Gamatronic (UK) Ltd and Another v Robert Hamilton and Another
| Jurisdiction | England & Wales |
| Judge | Mr Akhlaq Choudhury |
| Judgment Date | 13 September 2016 |
| Neutral Citation | [2016] EWHC 2225 (QB) |
| Docket Number | Case No: HQ13X00943 |
| Court | Queen's Bench Division |
| Date | 13 September 2016 |
[2016] EWHC 2225 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Akhlaq Choudhury QC
(Sitting as a Deputy High Court Judge)
Case No: HQ13X00943
Ms Anna Boase (instructed by Asserson Law Offices) for the Claimants
Mr Timothy Sisley (instructed by Radcliffes Le Brasseur) for the Defendants
Hearing dates: 20–24, 27, 28 June 2016
Judgment Approved
| Index to Judgment | Paragraphs |
| Introduction | 1–3 |
| Background | 4–42 |
| Events leading to Defendants' departure. | 14–26 |
| Vox | 27–38 |
| Discovery of matters which led to proceedings being issued | 39–40 |
| HMRC investigation | 41–42 |
| Summary of Claims and Defences | 43 |
| The Claims | 44–49 |
| The Defences | 50–55 |
| The Proceedings | 56–58 |
| Witnesses | 59–71 |
| Missing witnesses and documents | 72–82 |
| The Issues | 83 |
| Issue 1 — What duties were owed to the Claimants? | 85 |
| (a) Obligations to Gamatronic UK as directors | 86–88 |
| (b) Obligations to Gamatronic UK as employees | 89–91 |
| (c) Contractual obligations to Gamatronic UK and Gamatronic Israel as shareholders | 92 |
| Issue 2 — Was Vox in Competition with Gamatronic UK? | 93–102 |
| Issue 3 — Did the Defendants' actions amount to a breach of their duties? | 103 |
| (i) October 2010 to January 2011 | 104–114 |
| (ii) January to February 2011 – Various emails | 115–125 |
| (iii) February 2011 – The trip to Denver | 126–130 |
| (iv) June 2011—Purchase of Vox shares | 131–133 |
| (v) March 2011 to February 2012 and beyond: Dealings with Vox prior to departure from Gamatronic UK | 134–135 |
| Diversion of emails and customers | 136–145 |
| Conclusions in respect of breach of duty | 146–153 |
| Defences to the claims for breach of duty | 154 |
| Release Clause | 155–162 |
| Acquiescence / Waiver | 163 |
| Section 1157 of the Companies Act 2006 | 164–165 |
| Were the Defendants forced out? | 166–169 |
| Issue 4 – What remedy is due for the breach of duties? | |
| Gamatronic UK Salaries Claim | 170–187 |
| Vox Salaries Claim | 188–193 |
| Vox Profits Claim | 194–196 |
| Issue 5 — Is the SPA liable to be rescinded? | 197 |
| (a) Misrepresentation | 198–207 |
| (b) Non-Disclosure | 208–211 |
| Defences to the claim for rescission | |
| Restitutio in Integrum | 212–225 |
| Waiver / Affirmation | 226 |
| Clean Hands | 227 |
| No Inducement / No subjective belief that disclosure in the company's interests | 228–229 |
| Issue 6 – What are the Consequences of Rescission? | 230 |
| Issue 7 – Is Gamatronic UK entitled to recover payments made by way of expenses? | 231–235 |
| Issue 8 – Is Gamatronic UK entitled to restitution in respect of the discharge of the Defendants' tax liabilities? | 236–251 |
| Conclusions | 252 |
Mr Akhlaq Choudhury QC:
Introduction
The Claimants ("Gamatronic UK" or "UK" and "Gamatronic Israel" or "Israel", respectively) are in the business of supplying uninterruptible power supplies ("UPSs"), which provide backup power to critical computer and other systems when mains power fails. The Defendants, Robert Hamilton ("Mr Hamilton") and Jayne Mansfield ("Ms Mansfield"), are former Managing Directors and employees of, and 49% shareholders in, Gamatronic UK. The remaining 51% of the shares in Gamatronic UK were held by Gamatronic Israel. On 29 February 2012, the Defendants entered into Compromise Agreements with Gamatronic UK, by which their contracts of employment and their directorships were terminated, and entered into a Share Purchase Agreement ("SPA") with both Claimants by which they sold their shares to Gamatronic Israel.
The Claimants allege that the Defendants had since October 2010 acted in serious breach of numerous fiduciary and contractual duties by secretly helping to set up, and by acquiring a beneficial interest in, a new competing business, Vox Ratio Limited ("Vox"). It is said that they had concealed their wrongdoing by fraudulent misrepresentations and large-scale document destruction.
