Global Energy Horizons Corporation v Gray

A defaulting fiduciary must account for assets and benefits received or receivable where there is a sufficient causal connection with the breach. The fiduciary bears the evidential burden of showing that an identified asset or benefit is outside the account, although documentary evidence may shift the evidential burden back to the claimant. The court should avoid imposing a separate test of remoteness: the question is whether the causal connection is sufficient. A principal may elect between proprietary and personal relief. Valuation is not necessarily confined to the asset’s value at judgment and must reflect the justice of the circumstances. An equitable allowance for skill and effort remains exceptional.

This was an enquiry ordered after Vos J had found that Mr Robert Gresham Gray breached fiduciary duties owed to Global Energy Horizons Corporation by placing himself in a position of conflict and exploiting the claimant’s maturing opportunities concerning an acquisition strategy and ultrasound technology.

The claimant elected an account of profits. The enquiry concerned the assets and benefits allegedly retained by Mr Gray or held indirectly for him, including interests in Russian and international ultrasound businesses, settlement proceeds, management and consultancy fees, and investments acquired with those fees. The central issues were whether the assets fell within the order, whether they had a sufficient causal connection with the breaches, how they should be valued, and whether any allowance or deductions should be made.

1. Scope and identification of assets. The account extended to assets received and receivable. The ultrasound technology was not confined to the Klamath Falls patents. The Russian technology and the Klamath Falls technology could be complementary or connected, and the Russian Scientists had been central to the opportunity. The claimant’s account was therefore not artificially limited to one patent portfolio (paras [131], [148]-[154]).
2. Causal connection and burden. The relevant test was whether there was some sufficient causal connection between the asset or benefit and the fiduciary breach. The court rejected the addition of a separate test of remoteness. The defaulting fiduciary bore the burden of showing that an identified asset was not causally connected, although documentary evidence supporting the fiduciary’s assertion could shift the evidential burden to the claimant to displace it. The evidence was to be considered in the round, including proper adverse inferences (paras [132]-[137]).
3. Findings on assets and benefits. Mr Gray retained beneficial interests connected with Petrosound Ltd, including interests represented by the Chiloquin shareholding and interests allegedly held through nominees. He also retained an intended 51% interest in an international exploitation business. The interests were causally connected with the opportunities diverted in breach of duty. The $5.1 million Chilean arbitration settlement was also causally connected, although treating the whole sum as an asset might involve double counting to the extent that $2.1 million was used to acquire an interest in Klamath Falls (paras [178]-[196]).
4. Fees and apportionment. The management fees received between 2006 and 2009 and the $10 million consultancy fee were sufficiently connected with the breaches at least in part. The amount subject to the account had to be apportioned by reference to the proportion of the fund represented by ultrasound-related investments and opportunities, including 90% of the relevant Klamath Falls figure. The figures required recalculation, and tracing into the Stratum Energy and Buried Hill shares was left for further determination (paras [187]-[211]).
5. Remedy and valuation. The principal could elect between a proprietary remedy and a personal remedy. The court was not confined to restitution of the asset or its value at the date of judgment where that would fail to reflect the value of the diverted opportunity. Valuation had to maintain a proper grip on commercial reality. The existing valuation evidence was inadequate because it assumed a fully commercialised technology, reliable cash flows and readily available funding. Further expert evidence and submissions were required (paras [138]-[143], [230]-[256]).
6. Allowance. No equitable allowance for skill and effort was granted. Such an allowance is exceptional, and the evidence was insufficient, particularly in light of the deficient and unreliable account (paras [212]-[213]).

The judgment was a first-instance enquiry following liability findings and orders made by Vos J. No appellate history is stated in the judgment.