Global Energy Horizons Corporation v Gray [2015] EWHC 2232 (Ch) (28 July 2015)

BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just Â£1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!

[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Chancery Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Global Energy Horizons Corporation v Gray [2015] EWHC 2232 (Ch) (28 July 2015)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/2232.html
Cite as: [2015] EWHC 2232 (Ch)

[New search] [Printable RTF version] [Help]

		Neutral Citation Number: [2015] EWHC 2232 (Ch)
		Case No: HC-2010-000018

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL

28/07/2015

B e f o r e :

THE HON MRS JUSTICE ASPLIN DBE
____________________

Between:

	GLOBAL ENERGY HORIZONS CORPORATION	Claimant
	- and -
	MR ROBERT GRESHAM GRAY	Defendant

____________________

Orlando Fraser QC, Andrew de Mestre and James Knott
(instructed by Rosenblatt Solicitors) for the Claimant
David Cavender QC, Conn MacEvilly and Joseph Wigley (instructed by MFB Solicitors) for the Defendant
Hearing dates: 16th17th 20th 21st 22nd 23rd 24th 27th 28th 29th 30th April 5th 7th 8th 11th 12th 13th 15th 20th 21st and 22nd May 2015
____________________

HTML VERSION OF JUDGMENT
____________________

Mrs Justice Asplin :

This is the Enquiry ordered by Vos J (as he then was) on 17 January 2013 into the benefits received by the Defendant, Mr Robert Gresham Gray ("Mr Gray"), directly or indirectly as a result of breaches of his fiduciary duties owed to the Claimant, Global Energy Horizons Corporation ("GEHC"). Vos J gave judgment as to liability on 21 December 2012. At paragraph 518 of that judgment, he declared that:-

"(i) Mr Gray acted in breach of his fiduciary duty to GEHC and is liable to account to GEHC as a constructive trustee for all monies and benefits received by him directly or indirectly arising out of Mr Gray's actions in:-

a) putting himself in a position from 17th March 2006 onwards where his duties to GEHC conflicted or might possibly conflict with his personal interests in relation to the Acquisition Strategy and the ultrasound technology; and

b) taking advantage of a maturing business opportunity, namely the opportunity to participate in the Acquisition Strategy and to obtain rights in the ultrasound technology, belonging to GEHC, in breach of the no profit rule."

GEHC elected to pursue the remedy of an account of profits and by the Order of Vos J dated 17 January 2013, Mr Gray was ordered to account for any monies and benefits received or receivable by him directly or indirectly as a result of the said breaches of fiduciary duty "including his indirect personal interest in RegEnersys Investments I Limited, but not including any amounts received in respect of the purchase of an interest in Klamath Falls Inc." It was also ordered that:

"3. GEHC is entitled to an enquiry as to the arrangements to which Mr Gray is party directly or indirectly providing for the said benefits.

4. Mr Gray is liable to transfer to GEHC any assets which it is determined on the enquiry that Mr Gray holds on constructive trust for GEHC."

Pursuant to the account, Mr Gray served and filed three affidavits together with exhibits dated 9 May 2013, 12 July 2013 and 21 August 2013 respectively. Two supporting witness statements of Adam Kantor, a former employee of ReVysion LLP, and James Ward, Mr Gray's and ReVysion LLP's accountant, each dated 9 May 2013, were also filed and served.

Mr Gray's position at the liability trial and as set out in his three affidavits and the supporting witness statements remains unchanged. He says that he has not received a net benefit and is not entitled to receive any monies or benefits as a result of his breaches of fiduciary duty; and he holds no interest in any company or entity which has an interest in ultrasound technology (of any type) and has no other arrangements in relation to it. In fact, in his affidavits he mentions his attempts to obtain an interest for himself and the Heerema Group (to which I shall refer) in the project relating to the technology being run by Russian scientists, including providing funding to the Russian scientists until early 2012. However, he states that he never reached any deal with the Russians, and that these efforts had completely failed by mid-2012. He also states that neither he, nor any entity associated with him, had ever entered any loan agreement with the Russian scientists. GEHC on the other hand contends that not only have benefits been received but that Mr Gray has sought to hide his continued interest in the ultrasound technology which is retained on his behalf. As a result, it is said to be necessary to determine the value of those benefits and GEHC contends that it is open to it to elect to take the value rather than any assets themselves.

Central Facts

Vos J dealt with much of the factual background to this matter in some detail in his judgment and I do not intend to repeat it all here. However, in order to make sense of the issues which arise on this Account and Enquiry, it is essential to have a grasp of the background and therefore, I set out the essential matters and go on to bring them up to date. I do not intend to differ or diverge from the facts already found in the Liability trial and therefore, any differentiation in use of language should be taken as just that.

GEHC is a company which was established by Mr Brian De Clare in 2004. In 2002, Mr De Clare had met a Chilean inventor, Mr Alfredo Zolezzi ("Mr Zolezzi") to discuss the development of ultrasound technology for use in the non-ferrous metal industry. Mr Zolezzi was developing the technology with some Russian scientists, including Professor Vladimir Abramov ("Professor Abramov") and his colleagues (referred to together at the Liability Trial and in this Enquiry as the "Russian Scientists"). Both Mr Zolezzi and Mr Juan Hurtado, a Chilean investor ("Mr Hurtado"), held shares in Klamath Falls Inc, a company incorporated in the British Virgin Islands through which Mr Zolezzi held his interests in the technology ("Klamath Falls"). By late 2003, Mr Zolezzi told Mr de Clare that he had adapted the ultrasound technology so as to increase the production of oil and gas. In December 2003, at Mr Zolezzi's suggestion, Mr de Clare met Mr Hurtado in London to discuss the commercialisation of the ultrasound technology.

Vos J described the ultrasound technology at paragraph [14] of his judgment in the Liability trial in the following way:

"... the technology applies ultrasound stimulation to the wellbore area in order to diminish wellbore damage and restore or enhance production in low performing or late life wells. The tools delivering the AWS technology are inserted into the well bore area and apply a wide range of frequencies and power in continuous or pulse modes, designed to stimulate oil and gas production."

Mr de Clare and Mr Gray discussed the ultrasound technology and setting up a business at a chance meeting in London in January 2004. GEHC was incorporated on 15 April 2004. Subsequently, Mr de Clare introduced Mr Gray to both Mr Zolezzi and the Russian Scientists and to two maturing business opportunities being the opportunity to obtain rights in the technology; and the opportunity to participate and obtain a carried interest in a strategy whereby a special purpose vehicle would purchase and/or invest in late life and underperforming oil and gas assets and utilise the technology on them so as to increase their remaining production and/or reserves (the "Acquisition Strategy"). Vos J found that Mr Gray agreed and allowed himself to be treated as a member of GEHC's Acquisition Strategy deal team in return for a share of the potential revenues. Mr Gray's percentage share of such revenues was the same as that of Mr de Clare being 22%. Furthermore, Vos J found that Mr Gray owed GEHC a duty of loyalty in relation to the Acquisition Strategy and the ultrasound technology from December 2004 and that the opportunities in relation to it came to Mr Gray as part of his involvement with GEHC.

In January 2005 Mr Gray introduced both the technology and the Acquisition Strategy on GEHC's behalf to El Paso Exploration and Production Company ("El Paso") a mid-sized US oil and gas exploration company. El Paso (together with the US Department of Energy) undertook testing of the ultrasound technology on its oil wells in Utah during 2005, leading to results described by Mr Gray in November 2005 as "extraordinary". The conclusion of the US Department of Energy was that if the technology were widely adopted: " . . .there may be a large increase in production . ." Mr Gray described "an Acquisition strategy" in April 2005 as "an almost risk free way to print money".

In December 2005 Mr Gray formalised his shareholding in GEHC. Also in late 2005, Mr Gray was approached by Mr Pieter Heerema ("Mr Heerema"). Mr Heerema is a Dutch billionaire and beneficial owner of the Heerema Group, a group of companies the principal business of which is the fabrication, transportation and installation of offshore oil and gas production facilities. Mr Heerema asked Mr Gray to set up and manage a US$500 million fund to hold energy-related private equity investments, in particular in sub-scale and late-life oil and gas fields on the basis that he would receive a 20% interest in it as well as a 2% management fee for managing the investments. Vos J. found that Mr Gray was acting in breach of his duty of good faith to GEHC, and of the no inhibition principle from January 2006, when Mr Gray began to further Mr Hereema's interest in the Acquisition Strategy and in the ultrasound technology. He also held that an actual conflict of interest arose in January 2006, when Mr Hereema expressed an interest in investing in the technology and the Acquisition Strategy.

Vos J. also found that when Mr Gray finally made clear to GEHC on 6 December 2006 that he would be acting solely in the best interests of himself and Mr Hereema, he was doing so knowing that he had a duty of loyalty and with the intention of taking advantage of an opportunity, namely the possibility of contracting with Klamath Falls for a licence to the ultrasound technology and a share of the profits that would thereby be derived, that had come to him as GEHC's fiduciary agent. On 1 February 2007, Mr Gray took a 20% profit share as limited partner in RegEnersys LP, the vehicle set up to run the investment fund. The other limited partner as to an 80% share was a Hereema entity, RegEnersys Inc, now known as Celloteck Holdings Inc ("Celloteck"). In turn, RegEnersys LP, owned 100% of an SPV called RegEnersys Investment I Ltd, ("RegEnersys I") the vehicle formed in due course to exploit Klamath Fall's patents in the ultrasound technology. Also on 1 February 2007, RegEnersys (Bermuda) Ltd entered into an Advisory Agreement with ReVysion LLP (owned by Mr Gray) ("ReVysion"), under which ReVysion would provide investment advice to the fund in return for which RegEnersys (Bermuda) Ltd would pay its general partner's share to ReVysion. It was Mr Heerema's unchallenged evidence that from the Heerema Group side, he relied heavily upon Mr Pronk, Heerema's Chief Financial Officer, to run the fund and it was clear from Mr Pronk's evidence that he considered that Mr Gray reported to him. I should say at this stage that I adopt the same course as Vos J. and refer to all RegEnersys entities as "RegEnersys" only specifying the specific RegEnersys entity if the difference is material.

On 6 June 2007, Celloteck, then known as RegEnersys Inc, acquired a 10% stake in Klamath Falls. It also entered a non-exclusive Licence Agreement with Klamath Falls in respect of the ultrasound technology. In addition, RegEnersys Inc entered into a cooperation agreement under which the parties would cooperate towards the testing and commercialisation of the technology, including the implementation of a "work programme agreement" following the successful completion of the testing, which would relate to the manufacture of ultrasound tools and the training of personnel in the use of such tools for use by RegEnersys I. RegEnersys' now known as Celloteck's interest in the licence and cooperation agreement was assigned to RegEnersys I on 3 August 2007.

In mid May 2008, RegEnersys I entered into an agreement with El Paso to test the ultrasound technology on twelve of its oil wells located in Utah. The testing continued until around April 2009. Mr Graham Knight who was working for ReVysion and spent most of his time on the ultrasound project, was present in Utah during some of the testing in order to assist. The testing was relatively expensive to implement but generated enthusiasm. Mr Knight reported to Mr Gray on 15 August 2008 that whilst the test had achieved mixed results, the El Paso employee coordinating the testing and his colleagues were "very enthusiastic". Mr Knight accepted in cross examination that others were less enthusiastic. Further, Mr Gray stated in an email of 17 August 2008 to Mr Adam Kantor, also an employee of ReVysion at the time, that although the technology had not worked effectively enough in the tests to recoup RegEnersys I's costs, "the technology does work" and "has worked perfectly". In any event, in an August 2008 "Business Update" presentation sent to Mr Pronk for use at a meeting of the trustees who are responsible for overseeing Mr Heerema's businesses (the "Heerema Trustees") the results of the testing by El Paso were described as "excellent" and it was stated that "preliminary analysis suggests potential returns are in the billions".

It is not in dispute that whilst the development of the technology was being progressed by Mr Zolezzi through Klamath Falls and Klamath Falls held the US patents for the technology, the Russian Scientists and their work were important to the successful development and commercial use of the technology. In fact, in cross examination, Mr Heerema described the Russian Scientists as "key to the technology." A RegEnersys LP update for the Heerema Trustees for the first quarter of 2009, also recorded that the "true value seems to be with Vladimir's [Professor Abramov's] team in Russia".

During the testing of the technology in Utah, relations between RegEnersys I, Mr Zolezzi and Mr Hurtado soured. In June 2009 Celloteck and RegEnersys I began arbitration proceedings in Chile against Klamath Falls, Mr Zolezzi and others for breach of the Licence Agreement and the Cooperation Agreement. There was a hearing in Chile between 1^st and 5^th November 2010.

Meanwhile, from early 2009, RegEnersys had started funding the Russian Scientists. By December 2009, a total of $636,268 had been transferred, and around 15 December a further $266,386 was paid to "keep operations afloat" in exchange for which it was envisaged that "RegEnersys will take up an additional new equity in the [Russian] vehicle." ReVysion employees including Mr Gray also visited Russia to conduct due diligence on the Russian Scientists' operation. GEHC claims that this funding was given on the understanding that RegEnersys would have an equity stake in the Russian operations.

However, in early February 2010, Mr Heerema and/or the Heerema Trustees decided to cap the level of the RegEnersys LP fund. Despite this Mr Gray met with the Russian Scientists in Moscow on 2 and 30 March 2010 and from March 2010 he funded the Russian Scientists personally. Mr Knight accepted in cross examination that it was proposed that Mr Gray would personally pay $1 million broken down as $720,000 to effectively pay the Russian Scientists' overheads for one year and $280,000 towards financing a well stimulation programme with TNK/BP and others. It was also understood that RegEnersys I would ship its remaining ultrasound generators to Russia and that in exchange for the funding RegEnersys/ReVysion would receive around 48% of the shares in "Power US" (the name proposed for the vehicle in which to consolidate the Russian operation) with the patents held by the Russian Scientists being put into that vehicle. However, Mr Heerema and/or Mr Pronk on behalf of the Hereema Group insisted that RegEnersys I's legal and structuring costs associated with negotiating the deal should be reflected in the equity allocation to RegEnersys I, and that accordingly it should have a majority holding. Professor Abramov, the leading Russian Scientist, rejected this counter proposal but in doing so stated in an email to Mr Gray of 26 March 2010, that "we are acting as partners", that Mr Gray "has invested already and we agree this" and went on: "We must find a way that you will be confident to continue and also that our interest is protected."

As I have already mentioned, on 30 March 2010 Mr Gray and Mr Knight met the Russian Scientists in Moscow. The contemporaneous meeting notes record a revised proposal was put forward under which Mr Gray would invest $1.5 million personally to purchase equity of 51%, split into funding of $720,000 for budget support, $280,000 to fund testing of ultrasound technology by a company called "CUT Services" and the remaining $500,000 towards various other costs and reserves. It was also proposed that Mr Knight would move out to Russia to oversee the Russian operation and implement "Policies and Procedures". Mr Knight accepted that he did so at least in the sense that thereafter, he spent approximately 50% of his working time in Russia.

On 14 April 2010, GEHC's solicitors wrote a letter before action to Mr Gray enclosing the draft Particulars of Claim in this action. Thereafter, on 17 June 2010, Mr Knight produced a document headed "Funding Proposal" in which he made reference to RegEnersys, referred to as "RE", already nominally holding equity. Mr Knight made clear in cross examination that he had not received share certificates but understood that there was an agreement. Thereafter, also in June 2010 Han Smits, an employee of the Heerema Group responsible for accounting matters, who worked in the Geneva office with Mr Pronk, was instructed to make a payment of $250,000 to the Russian Scientists "from the management fund". It is not in dispute that the "management fund" was a reference to the $10 million fee which Mr Gray received from the Hereema Group for the management of remaining assets of RegEnersys UK for three years from 2010-2012. The payment to the Russian Scientists was made in two tranches on around 1 July 2010, $100,000 being paid to Wilmington Holding (a company owned or controlled by the Russian Scientists) and $150,000 being paid to CUT Services, the newly incorporated Russian vehicle that was to deploy the ultrasound technology tools in Russia. The sums were intended to fund further testing in Siberia.

Further at this stage, Mr Knight accepted that it was intended that research and development and some of the operations would be done in Russia and that RegEnersys would be responsible for the international exploitation of the technology.

Thereafter, on around 5 July 2010, Mr Knight met with the Russian Scientists in Moscow once more. The meeting note sets out the proposed terms of the formalisation of the investment, as follows:

"We discussed the formalisation of our investments to date in CUT Services and Power US Russia (or the vehicle which will hold the IP and patents.)

Russian Proposed Terms

- RG to hold 30% in Power US Russia

- RG will take 49.5% in CUT Services until both:

a) loan of $150K, term 36 months, rate 6% fully repaid;

b) 25% earn-in of Saltikovs achieved;

at which time RG shareholding reduced to 24.5%

- Power US grants exclusive evergreen rights to RG to market and commercialise all technologies outside of Russian Federation in consideration of royalty and technical assistance fees. 24 months exclusive.

- All companies in which RG a shareholder granted full financial oversight. Commitment to implement mutually agreed budget.

- All future JVs and investment with third parties (i.e. Ivanko) through JVs. No further investment in company which holds IP.

Next steps

- Shareholder Agreement and Share Certificates in CUT Services

- Loan Agreement between CUT and RG as described above;

- Updated Shareholder Agreement in Power US Russia to cover future investment form third parties, potential JVs

- Agreement to enshrine marketing and commercialisation rights to all technologies outside Russia."

In cross examination, Mr Knight stated that the reference in the note to "RG" was to RegEnersys and not Mr Gray himself which I accept. Despite having been asked for comments at the time, Mr Kantor stated that he did not recall the email.

Following the meeting in Moscow in July, the terms which had been discussed were reflected in a "Sonovita Investment Memorandum" prepared by Mr Knight and sent to Professor Abramov's daughter Anna on 14 September 2010. Mr Knight stated: "the [Sonovita] Group's equity is currently held by the founders, Professor Vladimir Abramov and Doctor Vadim Bayazitov (70%). RegEnersys, a London-based private equity fund holds 30%." Sonovita was formerly to have been Power US Russia. In an internal structure diagram sent by Mr Adam Kantor, then an employee of ReVysion, to Ms Waller and Mr Knight on 22 September 2010, Sonovita was described as owned "70% VA/VB 30% RegEnersys" whilst the ownership of CUT Services was described as "50.5% VA/VB 24.5% RegEnersys 25% Loan Repayment (held by RegEnersys)". The capital injection envisaged was a "$250K shareholder loan to Sonovita".

In September 2010 it appears that Professor Abramov started to consider other sources of funding. However, Mr Knight emailed Mr Gray stating that despite the Professor's concerns about funding he was "clear that our shareholding in Sonovita/Power US would be respected." In cross examination, Mr Knight stated that he believed that it was just a question of the size of the holding.

Messrs Knight and Gray met with the Russians in Stuttgart in October 2010. The meeting was not mentioned in any written evidence on Mr Gray's behalf before the court. In any event, in cross examination Mr Knight stated that on that occasion the corporate structure for the collaboration was discussed again although nothing was signed.

Thereafter, by an email dated 25 October 2010, from Mr Gray to Han Smits which was copied to Mr Pronk, Mr Gray requested Mr Pronk to send a further US$250,000 to the Russian Scientists for "our share" in the Russian operation, being "30% of Sonovita and 25% of CUT Services Russia and a majority in any overseas programme". He also made reference to having "no formal agreement with Vladimir [Professor Abramov] and Vadim on this project ahead of the outcome of the Chile arbitration but hopefully we can them [sic] re-combine the original patents and KF licence to operate with the new programme."

GEHC contends therefore, that by no later than 25 October 2010, Mr Gray had come to a clear agreement, arrangement or understanding with the Russian Scientists as to the terms of the interest RegEnersys was to have in the Russian operation and that a formal written agreement had not been executed as a result of the ongoing arbitration in Chile. GEHC says that the agreement with the Russian Scientists is reflected in other documentary evidence, for example: on 7 December 2010, Mr Knight told Mr Gray that he had requested share certificates for 30% in Sonovita and 49.5% in CUT Services from Sonovita's lawyer; a feasibility study drafted by the Russian Scientists includes statements re proposed funding from RegEnersys; and Mr Gray's curriculum vitae of 15 March 2011 which lists shares held in the ultrasound technology. On 29 October 2010, $250,000 was paid to the Russian Scientists' company, Wilmington Holding, and was made from the $10 million management/consultancy fee payable to ReVysion. In fact, a further payment of $50,000 was made to Wilmington Holding on around 1 March 2011 from the same source.

On 7 December 2010, Mr Knight provided Mr Gray with a list of the documents which he had requested from Mr Bashinski, Sonovita's lawyer. They included a "Share certificate for 30% of paid-up shares in the name of RegEnersys" and "Receipt for $250,000 Shareholder Loan from RegEnersys" from Sonovita and a "Share certificate for 49.5% of paid-up shares in the name of RegEnersys"from CUT Services and "Loan Agreement between CUT Services and Power Ultrasonics in the sum of $150,000." In addition, Mr Knight provided a comfort letter in which reference was made to a loan at 6% interest and an agreement to promote the ultrasound technology outside Russia.

The next day, on 8 December 2010, GEHC issued these proceedings against Mr Gray for a declaration that Mr Gray had breached his fiduciary duties to GEHC, and compensation for losses, or an account of benefits, which culminated in the trial on liability before Vos J.

Thereafter, by a Share Purchase Agreement dated 31 December 2010 (the "2010 SPA") RegEnersys was restructured, so as to wind up RegEnersys LP and sell its assets including the shares in RegEnersys I, to RegEnersys (UK) LP ("RegEnersys UK"). The purchase price was $65,495,402. By clause 3.3 of the 2010 SPA, RegEnersys UK directed RegEnersys LP to apply the purchase price in "discharging the debt owed by the Seller [RegEnersys LP] to RegEnersys Inc" (now Celloteck, a Heerema Group entity). On the same date, a Loan Agreement was entered into between RegEnersys UK and RegEnersys Inc [Celloteck] by which Celloteck advanced the purchase price of $65,495,402 in the form of an unsecured loan at a nil rate of interest.

