advanced on each side. It would not be profitable to embark upon an examination of those arguments at this stage, particularly as GEHC accepts that Mr Gray did argue causation (or, as we would prefer to call it, the question of linkage) as a separate issue. Nor, in our view, is it helpful to draw a sharp distinction between that issue and the issue of the scope of the account, because there is a considerable degree of overlap between them. Although Ground 1 is headed “Failure to have regard to the scope of the liability to account”, the arguments relied upon by Mr Gray in support of the ground are in truth mainly arguments about linkage, with the exception of the question of construction of the Klamath Falls exclusion.

146. Finally, and in any event, we would if necessary have been willing to grant Mr Gray permission to rely on Ground 1, because GEHC has had ample notice of it, and essentially it raises issues of law and principle in relation to the judge’s treatment of the question of linkage on the basis of her findings of fact. GEHC does not suggest that it is prejudiced by having to meet the arguments, and although we have rejected them, we consider that they clearly merited our consideration.

(h) Mr Gray’s application to amend Ground 1

147. We now come to Mr Gray’s application to amend Ground 1, which forms part of his Application D. The proposed amendments are twofold:

(1) First, Mr Gray wishes to amend the existing wording of the ground in relation to the scope of the account ordered by Vos J, so as to state that the assets in question “result in whole or in part from the RegEnersys shareholding in Klamath Falls to which GEHC consented”, instead of the existing wording which says that they “result from the Klamath Falls settlement and the RegEnersys shareholding in Klamath Falls to which GEHC consented”.

(2) Secondly, Mr Gray wishes to add an alternative contention in this form:

“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.”

148. The purpose of the proposed amendments, as explained in Mr Gray’s skeleton argument in support of the application to amend, is to meet the possibility of our accepting (as we have) GEHC’s submissions as to what Asplin J meant when she referred at [Asplin/196] to “RegEnersys I’s rights as owner of the interest in the Klamath Falls technology”. On the footing that, contrary to Mr Gray’s primary submission which we have rejected, those words were not meant to refer to Celloteck’s shareholding in Klamath Falls, but rather referred only to RegEnersys I’s rights as licensee, then Mr Gray now wishes to argue (a) that it was not open to Asplin J to reach such a conclusion on the evidence before her, and (b) the correct approach, had Asplin J considered there to be a connection between the contractual claims of RegEnersys I and Celloteck’s receipt of the settlement monies, would have been to apportion the receipt as accurately as possible between the two companies. The addition of the words “in whole or in part” to Ground 1 is intended to pave the way for an apportionment argument, while the alternative contention added to the ground attacks the judge’s finding of fact that Mr Gray’s receipt of the relevant assets was connected only to the licence held by RegEnersys I.

149. It is convenient to take first the attack on Asplin J’s finding of fact in [Asplin/196], on the assumption that (as we have held) it was directed only to the contractual rights of RegEnersys I under the Licence and Cooperation Agreements. The proposed amendment avers that such a finding was inconsistent with the terms of the Klamath Falls Settlement, but in our view there is no inconsistency. To the contrary, as we have explained, the finding was fully in accord with the terms of the settlement, bearing in mind that the only live issues (apart from costs) after the Partial Award were contractual issues relating to the agreements. Furthermore, there was no direct connection between those rights vested in RegEnersys I and Celloteck’s shareholding in Klamath Falls, and it was only the latter which fell within the narrow scope of the Klamath Falls exclusion. Asplin J must have had the exclusion well in mind because she had expressly referred to it shortly before in [Asplin/194]. We therefore see no real possibility of a successful attack on Asplin J’s finding if it is given the interpretation which we would place upon it. At most, it might be said that there was also an indirect connection between the receipt of the $5.1 million and Celloteck’s shareholding, but that would not invalidate Asplin J’s approach or her conclusion, because the main operative link would still have been with the licence and other contractual rights held by RegEnersys I, all of which clearly fell outside the scope of the Klamath Falls exclusion.

150. Turning to the proposed apportionment argument, this is opposed by GEHC on the basis that it is an attempt to introduce an entirely new case which was not run by Mr Gray at trial. Mr Gray now puts forward two possible models of apportionment which he says would have been open to Asplin J on the documentary evidence before her. He submits that she should have adopted one or the other of them, or something similar. The first model would apportion the whole of the funds received under the Klamath Falls Settlement to Celloteck, on the footing that Celloteck acquired its 10% shareholding in Klamath Falls for a total consideration of approximately $21 million, whereas no monetary consideration was given by RegEnersys I when the Licence and Cooperation Agreements were later assigned to it. The second model would apportion the settlement monies between the shareholding and RegEnersys I’s non-exclusive licence in proportion to their respective values at the time of the settlement. It is suggested that a reasonable approach would be to apportion 80% to the shareholding and 20% to the licence.

151. Since no argument of this nature was ever addressed to Asplin J, GEHC submits that it is now far too late for this court to undertake such an exercise for the first time. If Mr Gray had sought to advance this argument at trial, GEHC says it is likely that it would have conducted its case on the evidence differently, whether through cross-examination of witnesses (such as Mr Kantor, who was heavily involved in the arbitration) or by obtaining different evidence, including further valuation evidence.

152. In our view, there is real force in GEHC’s objection. Quite apart from the very late stage at which the proposed amendment was introduced, only two months before the hearing of Mr Gray’s appeal from a judgment delivered as long ago as July 2015, we consider that GEHC might well have run its case differently at trial if it knew it had to face an argument of this nature. On well-established principles, it would normally be wrong to grant permission to amend in such circumstances: see, for example, the review of the relevant authorities by Snowden J (with whom Peter Jackson and Longmore LJJ agreed) in Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337, [2019] 4 WLR 146, at [21] to [28].

153. We therefore refuse permission to Mr Gray to make either of the proposed amendments to Ground 1. In relation to the challenge to Asplin J’s findings of fact, the amended contention would have no reasonable prospect of success. In relation to the proposed apportionment argument, it has been left far too late and, in any event, could not be run without unfairness to GEHC, which might well have conducted its case differently had it been a live issue at the Enquiry Hearing.

(i) Overall conclusion on Ground 1

154. For all these reasons, we conclude that Mr Gray’s appeal on Ground 1 must be dismissed.

IV. GROUND 2

(a) Introduction

155. Like Ground 1, Ground 2 is concerned with the existence of a sufficient link between assets received by Mr Gray for which he has been found liable to account and his breaches of fiduciary duty. The assets in question are the management and consultancy fees referred to in paragraphs 1(b) and (c) of the July 2015 Order, which Asplin J found and declared had been received by Mr Gray to the extent specified in those paragraphs “directly or indirectly as a result of the breaches of fiduciary duty set out in the [Vos Order]”.

156. Under paragraph 1(b) of the July 2015 Order, Mr Gray was ordered to account to GEHC for “£980,525.79 in respect of management fees paid to Mr Gray in respect of the period 2006 to 2009”. Under paragraph 1(c), he was ordered to account for “such portion of management fees paid to Mr Gray in respect of the period 2010 to October 2012 as has some causal link to his breaches of duty, to be determined using the formula expressed in paragraph 210 of the Judgment.” This portion was then agreed by the parties to amount to £692,841, as reflected in the January 2016 Order which was made by consent.

157. Ground 2 avers that:

“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.”

158. As we have explained under Ground 1, there was no dispute at the Enquiry Hearing about the nature of the link which had to be established. Nor is it now alleged that Asplin J misdirected herself in relation to the relevant test, although (as we have explained) we would prefer not to use the language of causation in this context. Accordingly, Mr Gray’s challenge under Ground 2 faces the obvious initial difficulty that it seeks to overturn an evaluative conclusion of fact by the trial judge, of a kind with which an appellate court should not normally interfere.

