Global Energy Horizons Corporation v Robert Gresham Gray
| Jurisdiction | England & Wales |
| Judge | Mr Justice Arnold |
| Judgment Date | 21 May 2019 |
| Neutral Citation | [2019] EWHC 1260 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2010-000018 |
| Date | 21 May 2019 |
[2019] EWHC 1260 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
BUSINESS LIST (CHANCERY DIVISION)
Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Arnold
Case No: HC-2010-000018
Richard Millett QC and Adam Woolnough (instructed by Kobre & Kim (UK) LLP) for the Claimant
Timothy Dutton CBE, QC and Philip Ahlquist (instructed by Enyo Law LLP) for the Defendant
Hearing dates: 3, 7–9, 13 May 2019
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Contents
| Topic | Paragraphs |
| Introduction | 1–14 |
| Factual background as found by Vos and Asplin JJ | 15–50 |
| The conclusions reached by Asplin J at [231]–[232] and [249]–[256] | 51–54 |
| The Valuation Date | 55 |
| The approach to valuation | 56 |
| The evidence for the Valuation Hearing | 57–59 |
| The documentary evidence | 60–71 |
| Documents after the Valuation Date | 64–66 |
| The incompleteness of the documentary evidence | 67–71 |
| The picture revealed by the documentary evidence | 72–106 |
| Langosta | 73 |
| Petrosound's business and assets as at the Valuation Date | 74 |
| Ownership of Sonoplus as at the Valuation Date | 75–78 |
| Sonoplus' business as at the Valuation date | 79 |
| Sonoplus' financial position as at the Valuation Date | 80–81 |
| Operating performance and financial position of Sonoplus' subsidiaries as at the Valuation Date | 82–86 |
| The Tatarstan joint venture | 87–89 |
| Operational performance and financial position of Sonoplus and its subsidiaries after the Valuation date | 90–93 |
| Sonoplus' international business as at the Valuation date: The Americas | 94–100 |
| Sonoplus' international business after the Valuation Date: South East Asia | 101–102 |
| Sonoplus' international business after the Valuation Date: the Americas | 103–106 |
| The witnesses | 107–118 |
| Valuation of 51% of 30% of the issued shares in Petrosound | 119–137 |
| Dr Becker's approach | 120–134 |
| The VIYM transaction | 122–128 |
| Adjustment for market conditions | 129 |
| Adjustment for developments | 130 |
| Application of the adjustments | 131 |
| Interest | 132 |
| Tatarstan joint venture | 133–134 |
| Mr MacGregor's approach | 135–137 |
| Valuation of a 51% interest in 51% of Petrosound's international Ultrasound technology business (also referred to as OpCo) | 138–165 |
| What is the business to be valued? | 138–144 |
| Dr Becker's approach | 145–164 |
| Assumption as to OpCo | 147 |
| DCF method | 148 |
| The Resero Business Plan | 149–158 |
| Growth rate | 159 |
| Sonoplus overheads | 160 |
| Discount rate | 161 |
| Uplift for expansion in Asia | 162 |
| Taxation | 163 |
| Minority interest | 164 |
| Mr MacGregor's approach | 165 |
| Conclusion | 166 |
Introduction
By paragraph 1 of an order dated 17 January 2013 Vos J (as he then was) declared, for the reasons given in his judgment dated 21 December 2012 [2012] EWHC 3703 (Ch), that the Defendant (“Mr Gray”):
“acted in breach of his fiduciary duty to [the Claimant, ‘GEHC’] and is liable to account 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 17 March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interest in relation to the Acquisition Strategy and the ultrasound technology; and
(2) taking advantage of a maturing business opportunity of GEHC, namely the opportunity to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology, in breach of the no profit rule.”
By paragraph 1 of an order dated 28 July 2015 Asplin J (as she then was) declared, for the reasons given in her judgment of the same date [2015] EWHC 2232 (Ch), that Mr Gray:
“received the following assets directly or indirectly as a result of the breaches of fiduciary set out in the Order of Mr Justice dated 17 January 2013 and is liable to account to … GEHC … in respect thereof:
…
(d) 51% of 15% of the issued shares in PetroSound held for Mr Gray through Chiloquin;
(e) 51% of 15% of the issued shares in PetroSound held for Mr Gray by Professor Vladimir Abramov or Mr Sergey Volchenkov and/or Mr Vyacheslav Ivanov;
(f) a 51% interest in 51% of Petrosound's international ultrasound technology business (also referred to as OpCo).