As a result of a Limited Partnership Agreement also dated 31 December 2010, Eager Resources LLP, controlled by Mr Gray, holds 51% of RegEnersys (UK), the remaining 49% being held by Celloteck. This entitles Mr Gray to 90% of the profits of its investments (including the ultrasound technology) once the $65 million loan had been repaid. The Limited Partnership Agreement also provided that 50% of any proceeds of sale from any of RegEnersys UK's investments is to be applied by it towards the discharge of the loan, with the remaining 50% being distributed by RegEnersys UK to its partners (split 90% to Mr Gray, and 10% to Celloteck until the loan had been repaid). Mr Pronk's written evidence, however, was that in practice Mr Gray could have kept 90% and paid 100% to Celloteck. He sought to quaslify this in cross-examination.

A Feasibility Study was produced by the Russian Scientists in or about December 2010. Mr Knight arranged for it to be translated in March 2011. It contains numerous statements that describe RegEnersys as a principal investor and part of the Heerema Group which had made a loan and would represent the Russian Scientists' interests outside Russia which mirrored those in the comfort letter provided by Mr Knight in October 2010.

In cross examination, Mr Knight said that the references to the loan were false. However, Mr Kantor said that it was Mr Knight who had had it translated and read it and it was reasonable to assume that if the contents were false he would have been informed which he was not. Further, in an e-mail from Mr Knight to the Russian Scientists dated 11 April 2011 reference is made to taking steps to "make official our equity participation with ReVysion/RegEnersys". Thereafter, Mr Knight prepared a draft licence agreement for use by Sonovita and emailed to Mr Kantor on 17 May and 6 June 2011 which recorded that Sonovita "is owned and managed by Professor Vladimir Abramov … Dr Vadim Bayazitov, and RegEnersys LLP, a London-based private equity fund". In April 2011 he also prepared a draft business plan for Sonovita International in which it was stated that the international market for the ultrasound technology was "limitless" and that Sonovita International was a company formed by Professor Abramov and "his partners". Mr Knight stated in cross examination that he considered RegEnersys to be a partner at that stage.

Around this time, a report headed "Ultrasonic Well Treatment overview TNK/BP" dated 16 February 2011 was produced prior to a meeting intended to take place with Tony Hayward, a very senior executive with BP. It stated that one of the key advantages of the technology was that production was accelerated and overall recovery increased. It included a table of TNK/BP test results which showed an average production increase as a result of the technology of 290.5%. It also recorded that TNK stated that the technology was "more profitable and cost effective than their other treatment options."

In an email dated 29 July 2011 from Mr Knight to Mr James Ward in connection with Mr Knight's proposed departure from ReVysion, he stated that notwithstanding his departure he would continue to work on the "Russian investment" and would "endeavour to protect RegEnersys economic interests and equity". In his email, Mr Knight requested a 3% equity stake in the Russian business. Ultimately, his severance terms did not include such a stake. Mr Ward acted for ReVysion in the negotiations. Within an hour of the request, he emailed Mr Gray with finalised terms which did not include the equity stake. Mr Ward's evidence was that the terms had been finalised with Mr Gray on the telephone and that he had refused to give Mr Knight any shares. In the event, Mr Knight obtained 3.5% of the shares nevertheless. He says that they were given to him by Professor Abramov. However, in cross examination, by video link, Professor Abramov showed contempt for Mr Knight, describing him as merely a taxi driver for Mr Gray. This is something to which I shall return.

In addition, despite the fact that it was known that Mr Knight was leaving ReVysion, in May 2011, Ms Deeney, Mr Gray's personal assistant, emailed him to say that Mr Gray had suggested that he become a director. Mr Knight was unable to explain this or the fact that his Linkedin profile describes him as "Director Sonovita Russia".

Further, in September 2011, after Mr Knight had left ReVysion, Mr Kantor sent him confidential information. His explanation was that Mr Knight was still working with the Russians and attempting to obtain funding and that anything which moved the project forwards would be beneficial to all. Mr Knight stated in cross examination that he had forwarded the documents to Professor Abramov to assist with a funding application made to the Russian government but his evidence was otherwise vague. However, he did accept that in the autumn of 2011 he reported to Mr Kantor in relation to a joint venture which was undertaken with Unaoil in relation to wells in Azerbaijan. He also went out to Baku in November 2011 and spoke to Mr Gray on a number of occasions that autumn.

From September 2011 until March 2012, GEHC contends that Mr Gray continued funding the Russian Scientists but routed payments through third parties in order to hide them and avoid disclosure in these proceedings. Payments from Executive Trade were recorded by Viatekh as having been made pursuant to a Commercialisation Agreement dated 16 September 2011, which lists Executive Trade as a subsidiary of RegEnersys. These payments were omitted from Mr Gray's account.

Thereafter, in December 2011, Mr Ward sent an email request to Mr Gregory Elias, Heerema's company agent in Curacao, asking him to set up Chiloquin Manana Investments I ..."Chiloquin") on behalf of RegEnersys UK. Mr Ward stated that Mr Elias should have all of the "know your client" information already. However, in cross examination, Mr Elias denied knowledge of Mr Gray. I accept his evidence in this regard.

On 2 February 2012, RegEnersys I entered into a settlement agreement with Klamath Falls in respect of the Chilean arbitration, under which it was agreed that Klamath Falls would pay not less than $5.1 million to RegEnersys I and Celloteck and the controlling stake in Klamath Falls would be transferred to Chiloquin. Mr Gray signed the agreement on behalf of Celloteck and Mr Kantor signed the share purchase agreements on behalf of Chiloquin. On the same day, Mr Gray was appointed as a director and authorised signatory of Klamath Falls. Thereafter, on 13 September 2012, RegEnersys Inc, RegEnersys I and Klamath Falls entered into a settlement agreement with Mr Zolezzi and his company, Technical Research, transferring his remaining interests in Klamath Falls to RegEnersys I.

In the meantime Mr Gray and Mr Kantor visited Moscow in March 2012 followed shortly thereafter by Mr Knight. In or around April 2012, a Russian company, Venture Investments & Yield Management ("VIYM") was considering investing in the ultrasound technology. In fact, Mr Gray had met with them in St Petersburg in January that year and Mr Gray was accompanied by Mr Kantor on a trip to Moscow in February. A financial due diligence report was prepared by VIYM in April 2012. It includes the following passages:

"The Investor—RegEnersys LP (established in 2007 by Mr R. Gray, who holds a 30% share in each company pursuant to the agreement), which issued a loan in the amount of 64,240,000 roubles at 6% interest per year (interest will start being charged on 1 January 2014).

. . .

In 2011, the Investor provided funds in the amount of 20,800,000 roubles"

The reference to the loan was hyperlinked to a document entitled "Commercialisation Agreement." The authenticity of that agreement purportedly signed by an Ulrich Stolz as General Manager of RegEnersys is in question. Mr Lohse's evidence which is subject to a Civil Evidence Act notice is that he contacted a Mr Stolz who did not deny knowledge of the parties or these proceedings but stated that the signature on the document was not his. He provided a copy of his signature which appeared in company documentation. The Commercialisation Agreement was made between Viatekh, BaltPromArmatura (a Russian engineering firm) and RegEnersys LP, described as "the Investor". It states at clause 3.14 that Executive Trade LLP is a subsidiary of RegEnersys LP and that RegEnersys LP had the right to provide its funding though Executive Trade LLP. Clauses 1.5 and 2.1 contained the loan agreement pursuant to which RegEnersys LP agreed to lend 64.24 million roubles to Viatekh and BaltPromArmatura. The loan to BaltPromArmatura referred to in clause 2.3 was repayable within 3 years from 2014 and carried an interest rate of 6% and the loan to Viatech contained in clause 2.4 was repayable within 5 years from 2014 and also carried an interest rate of 6%.

In his sixth witness statement, dated 27 February 2015, Mr Gray denies any knowledge of or involvement in the creation of the Commercialisation Agreement. Mr Knight's evidence contained in a further witness statement of the same date, takes the same form. Mr Gray denies that RegEnersys LP has ever had a subsidiary called Executive Trade LLP and states that he has no knowledge of any payments that might have been made by Executive Trade LLP, that he did not know the Commercialisation Agreement existed, that he has no recollection of BaltPromArmatura and that he was "highly sceptical as to the authenticity and purpose of [the Commercialisation Agreement]".

From April 2012, Mr Gray and his associates circulated a number of emails regarding a planned corporate restructuring for a joint venture between Celloteck and the Russian Scientists. This involved the incorporation of a "Holdco/Parentco" for the Russian business, in which Celloteck would take 30%, and an "Opco" for the international business, in which Celloteck would take 51%. GEHC say that the joint venture referred to in the summary circulated in April 2012 reflected the agreement reached with the Russian Scientists back in 2010.

As I have already mentioned, the Russian Scientists were also negotiating with a third party, VIYM, in relation to an investment in Sonoplus. Mr Gray met with Messrs Ivanov and Volchenkov of VIYM in St Petersburg on 17 January 2012. Prior to a meeting between VIYM and the Russian Scientists on 30 January 2012, VIYM prepared a memorandum in the following form:

"1. For the purposes of realisation of the scheduled plan of development of the group Viatex (later referred to as Company), the owners of the company are selling 25,1% of shares of the Company. Transaction amount is $3m (based on the value of 100% of shares $12 000 000.

2. The parent company is being created in offshore zone (potentially in Cyprus), which will become 100% owner of Viatex group. The shares in the parent company (later referred to as Cyprus) are divided as follows:

a. 25,1% - belongs to VIYM

b. 74,9% - belongs to the company in offshore zone (later BVI), owners of which are Abramov, Bayazitov and R. Gray (or another structure of current owners of the group of Companies based on internal agreement between the owners of the group).

3. Main assets of the company (but not exclusively) are 4 patents, +2 licencing agreements to non-reciprocally use the patents of the company Klamath Falls (belonging to R. Gray) on the territory of the CIS. R. Gray is also providing the company with generators necessary for realisation of the strategy of the company

[…]

6. Principals [sic] of working with R. Gray:

a. At the present moment newly created parent company (Cyprus) is concentrated on development of business in Russia and CIS. R. Gray is co-owner of the group (through his ownership of shares in BVI together with Abramov and Bayazitov)

b. In future Cyprus is cooperating with R. Gray as well as other companies (Yunaoil).

c. Form of cooperation of Cyprus with the "third party organisations" can be various (as for the contracts to provide other services as well as equity participation) and will be discussed in each particular matter. However, the parties agree that it is more beneficial to cooperate in relation to the equity participation in the new projects with the third parties rather than simple contracts for the provision of technological services.

d. R. Gray is additionally financing the projects abroad as pr share ownership belonging to him in each particular situation (provisionally agreed proportion 50/50)."

A draft Information Memorandum from 2012 records that although the "official documents" did not disclose Mr Gray's interest in the Viatech group, "the owners … have agreements in place to alter the structure." These agreements were recorded as being "in verbal form" and as being "based on many years of joint work with Mr Rob Grey [sic], who financed the Company's operations as well as laboratory work". The document also appended a copy of Mr Gray's curriculum vitae and recorded (in the form of a structure chart) Mr Gray's 30% interest in the proposed Russian structure. In this regard, in cross examination, Mr Kantor merely stated that he was unable to comment.

As part of the due diligence, in April 2012 the Information Memorandum was finalised. It also recorded Mr Gray's agreement for an interest in the exploitation of the Ultrasound Technology outside of the former Soviet Union, namely that the Viatech group had an "understanding…with Heerema Investment Fund – the coverage of the rest of the world in case of the direct participation of the Heerema Family companies/funds. The basic principles: 49% (for parent company (current owners + VIYM)/51% for Heerema. The main fields of cooperation: heavy oil wells." The Financial Due Diligence Report (which contained the link to the Commercialisation Agreement) also stated that "Mr R.Gray…holds a 30% share in each company pursuant to the agreement".

Prior to VIYM's investment, on 4 April 2012, Mr Volchenkov had written to Professor Abramov setting out details of the companies proposed to be established. It stated in part "Principal aim…Establish your (with [Dr Bayazitov] and Neeremoi or P. Gray (or without him at this point)) company in Cyprus or the BVI…this company will acquire a stake in a joint company." In cross examination, Professor Abramov denied knowledge of "P. Gray" despite the letter "P" being Cyrillic for "R". I am unable to accept his evidence in this regard, which did him no credit.

In any event, VIYM's investment was approved at a VIYM investment committee meeting on 19 April 2012, the minutes for which reflect the structure outlined in the Information Memorandum and refer to the creation by "Abramov, Bayazitov and R. Gray" of "their own company (BVI)" which would own 74.9% of the company to be created below it in the structure (in which VIYM would hold the remaining 25.1%). VIYM's initial investment seems to have been $3 million.

Further on 25 April 2012, Viatekh took delivery of generators for the Ultrasound Technology from RegEnersys I. Thereafter, on 29 May 2012, the Russian Scientists incorporated Petrosound Ltd ("Petrosound") in the Seychelles. Petrosound was the "Holdco" in the structure referred to above. On 6 July 2012, Sonoplus was incorporated in Cyprus as a 100% owned subsidiary of Petrosound. On 3 September 2012, Sonoplus issued 335 shares (25%) to Verlys Nominees Ltd, a Cypriot nominee for VIYM. This left Petrosound with a 75% share in Sonoplus. On 21 September 2012, Viatekh became a 100% subsidiary of Tekhnoplus which itself was owned by Sonoplus (99.9%) and OOO Ultrasonic (0.1%). OOO Ultrasonic was owned 99.9% by Sonoplus and 0.1% by Tekhnoplus, thus making Viatekh a wholly owned subsidiary of Sonoplus. On 21 September 2012, CUT Service became a wholly owned subsidiary of OOO Ultrasonic. On 1 October 2012, the shares in Sonovita were transferred to Sonoplus making Sonovita a wholly owned subsidiary of Sonoplus.

Meanwhile, on 17 August 2012, RegEnersys UK (in which Mr Gray held a 51% stake) sold its wholly owned subsidiary Chiloquin, (which owns Klamath Falls) to Celloteck (a 100% Hereema Group company). It is said that Mr Gray thus severed any connection to the ultrasound technology. The Sale and Purchase Agreement was accompanied by a loan reduction agreement, and Mr Gray says that the transfer was to repay/diminish RegEnersys UK's indebtedness to Celloteck. GEHC claims that the Sale and Purchase Agreement was intended to conceal an ongoing, secret interest held by Mr Gray in the ultrasound technology. Also on 17 August, Mr Gray served his witness statement for the Liability trial in which he stated that he had no interest in the technology.

On 19 December 2012, Vos J gave judgment and found that Mr Gray had been in breach of his fiduciary duties. On 20 December 2012, Asteck (a Hereema group entity and 100% owner of Celloteck) sold Celloteck to Anmich Holdings (a company owned by Mr Elias) for $1.

As I have already mentioned, on 17 January 2013 and 11 April 2013, Vos J ordered this account and enquiry. Thereafter, in May 2013, Ms Deeney provided the contact details of Messrs Volchenkov and Ivanov to Mr Gray and Mr Knight met with Mr Volchenkov in the week of 20 May 2013. On 28 May he reported by email to Vadim Bayazitov, one of the Russian Scientists, that he had done so and that he was drafting a memorandum of understanding between VIYM, Sonoplus and "my British company regarding formation of the international company."

In an email of 28 May 2013 to Mr Volchenkov, Mr Knight recorded what he considered had been discussed which included the roll out of the technology internationally through a UK company to be known as Petrosound International Ltd. He referred to initial fundraising to cover amongst other things the cost of two tests to be held in Azerbaijan and the USA and the cost of the Klamath Falls intellectual property and that the shareholding would be held 49% Sonoplus, 49% "new investors" and 2% Chateaufine Ltd, Mr Knight's company. Mr Volchenkov's reply refers to "international affairs were split with FOB, CIS and the world" and makes reference to "admitting him instead of Rob . . . instead of Rob's 30%" followed by a smiley face.

Thereafter, in October 2013, Petrosound International Ltd was incorporated with Mr Knight as the sole registered shareholder. Sonoplus is said to have a 49% stake. GEHC contends that Mr Gray and the Hereema Group will pick up the remaining 51% in due course, as GEHC alleges was agreed in the corporate structure planned in 2012.

Further, by an agreement of 13 November 2013, Celloteck transferred all its intellectual property rights in the ultrasound technology to PetroSound in return for a 15% shareholding in that company. On 22 November 2013, the Russian Scientists gave a 15% shareholding in Petrosound to Chiloquin (a subsidiary of Celloteck). They also gave 15% to two VIYM employees, Mr Volchenkov and Mr Ivanov.

Witnesses of Fact

Shortly after the beginning of the trial, Mr Gray was admitted to hospital as a result of an emergency. The trial timetable under which he had been due to give evidence was adjusted and an initial medical report was obtained. The report confirmed that Mr Gray was not in a position to give evidence at that stage but that he retained the mental capacity required to give instructions. A further medical report was produced on the thirteenth day of the Enquiry. As a result, I granted an application which was not opposed, to extend the period for filing and service of hearsay notices in respect of Mr Gray's affidavits and witness statements made in the Enquiry.

The weight to be given to that evidence untested by cross examination, is a matter to be determined. In this regard, I take account of the fact that in the Liability trial, Vos J (as he then was) found him to be "largely unreliable", at times "deliberately lying" and "cynically giving misleading evidence" and stated that he was "certain . . that he told deliberate untruths in several areas." Cooke J's conclusions were similar in Gray v Smith, JMPC Sales Ltd and Edwards [2013] EWHC 4136. I also take account of the fact that various payments made to the Russian Scientist by indirect means in 2011 were not referred to by Mr Gray in his written evidence for the purposes of the Account. Once the payments became known, Mr Gray sought to explain them in his fifth witness statement stating that they were made through third parties because he was away at the time. In fact, Ms Deeney accepted that Mr Gray was not away at the time and that in any event, she directed the making of the payments and copied Mr Gray in. In fact, she stated that she had power of attorney over the account in question.

In the circumstances, I attach very little weight to Mr Gray's written evidence unless it is corroborated by contemporaneous documentation or other credible testimony.

Further, it is of particular note that barely any emails have been disclosed passing between Mr Gray and the Russian Scientists after the end of 2010 or between Mr Gray and Messrs Pronk and/or Heerema concerning the ultrasound technology. Further, only a limited number of documents passing between Mr Kantor and the Russian Scientists on an email address in the name of "Bill Barrett" were made available as a result of disclosure from VIYM. The attachments to the Feasibility Study of February 2011 and perhaps most markedly, the confidential fax sent to Mr Pronk by Ms Deeney on Mr Gray's behalf in August 2012, have not been disclosed. When these matters are taken together with the unreliability of Mr Gray's evidence in the past, the use of undisclosed email accounts and indirect means of transferring monies to the Russian Scientists with unexplained references, it seems to me that it is proper to infer that documents may well have been withheld from the Enquiry which are not helpful to Mr Gray's case.

Returning to the witnesses of fact, Mr Adam Kantor joined ReVysion in April 2007 and was involved in providing services to RegEnersys. From October 2007 to November 2011 he was directly involved in the commercialisation of the ultrasound technology. He concentrated on the Chilean arbitration proceedings and has also liaised with Mr Gray in relation to these proceedings including having input into the Defence and the opening and closing submissions in the Liability trial in 2012. Since May 2012 Mr Kantor has been a director of Klamath Falls and is actively concerned with seeking to "monetise" the ultrasound technology. I found Mr Kantor to be an evasive witness who at times was untruthful or resorted to stating that counsel should ask another witness rather than give an answer to a question. I also consider that I am entitled to draw an adverse inference from his creation and use of a separate email account in order to communicate with the Russian Scientists and his failure to disclose the existence of the account in the name of "Bill Barrett" at all.

Mr Graham Knight is a director of Chateaufine Ltd, his company which manages his investments. He joined ReVysion in 2007 and spent the majority of his time on the ultrasound project. He left ReVysion on 31 August 2011. At times, Mr Knight's evidence was less than straightforward and I found him to be an unreliable witness in relation to a number of central issues including the agreement with Professor Abramov in relation to the 30% shareholding in Petrosound Ltd. I am unable to accept his evidence unless it is corroborated by a combination of the oral evidence of others and contemporaneous documentation.

Mr James Ward is a chartered accountant and chartered company secretary. At the relevant times he was a director of Whale Rock Accounting Ltd which provided services to ReVysion. From 2007, Mr Ward acted, in effect, as Head of Finance for ReVysion. He also dealt with Mr Gray's personal tax affairs, albeit in conjunction with a firm of accountants who also provided tax advice on specific issues. I found Mr Ward to be a defensive witness whose evidence at times was guarded, in particulars, as to the characterisation of receipts in ReVysion accounts and those of Mr Gray personally which I was unable to accept.

Ms Justine Deeney has been Mr Gray's personal assistant throughout the relevant period. For the most part, I found her to be a careful and straightforward witness who tried to assist the court.

Mr Pieter Heerema is the owner and president of the Heerema Group. For the most part, I found Mr Heerema to be a straightforward witness. However, his recollection was poor and in many instances he stated that he had not been involved in the details of the issue in question, having delegated matters to Mr Pronk. I accept his evidence that in all matters relating to the fund, he relied upon Mr Pronk heavily. However, in relation to the assertion in his witness statement that he had capped the fund as a result of a $65m loss, he accepted that he did not understand how the figure had been arrived at and could not assist. In relation to the $65m figure, his relationship with Mr Gray and the nature and level of his interest in the ultrasound technology, I found him to be evasive and I approach his evidence with due caution.

Mr Nico Pronk is the Chief Financial Officer for the Heerema Group and has held that position during the period which is relevant to the matters in question in this Enquiry. For the most part, he was at the heart of the matters in dispute. Unfortunately, at times I found him to be an unreliable witness who struggled to make his evidence fit that of others and the documents at all costs and on other occasions merely asserted that he was unable to recall a particular link in the chain of events. For example, he says that he has no recollection of the content of a fax sent by Ms Deeney to his assistant in Geneva for his attention. I approach the central parts of his evidence with a large degree of caution and accept it where it is also consistent with other oral and documentary evidence.

Mr Gregory Elias is the owner and managing director of The United Trust Company N.V. The company provides corporate law and company secretarial and associated services. The Heerema Group has been a client for around thirty years and Mr Elias stated that he had dealt with Mr Pronk for at least twenty years. Mr Elias gave evidence by video link from Curacao. For the most part, I found him to be a straightforward witness albeit somewhat guarded.

