Axon Well Intervention Products Holdings As Against Michael Craig
| Jurisdiction | Scotland |
| Judge | Lord Doherty |
| Neutral Citation | [2015] CSOH 4 |
| Court | Court of Session |
| Docket Number | CA181/13 |
| Published date | 16 January 2015 |
| Date | 16 January 2015 |
| Year | 2015 |
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 4
CA181/13
OPINION OF LORD DOHERTY
In the cause
AXON WELL INTERVENTION PRODUCTS HOLDINGS AS
Pursuer;
against
MICHAEL CRAIG
Defender:
Pursuer: Howie, QC; Burness Paull LLP
Defender: Lindsay, QC; Ledingham Chalmers
16 January 2015
Introduction
[1] The pursuer is a limited liability company incorporated under Norwegian law. The defender is the former owner of 100% of the equity interests of Mechserv ME FZE (“JAFZE”), a company with limited liability established in the Jebel Ali Free Zone, Dubai, United Arab Emirates. His son is the former owner of 100% of the equity interests of Mechserv MEH FZE (“HAFZE”), a company with limited liability established in the Hamriyah Free Zone, Sharjah, United Arab Emirates. In terms of the (Arabian) Equity Purchase Agreement (“the AEPA”) dated 19 January 2011 the defender and his son sold their equity interests in JAFZE and HAFZE to the pursuer. By an Equity Purchase Agreement (“the EPA”) of the same date the defender and Scott McGinigal, his fellow shareholder in Mechserv Ltd, a UK company, sold their shares in that company to the pursuer. All of the said companies traded in the oil and gas sector. JAFZE and HAFZE traded in the Middle East. In terms of the AEPA and the EPA, in return for the sale of his shares the defender received shares in the pursuer and payments in cash. A Shareholders’ Agreement between the Axon Energy Products AS (“AEP”), the defender and Mr McGinigal was entered into at the same time as the other Agreements. The Shareholders’ Agreement contained terms and conditions governing the shareholdings in the pursuer of AEP, the defender and Mr McGinigal.
[2] The EPA provided that after the sale the defender should remain as managing director of Mechserv Ltd (which would become Axon Well Intervention Products UK Ltd). Both the AEPA and the EPA contained restrictive covenants (s7.2). In the case of the AEPA the covenants bound the defender and his son, for a period of three years until 24 January 2014, from competing with the business of HAFZE and JAFZE as it was carried out on 24 January 2011, or from dealing with or seeking the custom of any person who was on that date or during the previous twelve months a client or customer of HAFZE or JAFZE.
[3] The first conclusion in the present action is for interdict of the defender from breaching certain of the obligations in s7.2 of the EPA and s7.2 of the AEPA. On 12 November 2013 interim interdict was pronounced. Since the restrictive covenants ceased to restrain the defender’s activities after 24 January 2014 interdict is no longer a live issue.
[4] The pursuer’s second conclusion is for payment by the defender to it of US $700,000 damages. The pursuer avers that the defender has acted in breach of s7.2 of the AEPA by carrying on, being engaged in or being interested in a business in competition with the business of HAFZE and JAFZE, and that as a result Axon FZE (“FZE”) (an affiliate of the pursuer) has suffered loss and damage.
[5] The pursuer avers that the defender’s employment as managing director of Axon Well Intervention Products UK Ltd was terminated on 1 November 2013 following a disciplinary hearing on 7 October 2013 which the defender did not attend.
[6] The case came before me for a debate on the commercial roll. Two issues were debated. First, whether the pursuer is entitled to seek to recover losses said to have been sustained by FZE. Second, if the pursuer is so entitled, whether in assessing damages it requires to deduct the “bad leaver” discount of $450,000 which clause 15.4 of the Shareholders’ Agreement makes provision for.
[7] There is an outstanding minute of amendment for the pursuer (no. 21 of process) and answers for the defender (no. 27 of process). In terms of the minute the pursuer proposes to increase the damages sued for and to provide further specification of that claim. Both parties considered that the issues to be debated could be determined on the basis of the current pleadings (record no. 26 of Process) and that no regard need be had at this stage to the proposed amendment.
The Panatown claim - recovery of FZE’s losses
Breach of the AEPA
[8] Section 7.2 of the AEPA provided:
“7.2 Non-Competition; Non-Solicitation
(a) Seller shall not, during the period of three (3) years beginning with the Closing Date in any geographic areas in which the Business was carried out on (sic) at the Closing Date, carry on or be employed, engaged or interested in any business which would be in competition with any part of the Business as the Business was carried on at the Closing Date, other than with the Company or Buyer or one of their Affiliates.