(b) The relevant fees

159. Reference should be made to our account of the facts for a general description of the fees with which Ground 2 is concerned, and the circumstances in which they were agreed between Mr Gray and Mr Heerema. In summary, the fees relate to two distinct and consecutive periods. The first period runs from March 2006, when Mr Gray agreed his remuneration package with Mr Heerema, until the end of 2009. The second period began in 2010, after Mr Heerema had placed a cap on the RegEnersys fund. This led to a renegotiation of Mr Gray’s remuneration for managing the fund, and his entitlement to an annual fee of 2% of the committed funds was replaced by a single consultancy fee of $10 million. This was spread over three years for tax reasons and was fully drawn down by October 2012.

160. In a little more detail, during the first period (2006 to 2009) Mr Gray, through his corporate vehicle (ReVysion), was entitled to an annual fee of 2% of the funds committed by or on behalf of Mr Heerema to the RegEnersys fund (initially $250 million, later increased by stages to $500 million). The amount of that fee was calculated as a straight percentage of the committed funds, regardless of whether or how they were actually invested. Thus it began as an annual fee of $5 million, and increased to an annual fee of $10 million when the amount of the committed funds had doubled. In addition, Mr Gray was in principle entitled, in his personal capacity, to a profit share of 20% based on his 20% participation in the limited partnership which owned the RegEnersys fund, but his share of profits would only become payable after payment of all expenses and liabilities, payment of a further annual sum of $5 million, and a preferred return to RegEnersys Inc of 6% of funds invested: see [Vos/191]. In practice, this threshold was never reached, so Mr Gray never received any equity return on his investment in the fund (with the possible exception of a sum of €3.5 million paid to him in 2009 as a “performance uplift” following the successful disposition of the fund’s investment in a North Sea gas field). Asplin J found, however, that this sum should be treated as part of his management fee for 2009: see [Asplin/187]).

161. As to the second period, the agreed lump sum fee of $10 million was equivalent to one year’s management fee after the committed funds had been increased to $500 million. This made commercial sense, because the fund was effectively in run off after Mr Heerema’s decision to impose a cap on further investments. Asplin J found that the $10 million consultancy fee “should be treated in the same way as the remainder of the management fees”: [Asplin/190]. In reaching this conclusion, against which there is no appeal, Asplin J accepted the evidence of Mr Pronk and Mr Heerema that “the fee was agreed in relation to Mr Gray’s continuing his work on the ultrasound technology as well as other investments remaining in the fund”, and rejected the evidence of Mr Gray’s accountant (Mr Ward) that the fee was paid under a separate consultancy agreement: ibid.

(c) The judge’s conclusions on “causation”

162. Asplin J discussed the issue of “causation” in relation to the management fees at [Asplin/197 to 211]. She prefaced her discussion, at [197], by saying that she found “the causal link to the entirety of the management fees from 2006 until 2009 and the “consultancy fee” from 2010 to 2012 more difficult”. After summarising the rival submissions on the issue, she concluded that the necessary link was established, but only to part, not the entirety, of the fees. As she said, at [Asplin/202 and 203]:

“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.”

163. The judge then considered the submissions on how that “part” of the management fees to 2009 should be calculated, saying at [205]:

She held that the calculation should be based on the full net amount of the fees for the first period, which she had found to amount, in sterling terms, to £9,457,797: see [Asplin/188].

164. Asplin J then held that a similar exercise had to be performed in relation to the $10 million “consultancy fee” for the second period. Having reviewed the expert evidence, she stated the methodology to be followed at [Asplin/210]:

“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.”

165. Various aspects of the judge’s reasoning in these paragraphs are challenged in subsequent grounds of appeal, but at this stage the important point to note is that the judge found the necessary link to be clearly established, not in relation to the fees as a whole, but rather in relation to a part of the fees which reflected (in broad terms) the extent to which the RegEnersys fund was invested from time to time in ultrasound investments. Asplin J also expressly held that those investment opportunities should include 90% of the sums which related to the Klamath Falls shareholding. It was the application of this methodology which led to the sums for which Mr Gray was ordered to account in paragraphs 1(b) and (c) of the July 2015 Order, as supplemented by the January 2016 Order.

(d) Mr Gray’s submissions

166. Mr Gray submits that Asplin J was wrong to find the necessary connection to be established, for three main reasons. First, the remuneration package agreed with Mr Gray in 2006 was concluded regardless of whether or not the RegEnersys fund invested in ultrasound technology, and before any such investment was undertaken. Mr Heerema asked Mr Gray to manage the funds before he even knew about the ultrasound technology or Mr Gray’s involvement in it. Secondly, Vos J made no order for Mr Gray to account for the management and consultancy fees, and his findings as to Mr Gray’s breaches of duty do not extend to Mr Gray’s conduct in managing the fund. Indeed, Vos J found that Mr de Clare always knew and understood that Mr Gray would be remunerated for doing so, although he did not know the details. Thirdly, in reaching her conclusion, Asplin J failed to take proper account of the abandonment by GEHC of a substantial part of its claim before the Enquiry Hearing.

167. GEHC’s original case had been that the RegEnersys fund was itself the SPV set up in order to exploit the ultrasound technology and/or the Acquisition Strategy, and that Mr Gray’s equity share in the fund was contingent upon his introducing the ultrasound technology to the Heerema Group. The consequence of that would be that all of the investments made by the fund were subject to Mr Gray’s obligation to account for breach of fiduciary duty. That case, however, was abandoned on 20 March 2015 in a letter from GEHC’s then solicitors to Mr Gray’s then solicitors. Once GEHC had abandoned its argument that Mr Gray’s role in the fund, which was the source of his entitlement to the fees, arose through his breach of fiduciary duty, there was no longer any proper basis (so it is said) for finding the fees and the breaches of fiduciary duty to be connected. In particular, it does not follow from the fact that Mr Gray’s work included advising on all of the investments that were in fact made (including ultrasound-related investments) that the management fees or any part of them were received as a result of Mr Gray’s breaches of fiduciary duty.

168. In oral argument, Mr Ahlquist concentrated most of his submissions on the second of the contentions which we have just outlined, so it will be convenient to consider it first.

(e) Do the fees fall within the scope of the Vos Order?

169. It is undoubtedly true that there is no express reference to the management or consultancy fees paid to Mr Gray in respect of the RegEnersys fund in the Vos Order. However, the declaration in paragraph 1(1) of the Vos Order is framed in very broad terms, as follows:

“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: -

This declaration was therefore founded on Mr Gray’s conduct in placing himself in a position of actual or potential conflict of interest, in breach of his fiduciary duty to GEHC, from 17 March 2006 onwards. He is liable to account to GEHC for all monies and benefits which he has received, directly or indirectly, as a consequence of those actions. The equitable principle here engaged is the obligation on a fiduciary not to place himself in a position of actual or potential conflict of interest when he owes an unqualified duty of loyalty to his principal. This obligation is quite separate from, and often anterior to, the operation of the so-called “no profit rule”, which is reflected in paragraph 1(2) of the Vos Order, and involved Mr Gray taking advantage of GEHC’s “maturing business opportunity… to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology”.

170. It is clear from the Liability Judgment that Mr Gray had already placed himself in a position of actual or potential conflict of interest with GEHC when he agreed his remuneration terms with Mr Heerema in March 2006. Vos J analysed the position at that date in an important passage which we need to set out in full:

“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’s 17th 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 on 17th 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 the 17th 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 to 17th 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. After 17th 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.”

171. It seems to us to follow from this analysis that the remuneration arrangements made in March 2006, including the 2% annual management fee, gave rise to an immediate actual conflict between Mr Gray’s personal interests and his duty to GEHC. The three problems identified by Vos J in [462] were then unavoidably engaged, and a duty to account might in principle arise as soon as any investments were made by the fund pursuant to the Acquisition Strategy. Furthermore, we think it would be a misreading of this passage in the judgment of Vos J to confine the duty to account to any profit share which might ultimately be obtained by Mr Gray from his 20% equity interest in the fund. On the contrary, we see no reason why an appropriate proportion of the annual management fee should not also have become subject to the liability to account, once investments were actually made pursuant to the Acquisition Strategy, and once time and resources were devoted by Mr Gray and his staff to considering the making of such investments. The remuneration package formed a single, indivisible whole, and Mr Gray was (as we have said) in a position of actual conflict of interest, on Vos J’s findings, from 17 March 2006 onwards. Accordingly, any aspect of his remuneration which was derived, directly or indirectly, from the inclusion of ultrasound-related investments in the fund was in our view potentially within the scope of his liability to account from that date onwards, and falls squarely within the terms of paragraph 1(1) of the Vos Order.