Professor Abramov gave evidence by video link from Moscow. He restricted the time during which he was willing to be cross examined to three hours, but in fact, including periods during which the equipment broke down, he was cross examined for approximately four hours. Unfortunately, given the centrality of his evidence, the time allotted by the Professor for the cross examination was woefully inadequate. The quality of reception was very poor. Once this was combined with the Professor's rambling delivery and the fact that English is not his first language and the way in which the bundles had been provided to him, for the most part electronically, the court's ability to follow his evidence and counsel's ability properly to conduct his cross examination was seriously hampered. Having said that, it was clear that Professor Abramov at times, adopted a confrontational style and was unhelpful, evasive and rambling in his answers. He was noticeably more fluent and willing to answer in re-examination, despite having overrun the time after which he had stated that he was no longer available. I should also mention that although the person was not visible, it was clear that there was a person present with the Professor during the cross examination to assist with the documents but of whom the Professor occasionally also asked questions. Putting all these matters together, I found Professor Abramov to be an extremely unsatisfactory witness whose evidence for the most part, I am unable to accept unless corroborated by other oral or documentary evidence.

I should mention that Mr Cavender submitted that Mr Fraser's case amounted to there having been a conspiracy between Messrs Gray, Knight, Kantor, Pronk and Heerema, if not also Mr Ward and Professor Abramov and that Mr Fraser had not put this to them and as a result, was not able to close his case upon such a basis. It seems to me that Mr Fraser put to each of the witnesses the entirety of his case on behalf of GEHC and that there can be no legitimate complaint in that regard. Each witness was made fully aware of the extent to which it was alleged that he together with others was seeking to shield Mr Gray's alleged interest in the various shareholdings.

The evidence of Lisa Stewart, Paul Francis Cambridge, Qasim Sharif and, as I have already mentioned, Frank Lohse was admitted subject to hearsay notices pursuant to section 2 Civil Evidence Act 1995. Ms Stewart was a senior executive at El Paso and became the Executive Chairman of Sheridan Production Company amongst others. It invests in and manages numerous oil and gas wells in the United States of America. In her affidavit of November 2013, she stated that Sheridan does not and has never utilised ultrasound technology in any of the wells on its property. Mr Cambridge is a consultant providing strategic and corporate finance advice to start up companies and private equity investors. He stated that he was in regular contact with Mr Gray but had not heard of any deal having been concluded in relation to the use of the ultrasound technology. Mr Sharif is the Chief Executive Officer of Stratum Energy Group Ltd, an oil and gas exploration and production company which owns an exploration licence in relation to an oil field in Romania. He is a friend of Mr Gray's and confirmed that Mr Gray invested US $1m in Stratum in 2011 and a further US $2m in late 2012/early 2013.

As I have already mentioned, Mr Lohse is a German lawyer who was instructed to contact Dr Ulrich Stolz. He contacted Mr Stolz who is a Chief Executive Officer of KWD Automotive and works in Radeberg. As I have already mentioned, he states that Mr Stolz confirmed that the signature on the Commercialisation Agreement is not his and sent a copy of his company's year book which included a copy of his signature. I accept Mr Lohse's evidence. Mr Knight's evidence in cross examination in relation to the Agreement was less than direct. However, he gave the impression that the signatures had been forged and that the incident had caused him to fall out with Professor Abramov. For the purposes of this Enquiry it is not necessary nor am I in a position to determine whether in fact, the signature was forged. Suffice it to say that it casts some doubt on whether a loan was made to the Russian Scientists with an interest rate of 6%, the manner in which Professor Abramov does business and his credibility.

The specific issues in dispute and conduct relied upon by GEHC in more detail

(i) 2010 Restructuring

As I have already mentioned, on 31 December 2010 RegEnersys underwent a major restructuring. Prior to this in February 2009 Mr Pronk had been actively involved in discussing the goal of restructuring and obtaining a 51% interest in Klamath Falls. He accepted that at that stage he thought it better to have control of the company and the technology and believed in its future value. However, like Mr Heerema he agreed that the Russian Scientists as the inventors were the key to the technology itself.

Around this time, in July, August, September, October and December 2009, RegEnersys made payments to the Russian Scientists via Wilmington Holdings which totalled $952,654. Mr Pronk says that thereafter, "arrangements" were made between RegEnersys and the Russians in relation to developing the technology patented in Russia in 2009. However, he denied any knowledge of an agreement to take a 30% stake in the Russian business and a 51% stake in the business outside Russia.

On 13 November 2009, Mr Gray emailed Mr Pronk in part to update him on the testing being carried out at that time on Rosneft wells in Russia and reported that the well was producing at a 250% uplift. Thereafter, on 3 December 2009 he sent a RegEnersys Business Update presentation to Mr Pronk which included reference to a memorandum of understanding signed with the "Russian technical team, confirmatory due diligence and legal structuring nearing completion. Controlling 55% stake taken in the broader portfolio of ultrasonic technologies for an additional $2.5million – completion dependant on due diligence, IP transfer and patents confirmation." A series of emails between amongst others Messrs Gray, Pronk, Smits and Kantor on 14 December 2009 reveal RegEnersys having paid substantial sums including legal costs of the restructuring of the Russian business. In this regard, despite his earlier denial as to the extent of particular interests, Mr Pronk accepted in cross examination that in the light of the payment of the legal fees, a basic agreement must have been reached.

In any event, at around the same time, at the end of 2009, it was both Mr Heerema and Mr Pronk's evidence in cross examination that as a result of the poor performance of the fund, Mr Heerema had decided to cap the fund. In his third witness statement, Mr Pronk had stated that the decision was made in about February 2010 because the Heerema Group did not believe in the technology and because the Fund had made net losses. Although not referred to in his witness statement, Mr Pronk stated in cross examination that in fact, the decision to cap the fund was reached after a presentation by Mr Gray and Mr Zolezzi to the Heerema Trustees in London in mid 2009. It was doubted that the technology would ever work and despite an update for Heerema Trustees of 1 October 2007 which focuses entirely upon onshore targets, stated that the strategy had been to seek to deploy the technology offshore and that despite the positive tests onshore, Mr Heerema doubted that it would work in the offshore arena. Given the content of the available relevant documentation, I am unable to accept his evidence in relation to the alleged concerns about application offshore.

In his witness statement, Mr Heerema stated that he considered the technology to be worthless and considered that there had been a $65m loss. In fact, the Afren and Breagh investments had brought a profit to the fund of $66m at the 2009 year end. Mr Pronk included reference in his witness statement to an investment called Gateway which he stated had generated no returns. In fact, Gateway was only recorded as a contingent investment expected to come on stream in 2015. In cross examination, Mr Heerema was unable to help with how the alleged $65m loss may have been arrived at and suggested that Mr Pronk would know. He also accepted that he considered the ultrasound technology to be a long term investment which would take until 2013 at least to come to fruition if not longer. Given his inability to explain how the alleged loss had been arrived, the state of the remainder of the investments and Mr Heerema's acceptance that the ultrasound technology was a long term prospect, I am unable to accept his evidence that he considered the technology to be worthless.

In fact, the structure of the fund going forwards was set out in an email from Mr Gray to Mr Pronk of 7 April 2010, the form of which had been approved by Mr Pronk in advance. The email recorded amongst other things:

"Further to our discussions with Pieter Hereema and his meeting with me on February 16th, my understanding is that the format of ReEnersys as an investment vehicle of the Hereema family office will change.

…

PHH wishes to relinquish day to day control. You will continue to manage and monitor the RegEnersys fund activities along with Revysion.

The current 80/20 split of returns in excess of the carrying value of the investments as per the 2009 balance sheet will be changed to a 50/50 split. . . .

Capital released from agreed liquidation of selected fund assets or incoming funds from other investors will be shared 50/50. Hereema's 50% share of these incoming cash flows will be deducted from the current carrying value of the investments.

As from January 1, 2010 the hurdle interest rate (6%) will not be applicable anymore.

ReVysion will be entitled to the USD 10 million 2010 management fee as provided in the original agreements.

…"

It was not until 31 December 2010 that RegEnersys LP's assets itself was sold to RegEnersys UK LP for around $65m and a loan of that sum was made by RegEnersys Inc, now Celloteck, to RegEnersys UK, in the manner described at paragraph 29. By that stage it had been agreed that 51% of the shares in RegEnersys UK would be held by Mr Gray, or a company owned by him, and 49% by Celloteck. Mr Heerema stated in cross examination that it was never intended that Mr Gray pay the $65m personally and Mr Pronk accepted that any payment was expected to be received from Mr Gray's management company rather than directly from him. It was also accepted that by virtue of the Limited Partnership Agreement, 50% of the net realisation of any assets would go to the repayment of the Loan.

Thereafter, in 2010 a further $500,000 was invested in the Russian business. It is not disputed that the payments were made by Celloteck but that they were deducted from the $10m consultancy/management fee due to Mr Gray. In an email to Mr Pronk dated 26 March 2010, Mr Gray states that he had agreed with Mr Heerema "to fund p.a. the Russian operation Power US as a contribution to equity catch up." Back in February 2010, Mr Knight had informed Professor Abramov that the fund was to be capped. He confirmed to Mr Gray that he had informed the Professor that Mr Gray was still committed even if that meant using personal funds. In cross examination Mr Knight accepted that it was understood that there was going to be a deal, but just a lesser deal. Although his evidence was not particularly clear, it also appeared that in cross examination, Professor Abramov accepted that there were discussions with Mr Gray following the capping of the fund about the appropriate level of stake in the Russian business the fund should have to reflect its investment.

On 30 June 2010 Mr Knight confirmed with Mr Gray the content of an email to be sent to Mr Smits at the Heerema Group referring to the "transfer of funds to our Russian partners". In relation to a first tranche of $150,000 to Power US it stated to that it would enable "us to invest in CUT Services, the JV . . through Power US Russia in which we still hold 100% of the equity." In relation to the second tranche, of $100,000 to Wilmington BV it was stated that:

"This has enabled us to:

(a) negotiate compensation in shares for this amount, together with previous operation support payments ;

(b) obtain a licensing agreement for commercialisation of their technologies outside Russia."

The monies were duly despatched and thereafter, on around 5 July 2010, Mr Knight met with the Russian Scientists in Moscow once more. The meeting note is in the form set out at paragraph 21 above. It makes reference amongst other things to a 30% holding in Power US Russia to be held by "RG". I have already accepted Mr Knight's evidence that "RG" was a reference to RegEnersys.

At around the same time, on 9 July 2010, Mr Gray sent a "RegEnersys Update" to Mr Heerema and Mr Pronk in which he mentioned the 80 well joint venture with TNK-BP in Russia and the situation in relation to Klamath Falls and in which he stated amongst other things:

"Considerable outside interest has become evident both from Russia and also the US for the technology and there is one Russian oil company keen to take a stake in the technology and apply it broadly with a view to an IPO. However, Russia remains a bandit country from a corporate governance perspective and we will have legal, ownership and management challenges to overcome.

The medium term goal is to settle the litigation, re-assemble all the strands of the technologies that Zolezzi tried to dissemble and potentially allow him a work out to recovery of our capital … He is, apparently, keen to do this and would be closely supervised and we would control the vehicle – Power US. . . "

Later on 25 October 2010 Mr Gray reported once more to Messrs Smits and Pronk on the testing programme with TNK-BP and went on:

"We have no formal agreement with Vladimir and Vadim on this project ahead of the outcome of the Chile arbitration but hopefully we can them [sic] re-combine the original patents and KF licence to operate with the new programme – with hopefully some recovered money. We will have 30% of Sonovita and 25% of CUT Services Russia and a majority in any overseas programme.

Could you please wire $250,000 from the ReVysion account … for our share ..."

Mr Pronk maintained that the monies advanced were on Mr Gray's behalf only. He denied that there was an agreement with the Russians and said that he had never seen one. In my judgment it was clear that in his evidence he was seeking to rely upon the fact that there was no written agreement. This was borne out when he went on to state that there was an "arrangement". When asked whether there was an oral agreement with the Russians prior to the outcome of the Chilean arbitration in which there were allegations that the technology and opportunity had been diverted to Russia and whether legal costs were being met because there was a basic agreement, Mr Pronk accepted that there must have been.

In cross examination Mr Knight accepted that although nothing was signed he believed that there was an agreement at this stage, that the 30% and the deal in relation to commercialisation outside Russia had been settled. When asked in cross examination whether there was an agreement for 30% Mr Kantor commented that one should ask Mr Knight. Professor Abramov's evidence on the other hand was that there was no obligation and that everything had changed. He stated that he had agreed that the Heerema group would be entitled to 30% on the basis of their investment and if they provided certain generators and introductions to oil companies but they and/or Mr Gray had failed to provide the introductions. In fact, the generators had been supplied and at least a contact with Mr Hayward provided and therefore, I am unable to accept the Professor's evidence in this regard.

(ii) Personal connection

Mr Heerema accepted that he knew about the proceedings against Mr Gray quite quickly after they were issued. However, he said that he was not aware that Celloteck had advanced Mr Gray £1.5m in March 2013 in relation to his legal fees. In fact, Mr Pronk accepted that he had approved the payment by Celloteck and stated that he must have mentioned it to Mr Elias who had taken control of the company at that stage. There is no other oral or documentary evidence of Mr Elias having been informed and I am unable to accept it. Mr Pronk also asserted that monies advanced to Mr Gray for his legal fees were secured upon Mr Gray's property. In fact, the loan was initially unsecured with an obligation to provide security over Mr Gray's property being added by an amendment letter of 14 April 2015, the first day of the Enquiry window. Further, despite Mr Ward's evidence that he had been informed by Mr Gray that the first amount of £1.5m paid by Celloteck to Mr Gray in March 2013 was a personal loan, Mr Pronk suggested that the sum may have been a cash call or a payment made in error. In relation to an earlier sum of $1,167,000 described by Mr Gray, according to Mr Ward, as a personal advance from Celloteck in relation to a private matter with a Mr Broadhurst, Mr Pronk said that that might also have been a cash call and that he was not expecting to get the money back. In the light of the confused and contradictory nature of Mr Pronk's evidence with regard to the advances and the fact that it was not borne out by others or by way of documentary evidence, I am unable to accept it. It seems to me that it is more likely than not that the monies were advanced in order to assist Mr Gray in the litigation with no requirement that it would be paid back in all circumstances. Mr Pronk's evidence in this regard did him no credit.

I should add that although Mr Heerema suggested that his personal relationship with Mr Gray had cooled as a result of the losses made in relation to the ultrasound technology, he accepted that he had had a number of gifts from Mr Gray and purchased a yacht from him for £1. Ms Deeney also confirmed that Mr Gray would have had Mr Heerema's mobile telephone number. Furthermore, Mr Pronk accepted that he had not paid for a car shipped to Switzerland by Mr Gray, the purchase price of which was approximately $420,000.

(iii) Use of private email accounts and faxes and payments through third parties

From December 2010 when these proceedings were issued, there were no more emails in relation to the ultrasound technology between Mr Gray and Mr Pronk. In cross examination, Mr Pronk first stated that this was because Mr Gray held the majority interest in RegEnersys UK and when it was pointed out there were emails after the capping of the fund and change in structure in 2010, said that they related to requests to transfer funds. In fact, Mr Gray sent emails containing reports in April and July 2010, after the capping of the fund which do not contain requests for the transfer of funds. Mr Pronk was otherwise unable to explain the change in means of communication.

In addition from around mid-January 2011, shortly after the claim had been issued, instead of using RegEnersys and/or ReVysion email addresses when corresponding with or about the Russian Scientists, for the most part, Messrs Knight and Kantor used various personal email addresses. The only email using a ReVysion email address between Mr Gray and Professor Abramov, copied to Mr Kantor, is dated 31 January 2011. Mr Gray's response of 15 February refers amongst other things to discussions with TNK/BP and the proceedings and Mr Gray states that Mr De Clare and Mr Zolezzi were the only ones to make any money out of the ultrasound technology. In fact, other documentation suggests that the Professor was already in London when the email was sent and that a meeting was to take place the next day with Mr Hayward on behalf of TNK/BP. In cross examination, Mr Knight accepted that he had at least edited the content of the draft of the 31 January email for Professor Abramov but was unable to assist with why the draft itself had not been disclosed. I found his evidence in this regard to be very unsatisfactory. When asked whether the email exchange was by way of window dressing only, Mr Kantor stated that the question should be asked of Mr Gray. It seems to me that given Mr Knight's involvement in the content of the email, the fact that Professor Abramov was in London in any event at the time and Mr Kantor's evasive evidence in cross examination, it is more likely than not that the email exchange was artificial and intended as window dressing.

Both Messrs Knight and Kantor accept that the change to private email accounts was intentional and explain it in their witness statements as having been caused by a fear that the Russian Scientists' emails had been "hacked", which they learned about during the Chilean arbitration process. In cross examination, Mr Kantor reiterated that the decision was as a result of the fear that information would be stolen by Mr Zolezzi, confidential information having been stolen by him or on his behalf from the Russian Scientists' servers previously, and that he did not give much thought to disclosure in these proceedings when making the switch. Having had it pointed out to him that the reasons for the change set out in his second witness statement related to matters arising prior to and during the arbitration in Chile, the second of which emerged in August 2010, some five or six months before the change and that the third post dated the change, Mr Kantor said that the effects were cumulative. Neither Mr Kantor nor Mr Knight was able to explain why no steps to change email addresses were taken until January 2011 or why changing to private email addresses would prevent further espionage in relation to the Russian server, described by Mr Knight in cross examination as the "main reason", nor why correspondence between ReVysion employees in relation to such matters was also conducted on personal email accounts.

In addition, following the analysis of disclosure obtained from VIYM, it became apparent that between at least April and December 2012 Mr Kantor also used the pseudonym "Bill Barrett" in combination with a further email address, when communicating with the Russian Scientists. These emails include: an email sent by Mr Kantor to Mr Arkavy on 5 March 2012 referring to "a small diagram that outlines the proposed structure we discussed". Mr Kantor confirmed in cross examination that it was the same structure chart he later sent to Mr Gray in April, which showed Celloteck as the vehicle which was to take 30% of the Russian parent company (what would become Petrosound) and 51% of what is described in the structure chart as "Rest of World (OpCo)". Mr Kantor accepted in cross-examination that they had agreed a structure with the Russians by this stage; emails which Mr Kantor accepted showed him passing on comments from Mr Gray (which Mr Kantor said was "common"); an email of 11 April 2012 from Mr Kantor to Mr Arkavy in which he refers to a "Letter of intent regarding our holding"; a communication of 12 April 2012 relating to a comfort letter for VIYM to be signed by Mr Gray and which mentions Mr Gray, Celloteck, Heerema and Klamath Falls; an email of 12 May 2012 in which Mr Bayazitov (one of the Russian Scientists) forwards to Mr Volchenkov of VIYM one of Mr Kantor's "Bill Barrett" emails in which Mr Kantor expresses his view on the desirability of a shareholders agreement if a new company was to be set up in the Seychelles; and a chain of emails in late August 2012 which shows Mr Kantor being consulted by the Russian Scientists on a shareholders agreement for Sonoplus Ltd which had been drafted by VIYM.

Mr Kantor says in his witness statement that he created the account "in the context of the desire to prevent the interception of communications on behalf of Mr Zolezzi" and that he "closed" the account "in 2013" because it was "no longer required" and that when it was "reactivated" "all historic emails in it appear to have been deleted."

Mrs Deeney, Mr Gray's personal assistant also says that she was aware of discussion about hacking. She says that therefore, she was not surprised when on 8 September 2011 she received a telephone call from Professor Abramov stating that he wanted to send an email to Mr Gray but was concerned about using the ReVysion email address. As a result, she suggested that the Professor use her husband's private email address. She emailed her husband to warn him about the incoming mail and added: "Please keep it for me to read, do not forward it on to me or anyone else."

In fact, three emails were received from Professor Abramov's email address, sent by his daughter, Anna Abramova. One with the subject "bank details (for Rob)" had bank details for the Latvian bank account of a BVI company called ContoWest Inc attached and instructions to use the payment reference "for equipment". Subsequently, on 6 October 2011, a further email was sent to Mr Deeney by Anna Abramova which attached "new information for Rob", namely "new bank details." The attachment set out details for the Latvian bank account of a New Zealand company called "Logimax Sales Limited" and, under the heading "Payment details", stated "Decoration and building materials, tools, electrical equipment." As a result of the disclosure, Mr Gray explained that in accordance with the payment instructions he had made payments totalling $100,000 through third parties to Professor Abramov to support the Russian Scientists' work on the ultrasound technology.

In his 5^th witness statement, Mr Gray stated that the payments were made as personal loans to Professor Abramov at his request, which Mr Gray agreed to make because he "felt sorry" for the Professor for having "been cheated by Alfredo Zolezzi". However, Mr Gray denies any knowledge of the ownership of ContoWest Inc or Logimax Sales Limited, what their purposes are or why the payment references were to "tools" and "equipment".

Despite stating in her witness statement that the occasion in September 2011 was the only use made of her husband's private email account, in fact, it was used again. In cross examination, Mrs Deeney explained that she was on holiday and had no printer at home. She asked her husband to print out Mr Gray's curriculum vitae which she had emailed to him and bring it home so that she could fax it. Although she could not recall to whom it was faxed, the same CV appears in email correspondence between Messrs Volchencov and Ivanov on 18 January 2012.

It also appears that a draft email in relation to difficulties in relation to emails in Russia was sent to Rob Gray from Anna Abramova via Mrs Deeney's husband's email account and that comments on the draft were provided through that account.

