Gray v Global Energy Horizons Corporation

A fiduciary must account for every unauthorised profit falling within the scope of the conduct constituting the breach. A sufficient nexus or reasonable relationship is required, but the profit need not have been caused by the breach. Proper expenses must be deducted when calculating profit; that deduction is not discretionary.

An equitable allowance for the fiduciary’s work remains exceptional and discretionary. It should not undermine the policy against conflicts of interest.

A business opportunity may generate accountable profits, but it is not itself transferable property. Property must be definable, identifiable by third parties, capable of assumption by them and sufficiently permanent or stable.

Following an unappealed liability judgment, an enquiry determined the money and business interests for which a fiduciary had to account. Mrs Justice Asplin ordered payment of parts of management and consultancy fees, money derived from an arbitration settlement, and interests connected with Russian and international ultrasound-technology businesses: [2015] EWHC 2232 (Ch).

A later valuation hearing found the business interests valueless: [2019] EWHC 1260 (Ch). Mr Gray appealed against the accounting orders and factual findings. Global Energy Horizons Corporation appealed against the refusal to order transfer of the business interests and other relief.

The central issues included the nexus required between a fiduciary breach and accountable profits, deductions and equitable allowances, appellate challenges to factual findings, fresh evidence, abuse of process, and whether an opportunity to participate in a future business was transferable property.

1. Mr Gray’s appeal was allowed in part. The arbitration-settlement money, Russian business interests and apportioned management fees were within the account. The exclusion concerning Klamath Falls covered only benefits arising from the consented purchase of a particular shareholding. It did not extend to contractual technology rights or the wider business opportunity: paras [118]–[143], [169]–[177].

2. A defaulting fiduciary’s liability to account is strict. A link or nexus, amounting to a reasonable relationship between the breach and the profit, is necessary. Causation is not. It will normally suffice that the profit arose within the scope of the conduct constituting the breach: paras [123]–[128].

3. Properly attributable expenditure must be deducted when ascertaining net profit. That deduction is not discretionary. The consultancy-fee calculation therefore had to include expenditure properly attributable to the full period of the relevant work, including expenditure after October 2012, subject to generally accepted accountancy principles: paras [183]–[193], [228]–[234].

4. An equitable allowance for a fiduciary’s skill and labour is exceptional and discretionary. It must not encourage fiduciaries to enter conflicts of interest. The judge was entitled to refuse an allowance because of the findings concerning Mr Gray’s conduct and false account, and because the claimed allowance had not been established by satisfactory evidence: paras [207]–[240].

5. The challenges to the trial judge’s factual findings and adverse inferences failed. An appellate court may interfere where there is an identifiable legal or evidential error, but otherwise only where the decision cannot reasonably be explained or justified. The proposed fresh evidence failed the reasonable-diligence and probable-influence requirements. Reviving issues raised in a withdrawn, trial-ready set-aside application was also an abuse of process: paras [289]–[439].

6. The declaration concerning the beneficial interest in identified Petrosound shares was sufficiently certain even though the current legal holder was not precisely identified. By contrast, an expectation or opportunity to acquire an interest in a future international business was not property capable of transfer or of being held on constructive trust. The relevant parts of the July 2015 order were discharged: paras [442]–[463].

7. GEHC’s appeal was dismissed. Given the nil valuation, the nature of the interests, enforcement obstacles and risk of oppressive further proceedings, no transfer or ancillary relief should be ordered: paras [465]–[486]. The costs grounds remained outstanding.

1. Court of Appeal (Civil Division): Mr Gray’s appeal was allowed on the consultancy-expense issue and the purported international-business asset, but otherwise dismissed. GEHC’s grounds seeking transfer and ancillary relief were dismissed: [2020] EWCA Civ 1668.

2. High Court, Arnold J: The business interests were valued at nil, and subsequent applications for transfer and further relief were refused: [2019] EWHC 1260 (Ch).

3. High Court, Asplin J: Following an enquiry, Mr Gray was ordered to account for settlement money, apportioned fees and interests connected with the Russian and international businesses: [2015] EWHC 2232 (Ch).

4. High Court, Vos J: The unappealed liability judgment established the fiduciary breaches and directed an account: [2012] EWHC 3703 (Ch).