172. We are not deflected from this conclusion by a subsequent passage in the Liability Judgment where, at [512], Vos J described one of the breaches that he found to have been established in these terms:

“(ii) From 17th 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.”

It is true that the focus, in this brief summary, was on Mr Gray’s entitlement to be paid a share of profits, but this was clearly not intended by the judge to be an exhaustive statement of the profits for which Mr Gray might ultimately be liable to account as a result of the conflict of interest which Vos J had identified. The issue which Vos J was considering, in this penultimate section of his lengthy judgment, was whether GEHC needed to show that it had suffered loss in order to move on to the next stage of the split trial, i.e. the Enquiry Hearing. For that limited purpose, it was enough for Vos J to summarise his main conclusions on liability. He was fully aware that he was in no position to rule definitively on all the profits for which Mr Gray might be liable to account, assuming liability in principle to have been established. As Vos J said, at [516]:

“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.”

173. To conclude, therefore, we consider that on a fair reading of the Liability Judgment as a whole there is no support for Mr Gray’s submission that the fees paid to Mr Gray for his management of the RegEnersys fund, both before and after 2009, are excluded in their entirety from the liability to account under the Vos Order. Our conclusion is reinforced by a further point. If Vos J had intended to exclude the fees in their entirety from the scope of his order, one would expect him to have said so expressly, and to have included in the order an exclusion analogous to the Klamath Falls exclusion which we have considered under Ground 1.

(f) Mr Gray’s other arguments

174. We can now deal more briefly with the two remaining arguments advanced by Mr Gray in support of Ground 2.

175. The first argument was that the management fees until 2009 bore no relation to Mr Gray’s breaches of duty, because they represented a simple percentage of the committed funds. We agree with Mr de Mestre that there is nothing in this point. The fact that the fee was calculated on this basis does not, in itself, answer the question whether some part of the fee may be referable to Mr Gray’s breach of duty. As the Liability Judgment makes clear, Mr Gray was in a position of actual conflict of interest from the date when his remuneration was first agreed. The fees which he then received were in principle capable of relating to his breach of duty once the RegEnersys fund included ultrasound-related investments, or the making of such investments was under active consideration, because the making and review of such investments embodied the very conflict of interest which Vos J had identified. That was sufficient to establish the necessary link, and in our view Asplin J was clearly entitled to evaluate the evidence on this point and reach the conclusion that she did.

(g) Conclusion on Ground 2

177. For these reasons, we would also dismiss Mr Gray’s appeal on Ground 2.

V. GROUNDS 3A.1 AND 3A.2

178. Grounds 3A.1 and 3A.2 proceed on the footing that (as we have held) Ground 2 fails. They seek to raise two separate arguments about the computation of the fee for which Mr Gray is liable to account. Ground 3A.1 concerns the deduction of allowable expenses from the renegotiated single consultancy fee of $10 million agreed between Mr Heerema and Mr Gray in 2010 when the RegEnersys fund was capped. Ground 3A.2 concerns one aspect of the formula used by Asplin J to calculate the appropriate percentage of the annual management fees paid to ReVysion between 2006 and 2009 for which Mr Gray should be held accountable.

179. Mr Gray does not have permission to pursue either of these grounds. They replace the original Ground 3, which related only to the $10 million consultancy fee, and which contended that Asplin J was wrong to calculate the profit received by Mr Gray in respect of that amount by reference to the gross fees received by ReVysion without taking account of ReVysion’s associated expenses in earning them (as the judge had correctly done in calculating the net management fees received by Mr Gray for the earlier period). GEHC’s response to Ground 3, in its respondent’s skeleton argument dated 18 December 2019, made it clear that the ground, as originally formulated, had been founded on a misconception. The methodology laid down by the judge for calculating the portion of the $10 million for which Mr Gray was liable to account did indeed provide for the deduction of expenses properly incurred in earning the fee, with the exception of money spent on or in relation to the present litigation which Mr Gray’s own expert, Mr MacGregor, had rightly excluded from the calculation on the basis that such expenditure should not be treated as part of the costs incurred by Mr Gray in advising on and managing the RegEnersys fund.

180. In those circumstances, Mr Gray abandoned his original Ground 3 and belatedly sought permission, by Application D, to replace it with Grounds 3A.1 and 3A.2. This application is opposed by GEHC, on the basis that the new grounds are too late and ought not to be permitted. As to Ground 3A.1, GEHC submits that the application should have been made within a short period after Mr Gray had received GEHC’s respondent’s skeleton argument, and should not have been left for the period of nearly four and a half months between 18 December 2019 and 28 April 2020 when Application D was issued. That objection applies with even greater force, it is said, to Ground 3A.2, because (unlike the original Ground 3) it does not relate to the $10 million consultancy fee at all, but to the earlier annual management fees. There is nothing in the evidence in support of the application to explain why this ground was not included in the original grounds of appeal, or why no attempt was made to introduce it by way of amendment before the end of April 2020.

181. There is considerable force in these objections, but on balance we consider that permission should be granted to Mr Gray to rely on these two new grounds. They raise two short points of principle, which can clearly be addressed on the basis of the evidence and arguments adduced at the Enquiry Hearing. As will become clear, we consider that the merits of each ground are sufficiently strong to pass the threshold for the grant of permission to amend; and although the application to amend should have been made earlier than it was, it is not suggested that there is any real unfairness to GEHC in having to deal with the new grounds. Each of them raises a short point, which could be, and was, treated with reasonable brevity on each side in both written and oral submissions. Subject to issues of costs, which we will have to address in due course, we think it would be disproportionate to refuse Mr Gray permission to advance these arguments.

182. We will therefore now consider the two grounds on their merits.

(a) Ground 3A.1

183. The short point which lies at the heart of Ground 3A.1 is the cut off point in October 2012 which Asplin J imposed for the deduction of expenses referable to the $10 million consultancy fee. We have already set out the relevant paragraph in her judgment ([Asplin/210]) in the context of Ground 2, but for convenience we will repeat the crucial sentence:

“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.”

The relevance of October 2012 is that this was the date by which the $10 million had been drawn down in full. It is common ground that the timing of the drawdown of the $10 million was left for Mr Gray to determine to suit his own convenience, and that it was taken by him over three years for tax reasons: see [Asplin/190]. In that paragraph (as we have already noted) the judge accepted the evidence of Mr Pronk and Mr Heerema that “the fee was agreed in relation to Mr Gray’s continuing his work on the ultrasound technology as well as other investments remaining in the fund” and rejected the evidence of Mr Ward that it was paid under a separate consultancy agreement. It was this finding that grounded the judge’s conclusion, which is not appealed, that the $10 million “should be treated in the same way as the remainder of the management fees”.

184. The difficulty, however, is that Asplin J nowhere explains why, or on what basis, the cut off date for the deduction of associated expenditure should coincide with the date on which the drawdown of the fee was completed. The fee was in principle capable of being paid in advance. Indeed, Mr Gray could have demanded payment of the entire $10 million in 2010, and on the judge’s findings it was only for tax reasons that he chose to spread the receipt over three years. But if the work which he was paid to perform in return for the fee continued thereafter, there is no logical reason why relevant expenditure incurred by Mr Gray in relation to that work should not have continued to be deductible in ascertaining his net profit. The judge appears to have treated it as axiomatic that the date of final drawdown should also have marked the end of the period of permissible deductions. With respect to the judge, however, we consider that this approach was mistaken. The correct approach, in principle, would have been to ascertain the full period over which the work referable to the consultancy fee was performed, both before and after October 2012, and to permit the deduction of expenditure properly referable to that work by the application of generally accepted accountancy principles. If there was a particular reason why the deductibility of expenditure should cease on the same date as the fee was finally drawn down in full, the judge needed to articulate what that reason was, and to explain why it should override normal principles of commercial accounting. But she did not do so, and her reasoning on the issue does not really extend beyond the single sentence which we have quoted from [Asplin/210].