(iv) Chilean Arbitration Settlement - February/March 2012

In February 2012 the Chilean arbitration was settled. Amongst other things, Klamath Falls paid $5.1m to Celloteck and RegEnersys, $2.1m of which was used to purchase the remaining shares in Klamath Falls held by the Hurtado family. Klamath Falls was owned by Chiloquin in which Mr Gray had a 51% interest. As early as 6 March 2012, on his return from Moscow, Mr Gray emailed his solicitor stating that: "We need to transfer Celloteck to Heerema asap. This is time-critical." On 13 March 2012, Mr Kantor was considering a restructuring so that all of the ultrasound business including Klamath Falls and the Russian side would be held through Celloteck. In an email of 13 March 2012 to Mr Ward, Mr Kantor stated amongst other things:

"I think it would be optimal if Celloteck Holding Inc were the vehicle that ended up with all of the equity holdings. . . . My key question here is to confirm that Rob/ReVysion etc has absolutely no ownership or connection to this vehicle. . . "

In cross examination, Mr Kantor maintained that he merely carried through what Mr Gray wanted and that he had no knowledge of whether as a driver for the reorganisation there had been a request or demand from Messrs Heerema and Pronk that Mr Gray pay down the $65m debt. He also stated that the requirement that Mr Gray did not own Celloteck which he also checked with Han Smits was as a result of the paying down the loan agreement and not in any attempt to hide Mr Gray's interests.

In his witness statement, Mr Pronk stated that Mr Gray wanted Celloteck to receive all of the settlement funds in order to pay back some of the outstanding $65m loan made by Celloteck to RegEnersys UK. In cross examination, Mr Pronk asserted that despite being obliged only to use 50% of the value of a realized asset to reduce the outstanding loan, Mr Gray had asked to pay back the entirety of the $65m loan although he could not recall when and there was no documentary evidence of the request. In fact, Mr Gray's current account kept by the Heerema accounting department shows the entirety of the sum of $5.1m paid by Klamath Falls being credited to him and after the purchase of the shares in Klamath Falls for $2.1m, the remaining $3m is used by way of cash calls by Mr Gray including the purchase of shares in Stratum Energy for $2m. Mr Pronk stated that in fact, too much had been paid to Mr Gray and it was rolled over into the loans made to him. However, he also stated that the $3m had been used to reduce the $65m loan and that at some stage before August 2012, Mr Gray was asked to pay down the $65m loan by $3m by selling Klamath Falls to Celloteck. In the light of the lack of any documentary evidence of Mr Gray's alleged request to use all of the settlement funds to pay down the debt and the way in which the monies were actually used recorded in the as accounting records, I am unable to accept Mr Pronk's evidence in this regard.

(v) Secret Agreement?

GEHC contends that the Sale and Purchase Agreement dated 17 August 2012 referred to at paragraph 50 above, by which RegEnersys UK in which Mr Gray had a 51% interest, sold Chiloquin (which owned Klamath Falls) and RegEnersys I to Celloteck, came about as a result of a secret agreement between Mr Gray and Mr Pronk on behalf of Mr Heerema and that, in fact, the Heerema Group holds Mr Gray's interest in Celloteck and in the ultrasound technology for him as nominees.

In this regard, reliance is placed upon a number of matters. First, prior to an anticipated meeting over the following weekend, on 20 April 2012, Mr Kantor sent a number of what he described as "critical documents relating to the Klamath restructure" and a summary of the proposed transaction to Mr Gray stating that he expected that Mr Gray would discuss them verbally with Mr Pronk. They were: the third version of a comfort letter for VIYM "to be signed this weekend to give to the Russians"; a Klamath Falls Restructure Summary "to discuss with Nico [Mr Pronk]"; the second version of a Sale and Purchase Agreement "between RegEnersys and Celloteck to formalize the transfer." Mr Kantor went on: "It is relatively simple and executes the transfer in exchange of $3MM of loan forgiveness (this number subject to your confirmation with Nico). . . . it is essentially ready for Nico/Han to execute (subject to your confirmation with Nico)."; a loan reduction agreement also described as ready for Nico/Han to execute subject to confirmation with Nico; and a letter of intent in relation to Celloteck to be signed by the Russians. Mr Pronk stated in cross examination that he was assisted in the transactions which followed with the Russians by Mr Kantor who was involved in all of the details.

Secondly, on or about 21 April 2012, Mr Gray attended the birthday party of Mrs Pronk in Geneva. It is alleged that the secret proposal to put Chiloquin (and therefore, Klamath Falls) together with RegEnersys I into Celloteck and that Celloteck would take a 30% stake in the "HoldCo" of a joint venture business with the Russian Scientists and set up a "rest of the World company" in which Celloteck would hold 51% of the equity, was discussed on this occasion. Mr Pronk denied such a discussion took place that weekend but did accept that it had been discussed and that he had probably discussed and approved Celloteck taking over Klamath Falls before a draft of the SPA was sent to Mr Smits by Mr Kantor on 27 April. He also stated in cross examination that he was not aware of the statements in a memorandum produced by VIYM in April 2012 that "according to the owner's information they have agreed to change the structure. These agreements are made verbally. . . . Mr Gray owns 30% of the shares in all companies."

It was Mr Kantor's evidence in cross examination that by the time he saw Mr Gray in Moscow on the evening of 22 April 2012, on their way to a hunting trip with Professor Abramov in Belarus, Mr Pronk's agreement to the strategy and documentation which he had provided to Mr Gray on 20 April had been obtained and the strategy would go forward. Thereafter, on his return from the hunting trip, on 27 April 2012, Mr Kantor sent the draft Sale and Purchase Agreement to Mr Smits, of the Heerema Group. Mr Kantor also sent him the draft loan reduction agreement and the draft comfort letter to be sent by Celloteck to VIYM. In cross examination, Mr Kantor confirmed that he understood that the agreement had been reached. He stated:

"A....What seemed quite obvious was that Mr Gray told me that

the deal was done, or at least approved. I sent these documents..."

I accept his evidence in this regard.

On 30 April 2012, Mr Smits forwarded this to Mr Pronk saying "I got a call Friday from Rob Gray, who has started on the restructuring. Do you know if is this OK? Apparently I'm supposed to sign the management letter on behalf of Celloteck Holding, Inc." Very shortly thereafter, Mr Smits confirmed to Messrs Gray and Kantor that Mr Pronk would sign the documents. However, later that day, Mr Pronk sent an email to Mr Gray stating "Celloteck is a 100% Heerema entity. This company cannot get control over KF. Happy to think about another solution but not a Heerema entity. Especially not since we are migrating holding to the Netherlands for fiscal purposes. Can we discuss?" Mr Gray replied the same day stating "Hi Nico, of course. Just want equity remote from me."

Mr Pronk was unable to give an explanation for the need for another solution other than that he did not want Klamath Falls on the Heerema balance sheet. He added that Celloteck had "freedom" in Panama and would not be subject to the level of governance applicable in the Netherlands. In relation to the "remote from me" comment, Mr Pronk merely stated that Mr Gray wanted to transfer the ownership of Klamath Falls. Mr Kantor stated that he considered the whole thing to be very odd and that he did not know the reasoning or the substance behind the discussions. Given his heavy involvement in drafting agreements and structuring already set out and also referred to below, I find his evidence in this regard difficult to accept and on the balance of probabilities, I find it more likely than not to be untrue.

Thereafter, on 2 May 2012, Mr Smits emailed Mr Pronk complaining that Mr Kantor had again tried to " . . involve Celloteck in their plans". The email was forwarded by Mr Pronk to Mr Gray that day, stating "…can you please stop Adam. Celloteck is really not an option (thought that was clear) . . .". Mr Pronk went on to suggest a telephone discussion. However, in cross examination he said he was unable to recall what occurred. At the same time, on 2 May 2012, Mr Kantor sent a further version of the VIYM Comfort letter to Mr Smits in which the reference to Celloteck being owned by the Heerema Group was changed to it having been established by the group. Mr Kantor stated that he must have made the change at Mr Gray's direction. In any event, around that time, Mr Pronk queried with a Mr Goldsmith in the Heerema offices whether Celloteck could be sold to a third party. Further, on 3 May, Mr Ward sent an email to a corporate lawyer in Panama, requesting advice on setting up a discretionary trust the sole asset of which would be the 100% ownership of a Panama company. Celloteck is a Panamanian company.

On 7 May 2012, Mr Ward sent Mr Gray an e-mail with the subject heading "question over setting up a Trust", stating "…I think easier to retain as panama mirroring celloteck inc which presumably a trust could purchase from heerema for written down value". In cross examination, Mr Ward's explanation of his enquiry about a trust related to high secretarial fees which ReVysion now had to bear and that he was investigating securing a better deal. However, he went on to accept that those bills had been paid since 2010 and that he had sought a reduction in March 2011. In the circumstances, it seems to me that it is more likely than not that the level of secretarial fees was not the reason for his enquiries.

Mr Ward also stated that he could not comment upon Mr Gray's "just want it remote from me" comment. He accepted that Mr Gray was familiar with the use of nominees and trustees to hold assets and that for example, his yacht had been held in trust. He also accepted that he had received an email from Mr Gray in September 2012 in which he had referred to his intention to invest $2m in Stratum Energy in Romania and had stated that he wanted to make it "remote". In response, Mr Ward had suggested that cash was sent "via Han" and had added "it is a private company and not able to value if it ever came out." In a further email to Mr Gray of 5 October 2012 he had suggested that the reference "james ward investment" was used for the transfer.

On 9 May 2012, in response to an email from Mr Gray of the previous day in which he had commented on Mr De Clare's "insanity", Mr Pronk emailed Mr Gray stating: "I have had several discussions on Celloteck. It seems feasible but not easy. Perhaps we should call about this later." Thereafter, on 19 July 2012, Mr Gray emailed his then lawyer stating: "We REALLY need the Celloteck agreement and before I[n]sign my WS...." As I have already mentioned, the Sale and Purchase Agreement by which RegEnersys UK sold Chiloquin and Klamath Falls to Celloteck in return for US$3m was completed on 17 August 2012 and Mr Gray served his witness statement for the purposes of the liability trial in these proceedings on the same date, in which he stated that he had no interest in the companies holding rights or interests in the ultrasound technology, including Klamath Falls' technology.

On or about 6 August 2012, Mrs Deeney had been asked to find out whether Mr Pronk was in the office in Geneva. That day, she emailed her counterpart in Geneva to inform her that she was sending a private and confidential fax from Mr Gray to Mr Pronk to a particular number. She asked the recipient to make sure that it was picked up and handed to Mr Pronk immediately. Later, she checked that it had arrived and stated in an email that her counterpart should not fax it to Mr Pronk but put it an envelope and leave it for him on his return to the office. Mr Pronk stated that he had no recollection of the fax and had not found it. It has not been disclosed and there is no other evidence whether oral or documentary as to its content. Mr Fraser submits that it was likely to have contained the terms of the agreement to hide Mr Gray's share in the business.

Despite having executed the Sale and Purchase Agreement on 17 August 2012, Mr Gray travelled with Mr Kantor to Russia on 19 August. Mr Kantor suggested that it remained important to have Mr Gray's presence because of his gravitas and that he continued to tell the Russians that Heerema was involved in the project. No mention was made of Mr Gray allegedly having sold out. Mr Kantor also accepted that in August he had discussed the terms upon which VIYM would invest and take up its shares in Sonoplus. He said that he did so as a friend of Professor Abramov. In September he discussed the form of a subscription agreement and the proposed licence agreement between Klamath Falls and Sonovita in relation to the US patents. Given Mr Kantor's detailed involvement in the ultrasound business on behalf of Mr Gray, and his subsequent involvement in the proposed licence agreement, I am unable to accept his evidence that his involvement in relation to the terms of the VIYM investment was merely as a friend.

Further, although the Sale and Purchase Agreement in relation to Klamath Falls and Celloteck was executed in August 2012, Mr Elias was not informed of it until December of that year, neither was the share register amended until that time. Mr Fraser submits that this relates to the date on which judgment was given in the liability trial in December 2012 and Mr Gray's pessimism as to the outcome. An agreement by which Asteck SA, a Heerema Group company and Celloteck's registered owner, sold 100% of the shares in Celloteck to Anmich Holdings Inc ("Anmich") for $1 took effect on 20 December 2012, the day after the draft of Vos J's judgment in the liability trial was received by the parties. The existence of this agreement was only revealed as a result of third party disclosure from Mr Kantor in July 2014.

Mr Elias is the registered owner and allegedly the ultimate beneficial owner of Anmich. On 18 February 2013, Mr Heerema ceased to be a director of Celloteck and was replaced by Mr Elias. Despite the transfer to Mr Elias, in cross examination, Mr Heerema stated that he was aware that "Klamath Falls had folded into Petrosound" and that "we received 15% of Petrosound." It was Mr Elias' evidence that he had been told to enter into the agreement between Celloteck and Petrosound of 13 November 2013, signed on behalf of Petrosound by Mr Knight, by Messrs Pronk and Kantor.

In this regard, GEHC also relies upon an email dated 7 June 2013 to Mr Kantor in which Mr Elias refers to the transfer of the Celloteck structure to Anmich stating: "I thought the structure (ultimately) was transferred on to "me"." In a further email of 17 June 2013 Mr Elias enquired of Mr Kantor whether a subsidiary of Chiloquin was owned by him in the following terms:

"IS THIS ALSO A COMPANY PERTAINING TO "MY" GROUP OF COMPANIES?"

Mr Elias' evidence is that he assumed that the Heerema Group had been the owner of Celloteck and that Mr Pronk asked him to take Celloteck off the books of the Heerema Group for group consolidation purposes and that he was willing to transfer the shares back as a result of a gentlemen's agreement reached between September and December 2012 and would do so for $1. He was not aware that Celloteck had paid $1.5m to Mr Gray in March 2013 despite his position within the company at that stage. Mr Pronk stated that he had authorized the payments and that could not remember but must have mentioned them to Mr Elias. Mr Elias accepted that this was the only arrangement of this type in which he was involved. He also stated that he did not know Mr Gray although he knew of his involvement with the fund.

Mr Fraser on behalf of GEHC submits that there is no credible reason why the Heerema Group would have sold its interests in Celloteck to Mr Elias beneficially for $1, nor why Mr Gray, Mr Kantor, Mr Knight, and Mr Pronk (amongst others) would have continued to work in Celloteck's interest including obtaining a shareholding in Petrosound Ltd on 22 November 2013, if they were only doing so for Mr Elias' benefit. Furthermore, Mr Heerema confirmed in cross examination that it had been assumed in 2008 that it would take three to five years if not longer for the technology and the opportunity based upon it to mature and that the fund had been intended to be long term.

(vi) 2013

In fact, following the judgment in the liability trial, there was a meeting at Mr Gray's London offices on 16 January 2013 attended by Mr Pronk, Mr Kantor, the Russian Scientists and possibly Mr Gray. Rather strangely, after that meeting on 21 January 2013, Mr Kantor sent an email to Mr Pronk headed "first cut on draft terms" in relation to the joint venture with the Russian Scientists and the Klamath Falls structure. It had the same structure chart attached which had been circulated in 2012 and therefore, in my judgment "first cut" was something of a misnomer. Mr Pronk was unable to explain what this was intended to mean and reiterated that Mr Kantor was negotiating on "our" behalf in trying to sell Klamath Falls. In an email from the Russian Scientists to Mr Kantor on 29 January 2013 in relation to a plan for operations abroad, reference was made to "establishment of official relations with Heerema", visits and negotiations in relation to which Mr Gray was described as one of the "Person[s] in charge'.

Mr Kantor visited Moscow at ReVysion's expense with Mr Gray on 14 and 15 March 2013. The visit was followed by an email from Dr Arkavy (one of Professor Abramov's colleagues) which referred to clearing up the "question of incorporation procedure for development of international business." Another meeting took place with the Russians including Mr Volchenkov of VIYM in London the following week at which Mr Knight and others were present. Thereafter, a Memorandum of Understanding enclosed in a later email makes reference once again to a 51% in a Rest of the World company and 30% in which had become known as Petrosound Ltd, the main Russian entity.

However, by 27 March 2013, Mr Kantor had forwarded to Mr Pronk an outline of the discussion with the Russians which in summary, suggested that they wanted too much money to proceed internationally and the business was not worth it. The only response which the change of approach engendered was an email in which Mr Pronk's only reaction was that he was willing to talk. Despite the fact that Celloteck had been transferred to Mr Elias he was not included in these email exchanges and Mr Elias accepted that he did not have total control over Celloteck but worked together with Mr Pronk and that Heerema had a certain degree of control because of the $62m loan which was outstanding. Mr Kantor also mentioned an offer he said had been made by Mr Knight to buy the Klamath Falls patents for $5m. Mr Pronk accepted that he did not know whether the offer was genuine or not. In cross examination, Mr Knight stated that it was an opening offer made orally and had been agreed with the Russians. Mr Fraser submits that this was all window dressing and leads up to an acceptance of 15% in Petrosound rather than 30%, the other 15% being held by employees of VIYM for Mr Gray. Mr Pronk did accept that he told Mr Heerema about the change.

Having been sent an email from Mr Knight in relation to Petrosound International on 28 May, Mr Volchenkov forwarded the email on to the Russian Scientists saying "We need to think…I would propose admitting him [Mr Knight] instead of Rob to you at Petrosaund [sic] for (2%/75% - approximately 3%), instead of Rob's 30% ?, so that Sonoplus had 51%. In addition, what's going on with Azerbaijan: 49/51% - international affairs were split with Rob, CIS and the world…"

In cross examination Mr Pronk accepted that during 2013 Mr Kantor was retained by Celloteck. He stated that Mr Krantor informed both Mr Pronk and Mr Elias on the progress he was making. However, Mr Elias' evidence was that he had no knowledge of the ultrasound technology until shortly before this Enquiry and that he had been informed that dealings in relation to Celloteck's interest in the technology and the Russian business was conducted either by Mr Kantor or Mr Pronk. I accept his evidence in this regard.

(vii) Treatment of the shareholding in Petrosound Ltd and Petrosound International

By an agreement dated 13 November 2013, between Celloteck and Petrosound Ltd, Celloteck took a 15% shareholding in Petrosound through Celloteck's subsidiary, Chiloquin. This was disclosed only as a result of third party disclosure from Mr Knight in January 2014. The agreement provided amongst other things that Celloteck would receive 15% of the issued shares in Petrosound in exchange for the transfer of all of the patents held by it and its subsidiaries in the ultrasound technology; Petrosound's 74.9% subsidiary Sonoplus would acquire shares in a company called Petrosound International "created for the purpose of expanding the international operations of its ultrasound technology outside the Russian Federation and certain former Soviet Republics", with the remaining shares to be apportioned by Petrosound International by way of equity financing; and Celloteck would provide Petrosound and Sonoplus with its ultrasound generators, for which a payment of $250,000 would be made upon the completion of subscription of the shares in Petrosound International. In fact, Petrosound International Ltd was incorporated in England and Wales on 16 October 2013 with Mr Knight as its sole registered shareholder. In cross examination, Mr Knight stated that the company had been dormant since January or February 2014 and that he had closed it down in the three or four weeks before the hearing.

Further, on 22 November 2013, the same day on which Celloteck was entered on the Register of Members of Petrosound, an additional 15% of the issued shares were registered in the names of Mr Ivanov and Mr Volchenkov, junior executives of VIYM. Mr Knight stated in his witness statement that he was informed by Professor Abramov that they were given the shareholding in exchange for arranging a loan to Sonovita.

The first occasion upon which the 15% holding rather than 30% had been mentioned was an email on 4 October 2013 from Mr Knight to Mr Kantor attaching a letter from his company, Chateaufine Ltd, essentially reflecting the terms Mr Kantor had proposed in September but with the equity stake for Celloteck reduced to 15%. There are no documents which shed light on the change.

As I have already mentioned, in cross examination, Mr Knight accepted that he believed that a 30% shareholding in the Russian Scientists' company had been agreed in mid 2010. However, he said that in fact, he had agreed the shareholding at a lunch with Mr Kantor in London in early October 2013 and having agreed upon 30%, he telephoned Professor Abramov and was very surprised and angry when the Professor informed him for the first time that shares had already been allotted to Messrs Ivanov and Volchenkov. In fact, Mr Knight said that Professor Abramov had said that a total of 20% had been allotted to the two VIYM executives and that a further loan facility of $1m was being made available from VIYM. However, Mr Knight says that during his telephone conversation the Professor suggested offering only 10% of the shares to Celloteck and as a result he hung up on him. He went on to explain that in a further conversation later that evening, the Professor agreed to 15% instead of 30% for Celloteck. In fact, the 30% shareholding had been canvassed in email correspondence between Mr Kantor and Professor Abramov in September 2013 and Mr Knight accepted that he had been in Moscow the previous week and had had a relatively lengthy meeting at which the 30% had been hammered out.

The written evidence of both Mr Knight and Mr Kantor in relation to the shareholding was different and Professor Abramov did not mention the alleged telephone conversation at all. In their witness statements, both Messrs Knight and Kantor referred to Messrs Volchenkov and Ivanov receiving 7.5% each. Mr Knight also stated in writing that the Professor had eventually been persuaded to offer Celloteck 15% whereas in cross examination he said that the negotiation had all taken place in one afternoon/evening and that it was the Professor who had called him twice. Further, the Professor's oral evidence was that he agreed the 15% for Volchenkov/Ivanov on 18 October 2013, some two weeks after the alleged conversation at the restaurant, and appeared to dismiss any discussion of the matter with Mr Knight. As I have already mentioned, the Professor's evidence was that Celloteck deserved no more than 15% and he could do as he liked because the business was his.

I found Mr Knight's evidence in this regard to be unsatisfactory. He made no complaint it would seem and none is recorded of the reduction to 15%. Further, I find his explanation of the discovery at the restaurant wholly implausible and on the balance of probabilities, untrue given that he was in Moscow the previous week. The only contemporaneous document is an email of 4 October which records the 15% share but makes no reference to the alleged telephone call and the discovery of 15% having been allotted elsewhere. Accordingly, I am unable to accept it. It also seems to me that had the reduction from 30% come about in the way it was described, there would be a large number of email complaints on behalf of RegEnersys/Heerema and possibly the involvement of lawyers. There is also no explanation of why if Messrs Volchenkov and Ivanov were holding 15% of the shareholding on behalf of VIYM, it is said that their employment was terminated. Mr Knight was also unable to explain why he had been provided with Mr Volchenkov's private email address in November 2013.

