Global Energy Horizons Corporation v Gray, Court of Appeal - Chancery Division, July 28, 2015, [2015] EWHC 2232 (Ch)

Resolution Date:July 28, 2015
Issuing Organization:Chancery Division
Actores:Global Energy Horizons Corporation v Gray
 
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Case No: HC-2010-000018

Neutral Citation Number: [2015] EWHC 2232 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 28/07/2015

Before :

THE HON MRS JUSTICE ASPLIN DBE

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Between :

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Orlando Fraser QC, Andrew de Mestre and James Knott

(instructed by Rosenblatt Solicitors) for the Claimant

David Cavender QC, Conn MacEvilly and Joseph Wigley (instructed by MFB Solicitors) for the Defendant

Hearing dates: 16th17th 20th 21st 22nd 23rd 24th 27th 28th 29th 30th April 5th 7th 8th 11th 12th 13th 15th 20th 21st and 22nd May 2015

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JudgmentMrs Justice Asplin :

  1. This is the Enquiry ordered by Vos J (as he then was) on 17 January 2013 into the benefits received by the Defendant, Mr Robert Gresham Gray (``Mr Gray''), directly or indirectly as a result of breaches of his fiduciary duties owed to the Claimant, Global Energy Horizons Corporation (``GEHC''). Vos J gave judgment as to liability on 21 December 2012. At paragraph 518 of that judgment, he declared that:-

    ``(i) Mr Gray acted in breach of his fiduciary duty to GEHC and is liable to account to GEHC as a constructive trustee 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 17th March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology; and

    b) taking advantage of a maturing business opportunity, namely the opportunity to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology, belonging to GEHC, in breach of the no profit rule.''

  2. GEHC elected to pursue the remedy of an account of profits and by the Order of Vos J dated 17 January 2013, Mr Gray was ordered to account for any monies and benefits received or receivable by him directly or indirectly as a result of the said breaches of fiduciary duty ``including his indirect personal interest in RegEnersys Investments I Limited, but not including any amounts received in respect of the purchase of an interest in Klamath Falls Inc.'' It was also ordered that:

    ``3. GEHC is entitled to an enquiry as to the arrangements to which Mr Gray is party directly or indirectly providing for the said benefits.

  3. Mr Gray is liable to transfer to GEHC any assets which it is determined on the enquiry that Mr Gray holds on constructive trust for GEHC.''

  4. Pursuant to the account, Mr Gray served and filed three affidavits together with exhibits dated 9 May 2013, 12 July 2013 and 21 August 2013 respectively. Two supporting witness statements of Adam Kantor, a former employee of ReVysion LLP, and James Ward, Mr Gray's and ReVysion LLP's accountant, each dated 9 May 2013, were also filed and served.

  5. Mr Gray's position at the liability trial and as set out in his three affidavits and the supporting witness statements remains unchanged. He says that he has not received a net benefit and is not entitled to receive any monies or benefits as a result of his breaches of fiduciary duty; and he holds no interest in any company or entity which has an interest in ultrasound technology (of any type) and has no other arrangements in relation to it. In fact, in his affidavits he mentions his attempts to obtain an interest for himself and the Heerema Group (to which I shall refer) in the project relating to the technology being run by Russian scientists, including providing funding to the Russian scientists until early 2012. However, he states that he never reached any deal with the Russians, and that these efforts had completely failed by mid-2012. He also states that neither he, nor any entity associated with him, had ever entered any loan agreement with the Russian scientists. GEHC on the other hand contends that not only have benefits been received but that Mr Gray has sought to hide his continued interest in the ultrasound technology which is retained on his behalf. As a result, it is said to be necessary to determine the value of those benefits and GEHC contends that it is open to it to elect to take the value rather than any assets themselves.

    Central Facts

  6. Vos J dealt with much of the factual background to this matter in some detail in his judgment and I do not intend to repeat it all here. However, in order to make sense of the issues which arise on this Account and Enquiry, it is essential to have a grasp of the background and therefore, I set out the essential matters and go on to bring them up to date. I do not intend to differ or diverge from the facts already found in the Liability trial and therefore, any differentiation in use of language should be taken as just that.