185. At this point, we need to say a little more about the rather confusing evidence before the judge on the legal basis of the consultancy fee. It clearly formed part of the renegotiated terms agreed between Mr Gray and Mr Heerema following the latter’s decision, apparently finalised in February 2010, to cap the RegEnersys fund and place it in run off. The general nature of the new arrangement was recorded in an email from Mr Gray to Mr Pronk on 7 April 2010. As the judge recorded, at [Asplin/76]:

“In fact, the structure of the fund going forwards was set out in an email from Mr Gray to Mr Pronk of 7 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.

…”

186. As Rose LJ pointed out in the course of argument, the general effect of these new arrangements was to incentivise Mr Gray, by providing him with an increased share in profits derived from investments in the RegEnersys fund, while reducing his remuneration for managing the fund to the single sum of $10 million, which would otherwise have been payable to him as the annual management fee for 2010. This was the fee which was then spread over 3 years for tax purposes.

187. We were shown, as was Asplin J, a written agreement apparently concluded at some time in 2011 (the date is left blank, although the year is given) between a Heerema company called Heerema Holding Construction Panama Inc (“HHC”) and ReVysion. It was signed by Mr Pronk on behalf of HHC and by Mr Gray on behalf of ReVysion. Under the terms of this agreement, ReVysion undertook to supply to HHC “such strategic and advisory consultancy services as may be reasonably required and directed by the Board of [HHC] from time to time”, and to procure that Mr Gray should provide those services to HHC, in return for a payment of $8.65 million “which may be invoiced by [ReVysion] at any time according to [ReVysion’s] wishes and not on a time basis.” It was further provided that Mr Gray and ReVysion should not be entitled to reimbursement for any expenses or other costs of any nature, which mirrored the position under the previous arrangements in place between 2006 and 2009. The term of the agreement was 36 months from the Effective Date, defined on the first page as “the date of this Agreement as set out above”, or (if earlier) the expiry of at least three months’ written notice of termination given by either party to the other, or such other termination date as they might otherwise agree in writing.

188. Since the date of the agreement was left blank, there clearly remains a real doubt whether it ever came into force. The judge did not resolve this doubt, nor, on behalf of Mr Gray, did Mr Ahlquist ask us to do so. But we think we can safely conclude, on the basis of the judge’s findings, that an agreement in these or similar terms must have been made between a Heerema entity and Mr Gray in relation to the $10 million consultancy fee, because it is common ground that payment of the fee was spread over three years for tax reasons, and there is no suggestion that the spreading of the fee in this way was a sham. Thus, even though the essential nature of the fee was the same as that of the annual fee payable before 2010, it was payable in respect of a three year period which began at some point in 2011, and also related back to work which had already been done by Mr Gray in 2010. We note in this connection that it was common ground before the judge that the stated consideration of $8.65 million in the written agreement reflected the fact that $1.35 million had already been drawn down by Mr Gray from the full consultancy fee of $10 million.

189. Importantly, this was also the basis upon which the consultancy fee was treated in the accounts of ReVysion. Those accounts were not included in our bundles, but we were told that there is no dispute that Mr MacGregor correctly reflected the content of the accounts in the relevant passage of his first report dated 6 February 2015. In paragraph 5.25 of that report, Mr MacGregor recorded his understanding, from Mr Ward’s third witness statement, “that the $10 million consultancy fee was included in the financial statements of ReVysion in the years ended 31 March 2011 to 2014”. In other words, the receipt was spread over the four financial years for which ReVysion drew up its accounts from 1 April 2010 to 31 March 2014.

190. Mr MacGregor went on to state, in paragraph 5.26:

“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].”

Mr MacGregor then reviewed the relevant expenses, and explained why in his view legal expenses should be excluded. In sterling terms, he concluded that net expenses of £6,440,498 fell to be deducted, over the full four year period, from the consultancy fee of £6,696,653, leaving a positive balance of £256,155. (Mr MacGregor also considered that an allowance should be made for Mr Gray’s time and skill in the sum of £4 million, a point to which we will need to return under Ground 5 below).

191. When Asplin J decided that October 2012 should be the cut off date for deductions, Mr MacGregor was directed to recalculate the net amount of the 2010 consultancy fee. He did this in a further report dated 18 September 2015, concluding that the relevant expenses incurred in the period from 1 April 2012 to 10 October 2012 were £2,479,612, and when this figure was added to the expenses for the years ended 31 March 2011 and 2012, the net income from the $10 million consultancy fee was £1,575,678.

192. In our view, there is no principled basis for the cut-off date for expenses adopted by Asplin J, and the appropriate methodology is that adopted by Mr MacGregor in his first report, in the sense that the net amount of the consultancy fee should be calculated by deducting associated expenditure as shown in the accounts of ReVysion down to 31 March 2014, but excluding any deduction in respect of legal expenditure on the current litigation. Mr Ahlquist does not submit that any deduction should be made for expenditure after 31 March 2014. It is also now common ground that the calculations in Mr MacGregor’s first report failed to allow for the exclusion of a further sum of $714,799 for legal expenses: see [Asplin/209].

193. Although we received some submissions on the figures, we do not consider that we have sufficient material to translate Mr Gray’s success on this question of principle into a revised figure for the net amount of the consultancy fee. We hope, however, that the parties will now be able to agree the amount of the net consultancy fee in the light of our decision on the issue of principle. The amount for which Mr Gray is liable to account will then be ascertained by applying to that net figure the appropriate percentage which relates to the ultrasound technology. That percentage falls to be ascertained by application of the formula in [Asplin/210], and as we understand it was agreed for the purposes of the post-2010 calculation to be 39.88% (rounded to 2 decimal places): see Mr MacGregor’s report of 18 September 2015 at paragraphs 2.19 to 2.21. We do not understand it to be suggested that this percentage is affected by Ground 3A.2, to which we now turn.

(b) Ground 3A.2

194. We have already described the approach which Asplin J adopted in ascertaining the proportion of the management fees to 2009 which had the necessary connection to Mr Gray’s breaches of duty. She dealt with this issue at [Asplin/203 to 205] and referred to a schedule which Mr Gray’s then leading counsel, Mr Cavender, had appended to his closing submissions (“Schedule A”). To recapitulate, the critical part of [Asplin/205] reads as follows:

“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.”

195. We can begin by clearing away some points which are no longer in issue. First, it is now agreed that the calculation should be based on the full amount of the actual management fees received by Mr Gray between 2006 and 2009, after deduction of expenses. This net figure amounted to £9,457,797. Secondly, it is agreed that Asplin J’s reference to “the fund as a whole” in the passage from [205] which we have quoted should be read as a reference to the full amount of the net fees, or in other words the same amount of £9,457,797. That is the fund which needs to be apportioned. Thirdly, it is also now agreed that the numerator of the apportionment fraction to be applied to the net fees received in each year comprises (a) the amount of ultrasound-related investments comprised in the RegEnersys fund during the year (based on the amount invested rather that its fluctuating value from time to time) plus (b) 90% of the investments relating to the Klamath Falls shareholding, as shown on Schedule A (although without the 10% deduction).