In addition, it was Mr Knight's evidence in cross examination that despite having sought a shareholding as part of his severance package from ReVysion in August 2011 and been refused it in a conversation he had had with Mr Ward, he spoke to Professor Abramov who subsequently decided that he would like to give Mr Knight 3.5% of the shares in Petrosound Ltd. Professor Abramov on the other hand, stated in cross examination that his estimation of Mr Knight's ability in relation to the oil and gas business was extremely low, that he viewed him as Mr Gray's driver and that his relationship with Mr Knight had been destroyed. Save to say that the company was his to do with as he pleased, he did not explain why, therefore, he had allotted shares to Mr Knight and had allotted only 15% of the shares in Petrosound to Celloteck. He did state that he had reached an agreement with Messrs Volchenkov and Ivanov "for one year and $750,000". He added that they had returned the 15% shareholding allotted to them to him. The Professor also denied any connection between Petrosound International Ltd and Petrosound. I found his evidence in this regard to be wholly unconvincing and I am unable to accept it.

(viii) 2014 well treatment

During 2014 numerous well treatments have been carried out. On 4 September 2014, Mr Ildyakov sent the results of 19 ultrasound treatments carried out between 25 January and 31 August 2014 to Mr Knight. The results show an increase in production and do not contain any reference to damage caused by jet pumps. Furthermore on 10 November 2014, Professor Abramov's daughter, Anna, sent answers to questions to Mr Knight, included in which was a reference to negotiations with a company called Weatherford. Further, in the case of Samatlorneftegaz, 40 wells were to be treated between April and December 2014, 36 of which were completed by the end of November. In the case of RN-Nizhnevartovsk, 20 wells were treated between April and December 2014, 18 of which had been treated by the end of November when the Professor signed his witness statement. He made no reference to any problems with the contracts. However, in cross examination, he stated that the contracts were "not going smoothly" and in re-examination stated that a jet pump used in conjunction with the treatment had destroyed "three fields" by which it was assumed he meant wells. He also attributed difficulties and a move purely to geological consultancy upon the collapse of the rouble. He neither made reference to any equipment difficulties in his witness statement nor to the alleged effects of the exchange rate which in fact, was much the same when he gave evidence to how it had been when he signed his witness statement.

The Professor also stated that the 42mm tool was no longer used. However, as pointed out in the written closing on behalf of GEHC, the most recently published academic paper, "Development of ultrasonic equipment and technology for well stimulation and enhanced oil recovery" in the Journal of Petroleum Science and Engineering 125 (2015) refers to both the 42mm and the 102mm tools.

Given his written evidence, the Professor's demeanour in cross examination, the content of his academic paper written in 2015 and the lack of a further deterioration in the exchange rate for the rouble since the Professor's witness statement was signed, I am unable to accept his evidence in this regard in cross examination.

Relevant Legal principles and approach to be adopted

Vos J held that Mr Gray was in breach both of the "no conflict" rule and the "no profit" rule. It is not in dispute that such breaches give rise to the imposition of a constructive trust over any profit or benefit obtained in breach of duty coupled with a liability to account to the principal for that profit or benefit which arises from the mere fact of the profit having been made in breach of duty: FHR European Ventures LLP v Cedar Capital Holdings LLC [2014] UKSC 45; [2015] AC 250. Where a corporate opportunity has been diverted, the constructive trust is imposed over the benefits arising from the opportunity: FHR European Ventures LLP v Mankarious per Lewison LJ in the Court of Appeal at [2013] EWCA Civ 17; [2014] Ch 1 at [57] – [58].

Mr Fraser on behalf of GEHC submits therefore that any benefits obtained by Mr Gray which arise directly or indirectly from his breach of duty will have been impressed with a constructive trust in GEHC's favour; and if Mr Gray has subsequently used those benefits to acquire other assets, or has disposed of them and acquired their proceeds, GEHC is entitled to trace into those other assets and/or proceeds. Further, Mr Fraser submits that a proprietary remedy is available to a principal such as GEHC where the asset representing the unauthorised gain or its traceable proceeds is identifiable in the hands of the fiduciary. In such circumstances, he says that the principal may elect to obtain an order that the fiduciary transfer legal title to the asset to him or seek a sum representing the value of the asset. Mr Fraser also submits that the principal is entitled to a personal remedy in respect of the value of any unauthorised gains made by the fiduciary, either where the principal elects to take the value of an asset representing the unauthorised gain rather than the asset itself or where the principal has no choice but to accept the personal remedy (for example, where the fiduciary no longer has the asset representing the unauthorised gain or its traceable proceeds in his hands). In this regard he relies upon the unanimous judgment of the Supreme Court in the FHR European Ventures LLP case delivered by Lord Neuberger citing Pearson's Case 5 Ch D 336, 34, that the obligation on a fiduciary in relation to an asset received in breach of his fiduciary duty is "to account either for the value…or…for the thing itself."

It is not in dispute that the court may allow the deduction of expenses incurred by the fiduciary in achieving an unauthorised profit or grant the fiduciary an equitable allowance in respect of the skill and effort in obtaining the profit. Both are in the discretion of the Court: Condliffe and Another v Sheingold [2007] EWCA Civ 1043; [2008] L.L.R. 44 at [23] per Arden LJ and Murad v Al Saraj [2005] EWCA Civ 959 per Arden LJ. However, the exercise of the discretion to award an equitable allowance for skill and effort is limited to "exceptional" or "unusual" circumstances, where it cannot have the effect of encouraging fiduciaries in any way to put themselves in a position where their interests conflict with their duties: Guinness plc v Saunders [1990] 2 AC 663 (HL) 693-4.

The parties differ in the number and nature of the stages of which they say the test to be applied is comprised. Not surprisingly, they describe the first stage in similar terms. The asset or assets in which Mr Gray has an interest must be identified. I agree with Mr Fraser on behalf of GEHC that it is both assets received and those receivable which are subject to the duty to account. This is reflected in the Order itself. The parties agree that this is a question of fact but differ as to the burden of proof to which I shall return.

The second stage is to determine whether there is some causal link between the asset obtained and the breach of fiduciary duty. This in itself is not disputed. However, once again, Mr Fraser says that the burden is on the fiduciary to show that there is no such causal connection. Mr Cavender on behalf of Mr Gray sub-divides this stage into three. He says that one must decide whether the asset falls within the terms of the Order. Secondly, he says that when determining the causal linkage it is necessary to consider whether it applies to all or part of an asset and thirdly, if it applies to only part one must consider how the affected part can be separated from the rest. In my judgment, subject to the further issues which arise in relation to the burden of proof and the application of the rule in relation to mixed funds to which I refer below, Mr Cavender's refinements are inevitably part of the test of "some causal connection" itself.

The question which arises rather more starkly in this rather unusual case is where the burden of proof lies in relation to the first two stages of the test. Mr Fraser submits that the burden is on the fiduciary to account candidly and frankly failing which adverse inferences may be drawn against him and that the burden falls on the defaulting fiduciary to show that any particular asset is not one for which he should account. Reliance is placed upon Murad v Al Saraj [2005] EWCA Civ 959 per Arden LJ in particular at [77]. That was a case in which the claimants were held to be entitled to an account of profits as a result of the defendant fiduciary's deceit. The appeal was concerned with a number of points including whether the account of profits should have been circumscribed. Arden LJ held at [77] – [79]:

"77. Again, for the policy reasons, on the taking of an account, the court lays the burden on the defaulting fiduciary to show that the profit is not one for which he should account: see, for example, Manley v Sartori [1927] Ch 157. This shifting of the onus of proof is consistent with the deterrent nature of the fiduciary's liability. The liability of the fiduciary becomes the default rule.

78. This principle was applied by the High Court of Australia in the Warman case:

'It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to those earned by the defendant's efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own.'

79. In the Warman case, the defaulting fiduciary was able to show that some of the profit was not attributable to his wrongful act, but to his own skill and effort. The Court limited the account accordingly. On the facts, the court was satisfied that the period of time for which profits were to be accounted should be limited to two years. I will come back to this point below."

Although it is not in dispute that once it is established that Mr Gray has an interest in an asset and that it falls within the Order, the evidential burden is on Mr Gray to establish that there is no sufficient causal relationship with the breach of fiduciary duty, Mr Cavender submits that as Mr Gray has satisfied the evidential burden on him as an accounting party that the alleged assets do not fall within the account, the burden shifts to GEHC to prove otherwise. In his written closing he referred to a lengthy passage from the judgment of Lewison J as he then was in Ultraframe [2005] EWHC 1638 (Ch), a case in which there were serious allegations of a dishonest scheme. At [9] – [10], the learned judge quoted from a passage from the judgment of Lord Nicholls in Re H & Ors [1996] AC 563, 586 at which it was stated that although the standard of proof was no different, the more serious an allegation the less likely it was that the event occurred and the stronger the evidence should be before the court concludes on the balance of probability that the event occurred. It seems to me that that is an important but different point.

In fact, during submissions the parties appeared to agree that in fact, the precise way in which the burden of proof at the first stage was imposed was unlikely to matter too much and that I should consider all of the evidence in the round and determine the issue on the balance of probabilities. I agree. However, it also seems to me that without in any way weakening or undermining the strict rule that the burden is on the defaulting fiduciary, as a matter of logic, in circumstances such as these, whilst adverse inferences may be drawn from a lack of evidence or silence in the account given, once there is documentary evidence in support of the accounting party's assertion that he has no interest in an asset, inevitably the evidential burden shifts to the claimant to displace it. In all the circumstances, and taking all of the evidence in the round including any proper inferences to be drawn from the remainder of the account and any deficiencies in it, it may not be difficult to satisfy such a burden.

As I have already mentioned, I consider the question as to whether the whole or part of an asset is within the account to be part of the determination of whether sufficient causal link is established. As Arden LJ in the Murad case makes clear, the defaulting fiduciary is only liable to account in respect of profits made within the scope of his duty which conflicted with his personal interest. The same is true here in relation to the assets and opportunities arising as a result of Mr Gray's breaches of duty. Thereafter, to the extent that an asset in relation to which there is sufficient causal link has become mixed with other assets without such a connection, it seems to me that the long accepted principles in relation to mixed funds apply.

Mr Cavender then includes what for him is a fifth stage in the test to be applied. He says that it is necessary then to consider whether the causal linkage is too remote. By this he means that at some stage "some causal connection" will become insufficient to require the fiduciary to account. He too relies upon the Murad case. I agree that logically when determining whether there is "some causal connection" there will be a point at which that connection fails or is insufficient. However, in my judgment, I do not consider that the imposition of the further concept of remoteness with all of its overtones assists matters. "Some causal connection" is just what it says. It is for the court to decide whether in the relevant circumstances the connection is sufficient.

Next, Mr Cavender subdivides what is GEHC's third stage into two. Mr Cavender submits that his stage six is whether the asset or the affected part is capable of being transferred to the beneficiary and the seventh stage is to value it if it cannot be transferred. However, in oral closing, Mr Cavender appeared to accept that GEHC was entitled to elect whether to seek a proprietary or a personal remedy against the defaulting fiduciary. In any event, for the sake of completeness and the avoidance of any doubt, I will set out the opposing positions and my view on the matter. Mr Fraser says that it is merely a matter of election and that in this case, GEHC is likely to elect to take the value rather than the assets themselves. In fact, GEHC was offered the 15% shareholding in Petrosound Ltd before the beginning of the trial on the basis that they are worthless. The offer was rejected.

In support of GEHC's ability to elect for the value of the assets and opportunities rather than the assets themselves, Mr Fraser relies upon Nant-y-glo and Blaina Ironworks Company v Grave (1878) 12 Ch D 738a in which the defaulting fiduciary (at the plaintiff's election) was ordered to pay the value of shares he had obtained in breach of duty rather than receive the shares themselves. In particular, in his written opening, Mr Fraser relied upon a passage from the judgment of Bacon VC at 747 as follows:

"It has been contended that it would be enough if [the Defendant] now, without admitting, or not admitting, the right of the Plaintiff's claim, gave back the shares which he has; but that, in my opinion, would fall far short of the justice of the case. […] I can find no authority, and no case has been referred to except Hall v. Hallet, which I have mentioned, in which the Court has confined its power of relief to the mere restitution of the thing which has been taken away. […] Indeed, I can find no authority in any case which has been referred to for saying that the justice of such a case as this before me would be met, now that the shares which were once worth £80 are only worth 20s., by a mere restoration of these shares to the company."

In addition, I was referred to the unanimous judgment of the Supreme Court delivered by Lord Neuberger in FHR European Ventures LLP v Cedar Capital Holdings LLC [2015] AC 250 at [7]:

". . . the centrally relevant point for present purposes is that, at least in some cases where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the equitable rule ("the rule") is that he is to be treated as having acquired the benefit on behalf of his principal, so that it is beneficially owned by the principal. In such cases, the principal has a proprietary remedy in addition to his personal remedy against the agent, and the principal can elect between the two remedies."

Reference was also made to the decision of Lewison J in Fanmailuk.com & Ors v Cooper & Ors [2011] EWHC 902 (Ch), a case in which company property and the opportunity to develop it had been diverted to a new corporate vehicle in the hands of the fiduciaries. At the date of judgment that new corporate vehicle had been wound up and was insolvent. Lewison J referred to Nant-y-glo and to a passage in Underhill and Hayton: Law of Trusts and Trustees 18^th Ed para 87.1 as follows:

"The measure of the trustee's liability is, instead, the current market value of the property that he should have had in his possession when the beneficiaries called on him to account for his stewardship of the trust fund."

He went on to take the value of the company at an earlier point at which a third party had invested in it as a proxy for the value of the business and to add to it the value of the opportunity diverted having drawn adverse inferences in particular as a result of the failure of the accounting party to give disclosure as ordered by the Court.

In his written closing Mr Cavender submits that it is not clear from the FHR case that the fiduciary must account for either the value or the thing itself at the claimant's election. He says that Nant-y-glo is no support for this. In that case, the defaulting fiduciary who could have sold the shares obtained in breach of duty at any time but thought it advantageous to retain them, was required to pay the value of the shares at their highest intermediate value between the date on which he acquired them and the date of judgment. At their highest they were worth £80 and at judgment only £1. Mr Cavender submits that the position is different here because Mr Gray could not sell his interest such as it was. He says that in fact, the position is the opposite here where it is said that the value of the alleged interest in Petrosound and OpCo far exceeds Mr Gray's interest in RegEnersys I. He also submits that the Fanmail case arose from entirely different facts and that taking the highest value of property should only apply in cases involving the receipt of a bribe or secret commission.

In my judgment, although Lord Neuberger in FHR was primarily concerned with questions arising from bribes and secret commissions, his conclusions in relation to the applicable equitable rule are clear. The principle has both a proprietary and a personal remedy. Furthermore, it seems to me that it is clear from all of the authorities to which I have been referred, each of which turns upon its own facts, that the court is concerned to do justice in the circumstances and as a result, in some cases has concluded that it is necessary to attribute value to shares or an opportunity, other than their value at the date of judgment. The Court is not limited to being able to grant relief by way of restitution or to take the value of an asset at the date of judgment, if on the facts of the case such a value would not reflect the value of the opportunity diverted which the defaulting fiduciary should have had in his possession.

There is no dispute as to the final stage of the test. It is that the court has a discretion to apply an equitable allowance both as to disbursements and the skill and effort of the defaulting fiduciary.

The Account in summary

In summary, Mr Gray's position is that he has not received a net benefit and is not entitled to receive any monies or benefits as a result of his breaches of fiduciary duty and he holds no interest in any company or entity which has an interest in the ultrasound technology (of any type) and has no other arrangements in relation thereto. It is said that: the ultrasound technology proved to be a disastrous investment; the technology is not commercially viable and remains unproved and experimental; the "Acquisition Strategy" contains nothing unique, simply reflects normal business practice and was and is contingent upon the commercial viability of the ultrasound technology. Furthermore, Mr Cavender QC submits that there is no evidence that it has been implemented by anyone and even GEHC's expert valuer is unable to give it a separate value.

GEHC on the other hand submits that the evidence suggests that Mr Gray has obtained a valuable minority stake in the Russian venture exploiting the ultrasound technology in the former Soviet Union, Petrosound Limited and a potentially more valuable interest in its world-wide exploitation through Petrosound International Limited. GEHC contends that this arises as a result of a secret agreement entered into in or around April 2012 with Mr Pronk, acting on behalf of the Hereema Group, under which Mr Gray retains a beneficial interest of around 50% in Chiloquin's 15% shareholding in Petrosound. In addition it is alleged that by agreement with Messrs Volchenkov and Ivanov, two former employees of VIYM, Mr Gray has a beneficial interest of around 50% of their combined 15% shareholding in Petrosound whether directly, or through Celloteck/Chiloquin. The other 50% beneficial share thus being held by Messrs Volchenkov and Ivanov for the Heerema Group.

Further, it does not appear to be in dispute that following the December 2010 Transaction Mr Gray's indirect interest in RegEnersys I continued through his minimum 51% interest in RegEnersys UK which represented the traceable proceeds of his original 20% interest in RegEnersys LP. In addition, it is alleged that since 2007, Mr Gray has also received around €27 million in fees from Mr Heerema for, amongst other things, managing the ultrasound technology opportunity. It is not in dispute that the fees were received, but Mr Gray denies that they arose as a result of his breaches of duty and contends, in any event, that they need to be reduced by expenses, and allowances.

Application of the test

(i) Does the asset fall within the scope of the Order?

I take this facet of Mr Cavender's test first because it affects the question of assets received as a result of breach of fiduciary duties. In his written closing on behalf of Mr Gray, Mr Cavender devoted a considerable number of paragraphs to the definition of the ultrasound technology and what is meant by "Acquisition Strategy" both of which are used in the Order made by Vos J on 17 January 2013 but not defined. However, he made no mention of it in oral closings and went straight on to deal with the arguments in relation to each asset allegedly identified. In fact, Mr Fraser did not deal with this issue either. However, given that I heard a considerable amount of evidence from patent experts, it seems to me that that I should address it.

In this regard, in addition to their written reports, I heard detailed oral evidence from both Mr Matthew Cassie on behalf of Mr Gray and Ms Virginia Driver on behalf of GEHC. Mr Cassie is a European and Chartered Patent Attorney who has a particular focus upon patent technologies in the oil and gas industry. Ms Driver is also a Patent Attorney. I found them both to be careful and measured witnesses who sought to assist the court.

In effect, it is said that GEHC seeks to widen the scope of the account and that what Vos J was concerned with was the specific technology in relation to which RegEnersys I acquired its non-exclusive and conditional licence, namely the Klamath Falls technology. He relies upon the evidence of his patent expert Mr Cassie to the effect that the Klamath Falls Technology and the Russian Technology, in the sense of the US patents originally owned by Klamath Falls and Mr Zolezzi and the Russian patents which were the property of Professor Abramov and/or Sonoplus, are not the same or even similar and that the Russian patents of which there are five, represent a "step change". Mr Cassie stated that one did not build upon the other although they may be complimentary in some circumstances. He went on to state that because there is an absence of the use of shear waves or heating elements to maintain low viscosity in the Russian patents, the inventions that they disclose lie elsewhere, although they may be used in conjunction with the inventions disclosed in the US patents. He added that the US patents are not mentioned in the Russian patents because they do not appear to be relevant.

Ms Virginia Driver on behalf of GEHC on the other hand stated in cross examination that a patent contains only the relevant inventive concept and that even if the Russian patents built upon the US patents there would be no reason to give detail of the latter in the former. She also considered that it might be that there was reference to shear waves in one of the Russian patents. She made clear that for the purposes of a patent one is only required to give sufficient detail of the inventive concept such that a person skilled in the art could make the invention. She went on to state that in this case the inventive concept is focusing on the second part of the treatment and not on the first. Ms Driver also made clear that the extent of the detail in a "prior art" section of a patent is up to the author and therefore one can derive little from the inclusion of or failure to include references to other patents or documents which might be relevant. She also pointed out that a patent is required to contain the information necessary for the invention which would be adequate for a skilled person in the art to make the device in question. If such a skilled person already has access to information which would enable him to build certain components there is no requirement to refer to them in the patent.

In fact, both experts accepted that they had considered the contents of the US and the Russian patents in isolation from the facts and therefore had only carried out an analysis of the technical contents of the documents themselves. It seems to me therefore, that despite their lengthy reports and the considerable amount of time taken up with their cross examination, their evidence does not take the matter much further.

Professor Abramov explained both in cross examination and in his evidence in the Chilean arbitration that the ultrasound technology itself is not new and that there are a number of companies which apply it although he considers his to be a superior method. He also stated in cross examination that the ultrasound treatment is effective when combined with a jet pump and he used such a combination in 80 to 85% of cases. He stated that a different tool was used from that used by Klamath Falls and that he and his team had improved the technology from Klamath Falls.

Mr Cavender also relies upon the evidence of Mr Heerema amongst others that the Russian scientists were the "key" to the technology as the basis for his submission that GEHC's opportunity related solely to the Klamath Falls technology which is different from that used in Russia and that the Account is concerned solely with the latter. In my judgment, his submission fails. The very fact that Professor Abramov accepted that the principle was well known and that it is not disputed that the Russian Scientists who were originally collaborating with the Chileans were key to the technology works against Mr Cavender rather than in his favour. The same is true of the expert evidence from the patent experts. It seems to me, as I have already said, that the fact that there is no reference to the Klamath Falls patents in the Russian ones takes the matter no further forward. Ms Driver's evidence in relation to the necessary content and background to a patent coupled with Professor Abramov's acceptance that the technology is well known, brings me to the conclusion that one may be complimentary or based upon the other without any reference appearing in the document. The evidence was clear that the Russian Scientists had been "key" to the technology throughout and therefore, it seems to me that Mr Cavender's attempt to decouple the two is artificial. Vos J in my judgment, quite rightly did not define the technology prescriptively. The matters to which I have already referred and the fact that the Professor did not dispute that he was eager to purchase the Klamath Falls patents, lead me to the conclusion that the account should not be limited in the way in which Mr Cavender proposes. Equally, I do not consider that there is anything in concerns in relation to the "Acquisition Strategy".