By these claims, the Claimants seek (among other things) rescission of the SPA and recovery of the sums paid to the Defendants for their shares in Gamatronic UK, repayment of the salaries paid to them by Gamatronic UK since their alleged wrongdoing began and an account of profits. The total value of the claims is £469,607. Each Defendant also brings a counterclaim for £11,797 for unpaid commissions. However, those counterclaims were stayed at the outset of the trial and are not considered further here.
Background
I begin with a brief summary of the factual background to the proceedings.
Gamatronic Israel is an Israeli public company listed on the Tel Aviv Stock Exchange. Gamatronic Israel was founded by Joseph Goren ("Mr Goren") in 1970. He remains CEO and Managing Director of Gamatronic Israel. Mr Goren's daughter, Sharon Bar Zvi ("Ms Bar Zvi") is also a director of Gamatronic Israel and has been since 1995.
The relationship between Gamatronic Israel and the Defendants first began in 2000. At that time, the Defendants owned and operated a UPS company called PK Europe. Following a meeting with Ms Bar Zvi, it was agreed that the Defendants would become Gamatronic Israel's exclusive UK distributor. The Defendants sold Gamatronic Israel's UPS systems through PK Europe until mid-2001, when the relationship was restructured.
On 6 June 2001, Gamatronic Israel and the Defendants incorporated Gamatronic UK. Gamatronic Israel held 51% of the shares in Gamatronic UK and the Defendants held the balance in equal shares. The directors of Gamatronic UK were Mr Goren, Ms Bar Zvi, Mr Hamilton and Ms Mansfield.
On 20 December 2001, the Claimants and the Defendants entered into a shareholders agreement ("the Founders Agreement"). Each party was required to use their best endeavours to promote the interests of Gamatronic UK (clause 8.6) and not become involved in any competing business (clause 10.1(b)). The business of Gamatronic UK was agreed to be the marketing and sale by Gamatronic UK of Gamatronic Israel's UPS units in the United Kingdom (or other such products or areas as the parties might agree) (clause 4.1). The Founders Agreement also provided that in the event of an unrectifiable breach, the agreement would terminate in respect of the Defaulting Shareholder who could become obliged (at the election of the Non-Defaulting Shareholders) to sell their shares in Gamatronic UK to the Non-Defaulting Shareholders, at a value to be determined in accordance with a contractually agreed mechanism (clause 12). Concurrently with the signing of the Founders Agreement, the parties entered into an Acquisition Agreement, a Supply Agreement and employment agreements (referred to in the Founders Agreements as Directors Service Agreements). The latter agreements were entered into in December 2001.
In 2007, the Defendants signed new employment agreements (the "Employment Agreements"). These agreements included the following obligations:
3.5 Attention and Effort. During the Term, you shall devote your best efforts, entire productive time, ability and attention to the business of the Company. Further, during the Term you will not, without Company's (sic) prior written consent, directly or indirectly engage in any employment, or in any consulting or other activity which would interfere or conflict with the performance of your duties or obligations to the Company or which would directly or indirectly compete with the Company;
3.7 ….[I]t shall be your responsibility promptly to bring to the attention of the [Board] any material information regarding the Company, its business, clients, vendors and competitors, including, without limitation, any transaction or event which might adversely affect the Company or which is otherwise not in the regular course of business …
7.1 The Company may at any time terminate your employment for Cause, without prior notice. Without derogating from the generality of the aforesaid, any one or more of the following events shall, for purposes this (sic) agreement, constitute Cause:
7.1.1 Commission of an act deemed by the Company in its sole discretion to be an act of dishonesty, fraud, misappropriation of Company's funds, misrepresentation or other act of moral turpitude that would reflect negatively upon the Company or compromise the effective performance of your duties;
7.1.2 Misconduct or unlawful conduct resulting in material injury to the Company as determined by the Company in its sole discretion.
7.2 For the avoidance of doubt – all disciplinary and grievance procedures shall be held in strict accordance with all applicable legal and regulatory requirements…
The Employment Agreements also contained obligations of confidentiality (clause 8) and restrictions for a period of 12 months post-termination on competition and solicitation (clause 9). The Defendants, by their Amended Defence, suggest that their signature on the Employment Agreements was "not freely given" in that neither was given a proper opportunity to consider the document or take advice before signing. However, the Amended Defence does not contend that the Employment Agreements were thereby vitiated or that they did not govern the employment relationship after 2007. Mr Timothy Sisley, who appeared on behalf of the Defendants (but was not responsible for the pleading), did not pursue this point in cross-examination or in submissions. He was right not to do so. There is no pleaded legal basis on which the Defendants' employment relationship with Gamatronic UK could be governed by any document other than the Employment Agreements. In any case, the absence of any allegation of fraud or misrepresentation in obtaining the signatures means that the...
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