196. The single issue which now divides the parties concerns the denominator of the apportionment fraction. In general, it was in the interests of Mr Gray to argue that the denominator (or Amount B as it was conveniently called) should be as large as possible, thereby reducing the amount of the proportion of the fees for which he would be liable to account. Conversely, it was in the interests of GEHC to argue for the smallest possible Amount B, because that would maximise the amount for which Mr Gray had to account. Three options were canvassed before the judge, and two of them are reflected in Schedule A (which, as we have said, was submitted on behalf of Mr Gray). Mr Gray’s primary case was that Amount B should be taken as the full amount of the committed funds under management during each year, whether or not those funds had been invested. The obvious point in favour of this option was the fact that the annual management fee itself was calculated by reference to the amount of committed funds, regardless of their state of investment. At the other extreme, GEHC contended that Amount B should be taken as comprising the total sums actually invested by the RegEnersys fund, ignoring any funds which had been committed but not yet invested in any projects. The main argument for this approach was that it concentrated on the investments actually made as a result of Mr Gray’s management of the fund. It was, however, open to the objection that it took no account of the work which had to be done in evaluating and choosing between possible investments, which forms a substantial part of the work of any active fund manager. Accordingly, the intermediate option, and Mr Gray’s fall-back position, was that Amount B should comprise the funds actually invested but with the addition of a notional amount to reflect the work done by Mr Gray and ReVysion in considering potential investment opportunities, even though they might ultimately be rejected. This notional amount was shown on Schedule A as an inevitably arbitrary amount of $100 million. In his oral closing submissions to Asplin J, Mr Cavender described this figure as “just a stab in the dark” or “an educated guess”.

197. Asplin J decided on the middle option, and treated Amount B as comprising the funds actually invested plus a notional amount of $100 million to represent investment opportunities not taken. The relevant words in [Asplin/205], although this may not be immediately apparent from the judge’s rather compressed language, are “ultrasound invested funds and investment opportunities … in Mr Cavender’s Schedule A, over the relevant period.” The resulting calculations are then helpfully set out in a table which formed part of GEHC’s skeleton argument for the hearing on consequential matters in July 2015. The apportionment percentages for the four relevant years were: zero for 2006 (because no ultrasound-related investments had yet been made, nor had the 10% shareholding in Klamath Falls been acquired); 9.7% in 2007; 16.3% in 2008; and 15.5% in 2009. These figures yielded a mean percentage of 10.367% (to three decimal places) which, applied to the total net management fee of £9,457,797, produced the judgment sum of £980,526. By contrast, if Amount B had been taken as the total committed funds, the mean percentage would have been 4.3% and the sum for which Mr Gray was obliged to account would have been £400,525. It follows that approximately £580,000 (before interest) turns on this issue.

198. Mr Ahlquist submitted for Mr Gray that Asplin J had erred in principle by adopting the intermediate option for Amount B, and she ought to have accepted Mr Gray’s primary submission that Amount B should be the committed funds. He emphasises that the exercise upon which the court was engaged is not a discretionary one, but rather goes to the correct ascertainment of the amount for which Mr Gray is liable to account for his breaches of duty. The only amount that can rationally be taken for Amount B, submits Mr Ahlquist, is the committed funds, because they provided the measure of the annual management fees themselves. Although he put the argument in a number of slightly different ways during his oral submissions, this was in substance the single point to which he returned on each occasion. Because that was the contractual basis on which the fees were paid, it should also be used in calculating the apportionment percentage. He was also inclined to accept that, if Asplin J could not be shown to have erred in principle in choosing the middle option, then the use of an indicative sum to represent investment opportunities was probably the best that could be done in the circumstances. This was in our view a realistic concession, bearing in mind that the intermediate solution adopted by the judge had been put forward by Mr Gray’s own counsel, albeit not as his primary submission.

199. On behalf of GEHC, Mr de Mestre argued that no question of law or principle was involved, and the judge had come to an evaluative conclusion, in the light of all the evidence before her, with which this court should not interfere. He said Mr Gray’s argument was based on the fallacy that the degree of connection must be capable of ascertainment by the application of a rigid formula, whereas there is no actual legal principle which dictates how the calculation should be performed or whether committed funds should be the denominator figure. The court is looking for the appropriate degree of connection in the light of the evidence before the court. It is not searching for a single magic formula which will produce the right result. Mr de Mestre also emphasised that the intermediate solution adopted by the judge did involve a substantial recognition of Mr Gray’s point that allowance should be made for work done by him and ReVysion on investment opportunities which never materialised.

200. We agree with Mr de Mestre. In our judgment, no question of legal principle is involved, and the judge cannot fairly be criticised for proceeding as she did. In an ideal world, she might have explained her process of reasoning rather more fully, but the language of [Asplin/205] shows that she rightly recognised the evaluative nature of the exercise she had to perform. She thought that the 34% allocation produced by GEHC’s arguments would be “too broad a brush”, whereas the “minimal percentages” produced by Mr Gray’s primary argument were “too meagre”. Accordingly, an intermediate position should be adopted; and the obvious candidate for that was the fall-back argument advanced by Mr Gray himself. This also reasonably reflects the amount of work undertaken by Mr Gray in each year; although his fee was calculated by reference to the amount of committed funds, it was paid in return for the work he actually undertook. We remind ourselves that the judge had the advantage, denied to us, of hearing all the evidence and arguments deployed over the course of a five week trial. Her conclusions on this issue may have been briefly expressed, but we remain unpersuaded that they reveal any error of law or principle.

201. We would therefore dismiss this ground of appeal.

VI. GROUND 4

202. As originally formulated, Ground 4 was a general complaint that Asplin J had failed to consider the total sums invested by Mr Gray in the ultrasound technology, and had wrongly held Mr Gray liable to account for the gross sums received by him and/or RegEnersys rather than the net profits or other benefits received by Mr Gray from the investment. As we have already explained, this general complaint was to some extent based on the same misapprehension as underlay the original Ground 3. Asplin J was well aware of the distinction between a gross receipt and a net profit, and it is not plausible to suppose that she lost sight of it when determining the amount for which Mr Gray was liable to account. Instead, by the date of the hearing before us, Ground 4 had dwindled into two miscellaneous and unconnected points, on which very little time was spent by either side in oral argument. We can be equally brief in our treatment of them, because neither of them is now a live issue.

203. The first point concerns an agreed schedule of payments made to the Russian Scientists by Mr Gray’s entity, ReVysion. The total amount of these payments was $447,000. In fact, as Mr Ahlquist was able to demonstrate, this was an arithmetical error for $697,000. Nothing turns on this, however, because Mr Ahlquist was content to accept that the payments had been taken into account as deductions from the $10 million consultancy fee agreed with Mr Gray in 2010. Accordingly, the point would only be a live one if Mr Gray had succeeded on Ground 2, with the consequence that the $10 million fee fell outside his liability to account altogether. In those circumstances, the question would have arisen whether the payments made by Mr Gray to the Russian Scientists should be taken into account in some other, and if so what, manner. As it is, however, we will dismiss Mr Gray’s appeal on Ground 2, so the question does not arise.

204. The second point relates to the total sum of $28 million invested by RegEnersys in ultrasound technology. There was no suggestion that any part of this investment should have been treated as a deduction in computing the net fees received as profit by Mr Gray. Mr Dutton expressly confirmed as much in response to a question from us during oral argument. The contention was, rather, that account should be taken, in some fashion, of this investment if GEHC were to succeed in its appeal against the refusal by Arnold J to order a transfer of assets in specie by Mr Gray to GEHC. Quite how such account would or should be taken remains wholly obscure to us, and was not explored in argument. But the question remains purely academic, because (as we shall in due course explain) GEHC’s appeal will be dismissed on this issue.

205. Since neither of the points raised under Ground 4 needs to be determined, it is also unnecessary for us to rule on the question whether Mr Gray should be permitted to advance them at all, on the basis that they are new points which were not argued below. The question does not arise, so we prefer to leave it open.

206. For these short reasons, we would dismiss Ground 4.

VII. GROUND 5

(a) Introduction

207. Ground 5 says that:

“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.”

Accordingly, the issue raised by Ground 5 is whether Asplin J erred in refusing to grant Mr Gray an equitable allowance for the work which he performed over the period of approximately seven years between 2006 and 2012 in procuring the receipts of money and other benefits in respect of which he is liable to account to GEHC.

208. Asplin J dealt with this issue comparatively briefly, at [Asplin/212 and 213]. She reasoned as follows:

“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.”

209. As Asplin J correctly observed, the jurisdiction to make an equitable allowance of this nature in favour of a defaulting fiduciary is now well established, but it should be exercised only in exceptional circumstances. The reference to “exceptional circumstances” comes from the speech of Lord Templeman in Guinness plc v Saunders, with which Lords Keith of Kinkel, Brandon of Oakbrook and Griffiths agreed; Lord Goff of Chieveley delivered a concurring speech. Lord Templeman said this, at 693-4:

“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 AC 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.”