(ii) Assets and Benefits

(a) Beneficial interest in Petrosound Ltd through Celloteck's subsidiary Chiloquin

It is not in dispute that Celloteck's subsidiary, Chiloquin, has a 15% shareholding in Petrosound Ltd. The first question is whether Mr Gray retains a 51% beneficial interest in Chiloquin's shareholding. This turns upon whether in fact, Mr Gray divested himself of his interest in Chiloquin and all other interests in the ultrasound technology by the 17 August 2012 Sale and Purchase Agreement (the "2012 SPA"). As I have already mentioned, GEHC contends that in fact there was a secret agreement with Mr Pronk preserving his 51% interest in them. In this regard, Mr Fraser relies on what he says are three main drivers for the 2012 SPA. The first was that in February 2012, the Chilean Arbitration was finally concluded. As a result of the settlement, Chiloquin obtained a majority stake in Klamath Falls and as a result, gained control of the Klamath Falls technology, which he says were considered to be the core patents for the development of the ultrasound business. Mr Gray was therefore, in a position to unite the technology with the Russian Scientists' business in which RegEnersys had invested and was entitled to a 30% interest and which he had stated was his plan. Mr Fraser says that the second driver was that by 2012 VIYM wanted to make a $3m investment in the Russian Scientists' business, which meant a need to formalise RegEnersys's 30% stake, not least because VIYM wanted the comfort that Mr Gray and the Heerema Group would be part of the Russian business in which they were investing. He says the third driver was that the liability trial in which Mr Gray was continuing to deny that he had any existing interest in the ultrasound technology was approaching and there was a need to serve witness statements.

Mr Fraser submits that the result of these drivers was that Mr Gray needed to keep his interest secret and he did so by persuading the Heerema Group through Mr Pronk to let him use Celloteck as the vehicle by means of the 2012 SPA, and Chiloquin taking the Petrosound stake in 2013. He says that the alternative explanation that the 2012 SPA was a way of paying to Celloteck the $5.1m arbitration settlement funds so as to repay some of Celloteck's $65m remaining investment in (or loan to) the fund is entirely unconvincing. In summary, he submits that there was plainly no original intention to benefit Celloteck from the $5.1m arbitration funds as they were used in February 2012 for Mr Gray's benefit. Mr Cavender on the other hand submits that this is all fanciful, that there is no proper basis for it and that it requires all of the witnesses on Mr Gray's behalf to have conspired together, something which was not put to them and he says is highly unlikely.

In my judgment on the balance of probabilities and given the evidence of Mr Kantor as to the impression he was given by Mr Gray when they met in Moscow on the evening of 22 April 2012, the way in which the draft documentation was sent on to Mr Smits on Mr Kantor's return from Belarus, and the quick response that Mr Pronk would sign them, despite Mr Pronk's denial that an agreement was reached between him and Mr Gray in relation to the documentation over the weekend in Geneva it is more likely than not that such an agreement took place.

Furthermore, it seems to me that Mr Pronk's response later on 30 April 2012 that he would be happy to think of another solution but not a Heerema entity is inconsistent with the explanation that the August 2012 transaction was always intended to enable the debt owed by RegEnersys to be reduced. Mr Pronk's explanation in cross examination was incoherent and I was unable to follow it. I also take into account in this regard the fact that there is no contemporaneous documentary evidence of any kind either seeking repayment of any part of the $65m on the part of the Heerema Group or a desire to do so on behalf of Mr Gray. I also consider it relevant that there was no obligation to repay the loan directly. It was to be repaid over time from a percentage of any monies realised on the sale of assets. In this regard, I also take account of the fact that Mr Heerema was unable to explain how the figure of $65m had been arrived at and that Mr Pronk was unable to point to a document recording Mr Gray's alleged desire to pay back the loan or to give particulars of when such a desire was made clear and gave untruthful evidence in relation to the use of the remainder of the Chilean arbitration settlement monies. Overall, therefore, I am unable to accept Mr Pronk's evidence and Mr Gray's case that the August 2012 transaction was driven by debt reduction.

I also place weight upon Mr Gray's email of 30 April 2012 in which he stated that he just wanted the equity "remote from me." This comment was not addressed by Mr Gray in witness statements or affidavits. Nor for that matter is there any reference to debt reduction. Paragraph 111(d) of Mr Grays' Further Information of 22 October 2014 implies that the phrase "remote from me" was intended to mean that he "wanted out." However, in my judgment, given the ordinary meaning of the phrase coupled with the use of the word "remote" in the subsequent emails to Mr Ward of 25 September 2012, in a context in which Mr Gray was seeking to disguise his investment in Stratum Energy, and which Mr Gray merely stated that he could not recall, and in the light of the fact that Mr Ward's evidence was that Mr Gray was familiar with the use of trusts, nominees and deeds of beneficial interest which is not surprising given his profession, on the balance of probabilities, I consider that it is more likely than not that the email provides an insight into Mr Gray's intention to hide his interest in the ultrasound technology by means of his secret agreement with Mr Pronk and the 2012 SPA and loan agreement.

This is also consistent with the move to shift Celloteck out of the Heerema Group and the consequent change to the draft comfort letter originally provided by Mr Kantor to be signed by Mr Pronk on behalf of the Heerema Group to be provided to VIYM, the reasoning for which Mr Kantor said he was unable to recall. It seems to me that such a shift is inconsistent with the debt reduction rationale.

I am further strengthened in my conclusion by the fact that at the same time, Mr Ward enquired of Panamanian lawyers about setting up a trust in Panama the asset of which would be a Panamanian company, Celloteck being registered in that jurisdiction. It seems to me that Mr Ward's email to Mr Gray of 7 May 2012, to which I have referred, stating "…I think easier to retain as panama mirroring celloteck inc which presumably a trust could purchase from heerema for written down value" is consistent with enquiries about a vehicle to purchase Celloteck from the Heerema Group which would enable the SPA to go ahead. In his fifth witness statement Mr Gray denied having requested Mr Ward to make the enquiries. However his denial is inconsistent with Mr Ward's email of 3 May which is "Rob, Haven't forgotten and chased the Panamanian agent who looks after the Heerema accounts tonight" and therefore, I am unable to accept Mr Gray's evidence in this regard.

Further, in my judgment, the content of Mr Ward's email of 7 May 2012 to which I have already referred is also inconsistent with Mr Gray not being involved in the enquiries. It is also inconsistent with Mr Ward's evidence in cross-examination that he had had a discussion with Mr Gray who had asked him to find out "if we could use a Panamanian entity". Therefore, I am unable to accept Mr Gray's evidence in this regard.

As I have already mentioned, I am unable to accept Mr Ward's evidence that the enquiries in relation to a Panamanian trust related to a concern about the level of secretarial fees being charged to ReVysion. Furthermore, Mr Ward even when faced with his email of the 7 May 2012 was unwilling to accept that his enquiry concerned Celloteck which I found wholly unconvincing.

Taking this untruthful evidence together, it seems to me that on the balance of probabilities, it is more likely than not that the untruthful evidence was an attempt by Mr Gray to conceal the reason for the enquiry. I accept Mr Fraser's submission that the attempt to conceal the reason supports the conclusion that it was indeed part of a plan to try to get around the problem raised by Mr Pronk about ownership of Klamath Falls, with a view to transferring Celloteck to a trust in which Mr Gray would have an interest and is indicative of Mr Gray having retained an interest in the ultrasound business.

In addition, I am unable to accept Mr Pronk's evidence in relation to his email to Mr Gray of 9 May 2012, in which he stated: "I have had several discussions on Celloteck. It seems feasible but not easy. Perhaps we should call about this later." He suggested in cross examination that the discussions had been with Mr Elias in Curacao although Mr Elias' evidence was that the subject was only raised with him in October 2012, which I accept. (Mr Elias' evidence is consistent with his response to an enquiry made by King & Spalding LLP in July 2012, in which Mr Elias made clear that he had no knowledge of Celloteck at that stage.) Mr Pronk went on to say that he did not know what he was referring to as "feasible but not easy" but stated that "We had to find a way of doing it." On the balance of probabilities, it seems to me that in the context of Mr Gray's "keep the equity remote from me" email and the agreement reached between Mr Pronk and Mr Gray before the Belarus trip, the task in hand was to create a suitable structure in which Mr Gray could retain a secret interest which was difficult to trace back to him. This conclusion is further supported by Mr Gray's email to his solicitor of 19 July 2012 in which he states that the 2012 SPA is needed before he is able to sign his witness statement.

In this regard, further support is gained from the existence of the highly confidential fax sent by Ms Deeney for the attention of Mr Pronk on 6 August 2012 and the failure to inform Mr Elias of the SPA and to change the share registers of the relevant companies until December 2012, after the judgment in the liability trial, despite the SPA in August.

In relation to the fax, it appears to be the only occasion on which fax communication was used between Messrs Gray and Pronk. It has not been produced and none of Mrs Deeney, Mr Pronk and Mr Kantor were able to assist as to what it might have contained. It is not mentioned in Mr Gray's evidence. However, in cross examination in relation to his email in response to Mr Kantor's email to Han Smits in the Geneva office of 6 September 2012, in which he stated: "Really don't know what this is Rob. Why he sends this to Han?????????", Mr Pronk accepted that he did not want anyone else dealing with the Celloteck matter in his office. On this basis, I consider that it is appropriate to infer that the fax related to an agreement to keep Mr Gray's interests in Celloteck and the ultrasound technology "remote" but that Mr Gray had not divested himself of them and that accordingly, Mr Pronk was concerned that no one but himself should deal with the Celloteck matter.

In relation to the failure to change the share register until after the judgment in the liability trial, Mr Pronk's evidence in cross examination that it took time to finalise things, is in my judgment less than credible. Mr Elias had been contacted by Mr Pronk after the draft judgment became available and before the judgment was handed down. On 20 December 2012, the day before the judgment was handed down, Celloteck was registered as the owner of Chiloquin and the Sale and Purchase Agreement Mr Pronk had asked Mr Smits to draw up was executed, by which Asteck SA (a Heerema Group company) sold Celloteck to Anmich Holdings (a Mauritian company owned by Mr Elias) for US$1.

In my judgment, despite Mr Elias' evidence that he is the beneficial owner of Anmich, the content of his emails of 7 and 17 June 2013 to which I have referred in which he refers to "the structure transferred to "me" and ""MY" GROUP OF COMPANIES" are contrary to true beneficial ownership. In my judgment, Mr Elias' explanation in cross examination that the way of corresponding reflected the debt due and that he would transfer the companies back for $1 if asked, is also consistent with a lack of ultimate ownership on the part of Mr Elias. Mr Elias' lack of knowledge about the ultrasound technology until shortly before the trial and about payments made to Mr Gray and his acceptance that although he had worked for Mr Pronk and the Heerema Group for many years, this was the only arrangement he had with them of this kind, in my judgment are in all the circumstances of this case also consistent with the existence of a secret agreement and a lack of true beneficial ownership in Mr Elias.

I also consider that the following further matters amongst others are consistent with Mr Gray having retained an interest in the ultrasound technology albeit secretly: Mr Gray went to Russia with Mr Kantor to introduce representatives of Petrosaudi to the Russians Scientists on 19 August 2012, immediately after the execution of the SPA and having signing his witness statement; Mr Gray met with the Russian Scientists in London in November 2012; as late as 28 May 2013, Sergey Volchenkov was still referring to "Rob's 30%...".

Lastly, I take into account the exchange between Messrs Ward, Knight and possibly Gray in relation to a shareholding for Mr Knight on his departure from ReVysion in 2011. At that stage he says he was asking for 5% in any international vehicle formed and was refused. In fact, his email refers to a shareholding in the Russian business as well. The cross examination was as follows:

Q. […] Can you look at paragraph 50 of your witness

statement. You are asked about your request for the

5 per cent equity and you say:

"At this time I was asking RegEnersys for their

agreement to provide me with 5 per cent equity in any

international company which may be formed."

But your request is not just about international,

it's about Sonovita Russia as well, and CUT Services.

You would not ask for that unless you thought Mr Gray

had an interest in those companies?

A. But that's never been in doubt, has it? The only thing

which has been in doubt is the fact that he was never

given that -- he was never formally given that equity.

He never received it and then in 2012, when VIYM came

in, it became moot anyway."

He therefore, accepted Mr Gray's interest in the companies, albeit that share certificates had not been issued. Mr Knight went on to state that Mr Gray had refused him a shareholding but that Professor Abramov had awarded him a 3.5% interest in the Russians' offshore company. There is no documentary evidence for this, nor did it appear in Mr Knight's witness statement. Further, Professor Abramov showed contempt for Mr Knight. It seems to me therefore, on the balance of probabilities that it is more likely than not that either Mr Gray awarded Mr Knight the shareholding or that Professor Abramov promised the shares/allotted them to Mr Knight because of the Professor's relationship with Mr Gray.

(b) Interest in Petrosound through nominees – Volchenkov, Ivanov and/or Professor Abramov

There is a considerable amount of evidence that in 2010 it was understood that in return for the investment already made RegEnersys would have a 30% stake in the Russian business. For example, Mr Knight's email of 7 December 2010 to Mr Gray to which I have referred in which he refers to his request to the Russian lawyers for share certificates for 30% paid up shares in the name of RegEnersys is entirely consistent with an agreement having been reached. In addition, in cross examination, Messrs Knight and Pronk accepted that there was an agreement/understanding or arrangement as to the 30%. Even the emails from Professor Abramov around this time suggest that he intended to honour the arrangement which had been finalised. In cross examination, Professor Abramov's evidence was very unclear. As I have mentioned, he stated that the business was his and he would do what he liked with it. He also went on to state that things had changed because promised introductions to oil companies were not provided nor were certain generators shipped. In fact, the evidence such as it is, is that the generators were shipped to Russia and that certainly the Russian Scientists were introduced to Tony Hayward of TNK/BP. As a result, I am unable to accept Professor Abramov's evidence in this regard.

Further, there are many examples of documents which make reference to ReVysion/ RegEnersys' stake in the Russian business. For example, the Feasibility Study produced in December 2010 and translated in 2011. In this regard, I do not accept Mr Knight's evidence that he was unaware of its content having only read a summary. The Report does not contain a summary and none of the emails available before the court contain such a summary upon which he might have relied. I prefer the evidence of Mr Kantor in this regard, that had the Feasibility Study contained false information he would have expected Mr Knight to have told him and he did not do so.

Reference was also made in a draft licence agreement prepared by Mr Knight for Sonovita which was emailed to Mr Kantor on 17 May 2011. Further, in his emails with Mr Ward concerning his departure from ReVysion in July 2011, Mr Knight made reference to continuing to work on the "Russian investment" which he did. Reference also appears in the due diligence and documentation prepared by VIYM to which I have referred. I also place some weight in this regard upon the numerous sums paid to the Russian Scientists over the period form July 2010 to March 2012 which I consider to be consistent with an agreed interest in the Russian business. Some of the payments were routed to Wilmington, Conto West, Logimax Sales Limited and others (the bank details of Conto West and Logimax having been provided through Mr Deeney's email account) and on one occasion paid through Mr Ward, many of which were given references which could not be explained. I infer from the use of Mr Deeney's email account, the references which could not be explained and the different and varied recipients of the payments that in addition to aims which Professor Abramov may have had, Mr Gray also wished to keep the payments secret and difficult to discover.

Taking all the evidence into consideration it seems to me that it is more likely than not that the agreement in relation to 30% and 51% of the international business was reached in 2010. I am fortified in this conclusion by the form of the internal documentation and due diligence of VIYM conducted in 2012. It appears that VIYM had no doubt as to the nature and extent of the Gray/RegEnersys interest in Petrosound and the international operation and made their investment on that basis. Professor Abramov's evidence that he did not tell VIYM that he had an agreement with Mr Gray is inconsistent with the documentation, the fact that Mr Gray met with VIYM in January 2012 before they made their investment and the transmission of Mr Gray's Curriculum Vitae to VIYM and its use in their documentation. As a result, I am unable to accept it.

Further, after the beginning of 2011, all but a single email between RegEnersys/Mr Gray and the Russian Scientists took place on private email addresses. As I have already said, I do not accept that the step was taken as a result of concerns about hacking and industrial espionage. In addition, in 2012, Mr Kantor set up his "Bill Barrett" email address used for correspondence with the Russian Scientists which he did not disclose until its existence had been revealed in disclosure from VIYM provided in November 2014. The account was closed in 2013 and Mr Kantor accepted that he knew that in doing so the emails would be deleted. It seems to me that such conduct from which I draw an adverse inference, was designed once again to shield the existence, nature and extent of the RegEnersys/Gray interest in Petrosound Ltd from detection.

I have already found that the evidence of Mr Knight and Mr Kantor as to the alleged reduction of the shareholding in Petrosound from 30% to 15% was highly implausible for all the reasons I set out at paragraphs 121 -123 above.

In my judgment, taking all of these matters into account, on the balance of probabilities an agreement for 30% was reached and the 15% allegedly allotted to the VIYM employees was more likely than not intended to be held for Mr Gray/RegEnersys and is now held either by them or by the Professor for that purpose. There is no documentary evidence of the loan allegedly extended by the individuals or VIYM. I also take into account in this regard that Ms Deeney sought the contact details of Messrs Volchenkov and Ivanov on Mr Gray's behalf in May 2013 which neither Mr Kantor nor Mr Knight was able to explain.

(c) 51% in any international company

It also seems to me that from the date of the Stuttgart meeting in October 2010, there is evidence as to the 51% intended share to be taken by RegEnersys in an international roll out of the technology outside Russia. Mr Knight explained that that was where the money was and that Petrosound International Ltd was the intended vehicle. I am unable to accept Professor Abramov's evidence that the international company had no connection with "his Petrosound." It is mentioned by name in the agreement by which a 15% shareholding was sold to Celloteck and it is not disputed that in late 2013, Professor Abramov's daughter Anna was involved in the drafting of Petrosound International's business plan. In cross examination, nevertheless, the Professor expressed a particularly low estimation of Mr Knight which seems to me was either false, given his active involvement with drafting documentation, or strongly suggests that the Professor tolerated him as an agent for Mr Gray.

There are numerous documents evidencing the 51% agreement, including (i) Mr Kantor's email to VIYM of 10 September 2012 and the attached structure chart, (ii) VIYM's email to Mr Kantor of 14 November 2012 following the meetings in London, (iii) the 13 December 2102 Sonoplus board minute, (iv) Mr Kantor's 21 January 2013 email to Mr Pronk and the attached structure chart and Memorandum of Understanding terms and (iv) Dr Arkavy's email to Mr Kantor of 29 March 2013 (asking about the "incorporation procedure for development of international business"). The email of 28 May from Mr Knight to Dr Bayazitov stated amongst other things that he was "in the process of drafting a Memorandum of Understanding between VIYM, Sonoplus and my British company regarding the formation of the international company." The email also stated "In addition, what is going on in Azerbaijan: 49/51% - international affairs were split with Rob, CIS and the world."

Finally, in his witness statement Mr Knight stated that after being approached for disclosure in October 2013, he decided that it was "not advisable to proceed with the roll out of the international company while the current proceedings…were progressing" and that "our current focus is therefore on ensuring that Sonoplus and PI [Petrosound International] remain in business and that we can roll out internationally once the proceedings against Mr Gray have finished." In fact, he stated in cross examination that he had wound up the company shortly before the Enquiry.

Mr Knight accepted in cross examination that it was envisaged that the Russian business (through Sonoplus) would have 49% in Petrosound International, leaving 51% for "new investors". In fact, the contemporaneous email chain reveals that a new investor in January 2014 was rejected on the basis that Petrosound International had decided to "self fund". Thereafter, Mr Knight accepted that he had worked on a detailed business plan for Petrosound International in November and December 2013, in which reference was made to contact having been made with potential testing partners; hoped to "resurrect" the UnaOil deal in December 2013; liaised with a potential investor or client, Cindy Miller, with the assistance of Mr Kantor, whom Mr Knight accepted was helping him as at February 2014; and signed a "Technology Licence and Service Agreement" between Petrosound International and Sonoplus in April 2014.

In my judgment, therefore, it is clear that it is intended that a 51% interest in any international business which may be commenced after these proceedings is to be held for RegEnersys/ Mr Gray. In the light of my conclusions that Mr Gray did not divest himself of the interests in the ultrasound technology in August 2012, it is not necessary to consider whether he has an indirect interest in RegEnersys I consisting of: (from at least June 2007 to 31 December 2010) a 20% indirect interest obtained through his 20% interest in RegEnersys LP; and (from 31 December 2010) a 51% indirect interest obtained through his minimum 51% interest in RegEnersys UK; and the $3 million payable by Celloteck to RegEnersys UK as the purchase price for the purported sale by RegEnersys UK of the shares in RegEnersys I and Chiloquin on 17 August 2012.

(d) $5.1m paid by Klamath Falls to Celloteck under the Chilean Arbitration Settlement Agreement

An internal ledger produced by Heerema Group and kept by Mr Smits in the Geneva office shows that this sum was received by Mr Gray into ReVysion's current account with the Heerema Group and was subsequently used personally by Mr Gray for his own purposes. It is said on behalf of Mr Gray that the ledger amounts only to a rough tally and Mr Pronk stated in cross examination that too much had been paid to Mr Gray and subsequently it had been rolled up into a loan to him from the Heerema Group. He did not mention this in his witness statement and there is no documentary evidence before the court to support the alleged roll up into a loan. As a result, I am unable to accept that evidence. It seems to me that the terms of the ledger are clear and that the $5.1m received in settlement of the Chilean arbitration were used by Mr Gray for his own purposes. However, to the extent that $2.1m of it was used to purchase an interest in Klamath Falls, it seems to me that it may be double counting to treat the entire $5.1m as an asset in or formerly in Mr Gray's hands. I am happy to hear further submissions in this regard, should be need arise.

(e) Annual management and performance bonus fees to 2010

There is no dispute that Mr Gray (or entities wholly-owned or controlled by him) received management fees totalling €17 million for the years 2006 to 2009 together with a sum of €3.5 million which was paid directly to Mr Gray in 2009 by way of "a performance uplift on account of the successful disposition of RegEnersys' investment in the Breagh North Sea gas field". According to his accountant Mr Ward, profits of £7,360,970 were generated and £6,262,997 according to his expert Mr MacGregor (albeit not including the £3.5m "uplift" figure.)

GEHC contends that Mr Gray made net profits for which he must account to GEHC of at least £9,690,810 made up of £6,496,010 from the sums paid to his entities and £3,194,800 for the "performance uplift fee" paid directly to him. This is the further sum of €3.5million converted to sterling at the rate prevailing on 1 October 2009, the date on which the sum was paid.

