James Russell Gray v Douglas Simpson Smith
| Jurisdiction | England & Wales |
| Judge | Mr Recorder Richard Smith |
| Judgment Date | 16 May 2022 |
| Neutral Citation | [2022] EWHC 1153 (Ch) |
| Docket Number | Claim No BL-2018-002521 |
| Year | 2022 |
| Court | Chancery Division |
[2022] EWHC 1153 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
BUSINESS LIST (ChD)
Royal Courts of Justice
Rolls Building,
Fetter Lane,
London, EC4A 1NL
Mr Recorder Richard Smith
(Sitting as a Judge of the Chancery Division)
Claim No BL-2018-002521
Matthew Hardwick QC and Will Bordell (instructed by Candey Limited) for the Claimant
James Bailey QC and Tim Matthewson (instructed by Withers LLP) for the Defendants
APPROVED JUDGMENT
Hearing dates: 14–18 and 21–23 February and 1 March 2022
This judgment was handed down remotely by circulation to the parties' representatives by email and release to the National Archive. The date and time for hand-down is deemed to be 16 May 2022 at 10.30am.
(Sitting as a Judge of the Chancery Division)
Introduction
Mr Gray's claim
The Claimant, Mr James Gray ( Mr Gray or the Claimant), is an American investment professional who lives in London. The First Defendant, Mr Douglas Smith ( Mr Smith or the First Defendant), is a British investment professional, also living in London. Mr Smith is the majority shareholder in, and director of, the Second Defendant, Blackmoor Investment Partners Limited ( BIPL or the Second Defendant (together the Defendants)). BIPL is the regulated investment manager for the investment fund launched in March 2018 and which also operates under the ‘Blackmoor’ name ( Blackmoor Fund).
This claim concerns an oral agreement allegedly entered into by 15 June 2016 by Mr Gray and Mr Smith (the Alleged Oral Agreement) to try and build, and then manage together, on a ‘50:50’ basis an open-ended, committed investment fund with an ‘activist investment’ strategy, involving the acquisition of publicly traded equities with a view to improving a target company's performance and share value ( Fund).
The Claimant says that the Alleged Oral Agreement was performed from 5 July 2016, including by Mr Gray (i) using and sharing his professional contacts to pursue investor capital (ii) developing the Fund's investment strategy and approach (iii) analysing potential investment targets (iv) preparing investor marketing materials and (v) contributing to BIPL's application to the Financial Conduct Authority ( FCA).
The Claimant also claims that he and Mr Smith were in a fiduciary relationship based on their agreement or understanding that they would participate equally in their Blackmoor ‘joint venture’ in circumstances giving rise to a relationship of mutual trust and confidence.
The Claimant says that Mr Smith breached the Alleged Oral Agreement and/ or his fiduciary duties owed to Mr Gray, including by establishing a ‘rival’ Blackmoor team (described by Mr Gray as the “ Parallel Blackmoor Team”), excluding him from the investment management business which they had sought to build together ( Blackmoor), taking their joint work as his own and bringing the Fund opportunity to a new ‘partner’, Mr Guido Schmidt-Chiari ( Mr Schmidt-Chiari).
Mr Gray's primary claim is for damages for breach of contract of between €1.72m and €18.53m, said to represent the net fees he would have earned from March 2018 to (at the latest) June 2026 from his joint management with Mr Smith of the Fund, assuming its performance consistent with the average returns of certain suggested comparable market indices.
Alternatively, Mr Gray seeks equitable compensation in the same sum or an account of 50% of the profits reasonably connected to Mr Smith's alleged breaches of fiduciary duty.
As a further alternative, Mr Gray claims in unjust enrichment the sum of €1,676,250 (and reimbursement of £5,000 expenses), said to represent the value of the services he performed in building and developing Blackmoor in anticipation of a 50% share of its profits.
Mr Gray brings the contractual and fiduciary claims against Mr Smith alone. The unjust enrichment claim is asserted against both Defendants.
Mr Smith's defence
The Defendants deny all the claims and relief sought. Mr Smith contends that he set up Blackmoor by incorporating BIPL on 15 April 2016 in which he and his wife originally held all the shares, putting in place Blackmoor's operational infrastructure and generating the necessary funding for the start-up and working capital costs, principally through an investment consultancy services agreement ( StratCap Contract) with a company called StrategicCapital Advisors Limited ( StratCap), of which Mr Smith had previously been co-portfolio manager.