210. Boardman v Phipps was therefore a case in which the full rigour of the equitable rules on breach of fiduciary duty might well be regarded as operating harshly, and the profit which thereby accrued to the trust estate was “undeserved”. Indeed, the House of Lords had been split three to two on the question of whether there was a breach of fiduciary duty at all. One of those in the majority, Lord Cohen, emphasised at 104 that the integrity of the appellants (i.e. Mr Boardman and the purchasing beneficiary) was not in doubt:

“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.”

Those circumstances had fully justified the trial judge, Wilberforce J, in ordering an allowance to be made to the appellants in respect of their work and skill in obtaining the shares and the resulting profits “on a liberal scale”.

211. In his concurring speech in Guinness plc v Saunders, Lord Goff provided an illuminating analysis of the policy which underlies the strict rule of equity which requires a defaulting fiduciary to account for a profit made in a situation of conflict of interest: see [1990] 2 AC 663 at 700-702. Before coming to that, we note that Lord Goff also clearly agreed with the other members of the court that the discretion to make an equitable allowance should be exercised sparingly. As he said, at 700D (with our emphasis):

“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.”

212. After referring to the facts of Boardman v Phipps, and the view of Wilberforce J that “it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it”, Lord Goff continued, at 701C:

“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.”

213. Lord Goff’s statement of the policy underlying the rule was formulated in relation to trustees, but it is common ground that the same policy applies, mutatis mutandis, to the breaches of fiduciary duty by Mr Gray with which we are concerned.

214. We were also referred to the decision of this court in O’Sullivan v Management Agency Limited [1985] QB 428, where the question of an allowance arose in the context of agreements made by a young musician with his manager which were set aside on grounds of restraint of trade and undue influence. It was held that the defendants should account for their profits, but credit should be given to them for their skill and labour in promoting the plaintiff and making a significant contribution to his success. The defendants were accordingly entitled to a reasonable remuneration including a small profit element, but one that was considerably less than they would have received if the plaintiff had obtained independent advice before entering into the relevant agreements. It was in that context that the court had to consider what orders should be made, as a matter of practical justice between the parties, when the agreements were set aside, and whether an allowance should be made to the defendants by analogy with the equitable principles applicable to the retention of benefits by fiduciaries.

215. As Fox LJ observed, at 467B:

“The rules of equity against the retention of benefits by fiduciaries have been applied with severity.”

He then referred to Boardman v Phipps, and quoted from the judgment of Lord Denning MR in the Court of Appeal which included this passage ([1965] Ch. 992 at 1020):

“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.”

216. Fox LJ then referred to the observations of Lord Cohen and Lord Hodson in the House of Lords, agreeing with Wilberforce J that the allowance should be made on a “liberal scale”, and continued, at 467H:

“These latter observations (and those of Lord Denning MR and the judgment of Wilberforce J at first instance) accept the existence of a power in the court to make an allowance to the fiduciary. And I think it is clearly necessary that such a power should exist. Substantial injustice may result without it. A hard and fast rule that the beneficiary can demand the whole profit without an allowance for the work without which it could not have been created is unduly severe. Nor do I think that the principle is only applicable in cases where the personal conduct of the fiduciary cannot be criticised. I think the justice of the individual case must be considered on the facts of that case. Accordingly, where there has been dishonesty or surreptitious dealing or other improper conduct then, as indicated by Lord Denning MR, it might be appropriate to refuse relief; but that will depend upon the circumstances.”

“Although equity looks at the advantage gained by the wrongdoer rather than the loss to the victim, the cases show that in assessing the advantage gained the court will look at the whole situation in the round.”

(b) The claim for an equitable allowance as presented to Asplin J

218. With the benefit of this guidance from the case law, we must now examine how Mr Gray’s claim for an equitable allowance was presented to Asplin J. His pleaded case included unquantified contentions that he should be granted an allowance on an asset by asset basis, in the event that he was found liable to account for those assets. In our view that was in principle the correct approach. Strictly speaking, the question needed to be considered separately in relation to each receipt of an asset or profit for which Mr Gray was held liable to account. Thus, for example, the very extensive work done by him and his team in relation to the Klamath Falls arbitration should be reflected in a deduction from the $5.1 million received by Mr Gray under the Klamath Falls Settlement, if the court considered that an equitable allowance should be made to Mr Gray in respect of that work. Similarly, work done by Mr Gray in maintaining and fostering links with the Russian Scientists would in principle give rise to an allowance to be set against Mr Gray’s receipt of the Russian Business Assets, again assuming in Mr Gray’s favour that the court considered it appropriate to award him an allowance in respect of that work.

219. In practice, however, a different approach was adopted at the Enquiry Hearing. This no doubt reflected the fact that Mr Gray denied that he was liable to account for any of the assets or profits claimed by GEHC, whereas he had unquestionably been in receipt (through ReVysion) of substantial fees for his management of the RegEnersys fund between 2006 and 2012. In relation to those fees, it was anyway necessary to compute the expenses that should properly be deducted from them in arriving at the net profit received by Mr Gray. The question of an equitable allowance could therefore conveniently be dealt with, throughout the relevant period, by means of a further allowance reflecting the value of Mr Gray’s services as (in effect) the chief executive officer (“CEO”) of ReVysion. We note in this connection that it is agreed Mr Gray did not pay himself a salary: see [Asplin/212]. In this way, it was presumably thought that a further deduction from the net fee income of amounts equivalent to a suitable annual salary for Mr Gray could serve as an appropriate proxy for the grant to him of an equitable allowance.

220. At any rate, whether or not that was the thinking, this was the approach adopted by Mr MacGregor in his expert evidence on behalf of Mr Gray. In paragraph 5.21 of his first report, Mr MacGregor said this:

“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.”

Mr MacGregor then applied this methodology to the management fees for the four calendar years from 2006 to 2009 inclusive, deducting an allowance for Mr Gray’s time and skill of £4 million, as well as net expenses, before arriving at the net benefit received by him from the management fees during that period.

221. Mr MacGregor then adopted the same approach in relation to the $10 million consultancy fee, which (as we have already explained) was included in the financial statements of ReVysion for the (financial) years ended 31 March 2011 to 2014. As Mr MacGregor explained, at paragraph 5.28, after computing the expenses that should be deducted from the consultancy fee over the four year period:

“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 ended 31 March 2014, I consider the amount that should be deducted is £4 million.”

222. Accordingly, the total allowance sought by Mr Gray was £8 million, at a rate of £1 million per annum over the years 2007 to 2014 inclusive. Indeed, the effect of Mr MacGregor’s methodology was to eliminate any benefit arising to Mr Gray from the $10 million consultancy fee, because after deduction of net expenses and the £4 million allowance the outcome of the calculation was a (negative) net cost suffered by Mr Gray of no less than £3,743,845.

223. In Mr Gray’s written closing submissions at the Enquiry Hearing, the question of “just allowance” was dealt with comparatively briefly. The relevant legal principles were discussed at paragraphs 140 to 149, where it was correctly accepted that the grant of an allowance for the skill and efforts of a defaulting fiduciary is discretionary, and its exercise depends on all the circumstances. In paragraph 149, the point was also made that there is nothing discretionary about the deduction of expenses incurred in obtaining profits. The allowance for which Mr Gray contended then was dealt with at paragraphs 488 to 493. Reliance was placed on the submission that Mr Gray had “acted as effective CEO of ReVysion, working full-time for it since its inception”, and that, prior to the establishment of ReVysion, Mr Gray “took steps to set up and manage what was to become RegEnersys from about April 2006”.

224. The submissions continued:

“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 until 31 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 to 31 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.”