GEHC submits that the "performance uplift fee" in fact formed the second half of the agreed 2009 management fee of €7 million but was subsequently recorded as a "performance uplift fee" as a device to allow it to be transformed from income to capital, for tax mitigation purposes. Mr Heerema's oral evidence was that he could not recall being involved in any agreement whereby Celloteck would pay €3.5m as a "performance uplift fee" and Mr Pronk agreed that the 2009 fee was all paid as management fee, then suggested that Mr Gray had asked for half of the fee to be paid under a different title, and then when taken to the documents agreed that the entire sum paid in 2009 (being €7m) was (as he had said initially) "probably" all paid as a management fee and agreed that there were no contemporaneous documents recording otherwise. Eventually, Mr Ward accepted in cross examination that he had worked with Deloitte (after the event) on the idea of transferring the €3.5m second-half of the management fee from income to capital. In fact, in an email to Mr Smits of Heerema in 2010, Mr Gray himself described the payment as a "tranche of the 2009 management fee". It seems to me therefore, that the evidence all goes one way and that the purported "uplift fee" was paid as the remainder of the management fee for 2009 and should be treated as such.

It is not disputed that the management fee income less all expenses for EMADL for 2007 and ReVysion for 2008-2010 (the years when the fees were received) which are claimed on Mr Gray's behalf, leaves net profits of £7,134,243. If the tax payable by EMADL is deducted it leaves net profits of £6,496,010. In fact, Mr MacGregor on behalf of Mr Gray puts the net profits figure for EMADL and ReVysion at £6,262,997. However, as he accepted in cross examination this does not include the 3.5m euros figure which amounts to £3,194,800. Therefore, on the basis of my finding as to the true character of the "uplift fee" Mr MacGregor's figure needs to be adjusted to take account of it and therefore amounts to £9,457,797. However, in GEHC's written closing it is stated that the evidence shows that between 2006 and 2009 Mr Gray received net profits from the management fees of at least £9,690,810. I find that conclusion difficult to follow and prefer the figure of £9,457,797.

It seems to me therefore, that the question which arises here is whether the fees or part of them have some causal connection with the breaches of fiduciary duty and if the causal connection is only to part whether an apportionment can be carried out. I turn to this below.

(f) $10 million consultancy fee paid between 2 July 2010 and 10 October 2012 and its allegedly traceable proceeds (shares in Stratum Energy and Buried Hill)

The same issues arise here in relation to the $10m fee and the investments into which GEHC contends that it is entitled to trace part of the fee. GEHC submits that this is just a continuation of the management fee and should be treated in the same way. It is not in dispute that it was paid as part of the arrangements made when the fund was capped and was taken over three years for tax reasons. Both Mr Pronk and Mr Heerema accepted that the fee was agreed in relation to Mr Gray's continuing his work on the ultrasound technology as well as other investments remaining in the fund. I prefer their evidence which is consistent with the contemporaneous documentary evidence to that of Mr Ward to the effect that the fee was paid under a separate consultancy agreement. Mr Ward accepted in cross examination that the fee was subsequently structured under the consultancy agreement for tax purposes. It seems to me that given the nature of the oral evidence, there is no question but that the $10m should be treated in the same way as the remainder of the management fees.

In its written closing, GEHC submits that of the $10m Mr Gray received profits of at least $5,714,799 being the $5m of the fee which he used to purchase shares in Buried Hill and Stratum Energy which he still holds and $714,799 he used to pay legal costs in the Liability trial. In this regard, GEHC also relies upon the fact that Mr Gray himself described the $10m as "money available to me" and as "liquid cash" in his fifth witness statement. In this regard, attention is also drawn to Mr Ward's evidence in his second witness statement that the $10m were "Funds available to Mr Gray" and Mr Pronk's evidence in his third witness statement that "Mr Gray used this money as his (or ReVysion's) own. He sometimes called us to ask that certain things be paid for on his behalf from that sum rather than paying him directly." His evidence in cross examination was the same, namely that the entire management fee was considered by the Heerema Group to be Mr Gray's to spend as he saw fit.

A further question arises as to whether any costs or allowance should be taken into account. I shall return to that below, having considered the question of causation.

(iii) Some causal connection

There is now no dispute that the onus lies upon Mr Gray to show that any benefit obtained has no causal connection with his breaches of fiduciary duty. First, in relation to his interest in Petrosound Ltd and any international operation whether through Petrosound International or otherwise, rather than place evidence before the court in relation to a lack of causal connection, Mr Gray sought to contend that he retained no interest at all. I have found that that is not the case. I have also found that a limited definition of the ultrasound technology confined only to the Klamath Falls technology is not appropriate in this case. In my judgment, quite clearly, both the interest in the Russian business and any international roll out is intimately concerned with the ultrasound technology and the Acquisition Strategy and accordingly, has a causal connection to the breaches of fiduciary duty. The opportunity of which Mr Gray availed himself in breach of duty can be traced first into Mr Gray's initial interest in RegEnersys I, when owned by RegEnersys LP from August 2007. After 31 December 2010, it became his 51% interest in RegEnersys I, when owned by RegEnersys UK. He succeeded in using this to obtain a 51% interest in Chiloquin's interest in Klamath Falls in February 2012, and then in turning both into a beneficial stake in Celloteck or Chiloquin by secret agreement with Mr Pronk in 2012 – which beneficial stake gave him his interest in Petrosound Ltd in 2013.

Mr Cavender submits on behalf of Mr Gray, that although Celloteck transferred the entirety of the Klamath Falls technology to the Russian Scientists in consideration for the 15% shareholding in Petrosound, RegEnersys I had only been entitled to a non-exclusive licence to that technology. The acquisition of a 10% shareholding in Klamath Falls was expressly excluded from the scope of the Account. It is also said that the acquisition of the remaining 90% of the shares in Klamath Falls after the Chilean arbitration was not in breach of fiduciary duty. As a consequence, Mr Cavender says that it is very difficult to attribute any value, let alone the whole value of a 15% interest in Petrosound acquired by Celloteck to the giving of up of a non-exclusive licence in circumstances in which Celloteck had gained the right to grant as many licenses as it wished and transferred the entire rights to the Klamath Falls technology.

I agree with Mr Fraser that Mr Gray's interest in Petrosound through Chiloquin would not have happened had Mr Gray not taken advantage of GEHC's maturing business opportunity because: (i) Mr Gray would not have been introduced to the ultrasound technology and the Russian Scientists, or the opportunity of reaching agreement with them to take an interest in the Russian operations; and (ii) Mr Gray would not have obtained an interest in, and later been able to take control of the Klamath Falls technology which (as the evidence showed) was seen by everyone involved as one of the keys to being able to commercialise the technology and agree a structure with the Russian Scientists for that commercialisation. It seems to me that the licence in respect of the Klamath Falls technology was a manifestation of the opportunity obtained in breach of fiduciary duty and there is no reason to seek to freeze the opportunity at that juncture. Such a conclusion is inconsistent with the acceptance throughout that the Russian Scientists were the key to the technology and my findings as to the nature of that technology.

Further in my judgment, the receipt of $5.1m paid by Klamath Falls in the settlement of the arbitration was causally linked to Mr Gray's breaches of fiduciary duty because the litigation from which the settlement derived involved the affirmation of RegEnersys I's rights as the owner of the interest in the Klamath Falls technology, RegEnersys I being the special purpose vehicle used to pursue the opportunities in relation to the ultrasound technology and the Acquisition Strategy of which Mr Gray wrongfully took advantage.

I find the causal link to the entirety of the management fees from 2006 until 2009 and the "consultancy fee" from 2010 to 2012 more difficult. In this regard, Mr Fraser submits on behalf of GEHC that the fees were paid in respect of services provided to or in relation to the business or intended business of RegEnersys LP between 2006 and 2010 and the business of RegEnersys UK from 2011 onwards which included the maturing business opportunities taken by Mr Gray from GEHC. Further, the services provided by Mr Gray and later ReVysion included advice to the Heerema Group and then RegEnersys LP and RegEnersys UK in relation to those opportunities. In particular that advice related to the possibility of investing in ultrasound technology and then in relation to the investment actually made by RegEnersys and then RegEnersys UK in that technology. Further, it is said that ReVysion effectively managed the investment.

On behalf of Mr Gray it is said that he is not obliged to account for the fees, or some part of them, for the following reasons: first, the creation of RegEnersys and his role in its management were conceived and agreed without reference to the ultrasound technology, the Acquisition Strategy and GEHC's maturing business opportunity; the fees received are not attributable to or sufficiently closely connected with his breaches of fiduciary duty; the management fees were calculated as a fixed percentage of committed funds, not the funds actually invested and were subject to costs incurred in managing the RegEnersys and RegEnersys UK funds as a whole and not merely that part which was invested in the ultrasound technology; that an allowance of £1 million per year should be made to reflect the amount it would have cost to employ a Chief Executive Officer to do the job that Mr Gray did for ReVysion; and in any event, an amount ought to be excluded from the scope of the Account pursuant to an exception to his obligation to account built into the Order of 17 January 2013, under which Mr Gray is not obliged to account "for any amounts received in respect of the purchase of an interest in Klamath Falls".

Further, it is said that it is extraordinary that despite having abandoned a claim to Mr Gray's interest in RegEnersys or RegEnersys UK other than his interest via those entities in RegEnersys I, the claim in respect of the management fees is maintained.

Towards the end of the Enquiry it was suggested on behalf of Mr Gray that it would be equitable if $105,218.35 of the alleged $6,262,997 fees for the period 2006 -9 were attributed to the ultrasound technology and £25,864.87 for 2010. A variety of other figures were also mentioned. Reliance was also placed by Mr Cavender upon Ryde Holdings Ltd v Rainbow Corp Ltd [1993] UKPC 40 although he did not take me to the authority.

Further in relation to the $10m fee it is said that it was not related to or even contingent upon investment in the technology. It was paid in respect of a period after the fund was capped and in respect of its run off and Mr Gray's evidence was that it was paid on account of services provided generally to other Heerema Group operating companies. It seems to me that this is not borne out by the evidence in cross examination of Messrs Pronk and Heerema to which I have referred. Lastly it is said that after 17 August 2012, ReVysion no longer provided a service to RegEnersys UK because of the sale to Celloteck.

Despite the fact that the management fees were dependant upon the amount of committed capital rather than the value of the investments themselves, it seems to me that based upon Mr Heerema and Mr Pronk's evidence in relation to Mr Gray's duties which included advice in relation to investing in the ultrasound technology, that there is a clear connection between those fees whether before or after 2010 and the breaches of duty in relation to the ultrasound technology and the Acquisition Strategy, at least in part.

I have come to the conclusion that only part of the management fees to 2009 has some causal connection despite the fact that it is not possible to determine how much time or effort was spent on one investment rather than another. Mr Cavender submits that if one assumes that the value attributable to the ultrasound investment in the relevant years was its actual value and applies the highest percentage of committed funds reached by the investment in ultrasound technology during the relevant years which he says is 1.68% to the net sum received over the period, of £6,262,997 one arrives at a figure of £105,218.35. He also handed up a table containing a number of other alternative methods of apportioning the management fee. It was also worked on the basis of the £6m odd figure without taking into account the sum which had been characterised as "the uplift fee."

Mr Fraser provided a table which contained a value for all of the investments in the fund together with interest as at 31 December 2009, multiplied the figure by the time that the investment had been held to 31 December 2009 from which a percentage allocation of the fund was determined. On that basis, the ultrasound technology was stated to have a 34% allocation.

It seems to me that the 34% allocation produced on behalf of GEHC which is intended to be applied to the fees received, is too broad a brush and is arrived at by the inclusion of interest which to my mind is not necessarily appropriate. However, the minimal percentages produced in Mr Cavender's Schedule A worked on the lower total of £6.2m odd, are too meagre. It seems to me that some causal connection to the breaches of fiduciary duty can only extend to that part of the net management fee which bears the same relationship to the fund as a whole as the percentage of ultrasound invested funds and investment opportunities including 90% of the sums included in relation to the Klamath Falls shareholding, in Mr Cavender's Schedule A, over the relevant period. The 10% reduction is to reflect the fact that some of the fee related to managing the Klamath Falls shares rather than the licence. The calculation should be based on the full £9,457,797. It will be necessary to recalculate the figures as a result. It would be preferable that such a calculation could be agreed. If not, it will be necessary to give directions as to further evidence and submissions.

Having already concluded that the $10m "consultancy fee" should be treated in the same way as the management fee, how much of it has some causal connection with the breaches of fiduciary duty? In my judgment, it is necessary in this regard, to carry out a similar exercise to that which is relevant for the period before 2010.

Unfortunately, GEHC has not carried out that exercise, concentrating instead upon the monies actually received by Mr Gray, being the $5m invested in Stratum Energy and Buried Hill shares and the sum used to meet legal fees. In the same way, the argument on behalf of Mr Gray has for the most part focussed on there being no causal link in relation to the $10m at all. In addition, it is said that RegEnersys UK's investment in relation to the ultrasound technology was transferred by the 2012 SPA to Celloteck for a $3m reduction in the outstanding loan and that therefore, ReVysion no longer provided services in relation to RegEnersys UK in relation to ultrasound investments after that date. In any event, Mr MacGregor calculates that once costs and expenses are deducted from the gross sum, the total net sum received by ReVysion in respect of the $10m fee was only £256,155. Mr Cavender submits that it is absurd to conclude that Mr Gray received a benefit in excess of the net sum received by ReVysion.

Mr Fraser submits that Mr MacGregor's calculation of expenses of £6,440,498 bears no relation to the reality of the way in which the $10m was used. He says that there are no expenses to be set off against the amounts which went directly to Mr Gray, namely $5m and $714,799 spent on legal expenses for the liability trial. Secondly, he says that Mr MacGregor accepted that no attempt had been made to apportion expenses against a further £2,252,389 income received in the period 2010-14; and thirdly, Mr Ward accepted that the fee was allocated over a four different accounting years which did not match the way in which the payments were made.

Mr Cavender however, says that the criticisms of his conclusions were not put to Mr MacGregor and that as a result, his conclusion that expenses of £6,440,498 less a sum of $714,799 for legal expenses which must be deducted cannot be challenged. Mr Cavender handed up an amended version of the table in Mr MacGregor's report dealing with expenses and allowances to be set against the $10m fee in which he does not seek to deduct the $714,799. The effect is that Mr MacGregor calculates that £5,998,396 should be deducted from the $10m the sterling equivalent of which is £6,696,653, leaving a net profit of £698,257. In a document referred to as Schedule B, a figure of £73,231 is arrived at by the application of what is said to be the percentage of committed funds not including the Klamath Falls shareholding being 10.49% or £301,262 if the Klamath Falls shareholding is included and the percentage applicable is 43.14%.

In my judgment, although it seems relatively clear that from the $10m fee, Mr Gray spent $5m on a combination of the Stratum Energy and Buried Hill shares and also met part of his own legal expenses, this begs the question of how much of the $10m has some causal connection with his breaches of fiduciary duty. As I have already mentioned, I consider that the same approach should be taken as with the management fee before 2010 and therefore, the fee must be apportioned in a way which relates to the ultrasound technology. The causal connection can only extend to that part of the net fee which bears the same relationship to the fund as a whole as the percentage of ultrasound invested funds and investment opportunities including 90% of the figure in respect of the Klamath Falls shareholding, over the relevant period. As it is not in dispute that all of the fee was drawn down by October 2012, it seems to me that the relevant period both in terms of investments and expenses to be deducted, should cease at that stage. In order to determine what part of the fees are subject to some causal connection, once again, it will be necessary to recalculate the figures.

Once the figure for the post 2010 fee has been arrived at, it will be possible to determine to what extent those monies representing the part of the net fee with a causal connection to the breaches of fiduciary duty can be traced into the shareholdings in Stratum Energy and Buried Hills. It may well be that the rules in relation to mixed funds will apply.

(iv) Allowance for skill and labour?

It is not disputed that it is possible to make an equitable allowance in respect of the skill and labour of the fiduciary in earning the particular profit and in this case, Mr Gray seeks £1m per annum which Mr Ward says would be what one would have to pay a Chief Executive Officer. It is also accepted that the provision of such an allowance is exceptional: Guiness plc v Saunders [1990] 2 AC 663. In cross examination it became clear that Mr Ward had no particular expertise in determining the level of remuneration of such a person and had merely taken a multiple of the highest salary paid at ReVysion. He stated however, that he had some knowledge of clients in the field. It is also not in dispute that Mr Gray did not in fact pay himself a salary.

Overall, given the way in which the litigation has proceeded and the fact that I have found that Mr Gray has failed to account properly or at all in respect of his benefit from his breaches of fiduciary duty, I do not consider it appropriate to grant an allowance. Even if I had, in my judgment, there is insufficient evidence before the court upon which to do so with sufficient certainty. Mr Ward's rule of thumb is not an appropriate basis for doing justice. In this regard, also I take into account the fact that in Mr Gray was not in fact awarded a salary in relation to RegEnersys but was remunerated by means of a share of profits and the fact that I have found his account to be false.

(v) Viability and Value

What is the value if any to be attributed to Mr Gray's interest in the 15% share in Petrosound, his interest in the 15% further share held for him by Professor Abramov and his interest in the 51% interest in any international business and at what date should such a valuation take place? An essential component of any valuation in relation to the shareholdings is the commercial viability of the technology itself, upon which the businesses are based. I turn first, therefore, to the expert evidence on viability before considering the further extensive expert valuation evidence.

Dr Larry Lake is a professor in the Department of Petroleum and Geosystems Engineering at the University of Texas in Austin and has worked on seismic enhanced oil recovery in his capacity as a supervisor of PhD students. He was asked to give his opinion on behalf of GEHC on a number of matters including the viability of the ultrasound technology. Mr Gray's expert in relation to the effectiveness and economic viability of the technology was Mr Stephen Rogers. He has extensive experience as a geologist in the oil and gas industry and at present, is a partner in Arthur D Little Ltd leading their Global Energy Practice. I found both experts to be careful and helpful witnesses although in general I found that Dr Lake took a more general and less focused approach.

Dr Becker who provided expert valuation evidence on behalf of GEHC is the founder and director of the Applied Economics Consulting Group, Inc in Austin, Texas with experience in valuing oil and gas assets including technologies. Mr MacGregor, who provided expert valuation evidence on behalf of Mr Gray and to whom I have already referred, is a fellow of the Institute of Chartered Accountants who had previously worked as a petroleum geologist. Both were careful witnesses who did their best to assist the court.

(a) Viability

A very considerable amount of expert evidence was given both as the viability of the ultrasound technology and as to the way in which the various interests in the Russian business and the international roll out of the technology could be valued. Dr Lake and Mr Rogers each produced main and two supplemental reports dealing with the viability of the technology itself. In essence, Dr Lake concluded in his written evidence that on the basis of the data arising from testing to date the technology is technically viable and Mr Rogers came to the opposite conclusion for a variety of reasons including the lack of detailed, reliable data as to its effects and its economic viability.

In cross examination, however, Dr Lake on behalf of GEHC accepted that he based his opinion and his statistical models upon the data which emanated from the tests conducted on 161 wells in Siberia over a four year period, by different operators and that the wells were not representative of wells in Russia still less, of wells worldwide and that monthly production data was only available for 33 of them. In the remainder, only one data point at the start and the end of the testing was available and it was not clear whether an average of dates had been used. It was also not in dispute that amongst other things, there had been no testing protocol or control wells. Dr Lake also accepted that it was often difficult to determine from the data which field and well was being tested.

A great deal of time in cross examination was spent upon the data in respect of seven out of 19 wells upon which the experts could not agree. Dr Lake's evidence was that he felt that the data points were strong enough to reach conclusions about pre-and post-treatment EFRs for the 12 wells. He accepted that the 33 wells were "pretty crucial" to his analysis. He was also adamant that the pool of information upon which he had based his conclusions was not unusually small.

I should mention that the results of Dr Lake's analysis of the data in relation to the 33 wells was input to Dr Becker's original model for the purposes of valuation but was not relied upon in his revised version. Dr Lake's analysis remains relevant however, to the consideration of the efficacy of the technology and to the suggestion that it was merely a well cleaning technique. I should also mention that Mr MacGregor points out that Dr Lake's interpretation of the data on the 33 wells results in 7 of them running out of oil within 12 months. Mr Cavender suggests that such an extreme result points to a flaw in the data as well as undermining Dr Becker's inclusion in his valuation calculations of production from every well for ten years.

Dr Lake, did accept however that the data available is representative of nothing but itself, that it appeared to have been conducted in sandstone regions and that it might not be as effective in other rock formations such as carbonate. He also accepted that the technology is experimental, that how it works is a matter of speculation and that full commercial testing subject to a protocol should be carried out. He added that a focused program over a couple of years would help with commercialization. In particular, when asked in cross examination:

"Q. So I think you would agree with me . . and you did yesterday . . that this is an experimental technology which needs more work on it to properly understand it and for it to begin to be applied commercially? "

he stated:

"A. Yes, I have to agree with that but there has been a lot of work. It has just been a lot of scattered work and things like that. So a focused programme over a period of years would probably help a lot."

Furthermore, Dr Lake also accepted that the data available to him did not reveal the precise nature of the technology used, whether other treatments had been used at the same time as the ultrasound technology nor whether jet pumps had been used in conjunction with it. Professor Abramov had stated in cross examination that jet pumps had been used in 80 - 85% of the tests conducted under the Rosneft contract. Dr Lake accepted that there are many companies offering a large variety of well treatment services, that in broad terms, ultrasound treatment had been around for a long time and added that to his knowledge, one company at least was making a business of it in the USA.

He also accepted that the data revealed that the effect of the ultrasound treatment was variable, his conclusion being that it worked 36% of the time, Mr Rogers' conclusion being that it works 15% of the time. Dr Lake accepted that if one were seeking to raise finance, a consistent increment and effectiveness would be preferable. Mr Rogers on behalf of Mr Gray emphasized that the inability to explain how the technology works or the basis upon which it might do so, together with properly gathered data would be a significant difficulty when addressing commercial operators who were likely to treat it as little more than "snake oil". He stated in cross examination that no oil company would be willing to apply the technology to its wells unless they had a pretty good idea of how it worked.