The meanings of the terms used in paragraphs 1(a) to (f) above shall be as found in, and construed in accordance with, the Judgment.”
By paragraph 15 of her order Aspin J directed a further hearing, at that stage reserved to herself, to determine the value of the assets referred to in paragraphs 1(d), (e) and (f) (“the Assets”).
By paragraph 16 of her order Asplin J ordered as follows:
“GEHC has permission to adduce expert evidence from Dr Becker and Mr Gray has permission to adduce expert evidence from Mr MacGregor on the value to be attributed to the following interests:
(a) the interests referred to in paragraph 1(d) and 1(e) above, on the basis of the findings made in the Judgment, and in particular (but without prejudice to the generality of the foregoing) the Judge's conclusions as to the viability of the Ultrasound Technology in paragraphs 231 to 232 of the Judgment and her conclusions in respect of the valuation evidence to date in paragraphs 249 to 256 of the Judgment;
(b) the interest referred to in paragraph 1(f) above, on the basis of the findings made in the Judgment, and in particular (but without prejudice to the generality of the foregoing) the Judge's conclusions as to the viability of the Ultrasound Technology in paragraphs 231 to 232 of the Judgment and her conclusions in respect of the valuation evidence to date in paragraphs 249 to 256 of the Judgment.”
The basis for those paragraphs of the order can be seen very clearly from Asplin J's judgment. As she explained in the paragraphs of the judgment which are referred to in the order, which are set out below, she was concerned that neither of the experts instructed by the parties had approached the valuation of the Assets upon the correct basis, and accordingly she did not feel able to arrive at a reliable valuation for the Assets. As she concluded at [256]:
“In the circumstances, despite the considerable costs which must already have been expended on experts, in my judgment, it is necessary that further expert evidence be filed based on my findings of fact as to viability and that further submissions are made in this regard.”
It can be seen from Asplin J's judgment and paragraphs 15 and 16 of her order that the further hearing (“the Valuation Hearing”) was to be (i) solely concerned with the valuation of the Assets on the basis of (ii) the findings of fact contained in the judgment and (iii) further expert valuation evidence. Consistently with that interpretation, Asplin J gave no permission for any further factual evidence to be adduced at the Valuation Hearing.
On 22 February 2016 Asplin J gave the parties liberty to approach third parties to obtain for the purpose of the Valuation Hearing “trading, financial and other relevant information in respect of Petrosound Ltd, Sonoplus Limited, Viatech LLC, CUT Servis LLC. OOO Ultrasonic, OOO Tekhnoplus, Sonovita LLC, Sonotech LLC and any of their subsidiaries and/or affiliates and/or licensees and/or joint venture partners”. She also directed that there be a case management conference to consider whether, and if so how and on what terms, any such information was to be put before the Court.
On 20 October 2016 Asplin J gave further directions for the Valuation Hearing which included permission to adduce expert evidence from Dr Becker and Mr MacGregor “on the basis of the findings made in the Judgment … and taking into account any documents disclosed pursuant to the order … dated 22 February 2016 which the parties choose to provide to the experts”.
On 10 April 2017 Asplin J made an order for the issue of letters of request for the production of documents from four companies within the Resero Group and Vibrant AG, and for those documents to be read and given in evidence at the Valuation Hearing subject to any further order of the Court regarding their proof. Subsequently documents were obtained by GEHC from those companies and disclosed to Mr Gray.
Asplin J did not vary any of the relevant provisions of her order dated 28 July 2015, and in particular paragraph 16, in any of her subsequent orders.
Unhappily, the preparations for and listing of the Valuation Hearing took much longer than Asplin J had envisaged on 28 July 2015, and in the meantime she was promoted to the Court of Appeal. As a result, I was appointed by the Chancellor as the docketed judge for this case in her place.
On 23 March 2018 I gave further directions for the Valuation Hearing, including a direction that the parties should identify and notify to each other any further documents to be relied upon at the Valuation Hearing by a certain date and for the service of further expert evidence after that date.
On 23 March 2018 and 20 June 2018 I made orders for further disclosure to be given by Mr Gray. Subsequently Mr Gray did disclose some further documents. On 19 July 2018 I made an order for further third party disclosure by Venture Investments & Yield Management LLP (“VIYM LLP”), which had already provided third party disclosure prior to the trial before Asplin J (“the Enquiry Trial”). Subsequently VIYM LLP did disclose further documents.
The Valuation Hearing eventually took place in May 2019. This is my judgment as to the value of the Assets. Unless otherwise stated, all figures in dollars are US dollars.
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