225. There was then a final contention, in paragraph 493, that if Mr Gray were found liable to account for any other money or benefit received by him as a result of his breaches of fiduciary duty, a just allowance should be made:

“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;

226. It can therefore be seen that, although a fall-back claim was made for an equitable allowance on an asset-by-asset basis, the evidential basis for any such claim was in practice confined to the matters relied upon in Mr MacGregor’s analysis and Mr Ward’s evidence.

227. The relevant passage in Mr Ward’s first witness statement stated his belief that the cost to ReVysion of paying “market compensation if it had brought in a professional CEO to undertake the management of the business which Mr Gray was carrying out” would have been in the region of £1 million annually including bonus and benefits. Mr Ward was cross-examined on this evidence, and Asplin J was unimpressed by it: see her comments in [Asplin/212 and 213], quoted above.

(c) Did Asplin J misdirect herself on the law?

228. In oral argument, Mr Dutton (who argued this part of the case for Mr Gray) submitted that Asplin J misunderstood the relationship between the deduction of expenses in the calculation of profit, on the one hand, and the making of an equitable allowance to Mr Gray, on the other hand, wrongly taking the view that both were discretionary, or even that they were alternatives. The consequence was, it was said, that her whole approach to the making of an equitable allowance in [Asplin/212 and 213] was vitiated by her misapprehension and could not stand. This argument was unheralded in Mr Gray’s skeleton argument, but we will consider it on its merits. Mr Dutton relied on three passages in the judgment to provide support for the submission.

229. The first passage is in [Asplin/130] where the judge said:

“It is not in dispute that the court may allow the deduction of expenses incurred by the fiduciary in achieving an unauthorised profit or grant the fiduciary an equitable allowance in respect of the skill and effort in obtaining the profit. Both are in the discretion of the Court: Condliffe and Another v Sheingold [2007] EWCA Civ 1043; [2008] L.L.R. 44 at [23] per Arden LJ and Murad v Al Saraj [2005] EWCA Civ 959 per Arden LJ.”

230. The difficulty with this passage is that, while purporting to record common ground, it wrongly stated that the deduction of expenses incurred in the making of an unauthorised profit is a matter for the discretion of the court, rather than a necessary step in the ascertainment of the profit. The words “may allow” and “in the discretion of the court” seem to leave no room for ambiguity on this point. Furthermore, Mr Dutton submitted, the word “or” could be read as suggesting that the judge regarded the deduction of expenses and the grant of an equitable allowance as alternatives. We can say at once that we regard the latter suggestion as implausible. We are satisfied that Asplin J did not intend the word “or” to be read in a strictly disjunctive sense. However, the first point appears to us to be well taken, and neither of the authorities cited by Asplin J provides any support for the proposition that the deduction of expenses in computing an unauthorised profit is in any way discretionary. The expenses must of course have been properly incurred, and must be properly attributable to the gross receipt, so there is scope for some exercise of judgment and there may be areas of potential disagreement in performing the exercise. But that is quite different from saying it is in the discretion of the court.

231. The second passage is at [Asplin/144] where the judge said, with reference to the multi-staged test propounded by Mr Cavender on behalf of Mr Gray:

“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.”

This passage appears to repeat the error in [Asplin/130], and also to suggest that the allowance of disbursements itself forms part of the process of making an equitable allowance. As before, the judge was purporting to record common ground. As before, she said unambiguously that “the court has a discretion” which extends both to the allowance of disbursements and to the making of an equitable allowance for the skill and effort of the fiduciary.

232. The third passage relied on by Mr Dutton is [Asplin/192], where the judge said:

“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.”

In our view this passage does not take matters much further, although the judge again appears to equate the deduction of costs with the making of an equitable allowance. It is also relevant to note that, after discussing the question of causation at [Asplin/193 to 211], the judge then continued with the question of an equitable allowance at [Asplin/212 and 213] under the heading “Allowance for skill and labour?”

233. In our view, Asplin J was clearly in error in the first and second of the passages we have quoted, where she apparently considered it to be common ground that the deduction of expenses in ascertaining the profit made by a defaulting fiduciary was a matter of discretion for the court. Nevertheless, we do not consider that it vitiated her consideration of the question of equitable allowance in [Asplin/212 and 213]. We think the passages should instead be regarded as minor and immaterial slips made by the judge in the course of a very long and complex judgment.

234. A number of factors lead us to this conclusion. In the first place, in the parts of the judgment which deal with the fees received by Mr Gray, there is nothing to suggest that Asplin J regarded the deduction of proper expenses as anything other than a necessary step in ascertaining the amount for which Mr Gray was liable to account. This was the approach adopted by Mr MacGregor in his expert evidence, which in substance the judge accepted (subject to issues of causation, the correction of certain errors, and her rejection of the equitable allowance claimed). Secondly, it is apparent from numerous passages in the judgment that Asplin J was fully aware of the distinction between a gross receipt and a net profit for which a defaulting fiduciary might be liable to account. Thirdly, in both the offending passages the judge directed herself, entirely correctly, that the making of an equitable allowance was discretionary. Fourthly, in the paragraphs where she deals with the making of an equitable allowance, we can find no hint of any confusion about the legal principles to be applied, or of contamination by her prior discussion of the issue of causation. Finally, there are some contributory factors which may help to explain why Asplin J failed to notice her slip. She thought she was merely recording common ground, so may have failed to notice her error for that reason. And the way in which Mr MacGregor dealt with the equitable allowance in his report, by treating it as a further deduction from the net profit, might have tended to blur the conceptual distinction between such an allowance and the deduction of expenses properly incurred in computing the net profit.

(d) Asplin J’s reasons for refusing an equitable allowance

235. It is apparent from [Asplin/213] that there were essentially two reasons why Asplin J declined to grant Mr Gray an equitable allowance on the basis claimed by him and advanced on his behalf at the Enquiry Hearing. First, she did not consider it an appropriate case for the grant of any allowance at all, given the way in which the litigation had proceeded, and Mr Gray’s failure “to account properly or at all in respect of his benefit from his fiduciary duty”. Secondly, even if she had considered it appropriate to make an allowance, she had insufficient evidence to quantify an appropriate amount. She rejected Mr Ward’s evidence as a “rule of thumb” which failed to provide “an appropriate basis for doing justice”.

236. We will begin with the judge’s first reason, because Mr Gray needs to overturn it before any question of quantification can arise. Since we have rejected the submission that Asplin J’s approach was vitiated by a material error of law, and since the question is admittedly one for the discretion of the trial judge, the difficulties in Mr Gray’s path are formidable. After a five week trial, during which Mr Gray’s witnesses, including Mr Ward, had given evidence and been cross-examined at length, the judge had rejected his case on most of the issues in dispute. In particular, she had rejected his case that he had disposed of the entirety of his interest in RegEnersys to Celloteck in August 2012 and found it to be false. She also found, contrary to his denials, that he had reached the secret agreement with the Russian Scientists and others to retain a beneficial interest in the ultrasound technology. These were central planks in Mr Gray’s case that he had provided a full and truthful account of matters in his affidavit and other evidence, but to a very significant extent the judge found that account to be false.

237. It is true that the Russian Business Assets were later found to be valueless, but that is beside the point: Mr Gray took his stand on the proposition that he had severed all his links with ultrasound technology and investment by entering into the 2012 SPA, but was disbelieved. Furthermore, the judge found that there were two payments of £50,000 each to the Russian Scientists which he had failed to disclose. The relevant point is not that these payments were particularly large in amount or number, but rather that they had been made by an indirect route which Mr Gray must have hoped would enable them to remain undetected. Add to this the serious adverse findings about Mr Gray’s credibility in the Liability Judgment against which there has been no appeal, and in respect of which Mr Dutton rightly said that Mr Gray will have to live with them for the rest of his life. Against that background, it is in our judgment impossible to say that Asplin J erred in refusing to grant Mr Gray an equitable allowance. The facts in our view fall well short of the kind of exceptional circumstances in which an allowance may be justified. In terms of the underlying policy identified by Lord Goff in Guinness plc v Saunders, we think that the grant of an allowance in this case could indeed have the effect of encouraging a fiduciary such as Mr Gray to put himself in a position where his interests conflict with his duty to his principal. A review of all the circumstances, including Mr Gray’s conduct of the litigation, provides ample support for the judge’s conclusion, and in our view her exercise of discretion in declining to grant an allowance cannot be faulted.