(b) Seller shall not, during the period of three (3) years beginning with the Closing Date, deal with or seek the custom of any person that is at the Closing date, or that has been at any time during the period of twelve months immediately preceding that date, a client or customer of the Business.
…
(f) The undertakings in this Section 7.2 are intended for the benefit of the Buyer and apply to actions carried out by the Seller in any capacity, and whether directly or indirectly, on behalf of the Seller, or on behalf of any other person or jointly with any other person …”
The “Closing Date” was 24 January 2011. The “Business” was the business of HAFZE and JAFZE consisting of designing, building and refurbishing oilfield equipment. The “Buyer” was the pursuer.
[9] Section 10.5 of the AEPA provided:
“10.5 Successors and Assigns. The provisions of this Agreement will be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns … Buyer may assign its rights and obligations under this Agreement to a wholly owned Affiliate of Buyer, it being understood that such assignment will not relieve Buyer from its obligations hereunder …”
FZE was at all material times a wholly owned Affiliate of the pursuer.
[10] The pursuer avers:
“Condescendence 7
Following the takeover of the Mechserv companies by the pursuer, the work of Axon’s companies in the United Kingdom and in the middle east were closely integrated, the defender having oversight, as managing director of Axon Well Intervention Products UK Ltd, of the business conducted in the middle east by Axon as well as its business throughout Europe. The business formerly carried on by the Arabian companies was transferred into a new company, Axon Well Intervention Products FZE, which thereafter carried on that business on a combined basis. The defender had a considerable degree of contact with customers and suppliers of Axon Well Intervention Products FZE (“Axon FZE”) in the United Arab Emirates and frequently had to attend to the business of that company in the middle east, sometimes through his physical presence there. In the course of 2013, during the period of three years following the Closing Date to which the undertakings in clause 7.2 of the AEPA referred, the pursuer discovered that, unbeknown to it, the defender, in collaboration with his said son, his wife, Gail Craig (another former employee of Axon Well Intervention Products UK Ltd) and a manager employed by Axon FZE, Bruce McLaren, had been involved in setting up two companies to trade in direct competition with the pursuer and other companies in the Axon Group (such as Axon FZE), and that one of those competing companies had, through the activities of the defender and his son, sought and obtained business for itself, business which might otherwise have been able to be won by Axon FZE … The said competing companies are hereinafter compendiously referred to as “the Reliaquip companies”... [T]he defender was providing working capital for the Reliaquip companies and was engaged in or interested in the business thereof. By January 2013 the defender was describing himself as investing U.S. $414,000 in the Reliaquip companies.
…
Condescendence 9
The pursuer’s investigations … uncovered an example of the labour and resources of Axon FZE being used, unknowingly, for the benefit of the Reliaquip companies. A zone 2 Triplex Pump Unit was designed and built by Axon Well Intervention Products FZE and purchased from it by one of the two Reliaquip companies, Reliaquip Oilfield Rentals FZE in January 2013 for U.S. $199,237.00. For such equipment, that was an unusually low price…The pursuer has further discovered that … [Axon Well Intervention Products FZE] is in the process of constructing three other items of equipment for Reliaquip Oilfield Rentals FZE. Two of them have the cost of pump frames misallocated to other contracts, and the frame for the third has been found to belong to an Axon company but to have been kept off the company inventories. Each of these orders seems undervalued by reference to the costs the pursuer would expect to be incurred upon the construction of equivalent equipment … The pursuer has further discovered that pursuant to an agreement dated 1st June, 2013 between Reliaquip Oilfield Equipment FZE and Halliburton Energy Services Inc., the former company sold to the latter company the aforesaid Triplex Pump for U.S. $450,000 … [The defender] was aware, too, of the intention to make use of the resources of Axon and its suppliers and contacts in order to provide assets and other benefits to the Reliaquip companies … and in September 2012, Mr McLaren discussed with the defender the profit which could be derived from “1087” (the Axon FZE shop order number for the said triplex pump), and the ability of Reliaquip to purchase other machinery “if we can dodge paying for the frames”. Those frames were being made for the triplex pump by Axon FZE. The defender’s experience of the costs of manufacture and refurbishment of pumps such as the triplex pump under the pricing and costing protocols used by the Axon companies was such that even if he had not known in advance of the intention to ‘dodge’ payment to Axon FZE, he would have...
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