Following BIPL's establishment, the key objective was to find ‘cornerstone’ investors to enable the Fund to launch. This, in turn, required an investment team to be built to generate client investment ( Investment Team). After what Mr Smith called the “ First Blackmoor Team” fell through in late June 2016, he agreed on 5 July to Mr Gray joining him on the Investment Team on a non-contractual ‘trial collaboration’ basis. If Mr Gray demonstrated success in raising capital for the Fund, they would then discuss his future participation, including equity, in Blackmoor. The Claimant was therefore at risk of receiving nothing if he failed to raise capital. Mr Smith explained that this approach was consistent with that adopted throughout his investment industry and capital raising experience (described in his written evidence as the “ Pre-Launch Terms”).
Despite their efforts from October 2016, the collaboration did not work to attract capital. From April 2017, Mr Smith made clear to Mr Gray that they were not gaining ‘traction’ and, from May 2017, that he would be taking the business in a “ different direction” and that Mr Gray needed to look at “ other options”. Mr Smith's attempt to put together a third iteration of the Investment Team and to attract certain cornerstone investors fell through in June 2017 with the untimely death of Mr Michael Treichl ( Mr Treichl). After ‘winding down’ their remaining investor leads, Mr Gray and Mr Smith finally parted ways in September 2017. A fourth iteration of the Investment Team, involving Mr Schmidt-Chiari, managed to launch the Blackmoor Fund on 9 March 2018, albeit with committed capital well below target levels.
There was no contractual or fiduciary relationship between Mr Gray and Mr Smith and, therefore, no breach of any related obligations. Damages or equitable compensation would not be due to Mr Gray in any event given the conceptual and methodological infirmities of his quantum claim. Nor could there be any duty to account for any profits – none of the ultimate investors in the Blackmoor Fund was the product of their joint efforts. Nor have the Defendants been ‘enriched’ by Mr Gray as a result of that collaboration, let alone ‘unjustly’ so.
The factual evidence – overview
It is common ground that the principal matter for my determination is a factual one, namely what Mr Gray and Mr Smith agreed as to the basis of their collaboration, whether the Alleged Oral Agreement (as Mr Gray contends) or the non-contractual trial period (as Mr Smith contends). The nature of their collaboration in Blackmoor is also highly relevant to Mr Gray's other claims in equity and in unjust enrichment. As to this, Mr Gray and Mr Smith each provided three witness statements containing starkly different accounts which they maintained in oral evidence. Since the claim is concerned with an alleged oral agreement, I keep well in mind Leggatt J's observations in Blue v Ashley [2017] EWHC 1928 (Comm) (at [65]):-
“ It is rare in modern commercial litigation to encounter a claim, particularly a claim for millions of pounds, based on an agreement which is not only said to have been made purely by word of mouth but of which there is no contemporaneous documentary record of any kind. In the twenty-first century the prevalence of emails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic footprint. ….”
After citing his own observations in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) (at [16–20]) about the unreliability of human memory, Leggatt J further stated:-
“ In the light of these considerations, I expressed the opinion in the Gestmin case (at para 22) that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.” ( Blue at [67])
I also keep well in mind that Mr Gray says most of Sections A-E of his first statement (concerning his background through to the end of his relationship with Mr Smith) had been committed to writing in autumn and winter 2017 when his discussions with Mr Smith were freshest in his mind. The Claimant relies on that contemporaneity to support the accuracy of his written evidence, the Defendants for the suggested mismatch of his statement with other aspects of the case.
1 Mr Gray's evidence
Mr Gray was a confident and courteous witness. He took great care in answering questions. This was often warranted for precision. He also made some appropriate concessions. However, many of his answers were overly long, some obfuscatory. He relied heavily on his written statements. His oral evidence revealed a tendency in his statements to exaggerate and to rely on parts of the record to put his case in a more favourable light even though the relevant documents did not bear the significance he sought to attach to them.
2 Mr Smith's evidence
Mr Smith was an impressive witness. He was...
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