238. The position might be different, or at least might require careful reconsideration, if Mr Gray’s appeal on other grounds had achieved a substantial measure of success, but that is not the case. As will appear, the only grounds on which we propose to allow his appeal are Grounds 3A.1 and 7.2. The former of those grounds concerns a relatively minor part of the overall picture, and it goes only to the computation of the net profit for which Mr Gray is liable to account in respect of the $10 million consultancy fee. Similarly, Ground 7.2 raises a narrow issue about the legal characterisation of the ROW Business Asset. The reasoning of Asplin J on Ground 5 is rather compressed; but in the absence of any demonstrable error of law or principle in her approach, there is no basis for this court to interfere.

239. In the light of our conclusion on this issue, it is unnecessary for us to go on to consider Asplin J’s second reason for refusing to make an allowance. We would merely observe that she cannot in our view be criticised for confining her attention to the claim for an allowance as it was actually presented to her and argued at trial. Mr Dutton seemed at times to suggest in his oral submissions that the judge was under an obligation to consider the question, if necessary of her own motion, regardless of how it was argued before her, and that this court too should, if necessary, adopt a similar approach. If that is what Mr Dutton intended to submit, we do not agree with him. A claim for an equitable allowance should in principle be pleaded and supported by evidence in the usual way. The fact that it is a form of equitable relief does not authorise or require the court to embark on a roving commission to achieve a just result, nor does it mean that a judge can fairly be criticised for not proactively seeking alternatives to the allowance claimed if the judge considers it excessive or wrong in principle. There may occasionally be cases in which it is appropriate for a judge to take the initiative in that way, but we do not consider the present case to be one of that character. Asplin J was in our view fully entitled not to go beyond the case for an allowance which was presented to her at trial.

(e) Conclusion on Ground 5

240. For all these reasons, we would also dismiss Mr Gray’s appeal on Ground 5.

VIII. GROUNDS 6 AND 9

(a) Introduction

	Case No: A3/2019/2793 & 2795
	ROBERT GRESHAM GRAY	Appellant
	- and –
	GLOBAL ENERGY HORIZONS CORPORATION	Respondent

	And Between

	Case No A3/2019/2681
	GLOBAL ENERGY HORIZONS CORPORATION	Appellant
	- and –
	ROBERT GRESHAM GRAY	Respondent

	Para
I. INTRODUCTION	1
II. THE FACTS IN MORE DETAIL	23
(a) From the start of the project to June 2007	24
(b) The liability phase of the proceedings	47
(i) The Liability Judgment	47
(ii) The Vos Order	60
(c) Picking up the narrative for the Enquiry phase	63
(i) Mr Gray’s share of the Acquisition Strategy SPV	64
(ii) The Klamath Falls arbitration	72
(iii) The creation of Petrosound and the events of 2012 and 2013	74
(d) The Enquiry Hearing and the Enquiry Judgment	80
(i) The management fees 2006 - 2009 and the consultancy fee for 2010	82
(ii) The sums paid under the Klamath Falls Settlement	84
(iii) The Russian Business Assets: Chiloquin’s 15% holding of shares in Petrosound	85
(iv) The Russian Business Assets: the VIYM Executives’ 15% share of Petrosound	87
(v) The ROW Business Asset: 51% of Opco	88
(vi) Valuation of the Business Assets	90
(vii) Equitable allowance	91
(e) Asplin J’s orders	92
(f) The Valuation Hearing and the Valuation Judgment	95
(g) The Valuation Consequentials Rulings and the Arnold Order	100
(h) Mr Gray’s Applications D and E and the hearing of the appeals	103
(i) The Grounds of Appeal in summary	105
III. GROUND 1	107
(a) Introduction	107
(b) The scope of the account ordered by Vos J	112
(c) What are the profits for which a defaulting fiduciary is liable to account?	123
(d) The Klamath Falls Settlement	129
(e) Mr Gray’s liability to account for asset 1 (a): the $3 million derived from the Klamath Falls Settlement	135
(f) Mr Gray’s liability to account for assets 1 (d) and (e): the Russian Business Assets	141
(g) GEHC’s preliminary point: should Mr Gray be permitted to argue Ground 1 at all?	144
(h) Mr Gray’s application to amend Ground 1	147
(i) Overall conclusion on Ground 1	154
IV. GROUND 2	155
(a) Introduction	155
(b) The relevant fees	159
(c) The judge’s conclusions on “causation”	162
(d) Mr Gray’s submissions	166
(e) Do the fees fall within the scope of the Vos Order?	169
(f) Mr Gray’s other arguments	174
(g) Conclusion on Ground 2	177
V. GROUNDS 3A.1 AND 3A.2	178
(a) Ground 3A.1	183
(b) Ground 3A.2	194
VI. GROUND 4	202
VII. GROUND 5	207
(a) Introduction	207
(b) The claim for an equitable allowance as presented to Asplin J	218
(c) Did Asplin J misdirect herself on the law?	228
(d) Asplin J’s reasons for refusing an equitable allowance	235
(e) Conclusion on Ground 5	240
VIII. GROUNDS 6 AND 9	241
(a) Introduction	241
(i) The Enquiry Judgment	243
(ii) The detailed grounds	271
(iii) Asplin J’s finding as to the 2010 agreement	277
(iv) Is it open to Mr Gray to challenge the finding as to the 2010 agreement?	283
(v) The approach on appeal to challenges to findings of fact	289
(b) Ground 6.1	291
(i) Inherent improbabilities	292
(ii) Specific challenge: documents alleged to be window-dressing	298
(c) Ground 6.3	313
(i) Introduction	313
(ii) Adverse inferences	315
(iii) Adverse inference: payments to Russian Scientists	318
(iv) Adverse inference: withheld documents	320
(v) Withheld documents: the confidential fax	322
(vi) Withheld documents: attachment to the Feasibility Study	327
(vii) Withheld documents: emails after 2010	330
(viii) Withheld documents: conclusion	332
(ix) Failure to address issues	334
(x) Failure to address the alleged conspiracy	335
(xi) Failure to address the email dated 30 April 2012	338
(xii) Conclusion on Ground 6.3	342
(d) Grounds 6.4 and 9.2 - 9.3	343
(i) Introduction	343
(ii) Mr Gray’s preliminary submissions	346
(iii) The principal grounds	348
(iv) Ladd v Marshall	350
(v) Could Mr Gray have obtained the evidence with reasonable diligence?	353
(vi) Would the documents probably have had an important influence on the result of the case?	362
(vii) Documents relevant to the rejection of Professor Abramov’s evidence	365
(viii) Documents relevant to viability	374
(ix) Documents relevant to value	380
(x) Documents relevant to the 2010 agreement	387
(xi) Alleged breach of duty to disclose documents	395
(xii) Rosenblatt’s knowledge of the documents	404
(xiii) Abuse of process	417
(xiv) Was there any breach of duty?	432
(e) Ground 9.4	436
(f) Conclusions on Grounds 6 and 9	439
IX. GROUNDS 7, 8 and 9.5: THE ORDERS RELATING TO THE BUSINESS ASSETS	440
(a) Ground 7.1: the interest in the VIYM Executives’ 15% in Petrosound	442
(b) Grounds 7.2, 8 and 9.5: the ROW Business Asset	448
X. GEHC’S APPEAL	465
XI. SUMMARY, OUTSTANDING GROUNDS OF APPEAL AND CONCLUDING OBSERVATIONS	476
(a) Summary of conclusions on the Grounds of Appeal	476
(b) The outstanding grounds of appeal	487
(c) Concluding observations	490

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Gray v Global Energy Horizons Corporation [2020] EWCA Civ 1668 (09 December 2020) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2020/1668.html Cite as: [2020] WLR(D) 671, [2020] EWCA Civ 1668, [2021] 1 WLR 2264, [2021] WLR 2264

England and Wales Court of Appeal (Civil Division) Decisions