Mr Fraser in his written closing made mention amongst other things to a paper in the publications, "Engineering" which included an explanation of how the technology was deployed and a ten well test programme run by Samatlorneftegaz in 2012 as evidence of the existence of more data. He also reminded me of a passing reference to the existence of a data base in Russia, made by Professor Abramov in his rambling cross examination. The nature and content of such a data base are unknown. Mr Fraser also referred to a 2015 paper which stated that the Russian Scientists had been involved in monitoring the tests in Western Siberia and the Samara Region and an answer to technological questions provided by the Russians in November 2014 which suggests that they had identified different approaches for different formation types. Once this is coupled with the contracts entered into with two Rosneft subsidiaries in 2014, Mr Fraser submits that it is to be inferred that sufficient information is available which is supportive of Dr Lake's analysis and which would overcome the inadequacies of the test results themselves.

Further, Mr Fraser relies upon a report on pump optimization in a paper entitled "Ultrasonic Technology for Enhanced Oil Recovery" written by the Russian Scientists and published in "Engineering" in March 2014. It stated that it was a "mistake" to attribute changes in oil production to pump optimization and provided a comparison of 30 wells where only pump optimisation was carried out with 30 wells where the ultrasound technology was applied along with pump optimisation. They concluded that pump optimisation alone resulted in a higher watercut (the ratio of water to oil produced by a well) and a fall in the productivity factor of the wells. By contrast, the wells treated with ultrasound technology saw an increase. Having initially relied upon the paper for the erroneous conclusion that pump optimisation was responsible for 71% of the increase in oil production, on realizing his mistake, Mr Rogers questioned the reliability of the paper.

Although Mr Rogers had disagreed with Dr Lake's conclusions it was not until giving evidence that he produced graphs for two wells with alternative trend lines on them. It also became clear in cross examination that Mr Rogers was concerned about the absence of material to explain some of the peaks and troughs in the data.

Dr Lake accepted that his results were dependent upon the rate of the decline curve in relation to oil production in his graphs. He had concluded that the rate was 8.1% pre treatment and 3.6% post treatment and accepted that the conclusions were subjective and a matter of judgment. He said, however, that Mr Rogers' alternative decline curves which reveal a 4.6% decline before treatment and a 4.3% decline afterwards were perfectly reasonable and he did not strongly disagree with them. As Dr Lake's rates of decline were used in Dr Becker's model for the purposes of valuation, they are of direct importance.

It was accepted by both Dr Lake and Mr Rogers that in order to produce such decline curves it is necessary first to prepare the basic graphs and then to exercise judgment so as to select the start and end points through which the relevant line should be drawn in order to indentify the relevant trend. In relation to the Rust well Mr Rogers says that he adopted a statistical approach whereas Dr Lake identified a downward trend before drawing the relevant line. Mr Rogers' criticisms of Dr Lake's approach centred upon the pre-treatment decline rate. It was said that he used too few data points and ignored the final data point before the treatment date. He did not accept that these points undermined his conclusions. He stated that he had identified a clear trend for which there was a strong statistical correlation and which included data for between 29 and 31 wells. Mr Rogers on the other hand had normalized the data before drawing his trend line. He was unable to explain the process which he had applied.

As a result Mr Fraser urges me to prefer the evidence of Dr Lake as to the appropriate calculation of the rate of decline for the 33 wells before and after they were treated with the ultrasound technology. Mr Cavender on the other hand stresses the loss making contracts, the acceptance by Dr Lake of mere speculation as to how the technology works, the fact that the 161 wells were accepted to be representative of nothing but themselves, the poor data and lack of testing protocol, the fact that Dr Lake accepted that an ideal time for treatment was during a major workover of a well which included acid treatment and the replacement of pumps which would also have a potential effect upon production and that there was no evidence of what was done on any particular well.

Conclusion in relation to Viability:

Having considered all of this evidence in the round and in the light of the contracts entered into as recently as 2014, I have come to the conclusion that the technology is not fully ready to roll out commercially without more. In this regard I put some considerable weight upon Dr Lake's own concession in cross examination that the technology remains experimental and needs a focused programme of testing in order to assist with commercialization. He also concluded in his report, based on the data available to him that the technology would work only 36% of the time. In my judgment, that evidence has to be balanced against and seen in the context of the reality of the joint venture with the Government of Tatarstan which appears to have commenced in 2014 and a handful of contracts in 2014 which were on a fee basis, loss making and some of which stipulated that fees were payable "if successful".

However, in the light of the contracts, I am unable to accept Mr Rogers' evidence that a commercial organization would be likely to consider the technology mere "snake oil" without some qualification. It seems to me, taking all matters into consideration, including the papers written by the Russian Scientists, which I accept may be overly optimistic, that the technology already has some application, on a semi experimental basis demonstrated for example, by the joint venture in Tatarstan, albeit that it has not been fully tried and tested, but that full and widespread commercialization would require further focused testing. To put the matter another way, I do not consider that the technology can be treated as if it were possible immediately to market it fully throughout the world with certainty as to its efficacy and its likely effects in particular rock formations. This is borne out by the existence of "if successful" contracts and in my judgment is not undermined by the existence of the Tatarstan joint venture.

However, as I have already mentioned, I reject Professor Abramov's evidence given only in cross examination that in 80 to 85% of cases the treatment was used in conjunction with jet pumps. Had that been the case, it seems to me that he would have made it clear in his witness statement. As to other treatments, I am satisfied that their potential effect was taken into account by Dr Lake. In relation to decline curves, I prefer Dr Lake's evidence. Both Dr Lake and Mr Rogers accepted that the gradient of the relevant curves was a matter of judgment. In fact, Mr Rogers was unable to explain how he had averaged the data before determining the gradient of his curves.

(b) Value

Shareholding in Petrosound and interest in international business

Dr Becker and Mr MacGregor produced a total of six valuation reports between them plus two joint statements. Their conclusions differed widely. Dr Becker's total valuation in relation to the interests in Petrosound and OpCo/Petrosound International is in the region of $300m whereas Mr MacGregor concludes that the shareholdings in the Russian business and the interest in the international roll out are of no value.

Dr Becker abandoned his first approach which adopted a "Monte Carlo" model and produced a further report on 20 March 2015 on which GEHC now relies. He says that this was as a result of further data and a realization that Dr Lake's results were not based upon the continuous use of the ultrasound tools. Dr Becker's second approach was to build a discounted cash flow model for each business. The incremental production for the wells in each year of each model was calculated by selecting at random the required number of wells from a bank of 10,000 hypothetical wells based on the test results for the 161 Russian wells. The decline rates calculated by Dr Lake were then applied to each well selected from the well bank. The application of the decline rates to the production figures identified the incremental production for each well which was then reduced by 22.9% to take account of Dr Lake's calculation of the impact of pump optimization. Revenues were then calculated by reference to the relevant oil price against which costs were charged, oil sharing agreements having been assumed. The cash flows were then discounted back to their net present values and where appropriate, a minority discount applied. It was assumed that the Russian business would treat 10 wells in year 1 and increase annually so that 960 wells were treated over 10 years. OpCo/Petrosound International was assumed to treat 48 wells in the first year and 4340 over the ten year period.

Despite having adopted a discounted cash flow model, Dr Becker accepted that there are no existing cash flows in relation to either the Russian or the international business and that they had to be projected. He also relied upon Dr Lake as to the increase in reserves as a result of the use of the technology and accepted inevitably that his model was only as good as the data upon which it was based. On that basis he valued both Mr Gray's 51% in the 15% of the Russian operations of Petrosound registered in the name of Chiloquin and the 15% originally held by Messrs Volchenkov and Ivanov on the basis that Sonoplus was entitled to 25% of incremental production at $743,738. GEHC suggests that this is a reasonable mid-point between $111,768 based upon a 12.5% share of incremental production and $1,978,016 if it were entitled to 50%. It is said that these valuations compare with the $3m paid by VIYM in 2012 for a 25% stake in Sonoplus when VIYM valued the company at $64.9m whereas Dr Becker's maximum valuation for the business is $46,835.338.

In addition, Dr Becker values what is described as an indirect interest in OpCo through Petrosound. GEHC contends that Petrosound is entitled to a 49% interest in OpCo which also gives it an interest in the revenue streams from royalties payable by OpCo for the use of the technology. Once again this indirect interest is valued on the basis of 12.5%, 25% and 50% entitlement to incremental production. GEHC submits that the valuations based upon the 25% share should be accepted. They are $320,533 in respect of the royalty stream and $3,321,904 in respect of 49% of OpCo. The figures for 12.5% and 50% are $27,807 (royalty stream) and $1,172,675 (49% interest) and $898,080 (royalty) and $7,620,178 (49% interest) respectively.

Further, Mr Gray's direct interest in OpCo through the agreement by which RegEnersys was to have 51% of the business outside the former Soviet Union (through Chiloquin and Celloteck) is valued on the three hypotheses of 12.5%, 25% and 50% oil sharing at $19,996,456, $56,645,123 and $129,939,293 respectively. GEHC supports the $56m odd figure. It is also submitted that if the international business is not conducted through an OpCo the value of Sonoplus and therefore, the 15% interest in Petrosound would increase or alternatively, that Petrosound would benefit if the international business were conducted by means of a venture with another entity.

Dr Becker accepted in cross examination that he knew nothing of the financial position of the companies in the Sonoplus group or the nature of any shareholders agreement. He also accepted that he had not considered the financing structure. He said that he had applied a discount for the lack of control of a minority shareholding but had otherwise assumed that the companies would take rational decisions in order to commercialise the technology. He also made clear that he had assumed that all the wells to be treated would have the same character as those upon which the data was based.

He accepted that for the purposes of his model he had treated Dr Lake's estimate of cumulative oil production as if the oil was definitely going to be produced and had based his valuation on oil sharing although the only contracts before the court were on a fixed fee basis which were loss making. However, production sharing was suggested in correspondence with Mr Gray in 2007, and was proposed by UnaOil more recently. In addition, Mr Rogers made mention of one company, Novas, having entered into revenue sharing agreements. In fact, Dr Becker has assumed that 311 contracts would be obtained in Russia in the first 10 years and 1382 would be obtained by OpCo in the rest of the world. He also had assumed that all of the costs of the treatment and treating the extra oil would be borne by the well operator on the basis that there would be no significant increase in incremental costs.

In addition, Dr Becker assumed that a business plan would be imposed by the minority shareholders in Petrosound Limited and that significant further funding would be available. He has also assumed that the Sonoplus group would be able to raise up to $10m to cover working capital costs in the first two years over and above the $4m injection by VIYM and for this purpose the loss making contracts are ignored. In cross examination, Dr Becker accepted that he had not considered the present financial and political situation in Russia and accepted that it would be difficult to attract funding given the Russian context. Mr MacGregor took issue with the way in which costs had been dealt with in Dr Becker's report. However, he accepted in cross examination that such matters were not going to make a huge difference and were fine tuning.

Dr Becker was criticised for including production from each well in his model for the full period when that well was in the model but, based on Dr Lake's decline rate calculations, these wells would produce all their oil within 1 or 2 years. His evidence was, however, that the decline rate applied to the post-treatment figures was so great – an annual rate of 43.2% - that the wells made their principal contributions to the revenue in the model in their first and second years of production and therefore, the continued inclusion of the wells in the model was of little effect.

Further, Dr Becker accepted in cross examination that he had based his valuation upon Dr Lake's evidence as to viability and had assumed that the technology was already "a car running down the road" rather than one which one needed to "coax" to start. Mr de Mestre on behalf of GEHC submits that to expect more is tantamount to requiring proof of how the technology works which is going too far. He reminded me that after 33 wells had been tested, Rossneft recommended that tests be carried out in a further 40 and that there is evidence that the Russians had told TNK-BP and PetroSaudi that the technology works. The Russian Scientists and a Professor Mason had also reported in 2013 in "Ultransonics Sonochemistry" that "experiments [which] show conclusively that the use of ultrasonic downhole stimulation of oil wells is a viable process."

Mr Cavender's criticism of Dr Becker based upon Mr MacGregor's approach is that Dr Becker has merely produced a statistical model which produces a different result each time it is run. Mr Cavender says the approach might be used as a cross check but is no valuation at all and at best, it is merely a tool upon which a valuation might have been based. Mr MacGregor stated that he had run the model 50 times and obtained a different valuation each time which for the Russian business ranged from $500,000 to $2.8m. Furthermore, Mr Cavender points out that the model is based upon what he describes as troubled data of wells which it is accepted were not representative upon which the cumulative decline curve was based.

Mr Cavender also says that the discounted cash flow approach is inappropriate in a situation in which there are no existing cash flows. Mr MacGregor explained that it should only be used where the cash flow is ongoing, reliable and can be predicted with a reasonable degree of certainty. He also points out that the discount rate of 38.42% is very high but still does not reflect the risk inherent in the fact that the technology is unproven, has doubtful commercial viability and no current market share.

In the light of all this, Mr Cavender urged me to apply the reality principle. He referred me to Chilukuri & Anr v RP Explorer Master Fund [2013] EWCA Civ 1307. It was an appeal in relation to the quantum of damages awarded for breach of contract. For the most part, the dispute concerned the valuation of a 51% interest in a company registered in the Democratic Republic of Congo (the "DRC") which was reputed to hold valuable rights to mine bitumen in the DRC under a joint venture agreement. On appeal the interest in question was held to have no more than a nominal value. It was made clear that the asset to be valued was a minority shareholding in an overseas company, the principal asset of which was a bare majority stake in another overseas company which owned an unexploited mining concession in the DRC.

The main bone of contention was whether the discounted cash flow valuation of the company's rights under the JVA was appropriate. Briggs LJ made clear at paragraph [52] of the report that the valuer must "take the relevant aspects of the world as he finds them" and "after looking at each element of the process stand back and ask himself whether his provisional valuation makes commercial or business sense, viewed in the round." He also described the Discounted Cash Flow valuation in more detail at paragraphs [10] and [11] of the report in the following way:

"10. As its name implies, a DCF valuation seeks to attribute a present value to an assumed future cash flow arising from a business asset. To the arithmetical aggregate of the annual cashflows, there are applied discounts reflecting both the time value of money and certain types of risk which the valuer considers may impact upon the realisation of that cashflow. . . . . .the DCF of a business which has yet to commence has to be based upon a number of assumptions, one of which is that there are no impediments to the commencement and conduct of the business such as, for example, some defect in title to the relevant rights, or inability to comply with any contractual conditions upon which the exploitation of those rights is dependent. Mr. Haberman accepted, and the judge noted, that risks of defects or impediments of that kind could not generally be provided for as part of a DCF discount rate, unless they were of such little substance as to fall within a commonly used residual risk contingency discount of up to 5%.

11. Mr. Haberman also acknowledged in his oral evidence that if the aggregate discount (for time value of money and risk) which was required to be factored into a DCF valuation exceeded 40%, then this undermined the validity of a DCF valuation in relation to the business in question, so that some other type of valuation would then be required."

Mr Cavender asked me to take particular note of the fact that in that case the company could not have commenced the bitumen mining project without considerable investment and that the valuation had assumed that it would be available, albeit spread over three years and to the fact that the minority holding conferred no right to take over the management of the company still less to influence the management of the mining project. Mr Cavender says that there are direct parallels here. First, he says that Dr Becker had no knowledge of the Russian business or the international operation at all, he had valued the technology rather than a minority interest in a foreign company, (the error pointed out by Lewison LJ in his judgment in the Chilukuri case at [58]), the governance of which was questionable and the prospect of investment in which was as yet small. He says that the valuation has been prepared on the basis that Petrosound owns the technology which it does not. Mr Cavender also criticizes the use of the DCF model which he says was inappropriate in the circumstances and just as in the Chilukuri case required such a high discount rate that it brought the entire valuation into question.

Mr de Mestre on behalf of GEHC submitted that the circumstances of this case are very different from those in Chilukuru which he emphasized was concerned with damages and not an enquiry. He submitted that in this case the minority shareholding was in Mr Gray's hands, the investment required was much greater and in this case, monies have been raised in the past. Further, the risks in the DRC were much more extreme and the company in question had been subject to a winding up petition. In this case, a joint venture is being undertaken in Tatarstan and the documentary evidence reflects a viable future unlike the circumstances in the Chilukuru case.

Conclusion in relation to valuation of shareholding in Petrosound and "Opco":

Although the difference in the burden of proof must not be forgotten, it seems to me that the approach in the Chilukuru case is instructive when determining the value to be placed upon the assets and opportunities which accrued to Mr Gray as a result of his breaches of fiduciary duty. It is important to keep a proper grip on reality. I fully accept that the circumstances of this case are not as extreme as those pertaining to the shareholding in the Chilukuru case. Nevertheless, it is important to bear in mind that Dr Lake accepted that the technology remains experimental and that a detailed testing programme would assist with commercialization. As I have already mentioned, I weigh against that the fact that the reports of testing available to the court are for the most part positive, that a joint venture is underway in Tatarstan in which oil sharing appears to be operative and that there was nothing to suggest that the treatments carried out in 2014 were not effective.

It is also important not to lose sight of the asset which is to be valued, namely first, the minority interest in Petrosound which does not itself own the technology and which is dependant upon the Russian Scientists and economic and political environment in Russia. Dr Becker accepted that he had not factored in these realities and had assumed that funding would be readily available.

Next, it is important to bear in mind that Dr Becker has based his report as he put it, upon a car ready to run down the road. However, it seems to me that Dr Lake's evidence in cross examination made clear that although the car may not still be a prototype, it is not a fully finished tried and tested product ready to start, run and market in the real world without some amount of further input. Another important feature of his evidence was that further testing would assist in both commercialisation and fund raising. I have described the present state of the technology on the basis of the expert viability evidence and the contracts of which the court is aware, inexpertly as "semi-experimental". In such circumstances, it seems to me that Dr Becker's conclusions are based upon a false premise both as to the present status of the technology and the realities in which it has to operate.

I am also concerned about the reliance upon a valuation based upon 25% share of incremental production when the only real evidence of oil sharing is in relation to the joint venture in Tatarstan. It seems to me that there is insufficient basis to assume that all contracts would be on such a basis or that 25% would be the level agreed. Dr Becker does not appear to have taken into consideration that there may be a more variable approach.

Lastly, I also have considerable reservations about the adoption of a dcf model based upon a random choice of hypothetical wells which is itself based upon the data from 33 of 161 wells which Dr Lake accepted were representative of nothing but themselves. I agree with Mr Cavender and Mr MacGregor that such a model is an insufficiently sound basis for a valuation in the circumstances of this case where, as far as the evidence before the court goes, there are no positive cash flows at present, the discount rate is already very high without taking into account realities in Russia, the technology is not fully ready for commercialisation without more, there is a need to raise funding and the model produces a relatively wide range of results which are different each time it is run.

Having said this, I am also not satisfied that Mr MacGregor is correct that despite all the uncertainties and the present state of the testing of the technology, that it has no value at all. He seems also to have failed to take into account the realities of the situation which include the recent contracts and the joint venture and the technical papers which have been published. It seems to me therefore, that both experts have proceeded on a false premise.

The same points apply in relation to the potential interest in an Opco. I do not consider that Mr Knight's evidence that he had closed down Petrosound International recently is relevant in this regard. It is not like the winding up petition in the Chilukuru case which was a real and serious impediment to the operations of the joint venture which would create value in the shareholding in question. In this case, the international roll out of the technology has not begun and Petrosound International was no more than a corporate shell intended for the purpose. Another can just as easily be formed.

Given my findings in relation to viability and the form of and premise upon which the large quantity of expert valuation evidence is based, I am unable to arrive at a reliable valuation for the shareholdings on the basis of the materials which have been produced. In the circumstances, despite the considerable cost which must already have been expended on experts, in my judgment it is necessary that further expert evidence be filed based upon my findings of fact and as to viability and that further submissions are made in this regard. Once counsel have had an opportunity to make submissions, I shall make appropriate directions.

Management and Consultancy Fees and Stratum Energy and Buried Hill shareholding

I have already dealt with not only the causal link in relation to the management and consultancy fees but the way in which in my judgment, that part which is attributable to the breaches of fiduciary duty should be determined. I have also concluded that in the circumstances, it is premature to decide whether and to what extent it is possible to trace such parts of the fees into Mr Gray's shareholdings in Stratum Energy and Buried Hill and whether GEHC is entitled to the value of the shares on a particular date.

In any event, I should set out the experts' opinions and the essential facts in relation to the value of those shares. Their conclusions differ. It is not in dispute that Mr Gray paid $3m for 2,081,081 shares in Stratum Energy and $2m for the shares in Buried Hill using money from the $10m fee. Stratum Energy is a privately owned oil and gas company operating in Romania. It has drilled an exploration well which has resulted in gas discovery. As at 31 December 2012, Mr Gray held 5.38% or 3,081,081 of the shares in Stratum Energy. The Annual report at that stage refers to the most recent fund raise of 2012 at $1.85 per share. The Competent Persons Report also dated 31 December 2012. Dr Becker has applied an adjusted book value to the company and values Mr Gray's shareholding at $4m. Mr MacGregor has not relied upon the Competent Persons Report dated 31 December 2012 which itself states that it is "not representative of a "fair market value" for the licence or prospects in question." As a result Mr MacGregor bases his valuation on the value of $1.85 per share and arrives at a total of £2,560,000 in respect of Mr Gray's 2,081,081 shares.

Mr Gray's Buried Hill holding was purchased in May 2011. The unaudited interim financial statements of Buried Hill Energy (Cyprus) Public Company Limited, for the six months ended 30 June 2014, state that 168,195,368 ordinary shares were in issue. On that basis, Mr Gray holds or held 0.4756% of the ordinary shares. The financial statement suggests that the company is loss making and has net assets valued at $102m. On the basis of recent trading, Mr MacGregor values the holding at £530,000 whereas Dr Becker values the shareholding as at 30 June 2014 at $486,548 on a book value.

For the sake of completeness I should state that with regard to the Stratum Energy shares, I prefer the evidence of Mr MacGregor who bases his valuation on the most recent transactions. It seems to me that this is preferable to any reliance upon the Competent Persons Report which expressly makes clear its limited application. Accordingly, in my judgment the Stratum Energy shares are to be valued at a total of £3.8m. I also prefer Mr MacGregor's valuation of the Buried Hill shares at £530,000 which is based upon the company's most recent financial statements.

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/2232.html

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Global Energy Horizons Corporation v Gray [2015] EWHC 2232 (Ch) (28 July 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/2232.html Cite as: [2015] EWHC 2232 (Ch)

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		28/07/2015