  7. GEHC is a company which was established by Mr Brian De Clare in 2004. In 2002, Mr De Clare had met a Chilean inventor, Mr Alfredo Zolezzi (``Mr Zolezzi'') to discuss the development of ultrasound technology for use in the non-ferrous metal industry. Mr Zolezzi was developing the technology with some Russian scientists, including Professor Vladimir Abramov (``Professor Abramov'') and his colleagues (referred to together at the Liability Trial and in this Enquiry as the ``Russian Scientists''). Both Mr Zolezzi and Mr Juan Hurtado, a Chilean investor (``Mr Hurtado''), held shares in Klamath Falls Inc, a company incorporated in the British Virgin Islands through which Mr Zolezzi held his interests in the technology (``Klamath Falls''). By late 2003, Mr Zolezzi told Mr de Clare that he had adapted the ultrasound technology so as to increase the production of oil and gas. In December 2003, at Mr Zolezzi's suggestion, Mr de Clare met Mr Hurtado in London to discuss the commercialisation of the ultrasound technology.

  8. Vos J described the ultrasound technology at paragraph [14] of his judgment in the Liability trial in the following way:

    ``... the technology applies ultrasound stimulation to the wellbore area in order to diminish wellbore damage and restore or enhance production in low performing or late life wells. The tools delivering the AWS technology are inserted into the well bore area and apply a wide range of frequencies and power in continuous or pulse modes, designed to stimulate oil and gas production.''

  9. Mr de Clare and Mr Gray discussed the ultrasound technology and setting up a business at a chance meeting in London in January 2004. GEHC was incorporated on 15 April 2004. Subsequently, Mr de Clare introduced Mr Gray to both Mr Zolezzi and the Russian Scientists and to two maturing business opportunities being the opportunity to obtain rights in the technology; and the opportunity to participate and obtain a carried interest in a strategy whereby a special purpose vehicle would purchase and/or invest in late life and underperforming oil and gas assets and utilise the technology on them so as to increase their remaining production and/or reserves (the ``Acquisition Strategy''). Vos J found that Mr Gray agreed and allowed himself to be treated as a member of GEHC's Acquisition Strategy deal team in return for a share of the potential revenues. Mr Gray's percentage share of such revenues was the same as that of Mr de Clare being 22%. Furthermore, Vos J found that Mr Gray owed GEHC a duty of loyalty in relation to the Acquisition Strategy and the ultrasound technology from December 2004 and that the opportunities in relation to it came to Mr Gray as part of his involvement with GEHC.

  10. In January 2005 Mr Gray introduced both the technology and the Acquisition Strategy on GEHC's behalf to El Paso Exploration and Production Company (``El Paso'') a mid-sized US oil and gas exploration company. El Paso (together with the US Department of Energy) undertook testing of the ultrasound technology on its oil wells in Utah during 2005, leading to results described by Mr Gray in November 2005 as ``extraordinary''. The conclusion of the US Department of Energy was that if the technology were widely adopted: `` . . .there may be a large increase in production . .'' Mr Gray described "an Acquisition strategy" in April 2005 as "an almost risk free way to print money".

  11. In December 2005 Mr Gray formalised his shareholding in GEHC. Also in late 2005, Mr Gray was approached by Mr Pieter Heerema (``Mr Heerema''). Mr Heerema is a Dutch billionaire and beneficial owner of the Heerema Group, a group of companies the principal business of which is the fabrication, transportation and installation of offshore oil and gas production facilities. Mr Heerema asked Mr Gray to set up and manage a US$500 million fund to hold energy-related private equity investments, in particular in sub-scale and late-life oil and gas fields on the basis that he would receive a 20% interest in it as well as a 2% management fee for managing the investments. Vos J. found that Mr Gray was acting in breach of his duty of good faith to GEHC, and of the no inhibition principle from January 2006, when Mr Gray began to further Mr Hereema's interest in the Acquisition Strategy and in the ultrasound technology. He also held that an actual conflict of interest arose in January 2006, when Mr Hereema expressed an interest in investing in the technology and the Acquisition Strategy.

  12. Vos J. also found that when Mr Gray finally made clear to GEHC on 6 December 2006 that he would be acting solely in the best interests of himself and Mr Hereema, he was doing so knowing that he had a duty of loyalty and with the intention of taking advantage of an opportunity, namely the possibility of contracting with Klamath Falls for a licence to the ultrasound technology and a share of the profits that would thereby be derived, that had come to him as GEHC's fiduciary agent. On 1 February 2007, Mr Gray took a 20% profit share as limited partner in...

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